Sunday, May 20, 2018

This week in monetary policy: Ghana, Hungary, Nigeria, Argentina, Paraguay, South Korea, South Africa, Ukraine & Colombia

    This week - May 20 through May 26 - central banks from 9 countries or jurisdictions are scheduled to decide on monetary policy: Ghana, Hungary, Nigeria, Argentina, Paraguay, South Korea, South Africa, Ukraine and Colombia.
     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 20 - MAY 26, 2018:
COUNTRY                   DATE                     RATE                LATEST                    YTD              1 YR AGO      MSCI
GHANA21-May18.00%-200-20022.50%         FM
HUNGARY22-May0.90%000.90%         EM
NIGERIA22-May14.00%0014.00%         FM
ARGENTINA22-May40.00%0112526.25%         FM
SOUTH KOREA24-May1.50%001.25%         EM
SOUTH AFRICA24-May6.50%-25-257.00%         EM
UKRAINE24-May17.00%025012.50%         FM
COLOMBIA25-May4.25%-25-506.25%         EM

Tuesday, May 15, 2018

Armenia maintains rate, still sees gradual tightening

      Armenia's central bank left its benchmark refinancing rate at 6.0 percent - unchanged since February 2017 - and confirmed that it still expects to gradually neutralize the current monetary stimulus to control inflation.
      After cutting its rate 12 times by a total of 450 basis points from August 2015,  the Central Bank of Armenia (CBA) has said since November 2017 that it will be tightening at some point.
      But inflation slowed to 2.4 percent in April from 3.7 percent in March on a seasonal decline in food prices.
      CBA targets inflation at a midpoint of 4.0 percent, plus/minus 1.5 percentage points and expects inflation to remain in the lower part of its target range in coming months as no additional inflationary pressures are expected, inflation expectations have stabilized and global inflation is weak.
      The risks to the inflation outlook are considered balanced and inflation in 12 months is seen within its target range.
      CBA's second quarter inflation report will be published on May 30.
      Relative high economic activity was maintained in the first quarter of this year, supported by high domestic demand but this growth is expected to slow down and stabilize in the second quarter.
      Armenia's dram has eased this month and was trading at 484.6 to the U.S. dollar today, down 0.1 percent this year.
       Last month the CBA added financial stability to its main objective in addition to price stability like many other central banks in the wake of the global financial crises.
       In the last decade it became clear that low inflation and moderate economic growth does not prevent the build-up of highly volatile financial cycles that can trigger economic instability.

Sunday, May 13, 2018

This week in monetary policy: Armenia, Iceland,Thailand, Poland, Zambia, Brazil, Jamaica, Indonesia, Egypt, Mexico & Mauritius

     This week - May 13 through May 19 - central banks from 11 countries or jurisdictions are scheduled to decide on monetary policy: Armenia, Iceland, Thailand, Poland, Zambia, Brazil, Jamaica, Indonesia, Egypt, Mexico and Mauritius.
     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 13 - MAY 19, 2018:
COUNTRY                   DATE                     RATE                LATEST                    YTD              1 YR AGO      MSCI
THAILAND16-May1.50%001.50%         EM
POLAND16-May1.50%001.50%         EM
BRAZIL16-May6.50%-25-5010.25%         EM
INDONESIA17-May4.25%004.75%         EM
EGYPT17-May16.75%-100-20016.75%         EM
MEXICO17-May7.50%0256.75%         EM
MAURITIUS18-May3.50%004.00%         FM

Thursday, May 10, 2018

BOE holds rate, but still sees little economic slack

      The Bank of England (BOE) left its benchmark Bank Rate at 0.50 percent, as widely expected following soft first quarter data, but forecast that economic growth would rebound in the second quarter and that "ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to its target at a conventional horizon."
      The BOE, which raised its rate by 25 basis points in November 2017, lowered its forecast for inflation and economic growth in an update to its projections but said wage growth and domestic cost pressures were continuing to slowly firm and the economy has a "very limited degree of slack."
      "The prospect of excess demand over the forecast period has reduced the degree to which it is appropriate for the MPC to accommodate an extended period of inflation above the target," BOE said.
      The BOE's Monetary Policy Committee voted 7-2 to maintain the rate, with Ian McCafferty and Michael Saunders voting to raise the rate by 25 basis points. They argued weakness in first quarter growth was temporary or erratic and heavily affected by adverse weather, while soft inflation was linked to depreciation of pound sterling.
      Following the previous policy meeting in February, when the MPC raised its inflation and growth forecasts, investors had pencilled in a rate hike today.
      But lower-than-expected first quarter growth in the United Kingdom, along with other soft data, triggered a sharp revision in market expectations, with the probability of a rate hike today plunging from 90 percent to around 10 percent.
      UK quarterly growth slowed sharply to only 0.1 percent in the first quarter from 0.4 percent in the fourth quarter of 2017 and inflation in March eased to 2.5 percent from 2.7 percent, still above the BOE's 2.0 percent target.
      But the BOE expects final first quarter growth data to be revised upward and said its central forecast for economic activity was little changed from February.
      Economic growth is now seen averaging 1.4 percent in the second quarter of 2018, down from 1.8 percent previously forecast, but up from an annual 1.2 percent in the first quarter.  The growth forecasts for the second quarter of 2019 and 2020 were unchanged at 1.7 percent.
       Inflation is forecast to ease and reach the BOE's target earlier than previously forecast, with inflation averaging 2.4 percent in the second quarter of this year, down from 2.7 percent forecast in February, before easing to 2.1 percent in the second quarter of 2019, down from 2.2 percent.
      By early 2020 a small margin of excess demand emerges, BOE said, and this feeds into higher rates of pay growth and cost pressures.
      In the second quarter of 2020 inflation is seen at 2.0 percent and remaining at that in Q2 2021 based on the assumption that the Bank Rate slowly rises to 0.9 percent in Q2 2019, 1.1 percent in Q2 2020 and 1.2 percent in Q2 2021.
      The pound slipped against the U.S. dollar in response to the BOE's decision and was trading at 1.348, down almost 6 percent since mid-April when rate expectations shifted, but hardly changed since the start of 2018.

Malaysia holds rate, economic prospects remain strong

       Malaysia's central bank left its benchmark Overnight Policy Rate (OPR) at 3.25 percent, as expected, saying it expects underlying inflation to remain moderate amid stable demand conditions while the trajectory of headline inflation will depend on oil prices, which remain highly uncertain.
       Bank Negara Malaysia (BNM), which raised its rate in January for the first time since July 2014, added that a stronger exchange rate of the ringgit as compared with last year would help dampen any rise in the cost of imports on the backdrop of continued strength in the global economy.
       "Overall, the prospects for the Malaysian economy remain strong," the central bank said, with private sector activity expanding and exports rising.
       Despite recent volatile in financial markets, BNM said domestic markets had remained resilient as monetary and financial conditions are supportive of economic growth in the post-election environment while the financial sector is strong and the economic outlook remains positive.
       Malaysia's headline inflation rate eased to 1.3 percent in March from 1.4 percent in February while core inflation dropped to 1.7 percent from 1.8 percent.
       The economy grew by an annual rate of 5.9 percent in the fourth quarter of last year, down from 6.2 percent in the third quarter while the exchange rate of the ringgit has been easing this month against the rising U.S. dollar after rising steadily through 2017.
       The ringgit was trading at 3.95 to the dollar today, up 2.5 percent this year.
       The International Monetary Fund has estimated 2017 growth in Malaysia of 5.8 percent but then easing to 5.3 percent this year. Headline inflation is forecast to decline to 3.2 percent this year from 3.8 percent in 2017.
      Earlier today uncertainty began surrounding Malaysia's political future as the ceremonial king delayed the swearing in ceremony of Mahathir Mohamad, the 92-year-old former prime minister, whose coalition this week won the parliamentary elections over of Prime Minister Najib Razak.

Philippines hikes rate 25 bps to curb inflation expectation

       The Philippine central bank raised its benchmark overnight reverse repurchase (RRP) rate by 25 basis points to 3.25 percent, as widely expected, saying it believes "a timely increase in the BSP's policy interest rate will help arrest potential second-round effects by tempering the buildup in inflation expectations."
       It is the first rate hike by Bangko Sentral ng Pilipinas (BSP) since September 2014 and the first change in rates since June 2016 when the central bank adopted an interest corridor system that shifted the policy rate to 3.0 percent from 4.0 percent.
       The rate hike confirms the gradual tightening of monetary policy worldwide in response to rising inflation from higher oil prices and solid economic growth. The Philippines is the fourth Asian country to tighten policy following South Korea last year, and Malaysia and Singapore this year.
       The rate hike was well-telegraphed by BSP officials and follows accelerating inflation in the last four months and data today that showed annual economic growth of 6.8 percent in the first quarter of this year, up from 6.5 percent in the fourth quarter last year.
       "The Monetary Board observed that strong domestic demand allows some scope for a measured adjustment in the policy rate without adversely affecting the country's economic growth momentum," BSP said.
        In April headline inflation in the Philippines rose to 4.5 percent from 4.3 percent in March under the new base year of 2012, and above the BSP's target of 3.0 percent, plus/minus 1 percentage point. Under the previous 2006 CPI basket, inflation in April was 5.1 percent, up from 4.8 percent.
        In March the central bank forecast inflation under the new base year would average 3.9 percent in 2018 and then ease to 3.0 percent in 2019.
       "In deciding to raise the policy interest rate, the Monetary Board noted that latest forecasts have further shifted higher, indicating that inflation pressures could become more broad-based over the policy horizon," BSP said.
      BSP said inflation momentum had started to slow but inflation is still expected to breach its 2018 target range due to temporary supply-side factors and then return to its target in 2019.
      However, BSP said the balance of risks continue to lean to the upside, with price pressures from possible changes to transport fares, utility rates and wages.
      The Philippine peso fell slightly in response to the rate hike and was trading at 52.0 to the U.S. dollar, down 3.8 percent this year.

Wednesday, May 9, 2018

New Zealand holds rate, steady for 'considerable time'

     New Zealand's central bank left its benchmark Official Cash Rate (OCR) at 1.75 percent, as widely expected, and said it expects to maintain the OCR "at this expansionary level for a considerable time" to maximize employment and maintain low and stable inflation.
      In his first statement as governor of the Reserve Bank of New Zealand (RBNZ), Adrian Orr added the "direction of our next move is equally balanced, up or down. Only time and events will tell."
      The policy decision was widely expected and the guidance echoed that of his predecessor, Grant Spencer, who handed the reins of the RBNZ to Orr on March 27.
       In his last statement as acting governor, Spencer on March 22 said the RBNZ would keep an accommodative policy for a considerable period but its policy may need to adjust to the numerous uncertainties it faces.
       The RBNZ has kept its rate steady since a 25-basis point cut in November 2016 when it also adopted a neutral policy stance.
       While the central bank's forecast for inflation, growth and OCR was little changed from its previous policy statement in February, Orr now has a dual mandate of employment along with inflation, similar to the United States, Australia and Norway.
       In March the New Zealand government amended the Policy Targets Agreement (PTA), requiring monetary policy to be conducted so it supports maximum levels of sustainable employment along with the requirement that inflation should be between 1 and 3 percent, with a focus on 2 percent.
       In addition, the RBNZ's monetary policy decisions will from 2019 be decided by a Monetary Policy Committee (MPC) of 5-7 members, taking away the current governor's sole authority for policy decisions.
        A majority of the new MPC - four - is planned to come from RBNZ staff while three will be external members, and the governor will be the chair. The Treasury will have a non-voting seat as observer to provide information about fiscal policy.
        In its policy statement, the RBNZ pushed back the expected date for a rate hike to September 2019 from June 2019 when the rate is seen rising to 1.9 percent.
        But in 2020 the RBNZ expects the key rate to rise rapidly, hitting 2.0 percent by March 2020, then 2.1 percent in June, 2.2 percent in September and 2.3 percent in December. By June 2021 the rate is seen at 2.4 percent.
        The delay in the first rate hike since July 2014 mirrors a slightly lower inflation forecast, with inflation first seen hitting 2.0 percent in December 2020 as compared with September 2020.
        There were only minor changes in the central bank's growth forecast, with 2018 growth seen averaging 2.8 percent, down from February's forecast of 2.9 percent, and 2019's growth seen averaging 3.1 percent, down from 3.3 percent.
         In the first quarter of this year New Zealand's inflation rate eased to 1.1 percent from 1.6 percent while Gross Domestic Product grew by an annual 2.9 percent in the fourth quarter of last year, down from 3.0 percent.

Tuesday, May 8, 2018

Argentina maintains rate at 40% after 3 rapid-fire hikes

      Argentina's central bank left its monetary policy rate at 40 percent after three sharp rate hikes in 12 days and said it expects to keep real interest rates at a significantly higher level than in the past as long as inflation remains above its forecast for this year and emerging markets are facing a scenario of greater instability.
       The Central Bank of the Argentine Republic (BCRA) has raised its key rate by a massive 12.75 percentage points since April 27 in an effort to shore up the exchange rate of the peso and force down inflation that is far in excess of the government's target for 2018 of 15 percent.
       After the latest 675 basis point rate hike on Friday, May 4, there were signs of peso stabilization but earlier today it continued to tumble until Argentina's president, Mauricio Macri, announced on television that his government was seeking a line of credit from the International Monetary Fund (IMF) to "avoid a crises like the ones we have faced before in our history."
      Macri's decision to turn to the IMF will bring back memories for many Argentines who still blame the Washington D.C.-based institution for letting the country's debt soar and trigger the 2001 debt crises by allowing it keep an exchange rate that pegged the peso to the U.S. dollar.
       Macri, who is facing election in October 2019, took office in December 2015 promising to end the country's isolation from international financial markets, tackle high government spending on subsidies, and lower the fiscal deficit and inflation.
      Christine Lagarde, IMF managing director, welcomed Macri's statement and said discussions had been initiated with Argentina on how its economy could be strengthened and "these will be pursued in short order."
      After spiking to 23.14 to the U.S. dollar, the peso ended today around 22.35 to the dollar,  down 9.4 percent since April 26, the day before the first of three rate hikes. Compared with the start of this year the peso has lost 16.8 percent and compared with the start of 2017 it is down almost 30 percent.
      In today's longer-than-usual statement, the central bank noted the recent instability in the currency market, saying the normal menu of options available to a central bank include allowing the currency to depreciate, carry out interventions to avoid a currency overreaction by investors and raising interest rates to moderate the inflationary impact.
       BCRA noted its initial decision was to intervene in the foreign exchange market to contain the depreciation followed by letting the peso slide as it became convinced the pressure on the peso was not just an isolated episode but part of a deeper shock to emerging market currencies.
      At the same time, the central bank raised its monetary policy rate by 1,275 basis points until it reached the current rate of 40 percent in three steps, starting on April 27, then May 3 and then May 4.
      In addition, the central bank also widened the interest rate corridor to allow domestic assets to move more freely and was active in the secondary paper market.
       Given the unusual situation and the use of exceptional tools, the central bank said it was appropriate to share its vision about the near future.
       First, the BCRA confirmed that its monetary policy regime is based on interest rates with a floating exchange rate that absorbs external shocks, with interventions only in exceptional cases when the movements can be disruptive to the process of lower inflation.
       Secondly, as the market stabilizes, the central bank will normalize its operations and return to a narrower corridor that allows the policy rate to be automatically transmitted to other interest rates.
       Thirdly, with regard to the reference rate, the central bank considers that it will be necessary for the level of real interest rates to be significantly higher than before recent changes when inflation is above that forecast for 2018 and when there is a situation of greater instability in emerging markets.
       The current bout of peso weakness and investor nervousness stems from Macri's decision on Dec. 28, 2017 to push back the goal of lowering inflation to 5 percent by one year to 2020 and raise the inflation target to 15 percent from a previous 8-12 percent.
       On Jan. 9 and Jan. 23 the central bank then lowered its key rate in two steps by a total of 150 basis points, arguing the rise in inflation is transitory and it will continue its downward trend once the one-off impact of a higher in regulated prices dissipates.
        But inflation is still rising and rose to 25.6 percent in March from 25.4 percent in February.
        Although the depreciation of the peso is likely to impact local prices, the central bank said many of its trading partners have also seen their currencies depreciate, moderating some of that impact.
        The latest survey showed a rise in 2018 inflation expectations to 22 percent from 20.3 percent for headline inflation and to 19.8 percent from 18.1 percent for core inflation, BCRA said.

Monday, May 7, 2018

Romania raises rate 25 bps as inflation still accelerating

      Romania's central bank raised its monetary policy rate by another 25 basis points to 2.50 percent, its third rate hike this year, saying its latest inflation report re-confirms "a slight pick-up and a leveling off of the annual inflation rate over several months at values above the variation band of the target, followed by its return to the vicinity of the upper bound of the bank at the end of this year."
      The National Bank of Romania (NBR) has now raised its benchmark rate by 75 basis points this year following increases in January and February, and today it also raised the deposit and lending rates by 25 points to 1.50 percent and 3.50 percent, respectively.
      Today's rate hike was expected by analysts after inflation in March rose for the 8th month in a row to 5.0 percent, well in excess of the bank's inflation target range of 3.5 to 1.5 percent.
      In April the NBR surprised analysts by maintaining its rates as it wanted to gauge the impact of the first two rate hikes.
      The rise in March inflation was in line with the central bank's forecast, with the increase mainly due to supply-side factors such as higher fuel prices, but also due to CORE2 inflation - the NBR's gauge of core inflation - which remained on an upward trend to 3.0 percent in March from 2.9 percent in February.
      The central bank said the May quarterly inflation report, which will be presented on May 9, showed a path of inflation that was "almost similar" to its February projections when the central bank raised its 2018 inflation forecast to 3.5 percent from 3.2 percent.
       The uncertainties and risks surround its inflation outlook stem mainly from administers prices, labour market conditions and future oil prices, the bank said, adding economic growth and inflation in the euro area and thus the monetary policy stance of the European Central Bank (ECB) and other banks in the region were also relevant.
       The latest economic data show a "slightly more pronounced deceleration" than previously estimated for the fourth quarter of 2017, with growth revised down to 6.7 percent from 6.9 percent.
      But NBR said growth was still robust, with 2017 growth revised down to 6.9 percent from 7.0 percent as household consumption was revised lower.
      Last week the European Commission maintained its forecast for Romania's economy to expand by 4.5 percent this year while the 2019 forecast was lowered to 3.9 percent from 4.0 percent.
      The European Union executive also forecast 4.2 percent inflation this year as demand pressures rise and 3.4 percent in 2019
      Against the rising U.S. dollar, Romania's leu has weakened since mid-April though it firmed slightly in response to the rate hike. The leu was trading at 3.9 to the dollar, practically unchanged on the year.
      Against the euro, the leu also firmed after the rate hike and was trading at 4.66, unchanged since the start of 2018.

Saturday, May 5, 2018

This week in monetary policy: Romania, Argentina, New Zealand, Malaysia, Philippines, Serbia, UK, Peru & Sri Lanka

     This week - May 6 through May 12 - central banks from 9 countries or jurisdictions are scheduled to decide on monetary policy: Romania, Argentina, New Zealand, Malaysia, Philippines, Serbia, United Kingdom, Peru and Sri Lanka.
     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 6 - MAY 12, 2018:
COUNTRY                   DATE                     RATE                LATEST                    YTD              1 YR AGO      MSCI
ROMANIA7-May2.25%0501.75%         FM
ARGENTINA8-May40.00%6751,12526.25%         FM
NEW ZEALAND10-May1.75%001.75%         DM
MALAYSIA10-May3.25%0253.00%         EM
PHILIPPINES10-May3.00%003.00%         EM
SERBIA10-May3.00%-25-504.00%         FM
UNITED KINGDOM10-May0.50%000.25%         DM
PERU10-May2.75%0-504.00%         EM
SRI LANKA 1)11-May7.25%007.25%         FM
SRI LANKA 2)11-May8.50%-25-258.75%         FM
1. Deposit rate
2: Lending rate

Argentina raises rate another 675 bps to 40%, peso rises

       Argentina's central bank raised its monetary policy rate by a massive 6.75 percentage points to 40.0 percent on Friday, its third rate hike in a week, in an effort to calm down what it described as "disruptive behavior in exchange markets" and guarantee that inflation will decelerate.
       The Central Bank of Argentina (BCRA) has now raised its benchmark rate by 12.75 percentage points since last Friday, April 27, when it first began its tightening campaign by raising the rate by 300 basis points. This was followed by another 300-basis point hike on Thursday, May 3.
       "The monetary authority made these decisions in order to avoid disruptive behavior in the exchange markets as well as to guarantee the disinflation process and is ready to act again if necessary," the BCRA said, adding:
       "The Central Bank will continue using all the tools at its disposal and will conduct its monetary policy to reach its intermediate inflation target of 15% in 2018."
       BCRA said the latest rate hike on Friday came in reaction to the peso's depreciation against other emerging market currencies and there were signs that this latest hike may help reverse the peso's recent downward trend.
       The peso immediately jumped 3.7 percent after Friday's rate hike to 21.45 per U.S. dollar and later settled at 21.85 to the dollar. The first two rate hikes had failed to reverse the peso's fall.
       But the peso is still 7.3 percent below its level on April 26, before the tightening began, and 14.9 percent below the level at the start of 2018, pushing up import prices and thus inflation.
       In addition to raising its policy rate, the central bank also took other measures to restore calm to financial markets, and said it would continue to intervene in foreign exchange markets, with both cash and term transactions.
        On Thursday the BCRA said it had sold another $451 million, the day after its sold about $500 million. In March and April the central bank had sold $6.77 billion, more than 10 percent of its reserves, according to Reuters.
       It raised the ceiling of its 7-day active pass rate to 47 percent from 38.25 percent, the passive rate raised to 33.0 percent, and one-day rates were raised to 57 percent for active passes and 28.0 percent for the passive.
       With effect on Monday, the net positive global position of foreign currency held by financial institutions may not exceed 10 percent of liquid equity
        In parallel with the central bank's moves, the government of Mauricio Macri cut its target for the primary fiscal deficit this year to 2.7 percent of Gross Domestic Product from 3.2 percent and confirmed its commitment to the 15 percent inflation target.
        The latest troubles to hit Argentina were triggered on Dec. 28, 2017 when Macri's government - which is facing an election in October 2019 - pushed back its goal of lowering inflation to 5 percent by one year to 2020 and raised the inflation target to 15 percent from a previous 8-12 percent.
        On Jan. 9 and Jan. 23 the central bank then lowered its key rate in two steps by a total of 150 basis points, arguing the rise in inflation is transitory and will continue its downward trend once the one-off impact of a higher in regulated prices dissipates.
         But inflation is still rising and rose to 25.6 percent in March from 25.4 percent in February.
         Macri's government, which took office in 2015, has been slashing government subsidies to utilities and transportation in an effort to curb the fiscal deficit.