Thursday, October 19, 2017

Chile maintains rate but may cut on falling inflation

      Chile's central bank left its monetary policy rate at 2.50 percent but said inflation was expected to fall below expectations in the short term and the board will pay special attention to this risk "as it could require adjusting the policy rate."
       The Central Bank of Chile, which has already cut its rate four times this year by a total of 100 basis points, added the recent decline in inflation could delay the convergence of inflation to the bank's target within the two-year horizon.
       Chile's inflation rate fell to 1.5 percent in September from 1.9 percent in August for the lowest rate since October 2013 as food prices dropped.
       The central bank, which targets inflation of 3.0 percent, plus/minus 1 percentage point, described September's inflation rate as "surprisingly low," and while short-term expectations had declined significantly, there were only limited changes to long-term expectations.
       Chile's peso has risen sharply since May and was trading at 624.7 to the U.S. dollar today, up 7.1 percent since the start of this year.
       Economic data for the third quarter of this year show activity and demand in line with the bank's latest monetary policy report, with the improved performance of the consumer sector standing out as compared with investment-related activities, the bank said, adding that expectations are becoming less pessimistic.
       In September the central bank narrowed its 2017 growth forecast to 1.25-1.75 percent from 1.0-1.75 percent and raised its forecast for domestic demand to 2.6 percent from 2.5 percent.
       Chile's Gross Domestic Product expanded by 0.7 percent in the second quarter from the first quarter for annual growth of 0.9 percent, up from 0.1 percent in the first quarter.

Indonesia holds rate, growth likely higher than expected

      Indonesia's central bank left its key interest rates unchanged, saying the current rate was considered sufficient to keep inflation in line with the target and the current account at a healthy level.
      The decision by Bank Indonesia (BI) to maintain its key 7-day reverse repurchase rate at 4.25 percent follows two 25-basis points cuts in August and September. This comes after two cuts by a total of 50 basis points last year after the previous benchmark rate was lowered four times by a total of 100 points.
      Today's decision comes after BI in September said its monetary policy stance had shifted to neutral and the BI governor, Agus Martowardojo, said two rate cuts were "sufficient."
      Although BI outlined a range of international and domestic risks, it was optimistic about the global economy and said Indonesia's economy should growth faster in the third quarter than in the second quarter and overall growth this year is now "potentially higher than previously estimated."
       BI currently forecasts growth this year of 5.0-5.4 percent, rising to 5.0-5.50 percent in 2018.
       The central bank said it remained cautious of both international and domestic risks, such as continued consolidation of corporate and banking sectors, tightening monetary policy and fiscal reforms in the United Staes, geopolitical pressures in Europe and the Korean peninsula.
       BI pointed specifically to the risks to the global economy from an increase in the U.S. federal funds rate in December, the normalization of the Federal Reserve's balance sheet as well as the change in leadership at the Fed. In addition, there are geopolitical risks from Spain and the change in leadership in several European countries.
       But despite these risks, BI sounded optimistic about the world economy, with trading volume and non-oil commodity price growth higher than originally assumed.
       China's economy is projected to be stronger than previously expected while economic growth in Europe was also higher as exports improve, investments rise and financial sector developments remain conducive.
       The U.S. economy is expected to continue growth on solid consumption and production while BI said India's economy is expected to grow but projection have been revised downward due to the negative impact of demonetization and the new GST tax.
       Indonesia's economy expanded by an annual 5.01 percent in both the first and second quarters of this year but consumption in the third quarter should rise on the back of higher government goods expenditure, the distribution of a 13th salary to civil servants and social assistance.
       Exports are also seen improving, especially in mining and plantation products, while investments should improve further on robust growth in building investment and in non-construction, such as mining, plantation industries and processing industries.
      Indonesia's inflation rate eased to 3.72 percent in September from 3.82 percent in August and BI said it expects inflation to remain within its 2017 target range of 4.0 percent, plus/minus 1 percentage point, and its 2018 and 2019 ranges of 3.5 percent, plus/minus 1 percentage point.
      Indonesia's rupiah remained stable until the end of September when it weakened, with BI saying this trend was experienced by almost all world currencies due to rising expectations of rate hikes, monetary policy normalization and tax reform in the U.S.
      The rupiah was trading at 13,517 to the U.S. dollar today, down 0.13 percent this year.

Sunday, October 15, 2017

This week in monetary policy: South Korea, Indonesia, Israel and Chile

    This week (October 15 through October 21) central banks from 4 countries or jurisdictions are scheduled to decide on monetary policy: South Korea, Indonesia, Israel 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.

OCT 15 - OCT 21, 2017:
COUNTRY                 DATE                RATE           LATEST                 YTD               1 YR AGO       MSCI
SOUTH KOREA 19-Oct 1.25% 0 0 1.25%          EM
INDONESIA 19-Oct 4.25% -25 -50 4.75%          EM
ISRAEL 19-Oct 0.10% 0 0 0.10%          DM
CHILE 19-Oct 2.50% 0 -100 3.50%          EM

Tuesday, October 10, 2017

Argentina holds rate as '18 inflation expectations inch up

     Argentina's central bank kept its monetary policy rate at 26.25 percent, saying inflation expectations for 2018 rose slightly to 15.8 percent from 15.7 percent in the bank's latest survey of market expectations.
      The Central Bank of Argentina (BCRA), which has kept its rate steady since a surprise 150 basis point hike in April after inflation expectations rose, added inflation expectations for 2017 were steady at 22 percent while expected 12-month inflation eased to 16.9 percent.
     In its statement from Sept. 12, the central bank said its survey showed 2018 inflation expectations had risen to 15.7 percent from 15.5 percent.
      As in previous policy statements in recent months, the BCRA said it would continue to maintain a "clear anti-inflationary bias to ensure that the disinflation process continues towards its inflation target of 10% +/-2% by 2018."
      For this year the central bank aims to reduce inflation to between 12 and 17 percent and for 2019 it is targeting inflation of 5.0 percent, plus/minus 1.5 percentage points.
      Last week Federico Sturzenegger, central bank governor, was quoted as saying inflation was continuing to decelerate but expectations remain above the bank's target and this credibility gap needs to closed in coming months.
      Argentina's national consumer prices rose 1.4 percent in August from July for an 8-month rate of 15.4 percent and an annual rate of 22.8 percent, up from 21.4 percent in July. Core inflation also rose 1.4 percent in August for an annual rate of 22.2 percent, down from 22.4 percent in July.
      A national consumer price index was first published in July and is now used by the BCRA to gauge inflation in relation to its target.  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.
      For September the central bank said it did not expect core inflation to show a significant change in  the values seen since May, and while it will be slightly lower in the third quarter than in previous quarters, it remains above the levels sought by the monetary authority.
     Argentina's peso has depreciated slightly in the last few weeks after firming in August and September, reversing some of the sharp decline seen from May through August.
      Today the peso was trading at 17.4 to the U.S. dollar, down 8.9 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.


Monday, October 9, 2017

Kazakh holds rate, limited room for further cuts this year

     Kazakhstan's central bank kept its base rate steady at 10.25 percent and said inflationary risks and increased volatility in the exchange rate of the tenge were limiting the potential for further rate cuts for the rest of this year.
      Today's guidance that further monetary easing this year looks unlikely hardens the National Bank of Kazakhstan's (NBK) shift in policy stance in August.
      Following a rate cut in August, the NBK changed its dovish stance and said it was reconsidering the possibility of further cuts in the short term.
      The NBK has cut its rate by 150 basis points this year following cuts in February, June and August, bringing total rate cuts since embarking on an easing cycle in May 2016 to 650 points.
      "The continuing risks on the account of the supply factors and the increased volatility in the FX market limit the potential for further reduction of the base rate until the end of the current year," NBK said.
     After firming from January 2016 to May 2017, the Kazakhstani tenge has been depreciating in the last four months and was trading at 341.3 to the U.S. dollar today, down almost 9 percent since May 28 and down 2.3 percent since the start of this year.
      Inflation in the former Soviet republic of Kazakhstan, which stretches from the Caspian Sea to Mongolia, rose slightly to 7.1 percent in September from 7.0 percent in August but the central bank said inflationary expectations remain stable, with external forces seen favorable, and inflation is still forecast to remain with the bank's target range in 2017 and 2018.
      The NBK targets inflation of 6-8 percent this year but next year the range will be lowered to 5-7 percent.
      On top of the declining tenge, which tends to raise import prices and thus inflation, the central bank said inflationary pressure was coming from higher prices of non-food products due to higher demand along with higher tariffs on services.
     Demand in Kazakhstan is rising due to growth in consumer credit and fiscal stimulus, with economic activity at a high level, the central bank said.
      But inflation was held back by a seasonal fall in the prices of food products and inflationary pressures will remain moderated until the end of this year, with risks from an uncertain harvest, the situation in the petrol, oil and lubricant market, and insufficient work on the regional fund for stabilizing food prices.
     Kazakhstan's Gross Domestic Product grew by an annual rate of 4.2 percent in the first half of this year compared with only 0.1 percent a year ago. In August the short-term economic indicator rose 7.8 percent, the central bank said, adding industrial output, external demand and retail trade was up while construction and agriculture decelerated and investing remained weak.
      In August the NBK raised its 2017 growth forecast to 3.1 percent from a previous 2.8 percent and the government is hoping to raise growth to 5.5 percent by 2021 on the back of higher oil production and foreign investments.

Serbia cuts rate by 25 bps, wrong-foots investors again

     Serbia's central bank wrong-footed analysts for the second consecutive month by cutting its rate by another 25 basis points to 3.50 percent to provide "additional support to credit activity and economic growth."
      The National Bank of Serbia (NBS) has now cut its rate by 50 basis points this year as it extends an easing cycle that began in May 2013 when the rate was cut from 11.75 percent. Last month's rate cut was the first since July 2016.
      As in September, the NBS said today's decision to lower the rate further was guided by inflation projections and changes in key inflation factors, such as "subdued dinar import prices and the fact that the country's risk premium fell to its lowest level on record for Serbia."
      Serbia's headline inflation rate eased to 2.5 percent in August from 3.2 percent in September while the NBS said core inflation fell to 1.5 percent along with inflation expectations one- and two-year ahead, signaling "the persistently low inflationary pressures."
     In addition, the negative effects of drought on food prices were weaker than expected, the fiscal situation is better than expected, and inflation will slow in early 2018 as certain products that were subject to one-off price hikes, along with high petroleum prices, drop-out of the annual comparison.
     Countering these downward pressures on inflation are higher prices of agricultural commodities and a gradual rise in aggregate demand.
      However, the central bank said that it still expects inflation to remain within its target tolerance range of 3.0 percent, plus/minus 1.5 percentage points, in the period ahead.
      As in last month's statement, the NBS described international commodity and financial markets as "fraught with uncertainty" from the diverging monetary policies of leading central banks, such as the U.S. Federal Reserve and the European Central Bank that may affect capital flows to emerging economies, such as Serbia.
      In August NBS forecast economic growth this year of around 3.0 percent and 3.5 percent for 2018 amid continuing appreciation pressures on the Serbian dinar, this year's fall in the country's risk premium, continued export growth and foreign direct investment.
      In the second quarter of this year Serbia's Gross Domestic Product grew by an annual rate of 1.3 percent, up from 1.0 percent in the first quarter, with a weak harvest and lower electricity output leading the International Monetary Fund to lower its 2017 growth estimate to 2.3 percent from a previous 3.0 percent.
      Serbia's dinar firmed steadily this year against the euro until early September, reaching levels not seen since 2014. Today it was trading at 119.42, up 3.0 percent this year. 
      The NBS has been reported by dealers to have purchased euros around 119 in recent months to stem the dinar's gains amid strong inflow of investments, remittances and appetite for its government bonds. 

Sunday, October 8, 2017

This week in monetary policy: Serbia, Kazakhstan, Argentina, Croatia, Peru and Singapore

     This week (October 8 through October 14) central banks from 5 countries or jurisdictions are scheduled to decide on monetary policy: Serbia, Kazakhstan, Argentina, Croatia and Peru.
    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.

OCT 8 - OCT 14, 2017:
COUNTRY                 DATE                RATE           LATEST                 YTD               1 YR AGO       MSCI
SERBIA 9-Oct 3.75% -25 -25 4.00%          FM
KAZAKHSTAN 9-Oct 10.25% -25 -175 12.50%          FM
ARGENTINA 10-Oct 26.25% 0 150 26.75%          FM
CROATIA 11-Oct 2.50% 0 0 2.50%          FM
PERU 12-Oct 3.50% -25 -75 4.25%          EM
SINGAPORE 13-Oct          N/A  0 0             N/A          DM