This week in monetary policy: Kyrgyzstan, Lesotho, Chile, Bulgaria, Egypt and Romania

    This week - March 29 through April 4 - central banks from 6 countries or jurisdictions are scheduled to decide on monetary policy: Kyrgyz Republic, Lesotho, Chile, Bulgaria, Egypt and Romania.

    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, and the rate one year ago.

    The table is updated when the latest decisions are announced and can always accessed by clicking on This Week.

WEEK 14
MAR 29 - APR 4, 2020:
KYRGYSTAN	30-Mar	5.00%	75	75	4.50%
LESOTHO	31-Mar	5.25%	-100	-125	6.75%
CHILE	31-Mar	1.00%	-75	-75	3.00%	EM
BULGARIA	31-Mar	0.00%	0	0	0.00%	FM
EGYPT	2-Apr	9.25%	-300	-300	15.75%	EM
ROMANIA	3-Apr	2.00%	-50	-50	2.50%	FM

    www.CentralBankNews.info

Israel cuts reserve requirement to ensure flow of credit

      Israel's central bank, one of the few central banks to have kept interest rates steady this year, lowered its capital requirement for regulatory purposes by 1 percentage point "to ensure the banks' ability to continue offering credit" during the coronavirus crises.
      The Bank of Israel (BOI), which has kept its key rate steady since raising it in November 2018, said its banking supervision department lowered the requirement for large banks to maintain a minimum Common Equity Tier 1 (CET1) ratio of 9 percent from 10 percent and to 8 percent from 9 percent for midsized and small banks.
      Israel's banks entered the coronavirus crises in a strong position, BOI said, adding they have large capital surpluses, strong liquidity ratios and high-quality credit portfolios.

     "Since the outbreak of the crises, demand for credit has increased sharply, and the risk level in credit provision has increased in parallel in view of the impact to the to the financial state of businesses and households," BOI said, adding it expects to use the capital that has been released to increase credit to businesses and households.

      Given their central role in societies, banks have always been required to hold certain amounts of capital to absorb unexpected losses. Years ago, capital meant gold or silver but today it comprises a many forms of stock or equity invested by its owners and shareholders, government and private securities and loans that generate interest.
      The requirements and methods of measuring capital has changed over the decades, with the most recent changes following the global financial crises. Banking regulators worldwide, grouped under the Basel Committee, tightened the requirements significantly to ensure banks would remain financially sound even during an economic or financial crises.
      CET1 is the most basic form of liquid assets that a bank can hold, such cash and stock.
      Another measure of reserve requirements is based on deposits at a bank. BOI has for many years set a 6 percent reserve requirement against demand deposits but the bank's statement did not say whether this ratio was changed.
       BOI said its decision to lower the capital requirement was in line with similar decisions in other countries and would be valid for six months and would be extended if necessary.
       In response to the crises, central banks worldwide have been slashing both reserve requirements and countercyclical capital buffers.
      The buffer was created after the global financial crises to ensure banks raise their capital during economic booms as an anti-cyclical measure so they can draw it down during a crises.
       BOI said the today's reduction of the capital requirement was based on the 2 percent capital buffer of each bank's total risk assets, an excess demand that went beyond the Basel standards to protect the country's banking system and the economy from unforeseen developments.
       BOI also instructed boards at banks to "re-examine their dividend and share buyback policies," in light of the material change in economic conditions, freeing up additional sources that can be used to provide credit and absorb losses, if necessary.
      This is similar to a move by the Czech National Bank (CNB).
      On March 16, when CNB cut its rate for the first of two times this month, it also cut the countercyclical capital buffer for its banks and said it expected banks to "refrain from a any dividend payouts or any other steps that might jeopardize individual bank's resilience."
       BOI's monetary policy committee is scheduled to meet on April 6. At its last meeting on Feb. 24, it maintained is key interest rate at 0.25 percent and confirmed its guidance that it expected to maintain the rate at this level for "a prolonged period."
       On March 15 the policy committee decided to carry out open market operations, offer repo transactions to financial institutions and purchase government bonds of various types and maturities "in necessary quantities" to ensure smooth functioning of the bond market.
      On March 23 BOI then said it would purchase 50 billion shekel of government bonds in the secondary market to ease the volatility in bond yields from a lack of liquidity and lower the cost of longer-term credit for firms and households as a complement to its low interest rate policy.

     www.CentralBankNews.info

   

Colombia cuts rate 1st time in 2 years, boosts liquidity

    Colombia's central bank cut its key interest rate for the first time in almost two years and launched new measures to boost liquidity to ease the financial burden on households and business during the outbreak of the coronavirus and ensure financial markets continue to function properly.
     The Central Bank of Colombia (CBC) cut its benchmark interest rate by 50 basis points to 3.75 percent, the first rate cut since April 2018.
     CBC's board was unanimous in its policy decision, which it said would contribute to the future recovery of domestic demand once markets begin to function normally.
    "The country and the economy are going through an extraordinary and unprecedented situation," CBC said, prioritizing an ample and timely provision of liquidity, both in pesos and U.S. dollars.
     In addition to earlier measures, the central bank on March 30 will auction up to $1 billion in U.S. dollars, with any amount not awarded to be auctioned on the next occasion until the quota is exhausted or until the remaining amount is $25 million.
     On the same day, March 30, CBC will conduct currency swaps of up to $400 million in which the central bank sells U.S. dollars for cash and buys them back in 60 days. Any amounts not awarded on the first day of the auction will also be auction on the next occasion until the quota is exhausted or the amount is less than $25 billion.
     These new measures will raise the balance of FX swaps to $800 million and currency forwards to $2 billion, CBC said.
     Colombia's peso fell sharply on March 11 and 12 in response to the fall in crude oil prices and plunging stock markets worldwide, but has rebounded slightly since then.
     But today the peso again fell in response to the rate cut to 4,024.1 to the U.S. dollar to be down 18.4 percent since the start of this year.
     At an extraordinary board meeting on March 23, CBC decided to inject around $10 billion in permanent liquidity into the financial system through the purchase of private securities issued by credit institutions, with a remaining maturity of less than three years. The first auction took place on March 24.
     CBC also decided to buy up to $2 billion of treasury bonds, known as TES, during the rest of March and to continue carrying out auctions of private securities for $500 billion on days when there are no scheduled auctions by private parties.

    www.CentralBankNews.info

   

Canada cuts rate 3rd time in March and to buy bonds

    Canada's central bank cut its benchmark interest rate for the third time in March, launched a program to purchase commercial paper to ease strains in short-term funding markets and will also begin buying government bonds in the secondary market.
    The Bank of Canada (BOC) cut its target for the overnight rate by another 50 basis points to 0.25 percent and has now cut it by 150 basis points following a first 50 points cut on March 4 and then a second 50 points cut on March 13.
     "This unscheduled rate decision brings the policy rate to its effective lower bound and is intended to provide support to the Canadian financial system and the economy during the COVID-10 pandemic," BOC said.
     Central banks worldwide have slashed their policy rates 99 times since the outbreak of the coronavirus began to impact financial markets in mid-January, many at emergency policy meetings.
    But BOC is the first central bank to cut its rate three times in less than a month.
    The latest cut follows another emergency policy meeting by BOC as central banks worldwide have now cut rates at 53 extraordinary meetings since March 3 when the U.S. Federal Reserve kicked off this month's rapid pace of monetary easing worldwide.
     "The spread of COVID-19 is having serious consequences for Canadians and for the economy, as is the abrupt decline in world oil prices," BOC said, adding its rate cuts, along with fiscal action, are aimed at supporting individuals and businesses, and minimizing any permanent damage to the structure of the country's economy.
     To promote the availability of credit, BOC has already expanded its repurchase facilities along with other measures, and is now launching two programs.
     A Commercial Paper Purchase Program (CPPP) is aimed at easing strains in the short-term funding markets and thus preserve a source of funding for businesses.
     To ease strains in the market for Canadian government debt, BOC will begin buying government securities in the secondary market, with purchases beginning with a minimum of $5 billion per week, across the yield curve.
     The program will be adjusted as conditions warrant, "but will continue until the economic recovery is well underway," leading to a larger balance sheet, BOC said.
     Prime Minister Justin Trudeau's government also unveiled several measures to support small- and medium-sized businesses, including one-year interest rate free loans, to cover 75 percent of wages for small business, 12.5 billion Canadian dollars in funding via the country's export development bank and delays in dories and tax payments.
     Earlier this week Canada's parliament approved a 52 billion Canadian dollar package to support the economy and people that have lost their jobs due to the spread of the virus.

Czech cuts rate, capital buffer, sees 'strong recession'

      The Czech National Bank (CNB), which earlier today cut its benchmark interest rate for the second time this month, lowered its countercyclical capital buffer for banks by 75 basis points to 1.00 percent to "support banks' ability to finance the real economy without interruption."
      The CNB, which has cut its 2-week repo rate by 125 basis points this month to 1.0 percent, said it  was prepared to lower interest rates further and while the banking sector is still robust, it was ready to adopt other measures to tackle any liquidity problems in the financial sector.
      "The coronavirus infection and the related measures will lead to a "strong recession," in which the domestic economy will remain for the rest of this year," CNB said in a presentation, adding this would have a "pronounced anti-inflationary effect."
     Armed with an extraordinary internal update of its economic forecast, CNB said global and domestic measures to counter the spread of the virus will lead to a downturn in the country's economy and inflation, warranting the cut in interest rates that will help support the economy from the shock.
     But this sharp fall in economic activity will have an adverse effect on banks' loan portfolios and CBN said it was ready to fully scrap the countercyclical capital buffer if banks' losses were to rise unexpectedly.
      However, the gradual release of the capital buffer along with the postponement of dividend payments will help support banks and as a whole, CNB said the banking sector can cope with the consequences "of even significantly adverse economic developments."
     On March 16, when CNB cut its rate for the first time this month, it also revised an earlier decision to raise the countercyclical capital buffer and kept it at 1.75 percent. It also said it was ready to release the buffer if losses in the banking sector were to rise unexpectedly.
      In addition to banks, CNB expects insurance and pension companies to refrain from paying out dividends or taking any other steps that might jeopardize the institutions' resilience.
     "This should happen with immediate effect and last until both the acute and longer-term consequences of the novel coronavirus pandemic fades away," CNB said about the dividends.
      The Czech koruna has fallen sharply since mid-February and this will partly offset some of the decline in economic growth and inflation.
      However, the impact of this fall probably won't materialize until the situation returns to normal, CNB said, adding it is ready to react to "excessive exchange rate fluctuations" and "any monetary policy measures may be adopted at any time as needed, even at an extraordinary monetary policy meeting of the Bank Board."
     After rising to 24.9 against the euro by Feb. 18, the koruna tumbled 10 percent to March 23. Since then it has rebounded and rose further in response to today's policy decision to trade at 27.2 to the euro, down 8.6 percent this year.
     During five years of extraordinary easy monetary policy between November 2012 and August 2017, the CNB not only kept its key rate at a rock-bottom 0.05 percent but also intervened in the foreign exchange markets to keep the koruna from rising against the euro as an additional tool of monetary easing.
     As a first step toward tightening its policy, CNB in April 2017 scrapped its commitment to keep the koruna below 27 to the euro.
     The spread of the coronavirus has forced CNB into an abrupt U-turn in its policy stance. From August 2017 to February this year it raised rates 9 times by 220 basis points until it reversed course and cut the rate 50 basis points at an emergency board meeting.

Czech central bank cuts rate 75 bps in 2nd March easing

    The Czech Republic's central bank lowered its benchmark policy rate for the second time in two weeks and adopted additional measures to stabilize the country's economy, hit by the outbreak of the coronavirus, or Covid-19.
     The Czech National Bank (CNB) cut its 2-week repo rate by a further 75 basis points to 1.0 percent and has now cut it by 125 points this month as it makes a sharp U-turn after raising the rate by 25 points rate on Feb. 6 to curb rising inflation, its 9th rate hike since November 2017.
     In a statement, CNB said its Bank Board would announce the additional measures at a press conference later today.
     On March 16 CNB cut its 2W repo rate rate by 50 basis points at an extraordinary board meeting and said it was ready to cut rates further "should the economic situation so require."
     Although it didn't see any shortage of liquidity in the banking system at that point, as a preventative measure CNB amended rules introduced in October 2008 during the global financial crises and began liquidity-providing repo operations three times a week instead of once a week.
     Banks were provided liquidity at the 2W interest rate.
     It also revised its decision in May last year to raise the countercyclical capital buffer for banks and instead of raising it to 2.0 percent, it maintained it 1.75 percent.
     While it didn't consider it necessary to lower the buffer below 1.75 percent, it did say it was "ready to release the buffer immediately and fully were the banking sector's unexpected losses to rise, in order to support banks' ability to provide credit to non-financial corporations and households without interruption."
     It it expected banks to "refrain from any dividend payouts or any other steps that might jeopardise individual banks' resilience," until the acute and longer-term consequences of the coronavirus epidemic fade away.
    In addition to lowering the key 2W repo rate, CNB also cut the Lombard rate to 2.0 percent and the  discount rate to 0.05 percent.
   

Albania halves rate to 0.50%, 1st cut since June 2018

     Albania's central bank lowered its key interest rate for the first time since June 2018 to lower the cost of new borrowing and the cost of servicing existing debt, and to ease the flow of liquidity to businesses and households.
     The Bank of Albania's supervisory council cut the key policy rate in half, or by 50 basis points to 0.50 percent, and the overnight loan rate to 0.9 percent from 1.9 percent while the overnight deposit rate was unchanged at 0.1 percent.
     Since October 2011 the central bank has been steadily lowering its policy rate and has now cut it 18 times and by a total of 4.75 percentage points since then. The previous cut came in June 2018 when the rate was cut by 25 points to 1.0 percent.
     Albania's lek has been steadily appreciating against the euro since June 2015 but has declined in the last week in more volatile trading. Today the lek was trading at 124 to the euro, down 1.7 percent this year but up 14.5 percent since highs around 142 in mid-June 2015.
    The bank's governor, Gent Sejko, said today's rate cut complements earlier measures by the central bank to mitigate the impact of the COVID-19 pandemic on the country's economic and financial health and should facilitate the smooth functioning of the monetary policy transmission, relieve pressure on economic operators' finances, and give them more "time, space and breath to cope with the shock."
     While the precautions taken to limit the spread of the virus, such as a temporary reduction in production and employment, will lower the supply of goods and services, social distancing is reducing demand, shrinking sales, revenue and business liquidity, Sejko said in a statement.
      Measures taken by the central bank in recent days include guaranteeing the supply of currency and banknotes, ensure the smooth functioning of the electronic payment system, injecting unlimited supply of liquidity into the banking sector and simplifying the process of postponing credit payments to business and households affected by the crises.
     "In line with the measures taken by other central banks and depending on the evolution of the situation, the Bank of Albania remains ready to use all operational instruments and regulatory space available to minimize consequences of the pandemic in the Albanian economy and financial system," Sejko said, adding:
     "Our monetary, regulatory and institutional measures will remain in place for as long as necessary."

   www.CentralBankNews.info
   

Pakistan cuts rate 2nd time in a week as demand hit

     Pakistan's central bank lowered its policy rate for the second time in a week as the number people infected by the coronavirus has risen considerably, prompting social distancing and reduced activity, which it said was expected to lead to a "noticeable" slowdown in domestic demand.
      The State Bank of Pakistan (SBP) cut its key rate by a further 150 basis points to 11.0 percent, bringing the total easing since the cut on March 17 to 225 points.
     "The MPC was of the view that this cumulative easing would cushion the growth slowdown while protecting inflation expectations," SBP said, referring to the decision by its monetary policy committee at an emergency meeting.
      This month's rate cuts come after the central bank paused in its tightening campaign in July 2019 following 9 rate hikes to curb inflation from a fall in its rupee.
      Since July last year SBP had kept its rate steady until the spread of the virus began to affect demand and it cut the rate by 75 basis points on March 17. At that point, SBP said it was ready to take further action when more information became available.
       Overt the last week, the spread of the virus, Covid-19, has caused major disruptions to the global economy and trade, with the International Monetary Fund slashing its 2020 growth forecast to below zero from 3.3 percent.
       This implies the outlook for growth and inflation is likely to be revised down further, SBP said, adding it "remains ready to take whatever further actions become necessary in response to the evolving economic impact of the Coronavirus."
       SBP said it would soon announce further regulatory measures with banks to address the pressure on borrowers' cash flows from disruptions by making deferment and loan restructuring easier.

Seychelles cuts rate 100 bps, tourism seen plunging 70%

     The Central Bank of Seychelles (CBS) cut its monetary policy rate (MPR) by 100 basis points to 4.00 percent, saying this is the first phase of its response to the challenge from the spread of the coronavirus, which is expected to slash this year's earnings from tourism by 70 percent and trigger a double-digit drop in economic growth.
      It is the second rate cut by CBS since it introduced the policy rate in January 2019 and set it at 5.50 percent. In September last year CBS cut the rate by 50 basis points.
      In addition to the cut in MPR, the bank's standing deposit facility (SDF) will be cut to 10.0 percent and the standing credit facility (SCF) to 7.0 percent. The minimum reserve requirement (MRR) will remain unchanged at 13 percent.
      "The CBS remains vigilant and stands ready to adjust its policies as needed to promote price stability, the bank said in a statement following a board meeting on March 23.
      The Republic of Seychelles, which comprises 115 islands in the Indian Ocean, relies heavily on tourism, which is being devastated by the closure of borders in most countries.
      As of the second quarter, CBS said limited inflows are expected from its services sector, with early estimates showing a fall in tourism earnings in 2020 of 70 percent in euro terms from 2019.
     "This is likely to place severe pressure on the exchange rate and requires a significant decline in national consumption if the economy is to sustain a stable exchange rate," CBS said, adding it is unclear whether the fisheries industry or other export-oriented sectors can compensate for the loss of earnings in tourism.
      "The main aim of the reduction in MPR is to support a decline in interest rates as a means of alleviating future stress on borrowers," CBS said, adding the loss of tourism earnings will lead to "high levels of uncertainty in all sectors of the economy."
      Against the euro, the Seychellois rupee has been appreciating since March 2018 and today it jumped almost 10 percent to 14.9, up 12.5 percent since the start of 2020.
      Against the U.S. dollar, the rupee also rose sharply in response to the rate cut to 12.6 to the U.S. dollar and is now up 8.6 percent since the start of this year.
      A coordinated and urgent policy response is needed to moderate the impact of the virus but even with an alignment of monetary, financial and fiscal policies, CBS said large drops in consumption and shifts in "social behavior" are critical in maintaining economic stability given the uncertainty.
     In the third quarter of 2019 the economy of the Seychelles decelerated to to annual growth of 3.8 percent from 7.1 percent in the second quarter and in February CBS forecast growth could decelerate to 3.5 percent in 2020 from an estimated 3.9 percent in 2019.
     Given the current challenges, CBS said growth is forecast to contract by double-digits this year.
     Inflation in the Seychelles has been falling since May last year and fell to 0.76 percent in February and CBS said inflationary pressures are likely to be be moderate due to the general fall in global demand and the large shock in oil prices.
   
     www.CentralBankNews.info
   

Philippines cuts banks' reserve requirement 200 bps

     The Central Bank of the Philippines, which has cut its key interest rate twice this year, lowered its reserve requirement ratios on universal and commercial banks by 200 basis points to 12.0 percent, saying this is to "ensure sufficient domestic liquidity in support of economic activity amidst the global pandemic due to the Coronavirus Disease (COVID-19.)
     In a statement, Bangko Sentral ng Pilipinas (BSP) said a special meeting of its monetary board had authorized Governor Benjamin Diokno to lower the reserve requirements by up to a maximum 400 basis points in 2020.
     The board authorized Diokno to to determine the timing and extent of the reserve requirement reductions by taking into account the impact of the virus on liquidity in domestic markets, giving him flexibility to promptly address any strains in the market.
     Following this decision, Diokno announced the 200 basis point cut as of March 30 to "calm markets and to encourage banks to continue lending to both retail and corporate sectors."
     Potential cuts to reserve requirements for other institutions will be explored, the statement added.
     Last year BSP lowered its reserve requirements 500 basis points to 14 percent, most recently in October, and Diokno has said he aims to lower the rate to a single digit by 2023.
     BSP has been easing its monetary policy stance since May 2019 and has lowered its overnight reverse repurchase (RRP) rate rate 5 times since then by a total of 150 basis points to 3.25 percent.
     The most recent cut took place on March 19 when BSP also temporarily relaxed its regulations for compliance reporting by banks, the calculation of penalties on required reserves and single borrower limits to mitigate the risk of financial sector volatility and ensure adequate liquidity and credit.
     On March 19 BSP lowered its forecast for inflation in 2020 to 2.2 percent from February's 3.0 percent and the 2021 forecast to to 2.4 percent from 2.9 percent, due to the fall in oil prices, lower inflation in recent months and the adverse effects of the virus on global and domestic economic activity.
      It also said the balance of risks to the inflation outlook now leans to the downside and uncertainty over the "potentially protracted pandemic poses significant downside risks to aggregate demand."
      On March 23 Diokno was quoted as telling reporters that BSP will buy 300 billion pesos of debt from the Treasury under a 3-month repurchase agreement, renewable for another 3 months, with the government using the funds to contain the impact of the virus.

Kenya cuts rate 3rd time, lowers RR to add liquidity

     Kenya's central bank cut its key interest rate for the third time in a row to minimize the economic and financial impact from the spread of the coronavirus, and lowered its reserve requirement to release 35.3 billion shilling as additional liquidity for banks to directly support borrowers that are under distress from the virus.
      The Central Bank of Kenya (CBK) cut its Central Bank Rate (CBR) by another 100 basis points to 7.25 percent and has now cut it by 175 basis points since November 2019 when it began easing its monetary policy stance following the repeal of the cap on banks' interest rates.
      It is CBK's second cut this year following a cut in January when it said there was room for further accommodation to support economic activity, which has slowed in the last four quarters.
      CBK also lowered its cash reserve ratio (CRR) by 100 basis points to 4.25 percent to release liquidity so banks can boost their lending and said it would ensure the interbank market and liquidity management continues to function smoothly.
       The bank's monetary policy committee said it was closely monitoring the impact of the change to its policy stance, as well as the global and domestic economy, and "stands ready to take additional measures as necessary."
       "In this regard, the Committee decided to reconvene within a month for an early assessment of the impact of these measures and the evolution of the COVID-19 pandemic," it said.
      While the adverse effect of the virus on Kenya is still evolving, CBK said "it is already evident that the impact may be severe" and economic growth is expected to decline significantly this year.
      CBK said the rate of growth may decelerate to 3.4 percent this year from an earlier estimate of 6.2 percent due to reduced demand from its trading partners, disruptions of supply chains and domestic production.
      In the third quarter of 2019, Kenya's gross domestic product slowed to 5.1 percent year-on-year from 5.6 percent in the second quarter.
      Kenya's shilling has come under heavy downward pressure in recent weeks on concern over its exports, for example flowers to Europe, amid the sudden slowdown in the global economy, with the central bank seen selling U.S. dollars to limit the losses.
     Today the shilling was trading around 106.4 to the U.S. dollar, above the record lows that were seen in September 2015, and down 4.7 percent since the start of this year.
     Kenya's inflation rate has been rising in the lasts 5 months to 6.37 percent in February but CBK said it expects inflation to remain within its target range in the near term due to lower food prices, favorable weather, a decline in oil prices and muted demand pressures.