Friday, December 15, 2017

Russia cuts rate 50 bps and open to further cuts in H1

     Russia's central bank lowered its key monetary policy rate for the sixth time this year on easing risks to inflation from the recent agreement to extend oil output cuts and said it was open to further cuts in the first half of next year, depending on inflation.
      The Bank of Russia cut its rate by 50 basis points to 7.75 percent and has now cut it by 225 basis points this year. This follows cuts of 100 basis points in 2016 and 600 points in 2015 as it steadily lowers the rate from a high of 17.0 percent in December 2014 when rates was hiked in the wake of a plunge in the ruble following the conflict in Ukraine.
      "The Bank of Russia will continue its gradual transition from moderately tight to neutral monetary policy and holds open the prospect of some key rate reduction in the first half of 2018," the central bank said.
       Last month Elvira Nabiullina, the central bank's governor, said the policy rate would gradually be lowered to 6 to 7 percent over the next one or two years as inflation expectations decline further.
       The International Monetary Fund (IMF) said in November the central bank should continue to cut its policy rate as the monetary stance remains tight and conditions are in place for further easing as inflation and inflation expectations have continued to decline
       Inflation in Russia has been decelerating since early 2015 - helped by a rise in the ruble's exchange rate, the central bank's tight policy stance and economic recession - and dropped to a 2017-low of 2.5 percent in November and was estimated at the same level as of Dec. 11.
       As the impact of a temporary fall in food prices and a rise in the ruble abate, inflation is expected to rise slightly next year to end the year around the bank's 4.0 percent target but as ever, the central bank remains guarded about any rise in inflation.
      "The extension of the agreement between oil-exporting countries lowers the uncertainty of energy prices' dynamics and related pro-inflationary risks over a one-year horizon. However, the risks of upward deviation in inflation from the forecast in the medium term still prevail," the bank said.
       Last month OPEC and non-OPEC Russia agreed to extend oil production cuts until the end of 2018, with Nigeria and Libya also agreeing not to raise output next year above 2017 levels.
       As a result of more stable and firmer oil prices, the central bank said it had raised its 2018 growth forecast but retained its forecast that economic growth in the medium term will not exceed 1.5 to 2.0 percent, around the estimate of potential output.
        Russia's Gross Domestic Product grew by 1.8 percent year-on-year in the third quarter of this year and is estimated to be close to 1.7 - 2.2 percent by the end of this year, the same as forecast in October.
       Russia's ruble has been rising steadily since January 2016 and was trading at 58.8 to the U.S. dollar today, up 4.3 percent this year.

Tuesday, December 12, 2017

Argentina maintains rate as inflation slowly decelerates

      Argentina's central bank kept its monetary policy rate at 28.75 percent and confirmed its recent guidance that its current policy bias is adequate to minimize the impact of higher regulated prices and ensure that inflation continues it downward trend.
      The Central Bank of Argentina (BCRA) has raised its rate three times this year by a total of 400 basis points and expects core inflation to converge to its target of 10.0 percent, plus/minus 2 percentage points by 2018.
      Argentina's national consumer price index rose by 1.4 percent in November from October for an annual rate of 22.5 percent, down from 22.7 percent in October and 23.8 percent in September.
      Core inflation rose 1.3 percent in November from October for an annual rate of 21.2 percent, down from 21.7 percent in October and 22.3 percent in September.
      The most recent survey of market expectations shows a rise in forecast 2017 headline inflation to 23.5 percent from 23.0 percent given a higher than expected increase in regulated prices in December while inflation expectations for the next 12 months rose to 17.5 percent from 17.3 percent, and 2018 expectations rose to 16.6 percent from 16.0 percent, the BCRA said.
     
     www.CentralBankNews.info

     

Sunday, December 10, 2017

This week in monetary policy: Argentina, Honduras, Iceland, Georgia, Croatia, Uganda, USA, Fiji, Switzerland, Philippines, UK, Norway, euro area, Ukraine, Indonesia, Turkey, Mexico, Colombia, Chile, Peru & Russia

    This week (December 10 through December 16) central banks from 21 countries or jurisdictions are scheduled to decide on monetary policy: Argentina, Honduras, Iceland, Georgia, Croatia, Uganda, USA, Fiji, Switzerland, Philippines, UK, Norway, euro area, Ukraine, Indonesia, Turkey, Mexico, Colombia, Chile, Peru and Russia.
    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.

WEEK 50
DEC 10 - DEC 16, 2017:
COUNTRY             DATE             RATE           LATEST              YTD            1 YR AGO       MSCI
ARGENTINA 12-Dec 28.75% 100 400 24.75%          FM
HONDURAS 12-Dec 5.50% 0 0 5.50%
ICELAND 13-Dec 4.25% 0 -75 5.00%
GEORGIA 13-Dec 7.00% 0 50 6.50%
CROATIA 13-Dec 2.50% 0 0 2.50%          FM
UGANDA 13-Dec 9.50% -50 -250 12.00%
UNITED STATES 13-Dec 1.25% 0 50 0.75%          DM
FIJI 14-Dec 0.50% 0 0 0.50%
SWITZERLAND 14-Dec -0.75% 0 0 -0.75%          DM
PHILIPPINES 14-Dec 3.00% 0 0 3.00%          EM
UNITED KINGDOM 14-Dec 0.50% 25 25 0.25%          DM
NORWAY 14-Dec 0.50% 0 0 0.50%          DM
EURO AREA 14-Dec 0.00% 0 0 0.00%          DM
UKRAINE 14-Dec 13.50% 100 -50 14.00%
INDONESIA 14-Dec 4.25% 0 -50 4.75%          EM
TURKEY 14-Dec 8.00% 0 0 8.00%          EM
MEXICO 14-Dec 7.00% 0 125 5.75%          EM
COLOMBIA 14-Dec 4.75% -25 -275 7.50%          EM
CHILE 14-Dec 2.50% 0 -100 3.50%          EM
PERU 14-Dec 3.25% -25 -100 4.25%          EM
RUSSIA 15-Dec 8.25% -25 -175 10.00%          EM


Tuesday, December 5, 2017

Moldova cuts rate another 50 bps, but shifts to neutral

      Moldova's central bank cut its basic interest rate by another 50 basis points to 6.50 percent but shifted away from an easing stance after 22 months to a neutral stance by saying the future monetary policy configuration will be based on the risks and uncertainties associated with inflation.
       The National Bank of Moldova (NBM) has now cut its rate by 250 basis points this year and by 13.00 percentage points since February 2016 when it began lowering the rate from 19.0 percent.
        Today's guidance by the central bank compares with its guidance from October when it said it expected to continue cutting the rate in coming months as inflation was expected to fall rapidly beginning in the fourth quarter.
        According to the central bank's latest forecast, aggregate demand will continue to generate disinflationary pressures and the inflation rate is expected to return to the bank's target range of 5.0 percent, plus 1.5 percentage point in the first quarter of 2018.
       At the same time, the central bank said it had taken note of the rise in October inflation to 7.9 percent in October from 7.6 percent in September due to higher food prices from less favorable weather in the last three months.

     www.CentralBankNews.info
     
   

Monday, December 4, 2017

Australia holds rate, non-mining investment rises further

      Australia's central bank kept its benchmark cash rate at 1.50 percent, as widely expected, and maintained its upbeat view of the economy, saying investment had improved "further" in the non-mining sector while economic growth is expected to average around 3 percent in the next few years.
      The Reserve Bank of Australia (RBA), which has kept its rate steady since lowering it in August 2016, also reiterated its view from last month that business conditions were positive and capacity utilization had increased, with forward-looking indicators more positive than for some time.
       In its last statement from Nov. 6, the RBA said the outlook for non-mining investment had "improved," with today's statement adding the word "further."
       Australia's economy grew by an annual rate of 1.8 percent in the first and second quarters of this year but RBA said recent data suggested the economy expanded around its trend rate in the third quarter.
       Economists are forecasting annual growth over 3 percent in the third quarter after retail sales for October rose 0.5 percent from September, higher than expected and the fastest rate since May.
      The RBA's optimism over economic growth was echoed last week by the Organisation for Economic Co-operation and Development (OECD), which called on the central bank to start raising its rate in the second half of next year as wages and prices rise. 
       Higher rates will also ease the pressure on house prices and reduce the threat of a build-up of financial imbalances, Paris-based OECD said in its latest world economic outlook.
       So far, however, there are few signs of price and wage pressure, with Australia's inflation rate down to 1.8 percent in the third quarter from 1.9 percent in the second quarter, below RBA's target of 2 - 3 percent
      While unemployment has been declining - it fell to 5.4 percent in October from 5.5 percent in September - wage growth remains low and RBA said it expects this to continue "for a while yet, although stronger conditions in the labour market should see some lift in wage growth over time."

Sunday, December 3, 2017

BIS: Echoes of Greenspan's conundrum in bond markets

       A paradox reminiscent of Alan Greenspan's "conundrum" in the 2000s is playing out these days as global financial conditions have become easier ever since the U.S. Federal Reserve began its gradual but persistent tightening of monetary policy two years ago, according to the Bank for International Settlements (BIS).
      Since the Fed in December 2015 raised its federal funds rate for the first time in almost 10 years, stock markets have surged, the yield on benchmark 10-year U.S. Treasury notes has moved sideways, corporate credit spreads have narrowed, and a key indicator of the tightness of overall financial conditions index has dropped to lows not seen in the last 24 years.
      "Can a tightening be considered effective if financial conditions unambiguously ease?," asks Claudio Borio, head of BIS' monetary and economic department, as the world's oldest international financial institution releases its December quarterly review.
      In fact, such a paradoxical outcome in financial markets is not entirely unheard of but reminiscent of the Fed's tightening from July 2004 to July 2006 when the benchmark fed funds rate was hiked to 5.25 percent from 1.00 percent. 
      During the first year of that tightening cycle, stock markets rose while long-term Treasury yields and corporate spreads dropped, leading former Fed Chairman Greenspan in 2005 to describe the fall in bond yields as a conundrum.
      The reaction of financial markets in the 2000s was in sharp contrast with previous cycles of monetary tightening, especially the one in 1994 when the Fed's action triggered sharply higher yields, stock market losses, wider credit spreads and massive currency depreciation in emerging markets.
      One explanation behind the apparent paradox may lie in the overall economy. Market participants today are anticipating a future of even lower interest rates and possibly inflation than the Fed has communicated.
      "Less appreciated perhaps, the very mix of gradualism and predictability may also have played a role, " says Borio, adding the expected pace of Fed tightening in this cycle is now expected to be the slowest on record.
      Unlike 1994, when the Fed's move was steep and less thoroughly communicated to markets, central banks are now much clearer and transparent in their policy direction, with "forward guidance" and interest rate forecasts an integral part of their monetary toolbox.
      "And scorched by the outside reaction in 1994 - not to mention the "taper tantrum" in 2013 - the central bank has made every effort to prepare markets and to indicate that it will continue to move slowly," said Borio in remarks accompanying BIS' latest review.
      The effect of this gradualism by the Fed is comforting financial markets with the belief that tighter policy will neither derail the economy nor upset asset markets. And if there are tensions in financial markets, central banks will not remain on the sidelines.
      Even the pace of the Fed's planned run-down of its  holding of U.S. Treasuries - an average of $18 billion a month until the end of 2018 - is slower than the large-scale asset purchases in the wake of the Global Financial Crises, which ranged from $45 billion to $75 billion a month.
      "Against this backdrop, easier financial conditions look less surprising," said Borio.
     But Borio also cautions the jury is still out. 
     The monetary tightening has not yet really begun and vulnerabilities built up during the unusually long period of low interest rates are still there along with frothy valuations of all assets. And the longer this level of risk taking continues, the higher the exposures become.
      "Short-run calm comes at the expense of possible long-run turbulence," said Borio.

      Click to read the BIS December 2017 Quarterly Review.
      In addition to a revamped and more timely commentary on developments in global banking and financial flows, the December review includes an analysis of credit risk transfers in which the authors document how global banks shift credit risks out of financial centers and riskier emerging market economies and into advanced economies.
       The review also includes two special features that shed light on how the stock of debt affects macroeconomic developments and financial stability. This helps show how monetary policy normalization will affect economic activity.

Saturday, December 2, 2017

This week in monetary policy: Australia, Poland, Honduras, India, Namibia, Canada, Brazil and Serbia

    This week (December 3 through December 9) central banks from 8 countries or jurisdictions are scheduled to decide on monetary policy: Australia, Poland, Honduras, India, Namibia, Canada, Brazil and Serbia.
    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.

WEEK 49
DEC 3 - DEC 9, 2017:
COUNTRY             DATE             RATE           LATEST              YTD            1 YR AGO       MSCI
AUSTRALIA 5-Dec 1.50% 0 0 1.50%          DM
POLAND 5-Dec 1.50% 0 0 1.50%          EM
HONDURAS 5-Dec 5.50% 0 0 5.50%
INDIA 6-Dec 6.00% 0 -25 6.25%          EM
NAMIBIA 6-Dec 6.75% 0 -25 7.00%
CANADA 6-Dec 1.00% 0 50 0.50%          DM
BRAZIL 6-Dec 7.50% -75 -625 13.75%          EM
SERBIA 7-Dec 3.50% 0 -50 4.00%          FM