Tuesday, October 19, 2021

Hungary raises rate 5th time on upside risks to inflation

      Hungary's central bank raised its key interest rate for the fifth consecutive month and reiterated that it "will continue the cycle of interest rate hikes until the outlook for inflation stabilizes around the central bank target in a sustainable manner and inflation risks become evenly balanced on the horizon of monetary policy."
     The National Bank of Hungary, or Magyar Nemzeti Bank (MNB) in Hungarian, raised its base rate by another 15 basis points to 1.80 percent and has now raised it 1.20 percentage points following rate hikes in June, July, August and September. 
    "In the decision-makers' assessment, the inflation outlook continues to be surrounded by upside risks which might prove to be more persistent than earlier expected," the bank said.
     The rate hike was signaled by the bank with its deputy governor, Barnabas Virag, on Oct. 1 saying the bank would raise rates in 15-basis-point steps in coming months as inflationary pressures were growing.
     Against the backdrop of a global economic recovery and rising commodity prices, that are now spilling over to a wide range of consumer prices, the central bank expects inflation to rise faster in coming months that it forecast in September, with core inflation of around 4 percent for the remainder of this year.
     In September Hungary's headline inflation rate rose to 5.5 percent, the highest since October 2012, and core inflation rose to 4.0 percent from 3.6 percent in August.
     "Rises in commodity prices and energy prices as well as international freight costs continue to point to a higher external inflationary environment which is more persistent than previously expected," MNB said, adding dynamic growth in wages also carries upside risks to inflation.
     However, the bank reiterated its view from the September outlook that its monetary tightening cycle will be felt early next year and inflation will start to ease. By the second quarter, inflation will return to its tolerance range of 2.0 to 4.0 percent before stabilizing around the 3.0 percent target in the second half.
     In addition to its base rate, MNB also raised its other main interest rates by 15 basis points, putting the overnight deposit rate at 0.85 percent, the overnight collateralized lending rate at 2.75 percent and the one-week lending rate at 2.75 percent.
     Prior to the outbreak of the COVID-19 pandemic, the central bank had kept its main rate steady at 0.90 percent from May 2016 but in March last year MNB began easing its policy stance by releasing banks from reserve requirements and then embarked on quantitative easing by purchasing government securities and mortgage bonds.
     In June and July the central bank then cut its rate twice in quick succession by a total of 30 basis points.
     Hungary has bounced back fast from the pandemic and the central bank said the recovery continued in the third quarter, reiterating its forecast for growth this year of 6.5 to 7.0 percent and between 5 and 6 percent in 2022.

Sunday, October 17, 2021

This week in monetary policy: Indonesia, Hungary, Namibia, China, Mauritius, Uzbekistan, Ukraine, Turkey, Botswana, Paraguay, Tajikistan & Russia

     This week - October 18 through October 23 - central banks from 12 countries or jurisdictions are scheduled to decide on monetary policy: Indonesia, Hungary, Namibia, China, Mauritius, Uzbekistan, Ukraine, Turkey, Botswana, Paraguay, Tajikistan and Russia.
     Following table includes the name of the country, the date of the next policy decision, the current policy rate, the local time a policy decision is announced, the result of the last policy decision, the change in the policy rate year to date, and the rate one year ago.
    The table is updated when the latest decisions are announced and can always be accessed by clicking on This Week.

OCT 18 - OCT 23, 2021
INDONESIA19-Oct3.50%0-254.00%         EM
HUNGARY 19-Oct1.65%151050.60%         EM
CHINA20-Oct3.85%9:30003.85%         EM
MAURITIUS 20-Oct1.85%001.85%         FM
UKRAINE21-Oct8.50%14:00502506.00%         FM
TURKEY21-Oct18.00%14:00-10010010.25%         EM
RUSSIA22-Oct6.75%13:30252504.25%         EM

Thursday, October 14, 2021

Singapore tightens policy slightly, core inflation rising

     Singapore's central bank tightened its monetary policy stance slightly by allowing the Singapore dollar to rise, saying this "will ensure price stability over the medium term while recognizing the risks to the economic recovery."
     The Monetary Authority of Singapore (MAS), which targets the value of the Singapore dollar against a basket of currencies to control inflation, said it would "raise slightly the slope of the S$NEER policy band, from zero percent previously," while the width of the band and the level at which it is centered will be unchanged.
     "Growth in the Singapore economy is likely to remain above trend in the quarters ahead," MAS said, adding output should return to around its potential in 2022 barring a resurgence of the COVID-19 virus.
     Earlier today data showed Singapore's economy grew 0.8 percent in the third quarter from the second quarter, when output contracted, for annual growth of 6.5 percent, down from 15.2 percent in the first quarter.
      "With the turnaround, aggregate output returned to its pre-pandemic level after its setback in Q2," MAS said, adding the domestic-oriented sectors remained weak in response to measures to control the pandemic measures while information and communications services grew.
      Underpinned by above-trend global growth in the quarters ahead, MAS expects growth this year of between 6.0 and 7.0 percent compared with its forecast in April, which it confirmed in June, when it expected growth to exceed the upper end of the official 4-6 percent forecast.
      In 2022 MAS expects growth to ease from this year's pace but still remain above trend.
      Today's monetary tightening was not expected by most economists, who thought MAS would maintain  the accommodative policy stance it adopted in March 2020 when it applied a zero percent appreciation path of the exchange rate, the bank's biggest easing move since the 2009 financial crises.
      In April MAS, which decides monetary policy twice a year,  maintained that zero percent appreciation path and forecast core inflation would to average zero to 1 percent in 20201 and rise only gradually to remain below its historical average.
      But with the slack in labour markets gradually absorbed and imported inflation forecast to remain firm, MAS now expects core inflation - its favored gauge of inflation - to rise steadily to 1-2 percent in 2022 and then remain close to 2 percent in the medium term.
     "The slack in the labour market should continue to be absorbed and the negative output gap close in 2022," MAS said.
     In August headline inflation in Singapore eased to 2.4 percent from 2.5 percent while core inflation continued its steady climb to 1.1 percent from a negative 0.2 percent in January.

Wednesday, October 13, 2021

Chile raises rate 3rd time by more than expected

      Chile's central bank raised its key interest rate for the third time this year, and by more than expected for the second time, saying it expects the policy rate to reach a neutral level sooner than forecast as it needs to prevent a "more persistent increase in inflation" to above its target over the next 2 years.
      The Central Bank of Chile raised its monetary policy interest rate by 1.25 percentage points to 2.75 percent and has now raised it by a massive 2.25 percentage points in four months following earlier hikes in July and August.
      As in August, the bank's board was unanimous in its decision.
      Although the size of today's rate hike exceeded expectations, analysts had set their sights on a sharp rate hike following news inflation in September rose to a higher-than-expected 5.3 percent, the highest rate since November 2014 and up from 4.8 percent in August.
      On top of higher prices for food, transportation, housing and utilities, Chilean lawmakers are debating new pension withdrawals that could pump as much as $20 billion into the economy.
      The central bank said the rise in inflation reflected upward pressures on both the demand and cost side along with the deprecation of the peso.
      "In this context, inflation expectations have risen in all horizons," the bank said, adding expectations for this year now exceed 6 percent and two years ahead they are over 3.0 percent.
      Chile's economy has bounced back swiftly from the COVID-19 pandemic and in the second quarter the economy grew 18.1 percent year-on-year. 
      In September the central bank raised its forecast for growth this year to 10.5 percent to 11.5 percent from its earlier estimate of 8.5 percent to 9.5 percent.
       In its December monetary policy report the central bank said it would update its trajectory for the monetary policy rate to prevent the rise in inflation from topping its 3.0 percent target.

Morocco holds rate, raises inflation & growth forecast

     Morocco's central bank left its policy rate steady, and while it said monetary policy rate remains largely accommodative to ensure adequate financing conditions, it raised its forecast for inflation and growth.
     The Bank of Morocco, or Bank Al-Maghrib (BAM), maintained its policy rate at 1.5 percent, unchanged since June 2020 when it was lowered for the second time for cuts totaling 75 basis points to support economic activity during the COVID-19 pandemic.
     The board of BAM, which postponed its third monetary policy meeting from Sept. 28 until today due to health reasons, noted Morocco's progress in rolling out vaccinations, the continued recovery of economic activity and the trend toward moderate inflation despite a rise in external inflationary pressures.
     After rising to 2.2 percent in August, Morocco's headline inflation eased to 0.8 percent in August as the cost of food products declined.
     BAM forecast headline inflation should average 1.2 percent this year and underlying inflation should average 1.4 percent in the context of a recovery of domestic demand, rising energy prices and higher imported inflation.
     This forecast is up from BAM's forecast in June of 1.0 percent headline inflation this year and underlying inflation of 1.2 percent. 
     In 2020 headline inflation in Morocco averaged 0.7 percent and underlying inflation averaged 0.5 percent.
     For 2022 BAM forecast headline inflation of 1.6 percent and underlying inflation of 2.1 percent, up from June's forecast of 1.2 percent and 1.5 percent, respectively.
     Morocco's economy expanded by an annual 15.2 percent in the second quarter of this year, helped by 18.6 percent growth in agriculture and 14.8 percent in non-agriculture, after expanding 1.0 percent in the first quarter.
     "The recovery is expected to continue, supported by the notable progress in the vaccination campaign, the very good crop year, the fiscal stimulus as well as the accommodative monetary policy stance," BAM said.
     The central bank raised its forecast for gross domestic product growth this year to 6.2 percent from June's forecast of 5.3 percent 
     In 2022 the economy is expected to grow 3.0 percent compared with June's forecast of 3.3 percent.


Tuesday, October 12, 2021

Kuwait to start unwinding COVID crises measures

     Kuwait's central bank became the second in the Gulf region to tighten its monetary policy stance this year, saying it had "decided to start unwinding measures imposed since April 202 to counter the COVID-19 pandemic, after the banking sector's success in overcoming the first year of the crises."
     Last year the Central Bank of Kuwait (CBK) cut its benchmark discount rate twice in March by a total of 1.25 percentage points, the same month another 66 central banks, including the U.S. Federal Reserve, cut rates by a total 92 times to support economic activity during the height of the pandemic.
     The following month, CBK then took several macro prudential initiatives to help the ability of banks' to offer credit and loans, including allowing the banks to release capital conservation buffers and lowering the credit risk weight when calculating capital adequacy ratios. 
     In October 2020 CBK also cut all interest rates that cover the entire yield curve of up to 10 years, including the repo rate, term deposit rates, direct intervention rates and those on public debt in response to a decline in U.S. rates, which it said was putting upward pressure on its dinar.
     In its statement, CBK did not specify which crises measures it was unwinding, only saying it had earlier amended regulatory instructions and macro prudential tools to ward off repercussions of the pandemic.
     Last month the central bank of the United Arab Emirates (UAE) began what it said was a "gradual and well-calibrated" withdrawal of extraordinary stimulus measures taken last year as the gradual recovery of the economy meant there would be less need for extraordinary stimulus.
    After plunging in March last year, Kuwait's dinar has slowly firmed against the U.S. dollar until last month when it began giving up some of its gains.
     Today the dinar was trading at 0.302 to the U.S. dollar, down 0.9 percent this year but up 4.3 percent since March 26, 2020.
     Between 1975 and 2002 Kuwait's dinar was pegged to a weighted basket of currencies of its major trading partners, but from 2003 to 2007 CBK dropped that peg and pegged it directly to the U.S. dollar.
      In 2007 CBK then reverted to its earlier exchange rate policy of pegging to dinar to an undisclosed weighted basket of currencies to curb growing inflationary pressures.


Monday, October 11, 2021

South Korea holds rate, to 'appropriately' adjust policy

    South Korea's central bank left its base rate steady, as widely expected, and said it would "appropriately adjust the degree of monetary policy accommodation as the Korean economy is expected to continue its sound ground and inflation to run above 2% for some time, despite ongoing uncertainties over the virus."
     Today's guidance by the Bank of Korea's (BOK) monetary policy board appears slightly more dovish than its guidance from August when it said it would "gradually" adjust the degree of monetary policy accommodation.
      BOK left its base rate steady at 0.75 percent after raising it in August by 25 basis points in the first rate hikes since November 2018.
     As in its policy statement in August, BOK said it would "judge when to further adjust the degree of accommodation" while taking into account the pace of growth and inflation, the build-up of financial imbalances, monetary policy changes in major countries and COVID-19.
     South Korea's inflation rate has remained above BOK'S 2.0 percent target since April but eased in August to 2.5 percent from 2.6 percent in the previous two months. 
     "Looking ahead, it is forecast that consumer price inflation will run at the mid-2% level for some time, exceeding the path projected in August before declining somewhat," the bank said, adding core inflation is expected to rise to the upper 1 percent level from 1.3 percent in August.
      The pace of growth of South Korea's economy has been slowing in recent quarters - it grew 0.8 percent in the second quarter, down from first quarter growth of 1.7 percent - but BOK confirmed it still expects growth this year of around 4.0 percent, as in August.

Sunday, October 10, 2021

UPDATED-This week in monetary policy: South Korea, Morocco, Chile, Singapore, Sri Lanka, and Uganda

     (Following item is updated with Monetary Authority of Singapore (MAS))

     This week - October 11 through October 16 - central banks from 6 countries or jurisdictions are scheduled to decide on monetary policy: South Korea, Morocco, Chile, Singapore, Sri Lanka and Uganda.
     Following table includes the name of the country, the date of the next policy decision, the current policy rate, the local time a policy decision is announced, the result of the last policy decision, the change in the policy rate year to date, and the rate one year ago.
    The table is updated when the latest decisions are announced and can always be accessed by clicking on This Week.

OCT 11 - OCT 16, 2021
SOUTH KOREA12-Oct0.75%25250.50%         EM
MOROCCO13-Oct1.50%001.50%         FM
CHILE13-Oct1.50%18:00751000.50%         EM
SINGAPORE14-Oct         N/A8:00                  N/A                  N/A            N/A         DM
SRI LANKA 14-Oct5.00%7:3050504.50%         FM


Thursday, October 7, 2021

Peru raises rate 3rd time but keeps easy policy stance

     Peru's central bank raised its interest rate for the 3rd time this year but said it would still maintain an expansionary monetary policy stance for a "prolonged period" as the withdrawal of monetary stimulus will be "gradual." 
     The Central Reserve Bank of Peru (BCRP) raised its reference rate by a further 0.50 percentage point to 1.50 percent, its third rate hike since August, with the rate now raised by 1.25 percentage point.
     BCRP said it would continue to carry out all necessary actions to sustain the flow of payments and credit through the economy, and today's rate hike does not imply successive rate hike.
     However, it also said financial markets had been volatile amid uncertainty and the actions by BCRP were aimed at easing these volatiles.  
      Peru's inflation rate rose for the 5th straight month in September to 5.23 percent from 4.95 percent in August - above the bank's target range of 2.0 percent, plus/minus 1 percentage point.
     BCRP said it expected inflation to the return to its target range over the next 12 months and then remain in the range for the rest of 2022 due to the reversal of transitory factors, such as the exchange rate for the USD and international prices, while 


Serbia holds rates but takes 1st step in tightening policy

     Serbia's central bank left its key interest rate steady but said it had taken the first step to tighten monetary conditions by raising the average rate at Wednesday's auction of reverse repurchase securities and canceled future repo auctions as it expects inflation to trend higher in coming months.
     The National Bank of Serbia (NBS) left its key policy rate, along with the rate on its deposit and lending facilities, at 1.0 percent, 0.10 percent and 1.90 percent, respectively.
     NBS has maintained its rate since December 2020 when the central bank cut its rate for the fourth time last year by a total of 1.25 percentage points.
      Inflation in Serbia rose to 4.3 percent in August from 3.3 percent in the previous two months, approaching the upper limit of NBS' target range of 3.0 percent, plus/minus 1.5 percentage points
     "The Executive Board expects that y-o-y inflation will most probably trend higher in the next several months than in August and, similarly to other neighboring countries, above the upper bound of the target corridor," NBS said.
      Low and stable core inflation, however, suggests the rise in headline inflation is mainly due to supply-side pressures while short- and medium-term inflation expectations are around the target midpoint.
      With the waning effect of this year's rise in commodity prices and rises in production and transport costs in the second half of 2022, NBS first expects inflation to return to the target range and the decline below the midpoint.
      Referring to its monetary policy framework that allows it to use a flexible approach to carrying out monetary policy, the central bank said it had "exercised a proactive approach" by adjusting monetary conditions following its previous board meeting on Sept. 9.
     "Monetary conditions were thus tightened without changing the key policy rate and the interest rate corridor," NBS said.
      At Wednesday's auction of reverse repurchase securities, NBS raised its average rate by 13 basis points to 0.24 percent.
      NBS has also decided to terminate repo securities auctions as of October through which commercial banks had been provided with 3-month dinar liquidity under the highly favorable condition of 0.10 percent.

Wednesday, October 6, 2021

Mauritius postpones policy meeting until Oct. 20

      Mauritius' central bank postponed its scheduled meeting of its monetary policy committee until Oct. 20 from today, saying the rescheduling was "due to the unforeseen unavailability of some members of the committee.
     The Bank of Mauritius (BOM) has maintained its key repo rate at 1.85 percent since April 2020 when it was cut for the second time that year.