Thursday, April 27, 2017

Tunisia raises rate 50 bps as dinar falls sharply

    Tunisia's central bank raised its key interest rate by 50 basis points to 4.75 percent at an extraordinary board meeting to help ease rising inflationary pressures following a sharp fall in the dinar's exchange rate and said it was closely following those pressures so it could "undertake the appropriate actions on time."
     It was the first change in rates by the Central Bank of Tunisia (CBT) since October 2015, when the rate was lowered by 50 basis points. The bank's board met on April 25.
     The central bank also raised the minimum savings rate that banks can offer by 50 points to 4.0 percent to boost the incentive to save and thus liquidity in the financial system. Tunisia's banks are in need of liquidity given a weak level of savings in the country, the central bank said.
     The rate hike comes a week after Tunisia's finance minister said the central bank would reduce interventions in the foreign exchange market so the value of the dinar gradually declines in an effort to boost exports and lower imports, and thus reduce the trade deficit.
     But last week's sharp fall in the dinar appears to have surprised the central bank, which said economic data "in no way justify the fluctuations recorded on the exchange market," and talks between the IMF and the government "were globally positive and encouraging."
     The central bank added it did not have an exchange rate target in mind, nor was it floating the dinar but would carry out "well-calibrated interventions" to smooth our sharp fluctuations in the exchange rate while seeking to "contain the trade deficit slippage," ensure financing of imports and preserve foreign currency reserves.
     The International Monetary Fund (IMF) last week released some US$319 million as part of an overall fund facility for Tunisia of some $638.5 million that is aimed at boosting economic growth and jobs at a time of high fiscal and external deficits.
     The government and IMF are also working to increase social spending and strengthening the country's social safety net to "protect the vulnerable in these challenging times," the IMF said.
     The IMF also said on April 17 that tighter monetary policy would help counteract inflationary pressures, give further flexibility to the exchange rate and narrow the trade deficit.
      On April 18 the finance minister told local radio that the central bank would reduce its interventions in the foreign exchange market while still preventing a sharp slide in the dinar and avoiding what he described as Egypt's "brutal devaluation" of its pound last year of over 30 percent.
      On April 20 and 21 the dinar fell by almost 9 percent to 2.52 to the U.S. dollar but it has rebounded this week and was trading at 2.46 today, down 6.5 percent since the start of this year.
      Tunisia's inflation rate rose to 4.8 percent in March from 4.6 percent in the two previous months while Gross Domestic Product in the fourth quarter of last year rose by an annual 1.1. percent, down from 1.2 percent in the third quarter.
      It its statement, the IMF said growth was expected to double this year to 2.3 percent "but will remain too low to significantly reduce unemployment, especially in the interior regions and among the youth."
     The official unemployment rate was 15.5 percent in the last quarter of 2016.

Wednesday, April 26, 2017

Turkey holds key rate, raises lending rate to curb inflation

    Turkey's central bank left its benchmark one-week repurchase rate steady at 8.0 percent but raised its late liquidity lending rate by a further 50 basis points to 12.25 percent and held out the prospect of further rate hikes to prevent a deterioration in the inflation outlook.
     While the Central Bank of the Republic of Turkey (CBRT) has maintained its key rate since hiking it by 50 basis points in November last year, it has been tightening its policy stance by other means, such as raising other policy rates, the rate it pays on local lenders' U.S dollar reserves and required reserve ratios in a bid to boost the value of the lira and thus slow down inflation.
     It was the third time this year the late liquidity lending rate, currently used by the central bank to provide a large proportion of the funds that banks need, was raised this year.
     This lending rate has now been raised by a total of 2.25 percentage points so far this year.
     But inflation jumped to 11.29 percent in March, the highest since October 2008, and the second consecutive month of double-digit inflation, well in excess of the bank's target of about 5 percent.
     The CBRT's cautious rate hike today comes a week after Turkish President Tayyip Erdogan, an ardent critic of high interest rates, won a referendum that grants him wider powers.
     The CBRT said food prices had led to a rapid rise in inflation and while the recent rise in risk appetite by investors may contain some of the pressure on costs, the current level of inflation risks leading to even further cost rises.
     Data showed prices of clothing and foot wear rose by 1.99 percent in March from February, followed by a 1.93 percent rise in the cost of food and non-alcoholic beverages.
     Looking ahead, the central bank said it's tight monetary policy stance would continue until there is a "significant improvement in the inflation outlook" and "additional monetary tightening will be possible if needed."
     After falling sharply in the last two months of 2016, Turkey's lira has staged a slight rebound since hitting a historic low of 3.87 to the U.S. dollar in late January, helped by the central bank's various tightening measures.
    Today the lira was trading at 3.59 to the dollar, down 1.7 percent since the start of this year.

Sunday, April 23, 2017

This week in monetary policy: Hungary, Argentina, Paraguay, Georgia, Turkey, Japan, Fiji, Sweden, euro area, Moldova, Russia, Bulgaria and Colombia

    This week (April 23 through April 28) central banks from 13 countries or jurisdictions are scheduled to decide on monetary policy: Hungary, Argentina, Paraguay, Georgia, Turkey, Japan, Fiji, Sweden, euro area, Moldova, Russia, Bulgaria and Colombia.
    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.

APR 23 - APR 28, 2017:
COUNTRY                 DATE                RATE           LATEST                 YTD               1 YR AGO       MSCI
HUNGARY 25-Apr 0.90% 0 0 1.05%          EM
ARGENTINA 25-Apr 26.25% 150 150 38.00%          FM
PARAGUAY 25-Apr 5.50% 0 0 6.00%
GEORGIA 26-Apr 6.50% 0 0 7.50%
TURKEY 26-Apr 8.00% 0 0 7.50%          EM
JAPAN 27-Apr -0.10% 0 0 -0.10%          DM
FIJI 27-Apr 0.50% 0 0 0.50%
SWEDEN 27-Apr -0.50% 0 0 -0.50%          DM
EURO AREA 27-Apr 0.00% 0 0 0.00%          DM
MOLDOVA 27-Apr 9.00% 0 0 15.00%
RUSSIA 28-Apr 9.75% -25 -25 11.00%          EM
BULGARIA 28-Apr 0.00% 0 0 0.00%          FM
COLOMBIA 28-Apr 7.00% -25 -50 7.00%          EM

Thursday, April 20, 2017

Indonesia maintains rate, growth to accelerate in Q2

    Indonesia's central bank left its benchmark 7-day reverse repo (RR) rate steady at 4.75 percent, as expected, saying economic growth in the first quarter of this year was likely to be below expectations due to slower growth in retail and automotive sales.
     However, growth is expected to accelerate in the second quarter, supported by stronger investment and exports while consumption would be stable. Rising commodity prices and stronger external demand would help drive exports and investment, Bank Indonesia (BI) said.
    Last month BI forecast economic growth this year of 5.0 to 5.4 percent, up from 5.02 percent in 2016 and 4.88 percent in 2015 on stronger private consumption, rising exports, higher government spending and improve private and government investment.
     Economic activity in Indonesia slowed in the fourth quarter of last year as consumer spending eased along with government spending while exports and investments rose. On a quarterly basis, Gross Domestic Product shrank by 1.77 percent from the third quarter while on an annual basis GDP rose by 4.94 percent, down from 5.01 percent in the third quarter.
    BI cut its 7 day RR rate twice last year by a total of 50 basis points following four cuts in its previous benchmark rate by a total of 100 points from January through June.
    As in its March statement, BI said global economic growth is expected to continue to improve although it was keeping a close eye on a number of risks, such as inflationary pressure in developed countries, which could trigger tighter monetary policy,  higher U.S. interest rates and asset sales that could boost the U.S. dollar and thus the cost borrowing, geopolitical risks in Europe "related to the strengthening of the wave of populism," U.K. talks about leaving the EU, and Greek debt talks.
   Indonesia's inflation rate eased to a lower-than-expected 3.61 percent in March from 3.83 percent in February due to higher supply of food while administered prices declined due to lower airfares that helped reduce the impact of higher electricity rates.
    Indonesia's rupiah has been firm this year and was trading at 13,327 to the U.S. dollar today, up 1.3 percent since the start of this year.
     BI said appreciation of the rupiah was supported by macroeconomic stability and investors' positive view of the country's economic outlook coupled with easing global risks. This lead to an influx of non-resident capital to Indonesian stocks and government debt.

Sunday, April 16, 2017

This week in monetary policy: Malawi and Indonesia

    This week (April 16 through April 22) central banks from 2 countries or jurisdictions are scheduled to decide on monetary policy: Malawi and Indonesia.
    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.

APR 16 - APR 22, 2017:
COUNTRY                 DATE                RATE           LATEST                 YTD               1 YR AGO       MSCI
MALAWI 18-Apr 22.00% -200 -200 27.00%
INDONESIA 20-Apr 4.75% 0 0 6.75%          EM

Thursday, April 13, 2017

Ukraine cuts rate 100 bps as inflation seen on target

    Ukraine's central bank cut its monetary policy rate by a further 100 basis points to 13.0 percent as it lowered its outlook for economic growth but forecast that it would reach its inflation targets over the next three years.
    The National Bank of Ukraine (NBU) has now cut its rate by 1,700 basis points since starting on its easing cycle in August 2015, including cuts of 800 points in 2016.
     But it is the first rate cut since October last year as the central bank sought to counter a rise in inflation due to a weakening of the hryvnia's exchange rate, higher global commodity prices and an increase in minimum wages.
     But the hryvnia has been stable this year and even firmed this week despite news this week that NBU Governor Valaria Gontareva would resign on May 10.
     Gontareva joined the central bank in June 2014 when the country's economy was reeling under Russia's annexation of Crimea, military conflict in eastern Ukraine, a plunging exchange rate and accelerating inflation.
      But her stewardship of the central bank, which she reformed and streamlined, was critical in helping stabilize the economy by pulling down inflation from a peak of 60.9 percent in April 2015, shoring up confidence in the hryvnia and cleaning up the banking sector, which was dominated by oligarch-owned banks.
      Gontareva's resignation came a week after the International Monetary Fund (IMF) released a US$1 billion loan payment to Ukraine, funds that had been delayed since March over the lack of government reforms. The release of this tranche brings total funds disbursed to Ukraine so far to about $8.4 billion as part of a $17.5 billion bailout package.
     Although Ukraine's headline inflation rose to 15.1 percent in March from 14.2 percent in February, this was mainly due to a 49.5 percent jump in housing and government-regulated utility tariffs, with the rise lower than the central bank projected in January when it forecast a rise to 16.4 percent.
     "The situation in the FX market has helped weaken pressure on prices," the NBU said, adding an appreciation of the hryvnia since mid-January was underpinned by solid export revenues.
     The NBU maintained its forecast that inflation will decline to 9.1 percent this year although it will remain volatile and in double-digits in the second and third quarters due to the impact of higher administered prices before dropping to single digits in the fourth quarter.
      Next year inflation is forecast to ease to 6.0 percent in and then to 5.0 percent in 2019, which means inflation will meet the bank's 2017 target of 8.0 percent, plus/minus 2 percentage points, the 2018 target of 6.0 percent, plus/minus 2 points, and the 2019 target of 5.0 percent, plus/minus 1 point.
    After plunging in 2014 and 2015, Ukraine's hryvnia has been firming since mid-January and was trading at 26.9 to the U.S. dollar today, largely unchanged since the beginning of this year.
     But it is still down almost 11 percent since the start of 2016. From the start of 2014 to end-2015, the hryvnia depreciated by 66 percent. In March 2014 unmarked Russian troops invaded Ukraine's Crimean peninsula and later that year conflict broke out in eastern Ukraine.
     The NBU also confirmed a recent downward revision in its forecast for 2017 growth to 1.9 percent from a previous forecast of 2.8 percent due to a trade blockade by the country's government on the rebel-held eastern regions. The blockade will result in a loss of output from industries in that area, including metals and mining, coke and electricity.
     Next year Ukraine's economy is seen growing by 3.2 percent, up from its January forecast of 3.9 percent, and by 4.0 percent in 2019 as consumer and investment demand recovers. Last year Ukraine's economy grew by an estimated 1.8 percent.

Wednesday, April 12, 2017

Brazil cuts rate 100 bps, sees rate at 8.50% end-2017

    Brazil's central bank cut its benchmark Selic rate by 100 basis points to 11.25 percent and said the higher pace of monetary easing was appropriate in light of forecasts that point to a policy rate of 8.5 percent by the end of 2017 with the rate remaining at that level until the end of 2018.
    The Central Bank of Brazil has now cut its rate by 300 basis points since embarking on an easing cycle in October 2016 and by 250 basis points this year alone.
     In October and November last year the central bank cut the rate by 25 basis points each time and then accelerated the pace of easing to 75 points in both January and February this year.
    Copom, the central bank's monetary committee, was unanimous in today's decision to cut the Selic rate by one percentage point and said the future pace of monetary easing would depend on the degree of front loading of rate cuts, economic activity, inflation forecasts and expectations, and the economy's structural interest rate.
     Today's one percentage point rate cut had been expected by many following a decline in March inflation to the lowest rate since 2010 at 4.57 percent, down from 4.76 percent in February.
     Copom said convergence of inflation to its target of 4.5 percent was compatible with its current easing process and economic activity was stabilizing and should gradually recover this year.
    "The disinflation process is more widespread," the central bank said, adding that lower food prices amounted to a favourable supply shock and inflation expectations for 2017 were now around 4.1 percent and 4.5 percent for 2018, and slightly below that level of 2019.
     The central bank's inflation forecast for 2017 and 2018 were now around 4.1 percent and 4.5 percent based on the assumption the policy rate ends 2017 at 8.5 percent and stays at that level.
    The central bank targets inflation of 4.5 percent with a range of plus/minus 1.5 percentage point, a level that is likely to be lowered in June when it is being revised by the government. However, inflation has also overshot the bank's target in the last seven years.
    Brazil's Gross Domestic Product contracted by an annual rate of 2.5 percent in the fourth quarter of last year, the 11th consecutive quarter of shrinking output.
    But Brazil's real has been firming since January last year, following five years of depreciation, and was trading at 3.13 to the U.S. dollar today, up 4.2 percent this year.