Wednesday, February 22, 2017

Brazil cuts rate 75 bps, sees easing to 9.5% end-2017

    Brazil's central bank lowered its benchmark Selic rate by another 75 basis points to 12.25 percent and reiterated its guidance that further rate cuts and possible changes to the pace of easing will continue to depend on the forecast and expectations for inflation.
    The Central Bank of Brazil has now cut its rate by 200 basis points since embarking on an easing cycle in October last year and by 150 points this year alone following January's larger-than-expected 75-point rate cut due to decelerating inflation and a slowing economy.
    The central bank's monetary policy committee, known as Copom, was unanimous in its decision, which was without bias, and said it expected inflation to ease to around 4.2 percent this year and around 4.5 percent for 2017 based on cutting the key rate to 9.5 percent by the end of this year and 9.0 percent by the end of 2018.
    Fresh economic data also show signals that are consistent with a stabilization of the economy and a gradual recovery of activity during this year while inflation is expected to continue to decelerate as inflation expectations for this year fell to around 4.4 percent.
     Brazil's inflation rate fell further to 5.35 percent in January from 6.29 percent in December, well within the central bank's 2.5-6.5 percent tolerance range, and sharply lower than 2015's inflation rate of 10.67 percent and below 2014's 6.41 percent.
    For 2017 and 2018 the tolerance range has been narrowed to 1.5 percentage points but around the same midpoint of 4.50 percent. In June the government is expected to reduce the midpoint target slightly with most economists looking at a new target for 2019 of 4.25 percent.
    However, that would still remain above most other countries, including those in South America, where Chile and Colombia target 3 percent, like most emerging market economies, whereas Peru targets 2 percent, a level that is typically found in developed economies.
    Brazil's economy shrank by an annual rate of 2.9 percent in the third quarter of last year, down from a 3.6 percent drop in the second quarter.

Zambia cuts rate 150 bps in first easing since 2012

     Zambia's central bank cut its policy rate by 150 basis points, the reserve ratio by 250 points and the overnight lending facility rate by 400 points citing a sharp fall in inflation, continued appreciation of the kwacha's exchange rate and improving economic prospects.
     It is the first cut in rates by the Bank of Zambia since since the current policy rate was introduced in March 2012 when the bank moved away from targeting money supply. It is also the first change in rates since November 2015 when the tightening cycle came to an end.
    Today's rate cut brought the policy rate down to 14.00 percent from 15.50 percent, the overnight lending facility rate was narrowed to 600 basis points above the policy rate from 1,000 points, and the statutory reserve ratio was lowered to 15.50 percent from 18.0 percent.
    "The Bank of Zambia will closely monitor domestic and external developments and stands ready to take appropriate monetary policy measures on price and financial system stability that support the diversification and growth of the economy," the central bank said.
      Zambia's inflation rate fell to 7.0 percent in January from 7.5 percent in December and down from 22.9 percent in February 2016, reflecting dissipation of base effects, the rise in the Kwacha and a deceleration in both food and non-food inflation.
    The central bank expects inflation to remain within its 2017 target range of 6-8 percent in the medium term, with risks favoring low and stable inflation from expected normal to above normal rainfall, fiscal consolidation and a projected improvement in global economic growth.
     Zambia's is Africa's second-largest copper producer and its economy has suffered from the fall in global commodity prices, strained public finances, electricity shortages, subdued consumption and low investment.
    But the central bank said economic growth prospects are now improving, with Gross Domestic Product seen rising by 3.9 percent and 4,6 percent this year and 2018, respectively. Growth is underpinned by an improving agricultural sector, due to better weather, increased energy supply and minerals production.
    The government's 2017 budget was approved in December with the aim of reducing the budget deficit to 7.0 percent of GDP and the central bank said an effective implementation would present a good base for rebalancing fiscal and monetary policies.
    The external sector is also expected to improve this year due to a recovery in export prices, a stable exchange rate and higher foreign reserves, which ended last year at US$2.4 billion, the equivalent of 3.3 months imports.

Monday, February 20, 2017

Mauritius keeps rate, still preparing for new framework

    The central bank of Mauritius left its key repo rate at 4.0 percent, saying rising business confidence and public investment should support domestic output this year while an uptick in global commodity prices, especially energy, remain a key upside risk to inflation.
    The Bank of Mauritius, which cut its rate by 40 basis points last year, added it was still working on achieving "the necessary conditions" before implementing a new monetary policy framework.
    In its last statement from November, the central bank said it planned to implement the new framework early this year. It would be the first change in framework since December 2006.
    The economy of Mauritius expanded by an annual rate of 4.0 percent in the third quarter of last year, up from 2.5 percent in the previous quarter, but the central bank "noted with concern" the recent adverse performance of exports but still maintained its forecast for 2017 growth of 3.8-4.0 percent.
    Headline inflation eased to 1.8 percent in January from 2.3 percent in December but the central bank said underlying measures remain stable below 3 percent and bank staff project headline inflation of about 2.5 percent for 2017.
    The Mauritian rupee, which fell sharply in 2014, has been firming this year and was trading at 35.3 to the U.S. dollar today, slightly up from 35.85 at the start of this year.

Kazakhstan cuts rate 100 bps, room for new cuts limited

    Kazakhstan's central bank lowered its base rate by another 100 basis points to 11.00 percent but said "the potential of further easing of monetary policy is limited" as the new level reflects the long-run balance between price stability and financial stability.
    The National Bank of Kazakhstan has now cut its rate by 600 basis point since starting an easing cycle in May 2016 and today's cut follows last month's guidance that it would ease its policy today provided that the decline in inflation continues and confidence in the tenge currency remains.
   "The decrease in inflationary expectations, the stability and the predictability of the situation on the domestic FX and money markets, the recovery of business activity, and also the favorable external economic conditions caused the easing of monetary conditions," the central bank said.
    Kazakhstan's inflation rate decelerated to 7.9 percent in January from 8.5 percent in December, falling into the central bank's target range of 6-8 percent for the first time since September 2015.
    The drop in inflation was in line with the central bank's forecast and higher commodity prices are not expected to have a significant impact on future inflation as they will be offset by moderate price trends in other consumer goods and services.
     The latest surveys of inflation expectations also shows a declining trend to the lowest level since mid-2016, with expectations within the target range and at 6.6 percent for January, below actual inflation.
    "In the absence of adverse shocks, inflation will persistently remain within the target band throughout the entire year of 2017, and also during the first half of 2018," the central bank said.
    Last month the central bank forecast that inflation would end 2017 between 7.3 and 7.7 percent but it did not repeat this forecast today. The central bank's director of research and statistics has forecast 2018 inflation of 5-7 percent, 4-6 percent for 2020 and below 4 percent in 2020.
    The exchange rate of Kazakhstan's tenge, which fell sharply in August 2015 following the central bank's move to a floating exchange rate regime, has been firming in recent months and was trading at 318.79 to the U.S. dollar today, up 4.6 percent this year.
    The central bank's move to a floating exchange rate regime last year came in response to capital outflows and the conversion of many tenge bank deposits to foreign currency. Oil accounts for about 60 percent of Kazakhstan's exports and over 10 percent of its Gross Domestic Product. 
    The central bank said devaluation expectations, and the cost of hedging exchange rate risks, had continued to decrease and the share of foreign currency deposits have declined to 53 percent by the end of January.
    Economic activity in Kazakhstan is also continuing, the bank said, saying Gross Domestic Product is estimated to grow above 2 percent this year.
    In the first three quarters of 2016 Kazakhstan's GDP grew by an annual rate of 0.4 percent.

Saturday, February 18, 2017

This week in monetary policy: Kazakhstan, Mauritius, Argentina, Rwanda, Zambia, Brazil, Paraguay, South Korea, Moldova, Fiji and Colombia

    This week (February 19 through February 25) central banks from 11 countries or jurisdictions are scheduled to decide on monetary policy: Kazakhstan, Mauritius, Argentina, Rwanda, Zambia, Brazil, Paraguay, South Korea, Moldova, Fiji 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.

FEB 19 - FEB 25, 2017:
COUNTRY                 DATE                RATE           LATEST                 YTD          1 YR AGO       MSCI
KAZAKHSTAN 20-Feb 12 0 0 17.00%          FM
MAURITIUS 20-Feb 4.00% 0 0 4.40%          FM
ARGENTINA 21-Feb 24.25% 0 0 36.75%          FM
RWANDA 22-Feb 6.25% -25 0 6.50%
ZAMBIA 22-Feb 15.50% 0 0 15.50%
BRAZIL 22-Feb 13.00% -75 -75 14.25%          EM
PARAGUAY 22-Feb 5.50% 0 0 6.00%
SOUTH KOREA 23-Feb 1.25% 0 0 1.50%          EM
MOLDOVA 23-Feb 9.00% 0 0 19.00%
FIJI 23-Feb 0.50% 0 0 0.50%
COLOMBIA 24-Feb 7.50% 0 0 6.25%          EM

Thursday, February 16, 2017

Egypt holds rate steady, expects inflation to decline

    Egypt's central bank left its key interest rates on hold for the third time in a row, as expected, and said inflation is expected to drop after the impact of temporary effects subside, helped by its preemptive monetary policy actions, absorption of liquidity and favorable base effects.
     The Central Bank of Egypt (CBE) surprised financial markets in November last year by hiking its policy rates, including the benchmark overnight deposit rate, by 300 basis points as part of a liberalization of foreign exchange markets. This took last year's rate rises to a total of 550 points.
    Egypt's headline inflation rate soared to 28.1 percent in January, the highest since December 1989, from 23.3 percent in December last year as government reform measures, including higher custom tariffs,  changes to hydrocarbon subsidies and higher import prices, push up consumer prices.
    It is the third month in a row of accelerating inflation and compares to a rate of 19.4 percent in October, before the Egyptian pound was allowed to float on foreign exchange markets.
    Core inflation, which excludes fuel and food, rose to 30.86 percent from 25.86 percent in December.
    "Developments in the external environment show that there has been some firming of international commodity prices, while low global inflation and subdued global growth, albeit recovering, maintain weak pressures on domestic prices," the CBE said.
    The scrapping of the currency peg immediately hit Egypt's pound, but during the last month it has been firming as foreign investors purchase stocks and government bills.
    A rising pound should help reduce the costs of imports and thus inflation which has soared in the wake of the pound's depreciation and government reform measures, such as reduced price subsidies.
    The pound was trading at 16.1 to the U.S. dollar today,  up 12.4 percent since the start of this year but still down 45 percent since last October, days before it was allowed to float from its peg of around 8.8 to the dollar on Nov. 3. Prior to full liberalization, the CBE in March 2016 devalued the pound by almost 14 percent, to 8.95 per dollar.
    Egypt's economy has been suffering since the Arab Spring and popular uprising in 2011 that led to the overthrow of Hosni Mubarak and scared off foreign tourists and investors.
     Economic output slowed to growth of 3.4 percent in the first quarter of the 2016/17 financial year, which began on July 1, after averaging 4.3 percent in 2014/15 and 2015/16.
     Slower growth was mainly due to consumption while fixed investments were steady while higher private investment offset lower public investment.
     The drag from a negative contribution of exports narrowed as exports recovered for the first positive contribution to Gross Domestic Product since the second quarter of 2014/15 while the negative contribution of imports lessened, CBE said.
    In addition, unemployment continued to decline, falling to 12.4 percent in the second quarter of 2016/17 from a peak of 13.4 percent in the second quarter of 2013/14.

Indonesia holds rate, global risks demand high vigilance

    Indonesia's central bank left its benchmark BI 7-day Reverse Repo rate steady at 4.75 percent, as widely expected, but warned in no uncertain terms about the risks it faces from changes to United States policy, the impact of Brexit and events in Europe.
    "Several global risks demand heightened vigilance," Bank Indonesia said, adding domestic risks include the impact on inflation from the government's increase of electricity rates, special fuel prices and vehicle registrations.
    Bank Indonesia (BI) cut its BI-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.
     Despite the risks it faces, BI said the global economy had improved on the back of gains in the U.S. and China and rising commodity prices, and this momentum is expected to continue.
     But the central bank said U.S. fiscal expansion along with an earlier-than-expected monetary tightening could push up the dollar and while a relaxation of U.S. financial regulations would boost domestic financial activities, it "may elevate risks in the global financial system stability."
     In addition, a protectionism in the U.S., along with Brexit and European risks, could "reduce the world trade volume and increase global uncertainty."
     However, BI's baseline forecast is for Indonesia's economy to expand by 5.0 to 5.4 percent this year - up from 5.02 percent in 2016 and 4.88 percent in 2015 - on strong private consumption, higher government spending and improved private and government investments. Exports are also expected to rise along with imports due to domestic demand.
     Inflation in Indonesia is also under control despite what BI described as a "slight bump" in January as higher administered prices pushed up headline inflation to an annual rate of 3.49 percent from 3.02 percent.
     The central bank said it would continue to strengthen its coordination with the government to control inflation in the face of risk from administered prices, a reform to energy subsidies and the risk of rising, volatile food prices.
    "With these steps, Bank Indonesia predicts inflation within the target corridor for 2017, namely 4+/-1%," BI said.
     After being hit by the election of Donald Trump as U.S. president in November, the rupiah has stabilized and firmed as foreign capital has flowed back into the country on a promising domestic outlook.
    The rupiah was trading at 13,303 to the U.S. dollar, up 1.5 percent this year.

Wednesday, February 15, 2017

Namibia keeps rate to support growth, rand link

    Namibia's central bank left its benchmark repurchase rate at 7.0 percent, saying this "rate remains appropriate to maintain the one-to-one link between the Namibia dollar and the South African Rand, while supporting growth in Namibia."
     The Bank of Namibia, which raised its rate by 50 basis points in 2016, added that its stock of international reserves was estimated at N$22.9 billion as of Jan. 31, enough to cover 2.8 months of imports and sufficient to maintain the 1-1 peg with the rand.
     The level of reserves is down from N$25.0 billion as of Nov. 30, 2016.
    In its statement, the central bank said growth last year was estimated to have slowed from 2015 while inflation rose.
    The central bank's monetary policy committee did not repeat its view from December when it said it expected growth to improve in 2017 and inflation to decline.
    Namibia's inflation rate rose to an average of 6.7 percent in 2016 from 3.4 percent in 2015 and then  accelerated further to 8.2 percent in January from 7.3 percent in December to the highest level since October 2009.
     The rise in inflation was mainly driven by higher prices of housing, water, electricity, gas and other fuels, transport and food.
     Last year private sector credit grew by 11.4 percent, down from 15.3 percent in 2015, due to lower credit to both the corporate and household sectors. But growth in loans and advances grew by 10.8 percent, up from 7.1 percent.
    The downward trend in credit has continued, the central bank said, with annual growth of total private sector credit up 8.9 percent and up by 9.3 percent for individuals in December.
    Namibia's economy last year was been hit by lower mining output, in particular diamond mining, along with contraction in construction, slower public sector spending and a decline in agricultural output due to drought, though less than in 2015.
     In its previous statement from December the central bank forecast 2016 growth of 2.5 percent, down from 5.3 percent in 2015,  but in today's statement it only said growth had slowed. 
     The International Monetary Fund estimated in December that Namibia's economy last year slowed to growth of 1.6 percent, but should then pick up speed this year to 5.1 percent and 5.4 percent in 2018 as output from new copper, gold and uranium mines ramps up.
     The IMF also forecast that inflation should ease to 6.0 percent by the end of 2017 and then to 5.7 percent end-2018.
     In the third quarter of last year Namibia's Gross Domestic Product shrank by an annual rate of 1.0 percent, slightly up from a fall of 1.5 percent in the second quarter following growth of 3.5 percent in the first quarter.

Uganda cuts rate another 50 bps on steady inflation

    Uganda's central bank lowered its benchmark Central Bank Rate (CBR) by another 50 basis points to 11.5 percent, saying a "further cautious easing of monetary policy is warranted to support economic activity" as the medium-term outlook for inflation is unchanged despite a worsening of the outlook in the short term.
    Bank of Uganda (BOU) has now cut its CBR rate by 550 basis points since it began an easing cycle in April 2016 as core inflation has remained within its target range of 5 percent, plus/minus 3 percentage points.
     Uganda's core inflation rate rose to 5.9 percent in December from 5.2 percent in November but the BOU said this was mainly due to higher international oil and food prices, and weak demand will continue to hold back inflation so it will remain within the target range though it will rise temporarily.
    Over the next 12 months, the BOU expects inflation to return to the 5 percent target over the next as economic growth picks up.
     "The more favourable shilling exchange rate has been an important factor in offsetting some of the upward pressures on inflation," the BOU said, adding the rate remains vulnerable to shocks.
     The shilling fell in the second half of last year but has been more stable since early December. The shilling was trading at 3,582.9 to the U.S. dollar today, up 0.5 percent this year.
    Uganda's economy has slowed in recent years, hit by weak global growth, adverse weather and muted sentiment during an election year, and the BOU revised downward its forecast for 2016/17 growth, which ends June 30, to 4.5 percent from a previous 5.0 percent.
     In 2015/16 Uganda's economy grew by 4.8 percent.
    But prospects for 2017/18 are seen as better due to higher public infrastructure investment, a recovery in private investment and improved agricultural output and consumption along with an expected improvement in global economic conditions.
     The BOU forecast Gross Domestic Product growth of 5.5 percent in 2017/18.

Sweden holds rate, easy policy remains to boost inflation

    Sweden's central bank maintained its monetary policy stance, as widely expected, saying its policy has to remain expansionary so economic activity remains strong and the exchange rate of the krona doesn't appreciate too rapidly to ensure inflation stabilizes around its 2 percent target.
    Sveriges Riksbank, which cut its benchmark repo rate by 15 basis points 12 months ago to the current level of minus 0.50 percent, added its bond purchases will continue during the first half of this year, as was decided in December when it raised the total amount of bonds that will be bought by mid-year to 275 billion krona from around 245 billion end-2016.
    "Economic activity is strengthening, but there is considerable political uncertainty abroad and the risk of setbacks have increased," the Riksbank said.
    Although it added there was still a greater probability of a rate cut than a rate rise in the near term, its forecast for the repo rate was slightly lower, with the rate now seen averaging 0.5 percent this year, down from December's forecast of minus 0.6 percent.
     For 2018 the repo rate was seen rising to minus 0.3 percent, unchanged from December, and for 2019 it was seen rising to an average of 0.2 percent, also unchanged. For the first quarter of 2020 the rate was seen averaging 0.49 percent.
     But the central bank's board underscored that it is still ready to make its policy more expansionary if the rise in inflation were threatened, adding it had extended its mandate that would allow it to intervene quickly on the foreign exchange markets if needed.
    "The krona exchange rate continues to create uncertainty about the development in inflation," the Riksbank said, adding that it had been stronger than expected since December.
     Against the U.S. dollar, the krona fell sharply in 2014 and has weakened this month after rising  from mid-December through January.  In response to the Riksbank's decision the krona fell and was trading at 8.98 to the U.S. dollar, down from 8.93 yesterday to be up 1.3 percent this year but down 5.8 percent since the start of 2016.
     But against the euro, the krona has appreciated since early November last year and was trading at 9.46 to the euro today, up 1.3 percent this year and up 5.3 percent since November 5.
     "This rapid appreciation is not expected to continue, however," the Riksbank said, adding it expects it to rise slowly as economic activity improves.
    Sweden's headline inflation rate rose to 1.7 percent in December 2016 from 1.4 percent in November and the Riksbank raised its forecast for inflation to average 1.6 percent this year, up from its previous forecast of 1.4 percent.
     For 2018 inflation is seen averaging 2.1 percent, down from 2.2 percent, and for 2019 it is seen at 2.9 percent, down from 3.0 percent forecast in December.
     The outlook for economic growth remains strong, with growth seen at 2.5 percent this year, up slightly from its previous forecast of 2.4 percent. In 2016 Sweden's economy was estimated to have expanded by 3.4 percent.
    For 2018 growth is seen unchanged at 2.2 percent and an unchanged 2.1 percent in 2019.

Tuesday, February 14, 2017

Armenia cuts rate 25 bps on slow inflation progress

    Armenia's central bank lowered its benchmark refinancing rate by a further 25 basis points to 6.0 percent as progress in reaching its inflation target will be slower than expected due to a cut to electricity tariffs, lower prices of some non-food products and natural gas, and a more restrictive fiscal policy by the government this year as compared with last year.
    The Central Bank of Armenia (CBA) cut its rate by 250 basis points last year, most recently in December, and has cut the rate by 450 points since embarking on an easing cycle in August 2015.
    The CBA said it believed its past rate cuts have created conditions for inflation to hit its target and neutralize the deflationary environment and reiterated its recent reminder that future changes to traditional monetary policy "remain limited."
     Armenia's inflation rate improved to minus 0.6 percent in January from minus 1.1 percent in December but the central bank said it didn't expect any significant external inflationary effects in coming months although there are some signs of inflation in international commodity markets.
     The central bank targets inflation of 4.0 percent, plus/minus 1.5 percentage points.
     Domestic demand in Armenia is slowly recovering due to easy monetary and fiscal policies in recent years but estimates for growth in 2016 have been lowered, the bank said.
     Last month the CBA estimated 2016 growth of 0.8 to 1.2 percent, down from previous forecasts of 1.2 to 1.7 percent, due to a decline in agriculture, construction and private investment.
     Armenia's government had projected 2.2 percent growth for 2016 in its 2016 budget and 3.2 percent growth in 2017. In the second quarter of last year, Armenia's economy shrank by an annual rate of 2.6 percent following growth of 1.6 percent in the first quarter.
     The exchange rate of Armenia's dram plunged in late November 2014 in response to the economic crises in Russia, Armenia's largest trading partner, and the fall in the ruble.
    In response, the CBA quickly raised its rate by 375 basis points to 10.50 percent from December 2014 to February 2015, helping stabilize the dram's exchange rate.
    Since September last year the dram has been depreciating slowly though it has been more stable this year. The dram was trading at 486.8 to the U.S. dollar today, down 0.6 percent this year.