Saturday, March 16, 2019

This week in monetary policy: Morocco, Thailand, Iceland, USA, Brazil, Indonesia, Philippines, Norway, Switzerland, Taiwan, UK, Russia, Paraguay & Colombia

    This week - March 17 through March 23 - central banks from 14 countries or jurisdictions are scheduled to decide on monetary policy: Morocco, Thailand, Iceland, United States, Brazil, Indonesia, Philippines, Norway, Switzerland, Taiwan, United Kingdom, Russia, Paraguay 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, 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.

MAR 17 - MAR 23, 2019:
COUNTRY                   DATE                     RATE                LATEST                    YTD              1 YR AGO
UNITED STATES20-Mar2.50%001.75%
UNITED KINGDOM21-Mar0.75%000.50%

Friday, March 15, 2019

Azerbaijan cuts rate 6th time, inflation now seen in range

     Azerbaijans's central bank lowered its benchmark refinancing rate by another 25 basis points to 9.0 percent but signaled that it may pause in further easing as inflation is now forecast to settle within the target range in 2019.
      It is the Central Bank of the Republic of Azerbaijan's (CBA) 6th rate cut since February 2018 and its policy rate has now been lowered by a total of 600 basis points since then.
      In February, when the rate was cut by 50 basis points, CBA said it would continue to normalize monetary conditions but today it said recent monetary easing had contributed to the normalization of monetary conditions and rising domestic demand is expected to help narrow the output gap.
     "The Central Bank will adjust the parameters of the interest rate corridor in response to actual and forecasted inflation rate and the realization of risk scenarios," CBA said, adding today's rate cut lowers the ceiling of the interest rate corridor to 11 percent and the floor to 7.0 percent.
     Azerbaijan's inflation rate has tumbled since mid-2017 when it hit 14 percent and decelerated faster than expected in 2018, triggering CBA's rate cuts as its main priority is to keep inflation within the target range and promote economic activity.
      CBA lowered its inflation target for 2019 to 4.0 percent, plus/minus 2 percentage points from last year's target of 6-8 percent.
      But CBA said inflation in February ticked up to 2.1 percent for average inflation in the first two months of 1.9 percent, still close to the lower level of CBA's target range.
      CBA said inflation expectations had been stable but the most recent inflation outlook suggests structural changes in the balance of risks, with inflation expectations now anchored at a low level due to a stable exchange rate, anti-inflationary monetary conditions and a balance of payments surplus.
     However, CBA cautioned there are still uncertainties related to external factors, such as volatile oil prices, slower global growth and higher commodity prices. Azerbaijan's economy remains heavily dependent on oil.
     The external environment remains favorable, CBA said, noting exports had risen 42.6 percent in the first two months of the year, including a 16.4 percent rise in non-oil exports, resulting in a trade surplus of US$986.3 million.
     Foreign exchange reserves have also risen 4.1 percent this year to $46.6 billion and the economy grew 2.9 percent year-on-year in January while business confidence has improved in non-oil processing and trade while it has declined in construction and services in the last 2 months.
    The exchange rate of Azerbaijan's manat has been largely steady since mid-2017 around 1.70 to the U.S. dollar.
    Following the fall in crude oil prices in mid-2014, the manat came under heavy pressure as local depositors began switching into U.S. dollars. At that point, the manat was effectively pegged to the U.S. dollar so the CBA had to draw on its reserves to defend it.
     But by early 2015 the CBA was forced to abandon its dollar-peg and then later that year it also abandoned a dollar-euro basket peg.
     In December 2015 the CBA then switched to a floating exchange rate regime that finally helped stabilize the exchange rate. 

Thursday, March 14, 2019

BOJ keeps stance, expansion goes on despite slowdown

    Japan's central bank left its monetary policy stance unchanged, as expected, but acknowledged the country's exports and industrial production have been affected by the global economic slowdown.
     But the Bank of Japan (BOJ) still expects the economy to continue its "moderate expansion" despite the slowdown in overseas economies as domestic demand trends upward, helped by government spending.
     "Although exports are projected to show some weakness for the time being, they are expected to be on a moderate increasing trend on the back of overseas economies growing moderately on the whole," BOJ said.
     In today's statement, the BOJ's policy board confirmed its monetary policy of controlling the yield curve that has been in place since September 2016 - Quantitative and Qualitative Easing with Yield Curve Control (QQE) - and this policy would continue until inflation reaches its 2 percent target.
     In its outlook for economic activity and prices from January, the BOJ lowered its inflation forecast for the fourth time, with inflation excluding fresh food seen rising only 0.8 percent in fiscal 2018, which ends this month, down from October's forecast of 0.9 percent.
    In January Japan's core inflation rate edged up to 0.8 percent from 0.7 percent in December.
    Consumer prices in fiscal 2019, excluding the impact of the consumption tax hike, are seen rising 0.9 percent, down from 1.4 percent previously forecast, due to lower oil prices, and for fiscal 2020 inflation is seen at 1.4 percent, down from 1.5 percent.
     Japan's economy is expected to continue to expand around its potential rate, with growth in fiscal 2018 hit by natural disasters last summer.
     The estimate of gross domestic product growth in fiscal 2018 was lowered to 0.9 percent from October's forecast of 1.4 percent.
     GDP grew 0.5 percent in the fourth calendar quarter of 2018 from the third quarter for annual growth of 0.3 percent, up from 0.1 percent in the third quarter.
     For this coming fiscal year, the forecast for growth was revised up to 0.9 percent from a previous 0.8 percent, and for fiscal 2020 growth is seen at 1.0 percent, up from 0.8 percent.
     After falling from March 2018 to December, the yen rose strongly in late December but has given up some of those gains this year. Today the yen was trading at 111.8 to the U.S. dollar, down 1.3 percent this year.
      As part of its monetary policy, the BOJ reiterated it would maintain a negative interest rate of minus 0.1 percent on banks' deposits that exceed reserve requirements along with the purchase of government bonds of around 80 trillion yen in order to keep 10-year government bond yields around 0 percent.
       As part of its QQE policy, the BOJ also purchases Exchange-Traded-Funds (ETFs) and real estate investment trusts (J-REITs) so the outstanding amounts increases at an annual pace of about 6 trillion and about 90 billion yen, respectively.

Ukraine holds rate, switch to easing depends on inflation

     Ukraine's central bank kept its policy rate at 18.0 percent due to risks that inflation may not decline but said it may adopt a monetary easing cycle in the future and how soon depends on how steadily the risks of inflation ease and inflation expectations improve.
     "Looking ahead, any changes to the key policy rate will be based on the NBU's updated macroeconomic forecast that will be published in April," the National Bank of Ukraine (NBU) said.
    Ukraine's central bank moved into a monetary tightening cycle in October 2017 and raised rates 6 times by a total of 550 basis points until September 2018. Since then rate has been unchanged.
     But despite tight monetary condition, which helped boost the hryvnia's exchange rate, inflation remained above the NBU's end-2018 target of 6.0 percent, plus/minus 2 percentage points, due to an array of  factors such as higher administered prices and pensions, higher tariffs and oil prices, along with strong consumer demand and higher wages.
     By the end of 2018 headline inflation had only eased to 9.8 percent but in the last two months inflation has fallen and reached 8.8 percent in February, "signifying that the underlying inflationary pressure is easing off as anticipated," NBU said.
     However, the central bank said continued tight monetary conditions are still an important prerequisite for gradually lowering inflation to its target of 5.0 percent in 2020.
     In its January inflation report, NBU forecast inflation would ease to 6.3 percent by the end of 2019 and then decline to the upper bound of its target range of 5.0 percent, plus/minus 1 percentage point, early next year before reaching the midpoint target by the end of the year.
     NBU said this forecast still holds although an increase in social payments and higher utility tariffs are planned, which could boost inflation expectations. On the other hand, the hryvnia's has strengthened more than expected, helping curb inflation.
     Administered prices are set to rise 13.6 percent this year, mainly due to an increase in natural gas tariffs for households as part of the agreement with the International Monetary Fund. (IMF). In the medium term, the rise in administered prices slows to 10 percent in 2021.
     Since September last year the hryvnia has steadily strengthened and today it was trading at 26.88 to the U.S. dollar today, up 2.4 percent this year.

Wednesday, March 13, 2019

Georgia cuts rate 2nd time and raises RRR for FX funds

     Georgia's central bank lowered its benchmark refinancing rate for the second time in a row and said "further easing of the moderately tight monetary policy will depend on how fast the output gap will close."
    The National Bank of Georgia (NBG), which in January also cut its rate and said it expects to reduce the rate further this year, also reiterated that inflationary pressures are still weak and  inflation is forecast to remain within the target level of 3.0 percent in the medium term.
     But to "mitigate possible future financial stability risks," the NBG said it was raising the minimum reserve requirement for funds in foreign currency deposits by 5 percentage points.
     NBG cut its rate by another 25 basis to 6.50 percent and has now cut it by 50 basis points this year  and by 75 basis points since July 2018 when it first began exiting from moderately tight monetary policy as external risks eased along with domestic demand and thus inflationary pressures.
     In January NBG's president, Koba Gvenetadze, told Reuters the central bank would lower its rate to between 5 and 6 percent over the next two years.
    In February Georgia's headline inflation rate rose slightly to 2.3 percent from 2.2 percent in January while the positive trends seen in the external sector since the start of this year were continuing with exports growing at a high rate while imports are only growing modestly, resulting in a narrower current account deficit, NBG said.
    And while retail lending has slowed, NBG said business lending was up.
    In the third quarter of last year, Georgia's gross domestic product slowed to annual growth of 3.7 percent from 5.6 percent in the previous quarter.
     The exchange rate of the lari fell sharply in the second half of last year but has been more stable this year although it has weakened in the last month. Today the lari was trading at 2.69 to the U.S. dollar today, largely unchanged since 2.68 at the start of this year.
     In December the International Monetary Fund (IMF) forecast Georgia's economy would grow 4.6 percent in 2019 after 5 percent last year with inflation averaging 3.1 percent this year after 2.8 percent in 2018.

Tuesday, March 12, 2019

Armenia holds rate, still expects easy policy for long time

     Armenia's central bank left its benchmark refinancing rate steady at 5.75 percent, reiterating its guidance from January that it expects to maintain easy monetary conditions for a long period as inflation is expected to remain below the target in coming months.
     The Central Bank of Armenia (CBA), which cut its rate in January by 25 basis points, its first rate cut since February 2017, added the risks of inflation staying below its target still dominate and may require an appropriate monetary policy response to ensure price stability.
      The CBA, which will publish its first quarter monetary policy program on March 26, added with the global economy slowing down amid weakening global demand, and the temporary delay in adjustment of monetary conditions by major central banks, inflationary pressures from the external side are not expected.
     Internally, fiscal policy is continuing to deter domestic demand but economic growth in the fourth quarter of 2018 was higher than expected, mainly due to growth in private consumption, and economic activity at the beginning of this year remained high at a rate of 6.1 percent, CBA said.
     Armenia's inflation rate rose to 1.9 percent in February from 0.8 percent in January, below its 4.0 percent target, while gross domestic product grew 3.4 percent year-on-year in the fourth quarter of last year, up from 2.5 percent in the third quarter.
     Armenia's dram has weakened slightly this year though it has risen in the last week. Today the dram was trading at 488.7 to the U.S. dollar, down 1 percent this year.
     Last month Armenia and International Monetary Fund (IMF) staff agreed on a 3-year precautionary, $250 million, stand-by arrangement that will be considered by the IMF board in May. The agreement aims to support the government's reforms and strengthen the country's resilience against external shocks.
     In its statement from Feb. 26, the IMF said Armenia's economy has been robust but growth moderated to more sustainable levels last year due to a slowdown in its trading partners.
     This year growth is expected to ease to about 4.5 percent due to a weaker global environment and copper prices and then remain in the 4-5 percent range in the medium term.
     Inflation is expected to gradually converge to CBA's target over the next 2 years, the current account deficit is expected to gradually narrow to around 5 percent of GDP and the fiscal deficit is projected at around 2.5 percent of GDP this year and 2 percent in the medium term.
     The IMF added the current monetary policy stance was appropriate and it welcomed authorities' intention to maintain the existing flexible exchange rate regime.


Sunday, March 10, 2019

This week in monetary policy: Armenia, Georgia, Ukraine, Moldova, Japan & Azerbaijan

    This week - March 10 through March 16 - central banks from 6 countries or jurisdictions are scheduled to decide on monetary policy: Armenia, Georgia,Ukraine, Moldova, Japan and Azerbaijan.
    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.

MAR 10 - MAR 16, 2019:
COUNTRY                   DATE                     RATE                LATEST                    YTD              1 YR AGO

Thursday, March 7, 2019

ECB holds rates but pushes back rate hike, adds loans

     The European Central Bank (ECB) left its key interest rates unchanged, as widely expected, and eased its monetary policy stance further by pushing back its time frame for any rate hike by another six months or so to 2020, at the earliest, and boosted its stimulus measures by launching a new series of targeted longer-term refinancing operations to counter the impact of weaker-than-expected growth.
     The ECB, which just took the first step toward normalizing its monetary policy stance in December by ending four years of bond purchases, said growth was unexpectedly sluggish in the final quarter of last year and is set to remain weak in the first half of 2019 due to a combination of global uncertainties, including the threat of protectionism, a possible disorderly Brexit and emerging market vulnerabilities, along with slower growth in Germany and Italy.
     For the fourth time in a row, ECB staff slashed its forecasts for growth and inflation but expects the new round of monetary stimulus, along with continued reinvestments of its existing stock of bonds, to underpin economic activity and support the build-up of price pressures and inflation.
     "In any event, the Governing Council stands ready to adjust all of its instruments, as appropriate, to ensure that inflation continues to move towards the Governing Council's inflation aim in a sustained manner," said ECB President Mario Draghi, whose term expires at the end of October.
     Echoing the global shift toward easier monetary policy this year, Draghi said the ECB now expects to keep its key interest rates at their current level "at least through the end of 2019," and in any case as long as necessary to ensure inflation rises towards its target.
     Beginning in June last year, and confirmed as recently as in January, the ECB's guidance for rates was they would be maintained "at least through the summer of 2019."
     The ECB began cutting its interest rates in November 2011 and reached the zero bound of interest rates in March 2016 when the benchmark refinancing rate was cut to the current level of 0 percent while the deposit rate was cut to minus 0.40 percent and the marginal lending rate to 0.25 percent.
     That month the ECB followed the example of other major central banks, such as the Bank of Japan, the U.S. Federal Reserve, the Bank of England and Sweden's Riksbank, by using large-scale asset purchases, known as quantitative easing, to push down long-term interest rates.
     Under this program, the ECB has accumulated some 2.6 trillions euros of bonds, both sovereign and corporate bonds, and decided in December last year to wrap up this program, confident that economic growth was slowly recovering.
      Prior to its asset purchase program, the ECB in June 2014 launched its first round of targeted longer-term refinancing operations, known as TLTRO I, which differs from regular short-term open market operations by providing funds to banks for periods of up to 4 years to stimulate bank lending.
     The second round of TLTROs was then launched in March 2016 and the ECB is now launching a third round of 2-year longer-term financing operations, (TLTRO-III), which will start in September and end in March 2021.
     As in the previous rounds, banks can borrow up to 30 percent of outstanding eligible loans to consumers and businesses at a rate that is lower than the ECB usually offers to ensure that lending conditions remain easy and the aim of the ECB's monetary policy filters into the economy.
     "Today's monetary policy decisions were taken to ensure that inflation remains on a sustained path towards levels that are below, but close to, 2% over the medium term," said Draghi, adding the weak economic momentum is slowing the rise of inflation towards its target.
     After hitting its target in the middle of 2018, inflation in the 19-nation euro zone began falling in November and hit 1.5 percent in February this year while growth has been weakening all year and hit an annual rate of only 1.1 percent in the fourth quarter of 2018.
      In its latest projections, ECB staff lowered their growth forecast for 2019 to 1.1 percent from December's forecast of 1.7 percent compared with 2018's estimated growth of 1.9 percent.
     Growth in 2020 is seen at 1.6 percent, down from 1.7 percent, while the forecast for 2021 growth was unchanged at 1.5 percent.
     Inflation this year is seen averaging 1.2 percent, down from the previous forecast of 1.6 percent, and then 1.5 percent next year and 1.6 percent in 2021, still below the ECB's target, and down from December's forecast of 1.7 percent and 1.8 percent, respectively.
     Draghi said there were signs some of the specific factors that dampened growth were starting to fade but incoming data remains weak, in particularly manufacturing, and the slowdown in external demand is turning out to be longer-lasting, suggesting a weaker outlook for growth.
    "The risks surrounding the euro area growth outlook are still tilted to the downside, on account of the persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets," Draghi said.
  The euro, which has been falling steadily since April 2018, fell around 0.8 percent in the wake of the ECB's decision to 1.12 per U.S. dollar, to be down 1.7 percent this year.

Wednesday, March 6, 2019

Mozambique maintains rate but raises RR for FX deposits

     Mozambique's central bank left its monetary policy rate steady at 14.25 percent and forecast single-digit inflation by the end of the year but raised the reserve requirement for foreign currency deposits by 900 basis points to 36 percent given the likelihood inflation could accelerate if the external environment continues to deteriorate and the metical's exchange rate falls.
     In a statement issued after an extraordinary meeting of the Bank of Mozambique's (BM) monetary policy committee, BM said it adjusted its monetary policy stance to preserve macroeconomic stability by raising the reserve requirement for foreign currency deposits after new information that strengthens its perception of external risks along with the greater volatility of the U.S. dollar as compared with its expectations at the February policy meeting.
     BM kept its reserve requirement for local currency deposits at 14.0 percent.
     The Bank of Mozambique kept its rate steady in February and last cut its rate in December 2018. Since April 2017 the central bank has cut its benchmark MIMO rate by a total of 900 basis points as inflation has decelerated from almost 22 percent in March 2017 to 3.78 percent in January.
     BM said the decision to keep its policy rate steady today was justified by the fact that inflation remains low and stable and the projection that it will be in single digits by the end of this year.
     However, BM said the domestic currency market is under increasing pressure and the metical had declined to 62.73 to the U.S. dollar as of March 5 for a fall of 2.15 percent since the end of 2018.
     Analysts expect BM to keep its rate steady this year to ensure low inflation and encourage private consumption.


Canada holds rate, higher uncertainty over further hikes

     Canada's central bank left its benchmark target for the overnight rate steady at 1.75 percent, as widely expected, but cast doubt over further rate hikes as economic growth in the first half of this year is now expected to be weaker than forecast due to a "sharper and more broadly based" slowdown in the last quarter of 2018.
      The Bank of Canada (BOC), which kept its rate steady in December and January after raising its rate in October for the fifth time since July 2017, said the current outlook continues to warrant a policy interest rate that is below its neutral range, a sharp change to its guidance in January that the rate will need to gradually rise into a neutral range to meet the inflation target.
     The BOC has estimated a neutral interest rate of between 2.5 and 3.5 percent, which implied a least three more rate hikes.
      "Given the mixed picture that the data present, it will take time to gauge the persistence of below-potential growth and the implications for the inflation outlook," BOC said, adding "with increased uncertainty about the timing of future rate increases," it will be closely watching household spending, oil markets and global trade policy.
     Canada's economy slowed sharply in the fourth quarter of 2018 as gross domestic product grew by only 0.1 percent from the previous quarter as business investments fell, growth in household spending slowed further and prices of crude oil exports fell.
     BOC had expected a temporary slowdown in the fourth quarter of 2018 and the first quarter of this year due to lower oil prices, but both exports and business investments fell short of expectations and trade tensions and uncertainty are still weighing heavily on confidence and economic activity.
     "It is difficult to disentangle these confidence effects from other adverse factors, but it is clear that global economic prospects would be buoyed by the resolution of trade conflicts," BOC said, adding:
     "After growing at a pace of 1.8 percent in 2018, it now appears that the economy will be weaker in the first half of 2019 than the Bank projected in January."
     In its January monetary policy report, BOC cut its 2019 growth forecast to 1.7 percent from October's forecast of 2.1 percent but raised the 2020 growth forecast to 2.1 percent from 1.9 percent. The next update to the forecast is in April.
      Inflation has also been slowing and dropped to 1.4 percent in January from 2.0 percent in December, cementing expectations the BOC would maintain rates today and dampen expectations of interest rate hikes, a prediction that came true.
     But Canada's labour market remains buoyant, with employers adding 66,800 jobs in January and average hourly wages of permanent, which is watched by BOC, up by 1.8 percent in January after a 1.5 percent rise in December following largely static wages in the previous 5 months.
     The unemployment rate rose to 5.8 percent from 5.6 percent in the previous two months as more people looked for work.
     In January the BOC lowered its forecast for headline inflation due to lower gasoline prices to 1.7 percent for 2019 from a previous 2.0 percent before returning to the BOC's 2.0 percent target in 2020.
      In today's statement BOC said core inflation was still close to 2.0 percent and it expects consumer price inflation to be slightly below its target throughout most of this year, reflecting the impact of temporary factors, including the drag from lower energy prices and a wider output gap.
     After depreciating from September 2017 through 2018, the Canadian dollar, known as the loonie, has firmed this year though it has dropped in the last week and fell in response to the BOC's policy decision.
     The Canadian dollar fell to 1.34 against the U.S. dollar, down 1.5 percent this year and down 6 percent since the start of 2018.

Monday, March 4, 2019

Australia keeps rate steady and still sees 3% 2019 growth

     Australia's central bank left its benchmark cash rate unchanged at 1.50 percent, as widely expected, and reiterated its previous guidance that unemployment will continue to decline and inflation return to target, although this will process will be gradual.
      The Reserve Bank of Australia (RBA), which last month lowered its growth forecast, said the central scenario is still for the country's economy to grow around 3 percent this year, supported by rising business investment, higher levels of spending on public infrastructure and higher employment.
      The main uncertainty continues to be the strength of household consumption in the context of weak growth in household income and falling home prices in some cities, said RBA Governor Philip Lowe in a statement.
      The RBA, which has kept its rate steady since August 2016, also said the global economy had grown above trend in 2018 but then slowed in the second half of last year and this "slower pace of growth has continued into 2019," adding trade tensions remain a source of uncertainty and downside risks have risen.
     In its February monetary policy statement, the RBA lowered its forecast for Australia's economy to expand by around 3 percent this year and then 2.75 percent in 2020, a drop of around 1/4 percentage point due to a downgrading of the outlook for household consumption and residential construction.
     But the RBA also continues to see a positive labour market and rising wages, keeping up the pressure on inflation to rise to about 2 percent later this year and 2.25 percent by end-2020, around the RBA's target of 2.0 to 3.0 percent.
      Australia's headline inflation rate eased to 1.8 percent in the fourth quarter of 2018 from 1.9 percent while the economy grew 2.8 percent year-on-year in the third quarter of last year, down from 3.1 percent in the second quarter.
      The Australian dollar, known as the Aussie, has been weakening for the last 12 months though it has stabilized since mid-February after taking a hit after Lowe on Feb. 6 said the probabilities of a rate hike and a rate cut were now more evenly balanced as compared with earlier in 2018 when the probabilities of a rate hike were higher.
     The Aussie was trading at 1.41 to the U.S. dollar following the RBA's decision, marginally up from 1.42 at the start of the year.