Thursday, August 27, 2015

Ukraine cuts rate 300 bps, to keep relatively tight stance

    Ukraine's central bank lowered its benchmark discount rate by 300 basis points to 27.00 percent in light of easing risks to inflation but cautioned that its policy stance "will remain relatively tight to support the disinflation trend and shield the Ukrainian economy from external shocks currently experienced by global commodity and financial markets."
    The National Bank of Ukraine (NBU), which had maintained rates since its last rate hike in March, added that a tight policy stance over the last six months had "helped firmly anchor inflation and devaluation expectations and contributed to the stabilization of the FX market, thus putting inflation firmly on a downward path."
    From April last year though March the NBU raised its rate by a total of 23.50 percentage points, including16.00 percentage points this year alone.
    The rate cut comes on the same day that Ukraine and about half of its main creditors agreed on a plan to restructure $18 billion of foreign debt that will include a write-off of 20 percent. Press reports said Russia, which was not in the negotiating committee, would continue to demand full repayment of a $3 billion eurobond due in December.
     The NBU, which earlier this month held out the promise of lower rates by the end of this year, said it expects the disinflation trend to continue due to a stable foreign exchange market, the fading of major price increases in housing and utilities, and a slow recovery of consumer demand. In addition, a high yield of grain, vegetables and fruit should keep down food prices.
    Ukraine' inflation rate eased to 55.3 percent in July from 57.5 percent in June and a 2015-high of 60.9 percent in April.
    Ukraine's hryvnia plunged by almost 50 percent against the U.S. dollar in 2014 following the outbreak of armed conflict in Eastern Ukraine and the occupation of the Crimean peninsula by pro-Russian forces.
    But a cease-fire agreement in late February, rate hikes by the central bank and administrative measures have helped stabilize the hryvnia, which was trading at 21.1 to the U.S. dollar today, up from a low of 33.7 in late February but still down 25 percent this year.
    On July 31 the International Monetary Fund (IMF) disbursed another $1.7 billion of its 4-year $17.5 billion facility to Ukraine, saying its economy remains fragile but encouraging signs were emerging as the exchange rate had stabilized and retail banking deposits had risen.
    The IMF added that Ukraine should maintain "an appropriately tight monetary policy" and build up foreign exchange reserves but the policy can be "carefully eased" as disinflation takes root.

Wednesday, August 26, 2015

Moldova raises rate 200 bps on rising inflation pressure

    Moldova's central bank raised its key policy rates by 200 basis points and the reserve ratio on bank's leu and non-convertible liabilities by 300 points to curb rising inflationary pressures from the the depreciation of the leu currency.
    The National Bank of Moldova (NMB), which has now raised its benchmark base rate by 13 percentage points this year, said it expects inflation to accelerate in coming quarters due to the comparison with last year's low base as the leu's deprecation since the beginning of the year will push up the prices of imported goods and then by second-round effects.
    The central bank said its policy decision was aimed at anchoring inflation expectations but inflation is still expected to temporarily exceed the upper limit of the target range of 6.50 percent to 3.50 percent, with a midpoint of 5.0 percent.
    In addition to raising the base rate, the NBM raised its rate on overnight loans by 200 basis points to 22.50 percent and the overnight deposit rate to 16.5 percent from 14.5 percent.
    To help sterilize excess liquidity accumulated in recent months, the central bank raised the required reserve ratio on leu and non-convertible deposits by 300 points to 35.0 percent while the ratio on freely convertible currencies was maintained at 14.0 percent.
    Moldova's leu currency has been depreciating since July last year and went into near-freefall in January this year. Since February it has continued to slowly decline though it rose in response to the central bank's latest rate hike.
    The currency of Moldova - a former Soviet state located between Romania and Ukraine - was trading at 19 to the U.S. dollar today, up from 19.2 prior to news of the bank's decision but still down 18 percent this year.
    Moldova's inflation rate rose to 8.6 percent in July from 8.3 percent in June.

Tuesday, August 25, 2015

Hungary lives up to July pledge and maintains rate

   Hungary's central bank left its base rate unchanged at 1.35 percent, living up to its guidance from July,  and repeated that it will keep monetary conditions loose "for an extended period" as long as inflation and growth evolves as it expects.
    The National Bank of Hungary (MNB), which has cut its rate by 75 basis points this year, also confirmed its statement from last month that there is still a degree on unused capacity in the country's economy and "inflationary pressures are likely to remain moderate."
    In July the MNB cut its rate by 15 basis points for the fifth time in a row this year but added that rates had now reached a level that not only would ensure that it would reach its inflation target but they would still support economic activity.
    Economic growth in Hungary continued in the second quarter, but slightly lower than the MNB projected in its June inflation report, probably due to weaker agriculture output.
    However, underlying growth has not changed "significantly," the central bank said, adding that "growth is likely to continue at a rapid pace" based on retail sales on a wide range of products rising, growing household real income underpinned by low inflation, a reduced need for deleveraging and growing employment.
    Hungarian consumer prices continued to rise in July, up by an annual 0.4 percent, but underlying inflation still shows moderate pressures due to subdued imported inflation, falling commodity prices and unused productive capacity, the MNB said.
    The MNB first expects inflation to approach its 3.0 percent target level by the end of its forecast horizon.

China cuts rate 25 bps, lowers reserve ratio 50 bps

    China's central bank cut its benchmark one-year lending rate by 25 basis points to 4.60 percent, the deposit rate by a similar 25 points to 1.75 percent and lowered the reserve ratio for major financial institutions by 50 basis points to 18 percent amid "greater volatility in global financial markets" and "downward pressure on economic growth."
    The People's Bank of China (PBOC) has now lowered its key rate by 100 basis points this year and by 140 points since it embarked on its easing cycle in November 2014.
    The PBOC said the rate cuts will take effect on Aug. 26 while the cuts in the reserve ratios, which will help boost liquidity in financial markets, will take effect Sept. 6.
    In addition to the cut in the reserve ratio for major financial institutions, the central bank also cut the ratio for lenders to rural areas and small businesses, such as commercial banks, credit cooperatives and other financial institutions, by 50 basis points.
    The reserve ratio for financial leasing companies, including car lenders, was slashed by 300 basis points to "to encourage it to play a good role in the expansion of consumption," the PBOC said.
    Continuing its process of liberalizing financial markets and allowing banks to compete against each other, the PBOC scrapped its ceiling on the rate that banks can offer customers on deposits with maturities of one year or longer. For deposits less than one year, the PBOC maintained its limit that banks can only offer its customers rates that are 1.5 times its benchmark rate.
     The rate cuts were widely expected following the recent rout in China's stock markets, declining exports and growing signs that growth this year will fail to reach the official target of 7.0 percent.
    Gross Domestic Product expanded by 1.7 percent in the first quarter from the fourth quarter for annual growth of 7.0 percent.
    Although China's inflation rate has risen in recent months, hitting 1.6 percent in July, the PBOC said rising pork prices had significantly affected the overall price level which remains at historically low levels, and the rate cut was aimed at further driving down the cost of financing.
    Chinese producer prices fell by 5.4 percent in July, the lowest level since October 2009, a sign of continuing excess production capacity in the world's second largest economy.
    In addition to recent cuts in the reserve ratios, the PBOC said it had implemented reserve repos, a medium-term lending facility, supplementary mortgage loans (PSL), with the reverse repos adding a total of 565 billion yuan of liquidity since August and PSLs adding 463.3 billion.
    To support the agricultural sector, the PBOC said it had increased credit by an annual 26.2 billion yuan by the end of July.

 Meanwhile, the release of more than one year (excluding one year) fixed deposit interest rate floating ceiling, demand deposits and time deposits of one year or less floating interest rate ceiling unchanged.

Kyrgyzstan holds rate, jumpy market may boost inflation

     The central bank of the Kyrgyz Republic left its policy rate unchanged at 8.0 percent, saying increased instability in foreign financial markets had increased pressure on the domestic currency market and this could raise inflationary pressures in the medium term.
    The National Bank of the Kyrgyz Republic, which has cut its rate by 250 basis points this year after raising it by 450 points last year to curb inflation, added that inflation had continued to slow, reaching 5.6 percent as of Aug. 14 compared with 11.6 percent at the start of the year.
    The central bank also said in a statement from Aug. 24 that economic growth of 7.1 percent in the first seven months of this year was mainly driven by expansion at the Kumtor gold mine as growth in Gross Domestic Product excluding the mine amounted to 4.5 percent.
    Kyrgyzstan's inflation rate rose slightly to 5.0 percent in July from 4.5 percent in June, within the central bank's target range of  5-7 percent.
    GDP rose by an annual 7.3 percent in the second quarter, up from 7.0 percent in the first quarter.
    Kyrgyzstan's som currency has been depreciating since June and was trading at 62.15 to the U.S. dollar today, down 5.2 percent this year.
    The Kumtor gold mine is an open-pit mine near Kyrgyzstan's border with China that is owned by the Canadian firm Centerra. It is the largest gold mine operated in Central Asia by a Western-based company and produced 568 ounces of gold in 2014.

Monday, August 24, 2015

Central Bank News Link List - Aug 24, 2015: Asian central banks from India to South Korea say ready to act

Here's today's Central Bank News' link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don't miss any important news.

Israel holds rate, warns of rising risks to inflation target

    Israel's central bank left its benchmark interest rate steady at 0.10 percent, as widely expected, but said "the risks to attaining the inflation target, and to growth, have increased," triggering a sharp rise in the shekel.
    The Bank of Israel (BOI), which cut its rate by 15 basis points in February to counter the negative impact on exports and inflation from a rise in the shekel, added that it "will use the tools available to it and will examine the need to use various tools to achieve its objectives of price stability."
    Israel's consumer prices continued to fall in July by an annual 0.3 percent, slightly less than the 0.4 percent in June but inflation has now been negative for the last 11 months.
    The BOI said short-term inflation expectations had declined sharply this month due to the fall in energy and commodity prices and the scheduled reduction in electricity prices, and average expectations for the next 12 months fell to 0.7 percent from 1.0 percent,  below the central bank target range of 1 - 3 percent.
    The Telbor curve, the rate on interbank loans, indicates some probability of a rate cut in the next few months, the BOI said, but added that most private forecasts don't expect a rate cut and forecasters' projection of the benchmark rate in one year remains 0.29 percent, on average.
     Israel's economy slowed sharply in the second quarter with the BOI attributing this to a moderation in world trade, noting that exports of goods and services contracted by 11.6 percent, partly due to labor disruptions in the chemicals industry.
    It added that annual growth in Gross Domestic Product was only 0.3 percent in the second quarter, well below the normal range of growth of 2.5 to 3.0 percent seen in the past two years.
    In addition to rate cuts, the BOI is reported to have been intervening in foreign exchange markets to weaken the shekel which has been firming against the U.S. dollar since mid-March.
    Today the shekel rose to 3.83 against the dollar after the BOI's policy decision from 3.88, to be largely unchanged since the start of the year.
    The BOI noted that since its previous policy decision on July 26, the shekel had weakened by about 1.3 percent against the dollar and by about 4.2 percent against the euro.

This week in monetary policy: Israel, Kyrgyzstan, Hungary, Moldova, Ukraine, Fiji and Angola

    This week (August 24 through August 29) central banks from seven countries or jurisdictions are scheduled to decide on monetary policy: Israel, Kyrgyz Republic, Hungary, Moldova, Ukraine, Fiji and Angola.
    Following table includes the name of the country, the date of the next policy decision, the current policy rate, the change to the policy rate at the last policy meeting, the change to 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 24-AUG 29, 2015:
COUNTRY       DATE           RATE      LATEST        YTD     1 YR AGO    MSCI
ISRAEL 24-Aug 0.10% 0 -15 0.25%       DM
KYRGYZSTAN 24-Aug 8.00% -150 -250 6.50%
HUNGARY 25-Aug 1.35% -15 -75 2.10%       EM
MOLDOVA 26-Aug 17.50% 200 1100 3.50%
UKRAINE 27-Aug 30.00% 0 1600 12.50%       FM
FIJI 27-Aug 0.50% 0 0 0.50%
ANGOLA 28-Aug 10.25% 50 125 8.75%

Saturday, August 22, 2015

Central Bank News Link List - Aug 22, 2015: Bullard says he’ll look through oil’s drop as labor market heals

Here's today's Central Bank News' link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don't miss any important news.

Colombia holds rate, still sees inflation easing to target

    Colombia's central bank left its benchmark intervention rate steady at 4.5 percent, saying that it still expects inflation to ease and converge toward its target range as temporary price shocks reverse amid a likely excess of production capacity and anchored inflation expectations.
     But the Central Bank of Colombia, which has maintained rates this year after cutting them by 125 basis points last year, added that the pass-through of the devaluation of the peso on prices along with an intensification of the El Nino effects could delay such a convergence of inflation.
    Earlier this month the central bank's president Jose Dario Uribe told a Colombia newspaper that he believes inflation this year will average 4.5 percent, above the initial forecast of 3.0 percent, mainly due to the impact of the peso's depreciation but also because drought caused El Nino has meant that more food products than normal are being imported.
    The peso has been depreciating since May this year and was trading at 3,105 to the U.S. dollar on Friday, down 23 percent since the start of this year.
   The central bank targets inflation at a midpoint of 3.0 percent within a range of 2 - 4 percent.
   Colombia's inflation rate rose slightly to 4.46 percent in July from June's 4.42 percent, with the central bank attributing the rise in inflation to the pass-through of the lower peso to consumer prices and the rise in cost of imported materials along with lower food supply.
    Domestic demand in Colombia continued to weaken in the second quarter, the central bank said in a statement from Aug. 21, citing recent data for retail sales, consumer and retail confidence, and economic expectations. Industry is also contracting and indicators for the construction sector suggest a slowdown.
    However, the central bank's staff still maintained its forecast for 2015 growth in a range of 1.8 percent to 3.4 percent with 2.8 percent the most likely outcome. Last month the central bank lowered its growth forecast from 3.2 percent, down from 2014's 4.8 percent.
    It added that international oil prices have fallen significantly while prices of several other commodities imported by Colombia had stopped falling. If these trends were to persist, the fall in Colombia's national income would exceed expectations, which largely explains the strong depreciation of the peso against the U.S. dollar,
    Colombia's Gross Domestic Product expanded by 0.8 percent in the first quarter of this year from the previous quarter for annual growth of 2.8 percent, down from 3.5 percent.

Paraguay maintains rate, sees no inflation risks

    Paraguay's central bank held its monetary policy rate steady at 575 percent, saying the path of inflation was in line with the bank's 4.5 percent medium-term target and there are no inflationary risks at the moment.
    The Central Bank of Paraguay, which has cut its rate by 100 basis points this year with the most recent cut in July, added in a statement from Aug. 20 that the policy decision by its Open Markets Operations Committee (CEOMA) was unanimous.
    The central bank noted the weakening growth prospects in South America and said that it would use its instruments "with flexibility in order to mitigate the effects of possible external shocks."
    The consumer price inflation rate in July rose to 3.6 percent, the highest rate since December last year, from 2.5 percent in June. The central bank targets inflation of 4.5 percent, plus/minus 2 percentage points.
    Paraguay's Gross Domestic Product expanded by 0.7 percent in the first quarter from the previous quarter for annual growth of 4.2 percent, down from 5.8 percent in the fourth quarter of 2014.