Saturday, April 25, 2015

Ukraine holds rate, expects stable FX to lead to easing

    Ukraine's central bank maintained its benchmark discount rate at 30.0 percent, citing the need to "reinforce positive trends in the money market," but added that stability to the hryvnia's exchange rate should pave the way for rate cuts.
    The National Bank of Ukraine (NBU), which has raised its rate by 16 percentage points this year and by 23.50 points since April last year, said inflation in coming months will be affected by the opposing forces of higher administered prices and further rises in consumer prices against the disinflationary forces of a waning impact of exchange rate depreciation, tight monetary and fiscal policy and the elimination of inefficient energy subsidies.
    "Further efforts to sustain stability in the foreign exchange market, which will help dispel adverse inflation and depreciation expectations, are crucial for putting inflation on a downward path," the NBU said in a statement from Friday.
    Ukraine's consumer price inflation rate jumped to 45.8 percent in March from 34.5 percent in February, with the central bank attributing this to "substantial hryvnia exchange rate depreciation in late February 2015, and feverish consumer demand fueled by worsening expectations."
    However, the NBU said a package of its measures, including rate increases and tighter administrative restrictions, helped stabilize the foreign exchange market and strengthen the hryvnia's exchange rate.
    The real effective exchange rate of the hryvnia fell by 19.2 percent in 2014 and but in February this year the currency tumbled, hitting a low of 33.7 to the U.S. dollar on Feb. 26. before bouncing back and stabilizing between 21 and 23 to the dollar, helped by the central bank's latest rate increase on March 3 of 1,050 basis points.
    On Friday the hryvnia was trading at 22.9 to the dollar, down 31 percent since the start of the year.

Thursday, April 23, 2015

Egypt holds rate as low oil counters upside inflation risks

    Egypt's central bank maintained its key policy rates, including the benchmark overnight deposit rate at 8.75 percent, as expected, saying upside risks to inflation are largely mitigated by contained imported inflation linked to lower oil prices.
    The Central Bank of Egypt (CBE), which surprised financial markets by cutting its rate by 50 basis points in January, added that investments in mega projects, such as the Suez Canal, were expected to boost economic growth, softening growth in emerging markets and the challenges facing the euro area could pose downside risks to domestic economic activity.
    Eqypt's consumer price inflation rate rose to 11.51 percent in March - a five-month high - from 10.56 percent in February mainly due to higher administered prices, particularly of tobacco, along with supply bottlenecks in the distribution of butane cylinders and an increase in volatile food prices.

Global lending dips in Q4 as China and Russia hit - BIS

    Global cross-border lending dropped by $5 billion in the fourth quarter of 2014 as claims on borrowers in emerging markets, especially China and Russia, plunged by $80 billion while lending to advanced economies, such as the United Kingdom and the euro area, continued to recover, according to the Bank for International Settlements (BIS).
    Lending by major international banks to China contracted by $51 billion by the end of December 2014 from the end of September, but outstanding claims on Chinese residents totaled $1 trillion, far exceeding those of other emerging market borrowers such as Brazil, with total claims of $308 billion, India of $196 billion and Turkey of $194 billion.
    The surge in lending to China over the past few years has been driven primarily by short-term leading to banks - much of it in U.S. dollars - but authorities are now attempting to carry out a delicate balancing act of tightening credit conditions without disrupting economic growth.
    The contraction in lending to China in the fourth quarter of last year comes after an increase of almost 40 percent between the end of September 2013 and September 2014. But from the second to the third quarter of 2014 claims rose only by 3 percent.
    With the U.S. Federal Reserve likely to raise rates in coming months, there is concern that borrowers in emerging markets will face strains from higher debt repayments of loans in U.S dollars.
     Although the dollar share of cross-border lending has declined for China to 39 percent at the end of 2014 from 54 percent at the end of 2008, it remains very high for other countries. At the end of 2014, dollar-denominated loans amounted to 78 percent of cross-border claims to Brazil, 74 percent of claims on India, 68 percent for Indonesia and 70 percent for Taiwan.
    International lending to advanced economies continues to expand as their banking systems recover after the global financial crises, with claims on advanced economies up by $27 billion in the fourth quarter from the third quarter, helped by a 5 percent year-on-year rise in loans to the euro area and the U.K. and steady lending to the U.S.
    Within the euro area, there are marked differences as loans to France rose by 12 percent annually, claims on Germany rose 8 percent and claims to Italy were up by 6 percent. Meanwhile, claims on Cyprus fell 8 percent, while annual claims on Portugal and Spain fell 4 percent and loans to Greece contracted by 3 percent.
    Cross-border claims on Japan also continued to expand at a very rapid pace, growing at annual rate of 16 percent as of the end of 2014, with most of the growth in lending directed towards banks. The share of international claims on Japanese banks rose to 75 percent by the end of last year from 53 percent at the end of 2007.

    Click to read the BIS international banking statistics at end-December 2014.

Wednesday, April 22, 2015

Central Bank News Link List - Apr 22, 2015: Pound jumps as BOE minority sees rate decision ‘finely balanced’

Here's today's Central Bank News' link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don't miss any important news.

Turkey holds rate, stance helps inflation, caution needed

     Turkey's central bank maintained its key policy rates, including the one-week repurchase rate at 7.50 percent, repeating its statement from March that its "ongoing cautious monetary policy" is having a favorable impact on inflation but "uncertainty in global markets and elevated food prices necessitates maintaining the cautious stance in monetary policy."
     But the Central Bank of the Republic of Turkey (CBRT), which has cut its rate 75 basis points this year as it slowly unwinds a 550 point emergency rate hike in January 2014, added that a "measured cut" in the foreign exchange lending rate and "a measured hike" in the rate on banks' Turkish lira required reserves will support financial stability.
    The CBRT said the rates applied to banks one-week borrowings from the central bank had been cut by 50 basis points to 4.0 percent for U.S. dollars and to 2.0 percent for euro borrowings. In addition, rates applied on banks' lira required reserves was raised by 50 points.
    The CBRT's decision was largely expected after it provided advance notice on April 14 of its plan to lower the rate charged for foreign currency loans and increase the payments to lenders for their required reserves.
    Turkey's consumer price inflation rate rose slightly to 7.61 percent in March from 7.55 percent the previous month while the core inflation rate fell to 7.5 percent from 8.1 percent.

Tuesday, April 21, 2015

Central Bank News Link List - Apr 21, 2015: Poloz signals end to Canada rate cuts on U.S. growth risk

Here's today's Central Bank News' link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don't miss any important news.

Hungary cuts rate 15 bps, cautious easing may continue

     Hungary's central bank cut its base rate by another 15 basis points to 1.80 percent, as expected, and said "cautious easing of the policy rate may continue as long as it supports the achievement of the medium-term inflation target."
    The National Bank of Hungary (MNB), which restarted its easing cycle last month after putting it on hold in August 2014, said the outlook for inflation and the economy still point in the direction of a reduction in the policy rate and loose monetary conditions for an extended period.
    Hungary's consumer prices continued to fall in March for the seventh consecutive month though the rate of decline of 0.6 percent was less than in February's 1.0 percent and below the 0.8 percent decline that financial markets on average had expected.
   But the central bank said the March inflation data were consistent with its own forecast and inflation is likely to remain low for a sustained period due to persistently low inflation in external markets, subdued imported inflation, unused capacity in the economy and a decline in inflation expectations.
    Although domestic demand had picked up, helped by higher wages, the MNB said core inflation is only likely to rise gradually and slowly due to the second-round effects of low commodity prices, and overall inflation is first expected to approach its 3.0 percent target level towards the end of the forecast period.
    Hungary's economic growth is "likely to continue at a rapid pace," the central bank said, supported by both domestic and external demand, with rising household income due to low inflation expected to increase household consumption. Hungary's Gross Domestic Product expanded by 0.8 percent in the fourth quarter of 2014 for annual growth of 3.4 percent, up from 3.3 percent in the prior quarter.
    However, there is still unused capacity in the economy and the negative output gap is expected to close only gradually so the real economy is likely to have an disinflationary impact on inflation.
    While international investor sentiment has been favorable in the last month and Hungary's decline in external debt has helped ease the country's vulnerability, the central bank still considers that "a cautious approach to monetary policy is warranted due to uncertainty in the global financial environment," the MNB said.

Sunday, April 19, 2015

This week in monetary policy: Hungary, Turkey, Egypt and Ukraine

    This week (April 20 through April 25) central banks from four countries or jurisdictions are scheduled to decide on monetary policy: Hungary, Turkey, Egypt and Ukraine.

    Following table includes the name of the country, its MSCI classification, the direction of the latest decision, the date the new policy decision will be announced, the current policy rate, and the rate one year ago.
HUNGARY EM CUT 21-Apr 1.95% 2.50%
TURKEY EM UNCH. 22-Apr 7.50% 10.00%
EGYPT EM UNCH. 23-Apr 8.75% 8.25%
UKRAINE FM RAISE 23-Apr 30.00% 9.50%

Thursday, April 16, 2015

Chile maintains rate, still keeping eye on high inflation

    Chile's central bank maintained its monetary policy rate at 3.0 percent, as expected, and said inflation remains high and it "will continue to monitor developments with particular attention."
    The Central Bank of Chile, which has kept rates steady this year after cutting them by 150 basis points last year to stimulate economic activity, acknowledged that total inflation in March turned out to be lower than expected but not the underlying inflation rate.
    Chile's consumer price inflation rate eased to 4.2 percent in March from 4.4 percent in February while the core inflation rate only declined to 5.5 percent from February's 5.7 percent.
    The central bank targets inflation of 3.0 percent within a tolerance range of 2.0 to 4.0 percent, and medium-term inflation expectations remain around 3.0 percent.
    "Future changes to the MPR will depend on the implications of the internal and external macroeconomic conditions on the prospects for inflation," the bank said.
    In its latest monetary policy report, the central bank raised its inflation forecast for this year to 3.6 percent from a previous estimate of 2.8 percent, and the core inflation forecast to 3.4 percent from 2.8 percent, with the depreciation of the peso the main reason for high inflation.
    The central bank maintained its forecast for Chile's economic growth this year in a range of 2.5 to 3.5 percent, saying the recovery should accelerate towards the end of the year.
    Chile's Gross Domestic Product expanded by 0.9 percent in the fourth quarter of 2014 from the third quarter for annual growth of 1.82 percent, up from 1.0 percent.
    The central bank said today recent data are consistent with its baseline policy report, and as expected, investments are less dynamic but the unemployment rate has falling slightly although job creation is low.
    The central bank also noted that prices of basic products were mixed, with prices of copper, petroleum and petroleum products rising.


Sri Lanka cuts rate 50 bps, to continue easy stance

    Sri Lanka's central bank cut its main policy rates by 50 basis points, a surprise to financial markets,  and said a "relaxed monetary policy stance will also be pursued in months to come until concerns over inconsistent behavior of market interest rates are addressed sufficiently to facility the economic growth further in a  low single digit inflation environment."
    The Central Bank of Sri Lanka, which had maintained rates since a cut in October 2013, said inflation is projected to remain in low mid-single digit levels this year but the current market interest rates are inconsistent with low inflation and investments needed to boost economic growth.
    "Therefore, there is a further leeway to continue relaxation of monetary policy," the central bank said in a statement on April 15, adding that it has a mix of monetary tools available to fine-tune its policy if there is any worrying impact from the rate cut on other economic variables.
    Sri Lanka's consumer price inflation rate fell to 0.1 percent in March from 0.6 percent in February while the Average Weighted Prime Lending Rate (AWPR) was 7.14 percent on April 10.
    The central bank cut the benchmark Standing Deposit Facility Rate (SDFR) to 6.0 percent from 6.50 percent and the Standing Lending Facility Rate (SLFR) to 7.50 percent from 8.0 percent.
    The decision by the central bank's board was taken while its governor, Arjuna Mahendran, is on leave during an investigation by a committee over allegations that one of his family members benefitted unduly from a sale of treasury bonds.

Wednesday, April 15, 2015

Poland maintains rate, sees continued deflation

    Poland's central bank maintained its monetary policy reference rate at 1.50 percent, as expected, saying deflation will continue in coming quarters due to the sharp fall in commodity prices but stable economic growth, low interest rates, a good situation in the labor market and an expected recovery in the euro area should limit the risk of inflation remaining below target in the medium term.
    The National Bank of Poland (NBP), which said it was concluding its monetary easing cycle when it cut the policy rate by 50 basis points last month, added that there was no demand pressure in the economy right now and combined with low commodity prices and very low inflation expectations, this was contributing to a continuation of deflation.
   In February Poland's consumer prices fell by 1.6 percent, the eight consecutive month of deflation, and the steepest drop in at least 30 years due to the fall in fuel and food costs.
    But economic growth remains stable, the NBP said, with Gross Domestic Product in the first quarter of this year probably slightly higher than the fourth quarter of last year as domestic demand continues to rise, fueled by good financial conditions and an improving labour market.
    Poland's GDP expanded by 0.7 percent in the fourth quarter from the third quarter of 2014 for annual growth of 3.1 percent, down from 3.3 percent. The unemployment rate eased to 11.7 percent in March from 12.0 percent in February and January.
    Last month the NBP forecast 2015 inflation of minus 1.0 to 0.0 percent and 2016 inflation of minus 0.1 percent to 1.8 percent. The NBP targets inflation at midpoint of 2.5 percent, within a tolerance range of 1.5 to 3.5 percent. Inflation has been below its lower bound since February 2013.