Tuesday, August 22, 2017

Argentina maintains rate as core inflation still too high

     Argentina's central bank maintained its monetary policy rate at 26.25 percent, as expected, confirming its view that disinflation is continuing but core inflation remains too high.
      The Central Bank of Argentina (BCRA) has kept its rate steady since a surprise 150 basis point hike in April after inflation expectations rose.
       As in its previous policy statement from Aug. 8, the BCRA said inflation in August is expected to be lower than in July as the process of disinflation continues but core inflation is still above its targeted level.
       Last month Argentina's national statistics institute for the first time published a national consumer price index for the month of June. The new index is used by BCRA to judge compliance of prices with it target of reducing inflation to between 12 percent and 17 percent this year and 10.0 percent, plus/minus 2 percentage points in 2018.
       As expected by the central bank, general consumer prices rose by 1.7 percent in July from June due to changes in regulated prices while core inflation was up 1.8 percent.
       However, the BCRA also said the annual general inflation rate declined to 21.4 percent in July from 21.8 percent in June and the core inflation rate eased to 22.5 percent from 22.6 percent.
      Argentina's inflation rate rose to a 2017-high of 40.5 percent in April, with prices driven higher by the government's removal of energy and transport subsidies to reduce the federal deficit.
     Argentina's peso has been firming in the last week after falling from May to early August. Today the peso was trading at 17.2 to the U.S. dollar today, down 7.8 percent this year.
      The country's president, Mauricio Marcri, let the peso float shortly after taking office in December 2015, removing many of the controls that previous governments had used to prop up the currency and protect foreign reserves.

Botswana maintains rate, inflation seen staying in range

    Botswana's  central bank kept its Bank Rate unchanged at 5.50 percent, saying its "supportive monetary policy stance remains consistent with maintaining inflation within the 3 - 6 percent objective range" based on the current state of the economy and the domestic and foreign outlook.
     The Bank of Botswana (BB), which last cut its rate by 50 basis points in August 2016, added moderate domestic demand pressures and a modest rise in foreign prices contributed to a positive outlook for inflation, with downside risks from lower commodity prices and upside risks from higher administered prices and higher than expected commodity prices.
     Botswana's inflation rate eased to 3.4 percent in July from 3.5 percent in the previous two months while the exchange rate of its pula continued to slowly appreciate after hitting lows around 12 to the U.S. dollar in January 2016.
     The pula was trading at 10.2 to the dollar today, up almost 5 percent this year.
     Botswana's economy grew by 3.9 percent in the 12 months to March, up from a contraction of 1.8 percent in the same period that ended March 2016, BB said.
     After shrinking by 1.7 percent in 2015, Botswana's economy grew 4.3 percent last year as diamond sales rebounded and easy fiscal and monetary policies helped non-mining activities.
     In the first quarter of this year, Botswana's Gross Domestic Product grew by an annual 0.8 percent, down from 4.2 percent in the previous quarter.
      Higher economic activity is supported by the non-mining sector while the mining sector contracted by 10.3 percent in the year to March, BB said, adding non-mining output is projected to be below trend in the short to medium-term due to modest growth in household incomes and subdued economic expansion in trading partners.
     "However, gradual economic recovery is expected in the medium term in response to anticipated improvement in external economic conditions," BB said.
     Earlier this month the International Monetary Fund said Botswana's economy was undergoing a cyclical recovery with a broadly positive outlook, supported by a rebound in the global diamond market and public investment, and appropriate macroeconomic policies.
     "At present, the authorities' neutral monetary policy stance is appropriate as there does not seem to be room to lower interest rates," the IMF said, adding the exchange rate regime continued to serve the country well.
     The IMF forecast growth this year of 4.5 percent and 4.8 percent in 2018, with inflation seen averaging 3.7 percent this year and next year.

Indonesia cuts rate 25 bps as C/A deficit in safe limits

     Indonesia's central bank cut its benchmark 7-day reversed repurchase rate (RR) by 25 basis points to 4.50 percent, noting that economic growth was lower than expected in the second quarter and a lowering of interest rates was consistent with inflation seen within its target range over the next two years while the current account deficit was within "a healthy range"
      It is Bank Indonesia's (BI) first rate cut since since October 2016. 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 2016.
      The rate cut surprised most economists, who expected BI to continue to maintain its rate despite a hint by Governor Agus Martowardojo last week that he favored a rate cut if data supported it.
       In addition to lower than expected growth, BI said external risks from the U.S. Federal Reserve's plan to raise rates and normalize its balance sheet had eased so its own interest rates remained attractive and lower rates should help support higher economic growth.
      Indonesia's economy grew by a lower-than-expected 4.0 percent in the second quarter, the first quarterly expansion since the third quarter of last year, for annual growth of 5.01 percent, unchanged from the first quarter and below forecasts of 5.10 percent growth and second quarter 2016 growth of 5.18 percent.
      While growth was supported by rising investment from faster government spending on infrastructure, BI said household consumption contracted in the second quarter and exports slowed due to lower growth in the export volume of manufactured products.
      But BI confirmed its 2017 forecast for growth of between 5.0 and 5.4 percent, up from 5.02 percent last year, while the government is targeting growth of 5.2 percent.
      For 2018 BI said it expects growth to accelerate to 5.1-5.5 percent on the back of rising investment and consumption from more expansive government spending and as monetary easing continues.
      Indonesia's current account deficit rose to US$4.962 billion in the second quarter of 2017 from $2.363 billion in the first quarter but was down from the second quarter of 2016's deficit of $4.974 billion.
       But BI said a large capital and financial account surplus of US$5.9 billion was financing the current account deficit, which amounted to 1.96 percent of Gross Domestic Product in the second quarter and is expected to remain in a range of 1.5-2.0 percent of GDP this year and 2.0-2.5 percent in 2018, below the safe limit of 3.0% of GDP.
      Indonesia's foreign exchange reserves end-July were US$127.8 billion, for 9 months of imports.
      Indonesia's headline inflation rate declined to 3.88 percent in July from a 2017-high of 4.37 percent in June as the rise in raw food prices slowed while the rupiah has been relatively stable since late last year and was trading at 13,348 to the U.S. dollar after the rate cut, up 1.13 percent this year.
      BI said the stable rupiah exchange rate was supported by continued confidence in the country's macroeconomic stability and the exchange rate is expected to remain stable, supported by its balance of payments and a deepening of its domestic foreign exchange market.

Sunday, August 20, 2017

This week in monetary policy: Kazakhstan, Indonesia, Hungary, Botswana, Argentina, Iceland, Paraguay and Malawi

    This week (August 20 through August 26) central banks from 8 countries or jurisdictions are scheduled to decide on monetary policy: Kazakhstan, Indonesia, Hungary, Botswana, Argentina, Iceland, Paraguay and Malawi.
    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.

AUG 20 - AUG 26, 2017:
COUNTRY                 DATE                RATE           LATEST                 YTD               1 YR AGO       MSCI
KAZAKHSTAN 21-Aug 10.50% 0 -150 13.00%          FM
INDONESIA 22-Aug 4.75% 0 0 5.25%          EM
HUNGARY 22-Aug 0.90% 0 0 0.90%          EM
BOTSWANA 22-Aug 5.50% 0 0 5.50%
ARGENTINA 22-Aug 26.25% 0 150 28.25%          FM
ICELAND 23-Aug 4.40% -25 -50 5.25%
PARAGUAY 23-Aug 5.50% 0 0 5.50%
MALAWI 24-Aug 18.00% -400 -800 27.00%


Thursday, August 17, 2017

Chile maintains rate, notes rise in copper prices

     Chile's central bank kept its monetary policy interest rate at 2.50 percent, as widely expected, and reiterated its neutral guidance while pointing to a "favorable scenario" on the international front, including an increase in prices of copper, the country's main export.
     The Central Bank of Chile, which has cut its rate four times this year by a total of 100 basis points,   also said inflation in July was below the estimate in its last monetary policy report while private consumption remains stable and expectations had become less pessimistic.
      Chile's inflation rate was steady at 1.7 percent in July from June while the exchange rate of the peso continued to gradually appreciate.
      The central bank targets inflation of 3.0 percent, plus/minus 1 percentage point.
      The peso was trading at 646.5 to the U.S. dollar today, up 3.6 percent this year.
      Chile's Gross Domestic Product grew by an annual rate of 0.1 percent in the first quarter of this year, down from 0.5 percent in the previous quarter.
      In June the central bank cut its 2017 growth forecast to between 1.0-1.75 percent from a previous forecast of 1-2 percent due to weak performance by mining and construction.
      Copper prices fell steadily from 2011 to record lows in January 2016 but have been rising since late last year and especially since May this year. Today, however, they fell sharply.

Egypt holds rate, materialization of risks guide changes

     Egypt's central bank kept its policy rates unchanged, as expected, and said the economy had developed largely as expected so its rates were consistent with achieving its inflation target of 13 percent, plus/minus 3 percentage points, by the fourth quarter of 2018 and in single digits thereafter.
     But the Central Bank of Egypt (CBE), which has raised its benchmark overnight deposit rate by 1,000 basis points to 18.75 percent since embarking on a tightening cycle in December 2015, added there were several risks surrounding this inflation outlook, most notably inflation expectations, demand-side pressures and the magnitude of any reform to government subsidies and their second-round effects.
     "The materialization of such risks could lead to a stronger than projected loosening or tightening of the committee's stance to ensure that the inflation outlook is consistent with the targeted disinflation path," the CBE's monetary policy committee said.
     Egypt's headline inflation rate accelerated further to 33.0 percent in July from 29.8 percent in June to the highest rate since June 1986 as regulated fuel prices were raised by up to 50 percent, electricity prices by up to 42 percent, and value-added-tax was raised to 14 percent as part of last year's $12 billion agreement with the International Monetary Fund (IMF) aimed at curbing the government budget deficit and reforming the economy.
      Inflation also jumped in the wake of a float of Egypt's pound last November, with the CBE since then raising its policy rates by 700 basis points to contain second-round effects on inflation from government reform measures and the jolt to import prices from the plunge in the pound after the float.
      Despite soaring inflation, Egypt's economy is slowly improving with annual Gross Domestic Product in the second quarter of this year up by 4.9 percent, up from 4.3 percent, 3.8 percent and 3.4 percent in the preceding quarters, the CBE estimated.
      Based on data up to March, the central bank said the structure of economic growth has shifted to net exports and investments rather than consumption, with tourism, natural gas, trade, construction and non-petroleum manufacturing driving economic growth.
      The far-ranging reform of Egypt's economy is being supported by the IMF, which in July released another $1.25 billion as part of the 3-year, $12 billion program.
     "Egypt's reform program is off to a good start," the IMF said on July 13, adding the transition to a flexible exchange rate regime had gone smoothly and the parallel currency market had virtually disappeared and bank reserves had increased significantly.
      The IMF also lauded the CBE's move to reduce inflation by raising its policy rates, absorbing excess liquidity and developing a clearly defined policy anchor to manage inflation expectations.
       The government's efforts to curb its deficit by raising VAT and reforming energy subsidies is forecast to result in a primary surplus in 2017/18 for the first time in a decade, the IMF said, adding significant progress has also been made on structural reforms.
       The IMF forecasts that Egypt's economy will grow 3.5 percent in the 2016/17 financial year, which ended June 30, and then by 4.5 percent in the current 2017/18 financial year.
       Headline inflation is seen averaging 22.1 percent this fiscal year, falling to 10.3 percent by June 2018.

Wednesday, August 16, 2017

Namibia cuts rate 25 bps amid weak economy, easing CPI

    Namibia's central bank cut its benchmark repo rate by 25 basis points to 6.75 percent "to support domestic economic activity" amid declining inflation and an increase in international reserves that are  sufficient to sustain the currency peg between the Nambian dollar and the South African rand.
     It is Bank of Namibia's first rate cut since August 2012 and the first change in rates since a rate hike in April 2016, and comes a month after the bank cut its 2017 growth forecast to 2.1 percent from 2.9 percent due to uncertainty around a recovery in the price of uranium.
     "Activity in the domestic economy remained weak during the first six months of 2017," the central bank said, adding growth in private sector credit extension (PSCE) continued to slow, with annual growth averaging 8.5 percent in the first six months, down from 12.5 percent in the same 2016 period.
     Slower growth in credit, which is in line with general domestic weakness, was due to reduced growth in credit advance to both households and businesses, especially in the form of mortgage and installment credit.
     Namibia's economy shrank by an annual rate of 2.7 percent in the first quarter of this year for the fourth consecutive quarter of contraction in a row, and up from a decline in Gross Domestic Product of 1.4 percent in the fourth quarter of 2016.
     The decline in economic activity was mainly reflected in construction, manufacturing, wholesale, retail and transport while there was some improvement in mining and communication as well as livestock.
     Namibia's inflation rate eased to 5.4 percent in July from 6.1 percent in June due to lower food inflation.
      The country's stock of international reserves rose to N$32.7 billion as of July 31 to cover 5.5 months of imports, up from N$24.2 billion as of June 1, mainly due to a repatriation of funds by financial institutions, inflow from the African Development Bank and repayments by the National Bank of Angola.
      Namibia's central bank maintains a one-to-one peg to South Africa's rand and on July 20 the South African Reserve Bank cut its repo rate by 25 basis points on a worsening outlook for growth.
      Against the U.S. dollar, the Namibian dollar was trading at 13.2 today, up 3.8 percent this year.


Thailand holds rate, monitoring rise in baht's FX rate

     Thailand's central bank left its policy rate at 1.50 percent, as expected, and maintained an accommodative monetary policy stance as improving domestic demand is not yet sufficiently broad-based and inflation had risen at a slightly slower pace than expected.
      But the Bank of Thailand (BOT), which has maintained its rate since April 2015, also put financial markets on notice that it was concerned about the rise in the exchange rate of the baht, which it attributed to the country's stronger external position along with "decreased investor confidence in the US dollar."
      "However, the Committee noted that the stronger appreciation of the baht relative to those of regional currencies in some periods might affect business adjustments and thus would continue to closely monitor developments in the foreign exchange market," the BOT's monetary policy committee said.
      The BOT has in recent months voiced its concern over the strength of the baht but today's statement is stronger than last month's statement when it merely observed that recent movements in the exchange rate were in line with regional currencies.
       The baht, which was hit sharply during the "taper tantrum" of 2013, has been rising steadily since  December last year on rising optimism about the prospects for global growth and emerging market economies.
      Today the baht was trading at 33.28 to the U.S. dollar, up 7.6 percent this year.
      Thailand's headline inflation rate rose to a lower-than-expected 0.17 percent in July from a fall of 0.05 percent in June, the second month of deflation, as fresh food prices fell due to improved harvest while inflationary pressures from domestic demand remained low.
       But the BOT still expects inflation to slowly rise in the second half of this year as supply side pressures slowly dissipate and domestic demand recovers. The BOT targets inflation of 1-4 percent.
      The outlook for Thailand's economy has been improving due to a rise in a wide range of merchandise exports, a continued expansion in tourism and higher agricultural output.
     And while domestic demand is also expanding, the BOT said it was not sufficiently broad-based while public investment growth was softer than expected and construction investment moderated.
     Thailand's Gross Domestic Product grew by an annual rate of 3.3 percent in the first quarter of this year, up from 3.0 percent in the previous quarter.
      In June the International Monetary Fund raised its 2017 growth forecast for Thailand to 3.2 percent from 3 percent while the BOT has forecast growth of 3.5 percent, up from 2016's 3.2 percent.

Tuesday, August 15, 2017

Armenia maintains rate for 3rd time, inflation seen rising

     Armenia's central bank left its benchmark refinancing rate at 6.0 percent for the third time in a row, confirming that it still expects inflation to gradually rise due to improving economic activity and a recovery of domestic demand amid a restrained fiscal policy.
      The Central Bank of Armenia (CBA) has maintained its rate since February after slashing the rate 12 times by a total of 450 basis points beginning in August 2015.
      Armenia's inflation rate dropped 2.6 percent in July from June for an annual rate of 0.9 percent, down from 1.1 percent, due to a seasonal fall in agricultural product prices.
      With more stable international commodity markets, the CBA said it didn't expect any significant inflationary effects from the external sector in coming months so inflation should gradually rise due to improving domestic demand and high economic activity.
      The CBA reiterated its view from June that it expects inflation to stabilize around its target by the end of this year and remain in that range during the forecast horizon, with monetary and credit conditions remaining unchanged for some time.
     The CBA, which targets inflation of 2.50 - 5.50 percent around a 4.0 percent midpoint, will issue its third quarter inflation report on Aug. 25.
     Armenia's Gross Domestic Product jumped by an annual 6.5 percent in the first quarter of this year from minus 1.0 percent in the previous quarter, for the strongest expansion since the first quarter of 2013.
     Armenia's economy was hit hard by Russia's economic crises, with the exchange rate of its dram plunging in November 2014 in response to the fall in Russia's ruble. But after a series of rate hikes between December 2014 and February 2015, the dram stabilized.
     Since August 2015 the CBA has been easing its monetary policy and growth in the first quarter of this year was boosted by the sectors of manufacturing, electricity, trade, transportation, information, financial and accommodation.
      Last month the International Monetary Fund said Armenia's economy was showing signs of a recovery after the past falls in remittances and the price of copper, the country's main export, had weighed on growth since late 2014.
      The IMF forecast 2017 and 2018 growth of 2.9 percent, respectively, and 3.0 percent in 2019, sharply up from 0.2 percent in 2016.
       Armenia's medium-term growth is projected at 3.5 to 4.0 percent with potential growth now estimated to be 1 percentage point lower than in the pre-crises period, with risks stemming from remittances, copper prices and growth in its key trading partners.
      Improving economic activity is also pushing up inflation and private sector credit growth, the IMF said, forecasting 1.8 percent inflation by end-2017, rising to 4.0 percent by the end of 2018 and 2019. This compares with minus 1.1 percent inflation end-2016.
      The exchange rate of Armenia's dram has been slowly appreciating this year and was trading at 478.3 to the U.S. dollar today, up 1.2 percent this year.


Saturday, August 12, 2017

This week in monetary policy: Armenia, Thailand, Namibia, Egypt and Chile

    This week (August 13 through August 19) central banks from 5 countries or jurisdictions are scheduled to decide on monetary policy: Armenia, Thailand, Namibia, Egypt and Chile.
    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.

AUG 13 - AUG 19, 2017:
COUNTRY                 DATE                RATE           LATEST                 YTD               1 YR AGO       MSCI
ARMENIA 15-Aug 6.00% 0 -25 7.25%
THAILAND 16-Aug 1.50% 0 0 1.50%          EM
NAMIBIA 16-Aug 7.00% 0 0 7.00%
EGYPT 17-Aug 18.75% 200 400 11.75%          EM
CHILE 17-Aug 2.50% 0 -100 3.50%          EM