Tuesday, August 23, 2016

Hungary maintains rate and guidance of steady base rate

    Hungary's central bank left its base rate at 0.90 percent, as widely expected, and repeated its guidance that it will maintain the rate at the current level and maintain loose monetary conditions "for an extended period" as there continues to be unused capacity in the economy and inflation should remain moderate.
    The National Bank of Hungary (NBH), which ended its latest easing cycle in May after cutting the rate three times by a total of 45 basis points, added that "a watchful approach to monetary policy is still warranted due to uncertainty in the global financial environment," with domestic, real interest rates in negative territory and declining further as inflation rises.
    The central bank also confirmed that it is still planning to decide next month on the required year-end level of the three-month deposit stock and operational details of that facility.
    The MNB is planning to change the use of its main policy tool, the three-month deposit facility, to encourage banks to offer cheaper loans and to buy government debt by lowering the amount from 1,600 billion forints that banks can deposit, and conduct monthly, rather than weekly, tenders.
    Hungary's consumer price inflation rate declined to minus 0.3 percent in July from minus 0.2 percent in June, the third consecutive month of deflation, while core inflation rose to 1.3 percent form 1.2 percent as inflation expectations remain at historically low levels.
    But wage growth remains strong, the central bank said, and this is likely to raise core inflation slowly through rising household consumption. In the first half of this year, gross wages were up by an annual 6.0 percent, with wages in June up by an annual 5.7 percent.
    But the MNB first expects inflation to approach its 3.0 percent target in the first half of 2018.
    In line with its expectations, Hungary's economy picked up speed in the second quarter after slowing in the first quarter as retail sales continued to expand and labour demand remains strong.
    Hungary's Gross Domestic Product grew by an annual rate of 2.6 percent in the second quarter, up from 0.9 percent in the first quarter and the central bank expects growth of around 3 percent to be maintained, helped by an extension of its various stimulus measures and the government's efforts to promote housing construction and a faster drawdown of European Union funding.
    Hungary's forint has been firming against the euro since June and is up 1.6 percent since the start of this year, trading at 309.7 to the euro today.

Turkey holds key rate, trims overnight lending rate further

    Turkey's central bank left its benchmark one-week repo rate at 7.50 percent but continued simplifying its monetary policy framework by once again cutting the overnight marginal funding rate and the late liquidity lending rate by a further 25 basis points.
    The Central Bank of the Republic of Turkey (CBRT) confirmed its guidance from recent months, saying future monetary policy decisions will be conditional on the outlook for inflation and a tight policy stance will be maintained in light of inflation expectations, pricing behavior and other factors - a reference to the exchange rate - that affect inflation.
     The central bank cut the overnight marginal funding rate to 8.50 percent from 8.75 percent and has now cut its by a total of 225 points since March. The borrowing rate was maintained at 7.25 percent.
    The late liquidity lending rate was also cut to 10.0 percent from 10.25 percent while the borrowing rate was left at zero percent.
    The once-week repo rate has been maintained at 7.50 percent since February 2015 as the CBRT remains cautious over inflation which rose in July to 8.79 percent from 7.64 percent in June due to a sharp rise in unprocessed food prices. Core inflation rose to 8.8 percent from 8.7 percent in June.
    Although the central bank said it expects food prices to correct downward, the trend in core inflation is only seen improving gradually so the "developments in the inflation outlook necessitate the maintenance of a tight liquidity stance."
    In its quarterly inflation report from last month, the central bank expects inflation to stabilize around its 5.0 percent target as of 2018 after easing to an average of 7.5 percent this year and 6.0 percent in 2017.
    Inflation is seen fluctuating between 6.6 percent and 8.4 percent in the rest of this year.
    The exchange rate of Turkey's lira has rebounded following a deep plunge in response to the failed military coup attempt in July, with the lira trading at 2.93 to the U.S. dollar today, largely unchanged from 2.92 at the start of the year.

Sunday, August 21, 2016

This week in monetary policy: Turkey, Hungary, Iceland, Paraguay, Moldova, Fiji and Jackson Hole symposium

    This week (August 21 through August 27) central banks from 6 countries or jurisdictions are scheduled to decide on monetary policy: Turkey, Hungary, Iceland, Paraguay, Moldova and Fiji.
    In addition, the Federal Reserve Bank of Kansas City will once again host top central bankers, economists and policymakers from around the world, including Federal Reserve Chair Janet Yellen, at its annual economic symposium in Jackson Hole, Wyoming. 
    The theme of this year's symposium, which takes place Aug. 25-27, is "Designing Resilient Monetary Policy Frameworks for the Future."
    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.

AUG 21 - AUG 27, 2016:
COUNTRY       DATE           RATE      LATEST        YTD     1 YR AGO    MSCI
TURKEY 23-Aug 7.50% 0 0 7.50%       EM
HUNGARY 23-Aug 0.90% 0 -45 1.35%       EM
ICELAND 24-Aug 5.75% 0 0 5.50%
PARAGUAY 24-Aug 5.50% -25 -25 5.75%
MOLDOVA 25-Aug 10.00% -300 -950 19.50%
FIJI 25-Aug 0.50% 0 0 0.50%

Thursday, August 18, 2016

Mongolia raises rate 450 bps to stabilize tugrik FX rate

    Mongolia's central bank raised its benchmark by 450 basis points to 15.0 percent to help increase the return of local currency assets and ensure more stability of the tugrik currency.
    It is the first rate hike by the Bank of Mongolia since January 2015 and follows two rate cuts in January and May this year by a total of 250 points.
    The central bank said the entry and exit of foreign currencies is showing encouraging trends but further steps to strengthen confidence in the currency was required.
    The exchange rate of the tugrik has been falling sharply since late June when the Mongolian People's Party (MPP) returned to power in a landslide parliamentary election amidst an economic slowdown from a fall in mining output.
    The tugrik was trading at 2,249.5 to the U.S. dollar today, down 11.4 percent year to date, as inflation in July declined to a year-low of 0.9 percent from 1.6 percent in June.
    The central bank said the country's trade balance had improved by US$602 million in the first half of the year while the current account deficit had narrowed.
    Mongolia's Gross Domestic Product grew by an annual rate of 1.4 percent in the first half of this year.

Wednesday, August 17, 2016

Namibia holds rate to continue supporting economy

    Namibia's central bank maintained its benchmark repo rate at 7.0 percent, a decision the bank said was "necessary to continue supporting the country's economic growth, particularly in light of slow and fragile recovery in the economies of Namibia's trading partners."
    The Bank of Namibia, which has raised its rate twice this year by a total of 50 basis points, said the country's economy had slowed in the first half of 2016 from the same 2015 period and inflation had continued to rise but remained within "acceptable levels."
    Namibia's Gross Domestic Product grew by an annual rate of 3.5 percent in the first quarter of this year, down from 7.3 percent in the first quarter of last year but up from 2.9 percent in the fourth quarter of 2015.
   The central bank said the mining sector had expanded slowly, particularly in the production of diamonds and zinc concentrate, while reduced activity in manufacturing, transport, construction and agriculture also contributed to the weaker performance.
   On the upside, wholesale, retail and communication sectors were relatively strong.
    "Going forward, growth is expected to be positive, however, risks remain, which include low commodity prices, volatile exchange rate, the prevailing drought conditions and slow recovery in the economies of Namibia's trading partners," the central bank said.
    Namibia's inflation rate rose slightly to 7.0 percent in July from 6.7 percent in June and "going forward, annual inflation is projected to increase, but remain within acceptable levels for the remainder of the year," the bank said.
    Namibia's stock of international reserves declined to 19.2 billion Namibian dollars as of Aug. 12 from N$22.1 billion on June 13 and 26.6 billion on April 11.
    This stock was the equivalent of 2.4 months of import cover and "sufficient to meet foreign obligations of the country," the bank said.
    Growth in Private Sector Credit Extension (PSCE) also continued to decline due to lower demand from households and corporates. Annual average growth in the first six months of this year was 12.4 percent, down from 15.6 percent in the first half of 2015.



Tuesday, August 16, 2016

Armenia cuts rate 25 bps, deflation seen slowly easing

    Armenia's central bank cut its benchmark refinancing rate by 25 basis points to 7.25 percent, saying it expects a low inflationary environment in coming months but that the annual inflation rate will return to its target as the deflationary environment gradually disappears.
   The Central Bank of Armenia (CBA) has now cut its rate by 325 basis points since embarking on an easing cycle in August 2015, including cuts of 150 points this year.
    The CBA said the risks of deflation may dominate in the short term but it can adequately respond to this to ensure that it meets its medium-term inflation target of 4.0 percent, plus/minus 1.5 percentage points.
    Armenia's inflation rate was minus 1.3 percent in July, up from minus 1.1 percent in June for the eight consecutive month of deflation as the central bank attributed lower prices in July to a seasonal decline in prices for agricultural products and a fall in natural gas prices.
    Armenia's dram currency has been firming since mid-February and the central bank said changes in the European Union - apparently a reference to Brexit - had not had a significant impact on its economy, with economic activity in the second half of this year expected to improve from the first half due to positive demand for its exports.
    At the same time, inflation expectations have been reduced, making it possible for long-term market interest rates to decline, helping private consumption and domestic demand recover.
    The dram was trading at 475.8 to the U.S. dollar today, up 1.7 percent from 483.7 at the start of this year.
    On Aug. 26, the CBA will publish its third quarter inflation report.



Monday, August 15, 2016

Kazakhstan holds rate, further cuts depend on inflation

    Kazakhstan's central bank left its base rate at 13.00 percent, saying further rate cuts will depend on actual inflation, inflation expectations and the tenge's exchange rate.
    The National Bank of Kazakhstan has cut its rate by a net 300 basis points this year, most recently by 200 points in July, and by 400 points since February when the rate was raised to 17 percent.
    In September last year the central bank launched its new base rate and set it at 12.0 percent and subsequently raised it to 17 percent before starting to ease its policy stance this May as the exchange rate of the tenge stabilized following a plunge in the last half of 2015.
    The balance of risks to inflation has barely changed since the central bank's rate cut in July and the decision to maintain the rate today reflected the expectation that inflation will reach the bank's target range of 6-8 percent and remain there until the end of 2017.
    Inflation in Kazakhstan rose slightly to a 2016-high of 17.7 percent in July from 17.3 percent in June but the central bank said there was a seasonally-adjusted bump in prices in July and inflation remains high due to a significant increase in the fourth quarter of last year.
    But as the base effect of this begins to fade, the central bank expects "a significant decline" in the inflation rate from October.
    The pass-through of weaker oil prices in July to consumer prices is expected to be limited if oil prices recover to US$45 per barrel or higher, while part of the fall in oil prices was absorbed by a depreciation of the tenge's exchange rate.
   In August last year the central bank adopted a floating exchange rate regime in response to capital outflows and the conversion of tenge bank deposits to foreign currency. This led to an immediate fall in the tenge's exchange rate but over the last six months, the value of the tenge has been more stable.
    Today the tenge was trading at 343.45 to the U.S. dollar, down 0.8 percent since the start of this year but up 13.8 percent since hitting a low of 391 on Jan. 21 this year.

Sunday, August 14, 2016

This week in monetary policy: Kazakhstan, Namibia and Indonesia

    This week (August 14 through August 20) central banks from 3 countries or jurisdictions are scheduled to decide on monetary policy: Kazakhstan, Namibia and Indonesia.
    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.

AUG 14 - AUG 20, 2016:
COUNTRY       DATE           RATE      LATEST        YTD     1 YR AGO    MSCI
KAZAKHSTAN 15-Aug 13.00% -200 -300 5.50%       FM
NAMIBIA 17-Aug 7.00% 0 50 6.50%
INDONESIA 19-Aug 6.50% 0 -100 7.50%       EM

Friday, August 12, 2016

Botswana cuts rate 50 bps as inflation declines

    Botswana's central bank cut its Bank Rate by 50 basis points to 5.50 percent, saying the "current state of the economy and both the domestic and external economic outlook as well as the inflation  forecast provide scope for easing monetary policy to support economic activity without undermining maintenance of inflation within the Bank's medium-term objective range of 3-6 percent."
     It is the first rate cut by the Bank of Botswana (BoB) since August 2015 and follows a steady decline in inflation this year and an appreciation of the exchange rate of the pula since sentiment shifted in favor of emerging markets in mid-January.
    Botswana's inflation rate eased to 2.7 percent in June from 2.8 percent in the previous two months and the central bank said it is forecasting that inflation will be close to the lower end its target range in the medium term.
    In its previous statement from June 15, BoB forecast inflation would remain within its target range.
    In addition to a rise in the pula, low domestic demand and subdued foreign prices are contributing to the positive inflation outlook though the central bank said this outlook was subject to downside risks from sluggish global economic activity and low commodity prices.
    On the other hand, unanticipated large increases in administered prices and government levies along with higher oil and food prices could push up inflation.
     The exchange rate of the pula has been depreciating steadily since August 2011 but has rebounded since hitting 12 to the U.S. dollar on Jan 20. Today the pula was trading at 10.4 to the dollar, up 8.7 percent since the start of 2016.

Thursday, August 11, 2016

Chile holds rate and drops tightening bias

    Chile's central bank left its monetary policy rate steady at 3.50 percent but dropped its tightening bias and adopted a neutral guidance, saying "any future changes in the monetary policy rate will depend on the implications of domestic and external macroeconomic conditions on the inflationary outlook."
    The Central Bank of Chile had kept a tightening bias since its last rate hike in December 2015 as inflation slowly eased but still remained above its target range of 2-4 percent.
    But consumer price inflation in July dropped to 4.0 percent from 4.2 percent in the previous three months, allowing the central bank to shift its monetary policy stance.

Mexico maintains rate despite rising risks to growth

    Mexico's central bank left its key policy rate at 4.25 percent, as widely expected, but said the balance of risks surrounding the country's economic growth had deteriorated since the rate cut in late June while the outlook for global growth remains "depressed" as reflected in lower oil prices.
    The Bank of Mexico, which has raised its rate three times by a total of 125 basis points since the U.S. Federal  Reserve's tightening in December last year, noted estimates for Gross Domestic Product growth in the second quarter of this year showed a contraction of 0.3 percent from the first quarter, with stagnation in the industrial sector, slower private consumption, weak exports and investment that resulted in the output gap remaining negative.
    The central bank added that the exchange rate of the peso had shown "great volatility" in response to the decision by the U.K. to leave the European Union and new episodes of volatility in international financial markets could not be ruled out due to the geopolitical risks, the possible consequences of the U.S. Presidential election and the normalization of U.S. monetary policy.
    Given these uncertainties, the central bank said it was crucial to maintain sound macroeconomic fundamentals, including a consolidation of public finances to help absorb international shocks more efficiently and promote an adequate current account balance.
    As in recent months, the central bank said it was closely following all determinants of inflation, especially the exchange rate and its possible transfer to consumer prices, and will remain vigilant about the relative position between Mexico and the United States "without neglecting the evolution of the output gap."
    Mexico's inflation rate rose slightly to 2.65 percent in July from 2.54 percent in June, but was still below the central bank's 3.0 percent target.
    The exchange rate of the peso - the most traded currency among emerging market currencies - has been rising since the beginning of this month and was trading at 18.24 to the U.S. dollar today, up from a historic lows in June but down 5.7 percent since the start of this year.
    The central bank raised its rate in June to shore up the peso which fell sharply in response to the U.K. vote on the EU to a record low of 19.5 to the dollar the day after the vote.