Sunday, February 16, 2020

This week in monetary policy: Turkey, Zambia, Namibia, Jamaica, China, Indonesia & Egypt

    This week - February 16 through February 22 - central banks from 7 countries or jurisdictions are scheduled to decide on monetary policy: Turkey, Zambia, Namibia, Jamaica, China, 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, 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.

FEB 16 - FEB 22, 2020:
TURKEY19-Feb11.25%-75-7524.00%         EM
CHINA 1)20-Feb4.15%004.35%         EM
INDONESIA20-Feb5.00%006.00%         EM
EGYPT20-Feb12.25%0015.75%         EM
1) As of Aug. 17, 2019 Loan Prime Rate is benchmark

Thursday, February 13, 2020

Mexico cuts rate 5th time, global risks still to downside

     Mexico's central bank lowered its benchmark interest rate for the fifth time, saying the balance of risks to the global economy remain to the downside due to a range of uncertainties, "including the effects of the recent coronavirus outbreak," despite a further easing of global financial conditions.
     The Bank of Mexico, known as Banxico, cut its target for the overnight interbank interest rate by 25 basis points to 7.0 percent and has now cut it five times and by a total of 125 points since July 2019 when it began to unwind some of the 500-point rate hikes in the three years from December 2015 to December 2018.
     "Economic slowdown, low inflation, accommodative monetary policies, and lower interest rates continue to prevail in the world economy," said the central bank, adding the bank's board was unanimous in its decision.
     In a new and more concise policy statement, aimed at getting is message more easily across to the public, Banxico said the prevalence of external and domestic risks could affect domestic financial markets, adding the peso's exchange rate and yields on government securities had fallen in recent weeks.
      Economic activity in Mexico has stagnated for several quarters, and the economy is is now seen growing less than forecast in the third quarter quarterly report, the central bank said, without providing further details.
     In its quarterly inflation report released in November Banxico lowered its estimate of 2019 economic growth to between a contraction of 0.2 percent and growth of 0.2 percent, down from an earlier forecast of 0.2 - 0.7 percent growth.
     In the fourth quarter of 2019, Mexico's gross domestic product shrank an annual 0.3 percent, the same as in the third quarter, with growth for the full year estimated to contract 0.1 percent, sharply down from 2018 growth of 2.1 percent.
     For 2020 Banxico cut its growth forecast to 0.8 - 1.8 percent from 1.5 - 2.5 percent and forecast growth in 2021 of 1.3 - 2.3 percent.
     In January Mexico's consumer price inflation rate rose 3.24 percent, within the central bank's target of 3.0 percent, plus/minus 1 percentage point.
     The central bank has recently warned that a 20 percent hike in minimum wages by Mexico's government in December, the second major increase in as many years, could push up inflation and make it difficult to bring inflation down to its target this year.
     Mexico's peso has been rising this year and rose further after the rate cut to 18.63 to the U.S. dollar, up 1.6 percent this year.

Wednesday, February 12, 2020

Belarus cuts rate another 25 bps to keep neutral stance

     The central bank of Belarus continued its 4-year easing cycle and lowered its key rate further to maintain a neutral monetary policy stance and keep inflation near its 5.0 percent target in 2020.
      The National Bank of the Republic of Belarus cut its benchmark refinancing rate by another 25 basis points to 8.75 percent, its first cut this year.
     Since April 2016, when it embarked on the current easing cycle, the rate has now been cut by 16.25 percentage points from 25.0 percent.
     Future policy decisions will continue to rest on achieving the inflation target, the bank added.
     The central bank said its vision of inflation in 2020 had not changed since November and it still expects inflation to fall within its 5.0 percent target, taking into account the planned rise in regulated prices and tariffs, low inflation in Russia and Europe, and a largely neutral impact on prices from domestic economic activity.
      The decision to lower the rate takes into account any risks and uncertainties that could create inflationary pressures, the central bank said, pointing to the volatility of international financial markets and events in China, a reference to the current outbreak of the coronavirus that is adding uncertainty to the global economic outlook.
      Headline inflation in Belarus was steady at 4.7 percent in January and December, slightly lower than the central bank had expected, but close to its target.
     The Belarus ruble is also expected to be near equilibrium, the central bank said.
     The government and central bank in January adopted a major strategy to improve trust in the Belarusian ruble by pursuing a coordinated policy to reduce the reliance of foreign currency in the country and ensure the Belarusian ruble occupies a leading role in the domestic economy.
     Government debt commitments are around 97 percent denominated in foreign currency.
     Among the features of this strategy is for the central bank to fully transition to inflation targeting by 2021, a reduced footprint by the central bank in the foreign exchange market, reduced monopolies in the economy over the next few years, a reduction in state debt, regular issues of government debt in Belarusian rubles starting this year with various periods of maturity, the creation of alternative forms of savings to procure long-term sources of funding in the ruble, and ensure that all taxes, rents, tariffs and prices by state-run organizations are set in Belarusian rubles.
     After rising from February 2019 to July 2019, the Belarusian ruble has eased since November and fell further to 2.19 to the U.S. dollar today, down 4.1 percent this year.


Tuesday, February 11, 2020

New Zealand holds rate, time to adjust if coronavirus hits

     New Zealand's central bank left its policy rate steady, saying it assumes the economic impact of the coronavirus outbreak will be of short duration, but if the impact turns out to be larger and more persistent "monetary policy has time to adjust if needed as more information becomes available."
     The Reserve Bank of New Zealand (RBNZ) left its Official Cash Rate (OCR) at a record low of 1.0 percent, unchanged since August last year.
     In 2019 it cut the rate twice by a total of 75 basis points, starting in May when it became the first central bank among developed economies to slash its interest rate and provide a dose of monetary stimulus in response to slowing global growth, hit by uncertainty amid trade conflicts.
     Since the second rate cut in August 2019, RBNZ has kept the rate steady, saying it would remain at a low level for a prolonged period and it would add further monetary stimulus if needed to achieve its inflation and employment objectives.
     In today's policy statement, RBNZ's monetary policy committee dropped the earlier reference to adding further stimulus if needed, noting additional fiscal stimulus is helping reduce the burden on monetary policy and economic growth is expected to accelerate over the second half of 2020.
    In December New Zealand's government announced an investment package of $12 billion, or around 4 percent of gross domestic product, with some $8 billion to be spent between June 2022 and June 2024, mainly on infrastructure.
     However, policy makers still agreed low interest rates were needed to keep inflation and employment close to the targets and the outbreak of the coronavirus in China is "an emerging downside risk."
     At this point, RBNZ said it assumes the economic impact on New Zealand from the coronavirus will be short and mostly felt in the first half of 2020.
     But it also acknowledged that some sectors of the economy, such as tourism and trade, were being significantly affected and although the understanding of the duration and impact of the outbreak was changing quickly, it agreed "the coronavirus outbreak was a risk global growth in 2020."
     "The Committee discussed the monetary policy implications if the impacts of the outbreak were larger and more persistent than assumed and agreed that monetary policy had time to adjust if needed as more information became available," RBNZ said.
     New Zealand's dollar, known as the kiwi, has eased this year but jumped 0.6 percent in response to RBNZ's decision to 1.55 to the U.S. dollar. But it remains 3.9 percent down from the start of this year.
     In an update to its economic projections, RBNZ maintained its forecast for OCR to average 1.2 percent this year but raised it to 1.0 percent in 2021 from November's forecast of 0.9 percent, implying rates will be held steady.
     For 2022 OCR is seen rising to 1.3 percent, from an earlier 1.1 percent, and then to 1.7 percent in 2023.
     Headline inflation is seen averaging 2.2 percent this year, up from 1.5 percent in 2019, but then easing to 1.7 percent in 2021, before rising back to 2.1 percent in 2022 and 2.0 percent in 2023.
     Gross domestic product is seen averaging 1.9 percent this year, down from November's forecast of 2.1 percent and down from 2019's 3.1 percent.
     In 2021 New Zealand's economy is seen growing 2.9 percent, then 2.6 percent in 2022 and 2.0 percent in 2023.

Sunday, February 9, 2020

This week in monetary policy: New Zealand, Sweden, Belarus, Serbia, Uganda, Mexico & Peru

    This week - February 9 through February 15 - central banks from 7 countries or jurisdictions are scheduled to decide on monetary policy: New Zealand, Sweden, Belarus, Serbia, Uganda, Mexico and Peru.
    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.

FEB 9 - FEB 15, 2020:
NEW ZEALAND12-Feb1.00%001.75%         DM
SWEDEN12-Feb4.50%005.50%         DM
SERBIA13-Feb2.25%003.00%         FM
MEXICO13-Feb7.25%008.25%         EM
PERU13-Feb2.25%002.75%         EM

Friday, February 7, 2020

Russia cuts rate 25 bps and is open to further easing

     Russia's central bank lowered its key interest rate by another 25 basis points to 6.0 percent as inflation continues to decelerate and said it was willing to cut rates further in coming policy meetings if the economic situation develops as it expects.
     It is Bank of Russia's first rate cut this year but the sixth since it began the current easing cycle in May 2019. Since then the rate has been lowered by a total of 175 basis points.
     "Risks of a substantial global economic slowdown persist" and "deflationary risks still exceed pro-inflationary risks over the short-term horizon," the central bank said, adding:
     "If the situation develops in line with the baseline forecast, the Bank of Russia holds open the prospect of further key rate reduction at its upcoming meetings."
     Russia's inflation rate fell to 2.4 percent in January from 3.0 percent in December, the 10th consecutive month of decelerating inflation and the lowest rate since June 2018.
      The decline was partly affected by last year's hike in value-added-tax dropping out of the comparison and moderate price growth, the central bank said, forecasting annual inflation in 2020 of 3.5 to 4.0 percent and then 4.0 percent in 2021 and 2022, in line with its target.
      The rise in Russia's ruble along with slower inflation among Russia's trading partners is limiting import price inflation and the Bank of Russia expects inflation expectations to continue to decline.
     Russia's ruble has been firming since September 2018 but has dropped since mid-January and fell a further 1.0 percent in response to the rate cut.
     The ruble was trading at 63.99 to the U.S. dollar today, down 3.1 percent this year.
      Russia's economy is continuing to improve after a deep recession in 2015 and 2016, with growth in 2019 estimated at 1.3 percent, at the upper bound of the central bank's forecast, despite a decline in exports.
      "Economic activity continues to be constrained by weakening external demand for Russian exports on the back of a global economic slowdown," the central bank said, with leading indicators pointing to weak business sentiment in the industrial sector, which is mainly geared to exports.
      The central bank kept its growth forecasts unchanged, expecting gross domestic product is expected to grow 1.5 to 2.5 percent this year and then 2.0 to 3.0 percent in 2022, helped by infrastructure projects.
       Russia's central bank embarked on a monetary easing cycle in January 2015 as it rolled back a sharp 750-basis-point rate hike in December 2014 that was aimed at protecting the ruble, which plunged in the wake of the country's conflict with Ukraine.
      From January 2015 to April 2018 the key interest rate was cut by a total of 9.75 percentage points as the ruble slowly recovered and inflation eased. But the easing cycle came to a halt after fresh U.S. sanctions were imposed over Russia's meddling in the 2016 presidential election led to a 10 percent fall in the ruble and a 9 percent fall in the Moscow stock market.
     In September and December 2018 the central bank raised its rate twice by a total of 50 basis points to curb inflation from a combination of higher import prices from the lower ruble and a rise in VAT to 20 percent on Jan. 1, 2019.

Thursday, February 6, 2020

Czech Rep. raises rate 25 bps to curb rising inflation

     The central bank of the Czech Republic raised its key interest rates for the first time since May 2019 as inflation is now seen accelerating faster than expected while economic growth is seen lower.
     The Czech National Bank (CNB) raised its three main interest rates by 25 basis points, including the benchmark 2-week repo rate to 2.25 percent, the Lombard rate to 3.25 percent and the discount rate to 1.25 percent.
      Pressure has been rising for the CNB board to hike rates in recent months, with two of the board's seven members voting to raise rates in the last three meetings to curb inflationary pressures.
     Today another two members joined the earlier minority with the result that four voted to raise the rate while the remaining three members voted to leave rates unchanged.
      This is the first rate hike by CNB since May 2019 when it paused in its tightening cycle that began in August 2017 after 8 rate hikes that raised the key rate by a total of 1.95 percentage points.
      Inflation in the Czech Republic has topped the central bank's 2.0 percent midpoint target since May 2018 and in December inflation rose further to 3.2 percent, the highest since October 2012, and higher than CBN had expected.
      CNB, which targets inflation of 2.0 percent within a tolerance range of plus/minus 1 percentage points, expects inflation to rise further at the start of this year, partly due to government measures to boost household consumption.
     "Domestic inflation will increase appreciably above the upper boundary of the tolerance band around the target in the months ahead, mainly due to the price impacts of changes to indirect taxes amid persisting elevated inflation pressures in the domestic economy," CNB said.
      The CNB raised its forecast for annual inflation to average 2.3 percent in the first quarter of 2021 from an earlier forecast of 2.1 percent, before easing to 2.1 percent in the second quarter as inflationary pressures weaken, mainly due to slowing wage growth, falling growth in administered prices, and food prices.
      Economic growth in the Czech Republic slowed in 2019 and is seen slowing further this year before it gradually accelerates in 2021, helped by an a gradual improvement in economic growth in the euro area along with rising consumption spending by households.
      "The current downturn in private investment, reflecting the slowdown in euro area economic growth, will drop out during this year and total investment growth will turn positive again," CNB said.
     Growth in 2019 is estimated at 2.5 percent and is seen slowing to 2.3 percent this year, down from its previous forecast of 2.4 percent, before picking up in 2021 to 2.8 percent.
     The Czech koruna, which has risen since October last year, jumped in response to the rate hike to just above 24.9 to the euro from 25.0 before it settled slightly lower just above 25.0.
     During five years of extraordinary easy monetary policy from November 2012 to August 2017, the CNB not only cut its key rate to a rock-bottom 00.5 percent, but also intervened in the foreign exchange market to keep the koruna from rising against the euro as an addition tool of monetary easing.
     As a first step toward tightening its monetary policy stance, CNB in April 2017 scrapped its commitment to keep the koruna below 27 to the euro. The koruna immediately soared before easing and settling around 25.8 to the euro between July 2018 and October last year.
     Since then the koruna has been rising steadily and has now broken the psychological barrier of 25 to the euro, a level not seen since 2012.
     CNB expects the koruna-euro exchange rate to remain stable for the rest of this year and then appreciate only slightly in 2021.

Czech raises rate 25 bps, further details to come

     The Czech central bank raised its benchmark 2-week repo rate by 25 basis points to 2.25 percent, with further details to be announced at a press conference by its governor, Jiri Rusnok.
      It is the first rate hike by the Czech National Bank (CNB) since May 2019 when it paused in its tightening cycle that began in August 2017 after the rate had been raised 8 times and by a total of 1.95 percentage points.
      But 2 of the bank's 7 board members have voted to raise rates in the previous three monetary policy meetings, pointing to inflation that has been above the CNB's 2.0 percent midpoint target since May 2018.
      In December inflation rose further to 3.2 percent, the highest rate since October 2012 and above CNB's forecast of 2.9 percent.
     CNB targets inflation of 2.0 percent, plus/minus 1 percentage point.
      The Czech koruna, which has risen since October, jumped in response to the rate hike to 24.9 to the euro from 25.0.
       During 5 years of extraordinary easy monetary policy from November 2012 to August 2017, CNB not only lowered its key rate to a rock-bottom 0.05 percent but also intervened in foreign exchange markets to keep the koruna from rising against the euro as an additional tool of monetary easing.
       As a first step toward tightening its policy stance, CNB in April 2017 scrapped its commitment to keep the koruna below 27 to the euro which then immediately jumped. It then eased and settled around 25.8 between July 2018 and October last year.
       Since then the koruna has been rising steadily and has now broken the psychological 25-euro barrier, a level not seen since 2012.

Philippines cuts rate 25 bps to ward off headwinds

     The Philippine central bank cut its benchmark overnight reverse repurchase rate by 25 bps to 3.75 percent, saying "the manageable inflation environment allowed room for a preemptive reduction in the policy rate to support market confidence" and ward off "the potential spillovers associated with increased external headwinds."
     The rate cut by Bangko Sentral Ng Pilipinas (BSP), its fourth since May 2019, was widely expected as Governor Benjamin Diokno on Feb. 5 said it would be better to cut interest rates sooner than later, adding the central bank is still looking to unwind the 2018 rate hikes and expects to cut rates by 50 basis points this year.
     The outbreak of the coronavirus, which poses a new and unexpected risks to economic growth across Asia, boosted rate cut expectations further.
     BSP raised its rate by 175 basis points in 2018 to curb inflationary pressures from a fall in the peso and then unwound 75 points of this in 2019, leaving 100 basis points to be reversed.
     In today's statement, BSP's monetary board said inflationary expectations remain anchored within the target range of 3.0 percent, plus/minus 1 percentage point, and inflation is seen broadly steady in 2020 and 2021, with average inflation in the target range.
      Upside risks to prices from the outbreak of the African Swine Fever, tight supply of rice, and the ongoing Taal volcano eruption and aftermath of typhoon Tisoy are mitigated by uncertainty over trade and economic policies that weigh on global demand while the prospects for global economic growth have weakened amid geopolitical tensions.
     "At the same time, the Monetary Board noted that the spread of the 2019 novel coronavirus could have an adverse impact on economic activity and market sentiment in the coming months," BSP said.
      Inflation in the Philippines rose to 2.9 percent in January from 2.5 percent in December while the economy expanded by an annual 6.4 percent in the fourth quarter of 2019 for full-year growth of 5.9 percent, down from 6.2 percent in 2018 amid delays in the budget approval.
      The government targets 2020 economic growth of 6.5 to 7.5 percent but industrial output is still contracting, with output in December down 9.5 percent year-on-year, the 13th consecutive month of a decline and the steepest fall since August 2019.
     After falling steadily from March 2013 to September 2018, the Philippine peso has been rising in the last 16 months but was steady in the wake of the rate cut, trading at 50.7 to the U.S. dollar from 50.8 at the start of the year.

Wednesday, February 5, 2020

Brazil cuts rate 25 bps but says time to interrupt easing

    Brazil's central bank cut its benchmark Selic interest rate by 25 basis points to a record low of 4.25 percent but said it is now "appropriate to interrupt the monetary easing process" in light of the lagged effects of the rate cuts that began in July 2019.
    The Central Bank of Brazil (BCB) has cut its rate 5 times since July last year by a total of 225 basis points.
     Since October 2016, when it first embarked on an easing cycle, the Selic rate has been cut 17 times and by a total of 10 percentage points.
     As in December, BCB said "caution" in monetary policy was still recommended in the current business cycle and the next move would be data dependent, linked to economic activity, the balance of risks and inflation, with increasing weight given to 2021.
     "Data on economic activity released since the previous meeting indicate the continuation of the process of gradual economic recovery," BCB said, adding underlying inflation is at a level that is compatible with meeting its inflation target.
     BCB began cutting rates in October 2016 and cut them 12 times through March 2018 by a total of 775 basis points.
     But by early 2018 Brazil's real began depreciating as the U.S. Fed was tightening, putting upward pressure on Brazil's inflation rate, which topped 4 percent from June through November 2018.
     BCB therefore kept its rate steady for more than a year until July 2019 when inflationary pressures again began to ease, helped by a rise in the real from May through July.
    A brief period of appreciation by Brazil's real came to a halt in August last year and since then it has continued to depreciate to record lows.
      Today it was trading at 4.24 to the U.S. dollar, slightly up from a record low of 4.28 on Friday, but still down 5.2 percent this year.
      Despite the fall in the real, inflationary expectations have remained in check, with this week's survey of economists by the central bank showing 2020 inflation expectations falling to 3.40 percent from the previous 3.47 percent, below BCB's 4.0 percent target.
      In January Brazil's inflation rate was largely stable at 3.78 percent from December's 3.75 percent, despite higher meat prices,
      But accelerating economic growth is expected to slowly put upward pressure on inflation with BCB seen switching to a tightening stance and raising the Selic rate to an average of 6.25 percent in 2021, according to this week's survey.
      After a recession in 2016, Brazil's economy is slowly recovering and gross domestic product only grew 1.2 percent year-on-year in the third quarter, up from 1.1 percent in the second quarter.
      But helped by last year's passage of pension reform and an expected overhaul of the tax system and other reforms, economists are turning optimistic about the country's growth prospects.
      In December BCB raised its forecast 2020 growth to 2.2 percent from an earlier 1.8 percent.
      Recent surveys confirm Brazil's expansion, with the IHS Markit Brazil Composite PMI rising to 52.2 in January from 50.9 in December, the strongest expansion of the private sector in four moths.
      The survey showed manufacturing output grew to 51 from 50.2 while services expanded at the fastest pace in nearly a year, rising to 52.7 from 51 in December.

Thailand cuts rate 25 bps as coronavirus dents growth

     Thailand's central bank cut its policy rate by 25 basis points to 1.0 percent as the economy is seen expanding "at a much lower rate in 2020 than the previous forecast and much further below its potential due to the coronavirus outbreak, the delayed enactment of the Annual Budget Expenditure Act, and the drought."
     It is Bank of Thailand's (BOT) third rate cut since August 2019 and reflects the sudden worsening of the prospects for its important tourism industry from restrictions on Chinese travelers, who account for about a quarter of all tourist arrivals, after the outbreak of the coronavirus.
     In addition, Thailand's export-dependent economy is still suffering from the U.S.-China trade war and the dampening effect of the strong baht while overall economic activity is affected by a delay in the government budget and agriculture is reeling from drought.
     "The (monetary policy) committee viewed that a more accommodative monetary policy stance would alleviate the negative impacts," BOT said, adding the rate cut should help with liquidity and debt restructuring for those businesses and households that are severely affected by the economic slowdown, with both measures "urgently implemented."
     "Consequently, the Committee would continue to monitor the downside risks from the coronavirus outbreak, the delay budget disbursement, and the drought that could be more severe than previously assessed, together with trade tensions and geopolitical risks that remained highly uncertain," BOT said in a downbeat outlook.
     In December BOT lowered its forecast for 2020 economic growth to 2.8 percent economic growth from an earlier 3.3 percent and in late January it flagged this forecast would be lowered.
     Today it said growth this year would be "much further below its potential."
     Tourist arrivals are expected to be much lower than forecast, exports "would declined in line with trading partner economies and potential impacts of regional supply chain disruptions" while drought is affecting a large number of related businesses and employment.
    Public spending will also grow at a lower rate than expected, affecting domestic demand while private consumption is still held back by moderating household income in the services, agricultural and manufacturing sectors as well as by elevated household debt.
     In late January BOT also said growth in the fourth quarter of 2019 would also be lower than third quarter's annual rate of 2.4 percent and estimated 2019 growth of 2.5 percent would be missed.
     BOT is clearly concerned the economic slowdown is making the financial system more vulnerable, especially with regard to debt servicing, and said loans to businesses have decelerated in tandem with the economic outlook so there is "an urgent need to coordinate monetary and fiscal measures" to ensure financial stability.
     Thailand's inflation rate has been below BOT's target of 2.5 percent, plus/minus 1.5 percentage points, since June 2019 and today it said inflation would be below its lower bound throughout the forecast horizon due to subdued demand and lower energy prices from a drop in oil demand due to the coronavirus outbreak.
     Drought, however, is expected to push up food prices and in December Thailand's inflation rate rose to 0.87 percent from 0.21 percent in November.
     On Feb. 17 Thailand's planning agency is due to release new economic data.
     A steady appreciation of Thailand's baht since October 2015 has made its exports less competitive  and BOT has loosened foreign exchange regulations to enable more capital outflows.
     BOT said today the baht had depreciated somewhat compared with trading partner currencies but "might not be consistent with economic fundamentals and would likely remain volatile."
     Reversing some its rise, the baht has dropped this year but then rose in response to the rate cut to trade at 30.99 to the U.S. dollar, down 3.2 percent this year but still up 4.9 percent since the start of 2019.