Monday, October 25, 2021

Kazakhstan raises rate 3rd time to curb inflation

      Kazakhstan's central bank raised its benchmark interest rate for the third time and said it would continue to normalize is monetary policy stance and pursue a disinflationary policy to ensure inflation returns to its target range in 2022 amidst higher domestic and external inflationary pressures.
     The National Bank of the Republic of Kazakhstan (NBK) raised its base rate by another 25 basis points to 9.75 percent and has now raised it 75 points following earlier hikes in July and September.
      With the interest rate corridor of plus/minus 1 percentage point, NBK's interest rate on providing liquidity will now be 10.75 percent and the rate on withdrawing liquidity 8.75 percent, the bank said.
      NBK was among a few central banks that raised rates in early 2020 - in March - to curb inflation but then had to change course sharply and ease policy the following month as the COVID-19 pandemic practically shut down the global economy.
      NBK cut its rate twice and by a total of 3 percentage points in April and July 2020 and maintained the rate until July this year when inflation began to accelerate.
     Kazakhstan's inflation rates rose to 8.9 percent in September from 8.7 percent in August, above the central bank's target corridor of 4.0 to 6.0 percent and above the bank's forecast for this year of inflation of 7.5 to 8.5 percent 
     "The external inflationary background remains unfavorable," the central bank said, adding inflation in its trading partners remains elevated due to high food prices, supply chain disruptions, rising transportation costs, raw materials and energy costs along with a rebound in domestic demand.
      The recovery of the country's economy is in line with NBK's expectations, with growth at the end of 9 months of 3.4 percent as the transportation sector for the first time since March last year showing positive growth rates.
      "According to the optimistic scenario, economic growth this year will amount to 3.7-4.0 percent," NBK said.
      Consumer activity is recovering while the pandemic situation is. improving and after a slight slowdown in July and August, retail sales grew 5.6 percent year-on-year in September.
       For the first 8 months of the year, nominal income grew a real 4.9 percent, helping push up consumer imports in the same period by 23.9 percent, the bank said.

Sunday, October 24, 2021

This week in monetary policy: Kazakhstan, Kyrgyzstan, Costa Rica, Georgia, Canada, Brazil, Japan, ECB, Egypt, Azerbaijan, Moldova, Bulgaria, Malawi & Colombia

      This week - October 25 through October 30 - central banks from 14 countries or jurisdictions are scheduled to decide on monetary policy: Kazakhstan, Kyrgyzstan, Costa Rica, Georgia, Canada, Brazil, Japan, euro area (European Central Bank), Egypt, Azerbaijan, Moldova, Bulgaria, Malawi and Colombia.
     Following table includes the name of the country, the date of the next policy decision, the current policy rate, the local time a policy decision is announced, the result of the last policy decision, the change in the policy rate year to date, and the rate one year ago.
    The table is updated when the latest decisions are announced and can always be accessed by clicking on This Week.

OCT 25 - OCT 30, 2021
KAZAKHSTAN25-Oct9.50%15:0025509.00%         FM
COSTA RICA25-Oct0.75%000.75%
CANADA27-Oct0.25%10:00000.25%         DM
BRAZIL27-Oct6.25%18:301004252.00%         EM
JAPAN28-Oct-0.10%00-0.10%         DM
EURO AREA28-Oct0.00%13:45000.00%         DM
EGYPT28-Oct8.25%008.75%         EM
BULGARIA29-Oct0.00%000.00%         FM
COLOMBIA29-Oct2.00%25251.75%         EM

Saturday, October 23, 2021

Tajikistan raises rate 4th time as inflation still rising

     Tajikistan's central bank raised its benchmark interest rate for the fourth time this year, saying this is in response to the potential risks to the economy from inflationary pressures and inflation expectations, with the purpose of the hike to ensure inflation returns to the bank's target.
     The National Bank of Tajikistan (NBT) raised its refinancing rate by another 25 basis points to 13.25 percent and has now raised it 2.50 percentage points following rate increases in February, April and July.
     Inflation in Tajikistan rose for the fourth consecutive month to 9.4 percent in August from 9.1 percent in July and the central bank said inflation this year is expected to be in the upper limit of its target range of 5.0 to 9.0 percent around a 7.0 percent midpoint.
     For the first 9 months of the year, NBT said inflation was 5.3 percent, with food prices up 3.8 percent, non-food prices 5.8 percent.
     Tajikistan, a former Soviet Union republic, is at the crossroads of Central Asia, bordering China to the east, Kyrgyzstan to the north, Uzbekistan to the west, and Afghanistan to the south.
     The economy relies heavily on remittances and tourism, with about one-third of its gross domestic product coming from money sent back from Tajiks working abroad, mainly in Russia.
     NBT said it was noteworthy that the outbreak of the COVID-19 pandemic last year, which led to a drop in tourism, services  and transport had "radically changed the structure of the world economy," along with the balance of supply and demand.


Friday, October 22, 2021

Russia raises rate 6th time and still sees further hikes

     Russia's central bank raised its main interest rate for the 6th time in response to curb rising inflation and inflation expectations and reiterated that it "holds open the prospect of further key rate rises at its upcoming meetings" if the economy develops according to its expectation.
     The Bank of Russia raised its key rate by a further 75 basis points to 7.50 percent and has now raised it 3.25 percentage points following hikes in March, April, June, July and September.
     The rate is now back to a level last seen in June 2019 before the bank embarked on a monetary easing cycle that culminated with last year's four rate cuts in response to the COVID-19 pandemic.
     "Inflation is developing substantially above the Bank of Russia's July forecast," the bank said, adding inflation expectations are up again and the balance of risks of inflation are tilted to the upside, which may lead to a more sustained deviation of inflation from the bank's 4.0 percent target.
     Russia's inflation rate jumped to 7.4 percent in September from 6.7 percent for the highest rate since June 2016, pushed up by higher prices for food and other products.
     Inflation is estimated to have risen further to 7.8 percent as of Oct. 18 and inflation expectations among households is at new 5-year highs, the bank said.
     The bank raised its forecast for inflation sharply and now expects inflation by the end of this year of 7.4-7.9 percent compared with July's forecast of 5.7-6.2. 
     For 2021 inflation is seen averaging 6.5-6.6 percent, up from 6.0-6.2 percent and 2020's 3.4 percent.
     Inflation next year is expected to decelerate but still remain higher than previously expected. The bank forecast 2022 inflation to average of 5.2-6.0 percent, up from July's forecast of 4.1-4.9.
     By 2023 it expects inflation to return to its 4.0 percent target.
     The bank also raised its forecast for the key interest rate to average 5.7-5.8 percent this year, up from 5.5-5.8 percent, and to rise even further next year to 7.3-8.3 percent from July's forecast of 6.0-7.0 percent.
     Russia's economy recovered sharply in the second quarter, growing 10.5 percent year-on-year, and the bank said it continued to expand in the third quarter, albeit at a slower pace due to supply-side constraints and tightened anti-pandemic measures.
     The bank maintained its forecast for gross domestic product growth to average 4.0-4.5 percent this year, up from last year's 3.0 percent contraction, and growth of 2.0-3.0 percent in 2022.

Thursday, October 21, 2021

Paraguay raises rate 3rd time, sees same hike in Nov.

     Paraguay's central bank raised its benchmark interest rate for the third month in a row as it continues to normalize its monetary policy stance and said it plans to continue the current cycle of adjustments and increase the rate by the same amount at next month's meeting by the monetary policy committee.
     The Central Bank of Paraguay (BCP) accelerated the pace of its monetary tightening by raising the policy rate by 1.25 percentage points to 2.75 percent compared with hikes of 25 points in August and 50 points in September.
     BCP has now raised its key rate 2.00 percentage points so far this year but still has a way to go to unwind all last year's 5 rate cuts, which totaled 3.25 percentage points.
     The next meeting about monetary policy is scheduled for Nov. 22.
     Explaining its decision, the bank's monetary policy committee said domestic economic activity continued to show good dynamism, with data for the second quarter showing an overall recovery apart from electricity generation and agriculture.
     Paraguay's gross domestic product grew an annual 6.9 percent in the second quarter, up from 0.5 percent in the first quarter.
     Inflation continued its steady acceleration since May, rising to 6.4 percent in September from 5.6 percent in August and BCP said in an environment of lower slack in the economy and a higher accommodative monetary policy, external shocks were widening. 


Turkey cuts rate 2nd time, limited room for more cuts

      Turkey's central bank cut its key interest rate for the second month in a row by much more than expected, dealing another body blow to the lira's exchange rate, and said there was "limited room" for further rate cuts during the remainder of this year.
     The Central Bank of the Republic of Turkey (CBRT) cut its policy rate, the one-week repo auction rate, by another 200 basis points to 16.0 percent following a 100-point cut in September, when the rate was cut for the first time in two years.
     The rate has now been cut by 300 points since the current central bank governor, Sahap Kavcioglu, was installed by Turkey's strong-willed president, Tayyip Erdogan, in March after his predecessor Naci Agbal became the third governor to be fired in less than two years.
      The rate cut was twice the amount expected by analysts and comes only a few days after the Turkish Industry and Business Association in a report called for a fundamental reform of economic policy making, - a diplomatic but still a clear critique of Erdogan - and underlined the importance of an independent central bank for the country's long-term economic growth and development.
      The Turkish lira continued to plummet to new record lows, falling another 1.6 percent in the aftermath of the rate cut to 9.43 to the U.S. dollar.
      Since March 20, when Kavcioglu took over the central bank, the lira has lost 22 percent of its value against the dollar to be down 22 percent this year and down 37 percent since the start of 2020.
      The fall in the lira illustrates how foreign investors are turning their backs on Turkey, with data from the Institute of International Finance (IIF) earlier today showing capital flows into Turkish bonds and stocks falling since the September rate cut.
      The rate cut comes despite the steady rise in Turkey's inflation rate, which is now almost four times the bank's medium-term target of 5.0 percent.
      Headline inflation rose to 19.6 percent in September, the highest rate since March 2019, from 19.25 percent in August while core inflation - which Kavcioglu recently has emphasized - rose to 16.98 percent from 16.76 percent.
      CBRT said the recent rise in inflation was driven by higher food and import prices, especially energy, along with supply-side constraints, higher administered prices and stronger demand.
     "It is assessed that these effects are due to transitory factors," the bank said, adding the impact of past monetary tightening was having a dampening impact on credit and domestic demand along with commercial loans and personal loan growth.
      As in September, the central bank said it would "continue to use decisively all available instruments" until there is a permanent fall in inflation and the medium-term inflation target is achieved.
     "Nevertheless, the Committee assessed that, till the end of the year, supply-side transitory factors leave limited room for the downward adjustment to the policy rate," CBRT said.
     Turkey's economy has continued to grow since the second quarter of last year, with its gross domestic product up 21.7 percent year-on-year in the second quarter of this year from 7.2 percent in the first quarter.
     "Leading indictors show that domestic economic activity remains strong, with the help of robust external demand," CBRT said, adding domestic vaccinations have helped a recovery of services, tourism and related sectors.

Wednesday, October 20, 2021

Namibia leaves rate steady, cuts 2021 inflation forecast

     Namibia's central bank left its benchmark interest steady and while it lowered its forecast for inflation this year, it also "noted the increasing trend in inflation globally and recognized its potential impact on monetary policy going forward."
     The Bank of Namibia's (BoN) monetary policy committee (MPC) kept its repo rate at 3.75 percent, unchanged since August 2020 when it was cut for the fifth time last year to support the economy from the negative impact on activity during the COVID-19 pandemic.
     "The MPC is of the view that at 3.75 percent, the Repo rate remains appropriate to continue supporting the weak domestic economy that is still being weighed down by the COVID-19 pandemic," the bank said, adding the current level of the repo rate also safeguards the one-to-one link between the Namibian dollar and the South African Rand.
     Namibia's inflation rate averaged 3.5 percent in the first 9 months of the year, up from 2.2 percent in the same 2020 period, mainly due to base effects, food and transport prices.
     But after rising in the first half of the year, inflation has eased since July, falling to 3.5 percent in September from June's 4.1 percent. Inflation was 3.4 percent in August.
       The central bank lowered its forecast for inflation to average 3.7 percent in 2021 from a previous forecast of 3.9 percent, and omitted a reference in its August policy statement to the risk to the sustainability of the current repo rate from higher inflation. 
     Last year BoN cut its repo rate 5 times and by a total of 2.75 percentage points, slightly less than South Africa's 3.0 percentage point reduction.
     Namibia's current easing cycle began in August 2017 and since then BoN has lowered the rate 3.25 percentage points, also slightly less than the South African Reserve Bank (SARB), which has lowered its rate 3.50 percentage points since July 2017.
     "Namibia's real GDP improved in the second quarter of 2021, while economic activity remained subdued year-to-date," the bank said, adding inflation has continued to rise while growth in private sector credit expansion (PSCE) has declined.
     Namibia's gross domestic product grew 1.6 percent year-on-year in the second quarter, the first positive result after 5 consecutive quarters of contraction.
      BoN forecast growth this year of 1.4 percent and 3.4 percent in 2022,  with risks to the outlook from sudden surges in the pandemic and disruptions to economic activity from restrictions.
      Namibia's inflation rate averaged 3.5 percent in the first 9 months of the year, up from 2.2 percent in the same 2020 period, mainly due to base effects, food and transport prices.
      The central bank forecast average inflation of 3.7 percent in 2021, slightly lower than the previous forecast of 3.9 percent. 
     Growth in PSCE eased to an average of 2.5 percent in the first 8 months of this year, down from 4.1 percent in the same period last year, due to lower demand for credit by both businesses and households.


Mauritius maintains rate as economy seen growing

    The central bank of Mauritius maintained its key interest rate and while it confirmed its forecast for the tourism-dependent economy to continue to recover from last year, it raised its forecast for inflation.
     The Bank of Mauritius (BoM) left its key repo rate at 1.85 percent, unchanged since April last year when it was cut for the second month in a row in response to the hit to economic activity from the collapse in global tourism following the outbreak of the COVID-19 pandemic.
     The two rate cuts last year, which totaled 175 basis points, continued the decade-long trend toward declining interest rates. 
     Since December 2011 BoM has lowered its rates 9 times and by a total of 3.65 percentage points, with the central bank last raising its rate in June 2011.
     The economy of Mauritius was hit hard last year and contracted 14.9 percent.
     But with international borders slowly reopening, the economy has begun to bounce back.
     BoM said the economy grew an annual 19.3 percent in the second quarter of this year - the first expansion after 5 quarters of shrinkage - and confirmed its forecast from August of gross domestic product growth this year of about 5.5 percent.
     "Going forward, the economy is most likely to see positive growth as sentiment gradually improves with the ongoing vaccination campaign and the full reopening of borders," the bank said.
     The local stock market is also optimistic about the recovery, with the SEMDEX index up 26.81 percent since the start of this year.
     After rising from May through July, inflation in Mauritius decelerated in August and September when it eased to 5.4 percent from 6.0 percent and 6.5 percent in July.
     BoM said domestic inflation was contained despite recent rise in prices, which was mostly due to transitory supply shocks, especially freight and commodities.
     "While there is still uncertainty on price dynamics worldwide, these supply-side influences are expected to fade away in 2022," BoM said.
     BoM raised its forecast for inflation to average around 3.8 percent this year, up from the August forecast of about 3.5 percent.

Tuesday, October 19, 2021

Hungary raises rate 5th time on upside risks to inflation

      Hungary's central bank raised its key interest rate for the fifth consecutive month and reiterated that it "will continue the cycle of interest rate hikes until the outlook for inflation stabilizes around the central bank target in a sustainable manner and inflation risks become evenly balanced on the horizon of monetary policy."
     The National Bank of Hungary, or Magyar Nemzeti Bank (MNB) in Hungarian, raised its base rate by another 15 basis points to 1.80 percent and has now raised it 1.20 percentage points following rate hikes in June, July, August and September. 
    "In the decision-makers' assessment, the inflation outlook continues to be surrounded by upside risks which might prove to be more persistent than earlier expected," the bank said.
     The rate hike was signaled by the bank with its deputy governor, Barnabas Virag, on Oct. 1 saying the bank would raise rates in 15-basis-point steps in coming months as inflationary pressures were growing.
     Against the backdrop of a global economic recovery and rising commodity prices, that are now spilling over to a wide range of consumer prices, the central bank expects inflation to rise faster in coming months that it forecast in September, with core inflation of around 4 percent for the remainder of this year.
     In September Hungary's headline inflation rate rose to 5.5 percent, the highest since October 2012, and core inflation rose to 4.0 percent from 3.6 percent in August.
     "Rises in commodity prices and energy prices as well as international freight costs continue to point to a higher external inflationary environment which is more persistent than previously expected," MNB said, adding dynamic growth in wages also carries upside risks to inflation.
     However, the bank reiterated its view from the September outlook that its monetary tightening cycle will be felt early next year and inflation will start to ease. By the second quarter, inflation will return to its tolerance range of 2.0 to 4.0 percent before stabilizing around the 3.0 percent target in the second half.
     In addition to its base rate, MNB also raised its other main interest rates by 15 basis points, putting the overnight deposit rate at 0.85 percent, the overnight collateralized lending rate at 2.75 percent and the one-week lending rate at 2.75 percent.
     Prior to the outbreak of the COVID-19 pandemic, the central bank had kept its main rate steady at 0.90 percent from May 2016 but in March last year MNB began easing its policy stance by releasing banks from reserve requirements and then embarked on quantitative easing by purchasing government securities and mortgage bonds.
     In June and July the central bank then cut its rate twice in quick succession by a total of 30 basis points.
     Hungary has bounced back fast from the pandemic and the central bank said the recovery continued in the third quarter, reiterating its forecast for growth this year of 6.5 to 7.0 percent and between 5 and 6 percent in 2022.

Sunday, October 17, 2021

This week in monetary policy: Indonesia, Hungary, Namibia, China, Mauritius, Uzbekistan, Ukraine, Turkey, Botswana, Paraguay, Tajikistan & Russia

     This week - October 18 through October 23 - central banks from 12 countries or jurisdictions are scheduled to decide on monetary policy: Indonesia, Hungary, Namibia, China, Mauritius, Uzbekistan, Ukraine, Turkey, Botswana, Paraguay, Tajikistan and Russia.
     Following table includes the name of the country, the date of the next policy decision, the current policy rate, the local time a policy decision is announced, the result of the last policy decision, the change in the policy rate year to date, and the rate one year ago.
    The table is updated when the latest decisions are announced and can always be accessed by clicking on This Week.

OCT 18 - OCT 23, 2021
INDONESIA19-Oct3.50%0-254.00%         EM
HUNGARY 19-Oct1.65%151050.60%         EM
CHINA20-Oct3.85%9:30003.85%         EM
MAURITIUS 20-Oct1.85%001.85%         FM
UKRAINE21-Oct8.50%14:00502506.00%         FM
TURKEY21-Oct18.00%14:00-10010010.25%         EM
RUSSIA22-Oct6.75%13:30252504.25%         EM

Thursday, October 14, 2021

Singapore tightens policy slightly, core inflation rising

     Singapore's central bank tightened its monetary policy stance slightly by allowing the Singapore dollar to rise, saying this "will ensure price stability over the medium term while recognizing the risks to the economic recovery."
     The Monetary Authority of Singapore (MAS), which targets the value of the Singapore dollar against a basket of currencies to control inflation, said it would "raise slightly the slope of the S$NEER policy band, from zero percent previously," while the width of the band and the level at which it is centered will be unchanged.
     "Growth in the Singapore economy is likely to remain above trend in the quarters ahead," MAS said, adding output should return to around its potential in 2022 barring a resurgence of the COVID-19 virus.
     Earlier today data showed Singapore's economy grew 0.8 percent in the third quarter from the second quarter, when output contracted, for annual growth of 6.5 percent, down from 15.2 percent in the first quarter.
      "With the turnaround, aggregate output returned to its pre-pandemic level after its setback in Q2," MAS said, adding the domestic-oriented sectors remained weak in response to measures to control the pandemic measures while information and communications services grew.
      Underpinned by above-trend global growth in the quarters ahead, MAS expects growth this year of between 6.0 and 7.0 percent compared with its forecast in April, which it confirmed in June, when it expected growth to exceed the upper end of the official 4-6 percent forecast.
      In 2022 MAS expects growth to ease from this year's pace but still remain above trend.
      Today's monetary tightening was not expected by most economists, who thought MAS would maintain  the accommodative policy stance it adopted in March 2020 when it applied a zero percent appreciation path of the exchange rate, the bank's biggest easing move since the 2009 financial crises.
      In April MAS, which decides monetary policy twice a year,  maintained that zero percent appreciation path and forecast core inflation would to average zero to 1 percent in 20201 and rise only gradually to remain below its historical average.
      But with the slack in labour markets gradually absorbed and imported inflation forecast to remain firm, MAS now expects core inflation - its favored gauge of inflation - to rise steadily to 1-2 percent in 2022 and then remain close to 2 percent in the medium term.
     "The slack in the labour market should continue to be absorbed and the negative output gap close in 2022," MAS said.
     In August headline inflation in Singapore eased to 2.4 percent from 2.5 percent while core inflation continued its steady climb to 1.1 percent from a negative 0.2 percent in January.