Thursday, March 23, 2017

Taiwan keeps rate steady to support economic recovery

    Taiwan's central bank left its benchmark discount rate at 1.375 percent, as expected, saying an "adequately accommodative monetary policy stance is conducive to the economic recovery," while inflationary pressures remain mild although a stronger Taiwan dollar is straining financial conditions.
    The Central Bank of the Republic of China (Taiwan) (CBC) also said its policy decision took into account "elevated uncertainties" over U.S. and European economic policies, a gradual domestic recovery and the fact that output is still below potential output.
    The CBC has maintained rates since June 2016 following four consecutive rate cuts by a total of 50 basis points starting in September 2015. The central bank decides on monetary policy at the end of each quarter.
     Noting that Taiwan's government had approved a infrastructure development plan that is expected to create jobs and bolster productivity, the CBC called on governments around the world to follow suit with fiscal easing and structural reforms as stimulus created by monetary easing after the global financial crises had now faded.
    "The current low-growth, low-rate environment would also prevent fiscal stimulus from crowding out private investment," the central bank said.
    Taiwan's dollar has been firming since January last year and the while the CBC said this was helping keep down imported inflation it also confirmed that it would step into foreign exchange markets to maintain an orderly market if there were excess volatility and "massive and erratic cross-border capital movements" from political and economic changes that could disrupt the country's foreign exchange and financial markets.
    Taiwan's dollar was trading at 30.49 to the U.S. dollar today, up 8.1 percent since the start of 2016 and up 6.4 percent this year.
     Taiwan's inflation rate plummeted to minus 0.04 percent in February from 2.25 percent in January due to lower food prices but the CBC said average consumer price growth in the first two months of this year was 1.09 percent and forecast average inflation of 1.25 percent this year and 1.06 percent core inflation as moderate domestic demand and a negative output gap helps keep inflation mild.
     Taiwan's exports, which accounts for about 60 percent of Gross Domestic Product, have been picking up speed since the start of this year and the government's directorate last month raised its 2017 growth forecast to 1.92 percent from 1.87 percent, up from 2016 growth of 1.50 percent.

    The Central Bank of the Republic of China (Taiwan) issued the following statement:

"I.    Global economic and financial conditions
The global economic growth is expected to pick up this year. Among advanced economies, the US government may soon roll out fiscal stimulus programs to ramp up economic growth, while Japan and the euro area are recovering steadily. Growth in emerging market economies has accelerated thanks to a rebound in commodity prices. The Chinese economy has also kept pace.
Many international forecasting institutions expect the global economy will perform better this year than last year. However, greater economic policy and political uncertainties could be induced by the direction of US policies, the surge in trade protectionism, Brexit negotiations, and crucial elections in major EU member countries. In addition, with monetary policies of many central banks closely associated with the trajectory of future US Fed’s rate hikes and rising global inflation, international financial markets could face growing volatility, adding to the risk to the global economic recovery. 
II.    Domestic economic and financial conditions
1.    Since the beginning of the year, Taiwan's export growth has been boosted by healthier global economic and trade growth, and domestic demand has been supported by renewed fiscal expansion. Labor market conditions continued to improve, the number of persons employed increased moderately, and the unemployment rate generally dropped. The Directorate-General of Budget, Accounting, and Statistics (DGBAS) forecasts Taiwan's economy to advance at an annual rate of 1.92%, faster than the 1.50% of the year before.
2.    For the first two months of the year, the average annual CPI growth rate was 1.09%, mainly owing to higher fuel prices driven by rising international oil prices and larger increases in food prices. Core inflation recorded an average annual growth rate of 0.90%, indicating mild inflation. 
Despite an anticipated price uptrend for oil and other imported raw materials this year, the recent NT dollar appreciation has helped ease the pressure on imported inflation. Meanwhile, moderate domestic demand and a negative output gap have also contributed to a mild inflation outlook. For 2017 as a whole, the CBC forecasts CPI and core CPI inflation to rise 1.25% and 1.06% year on year, respectively. (See Appendix for the forecasts by major institutions.)
3.    Against a backdrop of stable inflation and the ongoing economic recovery, the CBC has conducted open market operations to maintain ample market liquidity. For the first two months of the year, banks' excess reserves recorded an average amount of NT$54.4 billion. The average annual growth rates of bank loans and investments and the monetary aggregate M2 were 4.35% and 3.64% for the same period, respectively. Market liquidity is sufficient to support economic activity.   
Since the beginning of the year, liquidity in the banking system has remained abundant, short- and long-term interest rates have stayed low, and Taiwan's stock markets have gathered steam. However, as the NT dollar appreciated amid foreign capital inflows, the overall financial conditions have tended to tighten, as reflected by the FCI (financial condition index). 
III.    Interest rate decision 
The Board has taken into account elevated uncertainties over US and European economic policies, a gradual domestic economic recovery, and the fact that actual output is still lower than potential output. Meanwhile, current inflationary pressures and future inflation expectations are both mild, whereas a stronger NT dollar has put domestic financial conditions under strains. Considering an adequately accommodative monetary policy stance is conducive to the economic recovery, the Board judged that a policy rate hold will foster robust economic and financial development. 
The Board reached the following decision unanimously at the Meeting today: 
The discount rate, the rate on accommodations with collateral, and the rate on accommodations without collateral are kept unchanged at 1.375%, 1.75%, and 3.625%, respectively.
The CBC will continue to monitor both international and domestic economic and financial developments including those related to realized and expected inflation. We will undertake appropriate monetary policy actions in line with the central bank’s statutory mandate. 
IV.    The NT dollar exchange rate is in principle determined by market forces. Nevertheless, volatile political and economic changes around the world could induce massive and erratic cross-border capital movements and disrupt Taiwan's foreign exchange and financial markets. If the abovementioned factor leads to excess volatility and disorderly movements in the NT dollar exchange rate with adverse implications for economic and financial stability, the CBC will step in to maintain an orderly market.
V.    Around the world, the stimulus created by monetary easing deployed after the global financial crisis has gradually faded and it is imperative to follow up with fiscal easing. To support sustainable, balanced economic development, high-quality investment should be on top of the agenda[1] and complemented with structural reforms. The current low-growth, low-rate environment would also prevent fiscal stimulus from crowding out private investment. In Taiwan today, the government approved the “Forward-Looking Infrastructure Development Plan,” which is expected to create jobs and bolster productivity toward sustained long-term growth while improving living conditions as well as quality of life.  "

Philippines holds rate, inflation forecasts slightly down

    The central bank of the Philippines maintained its key overnight reverse repurchase rate (RRP) at 3.0 percent, as widely expected, and said the latest forecasts for inflation were "slightly lower" than previous forecasts though still within its target range for this year and next.
    Bangko Sentral ng Pilipinas (BSP), which has kept its monetary policy stance since September 2014 on "manageable" inflation, reiterated its view from February that the balance of risks surrounding inflation remain tilted to the upside due to the temporary impact of possible changes to transport fares and electricity rates and a proposed reform of taxes.
    On the other hand, the central bank said lingering uncertainty over the global economy, due to "possible shifts in macroeconomic policies in advanced economies" continues to pose a downside risk to the inflation outlook.
     Although inflation in the Philippines ticked up to 3.3 percent in February for the highest rate since November 2014 on higher food and oil prices, the BSP said latest baseline forecasts were slightly down but still within its target range of 3.0 percent, plus/minus 1 percentage point.
    Last month the BSP raised its 2017 inflation forecast to 3.5 percent from 3.3 percent and the 2018 forecast to 3.3 percent from 3.1 percent.
     Inflation expectations remain anchored to the inflation target, the central bank added.
     Today's policy decision was widely expected by investors and follows the central bank governor's statement from last week that policy settings would likely remain unchanged following the U.S. Federal Reserve's latest tightening, which he said would benefit global growth and U.S. trading partners, including the Philippines.
     Although the BSP's monetary policy stance has been steady since September 2014, the RRP rate was lowered by 100 basis points last year when it adopted an interest corridor system.
     The BSP also said it expected domestic economy activity to remain firm, supported by household consumption and private investment, increased government spending and ample credit and liquidity.
     The Philippine economy grew by 6.8 percent last year, up from 5.9 percent in 2015, and the International Monetary Fund last month raised its 2017 growth forecast to 6.8 percent from 6.7 percent on strong domestic demand.

Wednesday, March 22, 2017

UPDATE-This week in monetary policy: Nigeria, Morocco, Argentina, Paraguay, New Zealand, Philippines, Taiwan, Sri Lanka, Russia, Colombia and Pakistan

    ( Following item is updated with the central bank of Pakistan, which will release its monetary policy decision on Saturday, March 25.)
    This week (March 19 through March 25) central banks from 11 countries or jurisdictions are scheduled to decide on monetary policy: Nigeria, Morocco, Argentina, Paraguay, New Zealand, Philippines, Taiwan, Sri Lanka, Russia, Colombia and Pakistan.
    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.  

MAR 19 - MAR 25, 2017:
COUNTRY                 DATE                RATE           LATEST                 YTD               1 YR AGO       MSCI
TAJIKISTAN 20-Mar 16.00% 350 500 9.00%
MOROCCO 21-Mar 2.25% 0 0 2.25%          FM
NIGERIA 21-Mar 14.00% 0 0 14.00%          FM
ARGENTINA 21-Mar 24.25% 0 0 36.75%          FM
PARAGUAY 22-Mar 5.50% 0 0 6.00%
NEW ZEALAND 23-Mar 1.75% 0 0 2.25%          DM
PHILIPPINES 23-Mar 3.00% 0 0 4.00%          EM
TAIWAN 23-Mar 1.375% 0 0 1.50%          EM
SRI LANKA 24-Mar 7.00% 0 0 6.50%          FM
RUSSIA 24-Mar 10.00% 0 0 11.00%          EM
COLOMBIA 24-Mar 7.25% -25 -25 6.50%          EM
PAKISTAN 25-Mar 5.75% 0 0 6.00%          EM

Tuesday, March 21, 2017

Tajikistan raises rate another 350 bps to support somoni

    Tajikistan's central bank raised its benchmark refinancing rate by a further 350 basis points to 16.0 percent to reduce the potential risk of higher inflation, curb the depreciation of the national currency, lower the level of U.S. dollars used in the economy and maintain economic stability.
    The National Bank of Tajikistan has now raised its rate 500 basis points this year following a 150-point hike in February as the somoni has continued to drop.
    Last year the national bank raised its rate 300 points between April and July for a total increase of its benchmark rate of 800 points - a doubling of rates - from the start of 2016 until now.
    In a statement from March 20, the central bank also raised the ratio of required reserves in somoni deposits by 150 basis points to 3.0 percent and the ratio on foreign currency deposits by 200 points to 9.0 percent.
    To ease the negative impact on the amount of cash in circulation, the central bank established a 6-month refinancing rate of plus 2 percentage points and said it would establish a benchmark interest rate based on interbank rates.
    The somoni has been declining this year and was trading at 8.14 to the U.S. dollar today, down 3.2 percent this year while inflation eased to 5.3 percent in January from 6.1 percent in December.
    Last year Tajikistan's finance ministry forecast the somoni would depreciate in coming years to average of 9.6 in 2017, 10.4 in 2018 and 11.2 in 2019 with inflation at 7 percent in those years.
    In March 2016 Russia's central bank said the amount of money transferred to Tajikistan had fallen to $1.28 billion in 2015 from $3.8 billion in 2014 and $4.16 billion in 2013.
    Just as some of the other former Soviet republics, Tajikistan has been hit hard by Russia's economic crises and remittances have fallen sharply.
    There have been reports of liquidity shortage in Tajikistan's banking system and the country's government is in talks with the International Monetary Fund (IMF) and other international lenders about financial assistance.


Nigeria maintains rate and switches to tightening bias

    Nigeria's central bank kept its monetary policy rate at 14.0 percent but switched to a tightening bias by saying that a rate cut now would worsen the naira's exchange rate, further pull the real interest rate into negative territory, reverse the positive outlook for the current account and not necessarily transmit into lower lending rates by banks.
      The Central Bank of Nigeria, which in January said it was committed to lowering its policy rate, said its monetary policy committee had debated loosening its policy stance to help stimulate demand and confidence but decided against this due to the upward trend in inflation and the impact from such an easing on the exchange rate.
    "The Committee, in consideration of the headwinds in the domestic economy and the uncertainties in the global environment, decided by 9 out of 10 members to retain the MPR at 14.0 percent," the CBN said, adding one committee member had voted to raise the rate.
     Among the global uncertainties facing Nigeria are "the unfolding protectionist posture of the United States and some European countries," sustenance of the OPEC-Russian agreement to cut oil output beyond July 2017, sluggish global recovery and a stronger U.S. dollar.
     Despite a drop in Nigeria's headline inflation rate to 17.78 percent in February - the first decline since January 2016 - the central bank said food prices had still risen and there were still structural factors putting pressure on consumer prices, such as high cost of power and energy, transport and production and the rising cost of imports.
    However, the CBN said it was optimistic that its policy stance along with other measures to improve the agricultural sector would help restart growth and drive down prices.
    Nigeria's economy has been in recession since the second quarter of 2016, with Gross Domestic Product contracting by 1.51 percent last year although the rate of annual contraction in the fourth quarter of last year improved to only 1.3 percent from 2.24 percent in the third quarter.
    The government's Economic Recovery and Growth Plan, along with efforts to restore peace in the Niger Delta region, should help revive growth and stabilize prices, the CBN said.
     The official exchange rate of Nigeria's naira has been largely unchanged since August last year, trading in a range between 317 and the official rate of 305 to the U.S. dollar. In June the CBN removed its naira peg of 197 to the dollar, resulting in an immediate 30 percent drop in its value.
    In response, authorities introduced several measures to control the exchange rate, with the naira on the black market trading about 40 percent below the official rate and businesses complaining about the lack of foreign exchange.
    There is frequent speculation in Nigeria that authorities will liberalize the foreign exchange market but the central bank has so far resisted these pressures, noting the sharp rise in inflation following Egypt's decision to float its pound.
    However, investors and economist still expect the CBN to take measures to narrow the gap between the black market and official rates, and in recent weeks the central bank has offered private individual U.S. dollars at a rate of 366 compared with the official rate of 305 to provide direct funding to meet the needs for travel, medicine and school fees.

Morocco holds rate, raises inflation, growth forecasts

    Morocco's central bank maintained its key monetary policy rate at 2.25 percent and raised its forecast for inflation and growth slightly this year due to improved domestic demand and a rise in imported inflation.
    The Bank of Morocco, or Bank Al-Maghrib (BAM), which cut its rate by 25 basis points a year ago in response to declining inflation, added monetary conditions tightened slightly last year due to an appreciation of the real effective exchange rate of the dirham but this should moderate from a smaller increase in the nominal exchange rate compared with trading partners.
     The pace of bank lending accelerated to growth of 3.9 percent last year from 0.3 percent in 2015 and should improve to 4.5 percent this year and 5.0 percent in 2018, the central bank said.
    Morococo's inflation rate rose to 2.1 percent in January as fuel and lubricant prices rose but in the medium term inflation is expected to remain moderate and average 1.1 percent this year before rising to 1.7 percent in 2018 as underlying inflation inflation rises to 1.5 percent and 1.9 percent, respectively.
    In its previous policy statement from December 2016, the central bank forecast 1.0 percent inflation for 2017 and 1.5 percent in 2018.
    Global growth is expected to improve, helped by a recovery in advanced economies, which will also push up inflation to above the U.S. Federal Reserve's target this year and next but below the European Central Bank's target.
     Economic growth in Morocco declined to an estimated 1.1 percent last year form 4.5 percent in 2015 due to a 10 percent contraction in agriculture value added from the worst drought in decades.
     But based on better weather conditions and an improvement in foreign demand, the central bank expects growth to rise to 4.3 percent this year as agriculture value added expands by 11.5 percent and non-agricultural Gross Domestic Product grows by 3.4 percent.
    Assuming agricultural output growth returns to 2.5 percent in 2018 and non-agricultural growth rises to 3.9 percent, overall GDP growth should decelerate to 3.8 percent next year.
    In January the International Monetary Fund forecast growth this year of 4.4 percent and growth in 2018 of 4.5 percent and while it said medium-term prospects are favorable, stronger growth will hinge on continued reforms to the labour market, access to finance, quality education, public spending efficiency and further improvements to the business environment.
    The IMF endorsed the central bank's accommodative policy stance and authorities' intention to move to a more flexible exchange rate regime and a new monetary policy framework that will help preserve the competitiveness of Morocco's and better insulate the economy against shocks.
    A draft of a new central bank law is aimed at strengthening the bank's independence and expand its role in financial stability.
    In December last year the central bank's president, Abdellatif Jouahri, was quoted as saying a planned float of the dirham was being postponed to the second half of this year from the beginning as he wanted to be sure the switch was a success and everyone was properly prepared, pointing to the sharp fall in the value of Egypt's pound following its float.
   Morocco's dirham fell sharply following the election of Donald Trump to U.S. President but since mid-December last year it has appreciated.
    Today the dirham was quoted at 9.96 to the U.S. dollar, up 1.6 percent this year.

Sunday, March 19, 2017

This week in monetary policy: Nigeria, Morocco, Argentina, Paraguay, New Zealand, Philippines, Taiwan, Sri Lanka, Russia and Colombia

    This week (March 19 through March 25) central banks from 10 countries or jurisdictions are scheduled to decide on monetary policy: Nigeria, Morocco, Argentina, Paraguay, New Zealand, Philippines, Taiwan, Sri Lanka, 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.

MAR 19 - MAR 25, 2017:
COUNTRY                 DATE                RATE           LATEST                 YTD          1 YR AGO       MSCI
NIGERIA 21-Mar 12.00% 0 0 14.00%          FM
MOROCCO 21-Mar 2.25% 0 0 2.25%          FM
ARGENTINA 21-Mar 24.25% 0 0 36.75%          FM
PARAGUAY 22-Mar 5.50% 0 0 6.00%
NEW ZEALAND 23-Mar 1.75% 0 0 2.25%          DM
PHILIPPINES 23-Mar 3.00% 0 0 4.00%          EM
TAIWAN 23-Mar 1.375% 0 0 1.50%          EM
SRI LANKA 24-Mar 7.00% 0 0 6.50%          FM
RUSSIA 24-Mar 10.00% 0 0 11.00%          EM
COLOMBIA 24-Mar 7.25% -25 -25 6.50%          EM

Friday, March 17, 2017

Mongolia maintains rate, outlook favors rate change

    Mongolia's central bank left its policy rate unchanged at 14.0 percent, saying the monetary policy outlook favors future changes to interest rates.
     The Bank of Mongolia (BOM) lowered its rate by 100 basis points in December following a sharp 450 point hike in August to help stabilize the exchange rate of the tugrik and preserve international reserves and thus financial stability.
     The central bank noted Mongolia's inflation rate rose to 2.1 percent in February from 1.9 percent in January and is expected to rise further but still remain low and below its target due to slow economic activity, with the strength of China's economy the main factor.
     Mongolia's inflation rate tumbled to a negative minus 0.2 percent in August last year and remained negative  until November as meat prices fell by one-quarter and household incomes fell.
     But the central bank said recent changes, such as an extension of the US$2.2 billion swap line with the People's Bank of China, had eased the pressure on short-term foreign payments and had a positive impact on the economy although there is uncertainty regarding the external sector and the budget.
     Last month Mongolia reached staff-level agreement with the International Monetary Fund (IMF) on an three-year extended fund facility that includes a $440 million loan to help avert default on a $580 million bond repayment due this month by the state-run Development Bank of Mongolia (DBM).
    In addition, the Asian Development Bank, the World Bank and other countries, such as Japan and South Korea, are providing financial aid, boosting the total financing package to around $5.5 billion.
    As part of the agreement with the IMF, Mongolia has agreed that the DBM will operate in an independent, commercial manner and the central bank will not engage in quasi-fiscal activity.
     The IMF also said it expects the BOM to continue with an appropriately tight monetary policy, aiming for price stability and first cut rates if external factors and inflation permits. A new law governing the central bank will help strengthen its mandate, governance and independence.
      In its December inflation report, the central bank forecast inflation will remain low but relatively stable this year, with deflation continuing until the third quarter due to slow economic activity and low meat prices while exchange rate depreciation will help push up import prices.
    The central bank's inflation target for 2016 and 2015 was lowered to 7 percent from 8.0 percent in 2013 and 2014, and 10 percent in 2012.
    Mongolia's economy has been hard by the fall in its main export commodities, such as copper and coal, and a collapse in foreign investment.
    The central bank expects coal to remain soft as China begins to replace coal with natural gas over the next five years and focuses on solar and wind energy while copper prices are also expected to remain soft for several more years.
    The economy, which grew by an estimated 1.0 percent in 2016, was forecast by the central bank in December to expand by between 0.6 and 2.6 percent this year with inflation ranging from 1.9 to 3.9 percent.
    By 2019 the IMF expects growth to rise to around 8 percent as mining projects take off, with foreign exchange reserves rising to US$3.8 billion - more than 6 months of imports - to levels seen in 2012 before the country was hit by external shocks.
     In the fourth quarter of last year, Mongolia's Gross Domestic Product grew by an annual rate of 1.0 percent following contraction of 1.6 percent in the third quarter.
     The exchange rate of Mongolia's tugrik has been depreciating since 2011 and fell over 20 percent from mid-2016 until early January this year.
    Since then the tugrik has been slowly appreciating and was trading at 2,443 to the U.S. dollar today, up 1.6 percent since the beginning of this year and up 2 percent since a historic low on Jan. 9 of almost 2,493 to the dollar.


Thursday, March 16, 2017

Chile cuts rate 25 bps on weakening economy, demand

    Chile's central bank cut its policy rate by another 25 basis points to 3.0 percent, as expected, and said there is a need for additional monetary stimulus due to the implication for inflation from the recent economic trends.
    It is the second rate cut by the Central Bank of Chile this year, following a cut in January, bringing the total easing to 50 basis points. January's rate cut was the first by the central bank since October 2014.
    Today's rate cut comes after the central bank in February said that the most likely scenario was that it would be necessary to boost the monetary impulse in the short term.
     Chile's inflation rate eased to 2.7 percent in February from 2.8 percent in January with inflation expectations in the coming months in the lower part of the central bank's target range of 1.0 to 5.0 percent around a central midpoint of 3.0 percent.
     Longer-term, inflation expectations remain around the target, the bank added.
    Economic activity and demand remains weak, the central bank said, adding employment was deteriorating although the employment rate remains stable.
    Chile's economy grew by an annual rate of 1.6 percent in the third and second quarters of 2016 while the unemployment rate rose to 6.2 percent in January 2017 from 6.1 percent in December.
    Chile's peso has been depreciating since mid-February and was trading at 661.75 to the U.S. dollar today, up 1.1 percent since the start of this year.


Swiss maintain rates, cautiously optimistic on economy

     The Swiss National Bank (SNB) maintained its expansionary monetary policy stance and said it remains "cautiously optimistic" about the outlook for the Swiss economy while the global economy is  expected to continue to improve, with industrial activity and trade picking up.
    The SNB left its benchmark target range for 3-month Libor rates at minus 1.25 - 0.25 percent along  with a negative 0.75 percent rate on sight deposits at the central bank.
    The rates have remained on hold since the SNB stunned foreign exchange markets in January 2015 by scrapping an upper limit on the exchange rate of the Swiss franc against the euro.
    After the 1.20 cap on the franc against the euro was scrapped, the franc immediately soared but since then it has remained relatively steady. Today the franc was trading at 1.069 to the euro, up 0.4 percent since the start of this year.
    The SNB confirmed that it still considers the franc to be "significantly overvalued" and will remain active in the foreign exchange markets when needed.
    "The negative interest rate and the SNB's willingness to intervene in the foreign exchange market are intended to make Swiss franc investments less attractive, thereby easing pressure on the currency," the SBN said.
      Updating its forecasts, the SNB raised its outlook for inflation in coming quarters due to higher oil prices but in the longer term inflation is expected to be slightly lower than forecast in December.
      For 2017 the SNB now expects inflation to average 0.3 percent, up from 0.1 percent previously forecast, while inflation in 2018 is seen at 0.4 percent, down from 0.5 percent.
     For 2019 inflation is seen at 1.1 percent with the forecast assuming an unchanged 3-month Libor rate of minus 0.75 percent.
     In February Switzerland's headline inflation rate rose to 0.6 percent from 0.3 percent in January for the highest rate since June 2011 and the third consecutive month of zero or positive inflation.
     Although economic growth in the fourth quarter was lower than expected, the SNB said data still point to continued moderate recovery with growth of roughly 1.5 percent for this year.
     In the fourth quarter of last year Switzerland's Gross Domestic Product grew by only 0.1 percent from the third quarter for annual growth of 0.6 percent, down from 1.4 percent in the third quarter.
    "Nonetheless, the forecast for Switzerland, too, is marked by considerable uncertainty emanating from international risks," the SNB said, pointing to the future course of U.S. economic policy, the upcoming elections in Europe and the exit negotiations between the UK and EU.

Wednesday, March 15, 2017

Kuwait, UAE hike rates as they track U.S. rate hike

    The central banks of Kuwait and the United Arab Emirates (UAE) were quick off the mark in raising their benchmark interest rates following a 25-basis point rate hike by the U.S. Federal Reserve.
    Five of the six members of the Gulf Cooperation Council (GCC), a regional political and economic grouping of oil exporters, peg their currencies to the U.S. dollar and normally adjust their key interest rates in sync with that of the Fed.
    Kuwait's dinar is pegged to a weighted based of currencies, including both the dollar and the euro.
    The Hong Kong Monetary Authority (HKMA) also pegs its dollar to the U.S. dollar and also tracks  U.S. rate changes.
    In addition to Kuwait (CBK) and the UAE, the GCC includes Saudi Arabia, Bahrain, Oman and Qatar. In December last year, when the Fed raised its rate for the second time since the global financial crises in 2008-2009, all GCC members quickly raised their rates, except for Oman.
    The Central Bank of Kuwait (CBK) said in statement that it had raised its discount rate by 25 basis points to 2.75 percent as of March 16, to "maintain the competitive and attractive returns on domestic KD savings compared with those of the major International currencies, particularly after the announcement by the US Federal Reserve to raise the interest rates as of March 15, 2017."
    The Central Bank of the UAE (CBUAE) said in its statement that it would raise the rates on its certificates of deposit by 25 basis points "in line with the increase in interest rates on US dollar, following the Federal Reserve Board's decision to increase the Federal Funds rate by 25 basis points at its meeting of today."
    The CBUAE's deposit rate will be raised to 1.75 percent as of March 16 while the repo rate will be raised by 25 basis points to 1.25 percent.