Friday, April 29, 2016

Dominican Rep. maintains rate, inflation to rise to target

    The Central Bank of the Dominican Republic (CBDR) left its monetary policy rate unchanged at 5.0 percent, saying this took into account that inflation is expected to converge to the lower level of its target range within the policy horizon and market expectations are around that forecast.
    The CBRD, which has maintained its rate since last cutting it in July 2015, added that domestic economic activity was evolving positively and Gross Domestic Product was estimated to have expanded by an annual rate of 6.1 percent in the first quarter, the same as in the fourth quarter of last year.
   Inflation eased to 1.59 percent in March, down from 1.74 percent in February, while core inflation was 1.52 percent, the central bank said.
    The bank targets inflation of 4.0 percent, plus/minus 1 percentage point.


Colombia raises rate 8th time to push down inflation

    Colombia's central bank raised its policy rate for the eight month in a row, saying this was "to ensure that inflation converges to the target in 2017 and contributes to the reduction in the current account deficit."
    The Central Bank of Colombia raised its policy rate by a further 25 basis points to 7.00 percent and has now raised it by 250 basis points since September last year when it embarked on a tightening cycle. In 2016 it has raised the rate by 125 points.
    Inflation in Colombia rose to 7.98 percent in March from 7.59 percent in February to the highest rate since October 2001, with the central bank attributing the pressure on inflation to the sharp increase in food prices and the partial transfer of the devaluation of the peso to domestic prices.
    At the same time, the central bank said the risk of an excessive slowdown in domestic demand remains moderate.
    The central bank added that it was committed to keeping inflation and expectations anchored to its target of 3.0 percent - plus/minus 1 percentage point -  recognizing that the increase in inflation is of a transitory nature.

Russia maintains rate but shifts to easing bias

    Russia's central bank left its key interest rate unchanged at 11.0 percent, as expected, but adopted an easing bias by saying it would "resume a gradual lowering of its key rate at one of its forthcoming board meetings" if it becomes more confident hat the inflation target will be achieved.
    At its previous meeting in March, the board of the Bank of Russia had maintained a hawkish bias by saying it could keep its tight policy stance for longer than planned as there were still risks that inflation would exceed the bank's target in late 2017.
    The central bank last cut its rate in July 2015 despite frequent calls for cuts to boost growth.
    Russia's inflation in March continued to decelerate, falling to 7.3 percent from 8.1 percent in February for the lowest rate since April 2014 and the central bank estimated that inflation had eased further to 7.3 percent as of April 25.
     The deceleration in inflation is in line with the bank's forecast of inflation dropping below 8 percent in April although inflation is likely to accelerate temporarily mid-year due to base effects.
    "However, further on inflation will continue to go down," the bank said, predicting that inflation will reach about 5.0 percent in April 2017 and its 4.0 percent target in late 2017.
    Earlier this month Russia's economy ministry forecast that inflation would remain above 4 percent in 2017 and 2018 though the finance minister has said talks were underway to unify inflation goals.
    Despite the positive signs of falling inflation, the central bank pointed to the risk that expectations are only declining slowly, uncertainties surrounding the national budget and wages.
    The central bank was also optimistic about the recovery of Russia's economy, saying it was showing a higher resistance to fluctuations in oil prices as the process of import substitution was making a positive contribution to industrial production and capacity utilization was improving.
    "The on-going shifts in the economy anticipate the beginning of its recovery growth," the central bank said, adding quarterly growth rates are expected to reach positive levels in the second half of this year and early 2017.
    In 2015 Russia's economy contracted by 3.7 percent and is forecast to contract around 1 percent this year.
   The Russian ruble has been appreciating since mid-January and is now up by 14.3 percent this year, trading at 64.2 to the U.S. dollar today, and is now only 7 percent below the start of 2015.

Fiji holds rate, inflation low despite shock from cyclone

     Fiji's central bank left its Overnight Policy Rate (OPR) at 0.5 percent, unchanged since October 2011, saying its twin objectives remain intact and inflation remains low despite the supply-side shock from Tropical Cyclone Winston and recent flooding.
    The Reserve Bank of Fiji (RBF) noted that inflation in March eased to 0.8 percent from 1.2 percent in February and the forecast for end-year is around 2.0 percent, which also reflects lower fuel prices stemming from lower crude oil prices.
    Foreign reserves amounted to US$1.984 billion as of April 28, slightly below $2.006 billion on March 29, but sufficient to cover 5.6 months of imports.
    Barry Whiteside, central bank governor and board chairman, said in a statement Fiji's economy was still on track to achieve its seventh year of expansion, although at a slower pace than earlier expected due to the negative impact of natural disasters and weak demand from trading partners.
    In January the RBF forecast economic growth this year of 3.5 percent, down from 4.0 percent in 2015 and 5.3 percent in 2014 and Whiteside has earlier said Cyclone Winston was expected to lower this growth forecast, notwithstanding the impetus from recovery activities.
    Fiji was struck by Tropical Cyclone Winston on the night of Feb. 20, with wind gusts up to 325 kph (202 mph) that killed 42 people and left more than 62,000 people homeless. The government has estimated damage of 1 billion Fijian dollars, or US$460 million.
     With winds of 296 kph (184 mph), Cyclone Winston was the worst cyclone ever recorded in the Southern Hemisphere, smashing the previous record of 178 mph set by Cyclone Zoe which hit the Solomon Islands in 2002. If Winston had occurred in the Atlantic, it would have been categorized as a Category 5 hurricane.

Thursday, April 28, 2016

Egypt holds rate steady given lagged effect of March hike

    Egypt's central bank left its key policy rates unchanged, as expected, saying they were appropriate given the lagged effect from the sharp hike in March and the balance of risks surrounding the outlook for growth and inflation.
    The Central Bank of Egypt (CBE), which last month raised its key rates by 150 basis points to anchor inflation expectations after devaluing the pound and moving to a more flexible exchange rate regime, said "potential underlying domestic inflationary pressures are still under watch" even as upside risks to inflation were mitigated by subdued international commodity prices.
    The central bank's benchmark overnight deposit rate was left at 10.75 percent, the overnight lending rate at 11.75 percent and  the rate on its main operation at 11.25 percent.
    Egypt's inflation rate eased for the third consecutive month to 9.03 percent in March from February's 9.13 percent to the lowest rate since September last year due to a favorable base effect.
   But core inflation, as calculated by the CBE, rose to 8.41 percent from 7.50 percent in February, manly driven by higher food prices.
    Preliminary data show that Egypt's economy expanded by 3.5 percent in the first half of the 2015/16 fiscal year, which ended Dec. 31, with growth mainly from construction and real estate services despite the continued contraction in tourism and weakness in mining.
    Looking ahead, the CBE said investments in mega projects are expected to continue to contribute to growth but downside risks to the global economy could pose downside risks.
    On March 14 the CBE devalued the pound by almost 13 percent and adopted a more flexible exchange rate policy aimed at relieving years of foreign currency shortage by creating a more favorable investment climate and attract capital inflows.
    At this week's auction, the CBE sold $118.7 million at its official rate of 8.78 to the dollar. Initially, the pound was devalued to 8.85 a dollar from 7.73 but a few days later the exchange rate was moved higher as the new exchange rate regime was announced.
    The central bank has also been trying to do away with the black market for foreign currency where the pound has recently been trading at over 11 to the dollar.
    Egypt has been facing a shortage of foreign currency since the popular uprising in 2011 that resulted in the overthrow of Hosni Mubarak, scaring off foreign tourists and investors. Foreign currency revenue from tourists was dealt another blow in 2013 when the Egyptian army helped remove President Mohamed Morsi.
    In March Egypt's international reserves were $16.56 billion, still well below reserves in excess of $30 billion in the five years preceding the Arab Spring, but up from $16.445 billion end-December.

Moldova cuts rate 3rd time this year on falling inflation

    Moldova's central bank cut its base rate for the third time this year on declining inflation.
    The National Bank of Moldova (NBM) cut its rate by another 200 basis points and has now cut its rate by 450 points this year following cuts in March and February.
    The central bank also lowered the rate on overnight rate loans to 18.0 percent from 20 percent and the overnight deposit rate to 12 percent from 14 percent while the ratio on required reserves in convertible currency was left steady at 14 percent along with the ratio on leu and non-convertible currencies at 35 percent.
   The central bank noted that inflation had declined for the third month in a row and although it still remains above the upper limit of its target range, it is heading toward the midpoint of its target.
    Moldova's inflation rate fell to 9.4 percent in March from 10.3 percent in February and 13.4 percent in January.
    The NBM targets inflation of 5.0 percent, within a upper limit of 6.5 percent and a lower limit of 3.5 percent.
    According to the central bank's latest forecast, inflation is seen returning to its target range in the third quarter of this year for an average rate of 7.0 percent before easing to 4.8 percent in 2017.
    The forecast for 2016 inflation was lowered by 3.1 percentage points and 1.8 percentage points for 2017.
    Details of the new inflation forecast will be published on May 5, the bank added.


BOJ maintains policy stance but lowers forecasts

    Japan's central bank left its monetary policy stance unchanged, a likely disappointment to some economists and investors that were expecting another boost to its massive stimulus program, but lowered its forecast for economic growth and inflation.
    The Bank of Japan (BOJ), which shocked financial markets in January by applying a negative interest rate of 0.1 percent on banks' deposits that exceed reserve requirements, trimmed its forecast for economic growth in coming years due to weaker exports from slower global growth and lowered its outlook for inflation as a consequence of slower economic activity and growth in wages.
    But the central bank, which three years ago launched a program of aggressive monetary easing to rid the country of almost 15 years of deflation, again confirmed that it would continue with its current strategy of Quantitative and Qualitative Monetary Easing (QQE) with the aim of achieving its target of 2 percent inflation and "take additional easing measures in terms of three dimensions - quantity, quality, and interest rate - if it is judged necessary for achieving the price stability target."
    In its outlook for economic activity, the BOJ said it expected the country's economy to "be on a moderate expanding trend" as exports should gradually improve as emerging economies move out of their current deceleration phase on the back of growth in advanced economies and domestic demand follows an uptrend.
    But the central bank also acknowledged that economic growth will fluctuate due to front-loaded increases and subsequent decreases in demand prior to and after the expected rise in consumption taxes to 10 percent in April 2017.
    Commenting on the current level of economic activity, the BOJ maintained its view from March that private consumption had been resilient but added today that "relatively weak developments have been seen in some indicators."
    While the BOJ again said industrial output "has continued to be more of less flat," it added today that it had been affected by the recent Kumamoto Earthquake and although business sentiment was generally favorable, it had become cautious due to the slowdown in emerging economies.
    In response to the earthquake, the BOJ launched a one-year, zero percent, loan program to financial institutions in the disaster area of up to 300 billion yen.
    In an update of its forecast, the BOJ again trimmed its outlook for growth in in fiscal 2015, which ended on April 1, 2016, to an average of 0.7 percent from January's forecast of 1.1 percent. In January the growth forecast was cut from October's forecast of 1.2 percent.
    The forecast for consumer price inflation, minus fresh food, in fiscal 2015 was lowered to zero percent from 0.1 percent.
    In March Japan's headline inflation rate fell to a lower-than-expected minus 0.1 percent from 0.3 percent in February, the first fall in inflation since May 2013, sparking expectations in financial markets that the BOJ would either cut interest rates further or expand asset purchases from the current target of 80 trillion yen.
    For fiscal 2016, the average growth forecast of BOJ policy board members was lowered to an average 1.2 percent from January's forecast of 1.5 percent while the outlook for inflation was cut to 0.5 percent from a previous forecast of 0.8 percent.
   For fiscal 2017 the growth forecast was cut to 0.1 percent from 0.3 percent while the forecast for consumer price growth, excluding the impact of higher taxes, was lowered to 1.7 percent from 1.8 percent. Including the effect of higher taxes, the forecast was trimmed to 2.7 percent from 2.8 percent.
   For fiscal 2018, the BOJ forecast growth of 1.0 percent and inflation of 1.9 percent, still slightly below its target. Underlying the inflation forecast was the assumption that crude oil prices would rise to a range of  $45 - 50 by fiscal 2018 from the current level of $35.

Wednesday, April 27, 2016

U.S. Fed holds rate, notes improving labor market

    The Federal Reserve, the central bank of the United States, left its benchmark target for the federal funds rate unchanged at 0.25 to 0.50 percent, as widely expected, and said conditions in the labour market had improved further despite a slowdown in economic activity.
    The Fed, which in March lowered its forecast for the number of likely rate hikes this year to two from four, put less emphasis on the risks facing the U.S. economy from the global economy, and merely said that it was now monitoring inflation and global economic and financial developments.
    At its last meeting in March, the Federal Open Market Committee (FOMC), the Fed's policy-making arm, underscored the risks to the U.S. economy from sharp falls in global financial markets at the start of the year on concern over China's economy and the health of emerging market economies.
    The Fed, which in December raised its rate by 25 basis points - the first rate hike since July 2006 - said a range of indicators were pointing to additional strengthening of the labor market but inflation is continuing to run below its 2 percent objective, partly due to the fall in energy prices and imports.
    And while inflation is expected to remain low in the medium term, the Fed still expects inflation to rise to 2 percent in the medium term as the temporary effect of the fall in energy and import prices dissipates and the labour market strengthens further.
    For the second meeting in a row, Esther George, president of the Kansas City Fed, voted to raise the fed funds rate by 25 basis points.
   Headline inflation in the U.S. eased to a lower-than-forecast 0.9 percent in March, down from 1.0 percent in February and 1.4 percent in January. Core inflation, as reported by the labour statistics bureau, declined for the first time in 10 months to 2.2 percent from February's 2.3 percent.
    The unemployment rate ticked up to 5.0 percent in March from 4.9 percent in the previous two months while the employment rate continued its continuous climb since late 2013 to hit almost 60 percent in March while the number of employed people rose to 151.3 million from 151.0 million in February.
    But average hourly earnings only rose by 0.3 percent in March from February while wages rose by only 4.29 percent year-on-year in February, about two percentage points below the average wage growth rates recorded in the last 50 years.
    The U.S. economy expanded by an annual 2.0 percent in the fourth quarter of last year, down from 2.1 percent in the third quarter and is expected to have slowed further in the first quarter of 2016 as the strong U.S dollar put a dent in exports and low oil prices have undermined investment in the oil and gas industry. First quarter growth data are scheduled for release on Thursday.

Georgia cuts rate 50 bps, RRR 300 bps on lower inflation

    Georgia's central bank cut its benchmark refinancing rate by 50 basis points to 7.50 percent as it begins to gradually roll back last year's monetary tightening but said further rate cuts would depend on inflation forecasts.
     It is the first change in policy direction by the National Bank of Georgia (NBG) since December last year when the central bank completed its 2015 tightening campaign that saw rates raised by 400 basis points in response to accelerating inflation from currency depreciation.
    The NBG also lowered the minimum reserve requirement on liabilities in domestic funds by 300 basis points to 7.0 percent but raised the requirement on foreign currencies to 20 percent from 15 percent to ensure financial stability.
    Today's rate cut follows last month's statement by the NBG that it didn't consider further rate increases necessary in light of the latest inflation forecasts, with the bank today adding that forecasts show that its tightening in 2015 had a positive impact on reducing inflation expectations.
    The central bank now forecasts that inflation will remain moderate in coming quarters and temporarily fall below its target of 5.0 percent as inflation expectations have declined.
    The bank added that that the neutral policy rate was estimated at 5 - 6 percent.
    Georgia's inflation rate eased to 4.1 percent in March from 5.6 percent in February, continuing the decline since hitting 6.3 percent in November last year.
    The exchange rate of Georgia's lari fell by 22.5 percent against the U.S. dollar in 2015 but it has been rising steadily since mid-February. Today it was quoted at 2.23 to the dollar, up 7.6 percent since the start of this year.
    The central bank also said economic growth in 2016 should hit its forecast of 3.0 percent and said it expects the recent trend toward positive investments in the construction sector to continue.
    However, higher market rates on lari-denominated loans would still have the effect of weakening demand along with weaker growth in trading partners and remittances.


Tuesday, April 26, 2016

Botswana holds rate as inflation seen in target range

    Botswana's central bank left its benchmark Bank Rate steady at 6.0 percent, reiterating its view from February that the "current state of the economy, domestic and external economic outlook and the inflation forecast suggest that the prevailing monetary policy stance is consistent with maintaining inflation within the Bank's medium-term objective range of 3 - 6 percent."
    The Bank of Botswana (BoB), which has maintained its rate since cutting it by 50 basis points in August 2015, added in its statement from April 26 that credit growth was at a sustainable level and posed no threat to financial stability.
    Botswana's inflation rate was unchanged at 3.0 percent in March and February while the exchange rate of the pula has been appreciating since mid-January.
    The pula was quoted at 10.73 to the U.S. dollar today, up from 11.26 at the end of 2015 for a rise of 4.9 percent.
   Botswana's economy was estimated to have contracted by 0.3 percent in 2015 after growth of 3.2 percent in 2014, mainly due to a 19.7 percent decline in mining output on lower demand for diamonds and copper. This has had a spillover effect on non-mining activities, along with regional drought and shortages of electricity and water.
    The central bank said the outlook was subject to downside risks from sluggish global growth and weaker commodity prices while the outlook could be "adversely affected" by large increases in administered prices and government fees as well and higher-than-expected oil and food prices.
    Last month the International Monetary Fund (IMF) forecast a gradual economic recovery in Botswana over the next three years based on higher diamond prices and the impact of fiscal stimulus while inflation is expected to remain within the bank's target range.
   The IMF forecast economic growth of 3.7 percent this year and average inflation of 3.4 percent.

Hungary cuts rate 15 bps, sees further "slight reduction"

    Hungary's central bank cut its rate for the second month in a row by 15 basis points and said it "remains ready to use every instrument at its disposal to contain second-round inflationary effects" and in its view "the sustainable achievement of the inflation target points to a further slight reduction in the policy rate."
    The National Bank of Hungary cut its key rate to 1.05 percent and has now cut the rate by 30 basis points this year.
    Headline inflation in Hungary fell by 0.2 percent in March from 0.3 percent in February while core inflation eased to 1.3 percent from 1.4 percent.
    The central bank added that inflation expectations remain at historically low levels and inflation is forecast to remain below the 3.0 percent target and only approach it in the first half of 2018.