Monday, July 24, 2017

Ghana cuts rate another 150 bps as disinflation continues

     Ghana's central bank cut its monetary policy rate by a further 150 basis points to 21.0 percent, saying the trend of disinflation is likely to continue until the end of the third quarter and expected stability in the exchange rate should help ensure price stability.
     The Bank of Ghana (BOG) has now cut its key interest rate three times this year by a total of 450 basis points this year and by 500 points since November 2016 when it began its easing cycle.
     "In the outlook, expectations are for the observed decline in headline inflation to continue and converge towards the medium-term target in 2018," the BOG said, confirming its view from May.
     The BOG targets inflation of 8 percent, plus/minus 2 percentage points.
     Ghana's headline inflation rate declined to 12.1 percent in June from 12.6 percent in May, continuing to decline from a record high of 19.2 percent in March last year due to tight monetary policy, relative stability in the exchange rate of the cedi and with favorable base effects.
     Core inflation, which excludes energy and utilities, has also been trending downwards to 12.8 percent in June from 13.7 percent in April and 13.3 percent in May.
      "These trends in headline, core and inflation expectations suggest dampening underlying inflation pressures," the BOG said.
      After appreciating in March and April due to the issue of a US$1 billion bond and the BOG's first quarter auction of $120 million, the cedi has depreciated since early May and was trading at 4.38 to the U.S. dollar today, down 2.3 percent this year.
     "Foreign exchange market conditions remain stable supported by improved liquidity conditions, the trade surplus and increased reserves," the central bank said, adding gross international reserves rose to US$5.9 billion at the end of June, up from $4.9 billion end-December 2016.
     Helped by a rebound in crude oil production, economic activity has been improving and is expected to remain in line with the trends seen in the first half of the year, with bank's Composite Index of Economic Activity (CIEA) suggesting "some pickup in economic activity in the first five months of 2017," driven by exports, construction and credit to the private sector.
     Ghana's Gross Domestic Product grew by an annual rate of 6.6 percent in the first quarter of this year, up from 4.1 percent in the previous quarter and 4.4 percent in the first 2016 quarter.
     But stronger growth was largely driven by the oil sector while the non-oil sector grew by 3.9 percent in the first quarter, down form 6.3 percent in the same period last year, reflecting low activity in the services sector.

Sunday, July 23, 2017

This week in monetary policy: Ghana, Nigeria, Argentina, Georgia, Moldova, USA, Brazil, Turkey, Fiji, Colombia, Russia and Trinidad & Tobago

    This week (July 23 through July 29) central banks from 12 countries or jurisdictions are scheduled to decide on monetary policy: Ghana, Nigeria, Argentina, Georgia, Moldova, United States, Brazil, Turkey, Fiji, Colombia, Russia, and Trinidad and Tobago.
    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.

JUL 23 - JUL 29, 2017:
COUNTRY                 DATE                RATE           LATEST                 YTD               1 YR AGO       MSCI
GHANA 24-Jul 22.50% -100 -300 26.00%          FM
NIGERIA 25-Jul 14.00% 0 0 14.00%          FM
ARGENTINA 25-Jul 26.25% 0 150 30.25%          FM
GEORGIA 26-Jul 7.00% 0 50 6.75%
MOLDOVA 26-Jul 8.00% -100 -100 10.00%
UNITED STATES 26-Jul 1.25% 25 50 0.50%          DM
BRAZIL 26-Jul 10.25% -100 -350 14.25%          EM
TURKEY 27-Jul 8.00% 0 0 7.50%          EM
FIJI 27-Jul 0.50% 0 0 0.50%
COLOMBIA 27-Jul 5.75% -50 -175 7.75%          EM
RUSSIA 28-Jul 9.00% -25 -100 10.50%          EM
TRINIDAD & TOBAGO 28-Jul 4.75% 0 0 4.75%

Saturday, July 22, 2017

Pakistan maintains rate as inflation decelerates

    Pakistan's central bank left its monetary policy rate at 5.75 percent, citing lower-than-expected inflation, improving domestic demand but challenging external balances.
     The State Bank of Pakistan (SBP), which has maintained its rate since cutting it by 25 basis points in May 2016, noted headline inflation softened to 3.9 percent in June from 5.02 percent in May while core inflation was steady for the third consecutive month at 5.5 percent, indicating rising demand.
      For financial year 2018, which began July 1, SBP forecast average inflation of 4.5 to 5.5 percent, adding this was due to lower than anticipated increases in oil prices, stable administered prices and lower inflationary expectations.
      In its previous policy decision in May the central bank expected an increase in inflation on the back of rising income and imports, along with accelerating credit to the private sector. However, the SBP still expected inflation to remain within its target.
     Today, the central bank confirmed it still expects inflation to remain below its 6.0 percent target, mainly due to favorable supply conditions.
      Pakistan's large-scale-manufacturing sector is showing strong positive momentum, with growth in July-May of 5.7 percent compared with 3.4 percent in the same period last year while the agriculture sector is improved from last year, reaching its growth target of 3.5 percent in FY17.
     Pakistan's current account deficit has been rising due to an underperformance of both exports and workers' remittances, with a deficit of US$12.1 billion in fiscal 2017, up 148 percent from fiscal 2016, as imports surged due to higher machinery imports, and imports to upgrade plants.
     But the SBP expects the balance of payments to remain manageable in fiscal 2017 due to steady financial account inflows and improved world economic growth that should boost exports while imports are expected to rise at a slower pace.
     But based on the performance of exports in the last four months, the central bank said the decline in exports appears to have bottomed out.
     The current account deficit has been managed by Pakistan's foreign exchange reserves and a surplus on the financial surplus that reached US$9.6 billion in FY 17, up from $6.9 billion in FY16.
     Reflecting a rise in private sector borrowing, the SBP's foreign exchange reserves declined to $16.1 billion at the end of FY17 as compared to $18.1 billion in FY16.

Thursday, July 20, 2017

South Africa cuts rate 25 bps, slashes growth forecast

     South Africa's central bank cut its benchmark repurchase rate by 25 basis points to 6.75 percent on an improved outlook for inflation but slashed its forecast for economic growth following a surprise decline in output in the first quarter.
     It is the first rate cut by the South African Reserve Bank (SARB) since July 2012 and the first change in rates since the last increase in March 2016.
    Between January 2014 and July last year SARB raised its rate by a total of 200 basis points as inflation at times topped the central bank's target of 3 - 6 percent.
     Despite the rate cut, SARB underscored it remains concerned over inflation expectations that remain sticky at the upper end of its target range and it's monetary policy committee said it "would prefer expectations to be anchored closer to the mid-point of the target range."
     "In this highly uncertain environment, future policy decisions will be dependent on data outcomes and our assessment of the balance of risks," SARB said, adding it remains "vigilant and would not hesitate to reverse this decision should the inflation outlook and risks deteriorate."
     Four members of the policy committee voted to cut the rate while two members wanted to maintain the rate.
      South Africa's headline inflation rate eased to 5.1 percent in June from 5.4 percent in May and SARB revised downward its 2017 and 2018 inflation forecast by 0.4 percentage points to 5.3 percent and 5.2 percent, respectively.
     For 2019 SARB lowered its inflation forecast by 0.3 percentage points to 5.2 percent with an average inflation of 5.2 percent in the final quarter of 2019.
     The main reason for the improved outlook for inflation stems from changed assumptions regarding oil, electricity tariffs, the exchange rate of the rand and a wider output gap. Food price inflation is also expected to be more subdued, partly on more favorable crop estimates.
      South Africa's economy remains "extremely weak," SARB said, adding it was concerned about the deterioration in the outlook, which is broad-based.
     "It is unclear where the drivers of accelerated growth will come from in the absence of credible structural policy initiatives that will reduce uncertainty and increase business and consumer confidence," SARB said.
      SARB halved its forecast for 2017 growth to 0.5 percent from a previous forecast of 1.0 percent and the 2018 forecast to 1.2 percent from 1.5 percent. In 2019 growth is seen at 1.5 percent, down from 1.7 percent.
      South Africa's Gross Domestic Product shrank by 0.7 percent in the first quarter following a quarterly contraction of 0.3 percent in the final quarter of last year. On an annual basis, GDP rose by 1.0 percent in the first quarter, up from 0.7 percent in the previous two quarters.

ECB maintains rates, asset purchases and guidance

    The European Central Bank (ECB) left its key interest rates steady along with its asset purchase program unchanged  and reiterated that if the outlook were to worsen it "stands ready to increase the program in terms of size and/or duration."
     The ECB, whose president in June said the threat of deflation was gone and reflationary forces were now at play, also confirmed that it expects key "interest rates to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases."
      Statements by ECB President Mario Draghi in Portugal last month signaled the ECB was starting to consider winding down its quantitative easing program and follows the governing council statement in early June that ruled out further rate cuts as the risks to its outlook were now broadly balanced instead of tilted to the downside.
     But in today's statement the ECB confirmed that asset purchases would continue at the current monthly pace of 60 billion euros until the end of December or beyond, if necessary, to ensure that  inflation is on a sustained path toward 2 percent.
     Draghi later told journalists that the governing council had discussed the improved outlook for economic growth but there still wasn't any convincing sign of a pickup in underlying inflation and convergence of inflation to the target "remains conditional upon the very substantial monetary accommodation that is now in place."
     As far as changes to the ECB's guidance and asset purchase program, Draghi merely said the council would discuss this in the fall, with no specific dates mentioned. The ECB governing council next meets on Sept. 7.
     In June inflation in the euro area declined to 1.3 percent, down from 1.4 percent, but many economists still expect the ECB in September to signal that its asset purchase program will be wound down in light of improving growth.
      Last month the ECB raised its 2017 growth forecast to 1.9 percent from its previous forecast of 1.8 percent, the 2018 forecast to 1.8 percent from 1.7 percent and the 2019 forecast to 1.7 percent from 1.6 percent.
     But at the same time, the ECB lowered its forecast for inflation this year to average 1.5 percent from March's forecast of 1.7 percent and the 2018 forecast to an even-lower 1.3 percent from 1.6 percent before inflation is seen rising to 1.6 percent, down from its previous forecast of 1.7 percent.

Wednesday, July 19, 2017

BOJ holds stance, watching inflation expectations

     The Bank of Japan (BOJ) left its monetary policy stance unchanged and while it raised its growth forecasts and lowered its inflation forecast it added that risks to both economic activity and prices were skewed to the downside.
     Japan's central bank, which in September 2016 shifted the focus of its policy of quantitative easing toward "yield curve control," said the upward momentum in inflation inflation expectations was not sufficiently firm and "thus developments in prices continue to warrant careful attention."
     The BOJ underscored that it would continue with its policy of quantitative and qualitative easing to reach its price stability target of 2.0 percent and will continue to expand the monetary base until inflation exceeds the 2 percent target "and stays above the target in a stable manner."
      The BOJ again used the adjective of "moderately" to describe Japan's economic expansion, adding that overseas economies were continuing to grow at a moderate pace while business investment was improving across a wide range of industries.
     In an update to its forecast, the BOJ raised its growth forecast for fiscal 2017, which began April 1, to an average of 1.8 percent from 1.6 percent forecast in April while inflation was now seen averaging 1.1 percent, down from 1.4 percent.
     For fiscal 2018, growth was seen averaging 1.4 percent, higher than 1.3 percent previously forecast, while inflation was seen at 1.5 percent, lower than 1.7 percent forecast in April.
    For fiscal 2019, growth is forecast and an unchanged 0.7 percent and inflation at 2.3 percent, down from 2.4 percent for headline CPI. Excluding the impact of the expected increase in consumption taxes, inflation is seen at 1.8 percent, down from 1.9 percent.


Monday, July 17, 2017

Kenya maintains rate to anchor inflation expectations

     Kenya's central bank left its Central Bank Rate (CBR) at 10.0 percent to help anchor inflation expectations while overall inflation is expected to continue to decline over the next few months, supported by lower food and fuel prices.
     The Central Bank of Kenya (CBK), which has maintained its rate since cutting it to the current level in September last year, added the economy "remained resilient" in the first quarter of this year despite a slowdown in private sector credit growth.
     "The Committee continues to monitor the implications of the capping of interest rates on lending and the transmission of monetary policy," the CBK said, adding annual growth in credit to the private sector fell further to 2.1 percent in May, partly due to significant repayments in manufacturing, transport and communications, and developments in the trade sector.
    In September last year Kenya's government imposed a cap on banks' interest rates despite concern by the International Monetary Fund, which said experience from other countries shows such rate controls are ineffective, impede the effectiveness of monetary policy, can give rise to unintended consequences, lead to lower economic growth and undermine efforts to reduce poverty.
     Kenya's inflation rate declined to 9.21 percent in June from 11.7 percent in May due to lower prices of food, including potatoes, cabbages, sugar and milk, reflecting the impact of recent rains and government measures.
    Non-food, non-fuel inflation has remained below 5 percent over the last seven months, the CBK added, saying this suggests that demand pressures remain subdued.
     The foreign exchange market remains relatively stable, the central bank said, noting it was reflecting seasonal trends.
     Kenya's shilling has been depreciating steadily since early March this year and was trading at 103.9 to the U.S. dollar today, down 1.6 percent this year.
     Kenya's Gross Domestic Product grew by an annual 4.7 percent in the first quarter of this year, down from 6.1 percent in the previous quarter, supported by stable macroeconomic conditions despite a poor performance by the agricultural sector due to adverse weather and the impact of a slowdown in private sector credit growth.

Kazakhstan holds rate but chance of further cuts rising

    Kazakhstan's central bank left its base rate steady at 10.50 percent on stable inflation and said an expected deceleration of inflation "increases the possibility of lowering the base rate both in the short-run and in the horizon of the upcoming 12-18 months."
     The National Bank of Kazakstan (NBK) has cut its rate by 150 basis points this year, most recently in June, and by 650 points since embarking on an easing cycle in May 2016 as inflation has eased and the exchange rate of the tenge has gradually risen.
     The NBK's guidance of further likely rate cuts follows its statement last month when it said further rate cuts were not ruled out if inflation develops as expected and there are no economic shocks.
     Kazakhstan's inflation was steady at 7.50 percent in June, the same as in April and May and within the central bank's target range of 6-8 percent.
     In its quarterly inflation forecast from June 7, the NBK projected inflation would remain within its target corridor this year and then smoothly enter its 2018 target corridor of 5-7 percent in 2018.
     A slight rise in inflation by the end of this year may ensue due to the base effect, but this will be short-lived and inflation will continue to decline next year, the bank said, confirming its view from last month that it didn't plan to respond with higher rates to any brief uptick in inflation.
     Any inflationary risk seen in recent months from supply issues of vegetables and meat has now largely been resolved and inflationary expectations have been largely stable since the start of the year, with expectations for inflation one year ahead slightly down to 6.4 percent, the NBK said.
     Risks to inflation stem from oil below $50 a barrel - the central bank's baseline scenario - along with higher global prices of dairy and crops, the NBK added.
      Depositors in Kazakhstan are still favoring putting their money into the domestic tenge, with preliminary June data showing that the excess of tenge deposits over foreign currency deposits keeps rising, with the share of loans in tenge also on the rise.
      The tenge fell sharply in August 2015 after the central bank moved to a floating exchange rate in response to capital outflows and the conversion of many tenge bank deposits to foreign currency.
      Since January 2016 the tenge has been trending upward though it has eased since late May appreciating and was trading around 326 to the U.S. dollar today, up 2.3 percent this year.
      Kazakhstan's economy is continuing to recover and domestic programs to increase the sustainability of the banking sector in the third quarter should help improve credit activity.
      Last month the NBK raised its forecast for 2017 growth to 2.8 percent from 2.2 percent and experts 3.6 percent growth next year, higher than the country's potential and thus leading to inflationary pressures.
      In May the International Monetary Fund said Kazakhstan's economy is expected to grow by 2.5 percent this year as oil production rises and fiscal spending stimulates activity with the medium-term outlook improved and growth in the non-oil sector slowly picking up to 4 percent as bank lending resumes and structural reforms take hold.
     Kazakhstan's Gross Domestic Product grew by an annual rate of 3.4 percent in the first quarter of this year, up from 1.0 percent in the fourth quarter of last year and contraction of 0.1 percent in the first quarter of 2016.

Sunday, July 16, 2017

This week in monetary policy: Kazakhstan, Kenya, Hungary, Japan, Indonesia, euro area, South Africa and Paraguay

    This week (July 16 through July 22) central banks from 8 countries or jurisdictions are scheduled to decide on monetary policy: Kazakhstan, Kenya, Hungary, Japan, Indonesia, the euro area, South Africa and Paraguay.
    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.

JUL 16 - JUL 22, 2017:
COUNTRY                 DATE                RATE           LATEST                 YTD               1 YR AGO       MSCI
KAZAKHSTAN 17-Jul 10.50% -50 -150 13.00%          FM
KENYA 17-Jul 10.00% 0 0 10.50%          FM
HUNGARY 18-Jul 0.90% 0 0 0.90%          EM
JAPAN 20-Jul -0.10% 0 0 -0.10%          DM
INDONESIA 20-Jul       4.75% 1) 0 0        6.50% 2)          EM
EURO AREA 20-Jul 0.00% 0 0 0.00%          DM
SOUTH AFRICA 20-Jul 7.00% 0 0 7.00%          EM
PARAGUAY 20-Jul 5.50% 0 0 5.50%
1): RRR
2): BI