Sunday, May 26, 2019

This week in monetary policy: Ghana, Kenya, Kyrgyzstan, Hungary, Canada, Fiji, Gambia, South Korea, Sri Lanka, Bulgaria, Colombia and Dominican Rep.

    This week - May 26 through June 1- central banks from 12 countries or jurisdictions are scheduled to decide on monetary policy: Ghana, Kenya, Kyrgyz Republic, Hungary, Canada, Fiji, Gambia, South Korea, Sri Lanka, Bulgaria, Colombia and Dominican Republic.
    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.

MAY 26 - JUN 1, 2019:
COUNTRY                   DATE                     RATE                LATEST                    YTD              1 YR AGO
SOUTH KOREA31-May1.75%001.50%
SRI LANKA31-May8.00%007.25%
DOMINICAN REP.31-May5.50%005.25%

Friday, May 24, 2019

Angola cuts rate another 25 bps as inflation declines

    Angola's central bank cut its benchmark BNA rate by a further 25 basis points to 15.50 percent and said this was based on the fact that "inflation continued on its downward trajectory, as well and the evolution of the monetary  base in national currency, the monetary policy operational variable, which contracted 0.54 percent in the last 12 months."
    It is the third rate cut by the National Bank of Angola since July 2018 and the second cut this year, bringing the total cut to the BNA rate in the current easing cycle to 250 basis points.
    Angola's inflation rate fell for the fourth month in a row to 17.36 percent in April from 17.56 percent in March for the lowest level since January 2016 despite the steady, but continued depreciation of the exchange rate of the kwanza since January 2018 when Governor Jose Massano replaced the bank's fixed exchange rate regime with a floating regime.
     Since then BNA has used auctions to set a reference rate for the kwanza, which was trading at 328.9 to the U.S dollar today, down 6.1 percent since the start of this year and down 50 percent from its level when it was pegged to the dollar around 166.
     Massano's first move after taking over BNA in October 2017 - part of President Joao Laurenco's move to clean up Angola's image as a corrupt state - was to raise the BNA rate by 200 basis points to hammer home his commitment to lower inflation.
    In addition to the rate hike in November 2017 and the new currency regime, Massano has overhauled BNA policy framework by adopting the monetary base as an operational variable for monetary policy to better control liquidity, lowered and changed the basis for banks' mandatory reserves, and unified the rate on the marginal lending facility with the bank's basic interest rate.
    As many other oil exporting nations, Angola was hit hard by the plunge in crude oil prices in 2014 and suffered from a shortage of foreign currency. Inflation rose sharply in 2016 and hit 41.12 percent in December that year but has slowly, but surely, been falling since then.
    In April Angola's gross international reserves amounted to US$16.33 billion, enough to cover 8.97 months of imports, up from $15.99 billion in February.

Thursday, May 23, 2019

South Africa holds rate as growth, inflation seen lower

     South Africa's central bank kept its benchmark repurchase rate steady at 6.75 percent despite a lower outlook for economic growth and a decline in inflation as three members of its monetary policy committee voted to maintain the rate while two members voted to cut by 25 basis points.
     "Any future policy adjustments will continue to be data dependent," South African Reserve Bank (SARB) Governor Lesetja Kganyago said, adding the rate path generated by the bank's latest projection model implied one rate cut of 25 basis points by the end of the first quarter of 2020, a sharp shift from March when the model implied a rate hike this year.
     "Over the past few months, global growth has rebounded somewhat, but significant downside risks remain, in particular from threats to the global trade regime," Kganyago said, adding business and consumer confidence continues to weigh on economic activity as constraints on electricity and a strike in a major gold mine contributed to a weak performance in the first quarter.
     South Africa's gross domestic product is now expected to shrink in the first quarter of this year and the bank's leading business cycle indicator has trended lower since March 2018, with the risks to the growth forecast seen on the downside, limited by weak confidence and growing pressure on disposable income and declining fixed investments.
     SARB lowered its forecast for GDP this year to 1.0 percent from the March forecast of 1.3 percent  but left its 2020 and 2021 forecasts for growth unchanged at 1.8 percent and 2.0 percent, respectively.
    As before, SARB said the challenges facing the country's economy are primarily structural and can't be solved by monetary policy, making it urgent for policy makers to combine prudent macroeconomic policies with structural reform to raise potential growth and lower overall costs.
    Weak demand and lower food prices has helped curb inflation, which has come down sharply in recent months, and SARB now expects inflation to peak at 5.5 percent in the first quarter of next year and settle at 4.5 percent in the last two quarters of 2021, within SARB's target of 3.0 to 6.0 percent.
     In April South Africa's headline inflation rate eased to 4.4 percent, and the central bank lowered its forecast for 2019 inflation to average 4.5 percent from a previous forecast of 4.8 percent. For 2020 inflation is seen rising to 5.1 percent and then easing to 4.6 percent in 2021.
     South Africa's rand has benefitted from improved sentiment towards risk assets in recent months due to easier monetary conditions in advanced economies and risen 1.5 percent against the U.S. dollar since the last policy meeting in March.
     Today the rand weakened in response to SARB's decision to trade at 14.5 to the dollar, unchanged since the start of the year.

Wednesday, May 22, 2019

Zambia raises rate 50 bps as inflation seen above limit

    Zambia's central bank raised its policy rate by 50 basis points to 10.25 percent and warned it may have to raise rates further if "upside risks to inflation persist and keep inflation above the target range."
    It is Bank of Zambia's (BOZ) first rate hike since November 2015 and the first rate change since February last year when the central bank paused after cutting the rate 5 times by a total of 575 basis points since February 2017.
    Today's rate hike comes after the bank three months ago warned it may have to tighten its policy if inflation looked to exceed its target range of 6.0 to 8.0 percent.
    Zambia's inflation rate rose to 7.7 percent in April from 7.5 percent in March due to the pass-through from a fall in the kwacha and higher prices of maize and its products and BOZ now projects inflation will exceed the upper bound of its target range during the next 8 quarters to Q1 2021.
     "Lower maize output, continued elevated fiscal deficits, high debt service payments, and the decline in gross international reserves are among the key upside risks to inflation," BOZ said, adding these factors have also exerted pressure on the exchange rate.
     In late 2015 Zambia's kwacha tumbled on low copper prices and a poor harvest, boosting inflation to almost 23 percent in February 2016. But the central bank's tightening campaign, a rebound in copper prices and better harvest helped shore up the exchange rate and push down inflation.
     But fiscal deficits remain large and debt service has been rising, taking their toll on growth, which the International Monetary Fund in April forecast would slow to 2.3 percent this year from 3.7 percent last year due to the impact of drought on agricultural output.
     "Indicators of economic activity point to subdued economic growth during the first quarter of 2019," BOZ said, with mining output, cement production, consumer spending and tourist arrivals all showing negative growth.
     In the first quarter of this year the kwacha remained relatively stable but from April 1 to May 17 it fell by 14.9 percent to around 14.0 per U.S. dollar, with BOZ attributing this to elevated demand for petroleum products, reduced supply of foreign exchange and negative market sentiment.


Iceland cuts rate 50 bps as economic outlook worsens

     Iceland's central bank cut its key interest rates, the 7-day deposit rate, by 50 basis points to 4.0 percent, sharply reversing its tightening bias from March, due to a swift deterioration in the economic growth outlook from a drop in tourism and exports of marine products.
     It is the first rate cut by the Central Bank of Iceland (CBI) since October 2017 and the first change in rates since a rate hike in November 2018.
     In it latest monetary bulletin, CBI slashed its growth forecast for 2019 to a drop in output of 0.4 percent from a previous forecast of 1.8 percent growth and 2018's robust growth of 4.6 percent when a boom in tourism helped the country emerge from the ravages of the 2008 financial crises.
     The central bank also lowered its outlook for growth in 2020 to 2.4 percent from a previous 2.8 percent but retained its 2021 forecast of 2.6 percent.
     "But the outlook has clouded over," CBI said in its bulletin, noting the collapse of budget airline WOW in March would lead to a further drop in tourist arrivals.
     WOW already began downsizing its fleet of aircraft at the start of this year and the outlook is for tourist arrivals to decline by 10.5 percent this year from last year before slowly rising again in 2020 to 2.3 million, largely the same as in 2018.
     "The outlook is highly uncertain, however, and the possibly of a deeper contraction and slower recovery cannot be excluded," CBI said, adding tourism could be affected by the high exchange rate of the krona, uncertainty surrounding Icelandair's use of its new Boeing 737 Max jets this summer and any impact from the recent temporary strikes.
      In a second blow to its economy, Iceland's exports have been hit by a collapse of the fishing of capelin, a small fish that grazes on plankton and krill at the edge of the ice shelf.
     After the collapse of herring stocks in the late 1960s, Icelandic fishermen turned to capelin but for the first time since 1963 there is no catch expected this year, a devastating blow to local fishing villages and a hit to exports and a 0.4 percentage point loss to the country's gross domestic product.
     Although CBI expects the capelin catch to resume in 2020, it added this "assumption is highly uncertain, not least if rising ocean temperatures cause caplin spawning grounds to move outside Iceland's fishing waters," which would mean the growth outlook for the next 2 years could turn out to be overly optimistic.
     The hit to economic activity will also create economic slack and curb inflation.
     CBI now expects consumer price inflation this year of 3.2 percent, down from February's forecast of 3.5 percent, 2.6 percent in 2020, down from 2.8 percent, and 2.2 percent in 2021, down from 2.4 percent.
     Boosted by tourism and high wages, Iceland's inflation rate rose to 3.7 percent in December last year, well above the bank's 2.50 percent target, and in its previous policy statement from March CBI said inflation expectations topped its target and this could cal for a tighter monetary stance in coming months.
     In April' Iceland's inflation rate rose to 3.3 percent from 2.9 percent in March while GDP grew 4.0 percent in the 2018 fourth quarter year-on-year, up from 2.5 percent in the third quarter.

Tuesday, May 21, 2019

Nigeria holds rate amid slower global growth, uncertainty

     Nigeria's central bank kept its monetary policy rate at 13.50 percent as 9 of its 11 monetary policy members decided this would allow time to better understand the momentum of domestic economic growth amid the declining trend in global output and persistent uncertainties.
     The Central Bank of Nigeria (CBN), which in March cut its rate for the first time in 3-1/2 year, added maintaining the rate would also allow time to evaluate the bank's impact of its intervention policies to support lending to priority sectors.
     Although an uptick in inflation to 11.37 percent in April from 11.25 percent in March should be monitored and could have resulted in monetary tightening, CBN's monetary policy committee said a tightening would limit the ability of deposit money banks (DMBs) to boost credit and an increase in the cost of credit would further diminish investment flow and have a negative effect on output given the fragile state of the economy.
     Although two MPC's members voted to lower the policy rate by another 25 basis to "aggressively stimulate growth," a majority argued there was a need to restrain from further easing to avoid exacerbating inflationary pressures, which would likely put pressure on the naira's exchange rate.
     In March CBN cut its rate by 50 basis points, the first change in rates since a 200 point hike in July 2016 and the first rate cut since November 2015, due to a steady decline in inflation, a stable naira, a robust level of reserves and a positive outlook for growth this year.
     Nigeria, which relies on oil for about 80 percent of its exports, was hit hard by the fall in crude oil prices in 2014 which led to a chronic shortage of foreign exchange and capital flight.
      Instead of letting its naira depreciate, the central bank propped up the exchange rate via capital controls and invention before finally scrapping a peg to the U.S. dollar in June 2016. CBN then chose a system of multiple exchange rates rather than a float, with the most recent change in August 2017 when the central bank unified its different exchange rates.
     Since then the naira has been more stable and was trading at 360 to the U.S. dollar today, up 1.0 percent since the start of this year.
     Nigeria's economy slowed in the first quarter of this year to an annual rate of 2.01 percent from 2.38 percent in the fourth quarter of last year but was up from 1.89 percent in first quarter 2018.
     CBN said actual output remains well below the economy's long-run potential, calling on banks to "urgently" put in place policies that would promote lending to consumers and for mortgages, which "will greatly and positively impact on the flow of credit and ultimately result in output growth."
      The bank's MPC took note of the government's reappointment and prompt confirmation of Godwin Emefiele for a second 5-year term as governor, saying this would help build policy credibility and deliver stability to domestic financial markets.

Monday, May 20, 2019

Jamaica hikes rate to curb risk inflation falls below target

    Jamaica's central bank said its third rate hike this year was aimed at stimulating an even faster expansion of private sector credit and economic activity to to help inflation return to the midpoint of its target and reduce the risk inflation will fall below its target in the next three years.
    The Bank of Jamaica (BOJ), which on Saturday announced the 50-basis-point cut in its policy rate to 0.75 percent on Twitter ahead of today's press release, has now lowered its rate 11 times and by a total of 300 basis points since July 2017 when it adopted the overnight deposit rate as its policy rate as part of a reform of its monetary policy framework.
    In addition to rate hikes, BOJ has also loosened its policy stance by lowering the reserve requirement for commercial banks twice this year by a total of 500 basis points to lower the cost of credit for businesses and households to boost economic activity and inflation.
    Jamaica's inflation rate has come down following a 2013 agreement with the International Monetary Fund (IMF) and after fluctuating within BOJ's target range of 4-6 percent in 2017, inflation fell below the lower limit in March last year and then again toward the end of 2018 and in the first three months of this year.
    In April the inflation rate rose to 4.0 percent from 3.4 percent in March and the central bank expects inflation to rise and average 4.5 percent over the next 8 quarters.
    However, BOJ also said there will be months when inflation falls below the lower limit and after March 2020 inflation will decline towards the bottom of its target range and only slowly return to the mid-point over the following three years.
    "Of note, the projected trajectory of inflation is lower than previously forecasted," BOJ said, adding this reflects its view that inflation expectations are now lower than previously assessed and the projected pace of expansion in domestic demand after next March will be slower due to headwinds from the global economy.
     In general, BOJ said economic data remain positive, with foreign reserves above the level deemed adequate, the current account sustainable, market interest rates low, labour market conditions continue to improve and the fiscal performance is strong.
    Jamaica's dollar has fluctuated between 137 and 126 to the U.S. dollar since early 2018 and this year has depreciated since mid-March after dropping from early February.
    Today the Jamaican dollar was trading at 135.6 to the U.S. dollar, down almost 6 percent this year.

Pakistan raises rate 150 bps after IMF deal, rupee rises

    Pakistan's central bank raised its policy rate for the third time this year and the 8th time since January last year, saying the rate hike was required to address underlying inflationary pressures from the recent rise in inflation, a sharp fall in the rupee's exchange rate, the elevated fiscal deficit and potential increases in utility tariffs.
    The State Bank of Pakistan (SBP) raised its policy rate by a higher-than-expected 150 basis points to 12.25 percent and has now raised it by 225 points this year following hikes in January and March.
    Since January 2018, when SBP began tightening its monetary policy, the rate has been raised by a total of 6.50 percentage points.
    The rate hike is the first under SBP's new governor, Reza Baqir, former International Monetary Fund economist, who was appointed on May 4, the day after former Governor Tariq Bajwa and the head of the tax collection body were removed from their posts.
    Last week the IMF and Pakistan reached a staff-level agreement for a 39-month extended fund facility of US$6.0 billion aimed at supporting major reforms to improve public finances, the energy sector and loss-making state-owned enterprises that drain public finances.
    The agreement also includes a market-determined exchange rate for the rupee, with IMF saying authorities are focused on reducing inflation and are committed to strengthening SBP's "operational independence and mandate."
   The rupee rose around 1 percent in response to the rate hike to 146.8 to the U.S. dollar, reversing some of last week's 4.8 percent plunge in its exchange rate. Since the start of this year the rupee has fallen 4.8 percent and since the start of 2018 it has lost 25 percent of its value.
     "SBP will continue to closely monitor the situation and stands ready to take measures, as needed, to address any unwarranted volatility in the foreign exchange market," SBP said, adding the current level of reserves are below the standard of three months of import cover.
     Pakistan's inflation rate has been boosted by an increase in domestic fuel prices, higher food prices and inputs costs that are likely to keep upward pressure on inflation "for some time," SBP said, adding surveys also show most households expect higher inflation over the next 6 months.
     Pakistan's consumer price inflation rate eased slightly to 8.8 percent in April from 9.4 percent in March and SBP forecast average inflation in fiscal 2019, which ends June 30, of 6.5 - 7.5 percent and "considerably higher" inflation in fiscal 2020.
     The fiscal deficit in fiscal 2019 is also likely to be considerable higher than last year due to a shortfall in revenue collection, higher-than-budgeted interest payments and securities expenditures, adding to inflationary pressures because a growing portion of this deficit has been financed through borrowing from the central bank.
     "A greater reliance on central bank financing of the widening fiscal deficit has diluted the impact of previous rate hikes," SBP said, "the resulting increase in monetization of the deficit has added to inflationary pressures."
     The government borrowed 45.8 trillion rupees from SBP from July 2018 through May 10, 2.4 times the borrowing during the same period in fiscal 2018, and a major portion of this (3.7 trillion rupees) reflect a shifty away from commercial banks that are reluctant to lend at prevailing rates.
    SBP expects the IMF agreement to unlock external financing and thus improve economic activity with growth down this year but then rising modestly in fiscal 2020, supported by a rebound in agriculture and government incentives for export industries.
    Pakistan's current account deficit narrowed 29 percent to US$9.6 billion from July to March from a deficit of $13.6 billion in the same period last year while reserves fell to $8.8 billion as of May 10 from $10.5 billion at the end of March.

This week in monetary policy: Pakistan, Israel, Nigeria, Iceland, Zambia, Paraguay, South Africa & Egypt

    This week - May 20 through May 25 - central banks from 8 countries or jurisdictions are scheduled to decide on monetary policy: Pakistan, Israel, Nigeria, Iceland, Zambia, Paraguay, South Africa 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.

MAY 19- MAY 25, 2019:
COUNTRY                   DATE                     RATE                LATEST                    YTD              1 YR AGO
SOUTH AFRICA23-May6.75%006.50%

Saturday, May 18, 2019

Jamaica cuts rate 11th time, reserve ratio 2nd time in '19

     Jamaica's central bank lowered its policy rate for the the 11th time and its cash reserve requirement for the second time this year, saying the series of cuts to the reserve requirement was possible "given the entrenchment of macroeconomic stability in Jamaica."
    The Bank of Jamaica (BOJ) announced the 50 basis point cut in its policy rate to 0.75 percent on its Twitter page, saying the new rate would take effect on May 20 and a press release will follow.
    BOJ was scheduled to release its second quarterly monetary policy report and an interest rate decision on Friday, May 17.
     BOJ has now cut its policy rate 11 times and by a total of 300 basis points since July 1, 2017 when it adopted the overnight deposit rate as its new policy rate as part of a major overhaul of its monetary policy framework, which this year even included reggae music videos, radio jingles and television adds to spread the word about inflation targeting.
     It is BOJ's third rate cut this year following cuts in February and March, with the rate cut 100 points this year.
     In a separate press release from May 15, BOJ announced the 200-basis-point cut to the reserve requirement to 7.0 percent, saying this would "increase liquidity in the financial system by $12.3 billion and thereby support the expansion of credit to businesses and households at a lower rate and on better terms."
     In February, when BOJ also cut its rate and reserve requirement, it said the cut to the requirement - or the amount of money deposit-taking institutions are required to hold at the central bank against liabilities - was the first in a series over the next 12 month.
     "The timing and scope for the next reduction will be determined on the basis of market conditions," BOJ said today, confirming its statement from February.
     The new reserve requirement will take effect on June 3, reducing the overall liquidity asset requirement to 21.0 percent.
      In April Fitch Ratings said it was expecting BOJ to lower its policy rate by an additional 25 basis points at its May meeting as inflation remains below its target and over the longer term rising energy and food costs would cause inflation to pick up, leading policy makers to raise rates in 2020.
      As a result of reforms to BOJ which have "seemingly caused inflation expectations to be firmly anchored", Fitch said it had lowered its long-term average inflation forecast for Jamaica to 5.50 percent from 6.0 percent for the years from 2021 to 2028.
     After decades of high inflation, fiscal deficits and growing debt, Jamaica and the International Monetary Fund (IMF) in 2013 agreed on a reform program that has helped bring down inflation from over 26 percent in mid-2008 to 4.0 percent in April this year.
     At the same time unemployment has fallen steadily from over 16 percent in 2013 to 8 percent in February this year while fiscal deficits over the last 20 years are now being replaced with surpluses, helping bring down the ballooning debts.
    In April the IMF concluded its Fifth review under the stand-by arrangement with Jamaica, saying all criteria were met, including tabling the new Bank of Jamaica Act that makes inflation-targeting a cornerstone of monetary policy, and an ongoing commitment to strengthen domestic institutions is needed as Jamaica prepares to exit from the IMF's financial arrangements later this year.
     "Unemployment is near all-time lows, business confidence is high, and the economy is estimated to have expanded by 1.8 percent in 2018, buoyed by mining, construction and agriculture," IMF said on April 22, adding international reserves were now comfortable under a more flexible exchange rate.
     IMF projected Jamaica's public debt would fall below 100 percent of gross domestic product for the first time since 2000/2001 to 98.7 percent in fiscal 2018/19 while the government was reducing the primary surplus by 1/2 percent to 6.5 percent of GDP for the fiscal 2019/20 budget without compromising the medium-term anchor to provide resources for security, infrastructure, school meals and transportation.
     IMF also said further monetary easing was needed to restore inflation to the midpoint of BOJ's target of 4-6 percent.
    "The BOJ's recent reduction in the reserve requirement on Jamaican dollar deposits will help make policy accommodative but further rate cuts are likely to be needed," IMF said, adding BOJ should also continue to reduce its footprint in the foreign exhange market by limiting sales to disorderly market conditions.

Sunday, May 12, 2019

This week in monetary policy: Romania, Poland, Indonesia, Mexico, Mauritius and Jamaica

    This week - May 12 through May 18 - central banks from 6 countries or jurisdictions are scheduled to decide on monetary policy: Romania, Poland, Indonesia, Mexico, Mauritius and Mexico.
    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.

MAY 12 - MAY 18, 2019:
COUNTRY                   DATE                     RATE                LATEST                    YTD              1 YR AGO