Wednesday, May 24, 2017

Canada holds rate, says data, investment "encouraging"

    Canada's central bank left its benchmark target for the overnight rate at 0.50 percent, as widely expected, and described economic data as "encouraging," including that of business investment, and that the country's economy had now largely adjusted to lower oil prices.
     But while the Bank of Canada (BOC) was more upbeat about the economic outlook, it said inflation remains below its 2 percent target as food prices continue to decline and wage growth remains subdued, consistent with continued "ongoing excess capacity" in the economy.
      The BOC has maintained its rate since July 2015 but based on an improving economy, economists are looking for the bank to signal that it will start to tighten its policy and at least unwind two rate cuts in 2015 to cushion the economy from the fall in crude oil prices.
      In its previous statement from April, the BOC said economic growth had been faster than it expected but business investment remained well below what could be expected. Today's statement shows that the bank is encouraged by rising business investment.
       Last month the BOC also said there was "material excess capacity" in the economy, a slightly more downbeat view than in today's statement when it omitted "material."
      But exports from Canada, remain subdued, as the central bank expected, and strong growth in the first quarter of this year is likely to be followed by some moderation in the second quarter.
     Canada's dollar weakened steadily against the U.S. dollar from 2013 through 2015 before bouncing back in early 2016. But since April last year, the Canadian dollar - known as the loonie - has been trending lower although it has risen in the last month.
     The loonie was trading at 1.35 to the U.S. dollar today, largely unchanged this year but up by 3 percent since the start of 2016.
     The BOC, which will update its economic forecast in July, said low inflation was broadly as it had expected. In its April outlook, BOC forecast that inflation would dip in coming months before slowing returning to 2 percent as the output gap closes.
     Canada's headline inflation was steady at 1.6 percent in April and March and BOC forecasts last month that inflation will average 1.9 percent this year, 2.0 percent in 2018 and 2.1 percent in 2019.
     In April the BOC raised its growth forecast for this year to 2.6 percent from 2.1 percent, up from 2016 growth of 1.4 percent. Growth in 2018 and 2019 was forecast just below 2 percent.

Tunisia raises rate another 25 bps to curb inflation

     Tunisia's central bank raised its key interest rate by a further 25 basis points to 5.0 percent in order to limit the impact on the economy from rising inflationary pressure and a growing current account deficit.
     The Central Bank of Tunisia (CBT) has now raised its rate by a total of 75 basis points this year following a 50 point hike in April at an extraordinary meeting of its board following a sharp fall in the dinar's exchange rate.  This was the CBT's first change in rates since October 2015.
     Meeting on May 23, the CBT board said it had taken note of the rise in inflation in recent months.
     Tunisia's headline inflation rate rose to 5.0 percent in April from 4.8 percent in March and 3.4 percent in April last year. Underlying inflation, which excludes fresh and farmed products, was 5.9 percent.
      The central bank said there was growing pressure on bank liquidity from a widening current account deficit and an increased need for funds by the state budget. This has led the central bank to step up its interventions in the money market.
      The central bank also said it had worked to ensure a balance between supply and demand in the foreign exchange market to help mitigate fluctuations and gradually restore stability.
      The April rate hike came in the wake of a slump in the dinar following a call by the International Monetary Fund on Tunisia to adopt a more flexible exchange rate. Tunisia's finance minister then said the central bank would reduce its interventions in the foreign exchange market to the value of the dinar gradually declines to help boost exports and lower imports, reducing the trade deficit.
      The IMF also said on April 17 that tighter monetary policy would help counteract inflationary pressures, give further flexibility to the exchange rate, and narrow the trade deficit.
     On April 20 and 21 the dinar fell by almost 9 percent to 2.52 to the U.S. dollar but it then rebounded in the following days. 
     Today the dinar was trading at 2.42 to the dollar, down almost 5 percent this year.
     The central bank welcomed improved economic growth in the first quarter of this year and called for further consolidation of growth in light of the major economic challenges and financial difficulties facing the country.
     Tunisia's Gross Domestic Product grew by an annual rate of 2.1 percent in the first quarter of this year, up from 1.1 percent in the fourth quarter of last year.
     The IMF expects growth to double this year to 2.3 percent. However, this is still too sluggish to significantly lower unemployment, especially in the interior parts of the country and among the youth.
    Tunisia's official unemployment rate eased to 15.3 percent in the first quarter from 15.50 percent in the previous two quarters.


Thailand holds rate as outlook for growth improves

    Thailand's central bank left its policy rate at 1.50 percent, as widely expected, but was slightly more optimistic about the outlook for economic growth as exports continue to recover and improved farm income and consumer confidence bolsters private consumption.
     The Bank of Thailand (BOT), which has maintained its rate since April 2015, added that inflation has been softer than expected but is still expected to rise in the second half of the year.
     "The Committee assessed that the Thai economy's growth outlook improved further despite facing risks especially on the external front," the BOT said, a more optimistic tone than in its previous policy statement from March when it said the economy "continued to gain traction," but there were considerable uncertainties related to the global economy.
      But unlike its March statement, when the BOT said the a recent appreciation of the Thai baht "might not be as beneficial to the economy as it could," today it merely observed that the exchange rate in the recent period was in line with regional currencies.
     The baht fell sharply from the "taper tantrum" of April 2013 to September 2015 but since then it has been slowly appreciating, especially this year.
    The bath was trading at 34.36 to the U.S. dollar today, up 4.2 percent this year. 
     Thailand's economy expanded by 1.3 percent in the first quarter of this year from the previous quarter for the fastest pace since the fourth quarter of 2012, boosted by consumption and exports.
     On an annual basis, Gross Domestic Product was up 3.3 percent, up from 3.0 percent in the fourth quarter of last year, as tourism also continued to recover, as expected. Public spending continues to remain an important driver of economic activity.
     The government's planning agency has raised its outlook for export growth this year to 3.6 percent from a previous 2.9 percent and narrowed its overall 2017 growth forecast to 3.3 - 3.8 percent from 3.0 - 4.0 percent. Thailand grew 3.2 percent in 2016.
     Inflation, however, remains far below the BOT's target range of 1- 4 percent, around a midpoint target of 2.5 percent, with little sign of demand-pull pressure.
     Thailand's headline inflation rate eased to 0.38 percent in April from 0.76 percent in March due to lower fresh food prices as agricultural output has risen compared with last year's drought.
      In March the BOT lowered its forecast for 2017 inflation to 1.2 percent from 1.5 percent.

Tuesday, May 23, 2017

Nigeria holds rate, easing may worsen inflation pressure

    Nigeria's central bank left its Monetary Policy Rate (MPR) at 14 percent, as expected, and said it was concerned "that loosening would exacerbate inflationary pressures and worsen the gains so far achieved in the exchange rate of the naira."
     The Central Bank of Nigeria (CBN), which has maintained its rate since raising it by 200 basis points in July 2016, added its monetary policy committee was reluctant to alter the current policy against the backdrop of an unclear outlook for key economic activities, especially food production, some optimism about the deceleration in inflation and the relative stability of the naira.
     The policy committee voted unanimously by 8 members - one member was absent - to retain the policy rate "in consideration of the challenges weighing down the domestic economy and the uncertainties in the global environment."
     While the CBN welcomed the recent decline in inflation, the relative stability of the naira's exchange rate and the improved prospect of an inflow of foreign investment, it added inflation remains "significantly" above its reference band of 6-9 percent.
     Nigeria's inflation rate eased to 17.24 percent in April, the third month of declining inflation, hitting the lowest rate since July 2016.
     Part of the reason for decelerating inflation is due to there recent gains in the naira's exchange rate, due to the bank's interventions in the foreign exchange market, and the downward move in the prices of imported goods.
    "Against this background, the Committee emphasized the need to sustain and deepen the bank's foreign exchange management policies and measures in order to reap the benefits of the pass-through to consumer prices," the CBN said.
      Nigeria has suffered from a shortage of U.S. dollars since the fall in crude oil prices in 2014 and the central bank has only recently begun to ease some of its restrictions and capital controls that were imposed in 2015 to shore up  the naira's exchange rate.
     The official exchange rate of Nigeria's naira has been largely unchanged since August last year, trading around 315 to the U.S. dollar. In June 2016 the CBN removed its naira peg of 197 to the dollar, resulting in an immediate 30 percent drop in its value.

Hungary maintains rate and guidance, as expected

    Hungary's central bank maintained its base rate at 0.9 percent, as widely expected, and confirmed its guidance that it remains "ready to ease monetary conditions further using unconventional, targeted instruments" if inflation remains persistently below the target.
     The National Bank of Hungary (NBH), which has kept its rate on hold since May 2016, also reiterated that keeping the base rate at the current level and loose monetary conditions for "an extended period" was consistent with its aim of reaching inflation target and supporting the economy.
     Economists expect the NBH to keep its rate unchanged for the rest of this year and first start raising it slowly during 2018.
     Hungary's headline inflation rate eased to 2.2 percent in April from 2.7 percent in March due to lower food prices and fuel, within the central bank's 2.0-4.0 target range, but below its midpoint target of 3.0 percent.
      The NBH confirmed it first expects inflation to reach its target sustainably from the first half of 2018 as unused capacity in the economy is gradually absorbed from rising economic activity.
     Core inflation ticked up to 1.9 percent from 1.8 percent in the previous two months.
      Hungary's "expanded dynamically" in the first three months of this year, with industrial production rising "significantly" in March along with construction, which is expected to continue to improve in coming months. Retails sales also continued to rise in March, boosting imports more than exports so the trade surplus narrowed, the central bank said.
      Hungary's Gross Domestic Product jumped to an annual increase of 4.1 percent in the first quarter of this year, up from 1.6 percent in the fourth quarter of last year and the highest rate since the second quarter of 2014.
     The NBH expects stable economic growth of 3-4 percent in coming years.
     Hungary's forint has mainly traded sideways against the euro since mid-2015 but firmed in the last month to trade at 308.4 to the euro today, up 0.4 percent since the start of 2017.

Monday, May 22, 2017

Ghana cuts rate another 100 bps, inflation seen easing

    Ghana's central bank cut its Monetary Policy Rate (MPR) by another 100 basis points to 22.50 percent as inflation and inflation expectations are trending downwards and said it would take "necessary policy action to move headline inflation towards the medium term target."
     The Bank of Ghana (BOG) has now cut its rate by 300 basis points this year following a 200 point cut in March and by 350 points since November 2016 when it began an easing cycle.
     In his first monetary policy statement since taking over as BOG governor last month, Ernest Addison said the disinflation process was supported by the bank's tight policy stance and a stable exchange rate of the cedi.
     And with outlook for a return to the path of fiscal consolidation and a stable exchange rate, headline inflation is expected to trend toward the BOG's target of 8 percent, plus/minus 2 percentage points, in 2018.
    "Given these considerations, the Committee judged that the downside risks to growth outweigh the upside risks to inflation in the outlook, and therefore decided to reduce the policy rate by 100 basis points to 22.5 percent," said Addison who took over after Abdul-Nashiru Issahaku resigned April 1.
     Ghana's headline inflation rose slightly to 13.0 percent, the first rise after six consecutive months of decline, from 12.8 percent in March but this was mainly due to higher transport costs.
    The central bank's core measure of inflation, which strips out energy and utilities, eased to 13.7 percent in April from 14.6 percent in December 2016.
     Ghana's economy slowed last year to growth of 3.5 percent from 3.9 percent in 2015 and forecast growth of 4.1 percent due to a sharp decline in industrial growth following an energy crises and operational challenges in crude oil production for most of the year.
    But the BOG said the composite index of economic activity suggested a pickup in growth in the first quarter of this year, helped by private sector credit and exports.
    Provisional data on government finances for the first quarter showed a cash deficit of 1.5 percent of Gross Domestic Product, consistent with the target, while expenditures were broadly contained at 11.5 percent of target while revenue and grants were 14.3 percent short of target.
    Financing of the deficit was mostly from domestic sources, including a drawn down on government deposits at the central bank, Addison said, adding total public debt at the end of March amounted to 127.1 billion cedi, or 62.5 percent of GDP, up from 73.3 percent end-2016.
     Last month Addison said the central bank would not finance the government's budget, something the country agreed to as part of a three-year, April 2015 deal with the International Monetary Fund that aims to restore fiscal balance after years of high deficits, rising debt and high inflation.
    Data for the first four months of this year showed a significant recovery in exports on higher output and prices of gold and crude oil, resulting in a trade surplus of an estimated 2.5 percent of GDP compared with a deficit of 2.2 percent in the same period last year.
    Ghana's Gross International Reserves surged to US$6.4 billion at the end of April from $4.9 billion at the end of 2016, the equivalent of 3.7 months of imports.
     Ghana's cedi fell sharply in 2013 and 2014 but the decline slowed from mid-2015. After rising in March, helped by a US$1 billion cedi bond and the central bank's first quarter auction of US$120 million, the cedi has depreciated this month.
     Addison said the volatility in the foreign exchange market that was seen around the last monetary policy meeting in March had eased significantly, with a positive outlook based on expected inflows.
    The cedi was trading at 4.42 to the U.S. dollar today, down 3.2 percent this year.

Sunday, May 21, 2017

Egypt raises rate 200 bps on growing risks to inflation

    Egypt's central bank raised its key policy rates by 200 basis points to 16.75 percent, surprising financial markets and investors, and said it "will not hesitate to adjust its stance to offset anticipated upside or downside deviations from the inflation target."
     The Central Bank of Egypt (CBE) has now raised its benchmark overnight deposit rate by 800 basis points since embarking an a tightening cycle in December 2015 and by 200 basis points this year.
    In November 2016 the CBE also took financial markets by surprise by hiking its key rates by 300 basis points as part of a liberalization of foreign exchange markets.
     After Egypt's pound was allowed to float, it immediately lost more than half its value, boosting import prices and thus inflation, but since March it has stabilized just over 18 to the U.S. dollar
    The CBE said previous rate hikes and lower liquidity had helped contain inflation but the balance of risks were now tilted more strongly to the upside due to growing demand-side pressure.
     Although Egypt's headline inflation rate rose further to 31.5 percent in April from 30.9 percent in March, on a monthly basis inflation had eased for the third consecutive month and core inflation, which excludes volatile food items, had risen only slightly after decelerating in February and March.
      But Egypt's economy is showing growing signs of improvement and the central bank is concerned that high inflation, along with improving demand, will boost inflation expectations.
    "Against this background, the MPC judges that hiking the CBE's key policy rates is consistent with the targeted disinflation path, and reiterates that the objective of its tighter stance is not to offset effects of supply-shocks, rather to contain underlying inflation excluding supply shocks that is affected by inflation expectations and the build-up of demand-side pressures," CBE said.
     Egypt's economy grew by an annual rate of 3.9 percent in the third quarter of the 2016/17 year, up from 3.8 percent and 3.4 percent, respectively, in the two preceding quarters, CBE said.
    In addition, the unemployment rate eased to 12.0 percent in the third quarter from 12.4 percent and 12.6 percent in the previous two quarters.
     To help anchor inflation expectations, the central bank said it would begin to publish a targeted disinflation path in its regular policy statements and quarterly monetary policy reports as part of its flexible monetary targeting framework.
     "In accommodation of first-round effects of supply-shocks, the elevated annual headline inflation rate will be temporarily tolerated before it is targeted to decline to 13% (+/- 3%) by 2018 Q4 and to single digits thereafter," the central bank said.
      In addition to raising its overnight deposit rate by 200 basis points, the central bank also raised its other key rates by the same amount, putting the overnight lending rate at 17.75 percent, the rate on its main operation at 17.25 percent and its discount rate at 17.25 percent.

Saturday, May 20, 2017

This week in monetary policy: Egypt, Ghana, Hungary, Nigeria, Argentina, Thailand, Canada, Paraguay, South Korea, Ukraine, Moldova, Fiji, South Africa, Colombia and Trinidad & Tobago

    This week (May 21 through May 27) central banks from 15 countries or jurisdictions are scheduled to decide on monetary policy: Egypt, Ghana, Hungary, Nigeria, Argentina, Thailand, Canada, Paraguay, South Korea, Ukraine, Moldova, Fiji, South Africa, 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.

MAY 21 - MAY 27, 2017:
COUNTRY                 DATE                RATE           LATEST                 YTD               1 YR AGO       MSCI
EGYPT 21-May 14.75% 0 0 10.75%          EM
GHANA 22-May 23.50% -200 -200 26.00%
HUNGARY 23-May 0.90% 0 0 0.90%          EM
NIGERIA 23-May 14.00% 0 0 12.00%          FM
ARGENTINA 23-May 26.25% 0 150 36.75%          FM
THAILAND 24-May 1.50% 0 0 1.50%          EM
CANADA 24-May 0.50% 0 0 0.50%          DM
PARAGUAY 24-May 5.50% 0 0 5.75%
SOUTH KOREA 25-May 1.25% 0 0 1.50%          EM
UKRAINE 25-May 13.00% -100 -100 18.00%          FM
MOLDOVA 25-May 9.00% 0 0 13.00%
FIJI 25-May 0.50% 0 0 0.50%
SOUTH AFRICA 25-May 7.00% 0 0 7.00%          EM
COLOMBIA  26-May 6.50% -50 -100 7.25%
TRINIDAD & TOBAGO 26-May 4.75% 0 0 4.75%

Thursday, May 18, 2017

Chile cuts rate another 25 bps, strikes neutral guidance

    Chile's central bank cut its monetary policy interest rate by a further 25 basis points to 2.50 percent and signaled a neutral policy stance by saying that "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 has now cut its rate four times this year by a total of 100 basis points amid rising unemployment, decelerating economic growth and stable inflation.
     The central bank said economic activity and demand in the first quarter of this year was in line with its expectations, illustrating the negative impact from mining and construction. But private consumption is stable, reflecting the labour market.
      Chile's Gross Domestic Product dropped to an annual growth rate of 0.1 percent in the first quarter of this year, down from 0.5 percent in the fourth quarter for the lowest growth rate since 2009 as private consumption eased and exports shrank after a strike at the Escondidada copper mine, the world's largest mine that produces about 5 percent of total global copper output.
     The strike, which ended in March, was estimated to lower Chile's growth by an entire percentage point in the first quarter of this year.
     The central bank has said it expects growth this year of 1-2 percent. The unemployment rate rose for the third month in a row to 6.6 percent in March.
      Chile's inflation rate was steady at 2.7 percent for the third month in a row in April and the central bank said expectations were near its target. The central bank targets inflation of 3.0 percent, plus/minus 1 percentage point.

Mexico raises rate 25 bps as risks to inflation worsen

    Mexico's central bank raised its benchmark interest rate for the third time this year prevent higher inflation and anchor inflation expectations risks to inflation had deteriorated "moderately."
     The Bank of Mexico (Banxico) has now raised its rate by 375 basis points since the U.S. Federal Reserve began normalizing its policy stance in December 2015, by 100 points this year and by 150 points since the election of Donald Trump as U.S. president.
     The rate cut came as a surprise to many economists who had expected the central bank to keep its rate steady in light of the rise in the peso. Banxico's benchmark target for the overnight interbank rate now stands at 6.75 percent.
     But the central bank is clearly worried that rising inflation, from past depreciation of the peso, will spark second-round effects on other prices and wages.
     Mexico's headline inflation rate rose to a higher-than-expected 5.82 percent in April from 5.35 percent in March, well above the bank's midpoint target of 3.0 percent. It was the 10 consecutive month of rising inflation, with prices boosted by higher food and energy prices following a rise in regulated gasoline prices at the start of the year.
     Baxico noted that the rise in core inflation to 4.72 percent in April from 4.48 percent due to the impact of past peso depreciation and price adjustments and a non-core inflation rate of 9.25 percent, which reflects both energy prices and higher prices of some agricultural products.
     Although inflation expectations remain largely stable, the central bank expects inflation to continue to be affected by higher motor transport rates and some agricultural products as well as the accumulated impact of peso depreciation so it will remain above its range of 2.0 to 4.0 percent.
     However, during 2018 inflation is expected to resume its fall toward the 3.0 percent target.
     The central bank noted the "significant appreciation" of the peso compared with the beginning of this year and although volatile remains high, it was lower than in the first quarter.
     Mexico's peso began falling in mid-2014, in sync with the fall in crude oil prices, and hit a historic low of almost 22 to the U.S. dollar in mid-January this year. The fall in the peso has pushed up import prices and thus inflation
    But since January the peso has appreciated sharply, supported by Baxico's rate hikes and expectations that Trump will not impose major tariffs on Mexican exports. 
    Today the peso was trading at 18.79 to the dollar, up 10.4 percent this year.
     Mexico's economy grew by an annual rate of 2.7 percent in the first quarter of this year, up from 2.4 percent in the fourth quarter of last year, despite weakness in public and private investment form uncertainty over the relationship with the United States, the central bank said.


Indonesia holds rate, confirms 5.0-5.4% growth forecast

    Indonesia's central bank left its benchmark 7-day reverse repurchase rate (RR) at 4.75 percent, as expected, and confirmed that it expects the country's economy to grow between 5.0 and 5.4 percent this year, supported by stronger exports and investments along with "tenacious consumption."
     Bank Indonesia (BI) has maintained its rate since October 2016 when it last cut its rate. From January through June last year BI lowered its previous benchmark rate four times by a total of 100 basis points and then cut the current RR rate by a total of 50 basis points in August and October.
     Indonesia's Gross Domestic Product grew by an annual rate of 5.01 percent in the first quarter of this year, up from 4.94 percent in the first quarter, helped by higher government spending on infrastructure projects, improved exports and higher commodity prices, especially of coal and rubber.
     Last year Indonesia's economy grew by 5.02 percent, up from 4.88 percent in 2015.
     While BI expects the global economy to improve, it noted several risks, including the Federal Reserve's expected rate hike in June and the reduction in its balance sheet, U.S. fiscal and trade policies, and the geopolitical condition in the Korean Peninsula.
    "As global economic growth improves, world trade volume and non-oil commodity prices increase," the BI said.
     Domestically, BI is keeping a close eye on the impact on inflation from administered prices.
     Indonesia's headline inflation rate rose to 4.17 percent in April from 3.61 percent in March, still within the bank's target range of 4.0 percent, plus/minus 1 percentage point.
     Administered prices were the main contributor to higher consumer prices, with a rise in electricity rates for some users, airfares, petrol and cigarette prices. From March administered prices were up 1.27 percent in April for an annual rise of 8.68 percent wile volatile food prices fell by a monthly 1.26 percent due to an abundant supply.
    Core inflation, however, eased to 3.2 percent in April from 3.3 percent in March, helping anchor inflation expectations and the appreciating rupiah, BI said.
      After falling sharply from June 2013 through October 2015, the rupiah has been more stable in 2016 and this year.
     "Rupiah appreciation was driven by maintained non-resident capital inflows after the sovereign rating outlook was upgraded, solid macroeconomic data was released and positive sentiment regarding the domestic economic outlook prevailed," BI said.
      But shortly after today's BI's decision, the rupiah dropped sharply to around 1,3454 a U.S. dollar from around 1,3320. Compared with the start of this year, the rupiah is up 0.3 percent.