Sunday, November 17, 2019

This week in monetary policy: Hungary, Jamaica, China, Zambia, Mauritius, Indonesia, South Africa & Paraguay

    This week - November 17 through November 23 - central banks from 8 countries or jurisdictions are scheduled to decide on monetary policy: Hungary, Jamaica, China, Zambia, Mauritius, Indonesia, South Africa and Paraguay.
    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.

NOV 17 - NOV 23, 2019:
HUNGARY19-Nov0.90%000.90%         EM
CHINA (1-YR LPR)20-Nov4.20%0-114.31%         EM
MAURITIUS20-Nov3.35%-15-153.50%         FM
INDONESIA21-Nov5.00%-25-756.00%         EM
SOUTH AFRICA21-Nov6.50%0-256.75%         EM

Thursday, November 14, 2019

Mexico cuts rate 3rd time in 2019, 2 vote for 50 bps cut

     Mexico's central bank cut its benchmark interest rate for the third time in a row, citing low inflation, ample slack in the economy and the recent behavior of external and domestic bond yields.
     The Bank of Mexico (Banxico) cut its target for the overnight interbank interest rate by another 25 basis points to 7.50 percent and has now cut it by 75 points this year as it continues to unwind some of the 15 rate hikes with 500 points of increase between December 2015 and December 2018.
     As in September, two members of the central bank's board voted to cut the rate by a larger 50 basis points.
     Banxico said it would maintain a "prudent monetary policy stance" and closely follow the potential pass-through of exchange rate fluctuations to domestic prices, Mexico's relative monetary policy stance in a global environment that is still subject to risks, the behavior of slack conditions and cost-related pressures in the economy.
     Despite easier monetary policy by central banks in advanced economies, such as the U.S. Federal Reserve and the European Central Bank, which has boosted international financial markets, Banxico said risks to the global economy from trade tensions and geopolitical factors, along with political and social unrest in several countries, persists and the balance of risks remain to the downside.
     Economic data for the third quarter shows that economic activity is continuing to stagnate, implying that economic slack has widened more than expected, so economic growth for this year and 2020 is likely to be lower than forecast in the June quarterly report, the bank said.
     In its second quarter inflation report, Banxico cut its 2019 growth forecast for the fifth time to a range of 0.2 to 0.7 percent from 0.8 to 1.8 percent in the first quarter report. The 2020 outlook was cut to between 1.5 and 2,.5 percent from 1.7 to 2.7 percent.
     On an annual basis, Mexico's gross domestic product shrank 0.4 percent in third quarter following a 0.8 percent contraction in the first quarter.
     Inflation in October rose slightly to 3.02 percent from 3.0 percent in September, with the trajectory suggesting inflation might be below the outlook in the June quarterly report in which the bank forecast 3.2 percent inflation for the end of the year, within its target of 3.0 percent, plus/minus 1 percentage point.

Egypt cuts rate 4th time in 2019 as inflation eases

    Egypt's central bank lowered its key interest rates for the fourth time this year as underlying inflationary pressures continue to ease, with the recent easing providing "appropriate" support to economic activity while remaining consistent with achieving the inflation target.
     The Central Bank of Egypt (CBE) cut its overnight deposit rate, the overnight lending rate, the rate on its main operation and the discount rate by 100 basis points each to 12.25 percent, 13.25 percent, 12.75 percent and 12.75 percent, respectively.
     CBE has now cut its benchmark overnight rate by 450 basis points this year following earlier cuts in February, August and September. Since February 2018 the rate has been cut by 650 points when it moved into an easing cycle in response to slowing inflation.
     Egypt's inflation rate dropped to 3.1 percent in October, the lowest since December 2005 according to Reuters, from 4.8 percent in September, cementing expectations of today's rate cut.
     Inflation surged to 33 percent in July 2017 after the Egyptian pound was floated in November 2016 as part of a $12 billion agreement with the International Monetary Fund (IMF) that included a rollback of fuel subsidies and the introduction of value-added-tax.
     CBE said its rate cuts were consistent with reaching the inflation target of 9.0 percent, plus/minus 3 percentage points, in the fourth quarter of 2020.
     The fall in inflation was driven by lower food prices along with favorable base effects from a transistor shock to fresh vegetable prices last year.
     Egypt's economy was hard hit by the Arab Spring in 2011 but has been steadily improving since 2016 and CBE said growth had stabilized, with gross domestic product rising 5.6 percent in the third quarter of this year, down from 5.7 percent in the second quarter but steady from 5.6 percent in the first quarter.

Philippines takes 'prudent pause' to let cuts take effect

     Bangko Sentral Ng Pilipinas (BSP), the central bank of the Philippines, left its benchmark overnight reverse repurchase (RRP) facility rate steady at 4.0 percent and said it would take "a prudent pause" in further changes to monetary policy to allow this year's easing take effect.
     BSP, which has cut its rate three times this year and lowered the reserve requirement for banks, added this decision was supported by a benign outlook for inflation due to the prospects for weak global growth and a firm outlook for the domestic economy.
     "Given these considerations, the Monetary Board believes that prevailing monetary policy settings remain appropriate," the central bank said.
     The decision was widely anticipated by investors following last Sunday's statement by Governor Benjamin Diokno that the central bank had done "more than enough" for the year, referring to a total cut in the key rate of 75 basis points in May, August and September, along with a 100 point cut in the reserve requirement, effective this month.
    "A prudent pause in monetary adjustments will enable the cumulative 75-basis-point reduction in policy rates as well as the cut in reserve requirement ratios to continued working their way through the economy," BSP said today.
     Looking ahead, BSP said it would continue to monitor inflation and economic output to ensure its policy stance remains consistent with stable prices while supporting economic growth.
     Inflation in the Philippines has trended down in the last 12 months but BSP said the latest forecasts continue to indicate inflation is likely to settle within the lower half of its target range of 3.0 percent, plus/minus 1 percentage point for this year and up to 2021, with the balance of risks on the upside for 2020 and to the downside for 2021.
     In October inflation in the Philippines fell to 0.8 percent from 0.9 percent in September, down from a 10-year high of 6.7 percent in October 2018, and in September BSP cut its inflation forecast for this year to an average 2.5 percent from a previous forecast of 2.6 percent.
     The potential outbreak of African Swine Fever and potential volatility in oil prices present the main upside risks to inflation while uncertainty over trade policies continue to weigh on global economic activity and demand, dampening the upside risks.
     Firm domestic spending and sustained progress in policy reforms should help serve as "a buffer" against external headwinds for the Philippines, BSP said, adding it trusts the fiscal 2020 budget would be passed this year.
     The Philippine economy grew 6.2 percent year-on-year in the third quarter, up from 5.5 percent in the second quarter and 5.6 percent in the first quarter.
     The Philippine peso has strengthened in the last 12 months and 50.8 to the U.S. dollar today, up 3.5 percent this year.

Sunday, November 10, 2019

This week in monetary policy: New Zealand, Philippines, Rwanda, Egypt, Mexico & Sri Lanka

    This week - November 10 through November 16 - central banks from 6 countries or jurisdictions are scheduled to decide on monetary policy: New Zealand, Philippines, Rwanda, Egypt, Mexico and Sri Lanka.
    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.

NOV 10 - NOV 16, 2019:
NEW ZEALAND13-Nov1.00%0-751.75%         DM
PHILIPPINES14-Nov4.00%-25-754.75%         EM
EGYPT14-Nov13.25%-100-35016.75%         EM
MEXICO14-Nov7.75%-25-508.00%         EM
SRI LANKA15-Nov7.00%0-1008.00%         FM

Saturday, November 9, 2019

Malaysia cuts reserve ratio to ensure enough liquidity

    Malaysia's central bank lowered its minimum reserve requirement for commercial banks by 50 basis points to 3.0 percent, underscoring this is to ensure sufficient liquidity in the domestic financial system and not "a signal on the stance of monetary policy."
     Bank Negara Malaysia (BNM), which earlier this week left its benchmark interest rate steady at 3.0 percent, added in a statement on Nov. 8 the cut in the Statutory Reserve Requirement (SRR) would take effect on Nov. 16.
     It said SRR is an instrument to management liquidity and the cut will support the functioning of the domestic financial markets and facilitate liquidity management by banks.
     It is BNM's first change in SRR since Feb. 1, 2016 when it was lowered 50 basis points to 3.50 percent.
     During 2011 SRR was raised three times (April, May and July) to 4.0 percent from 1.0 percent, the level it was cut to during the Global Financial Crises. Since July 2011 SRR was then maintained at 4.0 percent until February 2016.
     "The Overnight Policy Rate (OPR) is the sole indicator used to signal the stance of monetary policy" and announced after a meeting of the monetary policy committee.

Friday, November 8, 2019

Peru cuts rate 2nd time this year, no new cuts implied

    Peru's central bank lowered its monetary policy rate for the second time this year amid low inflation but said this decision didn't necessarily imply further rate cuts and it's board would pay close attention to inflation and its determinants when assessing the future monetary policy stance.
     The Central Reserve Bank of Peru (BCRP) cut its reference rate by 25 basis points to 2.25 percent and has now cut it by 50 basis points this year following a cut in August, its first cut since March 2018.
     Inflation in Peru rose slightly to 1.88 percent in October from 1.85 percent in September and excluding food and energy, inflation rose to 2.34 percent from 2.16 percent.
     However, excluding one-off increases in water, electricity and transportation rates, the monthly inflation rate would have been negative, said BCRP, which targets inflation of 2.0 percent, plus/minus 1 percentage point.
     Inflation is expected to remain within the target range and close to 2.0 percent within the forecast horizon but with a downside bias due to the possibility of a lower than expected increase in domestic demand.
    Economic conditions point toward a narrowing of the output gap, with a recovery in non-primary industries partly offsetting a weak performance by primary industries in the first 9 months of the year and a slowdown in public investment expected to reverse in the rest of the year.
     BCRP added business conditions had improved slightly in October and risks to global growth had also decreased on a moderation of trade tensions.
    Peru's economy slowed to growth of only 1.2 percent in the second quarter of the year from 2.4 percent in the first quarter.
    BCRP has forecast growth this year of 2.7 percent and 3.8 percent in 2020.
    Peru's sol has been relatively steady in recent years and was trading around 3.34 to the U.S. dollar today, up 1.2 percent this year.

Thursday, November 7, 2019

Serbia cuts rate 3rd time and sees higher Q3 growth

    Serbia's central bank lowered its policy rate for the third time this year due to a further weakening of inflationary pressures but was upbeat about the outlook for economic growth, saying domestic factors have made up for weak external demand and growth in the third quarter should be higher than expected.
    The National Bank of Serbia (NBS) cut its key policy rate by another 25 basis points to 2.25 percent, a new record low since it adopted inflation targeting as its monetary strategy in 2009.
    NBS has now cut its rate 75 basis points this year following cuts in April, August and today.
    NBS said the cut should lend further support to credit and economic growth, with weak inflation both domestically and internationally the main reason for the rate cut.
     However, the easing was also influenced by the slowdown in global economic growth and trade along with the easier monetary policy by leading central banks such as the European Central Bank and the Federal Reserve, NBS said, adding the Fed's easing should help preserve favorable global financial conditions and and have a positive effect on capital flows to emerging economies.
     Headline inflation in Serbia fell further to 1.1 percent in September from 1.3 percent in August due to lower food prices during the agricultural season and lower global oil prices, and subdued inflationary pressures are also indicated by core inflation, which NBS said remains low and stable, as well as inflation expectations.
     According to its latest projection, which will be presented Nov. 14, inflation should move around in the lower bound of the target tolerance band of 3.0 percent, plus/minus 1.5 percentage points, until the end of this year and in the first half of 2020.
     Inflation should then gradually converge to NBS's midpoint target in the medium term, reflecting "elevated aggregate demand."
     "The latest economic indicators point to a higher than projected GDP growth in Q3," NBS said, led by a recovery of manufacturing after completed overhauls and a pickup in construction and services.
     Investments are also continuing to growth on the back of infrastructure projects, the business environment has improved and household consumption is continuing to rise due to prolonged labour market trends and the lower cost of borrowing.
    "In the year to date, domestic factors managed to compensate for the weaker external demand," NBS said.
    After being hit by drought in 2017, Serbia's economy grew 4.3 percent in 2018, its fastest pace in 10 years, an its public finances remain in surplus as in the previous two years and the current account deficit is fully covered by foreign direct investment flows for the 5th year in a row.
    Gross domestic product grew 2.9 percent in the second quarter year-on-year, up from 2.7 percent in the first quarter and in September NBS forecast 3.5 percent growth this year.
    Serbia's dinar has weakened this year against the U.S. dollar this year but steadily firmed against the euro, which accounts for more than 60 percent of its exports and imports.
     The dinar was trading at 106.1 to the U.S. dollar today, down 2.6 percent this year, and at 117.4 against the euro, up 0.6 percent.

Wednesday, November 6, 2019

Belarus cuts rate 2nd time, inflation slows toward target

     The central bank of Belarus cut its benchmark refinancing rate for the second time this year, saying this would help ensure a neutral monetary policy as inflation continues to slow.
    The National Bank of the Republic of Belarus cut its refinancing rate by another 50 basis points to 9.0 percent and has now cut it by 100 points this year, extending an easing cycle since April 2016. Since then the repo rate has been lowered by 16 percentage points.
    The bank also narrowed its interest rate corridor to 2 percentage points from 2.5 points to increase the efficiency of the transmission of monetary policy on inflation.
     The overnight loan rate was cut 75 basis points to 10.0 percent and the overnight deposit rate by 25 basis points to 8.0 percent to help narrow the range of rates on instruments that regulate bank liquidity.
     "Subsequently, these rates will change simultaneously with the refinancing rate by an appropriate amount," the central bank said.
     Inflation in Belarus slowed to 5.3 percent in September and the central bank said it expects inflation to be near its 5.0 percent target by the end of 2019 and during 2020.
     Last month the central bank's deputy chairman, Sergei Kalechits, said the main objective next year is to keep inflation below 5 percent, to maintain the level of foreign exchange and gold reserves, develop financial market instruments and strengthen the banking system.
     Belarus' gross domestic product slowed slightly to 1.3 percent year-on-year in the first quarter of this year from 1.4 percent in the previous quarter.

Thailand cuts rate 2nd time to boost growth, inflation

     Thailand's central bank cut its policy rate for the second time in four months, saying economic growth is slowing more than expected as a decline in exports is affecting domestic demand and employment while inflation is below the lower bound of its target.
     The Bank of Thailand (BOT) cut its policy rate by another 25 basis points to 1.25 percent and has now cut it by 50 points this year, catching up with the easing by some of the other emerging market central banks in Asia, such as Indonesia (4 rate cuts), the Philippines (3 rate cuts) and South Korea (2 rate cuts).
     The last time BOT's policy rate was lowered to this level was in April 2009 during the global financial crises and it remained at that level until July 2010.
     Mirroring the decision in August, when BOT cut its rate for the first time since April 2015, the policy committee was split, with five members voting to cut while two voted to maintain the rate, arguing the monetary policy stance is already accommodative and policy space should be preserved to cope with any potential risks in the future.
    "Most members viewed that a more accommodative monetary policy stance would contribute to economic growth and support the rise of headline inflation toward the target," BOT said, adding the country is facing higher external risks from trade tensions, the economic outlook of China and advanced economies, which could affect domestic demand, as well as geopolitical risks.
     As in September, when BOT maintained its rate, the bank's monetary policy committee said it would remain data-dependent going forward but the Thai economy continues to face structural problems that will affect its competitiveness and economic growth.
     In September, BOT also said growth was lower than previously assessed and below potential and cut its 2019 growth forecast to 2.8 percent from 3.3 percent and the 2020 forecast to 3.3 percent from 3.7 percent due to weak exports.
     Last week BOT said third-quarter growth might be less than its 2.9 percent forecast. In the second quarter the economy slowed to 2.3 percent annual growth from 2.8 percent in the first quarter, continuing the deceleration since 5.0 percent growth in the first quarter of 2018.
     Thailand's government in August launched a 310 billion baht stimulus package, comprised of cash handouts and cash rebates, and government officials have said they may launch additional stimulus to boost the economy.
     Compounding sluggish global demand for its exports, the baht is strong and BOT "expressed concerns over the baht appreciation against trading partners countries."
     The baht, driven up by the country's current account surplus and foreign fund inflows, has trended upwards since October 2015 and is up 7.33 percent this year to 30.28 to the U.S. dollar although it has slipped this month.
     BOT said it supported a relaxation of foreign exchange regulations to encourage capital outflows and promote more balanced capital flows which should alleviate pressure on the baht and help the private sector better manage exchange rate risks.
     Thailand's inflation rate fell to 0.11 percent in October from 0.32 percent in September and well below BOT's target range of 2.5 percent, plus/minus 1.5 percentage points on lower-than-expected energy prices and the global slowdown.
      In September BOT cut its inflation forecast for 2019 to 0.8 percent from 1.0 percent but retained the 2020 forecast at 1.0 percent.
     BOT has proposed narrowing the inflation target for next year and the finance ministry has agreed with the new target, as yet unknown, and said this week it was submitting it for cabinet approval.

Iceland cuts rate 5th time but signals pause

     Iceland's central bank lowered its policy rate for the 5th consecutive time but signaled it would now take a pause, saying the impact of the easing had yet to come fully to the fore and "the current interest rate level should suffice to ensure medium-term price stability and full capacity utilization."
      The Central Bank of Iceland (CBI) cut the rate on its 7-day term deposits by 25 basis points to 3.0 percent and has now cut it by 150 basis points this year following cuts in May, June, August, October and today.
     The outlook for economic growth in the second half of this year has deteriorated relative to the August monetary bulletin and CBI lowered its forecast for 2020 economic growth to 1.6 percent from an earlier 1.9 percent while the forecast for 2019 was unchanged for a contraction of 0.2 percent.
    "The forthcoming fiscal easing will pull in the same direction," CBI said, adding the outlook could still be overly optimistic, in particular in view of global economic uncertainty.
    The forecast for growth in 2021 was raised to 2.9 percent from an earlier 2.7 percent and growth in 2022 was also seen at 2.7 percent as public investment helps boost domestic demand to growth of 3.7 percent in 2020 and 3.2 percent in 2021.
     After a severe recession following the global financial crises, tourism helped launch an economic boom in Iceland, with the economy growing 4.6 percent in 2017 and 2018.
     But the tourism boom has now subsided, partly hit by a collapse in budget airline WOW and a high Icelandic krona, while exports were hit hard by the plunge in exports and the fishing of capelin due to rising ocean temperatures amid uncertainty surrounding Icelandair's grounded Boeing 737 Max aircraft.
     Iceland's economy has begun to bounce back and grew 2.7 percent in the second quarter of this year after shrinking  0.9 percent in the first quarter while inflation has slowed steadily this year to 2.8 percent in October from 3.0 percent in September and a 2019-high of 3.6 percent in May.
     The decline in inflation has been faster than CBI forecast in August and inflation expectations have also been falling, which also meant CBI's monetary stance had slightly tightened.
     CBI forecast consumer price inflation will average 2.9 percent this year, down from the August forecast of 3.0 percent but up from 2018's 2.6 percent.
     In 2020 and 2021 inflation is seen averaging 2.2 percent, rising to 2.4 percent in 2022.
     CBI targets inflation of 2.5 percent.