Sunday, November 18, 2018

This week in monetary policy: Hungary, Zambia, South Africa, Nigeria and Paraguay

    This week - November 18 through November 24 - central banks from 5 countries or jurisdictions are scheduled to decide on monetary policy: Hungary, Zambia, South Africa, Nigeria and Paraguay.
    On Nov. 17 the Central Bank or Nigeria rescheduled the Nov. 19 and Nov. 20 meetings of its monetary policy committee to Nov. 21 and Nov. 22 as Tuesday Nov. 20 was declared a public holiday by the government.
    On Nov. 6 Albania's central bank postponed until further notice the Nov. 7 meeting of its supervisory council scheduled to discuss the quarterly monetary policy report as the terms of six of nine members had expired.
    According to the supervisory council's published schedule, the council is scheduled to meet on Nov. 21 to approve the Bank of Albania's budget. It is not clear whether this meeting will take place.
    On Nov. 8 the National Bank of Angola postponed the meeting of its monetary policy committee originally scheduled for Nov. 23 until Nov. 30.
    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.

NOV 18 - NOV 24, 2018:
COUNTRY                   DATE                     RATE                LATEST                    YTD              1 YR AGO
SOUTH AFRICA22-Nov6.50%0-256.75%

Wednesday, November 14, 2018

Sri Lanka cuts SRR 150 bps but raises depo rate 75 bps

     Sri Lanka's central bank lowered its reserve requirement on banks' deposits to boost liquidity in the domestic money market and reduce the cost of funds but also raised its two key policy rates to neutralize the impact of this injection of money to maintain a neutral monetary policy stance.
     The Central Bank of Sri Lanka (CBS) cut the Statutory Reserve Ratio (SRR) by 150 basis points to 6.0 percent as of Nov. 16, saying this should release "a substantial" amount of liquidity to counter a "large and persistent liquidity deficit" in the domestic money market that has driven up the cost of funds for banks.
      This lack of liquidity has required the central bank carry out to open market operations on a short- and long-term basis, in addition to overnight operations.
     But given the current and expected trends in inflation and economic growth, CBS said it wanted to maintain an overall neutral policy stance so it raised the Standing Deposit Facility Rate (SDFR) by 75 basis points to 8.0 percent and the Standing Lending Facility Rate (SLFR) by 50 basis points to 9.0 percent, narrowing the rate corridor to 100 points.
    This narrowing is also expected to narrow the spread between market deposit and lending rates.
    Today's rate hike is CBS' first rate change since April this year when the lending rate was lowered by 25 basis points to 8.50 percent while the deposit rate was maintained at 7.25 percent to narrow the policy rate corridor to help control short-term interest rates and reduce their volatility.
     Sri Lanka's headline inflation rate dipped to a 2018-low of 3.1 percent in October but is expected to rise and remain within the central bank's target range of 4.0 to 6.0 percent during 2019 and "thereafter with appropriate policy adjustments," CBS said.
      Sri Lanka's rupee has dropped sharply this year, especially in September, due to a general rise in the U.S. dollar, with the rupee's decline boosted by capital outflows and a surge in imports.
      "Although the pace of deprecation has moderated recently, the Sri Lankan rupee has depreciated by 12.9 percent against the U.S. dollar during 2018 up to 13 November," CBS said, adding gross official reserves at the end of October amounted to US$7.9 billion, enough for 4.2 months of imports.
     Sri Lanka's trade deficit has widened this year as import earnings have outpaced the growth in exports but CBS expects imports to slow in the period ahead due to recent import controls and the depreciation of the rupee.
     Sri Lanka's economy is expected to remain subdued this year and below expected levels, CBS said.
     Last month CBS expected growth in the second half of this year to pick up speed from the first half. In the second quarter Sri Lanka's economy grew by 3.7 percent year-on-year, up from 3.5 percent in the first quarter.

Sunday, November 11, 2018

This week in monetary policy: Armenia, Sri Lanka, Thailand, Indonesia, Philippines, Egypt, Mexico & Jamaica

    This week - November 11 through November 17 - central banks from 8 countries or jurisdictions are scheduled to decide on monetary policy: Armenia, Sri Lanka, Thailand, Indonesia, Philippines, Egypt, Mexico and Jamaica.
    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.

NOV 11 - NOV 17, 2018:
COUNTRY                   DATE                     RATE                LATEST                    YTD              1 YR AGO
SRI LANKA14-Nov7.25%007.25%
PHILIPPINES 15-Nov4.50%501503.00%

Friday, November 9, 2018

Mauritius maintains rate, 2019 inflation, growth forecast

      The central bank of Mauritius, the Indian Ocean island, left its benchmark repurchase rate steady at 3.50 percent as it lowered its 2018 estimate of inflation further while maintaining the outlook for inflation next year.
      The Bank of Mauritius (BOM), which has kept its rate steady since cutting it in September 2017, projected that 2018 inflation would average 3.2 percent, down from the August forecast of 3.5 percent and May's forecast of 4.2 percent. Inflation in 2017 averaged 3.7 percent.
      After rising to 7.0 percent in February, inflation in Mauritius decelerated sharply to 1.0 percent by June as shocks to food prices subsided and some administered prices fell. Since then inflation has picked up speed and rose to 2.8 percent in October from 1.9 percent in September.
     Barring major shocks to supply, BOM forecast 2019 inflation of 3.0 percent, as in August.
     The economy of Mauritius has slowed in recent quarters but BOM left unchanged its forecast for growth to average 4.0 percent this year and next year, up from 3.5 percent in 2017, supported by rising consumption and public infrastructure investment.
     Year-on-year Mauritius' gross domestic product grew 3.7 percent in the second quarter, down from 4.1 percent in the first quarter.
      "The MPX weighted the risks to growth and inflation outlook and concurred that monetary conditions are currently appropriate and supportive of economic growth and price stability," BOM said.
      The Mauritian rupee has been relatively stable since June after depreciating in the first half of the year. Today the rupee was trading at 34.6 to the U.S. dollar, down 2 percent this year.

Thursday, November 8, 2018

US Fed holds rate as growth in fixed investment easing

     The U.S. Federal Reserve left its benchmark federal funds rate steady at 2.0 - 2.25 percent, as widely expected, but said growth of fixed investments by businesses, such as machinery or technology, had moderated from its rapid pace earlier in the year.
      But the Fed's policy-making arm, the Federal Open Market Committee (FOMC), generally reiterated its view from September about the current strength of the U.S economy, where the labor market had "continued to strengthen and that economic activity has been rising at a strong pace."
     As in recent months, the FOMC also said it expects further gradual increases in the fed funds rate to be consistent with sustained economic expansion and inflation near its 2.0 percent objective.
     "Risks to the economic outlook appear roughly balanced," an unanimous FOMC said, as in September.
     Today's statement by the Fed did not include any update to its economic forecast from September when the fed funds rate was seen averaging 2.4 percent this year, implying one more rate hike, with economists looking for this hike to come at the Fed's meeting on Dec. 19.
     The Fed has already raised its rate three times this year by a total of 75 basis points and 8 times since it began tightening its policy since December 2015.
     The U.S. economy grew by an annual 3.0 percent in the third quarter of this year, the sixth consecutive quarter of accelerating year-on-year growth and the ninth quarter of strong growth since the third quarter of 2016.
     Headline inflation eased to 2.3 percent in September from 2.7 percent in August due to a slowdown in gas and fuel prices while the unemployment rate was steady at 3.7 percent in October.
     The U.S. dollar rose about 0.8 percent in response to the Fed's decision to trade at 1.139 to a euro to be up 5.7 percent this year.

Wednesday, November 7, 2018

Iceland raises rate 25 bps as inflation expectations rise

     Iceland's central bank raised its key interest rate, the rate on 7-day term deposits, by 25 basis points to 4.50 percent and warned "if inflation expectations continue to rise and remain persistently at a level above the target, it will call for a tighter monetary stance."
     It is the first rate  hike by the Central Bank of Iceland (CBI) since November 2015 and the first change in rates since a 150-basis-point easing cycle from August 2016 concluded with a 25-point cut in October 2017.
     Today's rate increase comes after the CBI in June began warning of the need for tighter monetary policy in light of rapid economic growth and wage pressures.
     In its October policy statement the bank's monetary policy committee then warned rates would rise if inflation expectations continued to rise and remain above the bank's target of 2.5 percent.
     "GDP growth in 2017 and H1/2018 was stronger than previously estimated," CBI said, raising its growth forecast for 2018 to 4.4 percent from an earlier 3.6 percent although growth is expected to slow down and help close the output gap.
     For 2019 CBI retained its forecast for economic growth of 2.7 percent, then lowered the 2020 forecast to 2.5 percent from an earlier 3.0 percent, and forecast 2.6 percent growth in 2021.
     Iceland's economy has enjoyed an economic boom in recent years, it grew 4.0 percent last year, boosted by a surge in tourism.
      Iceland's gross domestic product expanded by an annual 7.2 percent in the second quarter of this year, up from 5.6 percent in the first quarter while inflation rose to 2.8 percent in October from 2.7 percent in September, boosted by higher import prices from a lower exchange rate of the krona and higher oil prices.
     "The outlook is for inflation to continue rising and be somewhat above the target next year," CBI said, adding inflation expectations have risen recently and now above target.
     In its latest monetary bulletin, CBI maintained its forecast for headline inflation this year to average 2.7 percent, up from 1.8 percent last year, but raised the forecast for 2019 inflation to 3.4 percent from an earlier 2.8 percent as unit labour cost rise 5.3 percent after a 5.6 percent rise in 2018.
     In 2020 inflation is seen averaging 2.7 percent and then easing to CBI's 2.5 percent target in 2021.
     After rising sharply from March 2015 to June 2017, Iceland's krona has weakened this year and is now 8 percent weaker than CBI projected in its previous forecast from August and at its lowest level in more than two years as export growth has slowed and investors have turned more pessimistic.
      The CBI expects the exchange rate to remain broadly at its year-to-date average for the next two years, or a trade-weighted exchange rate index about 3 percent lower in 2018 than in 2017. For 2019 a further 3 percent decline in expected.
     Today the krona firmed in response to the rate hike and was trading at 120.4 to the U.S. dollar, down 14 percent this year.

Monday, November 5, 2018

Australia holds rate, raises 2018, 2019 growth forecast

      Australia's central bank left its benchmark cash rate steady at 1.50 percent, as expected, saying the country's economy was "performing well" and raising its forecast for economic growth to average around 3.5 percent this year and in 2019 from an earlier forecast of "a bit above 3 percent."
      The Reserve Bank of Australia (RBA), which has maintained its rate since August 2016, said business conditions were positive and non-mining investment was expected to rise while higher levels of public infrastructure investment and growth in resource exports were supporting the economy.
      Australia's gross domestic product grew by an annual rate of 3.4 percent in the second quarter of this year, up from 3.2 percent in the first quarter, while the jobless rate unexpectedly dropped to 5.0 percent in September from 5.3 percent in the previous month for the lowest rate since April 2012.
      "The Australian economy is performing well," RBA Governor Philip Lowe said in a statement, adding growth in 2020 was expected to slow due to slower exports of resources.
      With the economy growing above trend, Lowe expects the unemployment rate to decline further to around 4.75 percent by 2020 and wages should gradually rise as the economy improves.
      Lowe added household consumption remains a continuing source of uncertainty as income growth remains low, debt levels are high and some asset prices have declined while drought has affected the farm sector.
      As in the previous statement from October, the RBA sounded relatively optimistic about the global economy, saying the expansion was continuing and a number of advanced economies were growth at above-trend rates. While growth in China has slowed, authorities are easing their policy while paying attention to risks in the financial sector.
      Although financial conditions in advanced economies remains expansionary, the RBA acknowledged they had tightened recently while equity prices have declined.
      Australia's inflation rate remains stable and the RBA forecast it would rise gradually in coming years to 2.25 percent in 2019 and then a bit further in the following year.
     In the third quarter Australia's inflation rate eased to 1.9 percent from 2.1 percent in the second quarter due to a decline in some administered prices.

Sunday, November 4, 2018

This week in monetary policy: Australia, Romania, Iceland, Poland, Albania, New Zealand, Malaysia, Serbia, USA, Peru & Mauritius

    This week - November 4 through November 10 - central banks from 11 countries or jurisdictions are scheduled to decide on monetary policy: Australia, Romania, Iceland, Poland, Albania, New Zealand, Malaysia, Serbia, United States of America, Peru and Mauritius.
    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.

NOV 4 - NOV 10, 2018:
COUNTRY                   DATE                     RATE                LATEST                    YTD              1 YR AGO
ALBANIA 7-Nov1.00%0-251.25%
NEW ZEALAND8-Nov1.75%001.75%

Thursday, November 1, 2018

Czech raises rate another 25 bps on inflation pressures

      The central bank of the Czech Republic raised its benchmark 2-week repo rate by another 25 basis points to 1.75 percent, it's fifth hike this year, as inflation is seen slightly higher than previously expected due to the recent weakening of the koruna's exchange rate.
      "The overall inflation pressures in the domestic economy remain strong," said the Czech National Bank (CNB), which has raised its key rate by 125 basis points this year and by 170 points since August last year when rising wages began pushing up inflation amid a booming economy.
      In its latest forecast, the CNB sees inflation rising to 2.2 percent by the fourth quarter of next year, up from 2.0 percent previously forecast, before leveling off to 2.1 percent in the final quarter of 2020 - close to the bank's 2.0 percent target - as the koruna resumes its rise and the growth in wages begins to ease as the economy cools slightly.
     Economic growth is seen averaging 3.1 percent this year, slightly down from 3.2 percent previously forecast, but then accelerating to 3.3 percent next year and staying at 3.3 percent in 2020 as household consumption remains buoyant.
     The main risk to the CNB's forecast stems from the koruna's exchange rate, which has been weaker than expected due to negative sentiment on global financial markets.
      This global effect is expected to persist for the next two quarters but the koruna is then expected to rise next year due to the interest rate differential to the euro before its appreciation slows as the European Central Bank (ECB) begins to normalize its monetary policy.
     The koruna firmed slightly in response to the CNB's rate hike to 25.83 to the euro, still slightly below 25.54 at the start of this year. Next year the CNB expects the koruna to firm to an average rate of 24.7 to the euro and then to 24.2 in 2020.
      Headline inflation in the Czech Republic eased to 2.3 percent in September from 2.5 percent in August while the economy expanded by an annual 2.4 percent in the second quarter, down from 4.2 percent in the first quarter.

BOE holds rate, says Brexit could lead to rate hike or cut

      The U.K. central bank left its benchmark Bank Rate unchanged at 0.75 percent, as expected, but said the direction of its monetary policy would depend on the nature of Britains' exit from the European Union (EU) and the response "whatever form it takes, will not be automatic and could be in either direction."
      The Bank of England (BOE), which has raised its rate twice since August 2016 when the rate was cut in response to the decision to withdraw from the EU, added the economic outlook would depend significantly on the nature of EU withdrawal and "the implications for the appropriate path of monetary policy will depend on the balance of the effects on demand, supply and the exchange rate."
      Despite the uncertainty facing BOE policy makers, the monetary policy committee (MPC) reiterated that if the economy develops broadly in line with its November projections, "an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainable to the 2% target over a conventional horizon."
     In its latest inflation report, the BOE raised its forecast for inflation in the fourth quarter of 2018 to 2.5 percent from August's forecast for 2.3 percent but lowered the forecast for inflation in the fourth quarter of 2019 to 2.1 percent from 2.2 percent.
     For the last quarter of 2020 inflation is seen at 2.1 percent, up from 2.0 percent, and then at 2.0 percent in the fourth quarter of 2021.
     A disruptive withdrawal from the EU is likely to lead to a sharp fall in pound sterling and higher tariffs, boosting inflation. Set against this, demand is likely to weaken, reflecting lost trade access heightened uncertainty and tighter financial conditions, the inflation report said.
     Summarizing forward rates in financial markets, the Bank Rate is seen steady this year before rising to 1.0 percent in the fourth quarter of 2019 - implying one rate hike - then 1.2 percent in the fourth quarter of 2020, up from 1.1 percent forecast in August, and then 1.4 percent in the final quarter of 2021.
      Under the assumption of a smooth adjustment to future trading relationship with the EU, Britain's gross domestic product is seen growing an average of 1.75 percent through 2021, with the unemployment rate steady at 3.9 percent but excess demand slowly rising.
      As in September, the BOE's 9-member MPC was unanimous in its policy decision. Despite uncertainty over Brexit, the BOE raised its rate in November last year and then in August this year to counter inflationary pressures from the decline in the exchange rate of pound sterling.
      Today the pound, which plunged in response to the EU referendum and has weakened this year, rose against the U.S. dollar and was trading at 1.295, but still down 4.2 percent this year.
      "Momentum in household consumption appears greater than previously expected, supported by the strong labour market and resilient household confidence," the BOE said, adding this contrasted with business investment that has been more subdued than anticipated "as the effect of Brexit uncertainty has intensified."
      Under the assumption of a smooth transition, BOE expects investment growth to bounce back in coming months as greater clarity over future trading conditions emerges.
      The UK economy grew by an annual rate of 1.2 percent in the second quarter of this year, up from  1.1 percent in the first quarter while headline inflation eased to 2.4 percent in September from 2.7 percent in August.

Wednesday, October 31, 2018

Moldova holds rate as inflation to decelerate further

     Moldova's central bank left its base rate at 6.50 percent, along with its required reserve ratios, but said keeping the rate at the current level is conditional upon the short-term trend in inflation and disinflationary pressures that should persist during the remainder of this year.
     The National Bank of Moldova (NBM) has kept its rate steady since December 2017 but raised the reserve requirement for leu funds by 250 basis points to 42.50 percent in September to mop up excess liquidity.
     The latest policy decision by the board was based on updated inflation forecasts that sees inflation declining further to 1.9 percent by the end of this year from 2.4 percent in September, the lowest rate since December 2016 but a decline that was expected by the central bank.
     Inflation in Moldova has been easing due to modest demand, changes to electricity tariffs and the continued strength of the leu against the euro.
    Next year the trajectory of inflation will be upward, the NBM said, after which inflation will decline, with aggregate demand easing and thus being disinflationary.
     The latest forecast sees inflation averaging 3.3 percent this year and 5.4 percent in 2019, with inflation above the NBM's target range of 3.5 to 6.5 percent by the end of next year.
     By 2020 inflation will return to the target range.
     The leu has been appreciating against the euro since May 2016 and was trading at 19.1 to the euro today, up 7.3 percent this year.