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

Thursday, July 13, 2017

Peru cuts rate another 25 bps as inflation decelerates

     Peru's central bank lowered its monetary policy rate by 25 basis points for the second time this year as inflation and inflation expectations declined further while economic activity remains below the country's potential.
     The Central Reserve Bank of Peru (BCRP) has now cut its policy rate by 50 basis points this year to 3.75 percent following a cut in May in response to slower economic growth following devastating floods in March that left more than one hundred people dead, triggered mudslides, destroyed thousands of miles of roads, and damaged croplands.
      The bank's board said it was particularly attentive to new information about inflation and expectations, the reversal of supply shocks that had pushed up inflation in the first quarter along with the recovery of private and public spending in order to consider further changes to its monetary policy.
     Peru's inflation rate fell to 2.73 percent in May, continuing the deceleration from 3.97 percent in March when prices were pushed up following the rains and floods.
    Excluding food and energy, inflation eased to 2.38 percent in June from 2.54 percent in May, within the central bank's target range of 1-3 percent, and BCRP forecast that inflation would remain within this range during 2017 and 2018.
     Last month the central bank in its quarterly report again lowered the forecast for economic growth this year to 2.8 percent from 3.5 percent and said today the range for optimistic forecasts for growth were between 2.5 and 3.0 percent.
     The outlook for growth in 2018 was raised to 4.2 percent from 4.1 percent.
     In the first quarter of this year Peru's Gross Domestic Product decelerated to 2.1 percent year-on-year from 3.0 percent in the previous quarter.
     The 2017 forecast for inflation was trimmed to 2.2 percent from a previous 2.4 percent and inflation in 2018 was seen at 2.8 percent.
     Despite the floods, Peru's sol has been trending firmer this year and was trading at 3.24 to the U.S. dollar today, up 3.4 percent this year.

Wednesday, July 12, 2017

Canada raises rate 25 bps, soft inflation seen temporary

    Canada's central bank raised its benchmark target for the overnight rate by 25 basis points to 0.75 percent, as expected by many analysts, saying recent economic data had bolstered its confidence about the economic outlook and recent softness in inflation was judged to be temporary.
     It is Bank of Canada's (BOC) first change in rates since two cuts in 2015 to counter the impact on its economy from the fall in crude oil prices and the first rate hike since September 2010.
    "Further adjustments to the target for the overnight rate will be guided by incoming data as they inform the Bank's inflation outlook, keeping in mind continued uncertainty and financial system vulnerabilities," the BOC said.
     Canada's economy grew by an annual rate of 2.3 percent in the first quarter of this year, up from 2.0 percent in the first quarter, and the BOC described the economy as "robust, fueled by household spending," with the result that a "significant amount of economic slack has been absorbed."
     Although the pace of growth is expected to ease, growth is now broadening across the country and exports should make an increasing contribution to growth, BOC said.
      The forecast for growth this year was raised to 2.8 percent from 2.6 percent projected in April with the output gap now closing around the end of this year, earlier than expected.
     The BOC growth forecast for 2018, however, was unchanged at 2.0 percent. Growth in 2019 was revised down to be 1.6 percent compared with a previous 2.1 percent forecast.
     Inflation still remains well below the BOC's 2.0 percent target, falling to 1.3 percent in May from 1.6 percent in the previous two months.
     "The factors behind soft inflation appear to be mostly temporary, including heightened food price competitions, electricity rebates in Ontario, and changes in automobile pricing," BOC said.
     As the effect of these changes fades and excess economic capacity is filled, the central bank expects inflation to return to its 2 percent target by mid-2018.
     The Canadian dollar, known as the loonie, has been gaining strength since early May and especially since June when upbeat statements by policy makers convinced traders the BOC was starting to prepare financial markets for higher rates.
     On June 12 BOC Senior Deputy Governor Carolyn Wilkins said the bank's council would be assessing whether "all of the considerable monetary stimulus presently in place is still required." 
     Later that month BOC Governor Stephen Poloz then said the two rate cuts in 2015 to counter the effect of low oil prices had done their job.
     The Canadian dollar was trading at 1.29 to the U.S. dollar today shortly before the BOC announcement, up 3.9 percent this year. It rose to 1.28 after news of the rate hike.

Tuesday, July 11, 2017

Argentina holds rate as national inflation gauge launched

    Argentina's central bank kept its monetary policy rate at 26.25 percent, saying the national consumer price index it will use to gauge compliance with its inflation target was published for the first time and showed that accumulated inflation was similar to the previously used index for the Greater Buenos Aires area (GBA).
     The monthly national consumer price inflation in June was 1.2 percent while annual inflation was 21.7 percent when the GBA index up to December 2016 was combined with the national consumer price index since January, said the Central Bank of Argentina (BCRA).
     This is well above the central bank's target for 2017 inflation of 12-17 percent but the BCRA added that data for May and June, along with other indicators, showed disinflation had resumed.
     The June national CPI of 1.2 percent compares with 1.4 percent for Buenos Aires and the national core inflation rate in June was 1.3 percent.
      In April the central bank surprised financial markets by raising its rate by 150 basis points after surveys showed that inflation expectations had risen.
     The latest survey of CPI inflation expectations for end-2017 rose to 21.5 percent from 21.4 percent  in the previous month, the BCRA said.
     Expectations for 12-month inflation for June 2018 was steady at 17.0 percent along with expectations for 2018 inflation of 14.9 percent, above the bank's 2018 target of 8-12 percent.
     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.
     In September last year, when the central bank adopted an inflation targeting regime, it said it would use a price index that had the highest geographical coverage.


Monday, July 10, 2017

Israel holds rate as 2017 growth forecast raised

       Israel's central bank left its monetary policy interest rate at 0.10 percent, as widely expected, saying all data point to continued solid economic growth in the second quarter of this year and growth for the full year will be higher than previously forecast.
      The Bank of Israel (BOI), which has kept its rate steady since March 2015, said overall exports remained sluggish apart from rapid growth in the export of services against the background of a continued appreciation of the shekel and an improvement in world trade.
      Israel's Gross Domestic Product slowed to annual growth of 3.8 percent in the first quarter of this year, down from a pace of 4.6 percent in the previous two quarters.
      But BOI staff raised its growth forecast for this year to 3.4 percent from its previous forecast of 2.8 percent, as exports and investments had risen more than expected, with exports expected to continue to improve due to the expected recovery in world trade.
      Although growth this year is slower than 2016's 4.0 percent, data toward the end of last year was affected by vehicle purchases being brought forward due to changes in taxes in January 2017 so the BOI said growth in 2017 will in fact be similar to that in 2016.
       For 2018 the BOI retained its growth forecast of 3.3 percent as growth continues to transition to rely more on exports than private consumption. Further changes to vehicle taxes are expected in January 2019 which again is expected to lead purchases being pulled forward, raising 2018 growth.
     Israel's inflation rate rose slightly to 0.8 percent in May from 0.7 percent, slightly below the BOI's target range of 1-3 percent, with inflation expected to decline in coming months due to lower water and fuel prices, and a reduction in the prices of after-school childcare.
     The appreciation of the shekel is also keeping the cost of imported items down. One-year and three-year inflation expectations remain below the BOI's target tough longer-term expectations are within the target, the central bank said.
     BOI forecast annual inflation in the second quarter of 2018 at 0.8 percent and 1.5 percent for the year, down about 0.2 percentage points from previous forecast due to lower oil prices.
     The bank's forecast for the BOI policy rate was unchanged from April, with the rate remaining at the current level in the coming year before being raised in the second quarter of 2018 to 0.25 percent following a number of quarters when inflation is expected to exceed 1.0 percent and one-year inflation expectations move closer to the central of the target range.
     A second rate hike is then seen in the fourth quarter of 2018 when the rate is increased to 0.5 percent.
     Israel's shekel has been firming sharply this year though it fell in the last week. Today it was quoted at 3.55 to the U.S. dollar, up 8.4 percent this year.

Serbia maintains rate as inflation seen in target range

     Serbia's central bank left is key policy rate at 4.0 percent, unchanged in the last year, and said it expects inflation to continue to move within its inflation target tolerance range of 3.0 percent, plus/minus 1.5 percentage points, "in the period ahead."
      The National Bank of Serbia (NBS), which last changed its rate in July 2016 when it cut it to the current level, also said inflationary pressures remain low, as reflected by stable core inflation and inflation expectations in the financial and corporate sector that are within the inflation target.
     The central bank's comment on the inflation outlook is only slightly different to that in June when it said it expected inflation to move within its target tolerance band "in the next two years."
     Serbia's inflation rate eased to 3.5 percent in May from 4.0 percent in April, with the NBS saying changes in inflation since the start of this year has been affected by the recovery of oil prices in the second half of last year along with the prices of vegetables and firewood that were higher than expected due to adverse weather.
      The central bank expects its inflation target to be met due to the recovery of domestic demand and inflation abroad, and the high base effects from the prices of petroleum products.

Saturday, July 8, 2017

This week in monetary policy: Serbia, Israel, Argentina, Canada, Croatia, South Korea, Malaysia, Chile and Peru

    This week (July 9 through July15) central banks from 9 countries or jurisdictions are scheduled to decide on monetary policy: Serbia, Israel, Argentina, Canada, Croatia, South Korea, Malaysia, Chile 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.

JUL 9 - JUL 15, 2017:
COUNTRY                 DATE                RATE           LATEST                 YTD               1 YR AGO       MSCI
SERBIA 10-Jul 4.00% 0 0 4.00%          FM
ISRAEL 10-Jul 0.10% 0 0 0.10%          DM
ARGENTINA 11-Jul 26.25% 0 150 30.25%          FM
CANADA 12-Jul 0.50% 0 0 0.50%          DM
CROATIA 12-Jul 2.50% 0 0 2.50%          FM
SOUTH KOREA 13-Jul 1.25% 0 0 1.25%          EM
MALAYSIA 13-Jul 3.00% 0 0 3.00%          EM
CHILE 13-Jul 2.50% 0 -100 3.50%          EM
PERU 13-Jul 4.00% 0 -25 4.25%          EM