Wednesday, September 19, 2018

Thailand holds rate but 2 MPC members vote for hike

     Thailand's central bank maintained its policy rate at 1.50 percent, as expected, but took another step toward raising the rate by saying "the need for currently accommodative monetary policy would be gradually reduced."
      A second member of the Bank of Thailand's (BOT) 7-member monetary policy committee (MPC) also voted to raise the rate by 25 basis points, joining the one member that has voted three times this year to raise the rate.
     The BOT has maintained its rate since April 2015 and the last rate hike was in August 2011.
     The combination of strong economic growth, inflation that is slowly rising and a relatively strong showing by the Thai baht has led to expectations that BOT would raise its rate later this year.
     And last month BOT Governor Veerathai Santiprabhob acknowledged there was less need for an extremely accommodative policy and the country's couldn't go against the global trend of rising rates.
      "The Thai economy as a whole continued to gain traction, driven by merchandise exports and tourism which continued to improve in tandem with global economic growth, and by continued momentum from domestic demand," BOT said.
       In an update of its economic forecast, the BOT maintained its forecast for economic growth this year of 4.4 percent, up from 2017's 3.9 percent, and the 2019 forecast for 4.2 percent growth.
       In the second quarter Thailand's Gross Domestic Product grew by an annual 4.6 percent, down from 4.9 percent in the first quarter.
       Headline inflation is seen averaging 1.1 percent this year, unchanged from the central bank's June forecast, and 1.1 percent in 2019, down from 1.2 percent previously forecast.
       In 2017 inflation averaged 0.7 percent, below BOT's target range of 1 - 4 percent, and in August inflation rose to 1.62 percent from 1.46 percent in July.
       While the majority of the bank's MPC considered the current policy stance to be appropriate given the inflation target, two of its members view the economic expansion as sufficiently robust and prolonged monetary accommodation would induce businesses and households to underestimate the risk of higher rates and also allow the BOT to build policy space.
       As most other currencies, the baht depreciated against the U.S. dollar in the first half of this year but compared with other Asian currencies it has performed better and risen against the dollar since late July.
       As in August, the BOT said the baht "would likely remain volatile" and it would continued to "closely monitor exchange rate developments as well as impacts on the economy."
       The baht rose in response to today's policy statement and was trading at 32.44 to the dollar and is now up 0.6 percent since the start of this year.

Sunday, September 16, 2018

This week in monetary policy: Hungary, Japan, Thailand, Brazil, Switzerland, Norway, South Africa, Paraguay & Mongolia

    This week - September 16 through September 22 - central banks from 9 countries or jurisdictions are scheduled to decide on monetary policy: Hungary, Japan, Thailand, Brazil, Switzerland, Norway, South Africa, Paraguay and Mongolia.
    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.

SEPT 16 - SEPT 22, 2018:
COUNTRY                   DATE                     RATE                LATEST                    YTD              1 YR AGO
SOUTH AFRICA20-Sep6.50%0-256.75%

Friday, September 14, 2018

Russia raises rate 25 bps, warns if may tighten again

      Russia's central bank raised its key monetary policy rate by 25 basis points to 7.50 percent, surprising most analysts, and warned it may raise rates further to tackle rising inflation from a weaker ruble that has been hit by capital outflows amid unsettled global financial markets.
      The Bank of Russia underscored its shift to a tightening policy stance by raising its forecast for inflation this year. However, it was still confident that inflation would decline in the first half of 2020 to its 4.0 percent target as the impact of the latest ruble decline and higher taxes peters out.
      The central bank raised its forecast for inflation to finish this year between 3.8 and 4.2 percent, up from July's forecast of 3.5 to 4.0 percent. This forecast reflects the bank's decision to suspend foreign currency purchases.
     Inflation is then expected to peak in the first half of 2019 at 5.0 - 5.5 percent before declining.  
     Russia's inflation rate jumped to 3.1 percent in August from 2.5 percent in July for the highest since August 2017 and faster than forecast by the central bank.
     "Changes in external conditions observed since the previous meeting of the Board of Directors have significantly increased pro inflationary risks," the central bank said, adding inflation was nearing its target faster than expected due to higher food prices and rising prices from the fall in the ruble which raises import prices.
       Inflation expectations by both households and businesses have also risen in light of the lower ruble and some business are already planning to raise their prices this year, ahead of January's increase in Value Added Tax (VAT) to 20 percent from 18 percent.
      The Bank of Russia had been cutting rates steadily from January 2015 until April this year when the ruble tumbled in response to fresh sanctions by the United States, threatening to push up inflation.      
      Between January 2016 and April the central bank cut its rate by 975 basis points.
      But economists were still expecting the central bank to return to its rate-cutting stance as it slowly shifted toward a neutral policy stance with the rate estimated between 6 and 7 percent.
       Between January 2016 and April the central bank cut its rate by 975 basis points, including two cuts this year in February and March.
       In June and July the central bank then left rates steady but its tone turned more hawkish as it began raising its inflation forecast to reflect the decline in the ruble amid higher U.S. interest rates and the government's plan to raise taxes.
      While most economists had expected the central bank to maintain its rate today but prepare markets for a rate hike in October, it is now clear they did not heed last week's warning by the bank's governor, Elvira Nabiullina.
       At a speech in Washington D.C., Nabiullina said she saw no grounds for a rate cut and instead said there were reasons for keeping the rate or even raising it in light of the increased volatility in global and domestic financial markets.
       Underscoring the governor's message, the central bank on Sept. 7 then said in its regular report on market trends that money markets expected a rate hike today as there was risk that inflation could overshoot the 4.0 percent target by the end of this year due to the fall in the ruble from concerns over further U.S. sanctions and along with volatility on financial markets from Argentina and Turkey.
      The ruble has weakened this year although it has risen this week on expectations of higher interest rates and rose further following today's hike. The ruble was trading at 67.7, up almost one percent from yesterday but down almost 15 percent since the start of the year.
     "The ruble's depreciation is related to capital outflow due to changes in external conditions," the Bank of Russia said, adding its current account balance remains stable.
      Despite rising inflation and the falling ruble, the central bank said economic growth remains in line with its forecasts and it retained its forecast for growth this year of 1.5 - 2.0 percent which corresponds to the country's potential growth rate.
      This is in line with the International Monetary Fund's (IMF) forecast for growth this year of 1.7 percent, up from 1.5 percent last year.
      In the second quarter of this year Gross Domestic Product grew by an annual 1.9 percent, up from 1.3 percent in the first quarter.
       For the next three years, the central bank said it had updated its forecast to reflect changes in external conditions and the government's planned measures, including the VAT rise that might have a dampening impact on business activity at the start of next year.
      Growth in 2019 is forecast to range between 1.2 and 1.7 percent and following years might see higher growth as structural reforms take effect.
      The IMF last week forecast 1.5 percent economic growth in 2019.

Thursday, September 13, 2018

Peru leaves rate steady as it keeps expansionary policy

      Peru's central kept its monetary policy rate steady at 2.75 percent for the seventh consecutive month and reiterated that its board consider it appropriate to maintain an expansionary policy stance until it is certain that inflation will converge to 2.0 percent target.
      The Central Reserve Bank of Peru (BCRP), which has maintained its rate since cutting it in March, also said it expects inflation to remain within the target range in September and confirmed its view from last month that it expects inflation to slowly move to 2.0 percent by the end of this year.
      Peru's headline inflation rate eased to 1.07 percent in August from 1.62 percent in July but remained within the central bank's target range of 1.0 - 3.0 percent.
      Excluding food and energy, Peru's annual inflation rate eased to 2.04 percent in August from 2.33 percent.
      The central bank added that most indicators of business expectations remain on the optimistic side and economic activity, which is below the country's potential, is expected to recover gradually.
      Peru's Gross Domestic Product jumped to year-on-year growth of 5.4 percent in the second quarter, the fastest rate since the fourth quarter of 2013, from 3.1 percent in the previous period.
      Financial markets don't expect BCRP to raise its rate until next year.

Turkey raises rate 625 bps, to tighten further if needed

      Turkey's central bank raised its policy rate by a stronger-than-expected 625 basis points to 24.0 percent due to significant risks of rising inflation and said it would tighten its monetary policy stance further if needed.
       The Central Bank of the Republic of Turkey (CBRT) said prices have risen across the board due to the fall in the lira's exchange rate and said today's rate hike was a "strong monetary tightening to support price stability" and it would maintain a tight stance until the outlook for inflation shows a significant improvement.
       "Inflation expectations, pricing behavior, lagged impact of recent monetary policy decisions, contribution of fiscal policy to the rebalancing process, and other factors affecting inflation will be closely monitored and, if needed, further monetary tightening will be delivered," CBRT said.
      So far this year the central bank has raised its one-week repo rate, which was set as its policy rate in May, three times and by a total of 16 percentage points.
      Today's rate hike comes after the central bank on Sept. 3 signaled it would raise rates today.
       Following the release of inflation data for August that showed a rise to 17.9 percent from 15.85 percent in July - well in excess of CBRT's 5.0 percent target - the central bank said it would adjust its policy stance today due to "significant risks to prices stability."
       At its meeting in July, the CBRT's monetary policy committee had maintained its key rate, disappointing financial markets deeply and raising fresh doubts over the central bank's independence from political influence and its commitment to tackle soaring inflation.
      In response to capital outflows and strong downward pressure on the lira from the July policy decision, the central bank was forced to tighten its policy by shifting funding to banks from one-week repo auctions to the upper band of its interest rate corridor, effectively raising the cost of funding by 150 basis points to 19.25 percent.
      Currency markets welcomed today's firm rate hike, pushing up the lira's exchange rate around 4 percent to 6.16 against the U.S. dollar. But it remains 38 percent below the level at the start of 2018.
      There are signs that the economy is starting to slow in response to the fall in the lira and rising inflation, with CBRT saying recent data showed an acceleration in the slowdown in domestic demand while external demand is still strong.
       "Deterioration in the pricing behavior continues to pose upside risks on the inflation outlook, despite weaker domestic demand conditions," CBRT said.
       Turkey's economy grew by an annual 5.2 percent in the second quarter of 2018, down from 7.3 percent in the first quarter, but economists said growth had been fueled by government spending ahead of June presidential elections and the economy is likely to shrink in the second half of the year.

Tuesday, September 11, 2018

Argentina maintains rate, confirms no cuts till December

      Argentina's central bank left its monetary policy rate unchanged at a sky-high 60.0 percent, as expected by investors, and repeated its pledge that it would not lower the rate until at least December to ensure that monetary conditions maintain a tightening bias.
      The Central Bank of the Argentine Republic (BCRA) said its decision to keep the rate steady was justified by an expected rise of inflation in August and September despite the slowdown seen in July.
      In July Argentina's monthly inflation rate slowed to 3.1 percent from 3.7 percent but year-on-year the inflation rate rose to 31.2 percent from 29.5 percent in June with the central bank saying prices in August would be affected by an increase in regulated prices while inflation in September would be affected by the exchange rate volatility that was seen at the end of August.
       BCRA said the fall in the peso's exchange rate at the end of August will affect prices more than previously expected and therefore delay the decline in inflation.
      The BCRA has raised its policy rate by 31.25 percentage points since late April when it changed course and began raising rates to defend the tumbling peso and curb soaring inflation.
      The last rate hike was on August 30 when the key rate was raised 150 points at the second unscheduled meeting by the central bank's monetary policy committee, known as Copom.
      Argentina's inflation is accelerating due to a lethal cocktail of higher regulated price, as the government of Mauricio Macri tries to undo years of heavy government subsidies and regulation, while it faces higher import prices and thus rising consumer prices from a plunge in the exchange rate of the peso which raises import prices.
      Government cuts to electricity, water, gas and transportation subsidies, along with lower infrastructure and housing spending, is starting to pay off, with the primary fiscal deficit down almost 27 percent in the first half of the year to 106 billion pesos, or 0.8 percent of Gross Domestic Product from last year.
      In the first seven months of this year, the primary deficit amounted to 0.9 percent of GDP for a 0.7 percent annual decline, BCRA said.
      As part of a deal with the International Monetary Fund in June, the target for the primary fiscal deficit was lowered to 1.3 percent of GDP in 2019 from 2.2 percent.
      In its policy statement, BCRA said Argentina's finance ministry had announced even more stringent fiscal targets than those agreed with the IMF in June.
       For 2019 the target for the primary fiscal deficit was confirmed at 1.3 percent while the 2020 target was set at a surplus of 1.0% of GDP compared with an earlier target of a balanced budget.
      "This fiscal policy constitutes a contribution to lower inflation in coming months," the central bank said.
      But Argentina is still saddled with debt from years of excess government spending and the government debt to GDP ratio has been rising steadily in the last six years to hit 57.1 percent of GDP in 2017 from 53.6 percent in 2016.
      On top of rising inflation, Argentina's economy is slowing and the central bank said the economy is expected to shrink this year and then remain at an unchanged level in 2019.
      Argentina's peso, which has been depreciated steadily this year, took a sharp tumble at the end of August and was trading at 37.95 to the U.S. dollar today, down 51 percent since the start of this year.
       In June the International Monetary Fund and Argentina agreed on a 3-year, $50 billion support package that included new inflation targets for BCRA and a new central bank law that will strengthen its operational and financial autonomy.
       The new targets were for inflation below 22 percent for the second quarter of 2019 and for inflation of 17 percent for 2019. For 2020 an inflation target of 13 percent has been set and for 2021 a target of 9 percent. By 2022 BCRA is targeting 5 percent inflation, its estimate of price stability.
      Argentina is currently in talks with the IMF about speeding up financial support.


Saturday, September 8, 2018

This week in monetary policy: Argentina, euro area, UK, Turkey, Peru and Russia

     This week - September 9 through September 15 - central banks from 6 countries or jurisdictions are scheduled to decide on monetary policy: Argentina, the euro area, United Kingdom, Turkey, Peru and Russia.
     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.

SEPT 9 - SEPT 15, 2018:
COUNTRY                   DATE                     RATE                LATEST                    YTD              1 YR AGO
EURO AREA13-Sep0.00%000.00%
UNITED KINGDOM13-Sep0.75%25250.25%

Thursday, September 6, 2018

Ukraine raises rate 50 bps, may hike if risks materialize

      Ukraine's central bank raised its key policy rate by another 50 basis points to 18.0 percent to ensure inflation returns to its target after a significant increase in external risks that may push up consumer prices, including a fall in the hryvnia's exchange rate from higher capital outflows and lower commodity prices from an escalation of global trade conflicts.
      The National Bank of Ukraine (NBU), which has now raised its rate by 350 basis points this year, added domestic risks to lower inflation were also behind the rate hike, including a rise in inflation expectations from a lower exchange rate, government spending ahead of next year's presidential and parliamentary elections, along with higher than expected domestic demand from higher wages.
       "If risks of inflation materialize, the NBU could raise the key policy rate again to a level required to bring inflation back to its target within a reasonable timeframe," said NBU.
       In its previous policy statement from July, the central bank's board said it could continue raising rates if new threats to inflation or financial stability emerged.
       The 50-basis-point hike in July surprised investors and today's hike came after NBU in early August said monetary policy was tight enough to prevent a rise in inflation in the second half.
       "In view of a higher probability that these risks could materialize the NBU board deems it necessary to tighten monetary policy by raising the key policy rate," the central bank said today.
       The most significant risk stems from higher pressure on the currencies of developing economies from capital outflows, which makes it more difficult for Ukrainian borrowers to secure international financing and thus impacts the competitiveness of Ukrainian exports.
       In addition, global steel and oil markets are reverberating from global tensions, with U.S. policies toward China and sanctions on Turkey leading to lower steel prices, and oil prices rising due to "an escalation in the trade conflict between Washington and Beijing, and tensions between the United States and Iran," NBU said.
       The central bank said it believes today's rate hike is sufficient to bring inflation back to its target and maintained its forecast for inflation to ease to 8.9 percent this year before returning to the target range of 4.0 - 6.0 percent in late 2019 and meeting the 5.0 percent target in 2020.
       Ukraine's inflation rate fell to 8.9 percent in July from 9.9 percent in June and 13.7 percent at the end of last year while the exchange rate of the hryvnia rose in response to the rate hike.
      The hryvnia was trading at 28.24 to the U.S. dollar today, unchanged from 28.25 at the start of the year after rising in the first two months and then falling since mid-July.

Sweden holds rate, pushes back rate hike to Dec or Feb

      Sweden's central bank kept its benchmark repo rate at minus 0.50 percent, as expected, and pushed back its forecast for a rate hike by several months to "either December or February" from July's guidance of a rate hike "towards the end of the year."
       Sveriges Riksbank, which has maintained the rate since February 2016, said inflationary pressures are still moderate when energy prices are disregarded and monetary policy needs to remain expansionary to keep economic activity strong as this helps create conditions for higher prices.
      "If the economy develops as expected, there will soon be scope to slowly reduce the support from monetary policy," the Riksbank said.
       The Riksbank's forecast shows the repo rate will be unchanged at the next board meeting in October and then be raised by 25 basis points either in December or February.
      As part of its easy monetary policy, the Riksbank also employed bond purchases, known as quantitative easing, to hold down long-term interest rates starting in February 2015.
       The Riksbank said its current holdings of 330 billion Swedish krona in government bonds, with redemptions and coupon payments reinvested in the portfolio for the time being.
      "All in all, monetary policy will continued to be expansionary for a long period of time," it said.
      While the central bank's forecast for the average repo rate this year was unchanged at -0.50 percent, the quarterly forecast showed that it would also be -0.50 percent in the fourth quarter of this year, down from -0.43 percent in the July forecast, illustrating a slightly lower rate path.
       On average in 2019 the repo rate is seen unchanged at -0.10 percent but then a positive 0.4 percent in 2020, slightly lower than the previous forecast of 0.5 percent.
       As in July two of the executive board members entered reservations against today's policy decision.
      While Deputy Governor Henry Ohlsson wanted an immediate rate hike with reference to strong economic growth, Deputy Governor Martin Floden wanted the repo-rate path to show a likely rate hike in October and communicating this would entail sufficient tightening of policy today.
       The overall economic outlook is largely unchanged since the Riksbank's previous monetary policy report in July despite the uncertainty weighing on the global economy from trade tensions.
       The outlook for Swedish economic growth this year was raised to 2.9 percent from a previous 2.5 percent and the 2019 forecast to 2.0 percent from 1.9 percent. For 2020 growth is seen unchanged at 2.1 percent.
      Sweden's Gross Domestic Product grew 3.3 percent in the second quarter of this year, year-on-year, the same rate as in the first quarter.
       Inflation with a fixed interest rate, the central bank's preferred measure, was seen averaging 2.2 percent this year, up from July's forecast of 2.1 percent, and then steady at 2.1 percent next year and 2020, illustrating the prevalence of moderate inflationary pressures worldwide.
       Sweden's headline inflation rate was steady at 2.1 percent in July and June.
       As in the past, the Riksbank also pointed to the need for the krona's exchange rate to help in its efforts to keep up inflation, signaling that it is quite comfortable with the current krona weakness.
       In response to today's dovish policy statement, the krona fell to 9.1 to the U.S. dollar but remains slightly firmer than in August. Compared with the start of this year, the krona is down 10 percent.

Wednesday, September 5, 2018

Canada maintains rate but higher rates still warranted

      Canada's central bank left its benchmark target for the overnight rate steady at 1.50 percent but confirmed that it was still on a monetary tightening path by saying recent economic data reinforced its view that "higher interest rates will be warranted to achieve the inflation target."
       While the Bank of Canada (BOC) reiterated it is taking a gradual approach to monetary tightening and is guided by new data and how the economy adjusts to higher interest rates, it added that it is also monitoring closely the outcome of NAFTA trade negations with the United States and general trade policy developments and their impact on the inflation outlook.
       The BOC has raised its key rate four times and by a total of 100 basis points since July 2017, most recently in July when it also said further rate hikes will be warranted to keep inflation near its 2.0 percent target.
       Despite the uncertainty weighing on the global economy and Canadian businesses from the U.S. trade policy, BOC said the rotation of demand towards investment and exports is proceeding, with both growing solidly for several quarters.
       But there are signs of the impact of higher interest rates, with housing market activity stabilizing as households adjust to higher rates and new housing policies, and credit growth is moderating while household debt-to-income ratio is beginning to edge down, BOC said, adding that continuing gains in employment and income is still supporting consumption.
       Speculation over a BOC rate hike today was fueled when data showed that headline inflation hit a higher-than-expected 3.0 percent in July, the highest since September 2011, and up from 2.5 percent in June.
       But BOC attributed the jump to higher airfares and said it expects headline inflation to move back towards 2 percent early next year. And measures of core inflation remain firmly around 2 percent, consistent with an economy operating near capacity while wage growth is moderate.
       Canada's economy is evolving largely in line with the central bank's forecast from July, with growth expected to slow temporarily in the third quarter, mainly due to fluctuations in energy production and exports.
       While trade tensions remain a key risk for the global outlook and pulling some commodity prices lower, BOC said intensified stresses in some emerging economies still had limited spillovers to other countries.
       In July BOC forecast growth this year of 2.0 percent, 2.2 percent in 2019 and 1.9 percent in 2020. The impact of U.S. trade sanctions already implemented was estimated to subtract 0.67 percent from Gross Domestic Product by the end of 2020, an amount it described as "modest."

Malaysia maintains rate, sees steady economic growth

      Malaysia's central bank kept its benchmark Overnight Policy Rate (OPR) at 3.25 percent, as expected, and said the country's economy is expected to remain on a steady growth path and inflation is expected to remain relatively stable.
      Bank Negara Malaysia (BNM), which raised its rate in January for the first time since July 2014, added that in line with regional economies its financial sector is seeing non-resident portfolio outflows due to ongoing global developments but despite this domestic financial markets remain resilient and financial institutions continue to operate with strong capital and liquidity buffers.
      Malaysia's  economy has been slowing in recent quarters and in the second quarter output was affected by supply disruptions in the mining and agricultural sectors.
      But private consumption, which was boosted by a tax holiday, will continue to be driven by steady wage and employment growth, BNM said.
      Malaysia's government, under Prime Minister Mahathir Mohamad, scrapped a 6 percent tax on goods and services (GST) on June 1 and will replace it with a sales and services tax (SST) on Sept. 1, effectively instituting a 3-month tax holiday to help boost economic growth.
      The economy slowed to annual growth of 4.5 percent in the second quarter of this year, down from 5.4 percent in the first, and the slowest rate since the fourth quarter of 2016.
      The central bank has lowered its 2018 growth forecast to 5 percent from 5.5 - 6.0 percent.
       Inflation remains low at 0.9 percent in July, up from 0.8 percent in June, and while BNM expects domestic policy measures to push up inflation going forward, the impact of the tax changes will be transitory and lapse towards the end of 2019.
      Like other emerging market currencies, Malaysia's ringgit has depreciated this year although less than many others. Today the ringgit was trading at 4.15 to the U.S. dollar, down 2.4 percent this year.