Thursday, August 25, 2016

Moldova holds rate as inflation continues to decelerate

    Moldova's central bank maintained its base rate at 10.0 percent, saying the effect of past rate cuts were still moving through the economy's various transmission channels while the most recent data revealed the downward dynamics of inflation though it remains above the bank's target.
    The National Bank of Moldova (NBM) has cut its rate by 950 basis points this year, most recently by 300 points in July, as it unwinds rate hikes totaling 1,600 points between December 2014 and August 2015 in response to a plunge in the leu's exchange rate and accelerating inflation.
    But since April this year the exchange rate of the leu has stabilized and inflation has been decelerating from a recent high of 13.6 percent in December 2015.
    In July Moldova's inflation fell to a 2016-low of 7.0 percent from 7.4 percent in June but still remains above the central bank's target range of 5.0 percent, plus/minus 1.5 percentage points.
    In its latest inflation report published on Aug. 3, the NBM forecast that inflation will remain on a downward trend until the end of this year before stabilizing around its target as the negative output gap continues to restrain price pressures for the entire forecast period and only starts to reach positive values by the end of the forecast horizon.
   On average, inflation should be 6.7 percent this year, reaching a level of 3.5 percent in the fourth quarter of this year, and then decline further to 4.4 percent in 2017.
    The leu was trading at 19.7 to the U.S. dollar today, unchanged from the start of this year, but down 21 percent since the start of 2015 and down 34 percent since the start of 2014.
    Economic activity in Moldova continues to remain below its potential level with exports in June down by an annual 12.9 percent and imports down by 7.7 percent. Industrial output fell by 2.1 percent but retail trade turnover managed to rise by 4.2 percent at the same time that trade in services fell by 7.0 percent, the NBM said.


Wednesday, August 24, 2016

Paraguay holds rate as inflation seen in line with target

     Paraguay's central bank left its monetary policy interest rate at 5.50 percent, saying it did not consider it necessary to make any rate adjustments as the current and expected trajectory of inflation was now in line with its inflation target over the policy horizon.
      The Central Bank of Paraguay has cut its rate twice this year - most recently in July following a cut in May - by a total of 50 basis points following a 25 point rate hike in January and cuts totaling 100 points in 2015.
      The central bank said economic data continue to show dynamism but it will carefully monitor external and internal economic data and use its monetary policy instruments in a flexible manner to ensure that inflation converges to its midpoint target of 4.5 percent.
     The target is within a 2 percentage point range.
     The central bank added that the decision to maintain the rate was decided unanimously by CEOMA, the bank's Open Market Operations Committee.
     Paraguay's inflation rate dropped to 2.9 percent in July from 4.7 percent in June and in May the International Monetary Fund forecast that inflation is expected to average 4.5 percent this year and remain at that level in 2017. 
   The exchange rate of Paraguay's guarani started depreciating in September 2014 and lost 20 percent against the U.S. dollar in 2015 before hitting a low of 5,967 to the dollar in late January. 
    But since the central bank's rate hike on Jan. 20, the guarani has steadily firmed and was trading at 5,511.5 today, up 4.9percent since the start of this year.
    Last month the central bank forecast that Paraguay's economy would expand by 3.5 percent this year, up from a previous forecast of 3.0 percent and 2015's 3.0 percent, due to faster growth in livestock, meat and construction output.
    Paraguay is the world's fourth-biggest soybean exporter and this year's harvest is expected to be very good.

Iceland cuts rate 50 bps, capital flows to determine future

    Iceland's central bank cut its key policy rate, the seven-day deposit rate, by 50 basis points to 5.25 percent but said uncertainty from a liberalization of the country's capital account argued for caution in setting interest rates and any further lowering or even raising rates "will depend on economic developments and on the success of the capital account liberalization process."
    It was the first change in rates by the Central Bank of Iceland (CBI) since a 25-basis-point increase in November 2015 and the first rate hike since November 2012.
    The rate cut follows a much-improved outlook for inflation and the central bank's guidance in June that it would probably have to tighten its policy stance in light of growing inflation pressures.
   But the CBI said there "are indications that monetary policy has been more successful than was expected earlier in the year," and now it "appears that it will be possible to keep inflation at target over the medium term with a lower interest rate than was previously considered necessary."
    In its latest monetary bulletin, the central bank lowered the forecast for consumer price inflation, excluding the effect of indirect taxes, this year to an average of 1.7 percent from 2.1 percent forecast in the May bulletin, below the CBI's 2.50 percent target.
    For 2017 inflation, inflation is now seen at 3.2 percent, down from 4.1 percent and for 2018 at 3.6 percent from 3.8 percent.
    Iceland's inflation rate fell to 1.1 percent in July, the lowest rate since early 2015, with an rise in the krona's exchange rate, low global inflation and tight monetary policy offsetting the impact of wage increase on consumer prices.
    Iceland is in the final stage of dismantling remnants of capital controls that were put in place following the global financial crises in 2008 that led to the collapse of its banking system and a halving of the value of the Icelandic krona.
    Earlier this week the central bank concluded that capital can be expected to flow out of Iceland next year due to firms' foreign investments and individuals' interest in diversifying their portfolios, but the risk of substantial outflows is mitigated by the wide interest rate differential, Iceland's stronger economy, low inflation and trade-related capital inflows in connection with the higher krona.
    Annual overseas investment by Iceland's pension sector was forecast by the central bank to amount to a relatively low level of between 60 billion and 80 billion krona from 2017 and onwards, with less pent-up need for overseas investments following several exemptions since last summer that is allowing 80 billion krona to flow out by the end of September.
    After plunging from November 2007 to November 2008 to a rate of around 143 to the U.S. dollar, the krona has been trading in a much narrower range and has been firming since March 2015.
    Today the Icelandic krona was trading at 116.8 to the dollar, up 11.1 percent since the start of this year, despite what the CBI described as "substantial foreign currency purchases."
    "If the exchange rate remains unchanged, the outlook is for inflation to remain below target until early 2017," the CBI said, adding that inflation will then start to rise as import prices stop falling and the impact of the currency appreciation subsides. However, if the krona continues to rise, inflation will be lower than forecast.
    In its monetary bulletin, the central bank also upgraded its outlook for economic growth, with output this year seen rising by 4.9 percent, up from 4.5 percent forecast in May and 4.0 percent in 2015 as private consumption rises by 6.7 percent, up from a previous forecast of 6.0 percent.
    For 2017 the central bank forecasts economic growth of 4.1 percent, slightly up from the May forecast of 4.0 percent and 2.6 percent in 2018, down from 3.0 percent.

Tuesday, August 23, 2016

Hungary maintains rate and guidance of steady base rate

    Hungary's central bank left its base rate at 0.90 percent, as widely expected, and repeated its guidance that it will maintain the rate at the current level and maintain loose monetary conditions "for an extended period" as there continues to be unused capacity in the economy and inflation should remain moderate.
    The National Bank of Hungary (NBH), which ended its latest easing cycle in May after cutting the rate three times by a total of 45 basis points, added that "a watchful approach to monetary policy is still warranted due to uncertainty in the global financial environment," with domestic, real interest rates in negative territory and declining further as inflation rises.
    The central bank also confirmed that it is still planning to decide next month on the required year-end level of the three-month deposit stock and operational details of that facility.
    The MNB is planning to change the use of its main policy tool, the three-month deposit facility, to encourage banks to offer cheaper loans and to buy government debt by lowering the amount from 1,600 billion forints that banks can deposit, and conduct monthly, rather than weekly, tenders.
    Hungary's consumer price inflation rate declined to minus 0.3 percent in July from minus 0.2 percent in June, the third consecutive month of deflation, while core inflation rose to 1.3 percent form 1.2 percent as inflation expectations remain at historically low levels.
    But wage growth remains strong, the central bank said, and this is likely to raise core inflation slowly through rising household consumption. In the first half of this year, gross wages were up by an annual 6.0 percent, with wages in June up by an annual 5.7 percent.
    But the MNB first expects inflation to approach its 3.0 percent target in the first half of 2018.
    In line with its expectations, Hungary's economy picked up speed in the second quarter after slowing in the first quarter as retail sales continued to expand and labour demand remains strong.
    Hungary's Gross Domestic Product grew by an annual rate of 2.6 percent in the second quarter, up from 0.9 percent in the first quarter and the central bank expects growth of around 3 percent to be maintained, helped by an extension of its various stimulus measures and the government's efforts to promote housing construction and a faster drawdown of European Union funding.
    Hungary's forint has been firming against the euro since June and is up 1.6 percent since the start of this year, trading at 309.7 to the euro today.

Turkey holds key rate, trims overnight lending rate further

    Turkey's central bank left its benchmark one-week repo rate at 7.50 percent but continued simplifying its monetary policy framework by once again cutting the overnight marginal funding rate and the late liquidity lending rate by a further 25 basis points.
    The Central Bank of the Republic of Turkey (CBRT) confirmed its guidance from recent months, saying future monetary policy decisions will be conditional on the outlook for inflation and a tight policy stance will be maintained in light of inflation expectations, pricing behavior and other factors - a reference to the exchange rate - that affect inflation.
     The central bank cut the overnight marginal funding rate to 8.50 percent from 8.75 percent and has now cut its by a total of 225 points since March. The borrowing rate was maintained at 7.25 percent.
    The late liquidity lending rate was also cut to 10.0 percent from 10.25 percent while the borrowing rate was left at zero percent.
    The once-week repo rate has been maintained at 7.50 percent since February 2015 as the CBRT remains cautious over inflation which rose in July to 8.79 percent from 7.64 percent in June due to a sharp rise in unprocessed food prices. Core inflation rose to 8.8 percent from 8.7 percent in June.
    Although the central bank said it expects food prices to correct downward, the trend in core inflation is only seen improving gradually so the "developments in the inflation outlook necessitate the maintenance of a tight liquidity stance."
    In its quarterly inflation report from last month, the central bank expects inflation to stabilize around its 5.0 percent target as of 2018 after easing to an average of 7.5 percent this year and 6.0 percent in 2017.
    Inflation is seen fluctuating between 6.6 percent and 8.4 percent in the rest of this year.
    The exchange rate of Turkey's lira has rebounded following a deep plunge in response to the failed military coup attempt in July, with the lira trading at 2.93 to the U.S. dollar today, largely unchanged from 2.92 at the start of the year.

Sunday, August 21, 2016

This week in monetary policy: Turkey, Hungary, Iceland, Paraguay, Moldova, Fiji and Jackson Hole symposium

    This week (August 21 through August 27) central banks from 6 countries or jurisdictions are scheduled to decide on monetary policy: Turkey, Hungary, Iceland, Paraguay, Moldova and Fiji.
    In addition, the Federal Reserve Bank of Kansas City will once again host top central bankers, economists and policymakers from around the world, including Federal Reserve Chair Janet Yellen, at its annual economic symposium in Jackson Hole, Wyoming. 
    The theme of this year's symposium, which takes place Aug. 25-27, is "Designing Resilient Monetary Policy Frameworks for the Future."
    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.

AUG 21 - AUG 27, 2016:
COUNTRY       DATE           RATE      LATEST        YTD     1 YR AGO    MSCI
TURKEY 23-Aug 7.50% 0 0 7.50%       EM
HUNGARY 23-Aug 0.90% 0 -45 1.35%       EM
ICELAND 24-Aug 5.75% 0 0 5.50%
PARAGUAY 24-Aug 5.50% -25 -25 5.75%
MOLDOVA 25-Aug 10.00% -300 -950 19.50%
FIJI 25-Aug 0.50% 0 0 0.50%

Thursday, August 18, 2016

Mongolia raises rate 450 bps to stabilize tugrik FX rate

    Mongolia's central bank raised its benchmark by 450 basis points to 15.0 percent to help increase the return of local currency assets and ensure more stability of the tugrik currency.
    It is the first rate hike by the Bank of Mongolia since January 2015 and follows two rate cuts in January and May this year by a total of 250 points.
    The central bank said the entry and exit of foreign currencies is showing encouraging trends but further steps to strengthen confidence in the currency was required.
    The exchange rate of the tugrik has been falling sharply since late June when the Mongolian People's Party (MPP) returned to power in a landslide parliamentary election amidst an economic slowdown from a fall in mining output.
    The tugrik was trading at 2,249.5 to the U.S. dollar today, down 11.4 percent year to date, as inflation in July declined to a year-low of 0.9 percent from 1.6 percent in June.
    The central bank said the country's trade balance had improved by US$602 million in the first half of the year while the current account deficit had narrowed.
    Mongolia's Gross Domestic Product grew by an annual rate of 1.4 percent in the first half of this year.

Wednesday, August 17, 2016

Namibia holds rate to continue supporting economy

    Namibia's central bank maintained its benchmark repo rate at 7.0 percent, a decision the bank said was "necessary to continue supporting the country's economic growth, particularly in light of slow and fragile recovery in the economies of Namibia's trading partners."
    The Bank of Namibia, which has raised its rate twice this year by a total of 50 basis points, said the country's economy had slowed in the first half of 2016 from the same 2015 period and inflation had continued to rise but remained within "acceptable levels."
    Namibia's Gross Domestic Product grew by an annual rate of 3.5 percent in the first quarter of this year, down from 7.3 percent in the first quarter of last year but up from 2.9 percent in the fourth quarter of 2015.
   The central bank said the mining sector had expanded slowly, particularly in the production of diamonds and zinc concentrate, while reduced activity in manufacturing, transport, construction and agriculture also contributed to the weaker performance.
   On the upside, wholesale, retail and communication sectors were relatively strong.
    "Going forward, growth is expected to be positive, however, risks remain, which include low commodity prices, volatile exchange rate, the prevailing drought conditions and slow recovery in the economies of Namibia's trading partners," the central bank said.
    Namibia's inflation rate rose slightly to 7.0 percent in July from 6.7 percent in June and "going forward, annual inflation is projected to increase, but remain within acceptable levels for the remainder of the year," the bank said.
    Namibia's stock of international reserves declined to 19.2 billion Namibian dollars as of Aug. 12 from N$22.1 billion on June 13 and 26.6 billion on April 11.
    This stock was the equivalent of 2.4 months of import cover and "sufficient to meet foreign obligations of the country," the bank said.
    Growth in Private Sector Credit Extension (PSCE) also continued to decline due to lower demand from households and corporates. Annual average growth in the first six months of this year was 12.4 percent, down from 15.6 percent in the first half of 2015.


Tuesday, August 16, 2016

Armenia cuts rate 25 bps, deflation seen slowly easing

    Armenia's central bank cut its benchmark refinancing rate by 25 basis points to 7.25 percent, saying it expects a low inflationary environment in coming months but that the annual inflation rate will return to its target as the deflationary environment gradually disappears.
   The Central Bank of Armenia (CBA) has now cut its rate by 325 basis points since embarking on an easing cycle in August 2015, including cuts of 150 points this year.
    The CBA said the risks of deflation may dominate in the short term but it can adequately respond to this to ensure that it meets its medium-term inflation target of 4.0 percent, plus/minus 1.5 percentage points.
    Armenia's inflation rate was minus 1.3 percent in July, up from minus 1.1 percent in June for the eight consecutive month of deflation as the central bank attributed lower prices in July to a seasonal decline in prices for agricultural products and a fall in natural gas prices.
    Armenia's dram currency has been firming since mid-February and the central bank said changes in the European Union - apparently a reference to Brexit - had not had a significant impact on its economy, with economic activity in the second half of this year expected to improve from the first half due to positive demand for its exports.
    At the same time, inflation expectations have been reduced, making it possible for long-term market interest rates to decline, helping private consumption and domestic demand recover.
    The dram was trading at 475.8 to the U.S. dollar today, up 1.7 percent from 483.7 at the start of this year.
    On Aug. 26, the CBA will publish its third quarter inflation report.


Monday, August 15, 2016

Kazakhstan holds rate, further cuts depend on inflation

    Kazakhstan's central bank left its base rate at 13.00 percent, saying further rate cuts will depend on actual inflation, inflation expectations and the tenge's exchange rate.
    The National Bank of Kazakhstan has cut its rate by a net 300 basis points this year, most recently by 200 points in July, and by 400 points since February when the rate was raised to 17 percent.
    In September last year the central bank launched its new base rate and set it at 12.0 percent and subsequently raised it to 17 percent before starting to ease its policy stance this May as the exchange rate of the tenge stabilized following a plunge in the last half of 2015.
    The balance of risks to inflation has barely changed since the central bank's rate cut in July and the decision to maintain the rate today reflected the expectation that inflation will reach the bank's target range of 6-8 percent and remain there until the end of 2017.
    Inflation in Kazakhstan rose slightly to a 2016-high of 17.7 percent in July from 17.3 percent in June but the central bank said there was a seasonally-adjusted bump in prices in July and inflation remains high due to a significant increase in the fourth quarter of last year.
    But as the base effect of this begins to fade, the central bank expects "a significant decline" in the inflation rate from October.
    The pass-through of weaker oil prices in July to consumer prices is expected to be limited if oil prices recover to US$45 per barrel or higher, while part of the fall in oil prices was absorbed by a depreciation of the tenge's exchange rate.
   In August last year the central bank adopted a floating exchange rate regime in response to capital outflows and the conversion of tenge bank deposits to foreign currency. This led to an immediate fall in the tenge's exchange rate but over the last six months, the value of the tenge has been more stable.
    Today the tenge was trading at 343.45 to the U.S. dollar, down 0.8 percent since the start of this year but up 13.8 percent since hitting a low of 391 on Jan. 21 this year.

Sunday, August 14, 2016

This week in monetary policy: Kazakhstan, Namibia and Indonesia

    This week (August 14 through August 20) central banks from 3 countries or jurisdictions are scheduled to decide on monetary policy: Kazakhstan, Namibia and Indonesia.
    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.

AUG 14 - AUG 20, 2016:
COUNTRY       DATE           RATE      LATEST        YTD     1 YR AGO    MSCI
KAZAKHSTAN 15-Aug 13.00% -200 -300 5.50%       FM
NAMIBIA 17-Aug 7.00% 0 50 6.50%
INDONESIA 19-Aug 6.50% 0 -100 7.50%       EM