Central Bank News

Thursday, August 16, 2018

Egypt holds rate as inflation nears fourth quarter target

Egypt's central bank left its key policy rates unchanged for the third time, saying the current rates are consistent with the outlook for inflation and achieving the target of 13 percent, plus/minus 3 percentage points, in the fourth quarter of this year.
The Central Bank of Egypt (CBE) has kept its key rates steady since the last cut in March while inflation continues to decelerate and has been below the upper limit of the target range since February.

Egypt's inflation rate has come down sharply since a record high of almost 33 percent in July 2017 though the headline rate rose slightly in June and July due to higher regulated prices, such as electricity, tobacco and government fees, and some volatile food items.

In July consumer price inflation eased to 13.5 percent from 14.4 percent in June.
Core inflation, however, has continued to fall for 12 months in a row and fell further to 8.54 percent in July, the lowest rate since March 2016.
Inflation surged last year after the government slashed subsidies to energy and raised taxes in connection with a US$12 billion International Monetary Fund (IMF) aid package.
In November 2016 the central bank also floated the pound, which quickly lost more than half its value, boosting import prices and thus inflation.
In response the CBE raised its rates sharply but this year it has cut the rate by a total of 200 basis points following cuts in February and March.

The CBE kept its overnight deposit rate, the overnight lending rate and the rate on the main operation at 16.75 percent, 17.75 percent and 17.25 percent, respectively.

In May last year the CBE set a target for inflation of 13 percent, plus/minus 3 percentage points, for the fourth quarter of 2018 and then single digits thereafter after the temporary effect of fiscal supply shocks dissipates.
The CBE said Egypt's economy had stabilized in the second quarter of this year at the growth rate that was seen in the first quarter, driven by foreign demand and domestic investments.
Egypt's Gross Domestic Product expanded by an annual 5.4 percent in the first quarter of this year, up from 5.3 percent in the fourth quarter of last year, for the seventh consecutive quarter of accelerating growth.
In July the IMF said Egypt's economic situation had continued to improve and the near-term growth outlook is favorable, supported by a recovery in tourism and natural gas production.
The IMF forecast economic growth in the 2017/18 financial year, which ended July 1, of 5.2 percent, rising to 5.5 percent in 2018/19.
Average inflation was forecast to decline to 14.4 percent in 2018/19 from an estimated 20.8 percent last financial year.

Norway holds rate, outlook and risks as forecast in June

Norway's central bank left its key policy rate at 0.5 percent but said the upturn in the country's economy is broadly continuing as forecast in June when the executive board said the key policy rate most likely will be raised in September.
Norges Bank (NB), which has maintained its rate since cutting it in March 2016, added that underlying inflation is below the bank's target but is still expected to rise.
"The outlook and the balance of risks do not appear to have changed substantially since the June Report," NB Governor Oeystein Olsen said in a statement.
In March NB began preparing investors for its first rate hike since May 2011 and then repeated this in its June monetary policy report when it forecast that the average monetary rate would rise to 0.6 percent this year and then 1.1 percent in 2019, implying two rate hikes of 25 basis points each.
Next month NB will update its economic forecasts and the executive board is scheduled to issue its policy decision at a press conference on Sept. 20.
In its meeting yesterday, the bank's executive board compared recent developments with its June forecast and concluded there had been little new information about the country's economy and developments among its trading partners was broadly as expected.
Despite trade conflicts and political tensions that have pushed down some equity prices and the the exchange rate of some currencies, policy rates among Norway's trading partners have been raised in recent months and forward interest rates still indicate a gradual rise in global interest rates.
In Norway consumption of goods fell in June and was somewhat lower than expected but manufacturing output rose in the second quarter, oil prices were little changed, house prices have edged higher and unemployment has evolved largely as expected, NB said.
Inflation, however, has risen and is higher than expected, mainly due to higher electricity prices.
Norway's consumer price inflation rose to 3.0 percent in July from 2.6 percent in June, and well above the central bank's recently-revised target of 2.0 percent.
In March Norway's government lowered the inflation target from the 2.5 percent target that had been in place for 17 years, putting Norway in the same camp as most other developed economies.
In June NB raised its forecast for average 2018 headline inflation to 2.3 percent from 2.1 percent.
NB added today that the exchange rate of the krone was somewhat weaker than NB had assumed.
As most currencies, the krone has fallen against the U.S. dollar this year and was trading at 8.45 today, down 3 percent.
Against the euro, the krone has been slightly firmer, trading at 9.61 today, up 2.4 percent this year.
After several years of weak growth, Norway's economy has improved since the start of 2017, helped by rising oil prices, pushing up wages and capacity utilization.
But in the first quarter of this year the economy grew only 0.3 percent year-on-year, down from 1.6 percent in the previous quarter.
In June the central bank forecast that Norway's mainland economy, which excludes the offshore oil and gas industry, would expand 2.6 percent this year and then 2.3 percent in 2019.

Indonesia raises rate 25 bps, trims 2018 growth forecast

Indonesia's central bank raised its main interest rates for the fourth time this year, as expected, to maintain the attractiveness of the country's assets, especially the rupiah, while it lowered its 2018 growth forecast slightly.
Bank Indonesia (BI) raised its benchmark BI 7-day reverse repo rate by a further 25 basis points to 5.50 percent and has now raised it by a total of 125 basis points since mid-May to bolster the exchange rate of the rupiah and maintain financial stability amid a general outflow of funds from many emerging markets toward U.S. dollar assets.
BI also raised its deposit facility and lending facility rates today by 25 points to 4.75 and 6.25 percent, respectively.
"The decision is consistent with ongoing efforts to maintain the attractiveness of the domestic financial markets and manage the current account deficit within an acceptable threshold," BI said.
Indonesia has become vulnerable to the swings of sentiment in global financial markets due to its widening current account deficit and BI said it supported the government's measures to reduce the deficit by stimulating exports and reducing imports while it postpones some projects that carry a high content of imports.
The current account deficit widened by 67.4 percent to US$8.0 billion in the second quarter of this year - or 3 percent of Gross Domestic Product - from $5.7 billion in the first quarter for the largest deficit since the third quarter of 2014.
BI said the deficit had risen due to a surge in imports of raw materials, capital and consumer goods from an uptick in domestic activity, which outpaced export growth. In July BI estimated the current account deficit would remain within 3 percent of GDP this year, a level it considers acceptable.
At the same time, the surplus of the capital and financial accounts rose to a record US$4.0 billion in the second quarter from $2.4 billion in the first quarter.
Indonesia's reserves declined to $118.3 billion at the end of July, the equivalent of 6.7 months of imports and debt servicing, from $119.8 billion in June and $132 billion in January as BI uses some of its reserves to prevent excessive volatility in the currency markets.
"Moving forward, Bank Indonesia perceives solid Balance of Payment (BOP) performance and the current account deficit maintained within an acceptable threshold that will reinforce external sector resilience," BI said.
Although the rupiah has depreciated this year against the U.S. dollar, BI said volatility had subsided during July and it had "defied intense depreciatory pressures." While it fell 3.94 percent during the second quarter, it had fallen 0.62 percent in July, BI said.
BI said the rupiah had depreciated less than the currencies of India, Brazil, South African and Russia while foreign capital had returned to its domestic markets, drawn to all asset types.
"Bank Indonesia will continue to monitor the risk of global financial market uncertainty, while stabilizing the rupiah in line with the currency's fundamental value and maintaining market mechanisms, backed by financial market deepening initiatives," BI said.
The rupiah strengthened slightly in response to today's rate hike and was trading at 14,597 to the dollar, down 7.0 percent this year.
Indonesia's economy has been accelerating in recent months on strong domestic demand and grew by an annual rate of 5.27 percent in the second quarter, up from 5.06 percent in the first quarter, and the fastest rate since the final quarter of 2013.
Although second quarter growth was faster than expected, it remains below the government's target of 5.4 percent and BI lowered its 2018 growth forecast to 5.0 - 5.4 percent from last month's forecast that growth would be in the lower end of 5.1 - 5.5 percent range.
For 2019 BI forecast growth would accelerate to 5.1 - 5.5 percent.
Indonesia's inflation rate is low and stable and rose to 3.18 percent in July from 3.12 percent in June as regulated prices eased.
BI confirmed it expects inflation to remain within its target corridor of 3.5 percent, plus/minus 1 percentage point, this year.

Uganda holds rate but sees rising inflation, strong growth

Uganda's central bank kept its benchmark Central Bank Rate (CBR) at 9.0 percent, saying a neutral monetary policy stance is warranted in order to keep inflation close to target and maintain sustainable economic growth.
The Bank of Uganda (BOU) forecast that core inflation will continue to rise and peak around 6 -7 percent in the second half of the current 2018/19 financial year before stabilizing around its medium-term target of 5 percent by the end of 2019.
The BOU, which has maintained its key rate since February this year, after a 2-year easing cycle, also cautioned about a rise in inflation in its June policy statement but attributed this to stemmed a recovery in food prices, the expected closure of the output gap and higher taxes.
Food prices, however, are no longer seen as a major risk to the inflation outlook and are projected to remain low though this can quickly change depending on weather conditions.
The BOU today said that higher oil prices and a depreciation of the shilling's exchange rate could result in higher inflation.
In July headline inflation rose to 3.1 percent from 2.2 percent while core inflation jumped to 2.5 percent from 0.8 percent on a combination of higher oil prices, shilling depreciation and a one-off rise in communications taxes, and fuel excise taxes
"A key risk to the inflation outlook is the shilling exchange rate which remains vulnerable to domestic market conditions and the possibility of tighter global financial conditions," BOU said.
The shilling fell from March to late June when BOU on June 27 sold U.S. dollar for the third time that month after the shilling hit a new all-time record low of around 3,900 to the dollar.
"The heightened depreciation pressures experienced during the last quarter of FY 2017/18 were in part driven by speculate activity in the foreign exchange market, which resulted in the exchange rate overshooting its long-run equilibrium," BOU said, adding its reserves remain adequate to maintain stability in the currency market.
The shilling recovered during July but fell 2.2 percent today to 3,749 following the BOU's decision and general dollar strength on heightened fears around Turkey. This year the shilling is down 3 percent against the dollar.
Uganda's economy is continuing to strengthen, BOU said, estimating Gross Domestic Product growth for 2017/18, which began July 1, of 5.8 percent compared with 3.9 percent in 2016/17.
In 2018/19 the economy is forecast to strengthen further to 6 percent and then average growth of about 6.3 percent in the medium term, supported by public infrastructure investments, improving agricultural productivity, a recovery in foreign direct investment and strengthening private sector credit growth due to past monetary policy easing.
BOU said weighted average lending rate fell to 17.7 percent in June from 25.2 percent in February 2016 when it began easing policy. Between April 2016 and February 2018 the BOU cut CBR by a total of 800 basis points.

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Sunday, August 12, 2018

This week in monetary policy: Uganda, Armenia, Namibia, Norway, Indonesia and Egypt

This week - August 11 through August 18 - central banks from 6 countries or jurisdictions are scheduled to decide on monetary policy: Uganda, Armenia, Namibia, Norway, Indonesia and Egypt.

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, the rate one year ago, and the country’s MSCI classification.

The table is updated when the latest decisions are announced and can always accessed by clicking on This Week.

WEEK 33
AUG 12- AUG 18, 2018:
COUNTRY	DATE	RATE	LATEST	YTD	1 YR AGO
UGANDA	13-Aug	9.00%	0	-50	10.00%
ARMENIA	14-Aug	6.00%	0	0	6.00%
NAMIBIA	15-Aug	6.75%	0	0	6.75%
NORWAY	16-Aug	0.50%	0	0	0.50%
INDONESIA	16-Aug	5.50%	0	100	4.50%
EGYPT	16-Aug	16.75%	0	-200	18.75%

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Thursday, August 9, 2018

Philippines raises rate 50 bps, signals in may now pause

The central bank of the Philippines raised its monetary policy rate for the third month in a row to "rein in inflation expectations and prevent sustained supply-side price pressures from driving further second-round effects," but signaled that it may now pause in its tightening campaign.
Bangko Sentral Ng Pilipinas (BSP) raised its benchmark overnight reverse repurchase facility (RRP) rate by a sharp 50 basis points to 4.0 percent and has now raised it by a total of 100 points this year following increases in May and June as inflation continues to accelerate.
The rate hike was expected and follows the BSP's warning in its June policy statement that it was prepared to take further action and statements last month by its governor, Nestor Espenilla, that the central bank is considering strong action to curb inflation, which he said may first peak in the third quarter, and dampen volatility in the foreign exchange market.
BSP said the latest forecasts have shifted upward and show that inflation may also exceed the central bank's target in 2019. Up to now, BSP was confident that inflation would return to its target of 2 - 4 percent, around a 3.0 percent midpoint, next year.
"Upside risks also continue to dominate the inflation outlook, as the sustained increase in core inflation suggests broadening price pressures amid resilient aggregate demand conditions," BSP said, adding that inflation expectations remain elevated though still within the target for 2019.
Inflation in the Philippines rose for the seventh month in a row to 5.7 percent in June, the highest reading since March 2009, and the fifth month it has topped the BSP's upper inflation limit.
BSP has previously forecast that inflation would average 4.5 percent this year and then 3.3 percent in 2019.
But the central bank's monetary board also signaled that it may now pause in further rate hikes, saying its actions so far this year "will help reduce further risks to inflation," including those emanating from the normalization of monetary policy in advanced economies and its impact on currency markets and help bring inflation toward its target.
Although the Philippine economy slowed in the second quarter, BSP seemed confident that its tighter policy would not result in a economic slump.
"Favorable conditions arising from sustained domestic growth also suggests that the economy can accommodate a further tightening of monetary policy settings," BSP said.
The Gross Domestic Product of the Philippines slowed to quarterly growth of 1.3 percent in the second quarter of this year for annual growth of 6.0 percent, down from 6.6 percent in the first quarter.
After falling sharply between January and mid-July on broad-based U.S. dollar strength, the Philippine peso has staged a comeback in recent weeks and was trading around 53.0 to the dollar today, up from lows around 53.6 on July 19 but still down 5.7 percent since the start of this year.
Last month the International Monetary Fund raised its 2018 inflation forecast for the Philippines to 4.7 percent from an earlier 4.2 percent and said the BSP would have to consider further monetary tightening to douse inflation expectations.
The IMF also lowered its 2018 growth forecast to 6.7 percent from 6.8 percent.

New Zealand holds rate, pushes back rate hike to 2020

New Zealand's central bank left its benchmark Official Cash Rate (OCR) at 1.75 percent, as expected, and said it was expecting to maintain this rate through next year and into 2020, one year longer than projected in May, to maximize employment and maintain low and stable inflation.
But the Reserve Bank of New Zealand (RBNZ), which has kept its rate steady since cutting it in November 2016, also repeated that "the direction of our next OCR move could be up or down."
In his third statement since taking over as RBNZ governor in March, Adrian Orr's reference to employment and inflation reflects the central bank's new mandate that added employment to its previous mandate that only focused on inflation.
While most central banks purely focus on inflation, New Zealand this year joined the central banks of the United States, Australia and Norway in having twin mandates.
"We will keep the OCR at an expansionary level for a considerable time to contribute to maximizing sustainable employment, and maintaining low and stable inflation," Orr said.
While the RBNZ has often said it would keep monetary policy expansionary for a considerable time for many months, today it pushed back its expected date for the OCR to rise to 1.9 percent from 1.8 percent by 12 months to September 2020 from September 2019 that was projected in May.
In an update to its monetary policy statement, RBNZ sees OCR rising to 2.0 percent in December 2020, 2.1 percent by March 2021, 2.2 percent by June 2021 and 2.3 percent by September 2021.
While RBNZ lowered its growth forecast for this year slightly, Orr said there were now "welcome early signs of core inflation rising," with inflation increasing towards the central bank's 2 percent midpoint target as the economy's output tops capacity.
"This path may be bumpy however, with one-off price changes from global oil prices, a lower exchange rate, and and announces petrol excise tax rises expected," Orr said, adding the central bank would look through this volatility and only respond to persistent movements in inflation.
RNBZ expects inflation to hit its 2 percent target in March 2021 as compared with December 2020 in May.
In the second quarter of this year, New Zealand's inflation rate averaged 1.5 percent, up from 1.1 percent in the previous quarter.

Thailand holds rate as one MPC member votes to hike

Thailand's' central bank left its policy rate steady at 1.50 percent but for the third time this year one member of the monetary policy committee (MPC) voted to raise the rate.
The Bank of Thailand (BOT), which has maintained the rate since April 2015, reiterated that monetary policy should continue to remain accommodative and there was still a need to monitor the strength of domestic demand, inflation, financial stability, the impact of trade protection and the risk of lower-than-expected growth in the tourism sector.
But in general, "the Thai economy as a whole was projected to continue to gain further traction driven by both external and domestic factors," the MPC said.
The MPC's reference to lower-than-expected growth of the tourism sector is new compared to the previous policy statement from June and comes after more than 40 tourists, mostly Chinese, died in early July when a tour boat sank in a storm off the southern Thai resort island of Phuket.
In March this year one MPC member voted to raise the rate by 25 basis points, the first time there was dissent in the committee in almost three years. In May the vote was unanimous but in June one member again voted for a rate hike.
As in June, the dissenting MPC member argued that the economic expansion was sufficiently robust and prolonged monetary accommodation might induce households and businesses to underestimate potential changes in financial conditions.
A rate hike now would thus help curb financial stability and start building policy space.
However, the other 6 MPC members argued the current accommodative policy stance was conducive to economic growth and appropriate given the inflation target.
In addition, the outlook for economic growth was still subject to risks from U.S. foreign trade policies and retaliatory measures from trading partners.
Thailand's economy grew by an annual rate of 4.8 percent in the first quarter of this year and in June the International Monetary Fund forecast growth this year of 3.9 percent in 2018, unchanged from 2017, as investments are seen jumping 6.8 percent and consumption rising 3.7 percent.
Thailand is benefitting from strong growth in exports, tourism and rising domestic demand, with BOT expecting merchandise exports to rise more than earlier expected due as some industries have relocated their production.
The outlook for inflation is largely unchanged from previous assessments, with the annual average rate expected to be within BOT's target of 1 - 4 percent.
As most other currencies, the Thai baht has depreciated this year against the U.S. dollar and BOT said the movements in the baht was in line with most regional currencies.
"Looking ahead, the baht would likely remain volatile and thus the Committee would continue to closely monitor exchange rate developments as well as impacts on the economy," BOT said.
The baht was trading at 33.2 to the dollar, down 1.8 percent this year.

Argentina's new Copom sets Leliq policy rate at 40 pct

Argentina's central bank kept its monetary policy stance steady and set the interest rate on 7-day liquidity paper, known as Leliq, as its new monetary policy rate at 40.0 percent, the same rate of its key rate since early May.
The Central Bank of the Argentine Republic (BCRA), which has raised its policy rates three times by 12.75 percentage points since April 27 in an effort to shore up the peso's exchange rate, also reiterated its guidance that it will maintain the contractionary bias of monetary policy until the trajectory of inflation and expected inflation is aligned with the 2019 target.
BCRA's board said the reason for maintaining the rate was that inflation in June had accelerated more than expected, mainly due to the temporary impact of peso depreciation in May and June. And while inflation is forecast to decelerate in July, this will be less than expected.
The baseline forecast is for core inflation to decline in August, September and October from a record in July while headline inflation is expected to show a smaller decline due to higher regulated prices in August and October.
Despite the expected decline in inflation in coming months from July, the central bank said it recognizes that a longer period of financial stability will be required to reduce the risk of a greater than expected transfer of the exchange rate to retail prices.
Argentina's national headline inflation rate rose to 29.5 percent in June from 26.3 percent in May while core inflation rose to 26.9 percent from 23.6 percent.
After falling sharply in late April through June, the peso has been steady this month and was trading at 27.39 to the U.S. dollar today, down 32 percent this year.
In June the International Monetary Fund and Argentina agreed on a 3-year, $50 billion support package that included new inflation targets for BCRA and a new central bank law that will strengthen its operational and financial autonomy.
The new targets are for inflation below 22 percent for the second quarter of 2019 and for inflation of 17 percent for 2019. For 2020 an inflation target of 13 percent has been set and for 2021 a target of 9 percent. By 2022 BCRA is targeting 5 percent inflation, its estimate of price stability.
In a separate statement, BCRA also said it had set up a new monetary policy committee, Copom, composed of Luis Caputo, central bank's president, Vice President Gustavo Canonero, Director Enrique Szewach, who is appointed by the central bank's board, and on an interim basis, Mauro Alessandro, head of strategy and monetary policy communications.
On a permanent basis, the fourth member of Copom will be the deputy general manager of economic research.
In the event of a tied vote, President Caputo's vote will be deciding. In mid-June Caputo, a former finance minister, took over as BCRA president from Federico Sturzenegger.
The primary purpose of Copom will be to set BCRA's policy rates and conditions to execute the bank's monetary policy, including lowering the rate on the declining number of 35-day Lebac securities which functioned as a policy rate until January 2017 when BCRA began using the 7-day interbank lending rate as its reference rate.
In January this year Leliq securities were introduced to give BCRA an additional tools to mob up short-term excess liquidity.
From now on Copom will meet on the second Tuesday of each month to discuss the monetary policy rate and issue its decision at 5 p.m. local. On the third Tuesday of each month Copom will meet to determine how much to cut the Lebac rate.
The first meeting of the new Copom is Sept. 11.

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Monday, August 6, 2018

Romania maintains rate, sees inflation falling rest of year

Romania's central bank left its monetary policy rate steady for the second consecutive time, saying the latest inflation report confirms that inflation will decelerate in the third quarter and then fall in the final months of this year towards the upper bound to the target range.
The National Bank of Romania (NBR) added the August inflation report, which will be presented on Aug. 8, largely mirrors the projected path of inflation in the short term as outlined in the May inflation report. But over a longer term horizon, inflation has been revised slightly downwards.
The NBR has raised its rate three times this year by a total of 75 basis points as inflation accelerated but headline and core inflation has leveled off while economic growth is moderating.
Headline consumer inflation was steady in June and May at 5.4 percent as the rise in fuel, fruit and vegetable prices was offset by slower growth in tobacco prices and a slight fall in core inflation.
CORE2 inflation, which excludes administered prices, volatile prices, tobacco and alcohol, continued to decline to 2.9 percent in June form 2.99 percent in May, NBR said, attributing this to changes in some international food prices and a rise in the leu's exchange rate against the euro.
In its May inflation report, the central bank forecast headline inflation would ease to 3.6 percent in the fourth quarter of this year from 4.9 percent in the third quarter and 5.2 percent in the second quarter.
In 2019 inflation was seen ending the year at 3.0 percent, within the NBR's target range of 1.5 - 3.5 percent.
Romania's economy has slowed in the last two quarters, with annual growth easing to 4.0 percent in the first quarter from 6.7 percent in the fourth quarter as aggregated demand contracts, returning the economy's growth rate to that of its potential.
Recent date shows decelerating annual growth in industrial output in April-May from the first quarter of this year while there was a significant rise in the growth of new manufacturing orders.
The construction industry is continuing to decline on an annual basis due to lower residential building but the annual change in unit wage costs in the industrial sector climbed to 8.6 percent in May, up by 2.4 percentage points from April, NBR said.

This week in monetary policy: Romania, Australia, Argentina, Thailand, New Zealand, Philippines, Serbia and Peru

This week - August 5 through August 11 - central banks from 8 countries or jurisdictions are scheduled to decide on monetary policy: Romania, Australia, Argentina, Thailand, New Zealand, Philippines, Serbia and Peru.