Wednesday, November 20, 2019

Zambia raises rate another 125 bps and may hike further

    Zambia's central bank raised its policy rate for the second time this year to counter rising inflationary pressures and warned it may "further adjust the policy rate upward, if inflation persistently remains above the target range."
    The Bank of Zambia (BOZ) raised its policy rate by 125 basis points to 11.50 percent and has now raised it 175 points this year following an earlier hike in May.
    Today's rate hike follows BOZ's warning in August that it could raise the rate if inflation didn't revert to its target range.
    Since then, Zambia's inflation has continued to accelerate, rising to 10.7 percent in October, the highest rate since October 2016, from 10.5 percent in September as food prices have continued to rise  following drought and the kwacha depreciates further.
    The kwacha has fallen sharply since mid-October and was trading at 14.05 to the U.S. dollar today, down almost 15 percent this year.
     In August BOZ expected inflation to remain above the upper bound of its target range for much of the forecast horizon but today it revised this forecast higher, saying inflation is now expected to remain above the upper bound of its 6-8 percent target range over the entire forecast horizon.
     "The decision to raise the policy rate is therefore intended to counter inflationary pressures that include exchange rate pass-through effects and bring inflation back to the target range in the medium-term and hence support macroeconomic stability," BOZ said.
     Looking ahead, BOZ said policy decisions would continue to be guided by inflation forecasts and outcomes, and progress in the execution of fiscal consolidation measures, BOZ said, adding monetary policy can't solve the economic challenges alone and fiscal authorities and policy makers have to  implement tight spending controls and improve the collection of revenue to tackle high fiscal deficits, debt and debt service while dismantling domestic arrears.
     Zambia's economy is seen slowing further in the third quarter of this year as mining output, electricity generation, cement production and output of some manufactured products has declined, BOZ said, forecasting gross domestic product growth this year falling to 2.0 percent from 4.0 percent in 2018.
     In July the International Monetary Fund also forecast 2.0 percent growth this year on lower mining output and the impact of drought on hydro power generation.
     In a statement today following a visit by IMF staff from Nov. 13 to Nov. 19, IMF said projected growth was now seen slowing to below 2 percent due to the impact of severe drought, which has raised risk of food insecurity.
     The IMF stressed the need for a large, front-loaded and sustained fiscal adjustment in the 2020 budget being debated in parliament that would help set debt on a downward path and reduce domestic arrears while spending should be prioritized to meet key development priorities and support vulnerable populations.
 
    www.CentralBankNews.info


China cuts new benchmark LPR rate 3rd time

    China's central bank lowered its one-year Loan Prime Rate (LPR) by another 5 basis points to 4.15 percent, the third cut since it was designated as the new benchmark lending rate in August.
     The People's Bank of China (PBOC) also lowered the five-year LPR by 5 basis points, used to price mortgages, to 4.80 percent, the first cut in this tenor since August. 
      The rate cut was widely anticipated as it comes on the heels of cuts to two other lending rates earlier this month and confirms PBOC's concerted effort to lower the cost of financing throughout the banking system and boost economic activity.
     On Aug. 17 PBOC reformed its mechanism for calculating LPR to improve the transmission of its policy decisions to the economy and on Aug. 20 it announced LPR for the first time under this new framework, setting it at 4.25 percent.
     This was 6 basis points below the old LPR, which had been unchanged since October 2013, and 10 basis points below the previous benchmark lending rate.
     Under the new policy, LPR will be announced on the 20th of each month and on Sept. 20 LPR was cut by another 5 basis points to 4.20 percent while on Oct. 20 it was unchanged.
     LPR has now been cut by 16 basis points since it was designated the new benchmark lending rate, with today's cut following a 5-basis-point cut in the 7-day reverse repo rate to 2.50 percent on Nov. 18 and a 5-basis-point cut to 3.25 percent for the medium-term lending facility (MLF) on Nov. 5.
      Today PBOC said it didn't conduct any reverse repurchase operations on Nov. 20 "due to reasonably adequate liquidity" in the banking system. 
     China's economy has been slowing for the last six quarters, with annual growth in gross domestic product slowing to 6.0 percent in the third quarter from 6.2 percent in the second quarter and 6.4 percent in the first quarter of this year.
     Growth in the third quarter was the weakest since the first quarter of 1992 but PBOC has been steadily loosening its monetary policy stance this year by lowering reserve requirements and cutting interest rates to ensure economic activity doesn't contract further.
     Most recently, PBOC Governor Yi Gang on Nov. 19 said credit support to the economy would be stepped up and lending rates would be pushed lower.
     In his meeting with representatives from commercial banks, Yi also urged them to refer to LPR when issuing new loans.
     Meanwhile, inflation jumped to a 2019-high of 3.8 percent in October, the highest since January 2012, from 3.0 percent in September due to a surge in pork prices from an outbreak of swine fever.

     www.CentralBankNews.info


Monday, November 18, 2019

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

    (Following item has been updated with monetary policy decisions by Pakistan and Colombia)

    This week - November 17 through November 23 - central banks from 10 countries or jurisdictions are scheduled to decide on monetary policy: Hungary, Jamaica, China, Zambia, Mauritius, Indonesia, South Africa, Pakistan, Colombia 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.

WEEK 47
NOV 17 - NOV 23, 2019:
HUNGARY19-Nov0.90%000.90%         EM
JAMAICA19-Nov0.50%0-1252.00%
CHINA (1-YR LPR)20-Nov4.20%0-114.31%         EM
ZAMBIA20-Nov10.25%0509.75%
MAURITIUS20-Nov3.35%-15-153.50%         FM
INDONESIA21-Nov5.00%-25-756.00%         EM
SOUTH AFRICA21-Nov6.50%0-256.75%         EM
PAKISTAN22-Nov13.25%032510.00%         EM
COLOMBIA 22-Nov4.25%004.25%         EM
PARAGUAY22-Nov4.00%-25-1255.25%


China cuts 7-day reverse repo rate 2 days before LPR

     For the second time in less than two weeks, China lowered one of its lending rates by 5 basis points, only two days before it publishes the rate on its new benchmark lending rate, the Loan Prime Rate (LPR).
    The People's Bank of China (PBOC) lowered its 7-day reverse repurchase rate on 180 billion yuan in liquidity to 2.50 percent from 2.55 percent, the first reduction since October 2015.
    This cut follows a similar-sized 5 basis point cut in the longer-term Medium-Term Lending (MFL) to 3.25 percent on Nov. 5.
    In recent years PBOC has been revamping its entire system for setting interest rates and on Aug. 17 it designated LPR as a benchmark lending rate, with the rate linked to MFL.
     As part of that move, it changed the method for calculating LPR and now bases it on prices from 18 banks, including two foreign institutions, instead of 10 banks, with the banks required to link their LPR quotes to MFL.
      LPR will be published by PBOC on the 20th of each month and on Aug. 20 the 1-year LPR was set at 4.25 percent, 10 basis points below the previous benchmark lending rate, and the 5-year LPR at 4.95 percent.
     On Aug. 20 LPR was then set at 4.20 percent, down 5 basis points, while the 5-year LPR was unchanged at 4.85 percent.

    www.CentralBankNews.info

     

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.

WEEK 47
NOV 17 - NOV 23, 2019:
HUNGARY19-Nov0.90%000.90%         EM
JAMAICA19-Nov0.50%0-1252.00%
CHINA (1-YR LPR)20-Nov4.20%0-114.31%         EM
ZAMBIA20-Nov10.25%0509.75%
MAURITIUS20-Nov3.35%-15-153.50%         FM
INDONESIA21-Nov5.00%-25-756.00%         EM
SOUTH AFRICA21-Nov6.50%0-256.75%         EM
PARAGUAY22-Nov4.00%-25-1255.25%


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.

WEEK 46
NOV 10 - NOV 16, 2019:
NEW ZEALAND13-Nov1.00%0-751.75%         DM
PHILIPPINES14-Nov4.00%-25-754.75%         EM
RWANDA14-Nov5.00%0-505.50%
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.

     www.CentralBankNews.info

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.