Wednesday, July 1, 2020

Sweden maintains rate but boosts asset purchases

     Sweden's central bank left its policy rate steady but pushed down the pedal on its asset purchases, as other central banks with rates at the lower bound, by boosting asset purchases and adding corporate bonds to its shopping list to "avoid an unnecessarily prolonged and deep decline in the economy and inflation."
     Sveriges Riksbank, which just escaped almost five years of negative interest rates in December 2019, left its repo rate steady at 0.0 percent and extended the forecast for the rate to remain at this level for another 12 months to the third quarter of 2023.
     However, it also said "the repo rate can be cut, if this is assessed to be an effective measure" as it is prepared to use the tools at its disposal to support the economy and inflation.
     The Riksbank, which has been engaged in quantitative easing since February 2015 when it began buying government bonds and adopted negative rates, raised its purchases by 200 billion Swedish krona to 500 billion and extended the purchasing period to June 2021 from September 2020.
      From October 1 to December 31 this year, the Riksbank said it would be buying government bonds, mortgage bonds and municipal bonds for 100 billion krona and offer weekly purchases of commercial paper of up to a maximum 32 billion.
      The purchase of corporate bonds will begin in September, with the amount set at 10 billion krona and run to June 30, 2021. The Riksbank will limit its purchases to less than 70 percent of an individual issuer's total outstanding volume of commercial paper.
      In addition boosting asset purchases, the Riksbank will lower the interest rate on its standing loan facility to 10 basis points over the repo rate from 20 points, cut the rate on weekly extraordinary loans to banks to 0.0 percent from 20 points and offer longer maturities, and extend the maturity on loans to banks for onward lending to companies to 4 years from 2 years, and lower the interest rate supplement if the requirement for onward lending is not met to 10 basis points from 20 points.
      "The measures are helping to keep down general interest rates in the economy and to maintain access to low-cost funding" and thus support the economic recovery, the Riksbank said.
     Despite robust economic stimulus worldwide in the wake of the Covid-19 pandemic, the Riksbank said developments remain very uncertain and it will take time before the global economy returns to pre-crises activity levels.
     Unemployment is expected to continue to rise in Sweden and inflation has fallen and is forecast to remain lower than previously expected.
     In an update to its forecasts, the Riksbank cut its forecast for consumer price inflation this year to average 0.4 percent from 1.4 percent seen in February. Due to the uncertainty of the impact of the measures to contain the virus, the Riksbank didn't publish forecasts in April, as it usually does.
     In both 2021 and 2022 inflation is seen averaging 1.4 percent before rising to 1.9 percent by the third quarter of 2023.
     Sweden's economy is forecast to contract by 4.5 percent this year, down from growth of 1.2 percent in 2019, then expand 3.6 percent next year and 4.1 percent in 2022 while unemployment is seen averaging 8.7 percent this year and rise to 9.2 percent in 2021 before easing to 8.3 percent in 2022.
     Sweden's krona, which has risen since mid-March, rose further in response to the continued policy easing to trade around 9.30 to the U.S. dollar, up 0.5 percent this year.

Tuesday, June 30, 2020

Colombia cuts rate 4th time in 2020 to boost economy

     Colombia's central bank lowered its policy interest rate for the fourth time this year, as expected, as it continues the countercyclical momentum of monetary policy to boost the economy amid what it said was a persistent uncertainty about the outlook for the global economy.
     The Central Bank of Colombia cut its main interest rate by another 25 basis points to 2.50 percent and has now cut it by 175 points this year following earlier cuts in March, April and May.
     A majority of five of the bank's seven-member board voted for the rate cut, the bank said.
     Today's 25-basis-point cut is smaller than the previous cuts this year that were all 50 points.
     Colombia's inflation rate fell to 2.85 percent in May from 3.86 percent in April, and inflation expectations continued to decline to below 3.0 percent, reflecting weak demand, a deterioration of employment and excess productive capacity, the bank said.
     Downward revisions to local and global growth suggest this excess productive capacity will expand and labour markets will deteriorate further, the bank said, adding its main trading partners will only expand slowly during the rest of the year.
     Although conditions in financial markets have improved from the start of the Covid-19 pandemic, there is still great uncertainty about the global economy, the central bank said.
     Colombia's gross domestic product slumped to annual growth of 1.1 percent in the first quarter of this year from 3.5 percent in the previous quarter and on a quarterly basis GDP contracted by 2.4 percent in the first quarter from the fourth quarter of last year.
     Colombia's finance ministry expects the country's economy to contract 5.5 percent this year while the central bank in May forecast a contraction of between 2.0 and 7.0 percent this year, including a 10-15 percent annual contraction in the second quarter.

Jamaica holds rate steady to keep inflation on target

    Jamaica's central bank kept its key interest steady, saying this is based on its continued view this rate is generally appropriate to support inflation remaining within its target of 4.0 to 6.0 percent over the next two years.
    The Bank of Jamaica (BOJ) left its rate on overnight deposits at 0.50 percent, unchanged and at a historic low since August 2019, but added the outlook remains "highly uncertain" in the context of the ongoing Covid-19 pandemic and it "stands ready to implement other policy measures, if the need arises."
     In a statement from June 29, BOJ said the risks to its forecast for gross domestic product were slightly skewed to the upside as the government's decision to re-open the country's ports to incoming passengers in June could improve growth prospects, along with the prospects of stronger economic activity in the United States.
     However, material risks to the downside remain, BOJ added.
     In its May outlook, BOJ forecast GDP would contract an average 5.1 percent in the current fiscal year, which began April 1, and then partially recover in fiscal 2021/22 with growth ranging from 2.5 to 5.5 percent.
     Jamaica's economy stagnated in the fourth quarter of  2019, with GDP at zero percent growth year-on-year, down from growth of 0.6 percent in the third quarter, with output hit by measures to contain the pandemic.
      On a quarterly basis,  GDP shrank 0.5 percent from the third quarter following a quarterly contraction of 0.2 percent in the third quarter, with the decline mainly seen in hotels and restaurants, mining, wholesale and retail, transport, storage and communications, and other services.
      Inflation declined to 4.8 percent in March from 6.0 percent in February.
      Although BOJ left its rate steady at its last policy meeting on May 20, on May 15 it lowered the cash reserve requirement by 200 basis points to 5 percent to boost liquidity in the financial system by releasing some J$14 billion to deposit-taking institutions. It also cut the foreign currency cash reserve requirement by 200 points to 13 percent,  which returned some US$70 million to institutions.    
      In May BOJ forecast inflation would average 4.4 percent over the next two years and today it said the current assessment is inflation is likely to be slightly higher due to higher agricultural, energy and transport prices, and upward pressures from higher-than-expected demand in connection with an earlier-than-expected re-opening of the economy and a more expansionary fiscal stance.
     Jamaica's dollar has firmed slightly this month but remains down 5 percent since the start of this year at 140.0 to the U.S. dollar.

Kyrgyzstan holds rate again to maintain stimulus

     Kyrgyzstan's central bank, one of only five central banks to have raised interest rates this year, left its key interest rate steady again to maintain stimulus to the economy, adding it would take "appropriate monetary policy measures" if there are any risks to inflation.
     The National Bank of the Kyrgyz Republic (NBKR) kept its discount rate at 5.0 percent, unchanged since it raised it in February by 75 basis points to dampen inflationary pressures.
     Inflation in Kyrgyzstan - sandwiched between China, Kazakhstan, Uzbekistan and Tajikistan - eased to 6.1 percent as of June 19 from 7.2 percent in May and 8.6 percent in April.
     Weaker domestic demand is determining the downward dynamics of inflation, the central bank said, pointing to the downward trend in remittances and export earnings along with a decline in the output of almost all sectors of the economy.
      The central bank maintained its forecast for inflation to average around its target of 5.0 to 7.0 percent by the end of the year based on the assumption of weaker domestic and foreign demand.
     "The recession in the global economy is expected to be significant," NBKR said, adding its own economy remains susceptible to changes in global and regional economies and international financial organizations are revising forecasts lower despite some signs of recovery in some countries after quarantine measures have been lifted.
      Expansion by the public sector and support of credit operations by the central bank have led to excess liquidity in the banking system and NBKR continues to carry out sterilization operations in the short end of the money market, the central bank said, adding the foreign exchange market has been relatively stable.
     NBKR is in the process of transitioning to a monetary framework that is based on inflation targeting and from mid-March to early April, the Kyrgyzstani som tumbled 18 percent, hitting 84.9 to the U.S. dollar by April 4.
     Since the the som has firmed though it has eased during the month of June and was trading at 75.99 today, down 8.3 percent this year.

Sunday, June 28, 2020

This week in monetary policy: Kyrgyzstan, Jamaica, Bulgaria, Colombia, Sweden and Albania

    This week - June 28 through July 4 - central banks from 6 countries or jurisdictions are scheduled to decide on monetary policy: Kyrgyz Republic, Jamaica, Bulgaria, Colombia, Sweden and Albania.
    Following table includes the name of the country, the date of the next policy decision, the current policy rate, 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 accessed by clicking on This Week.

JUN 28 - JUL 4 2020:
COLOMBIA 30-Jun2.75%-50-1504.25%         EM
SWEDEN1-Jul0.00%00-0.25%         DM

Friday, June 26, 2020

Trinidad & Tobago holds rate, liquidity up after March cut

      Trinidad and Tobago's central bank left its benchmark repo rate steady at 3.50 percent, saying its "unprecedented" rate cut in March had boosted liquidity in the domestic financial system substantially and it expects this will have a stronger effect on credit as the economy opens up.
      The Central Bank of Trinidad and Tobago (CBTT) said its 150-basis-point rate cut in March, along with a 300 point cut in banks' reserve requirement, had led to an almost immediate reduction in banks' prime lending rates to 7.50 percent from 9.25 percent.
      On March 17 the bank's monetary policy committee decided to slash the rate and lower the reserve requirement at a special meeting in light of the "unprecedented nature and magnitude of the pandemic, exacerbated by the energy price drop."
      Since this monetary easing, liquidity in the financial system has surged, with excess reserves at CBTT reaching over TT$110 billion by mid-June but there still hasn't been a significant pickup in private sector credit as businesses are still waiting for a recovery in demand, the bank said.
      But based on history, the central bank expects the impact of its rate cut to take several months to fully filter into interest rates and credit.
      Meanwhile, it said economic activity in Trinidad and Tobago is gradually resuming following several months of lockdown to prevent the spread of the Covid-19 pandemic.
      Noting the rise in liquidity, the central bank said it decided to maintain its repo rate today and was continuing to monitor developments and "will take further action as necessary."
      Latest data show lending to businesses had declined 5.7 percent year-on-year in March, reflecting a pre-pandemic trend, but despite the gloomy environment, the country's international reserves remained steady at US$6.8 billion on June 19 - around 8 months of imports - and lower interest rates in the U.S. had improved the TT-US rate differential to 81 basis points on 3-month Treasuries.
      But CBTT said the situation and outlook on the international front "warrant concern," and the macroeconomic environment can best be described as "intense and uncertain," constrained for the most part by the fiscal space available to governments.
      Inflation in Trinidad and Tobago rose to 0.5 percent in February from 0.4 percent in January.

Thursday, June 25, 2020

Mexico cuts rate 5th time as risks remain to downside

     Mexico's central bank cut its benchmark interest rate for the fifth time this year, saying the risks to the economy remain to the downside and there is persistent uncertainty about the economic recovery after a considerable impact from the Covid-19 pandemic.
     The Bank of Mexico, known as Banxico, cut its target for the overnight interbank interest rate by another 50 basis points to 7.0 percent and has now cut it 225 points this year following cuts in February, March, April and May.
     It is also Banxico's 9th rate cut since August 2019 when it began to unwind some of rate hikes - a total of 500-basis-points - between December 2015 and December 2018. Since August last year the rate has been cut 325 points.
     The bank's board said its decision today was unanimous and future actions will be based on the impact on economic activity from the Covid-19 pandemic and the evolution of the financial shock so the policy rate is consistent with inflation around Banxico's target.
     Mexico's economy has contracted in the last four quarters, with gross domestic product in the first quarter down 1.2 percent from the previous quarter.
     In late May Banxico forecast the economy would contract as much as 8.8 percent this year.
     Banxico said the reopening of parts of the economy in May and June will lead to some recovery though the impact of the pandemic have been "considerable and uncertainty persists" and growth risks remain significantly biased to the downside.
     Mexico's inflation rate rose to 2.84 percent in May and 3.17 percent in the first half of June from 2.15 percent in April and the central bank said expectations are for inflation to remain above its 3.0 percent goal.

Guatemala cuts rate 3rd time in 2020 to boost growth

     Guatemala's central bank lowered its monetary policy rate for the third time this year, saying this is aimed at lowering the cost of credit for companies and households and thus help promote a recovery of economic activity.
     The Bank of Guatemala cut it policy rate by a further 25 basis points to 1.75 percent and has now cut it 100 points this year following two rate cuts in March.
     This includes a 50-basis-point cut on March 19 at an extraordinary board meeting, the same week when 46 other central banks, including the U.S. Federal Reserves,  lashed their rates in response to the global measures to prevent the spread of the Covid-19 pandemic.
     The bank's monetary board said in a statement released on June 25 that its policy decision, which was taken at its June 24 meeting, was unanimous.
     A significant slowdown in economic activity in Guatemala and imports has been partially moderated due to a better-than-expected performance of exports, family remittances and bank credit to the private sector, the central bank said, referring to the monthly index of economic activity (IMEA).
     However, the central bank still lowered its forecast for the economy to contract between 3.5 and 1.5 percent this year from its previous forecast of a contraction of 0.5 percent.
     In 2019 Guatemala's economy grew an estimated 3.8 percent.
     The economy should recover next year and expand between 2.0 and 4.0 percent, the bank added.
     Guatemala's inflation rate has been relatively steady in recent months - it eased to 1.8 percent in May from 1.88 percent in April - and the central bank said its latest forecast show a moderation this year and in 2021, with inflationary expectations anchored to its target.
     The Bank of Guatemala, which has targeted inflation since 2005, currently targets inflation of 4.0 percent, plus/minus 1 percentage point.
     Guatemala's quetzal has been relatively stable since October 2018 and was trading at 7.7 to the U.S. dollar today, unchanged since the start of this year.
     Earlier this month the executive board of the International Monetary Fund  approved emergency financial assistance to Guatemala of US$594 million to help meet some of the cost of containing Covid-19 at a time of a hit to economic growth and a drop in remittances from abroad and lower exports.

Philippines cuts rate 4th time in 2020 on benign inflation

     The Philippine central bank cut its key interest rate for the fourth time this year and for the seventh time in just over a year, saying "a further reduction in the policy rate amidst a benign inflation environment would help mitigate the downside risks to growth and boost market confidence."
     Bangko Sentral Ng Pilipinas (BSP) cut the rate on its overnight reverse repurchase facility (RRP) by a further 50 basis points to 2.25 percent and has now cut it 175 points this year following cuts in February, March and April.
     BSP has been lowering its interest rates since May 2019 and has now cut them by 250 basis points since then.
     The Philippine peso has been on a rising trend since October 2018, with the seven rate cuts only slowing the general upward trend slightly.
    Today the peso was trading at 50.0 to the U.S. dollar, up 1.5 percent since the start of this year and 8.6 percent higher than a low of 54.3 in early October 2018.
     In addition to the cut in RRP, the bank's monetary board cut the rate on the overnight deposit facility to 1.75 percent and the rate on the overnight lending facility to 2.75 percent.
     Inflation in the Philippines fell to 2.1 percent in May, the fourth consecutive month of deceleration, and BSP said the latests forecast show inflation could settle near the low end of its inflation target of 3.0 percent, plus/minus 1 percentage point in 2020 and up to 2022.
     The decline in inflation had fueled expectation by some analysts that BSP would cut its rate today.
     Although economies around the world are beginning to reopen from measures to prevent the spread of Covid-19 and the functioning of financial markets has improved, BSP said the global recovery is likely to be "protected and uneven" and domestic economic activity has slowed.
     "Hence, there remains a critical need for continuing measures to bolster economic activity and support financial conditions," BSP said, pointing to measures to protect human health, boost agricultural productive and build infrastructure.
      BSP said it remains committed to "deploying its full range of monetary instruments and regulatory relief measures as needed" to meet its mandate of promoting non-inflationary and sustainable economic growth.

Pakistan cuts rate 5th time on improving inflation outlook

      Pakistan's central bank cut its key interest rate for the fifth time this year and for the third month in a row, saying this decision reflects a further improvement in the outlook for inflation while the slowdown of the country's economy continues and downside risks to growth have risen.
     The State Bank of Pakistan (SBP) cut its policy rate by another 100 basis points to 7.0 percent and has now cut it by 625 points this year following previous cuts in March, April and May.
      Noting its mandate to support households and businesses through the Covid-19 pandemic and to minimize the damage to the economy, SBP's monetary policy committee said after a surprise meeting that from a risk management point of view "a prompt response to downside risks to growth was called for given the improved inflation outlook."
      The central bank added that some 3.3 trillion rupees of loans were due to be repriced by early July, making this an opportune moment to take action as the benefits of interest rate reductions would be passed on to households and businesses in a timely manner.
      Pakistan's inflation rate eased to 8.22 percent in May from 8.5 percent in April and 14.6 percent in January due to the government's cut in diesel and petrol prices and SBP said data shows this moderation was continuing in June despite a rise in some food prices, such as wheat.
      While supply shocks could trigger some volatility in inflation, SBP said this was likely to be transitory given the weak demand and given the absence of any demand-side pressures, average inflation could fall below the previously expected range of 7-9 percent in fiscal 2020/21, which begins July 1.
      In May SBP also forecast inflation for the current fiscal year to be close to the low end of its expected range of 11-12 percent.
     "With the current reduction in the policy rate to 7 percent, the MPC felt that real rates on a forward-looking basis (defined as the policy rate less expected inflation) would be kept close to zero, which is appropriate under the current circumstances," SBP said.
     High-frequency data, such as cement dispatches, automobile sales, food and textile exports, and petroleum sales were continuing to contract in April though the rate was lower than in the previous two months and looking ahead SBP expects a gradual recovery in the fiscal 2021 although risks are still skewed to the downside and dependent on the evolution of the pandemic.
      Pakistan's rupee, which had stabilized in June last year after an agreement with the International Monetary Fund (IMF), fell sharply in March but then recovered in April. But since late May the rupee has again been falling and was trading at 167.4 to the U.S. dollar today, down 7.5 percent this year.
     SPB said the flexible exchange rate had played "its valuable shock absorber role," helping cushion the economy from any tightening of financial conditions from capital outflows and deteriorating global sentiment, adding the rupee's depreciation had been lower than in many other emerging markets, reflecting the increased reserve buffers accumulated over the last year.

Wednesday, June 24, 2020

Georgia cuts rate 2nd time as inflation outlook lowered

     Georgia's central bank lowered its benchmark policy rate for the second time this year as it continues to gradually exit from a tight monetary policy stance as the significant weakening of external and domestic demand is leading to a lower inflation forecast.
     The National Bank of Georgia (NBG) cut its refinancing rate by another 25 basis points to 8.25 percent and has now cut it 75 points this year following a 50-point cut in April.
     Despite today's rate cut, NBG said its monetary policy remains tight to ensure inflation returns to its target, adding "the pace of further policy normalization will depend on how quick inflation expectations recede."
     The central bank began tightening its policy stance in September last year to curb inflation from a decline in the lari's exchange rate, hiking its rate four times by a total of 200 basis points. 
     These rate hikes helped the lari rebound but on March 19, the day after it kept its rate steady amid a massive spree of rate cuts worldwide in response to the hit to economic activity from measures to contain the Covid-19 pandemic, the lari plunged. 
      By March 27 the lari had lost some 21 percent of its value, forcing the central bank to intervene in the foreign exchange market. NBG has intervened 6 times in the market totaling $180 million.
      This intervention helped calm the market and on April 8 NBG announced a series of emergency measures in response to the pandemic, including the provision of $400 million through swaps to commercial banks and microfinance institutions, allowing banks to use foreign currency buffers to manage lari liquidity and an easing of banks' capital requirements.
      Today the lari was trading at 3.05 to the U.S. dollar, up almost 15 percent since the low of 3.50 on March 27 but still down 6.2 percent since the start of this year.
     Georgia's inflation rate eased to 6.5 percent in May from 6.9 percent in April, but is still above NGB's target of 3.0 percent.
     The central bank confirmed its view from April that it expects inflation to gradually decline over the rest of this year and reach its target level in the first half of 2021 as the impact of higher costs of some goods and services in connection with measures to prevent the spread of Covid-19 only affects inflation in the short term.
      The impact of weaker external and domestic demand, however, will have a longer lasting impact on inflation though it cautioned that above-target inflation has the risk of stoking inflation expectations.
     "Taking these factors into account, the Monetary Policy Committee deemed it appropriate to continue the gradual exit from the tightened monetary policy stance and reduced the rate by 0.25 percentage points," NBG said.
      Preliminary data show mixed signals regarding the expected drop in demand, the central bank said, adding significant fiscal stimulus is also expected to boost demand.
       Current estimates show a 16.6 percent year-on-year fall in economic activity in April while payment card transactions in May rose 21 percent from the previous month, though it was still negative in annual term.
      And high growth of cash in circulation points to increased economic activity and there has been an improvement in credit activity in the wake of a gradual lifting of restrictions.
    On May 1 the International Monetary Fund's executive board raised Georgia's access to its extended fund facility (EFF) to 230 percent of its quota, releasing some US$200 million to help the country meet urgent balance of payments and fiscal needs, including higher spending on health. This brought the IMF's total disbursements under the 3-year EFF to some US$448 million.
     "The COVID-19 pandemic has hit the Georgian economy hard," IMF said, noting a fall in external demand and tourism has widened the current account and fiscal deficits, depreciated the exchange rate and led to a substantial decline in economic activity.
     The IMF also supported NBG's "moderately tight monetary policy," while allowing the exchange rate to remain flexible, adding monetary policy decisions should be based on monitoring inflation expectations.
    The IMF forecast Georgia's economy would contract 4.0 percent this year, down from 5.1 percent growth last year, and then expand 4.0 percent in 2021.
     Inflation is seen averaging 4.7 percent this year, slightly up from 4.5 percent in 2019, and then easing to 3.9 percent in 2021.
     Measured in lari, Georgia's current account deficit is seen widening to 11.3 percent of GDP, up from a 4.9 percent in 2019, and then narrowing to 7.5 percent in 2021. In U.S. dollar terms, the deficit this year is seen widening to 1.7 percent of GDP and then 1.3 percent in 2021.