Sunday, November 19, 2017

This week in monetary policy: Hungary, Zambia, Nigeria, Argentina, Ghana, Paraguay, South Africa, Kenya, Colombia and Trinidad & Tobago

    This week (November 19 through November 25) central banks from 10 countries or jurisdictions are scheduled to decide on monetary policy: Hungary, Zambia, Nigeria, Argentina, Ghana, Paraguay, South Africa, Kenya, Colombia, and Trinidad and Tobago.
    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.

NOV 19 - NOV 25, 2017:
COUNTRY             DATE             RATE           LATEST              YTD            1 YR AGO       MSCI
HUNGARY 21-Nov 0.90% 0 0 0.90%          EM
ZAMBIA 21-Nov 11.00% -150 -450 15.50%
NIGERIA 21-Nov 14.00% 0 0 14.00%          FM
ARGENTINA 21-Nov 28.75% 100 400 26.25%          FM
GHANA 22-Nov 21.00% 0 -450 25.50%          FM
PARAGUAY 22-Nov 5.25% 0 -25 5.50%
SOUTH AFRICA 23-Nov 6.75% 0 -25 7.00%          EM
KENYA 23-Nov 10.00% 0 0 10.00%          FM
COLOMBIA 24-Nov 5.00% -25 -250 7.75%          EM
TRINIDAD & TOBAGO 24-Nov 4.75% 0 0 4.75%

Thursday, November 16, 2017

Indonesia maintains rate, raises 2018 growth forecast

        Indonesia's maintained its benchmark 7-day Reverse Repo Rate at 4.25 percent, saying the domestic economy is continuing to grow "with a more equitable and balanced structure" and the current interest rate is sufficient to keep inflation in line with the target range and the current account at a healthy level.
       Bank Indonesia (BI), which has cut the rate twice this year by a total of 50 basis points, added it was aware of both global and domestic risks, including "limited growth in household consumption and banking intermediation," and the risks from a tightening of monetary policy in several developed economies.
        Based on rising exports and investments, BI raised its 2018 growth forecast slightly to between 5.1 - 5.5 percent from a previous 5.0 - 5.5 percent.
        Noting improved growth in the third quarter of this year, BI estimated 2017 growth of around 5.1 percent compared with its previous estimate of 5.0-5.4 percent.
        Indonesia's Gross Domestic Product grew by an annual rate of 5.6 percent in the third quarter, up from 5.01 percent in the previous two quarters, boosted by higher exports and rising commodity prices, while investments rose to the highest level since the second quarter of 2013 based on construction and non-construction investment.
        BI also sounded optimistic about global growth, saying strong exports and domestic demand are driving China's economy and restoring consumer confidence while the outlook for economic growth in both Japan and Europe have been upgraded.
      "Meanwhile, tenacious consumption and increasing investment contributed to the US economic gains," BI said.
        Indonesia's inflation rate remains low, with headline inflation easing further to 3.58 percent in October from 3.72 percent in September, with BI expecting inflation around 3.0-3.5 percent by the end of this year, within the lower end of its target range of 4.0 percent, plus/minus 1 percentage point.
       For 2018 BI expects inflation to remain within next year's target range of 3.5 percent, plus/minus 1 percentage point.
       As many other currencies, Indonesia's rupiah depreciated in October due to a rise in the U.S. dollar and was trading at 13,526 today, down 0.2 percent this year.

Wednesday, November 15, 2017

Iceland maintains rate as economic boom slows fast

      Iceland's central bank kept its key rate on 7-day deposits at 4.25 percent, as it had flagged last month, saying the current stance "appears sufficient at present to keep inflation broadly at target" amid easing demand pressures and an improved inflation outlook.
      The Central Bank of Iceland (CBI) has cut its rate three times this year by a total of 75 basis points, with the most recent cut in October when it also said the rate was now sufficient to keep inflation broadly at the target.
       Although there are still "significant demand pressures," which call for a tight monetary stance to keep inflation under control, Iceland's booming economy is slowing faster than expected and the CBI lowered its outlook for growth this year sharply.
       The extraordinary boom in Iceland's tourism industry, the main source of export growth in the past two years, is now easing, while exports of marine products and silicon are also growing slower than expected and seen slowing further in the next few years.
       Although residential investment is still growing fast, it is now less than expected while house price inflation is also easing, helping curb inflation.
        The CBI now expects Iceland's economy to expand by 3.7 percent this year, down from 5.2 percent forecast in August and below 2016's 7.4 percent. Residential investment is seen expanding by 23.7 percent this year, down from 29.4 percent last year and 25.3 percent previously forecast.
       For 2018 the CBI is still expecting overall economic growth of 3.4 percent, up from 3.3 percent previously forecast, but growth is then seen easing toward the long-term growth trend of around 2.5 percent in 2019 and 2020.
       In the second quarter of this year Iceland's economy grew by an annual rate of 3.4 percent, down from 5.2 percent in the first quarter and over 10 percent in the previous two quarters, partly affected by a strike by fishermen that hit exports and inventories.
       With demand pressures easing and the Icelandic krona still strong, inflation remains under control although there are diminishing effects from the strong krona, the CBI said.
       This year inflation is seen averaging an unchanged 1.8 percent before rising to 2.5 percent next year, down from 2.6 percent forecast in August, and 2.3 percent in 2019, down from 2.8 percent. For 2020 inflation is seen at 2.8 percent, slightly above the CBI's 2.50 percent target.
       "Inflation expectations are well in line with the target, and fluctuations in the exchange rate during the year have had limited impact on inflation and inflation expectations," CBI said.
       Iceland's inflation rate rose to 1.9 percent in October from 1.4 percent in September while the exchange rate of the krona has been relatively stable since July. The krona was trading at 103.5 to the U.S. dollar today, up 9.1 percent this year.

Tuesday, November 14, 2017

Chile holds rate, still pondering rate cut on low inflation

       Chile's central bank kept its monetary policy rate at 2.50 percent and repeated its guidance from last month that its board is paying special attention to the risk of low inflation as this "could require adjusting the policy rate."
       The Central Bank of Chile, which has cut its rate four times this year by a total of 100 basis points, added that it expects inflation to "remain low in the short term," which could delay the convergence of inflation to its target of 3.0 percent, plus/minus 1 percentage point.
       Last month the central bank's board was confronted by a decline in September inflation to 1.5 percent, with the result that financial markets priced in rate cuts.
       However, inflation then rose to 1.9 percent in October, "partly undoing the negative surprise of September," shifting those expectations toward no policy easing, according to the central bank.
       After a quarter-century of strong economic growth, Chile's economy has stagnated in the last four years and inflation remains below the central bank's target, leading to dissatisfaction with a sluggish economy, the central bank wrote in its background paper to today's board meeting.
      This has led to popular support for Presidential candidate Sebastian Pinera, president of Chile from 2010 to 2014, with the prospect of business-friendly policies boosting Chilean stocks. The presidential election is scheduled for Sunday, Nov. 19.
      However, the central bank said it expects economic growth to rebound in coming years, with growth expected to accelerate to 2.6 percent in 2018, up from 1.6 percent in 2016.
      In its September monetary policy report the central bank narrowed its 2017 growth forecast to 1.25-1.75 percent from 1.0-1.75 percent
      In the second quarter of this year Chile's Gross Domestic Product grew by only 0.9 percent, up from 0.1 percent in the first quarter, with third quarter data showing activity and demand in line with forecasts and investment still weak, affected by construction.
      Chile's peso has been appreciating steadily since January 2016 and was trading at 631.8 to the U.S. dollar today, almost 6 percent higher since the start of this year.

Armenia holds rate, but gradual tightening in near future

      Armenia's central bank kept its benchmark refinancing rate at 6.0 percent for the fifth time in a row, but said a gradual neutralization of monetary stimulus will be necessary in the near future to reach the inflation target as inflation expectations were growing slightly faster than the rise in international food prices and supply at retail markets.
       However, the board of the Central Bank of Armenia (CBA) still wants to maintain the current monetary stimulus for now given the current state of inflation and inflation expectations and will adjust its monetary policy stance if inflation and other macroeconomic indices deviate from the forecast.
       The CBA has maintained its key rate since February after cutting it 12 times by a total of 450 basis points from 10.50 percent from August 2015.
       The CBA targets inflation of 12.50 - 5.50 percent around a 4.0 percent midpoint.
       Inflation in Armenia rose to 1.2 percent in October from 1.0 percent, with the CBA saying lower-than-expected fruit and vegetable prices are keeping the overall rate down but this impact will change in coming months though inflation should remain within the acceptable range.
       Over the past nine months economic activity in Armenia has been high, supported by strong growth in industry and services. Domestic demand has been recovering at a pace that is faster than expected, helped by growth in money transfers from abroad and the central bank's expansive monetary policy.
         Rising demand in Armenia - sandwiched between Turkey, Azerbaijan, Iran and Georgia - is reflected in high growth of imports, the CBA said.
       Last month the central bank noted that credit had risen 10 percent in August from July while imports had risen 14.6 percent and money transfers in the third quarter had risen a net 16.0 percent due to positive developments in Russia's economy.
        Armenia's economy grew by an annual rate of 5.5 percent in the second quarter of this year, down from 6.5 percent in the first quarter.

Sunday, November 12, 2017

UPDATE-This week in monetary policy: Armenia, Chile, Iceland, Indonesia and Egypt

    (Following item has been updated with the central bank of Armenia)
     This week (November 12 through November 18) central banks from 5 countries or jurisdictions are scheduled to decide on monetary policy: Armenia, Chile, Iceland, Indonesia 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, 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.

NOV 12 - NOV 18, 2017:
COUNTRY             DATE             RATE           LATEST              YTD            1 YR AGO       MSCI
ARMENIA 14-Nov 6.00% 0 -25 6.50%
CHILE 14-Nov 2.50% 0 -100 3.50%          EM
ICELAND 15-Nov 4.25% -25 -75 5.25%
INDONESIA 16-Nov 4.25% 0 -50 4.75%          EM
EGYPT 16-Nov 18.75% 0 400 14.75%          EM

Thursday, November 9, 2017

Peru cuts rate 25 bps, will consider more cuts if needed

      Peru's central bank cut its monetary policy rate for the fourth time this year, a move that was expected by some but not all analysts, and again said it would pay close attention to new information about inflation to consider, if necessary, further changes in its monetary policy stance.
      The Central Reserve Bank of Peru (BCRP) cut its policy rate by 25 basis points to 3.25 percent and has now cut the rate by 100 points this year following cuts of the same size in May, July and September as inflation continues to decelerate.
      Today's rate cut comes after the central bank last month also said it would consider lowering its policy rate further and the bank's president, Julio Velarde, on Wednesday said inflation was likely to end the year at about 1.9 or 2.0 percent thanks to a rapid decrease in consumer prices.
      Peru's headline inflation rate dropped to 2.04 percent in October from 2.94 percent in September, hitting a level not seen since July 2010 as prices continue to decelerate after spiking earlier this year on food shortages following heavy flooding in March that killed more than 100 people.
       Excluding food and energy, inflation eased to 2.35 percent in October from 2.45 percent.
       In today's statement, the board of BCRP noted inflation had now reached the middle of its target range of 1-3 percent and inflation is forecast to remain within the range this year and next year. Inflation expectations 12-months ahead remain within the target range and are expected to continue to decline in coming months.
       In September the central bank forecast the inflation of 2.3 percent this year but in his comments to journalists Velarde said supply, and not demand, was behind the fall in consumer prices.
       Velarde was also quoted by Reuters as saying the annual growth rate would quicken to at least 3.7 precent in the fourth quarter though it probably would not change the bank's view of a 2.8 percent expansion in 2017.
        Peru's Gross Domestic Product grew by an annual 2.4 percent in the second quarter of this year, up from 2.1 percent in the first quarter, and Velarde said the economy grew by at least 3 percent year-on-year in September thanks to mining and an ongoing recovery in construction activity.
       In its statement, the central bank said the pace of economic growth was recovering rapidly and business expectations had continued to improve in October. Expectations remain on the optimistic side although economic growth remains below the potential level.
        For 2018 Peru's government has forecast growth of 4.2 percent and earlier this month in London Velarde said this figure was perfectly attainable and some investment banks had even penciled in growth of 4.4 percent.
        Velarde also described the recovery of Peru's economy as "very V-shaped," with domestic demand growing at more than 8 percent, construction at almost 9 percent and mining investment was up over 25 percent over the last couple of months.
        Peru is the world's second largest producer of copper, with prices currently at levels not seen since September 2014.
        The exchange rate of Peru's sol has been relatively stable after falling in 2014 and 2015. Today the sol was trading around 3.2 to the U.S. dollar, up 4.7 percent this year.

Mexico holds rate, NAFTA poses risk to inflation, growth

      Mexico's central bank maintained its benchmark at 7.0 percent, as widely expected, saying uncertainty from the renegotiation of North American Free Trade Agreement (NAFTA) poses an upside risk to inflation and a downside risk to economic growth.
       But the Bank of Mexico (Banxico), which had kept its rate steady since June, also said it expects inflation to continue to decline for the rest of this year, with the trend then accelerating next year so inflation converges towards the bank's 3.0 percent target towards the end of 2018.
       Banxico has raised its rate by 400 basis points since December 2015 when the U.S. Federal Reserve began tightening its monetary policy for the first time since the global financial crises.
       Mexico's headline inflation rate rose slightly to 6.37 percent in October from 6.35 percent in September, continuing to drop from a high of 5.0 percent in August, as the central bank expected.
       Core inflation in October was was steady at 4.8 percent and Banxico expects it to remain above 4.0 percent this year and then decelerate to moderately above 3.0 percent by the end of next year.
       However, the central bank underlined its inflation forecast is subject to the risk of a fall in the peso's exchange rate in the event of an "unfavorable evolution of the NAFTA negation process" or an adverse reaction to the normalization of monetary policy in the U.S.
       After firming in the first half of this year, the peso has depreciated since late September and trading has turned more volatile in response to U.S. monetary policy, possible U.S. fiscal expansion and uncertainty regarding the outcome of NAFTA talks. The interest rate differential between the U.S. and Mexico has also risen, the central bank added.
      U.S. President Donald Trump has threatened to withdraw from NAFTA if talks don't lead to improved trading conditions for the U.S.
      The peso was trading around 19.05 to the dollar today, still up 8.7 percent this year.
      Mexico's economy has slowed down this year, with Gross Domestic Product shrinking 0.2 percent in the third quarter from the second quarter for annual growth of only 1.6 percent, down from 1.9 percent in the second quarter and 3.2 percent in the first quarter.