Sunday, February 18, 2018

This week in monetary policy: Paraguay, Fiji and Colombia. Mozambique postponed

     This week - February 18 through February 24 - central banks from 3 countries or jurisdictions are scheduled to decide on monetary policy: Paraguay, Fiji and Colombia. 
     Mozambique's central bank was scheduled to hold a monetary policy meeting on Feb. 22 but this meeting was postponed to Feb. 26.
    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.

FEB 18- FEB 24, 2018:
COUNTRY             DATE               RATE           LATEST              YTD            1 YR AGO       MSCI
PARAGUAY 21-Feb 5.25% 0 0 5.50%
FIJI 22-Feb 0.50% 0 0 0.50%
COLOMBIA 23-Feb 4.50% -25 -25 7.25%          EM

Thursday, February 15, 2018

Egypt cuts rate 100 bps as inflation 'pressures contained'

      Egypt's central bank cut its key policy rates by 100 basis points, its first cut since January 2015, saying data confirms a moderation of underlying inflationary pressures and confidently declaring that "inflationary pressures have been contained."
      The rate cut was widely expected after inflation fell to 17.1 percent in January, the lowest since October 2016, continuing the steady fall from almost 33 percent in July when prices soared after the government raised fuel and electricity prices as part of an IMF-backed reform to deregulate the economy and rein-in government spending.
       Last week Tarek Amer, governor of the Central Bank of Egypt (CBE), fueled rate cut speculation by saying the central bank planned to start easing monetary policy "soon" once it's sure inflation is under control.
       Prior to today's rate cut, the CBE had maintained its rates since July 2017 when it completed a 1,000 basis point tightening cycle that began in December 2015.
       Since November 2016, when the CBE liberalized its foreign exchange market and allowed the pound to float, rates were raised by 700 basis points.
       Today's 1.0 percentage point rate cut brings down the overnight deposit rate, the overnight lending rate and the rate on its main operation to 17.75 percent, 18.75 percent, 18.25 percent respectively. The discount rate was also cut 100 points to 18.25 percent.
       "Inflationary pressures have been contained, a consequence of tighter real monetary conditions," the CBE said, adding that its monetary policy committee "will not hesitate to adjust its stance to achieve its mandate of price stability over the medium term."
      The CBE is targeting inflation of 13 percent, plus/minus 3 percentage points, by the fourth quarter of this year and then single digits thereafter.

      Last month Egypt's finance minister said he expected inflation to fall to 10-12 percent during this year and then below 10 percent in 2019, and the International Monetary Fund also forecast that inflation would fall to 12 percent by June and single digits by 2019.
       Egypt's economy suffered a severe blow in the wake of the Arab Spring in 2011 but has been steadily improving, helped by stronger external demand and a more competitive exchange rate along with public demand that has helped offset lower private demand.
       The CBE said Gross Domestic Product grew for the fifth consecutive quarter to 5.3 percent in December for 2017 growth of 5.0 percent, the highest since 2010.
       Egypt's pound has been relatively stable since the central bank floated the currency in November 2016 apart from a brief dip and then rebound about 12 months ago.
       Today the pound was quoted at 17.3 to the U.S. dollar, up 2.9 percent this year as investors slowly return to Egyptian assets. However, the pound is 49 percent lower than the peg of 8.8 to the dollar in the days running up to the float of the currency on Nov. 3, 2016.

Indonesia holds rate, says past easing was 'adequate'

       Indonesia's central bank kept its benchmark 7-day reverse repo rate at 4.25 percent, as expected, reiterating that it considers past monetary easing as "adequate" to ensure momentum in the economic recovery while it continues to monitor "growing uncertainty" in global financial markets from higher-than-expected U.S. rate hikes, coupled with rising oil prices along with domestic risks.
        Bank Indonesia (BI), which cut its key rate by 200 basis points in 2016 and 2017 - most recently in September last year - added the country's economy continues to improve, supported by accelerating government spending and stable household consumption while and the global economic recovery and rising international commodity prices was stimulating exports.
        BI confirmed its forecast for Indonesia's economy to expand by 5.1 to 5.5 percent this year, up from 2017's 5.1 percent, buoyed by infrastructure investments along with solid export growth.
        Indonesia's Gross Domestic Product grew by an annual 5.19 percent in the fourth quarter of 2017, up from 5.06 percent in the third quarter, with exports up 8.5 percent.
        Strong exports and a surplus of investment and portfolio investment helped propel Indonesia's balance of payments to another surplus in the fourth quarter of 2017 while the current account deficit remains under control and is forecast to remain at 2.0-2.5 percent of GDP in 2018.
        In 2017 Indonesia's current account deficit narrowed to 1.7 percent of GDP, helping boost official reserves to US$130.2 billion at the end of December, up from $125.97 billion at the end of November and $116.4 billion end-2017.
        Indonesia's inflation rate eased to 3.25 percent in January from 3.3 percent in December and BI confirmed its earlier forecast for inflation to remain within its target corridor of 3.5 percent, plus/minus 1 percentage point, in 2018.
       The exchange rate of Indonesia's rupiah was largely stable in 2017 but then depreciated this month after rising in January as the rupiah, like most other emerging market currencies, was hit by uncertainty in global financial markets over higher inflation and the pace of U.S. rate increases.
       The rupiah was trading at 13,547 to the U.S. dollar today, up 0.2 percent this year, with the BI reportedly intervening to support the currency earlier this month.

Wednesday, February 14, 2018

Namibia maintains rate, sees lower inflation in 2018

       Namibia's central bank left its benchmark repo rate at 6.75 percent and forecast that inflation would ease further and average 5.0 percent this year, down from 6.2 percent in 2017 and 6.7 percent in 20167.
       The Bank of Namibia, which has kept its rate steady since cutting it by 25 basis points in August last year, added the drop in headline inflation last year was only due to a sharp fall in food and non-alcohol inflation as inflation for housing and transport accelerated.
       In December, November and October last year Namibia's inflation rate was steady at 5.2 percent.
       "The domestic economy remained weak in 2017," the central bank said, attributing this to a decline in construction, wholesale and retail trade along with slower growth in manufacturing, electricity and water, transport and communication.
       On the other hand, mining and agriculture improved last year.
      "Domestic growth is projected to start a gradual recovery in 2018," the central bank said.
      Namibia's economy shrank by an annual 1.9 percent in the third quarter of last year as the economy continues to contract.
       In the last 6 quarters, Namibia's Gross Domestic Product has contracted on an annual basis except for a 0.3 percent increase in the fourth quarter of 2016.
      Growth in private sector credit growth also slowed last year, with annual growth of 6.6 percent, down from 11.4 percent in 2016.
       Since the last meeting of the bank's monetary policy committee, growth in PSCE slowed further to 5.1 percent at the end of December from 5.2 percent in October.

Sweden holds rate, repo up in H2 despite lower inflation

       Sweden's central bank left its benchmark repo rate at minus 0.50 percent, as expected, but maintained its forecast for the rate to be increased slightly in the second half of this year despite a downward revision in the inflation forecast for this year and 2019.
       Sveriges Riksbank, which has maintained its ultra-low rate since February 2016, took the first tentative step toward normalizing its monetary policy in December last year by halting net new bond purchases while it continues to reinvest redemptions and coupon payments "until further notice."
       But the Riksbank underscored that its monetary policy "still needs to be expansionary" in order to keep economic activity strong, curb any sharp rises in the exchange rate of the krona and thus keep inflation on target.
       "According to the Riksbank's forecast, the appropriate time is approaching to slowly begin to raising the repo rate," the central bank said.  "But it is important not to raise the rate too early."
       The forecast for the repo rate was unchanged from December, with a small rate increase seen in the second half of this year that pushes up the 2018 average rate to minus 0.4 percent from minus 0.50 percent in 2017 and 2016.
       By the first quarter of 2019 the repo rate is seen rising to minus 0.15 percent on average, implying a 35 basis point rate hike, and then hitting a positive 0.36 percent by the first quarter of 2020 and 0.88 percent by the first quarter of 2021.
       While Sweden's economy has been strengthening in recent quarters, inflation has dropped in recent months after hitting the 2.0 percent target and wages have risen slower than the Riksbank had expected.
       "This indicates that inflationary pressures are lower than was previously forecast," the central bank said.
       For this year headline inflation - which fell to 1.7 percent in December 2017 - is seen averaging 1.7 percent, down from the previous forecast of 2.0 percent,  and 1.8 percent in 2017.
       Core inflation, which eased to 1.9 percent in December from 2.0 percent in November, is seen averaging 1.8 percent this year, below the 2.0 percent previously forecast.
       For 2019 core inflation is seen averaging 1.9 percent, down from 2.0 percent previously forecast, and then hitting 2.0 percent in 2020, as earlier expected. Headline inflation is seen rising to 2.6 percent in 2019 and then 3.1 percent in 2020.
       "It has taken a long time to bring inflation and inflation expectations back to 2 per cent, and the uncertainty surrounding the development of inflation means that monetary policy needs to proceed cautiously," the Riksbank said, adding that it remains ready to ease policy if conditions change.
       Sweden's economy grew by an annual rate of 2.9 percent in the third quarter of 2017, up from 2.7 percent in the second quarter, and growth is seen averaging an unchanged 2.5 percent in 2017.
       For 2018 growth is averaging 2.8 percent, slightly down from a previous 2.9 percent forecast, and then slowing to 1.8 percent in 2019 before bouncing back to 2.1 percent in 2010.
       After rising from mid-December to end-January, the krona has depreciated this month and fell further in the wake of the Riskbank's policy statement.
       The krona was trading at 9.95 to the euro today, down 1.2 percent since the start of this year and down 3.7 percent since early 2017.

Tuesday, February 13, 2018

Armenia holds rate on weak inflation, but expects hikes

      Armenia's central bank maintained its benchmark refinancing rate at 6.0 percent but repeated its guidance from late last year that there will be a need to gradually neutralize the stimulative monetary and credit conditions to meet its inflation target but inflationary pressures still remain weak and expectations have recently weakened.
      The Central Bank of Armenia (CBA) has maintained its rate since February 2017 after cutting it 12 times by a total of 450 basis points from 10.50 percent in August 2015. 
      Both in December and and November last year the CBA's board warned it would necessary to gradually neutralize monetary stimulus in the near future so inflation reaches its target.
      And although domestic demand and lending is continuing to grow rapidly, the CBA said it still wants to maintain the current monetary stimulus to "ensure the sustainability of the recovery of demand," especially as inflationary expectations had weakened "noticeably."
      Armenia's inflation rate rose slightly to 2.7 percent in January from 2.6 percent in December and the CBA expects weak inflationary pressures from the external sector as external demand improves.
       In December the central bank said it expected inflation to be in the lower limit of its tolerance range of 2.50 - 5.50 percent (around a 4.0 percent midpoint) by the end of 2017.
      In 2016 inflation fell by 1.1 percent as the former Soviet Republic, locked east of Turkey and west of Azerbaijan, was hit by Russia's economic crises and a decline in remittances from abroad.
        Armenia's economy slowed in the third quarter of last year to annual growth of 3.5 percent, down from 5.5 percent in the second quarter but the central bank said activity in the fourth quarter was "very high," mainly due to growth in services and industry.
      After collapsing in November 2014, Armenia's dram has been more stable in recent years and was trading at 482.4 to the U.S. dollar today, down 0.4 percent this year.


Botswana maintains rate on positive inflation outlook

      Botswana's central bank kept its benchmark Bank Rate at 5.0 percent, citing a positive outlook for inflation that is forecast to remain within its 3-6 percent target range in the medium term, and an economy that is operating close to, but below capacity.
       The Bank of Botswana (BOB), which has maintained its rate since cutting it to the current level in October 2017, said subdued domestic demand and a modest increase in foreign prices contributed to the positive outlook for inflation while upside risks stem from higher commodity prices and any unanticipated upward rise in administered prices, government levies and taxes.
        Botswana's inflation rate rose to 3.2 percent in December 2017 from 2.9 percent in November while Gross Domestic Product grew by 1.8 percent in the 12 months to September, down from 2.3 percent in the same 2016 period.
        Slower growth reflects a slowdown in non-mining activity and a 12.3 percent contraction in mining output in the 12 months to September 2017 compared with a 11 percent fall in 2016.
      "GDP is projected to expand in the short-to-medium term, driven largely by the recover in mining activity," BOB said.
        Botswana's pula has been trending higher since January 2016 and was trading at 9.6 to the U.S. dollar today, up 2.8 percent this year. 

Uganda cuts rate another 50 bps to strengthen growth

      Uganda's central bank cut its Central Bank Rate (CBR) by 50 basis points to 9.00 percent, saying "a cautious easing of monetary policy is warranted to further boost private sector credit growth and to strengthen the economic growth momentum" given the spare capacity in the economy and the objective of keeping inflation close to the target.
       The rate cut is a continuation of the Bank of Uganda's (BOU) easing campaign that began in April 2016 as it slowly unwinds 600 points of rate hikes in 2015.
       It is BOU's first rate cut this year after cuts totaling 250 basis points in 2017 - most recently in October 2017 - and by 500 points in 2016. Since April 2016 the CBR rate has been lowered by a total of 800 points.
       Uganda's headline inflation rate declined to 3.0 percent in January from 3.3 percent in December and while the near-term forecast is similar to that from December, the BOU said the 12-month forecast had been lowered by around 1 percentage point, mainly due to lower food prices.
       Core inflation eased to 2.6 percent in January from 3.0 percent in December.
       By the second half of 2019, headline and core inflation is now seen converging to 5 percent as the economy strengthens though spare capacity will help dampen inflationary pressures. The BOU targets core inflation of 5.0 percent, plus/minus 2 percentage points.
       Uganda's economy is projected to have grown between 5.0 and 6.0 percent in 2017, up from 2.5 percent in 2016, and the BOU forecasts growth in the 2017/18 financial year, which ends June 30, of 5.0-5.5 percent.
      This growth forecast is slightly up from BOU's December forecast of 5.0 percent but similar to its forecast from October 2017 when it also forecast 5.0-5.5 percent.
       The BOU noted signs of a revival of private investment activity as reflected by a recovery of foreign direct investment, improved shilling credit extension and an increase in the imports of raw materials and capital goods.
        "Over the next five years, economic growth is projected to average 6.3 percent, boosted by public investments, increasing growth in consumption and improved agricultural productivity," BOU said.
      After falling sharply in 2014 and 2015, Uganda's shilling depreciated further in 2016 and 2017 but at a slower pace. 
       Today the shilling was trading at  3,632 to the U.S. dollar, largely unchanged from 3,634 at the start of 2018.

Monday, February 12, 2018

Azerbaijan cuts rate 200 bps, starts unwinding 2016 hikes

      Azerbaijan's central bank lowered its benchmark refinancing rate by 200 basis points to 13.0 percent as it begins to unwind four sharp rate hikes two years ago that were aimed at bolstering confidence in its manat currency and stem inflation following the plunge in crude oil prices.
       It is the first rate cut by the Central Bank of Azerbaijan (CBA) since it raised it by a total of 12 percentage points between February and September 2016, with the central bank attributing the rate cut to an expected decline in inflation and an improving external balance.
       The CBA believes further rate cuts are possible as it gradually transitions to a neutral monetary policy that will have a positive impact on economic activity.
        In addition to the cut in the refinancing rate, the central bank lowered the upper limit of its interest rate corridor to 16 percent from 18 percent and the lower limit to 8 percent from 10 percent.
        Oil and gas account for about 95 percent of Azerbaijan's exports and 75 percent of government revenue so the fall in crude oil prices in the second half of 2014 hit the economy hard, undermining confidence in the manat.
        From 2011 the CBA effectively pegged its manat to the U.S. dollar so the CBA had to draw heavily on its reserves to defend it. But as local depositors switched into U.S. dollars, the CBA was forced to abandon first its dollar-peg in early 2015 and then later that year a dollar-euro basket peg.
        In December 2015 the CBA then switched to a floating exchange rate regime that finally helped stabilize the exchange rate.
        Higher oil prices, along with economic reforms, helped Azerbaijan's current account balance swing into a surplus of 5 percent of Gross Domestic Product by end-2017 along with a trade surplus that exceeded US$5 billion as exports jumped 52 percent.
        An improved balance of payments not only resulted in an 11 percent rise in currency reserves, but helped stabilize the manat, with the CBA expecting the positive trend to continue this year.
        Earlier this month the CBA said its currency reserves had risen by an annal 24.4 percent to US$5.38 billion in January, with reserves in 2017 up by 34.2 percent from 2016.
        "The stabilization of the exchange rate of the manat has had a positive impact on the de-dollarization process, financial stability and a reduction of inflation expectations," the CBA said, adding the real effective exchange rate is down 36 percent since the end of 2014, stimulating the export of non-oil products and import substitution.
        Today the manat was trading at 1.7 to the U.S. dollar, largely steady this year but down  8.8 percent since December 2015 when it floated the currency.
        Azerbaijan's inflation rate eased to 12.9 percent in December last year, with the central bank saying average inflation in January was 5.5 percent.
        This disinflation trend is forecast to continue, with surveys showing a downward impact on inflation expectations by households and businesses.
        Azerbaijan's economy grew by 0.1 percent in 2017, up from a 3.8 percent contraction in 2016, with the central bank saying the state statistical committee estimated that the non-oil sector grew by 2.7 percent last year and positive growth this year is expected to continue based on increased investments, non-oil exports and higher consumer confidence.

Sunday, February 11, 2018

This week in monetary policy: Botswana, Armenia, Namibia, Argentina, Thailand, Sweden, Uganda, Sri Lanka, Indonesia, Azerbaijan and Egypt

      This week - February 11 through February 17 - central banks from 11 countries or jurisdictions are scheduled to decide on monetary policy: Botswana, Armenia, Namibia, Argentina, Thailand, Sweden, Uganda, Sri Lanka, Indonesia, Azerbaijan and Egypt.
    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.

FEB 11- FEB 17, 2018:
COUNTRY             DATE               RATE           LATEST              YTD            1 YR AGO       MSCI
BOTSWANA 13-Feb 5.00% 0 0 5.50%
ARMENIA 13-Feb 6.00% 0 0 6.00%
NAMIBIA 13-Feb 6.75% 0 0 7.00%
ARGENTINA 13-Feb 27.25% -75 -150 24.75%          FM
THAILAND 14-Feb 1.50% 0 0 1.50%          EM
SWEDEN 14-Feb -0.50% 0 0 -0.50%          DM
UGANDA 14-Feb 9.50% 0 0 11.50%
SRI LANKA 15-Feb 7.25% 0 0 7.00%          FM
INDONESIA 15-Feb 4.25% 0 0 4.75%          EM
AZERBAIJAN 15-Feb 15.00% 0 0 15.00%
EGYPT 15-Feb 18.75% 0 0 14.75%          EM