Tuesday, October 23, 2018

Indonesia holds rate, trims growth forecast on exports

      After five rate hikes in a row, Indonesia's central bank kept its benchmark BI 7-day reverse repo rate at 5.75 percent, saying this decision is consistent with its efforts to lower the current account deficit and maintain the attractiveness of domestic financial markets at a time of "persistently high global uncertainty."
      Reflecting weaker-than-expected economic growth from a decline in exports, Bank Indonesia (BI) trimmed its forecast for economic growth this year to the "lower range of 5.0 - 5.4%" from an earlier forecast of 5.0 - 5.4 percent.
      BI, which raised its key rate by 150 basis points from May to September bolster the exchange rate of the rupiah, confirmed its forecast for inflation in 2018 to remain within the central bank's target range of 3.5 percent, plus/minus 1 percentage point.
      The country's current account deficit, considered the country's Achilles heel, was confirmed by BI to narrow to 2.5 percent of gross domestic product in 2019. BI has previously forecast the current account deficit would rise to somewhere below 3 percent in 2018 from 1.7 percent of GDP in 2017.
      Despite a decline in exports, BI noted a US$0.23 billion trade surplus in September, up from a 0.94 billion deficit in August debt to a decline in imports of capital goods and raw materials.
      But for the first 9 months the trade deficit still amounted to US$3.78 billion but moving forward BI said it expects trade and current account balances to improve further.
     While BI did not mention the 2018 current account deficit, it said it was coordinating with the country's government to stimulate exports and lower imports to lower the deficit which widened to US$8.0 billion in the second quarter of this year from $5.7 billion in the first quarter for the highest deficit since the third quarter of 2014.
       The rupiah rose in response to BI's decision to maintain the rate but is still down sharply this year, as most other emerging market currencies. The rupiah was trading at 15,188.5 to the U.S. dollar, down 10.6 percent this year.
     "The rupiah is undergoing depreciation, albeit with contained volatility," BI said, confirming it will continue to stabilize the exchange rate to mitigate volatility and sustain market liquidity.
      Indonesia's reserves declined to US$114.8 billion at the end of September from $117.9 billion at the end of August but still enough for 6.3 months of imports and debt servicing.
      Indonesia's inflation rate dropped to 2.88 percent in September from 3.2 percent in August for a cumulative rise in consumer prices the year of 1.94 percent as food prices fell along with core inflation that eased to 2.82 percent from 2.90 percent.

Monday, October 22, 2018

Botswana maintains rate on positive inflation outlook

     Botswana's central bank kept its Bank Rate unchanged at 5.0 percent and repeated its statement from August that "the prevailing monetary policy stance is consistent with maintain inflation within the objective range of 3 - 6 percent" given the current state of the economy and the outlook.
     The Bank of Botswana (BoB), which has maintained the rate since cutting it to the current level in October 2017, also reiterated the outlook for price stability remains positive with inflation falling to 2.9 percent in September from 3.0 percent in August, below the lower bound of the target range.
      Subdued domestic demand pressures and a modest rise in foreign prices contribute to the positive outlook, with upside risk from a potential rise in administered prices, commodity prices and taxes.
      Downside risks to inflation arise from restrained global growth, technological progress and productivity improvement along with modest wage growth, BoB said.
      Botswana's economy grew by an annual 5.3 percent in the second quarter, up from 4.8 percent in the first quarter, helped by a recovery in mining.
       Continued accommodative monetary conditions and higher government spending, as well as stable water and electricity supply, should support activity in the non-mining sectors and overall BoB expects the economy to operate close to, but below full capacity in the medium term, posing no risk to the inflation outlook.

Saturday, October 20, 2018

This week in monetary policy: Botswana, Mozambique, Indonesia, Namibia, Paraguay, Sweden, Georgia, Canada, Tajikistan, Fiji, Norway, Turkey, ECB, Ukraine, Russia & Colombia

    This week - October 21 through October 27 - central banks from 16 countries or jurisdictions are scheduled to decide on monetary policy: Botswana, Mozambique, Indonesia, Namibia, Paraguay, Sweden, Georgia, Canada, Tajikistan, Fiji, Norway, Turkey, the euro area, Ukraine, Russia and Colombia.
    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 21 - OCT 27, 2018:
COUNTRY                   DATE                     RATE                LATEST                    YTD              1 YR AGO
EURO AREA25-Oct0.00%000.00%

Thursday, October 18, 2018

Chile raises rate 25 bps so inflation stays around target

     Chile's central bank raised its monetary policy rate by 25 basis points to 2.75 percent, saying the "board believes that the monetary stimulus should begin to be reduced to ensure that inflation perspectives remain close to the target."
      It is the first rate hike by the Central Bank of Chile since December 2015 when the rate was raised to 3.50 percent to rein in inflation, boosted by the fall in the peso's exchange rate.
      Beginning in January 2017 the central bank then began cutting the rate as inflation eased and in four quick steps it sliced 100 basis points of the key rate, wrapping up its easing cycle by May 2017.
      Since then the rate has been kept stable but beginning in June the board has been considering withdrawing monetary stimulus. Minutes from the September meeting showed committee members had considered raising the rate before deciding unanimously to maintain it.
      Today's decision, which was unanimous by the board, reflected the recent narrowing of the output gaps in recent quarters and the expectation that this will continue so inflation will be around 3.0 percent in coming quarters, the bank's target.
      The central bank said it expects the monetary policy rate to converge to its neutral level by 2020 and beginning this process in a timely manner would allow a tightening to be gradual and cautious.
      Chile's inflation rate rose to 3.1 percent in September from 2.6 percent in August, with investment in machinery and equipment continuing to boost domestic spending, with durable consumption also strong.
       Business expectations are also optimistic while household expectations have ease in recent months and are below their neutral threshold, the central bank said.
       Chile's peso firmed steadily for two years beginning in January 2016 but since February this year it has depreciated, like most emerging market currencies.
       In the last week the peso has risen as investors looked for tighter monetary policy and today the peso was trading at 676.2 to the U.S. dollar, down almost 9 percent this year.

Wednesday, October 17, 2018

South Korea maintains rate as growth forecast lowered

      South Korea's central bank left its base rate steady at 1.50 percent, as expected, and said it would maintain its accommodative monetary policy stance as inflationary pressures from demand are not high and economic growth is below expectations.
     The Bank of Korea (BOK), which in November last year raised its rate for the first time since June 2011, repeated its guidance from August that it would continue to "judge whether it is necessary to adjust its accommodative monetary policy stance, while closely checking future economic growth and inflation trends."
      While most analysts had expected the BOK to retain its base rate today, many were expecting the central bank to signal that it may raise its rate in November as inflation picked up speed in September.            
     But economic growth in export-dependent South Korea is expected to be weaker than forecast in July with employment conditions sluggish and investment expected to slow while exports should sustain their momentum due to the continued buoyancy of the global economy.
     However, BOK cautioned global growth is likely to be affected by spreading trade protectionism, the normalization of monetary policy in advanced economies and U.S. economic policy.
      "Going forward the Board expects domestic economic growth to be somewhat below the path projected in July, but to sustain a rate that does not diverge significantly from its potential level," the BOK said.
    South Korea's gross domestic product has expanded 2.8 year-on-year in the last three quarters but in an update to its economic outlook it lowered the forecast for growth this year to 2.7 percent from the July forecast of 2.9 percent.
     Next year the economy is also forecast to expand by 2.7 percent.
     Inflation rose to 1.9 percent in September from 1.4 percent in August due to higher agricultural prices and the ending of a temporary cut in electricity fees.
     On average BOK forecast inflation of 1.6 percent this year and 1.7 percent in 2019, below its 2.0 percent target.

Monday, October 15, 2018

Kazakhstan raises rate 25 bps on risks of higher inflation

      Kazakhstan's central bank raised its base rate by 25 basis points to 9.25 percent due to an increase in the risks of higher inflation from the tenge's depreciation, with future decisions about the base rate dependent on how inflation compares with the bank's target.
      It is the first rate hike by the National Bank of Kazakhstan (NBK) since February 2016 when the base rate was raised to 17.0 percent to curb rising inflation which hit 17.7 percent in July that year.
      In May 2016 the NBK began lowering the rate and remained in an easing stance until June this year when it switched to a neutral policy stance.
       Between May 2016 and June 2018 the NBK cut its base rate by a total of 800 basis points, including four cuts this year by a total of 125 points.
      But in September the central bank said inflation was falling slower than it had expected while economic activity was continuing to strengthen and the tenge was depreciating.
      While the central bank said it was maintaining the current interest corridor of 1 percentage points plus/minus around the base rate, it also said it was considering narrowing the boundaries of the corridor to improve the operational effectiveness of its monetary operations so the tenge overnight rate, TONIA, will remain within the target corridor and converge to the target rate.
       Headline inflation in Kazakhstan rose to 6.1 percent in September from 6.0 percent in August - a level the central bank described as moderate - and is forecast to remain within the 2018 inflation target of 5.0 - 7.0 percent.
       In 2019 the central bank said it expects inflation to "smoothly enter the new corridor" of 4.0 - 6.0 percent and remain close to the upper limit of 6.0 percent.
       An increase in exchange rate volatility had triggered a rise in inflationary expectations to 6.4 percent in September from 5.6 percent in July and domestic demand is continuing to expand due to rising incomes.
       An increase in the minimum wage will add inflationary pressure while a economic activity remains above the country's potential, the NBK said, adding the higher base rate will help increase the demand for tenge assets and help keep monetary conditions close to neutral.
       In April this year the tenge was hit by worries over a fallout of new U.S. sanctions on Russia and since then it has continued to depreciate as U.S. interest rates rise.
      Today the tenge was trading at 368.3 to the U.S. dollar, down 9.6 percent this year.
       In August 2015 the tenge plunged following the central bank's move to a floating exchange rate regime in response to capital outflows and the conversion of many tenge bank deposits to foreign currency. Oil accounts for about 60 percent of Kazakhstan's exports and over 10 percent of its Gross Domestic Product. 



Sunday, October 14, 2018

This week in monetary policy: Kazakhstan, Hungary, South Korea and Chile

    This week - October 14 through October 20 - central banks from 4 countries or jurisdictions are scheduled to decide on monetary policy: Kazakhstan, Hungary, South Korea 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 14 - OCT 20, 2018:
COUNTRY                   DATE                     RATE                LATEST                    YTD              1 YR AGO
SOUTH KOREA18-Oct1.50%001.25%
CHILE 18-Oct2.50%002.50%

Thursday, October 11, 2018

Singapore tightens policy slightly for 2nd time this year

     Singapore's central bank tightened its monetary policy stance for the second time this year, as expected, saying "the economy is likely to remain on its steady expansion path in the quarters ahead while inflation "will experience modest but continuing pressures, before leveling off at just below 2% over the medium term."
      As in April, the Monetary Authority of Singapore (MAS) increased slightly the slope of the Singapore dollar's policy band while maintaining the width of the band and the midpoint at which it is centered, a move that is consistent with a modest and gradual appreciation to ensure price stability.
     Unlike most central banks that target consumer price inflation directly, MAS targets the value of the Singapore dollar against a basket of currencies as a way to control inflation.
      Singapore's economy has evolved largely as MAS forecast in April and said the economy was likely to expand at "a slower but steady pace for the rest of this year and in 2019," slightly above the economy's potential.
      Singapore's economy expanded by an annual 2.6 percent in the third quarter of this year, down from 4.1 percent in the second quarter, as the contribution of manufacturing has waned - reflecting the maturing of the global electronics cycle - while the services sector has remained firm, MAS said.
      For 2018 MAS forecast gross domestic growth in the upper half of the 2.5 - 3.5 percent forecast and then moderate slightly next year while a small positive output gap persists.
       Core inflation, which excludes accommodation and private road transport was steady at 1.9 percent in July and August and in coming quarters MAS expects inflation to increase due to higher oil and food prices to around 2.0 percent.
       For 2018 MAS forecast core inflation in a range of 1.5 to 2.0 percent and then average 1.5 to 2.5 percent in 2019.

Peru maintains rate and expansive policy stance

     Peru's central bank left its monetary policy rate at 2.75 percent, saying its board considers it appropriate to maintain an expansive policy stance until it is confident inflation will converge to its target and that inflation expectations are anchored at a level where economic activity is close to the country's potential.
      The Central Reserve Bank of Peru (BCRP), which has maintained its rate since cutting it in March, added inflation is projected to remain within the target range in October and then converge to 2.0 percent in the short term.
      Between May 2017 and March this year BCRP cut its key rate by 150 basis points.
      Peru's inflation rate rose to 1.28 percent in September from 1.07 percent in August, within the central bank's target range of 1.0 - 3.0 percent.
      Some indicators of economic activity showed signs of a temporary drop in dynamism overall the indicators show a gradual recovery and business expectations were optimistic in September.
      Last month BCRP President Julio Velarde signaled that interest rates would likely not be raised until next year unless an expectedly strong economy pushes up prices.
      Peru, the world's second largest copper producer,  has been affected by lower copper prices and in its latest quarterly report the BCRP lowered its forecast for 2019 economic growth to 4 percent from a previous forecast of 4.2 percent.
      The 2018 growth forecast was maintained at 4.0 percent and in the second quarter of this year Peru's gross domestic product grew by an annual 5.4. percent, up from 3.1 percent in the first quarter and the fastest growth rate since the fourth quarter of 2013.


Monday, October 8, 2018

Israel holds rate as BOI staff push back rate hike to Q1

      Israel's central bank left its key interest rate steady at 0.10 percent, saying the "forces supporting an increase in inflation still prevail" while the bank's economists pushed back their forecast for the first rate hike in seven years to early next year.
     The Bank of Israel (BOI), which is slowly moving towards raising its rate for the first time since June 2011, added the inflationary environment had not changed markedly since the last monetary policy meeting and a possible sharp rise in in the shekel's exchange rate still presents the main risk to inflation becoming entrenched within its target.
      BOI's monetary committee repeated its guidance that it would maintain the accommodative policy "as long as necessary in order to entrench the inflation environment within in the target range."
     Israel's inflation rate eased to 1.2 percent in August from 1.4 percent in July but was still within the BOI's target range of 1.0 - 3.0 percent.
      In August five of the monetary committee members voted to maintain the rate - it has been steady since March 2015 - while one member voted for a 15 basis point rate hike, similar to the previous four decisions.
      According to the August minutes, the committee believes there is room to prepare markets for the possibility of higher rates but any increase in interest rates before inflation is entrenched within the target range may delay this process and ultimately slow the path of raising rates.
       Taking note of the recent decline in inflation, the central bank's research department pushed back its forecast for the BOI to raise its rate to the first quarter of next year to 0.25 percent from July's forecast for a rate hike in the fourth quarter of this year.
     "The deferral is slight because we assess that the moderate inflation of recent months is only transitory, and that the inflation rate will continue to increase at a pace similar to our assessment in July," the bank's research department said.
     By the third quarter of 2019 BOI staff expect the rate to be raised one more time to 0.5 percent.
     The forecast for inflation was also lowered slightly in light of lower than expected inflation and the rise in the shekel that was not expected.
     Inflation is forecast to be 1.5 percent by the end of 2019 but only 0.8 percent at the end of this year, down from 1.2 percent forecast in July.
     The forecast for economic growth was unchanged, with gross domestic product seen expanding 3.7 percent this year, up from 3.5 percent last year, and 3.6 percent in 2019, up from 3.5 percent.
     After falling from January to mid-August, Israel's shekel rose against the U.S. dollar until late September before easing again.
     Today it slipped in response to the bank's statement and was trading at 3.64 to the dollar, down 4.4 percent since the start of this year.

Serbia maintains rate, raises 2018 growth forecast

     Serbia's central bank left its key policy rate steady, as expected, but raised its forecast for economic growth and confirmed that it expects inflation to remain within its target tolerance band over the next two years.
      The National Bank of Serbia (NBS), which last lowered its rate in April after a 5-year easing cycle, said inflation had returned to its target range in August after accelerating for four months in a row, driven by rising demand and inflation expectations are now anchored around the 3.0 percent target both one and two years ahead.
     Serbia's inflation rate rose to 2.6 percent in August after hitting a 2018 low of 1.1 percent in April. The NBS targets inflation of 3.0 percent within a target range of plus/minus 1.5 percentage points.
      The central bank has cut its rate by a total of 50 percent points this year and by a total of 8.75 percentage points since May 2013 when it embarked on a easing cycle.
     Boosted by strong demand, investments and exports, Serbia's economy has "risen vigorously" since the beginning of this year, at the highest rate in the past 10 years, helped by the rate cuts, the central bank said.
     The NBS expects growth this year to exceed 4.0 percent, up from its September forecast of around 4 percent, with a significant contribution from a rise in foreign direct investment that will ensure "vibrant growth in manufacturing exports going forward," NBS said.
     Serbia's economy expanded by a higher-than-expected 4.8 percent year-on-year in the second quarter of this year, down from 4.9 percent in the first quarter.
     Earlier this month the International Monetary Fund raised its 2018 growth forecast to 4.2 percent and from 3.5 percent and projected 2019 growth of 3.5 percent.
     As in recent months, the NBS said global developments are still calling for "caution" in monetary policy due to volatile oil prices and monetary policy tightening by the U.S. Federal Reserve and a wind-down of quantitative easing by the European Central Bank (ECB) that could affect capital flows to emerging markets.
     "Besides, growing protectionism in international trade has dampened investor mood and stirred uncertainties in international financial market," NBS said, adding Serbia's economy is resilient due to potential negative international effects owning to its macroeconomic fundamentals.
      Serbia's dinar has been under upward pressure in the last year, with the central bank reportedly buying over 1.6 billion euros to hold it down. The NBS operates a managed float exchange rate regime.
       The dinar was trading at 118.6 against the euro today, largely unchanged from 118.9 at the start of the year.