Saturday, June 24, 2017

This week in monetary policy: Kyrgyzstan, Argentina, Czech Republic, Moldova, Fiji, Angola, Bulgaria and Dominican Republic

    This week (June 25 through July 1) central banks from 8 countries or jurisdictions are scheduled to decide on monetary policy: Kyrgyz Republic, Argentina, Czech Republic, Moldova, Fiji, Angola, Bulgaria and the 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, 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.

JUN 25 - JUL 1, 2017:
COUNTRY                 DATE                RATE           LATEST                 YTD               1 YR AGO       MSCI
KYRGYZSTAN 26-Jun 5.00% 0 0 6.00%
ARGENTINA 27-Jun 26.25% 0 150 30.75%          FM
CZECH REP. 29-Jun 0.05% 0 0 0.05%          EM
MOLDOVA 29-Jun 9.00% 0 0 13.00%
FIJI 29-Jun 0.50% 0 0 0.50%
ANGOLA 30-Jun 16.00% 0 0 16.00%
BULGARIA 30-Jun 0.00% 0 0 0.00%          FM
DOMINICAN REP. 30-Jun 5.75% 0 25 5.00%

Monday, June 19, 2017

Uganda cuts rate 100 bps on subdued growth prospects

     Uganda's central bank lowered its Central Bank Rate (CBR) by a further 100 basis points to 10.0 percent, saying continued monetary easing is appropriate as prospects for economic growth remain weak and inflationary pressures are subdued.
     The Bank of Uganda (BOU) has now cut its rate by 200 basis points this year following cuts of 50 points in February and April. Since April 2016, when the BOU began its easing cycle, the key rate has been cut by 7 percentage points.
     The rate cut "will be consistent with achieving the core inflation target of 5 percent over the medium-term and will also support the recovery of real output in the economy," the BOU said.
     Uganda's inflation rate rose to 7.2 percent in May from 6.8 percent in April due to a rise in food prices along with higher energy prices. Food crop inflation accelerated to 23.1 percent from 21.6 percent in April as prolonged drought has led to poor harvests.
     But core inflation has remained relatively stable, rising to 5.1 percent in May from 4.9 percent in April, as the "relative stability of the exchange rate and subdued domestic demand have contributed to the dampening of core inflationary pressures over the last 12 months," the central bank said.
     The outlook for inflation has not changed substantially since the BOU's previous policy decision in April, with the central bank considering the jump in inflation in the last six months as temporary and expected to wane in the first quarter of the next financial year of 2017/18, which begins July 1.
     "In line with the previous forecast, inflation is forecast to stabilize around the target of 5 percent in 12 months," the BOU said.
     The fall in food and cash crops from drought, along with slow implementation of public investment projects and weak private sector credit,  has hit Uganda's economy, which slowed to growth of 1.4 percent in the final quarter of 2016 from 2.0 percent in the third quarter.
      In the full 2016/17 financial year, growth was estimated to have slowed to 3.9 percent, down from 4.7 percent in 2015/16. In February the BOU cut its growth estimate for 2016/17 to 4.5 percent from July's forecast of 5 percent and then in April said 4.5 percent was unlikely to be reached.
      In the 2017/18 financial year, the BOU expects an improvement of growth to 5.0 percent, still down from its April forecast of 5.5 percent, as public investments pick up, along with foreign direct investment, particular in the oil sector, and private sector credit recovers as lending rates decline.

Sunday, June 18, 2017

BIS defends globalization though gains not evenly spread

    The Bank for International Settlements (BIS), which reflects the thinking among central bankers across the word, has launched a passionate defense of the economic benefits of globalization but acknowledged the subsequent rise in income has not been evenly spread and called for sound domestic policies to help those who are negatively affected.
    In a early release of a chapter from next week's annual report, BIS tackles one of the central questions of the political discourse of the 21st century: Does globalization benefit or hurt mankind?
     "Globalisation has had a profoundly positive impact on people's lives of the past half-century," answered BIS, the Swiss-based organization that is also known as central bankers' bank.
     "Nevertheless, despite its substantial benefits, it has been blamed for many shortcomings in the modern economy and society."
     BIS admits that income gains from global trade are unevenly distributed and the benefits to unskilled labour in advanced economies may well be diminished because of the greater competition from the large pool of unskilled labour in emerging markets, which then in turn may benefit.
     "The biggest gains have accrued to the middle class of fast-growing EME's and the richest citizens  of advanced economies," said BIS, adding that the global upper middle class has experienced little income growth."
     Other the other hand, global trade leads to lower prices for goods that are disproportionately consumed by lower-income households, boosting their relative purchasing power so the net effect on inequality from open trade is uncertain, BIS said.
     By releasing a single chapter and foreward from its annual report, BIS adds weight and importance to its message about the benefits of globalization. BIS has credibility: It warned authorities and the financial community well in advance about the build up in credit that eventually burst and unleashed the 2008 global financial crises.
     But while globalization has reduced poverty and raised living standards worldwide, for example in China, the uneven distribution of its benefits within countries has allowed its critics to confound the challenges it poses with the main drivers of many economic and social ills.
     "High inequality appears to be harmful to growth and has undermined public support for globalization," said BIS.
     BIS clearly fears that lessons from the past and gains in living standards will be overlooked in the current political climate, most notably in the United States where U.S. President Donald Trump has blamed globalization for a loss of jobs and low wages in some industries.
     "Critics often blame globalization for the rising inequality in some industrialized countries," said BIS General Manager Jaime Caruana, adding:
    "Empirical studies show that other factors, mainly technology, have played a bigger role."
    While globalization has been made a scapegoat by opportunistic politicians, BIS says globalization is not responsible for a rise in income inequality within countries and instead of rolling back globalization it should be properly managed, domestically and internationally.
     BIS, which draws its staff from central banks worldwide as well as academia, called for a international regulatory approach to ensure that policymakers manage global financial risks, one of the integral aspects of globalization.

      Click to read "Understanding globalization", chapter VI in this year's annual report.


Saturday, June 17, 2017

This week in monetary policy: Uganda, Hungary, Morocco, Paraguay, New Zealand, Philippines, Taiwan, Norway and Mexico

    This week (June 18 through June 24) central banks from 9 countries or jurisdictions are scheduled to decide on monetary policy: Uganda, Hungary, Morocco, Paraguay, New Zealand, Philippines, Taiwan, Norway 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, 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.

JUN 18 - JUN 24, 2017:
COUNTRY                 DATE                RATE           LATEST                 YTD               1 YR AGO       MSCI
UGANDA 19-Jun 11.00% -50 -100 15.00%
HUNGARY 20-Jun 0.90% 0 0 0.90%          EM
MOROCCO 20-Jun 2.25% 0 0 2.25%          FM
PARAGUAY 21-Jun 5.50% 0 0 5.75%
NEW ZEALAND 22-Jun 1.75% 0 0 2.25%          DM
PHILIPPINES 22-Jun 3.00% 0 0 3.00%          EM
TAIWAN 22-Jun 1.375% 0 0 1.375%          EM
NORWAY 22-Jun 0.50% 0 0 0.50%          DM
MEXICO 22-Jun 6.75% 25 100 4.25%          EM

Friday, June 16, 2017

Jordan raises policy rates a further 25 bps

      Jordan's central bank raised all its monetary policy rates by 25 basis points, effective June 18, in response to rising global and regional interest rates.
      The Central Bank of Jordan (CBJ) raised its benchmark rate, the one-week repurchase rate, to 3.75 percent and has now raised it by 100 basis points so far this year following a 25 point hike in March and a 50 point hike in February.
      "This decision came in line with the bank's policy framework which aims at maintaining the competitiveness of the Jordanian dinar on one hand, and providing adequate volume of loanable funds that meet the requirements of economic activity in the Kingdom, on the other hand," the CBJ said in a statement dated June 15.
      Jordan's inflation rate rose to 3.7 percent in May from 3.5 percent in April while the dinar was trading around 0.709 to the U.S. dollar today, slightly down from 0.707 at the start of the year.
      Jordan continues to face serious challenges, with conflicts in Syria and Iraq weighing on its economy.
     But economic growth is expected to improve slightly this year, helped by a rebound in tourism, exports and remittances. The International Monetary Fund forecasts 2017 growth of 2.3 percent after an estimated 2.0 percent in 2016.
      The IMF said in May that recent rate raises by the central bank have helped maintain confidence in the Jordanian dinar peg and adequate levels of international reserves while balancing the need to support credit conditions.
      The IMF added the CBJ had confirmed its readiness to raise policy rates if pressures on its reserves were to emerge to keep the buffer at the current, comfortable level.
     To ensure financing for vital sectors in the economy, especially small and medium enterprises, the central bank said the refinancing rate would remain at 1.75 percent for projects in the Amman region and at 1.0 percent for projects in other regions while keeping maturities of 10 years.
      The central bank's refinancing programs target industry, tourism, agriculture, renewable energy and information technology, with funds available of about 1.1 billion dinars. Total funding granted to date has reached 400 million dinars on 535 projects that have created 6,000 jobs, the CBJ said.


Mongolia cuts rate 200 bps after IMF-led support

    Mongolia's central bank cut its policy rate by 200 basis points to 12.0 percent, saying inflation had now stabilized around its target and uncertainty surrounding its economy had eased following the   International Monetary Fund's support package.
     It is the first rate cut by the Bank of Mongolia (BOM) this year but the second cut after a 100 point cut in December last year. I
     In August 2016 BOM hiked its rates by 450 basis point rate to stabilize the exchange rate of the tugrik and preserve international reserves and thus financial stability.
      In addition to the rate cut, the central bank said it had also narrowed its interest rate corridor to 2 percentage points, plus and minus.
      Mongolia's inflation rate rose to 3.7 percent in May from 3.4 percent in April, continuing to slowly rise after inflation turned negative from August through October last year due to slowing economic activity.
     The central bank targets inflation below 8 percent for 2017-2019, up from 7 percent for 2016 and 2015, but similar to the 8.0 percent target in 2013 and 2014. In 2012 it targeted 10 percent inflation.
     The exchange rate of the tugrik has appreciated steadily this year and was trading around 2,364 to the U.S. dollar today, up almost 5 percent since the start of this year.
       Last month the IMF approved a 3-year, $434 million loan to Mongolia as part of a wider $5.5 billion financing package that was supported by Japan, Korea, China, the World Bank and the Asian Development Bank, the fourth-largest package in IMF history.
       The package supports the government's economic recovery program that is aimed at building foreign exchange reserves, putting debt on a sustainable path, strengthening the banking sector and securing sustainable growth.
      With minerals, such as copper and coal, accounting for 90 percent of Mongolia's exports, the country was hit hard by the sharp drop in commodity prices and a slowdown in export markets.
      "Efforts to mitigate these shocks through expansionary policies were unsuccessful and resulted in unsustainable public debt, falling international reserves, and lower growth," the IMF said in May, adding that the fiscal deficit and currency depreciation together pushed government debt up to nearly 90 percent of Gross Domestic Product.
      BOM said today that fiscal measures and the joint program with the IMF had helped revive credit and the rate cut should help support economic growth and business activity, employment and financial stability.
      Mongolia's Gross Domestic Product grew by an annual rate of 4.2 percent in the first quarter of this year, up from 1 percent in the fourth quarter of last year and a contraction of 1.6 percent in the third quarter of 2016.