Tuesday, July 26, 2016

Nigeria hikes rate 200 bps to boost naira, curb inflation

     Nigeria's central bank raised its Monetary Policy Rate (MPR) by 200 basis points to 14.0 percent due to its concern over a significant rise in inflation but also recognized that it lacks the instruments to jumpstart growth and cannot undermine its primary mandate and stability of the financial system.
    The Central Bank of Nigeria (CBN) has now raised its rate by 300 basis points this year following a hike in March. The central bank's monetary policy committee voted by a majority of five to raise the rate while three members voted to maintain the rate.
    "The Committee noted that inflation had risen significantly, eroding real purchasing power of fixed income earners and dragging growth," the central bank said, adding that members of the MPC agree that the country is passing though a difficult phase, dealing with critical supply gaps, but remains concerned over recession and the prospects of negative growth.
    Nigeria's inflation rate accelerated to 16.5 percent in June from 15.6 percent in May, resulting in negative real interest rates, which discouraging savings, and doesn't support the recent flexible foreign exchange market as foreign investors remain lukewarm and unwilling to bring in new capital.
    "Members further noted that there existed a substantial amount of international capital in negative yielding investments globally and Nigeria stood a chance of attracting such investments with sound macroeconomic policies," the CBN said.
    An increase in the policy rate should give impetus for improving the liquidity of the foreign exchange market, the central bank said, helping boost manufacturing and industrial output.
    Nigeria's naira was trading at 310.3 to the U.S. dollar, down 36 percent this year.

Hungary holds rate, to decide on 3-month repo in Sept

    Hungary's central bank left its base rate at 0.90 percent, as widely expected, confirming that the disinflationary impact from the real economy was gradually decreasing but there is still a degree on unused capacity in the economy and inflation will remain moderate for an extended period.
    The National Bank of Hungary (MNB), which wrapped up its latest easing cycle in May after cutting the rate by 45 basis points this year, added that its monetary council would decide on the required level of the three-month deposit rate and the operational use of that facility in September.
    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.
     However, the council added that "a watchful approach to monetary policy is still warranted due to uncertainty in the global financial environment" with real money market rates still in negative territory and declining further as inflation rises.
    The MNB also confirmed its guidance that it would maintain the current base rate and maintain loose monetary conditions "for an extended period" if its current forecasts hold.

UPDATE-This week in monetary policy: Israel, Kenya, Bangladesh, Hungary, Nigeria, Georgia, USA, Sri Lanka, Ukraine, Moldova, Egypt, Fiji, Japan, Russia, Angola, Colombia and Trinidad & Tobago

    (Following item from July 24 has been updated with Sri Lanka)

   This week (July 25 through July 30) central banks from 17 countries or jurisdictions are scheduled to decide on monetary policy: Israel, Kenya, Bangladesh, Hungary, Nigeria, Georgia, the United States, Sri Lanka, Ukraine, Moldova, Egypt, Fiji, Japan, Russia, Angola, Colombia and Trinidad and Tobago.
    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.

WEEK 30
JUL 25 - JUL 30, 2016:
COUNTRY       DATE           RATE      LATEST        YTD     1 YR AGO    MSCI
ISRAEL 25-Jul 0.10% 0 0 0.10%       DM
KENYA 25-Jul 10.50% 0 -100 11.50%       FM
BANGLADESH 26-Jul 6.75% 0 -50 7.25%       FM
HUNGARY 26-Jul 0.90% 0 -45 1.35%       EM
NIGERIA 26-Jul 12.00% 0 100 13.00%       FM
GEORGIA 27-Jul 7.00% -50 -100 5.50%
UNITED STATES 27-Jul 0.50% 0 0 0.25%       DM
SRI LANKA 28-Jul 6.50% 0 50 6.00%       FM
UKRAINE 28-Jul 16.50% -150 -550 30.00%       FM
MOLDOVA 28-Jul 10.00% -300 -950 17.50%
EGYPT 28-Jul 11.75% 100 250 8.75%       EM
FIJI 28-Jul 0.50% 0 0 0.50%
JAPAN 29-Jul -0.10% 0 -20 0.10%       DM
RUSSIA 29-Jul 10.50% -50 -50 11.00%       EM
ANGOLA 29-Jul 16.00% 200 500 10.25%
COLOMBIA 29-Jul 7.50% 25 175 4.50%       EM
TRINIDAD & TOBAGO 29-Jul 4.75% 0 0 4.25%


Bangladesh holds rate, inflation seen easing to 5.45%

    The central bank of Bangladesh will maintain its key policy rates, the repo and reverse repo rate, at a 6.75 percent and 4.75 percent, in the first half of the 2017 fiscal year, which began on July 1, but said it would adjust monetary growth and rates if necessary to keep inflation around 6 percent.
    Bangladesh Bank (BB) said consumer price inflation had been on a slowly declining trend for the last couple of years - the 12-month average rate fell to 5.92 percent in June 2016 from 7.28 percent in July 2014 - but a further decline due to lower fuel and commodity prices may not be strongly attained.
    BB, which cut its rates by 50 basis points in January, forecast inflation of 5.45 percent in December this year, down from 6.2 percent target for June 2016, with 6 percent seen as "a safe zone" as data and studies suggest that 6 percent inflation, along with one standard deviation, is a growth maximizing threshold.
    Consumer price inflation rose slightly to 5.53 percent in June from 5.45 percent in May and down from 6.07 percent in January this year.
    The recent decline in inflation is mainly due to falling food prices while non-food inflation has edged up due to a boost in consumption following the historically highest salary hike for the public sector, with BB expecting the private sector to follow suit, putting upward pressure on inflation.
    The economy of Bangladesh attained almost all key objectives in fiscal 2016, which ended June 30, with broad money (M2) growth below the target until May this year and likely to remain within the ceiling of 15.0 percent by the end of June.
    For fiscal 2017 the target for broad money is 15.5 percent based on Gross Domestic Product growth of 7.2 percent and consumer price inflation of 5.8 percent.
    Private sector credit grew robustly throughout FY16 and was at 16.4 percent in May, overshooting the targeted end-June ceiling of 14.8 percent. However, with the government's small net bank borrowing at the end of FY16, overall domestic credit growth remained below the targeted path and is likely to be within the 15.5 percent ceiling by end-June.
   Domestic credit is projected to grow by an annual rate of 16.4 percent in FY17, with credit to the private sector up by 16.5 percent and growth to the public sector of 15.9 percent.
    Bangladesh's government targets economic growth of 7.2 percent for fiscal 2017, up from the FY16 target of 7.0 percent, with BB forecasting growth of 7.1-7.3 percent, above the World Bank's 6.3 percent forecast for 2017 and the International Monetary Fund's forecast of 6.9 percent.
    Data indicate that Bangladesh's GDP will grow by 7.05 percent in FY16, up from 6.55 percent in FY2015.
    BB follows an foreign exchange rate policy of a managed float and has been buying taka to keep it from appreciating, keeping the exchange rate stable for almost three years since early 2013.
   The take was trading at 78.48 to the U.S. dollar today, little changed from 78.43 at the start of this year, with BB's foreign exchange reserves reaching "an adequately comfortable level" of US$30 billion in June - the equivalent of almost 8 months of imports - and expected reach a record high of $33 billion by the end of fiscal 2017.
    Under its new governor, Fazle Kabir who took over in March, BB is working on a transition path toward targeting market interest rates from the current monetary policy approach of mainly targeting the money stock, which is most useful for underdeveloped countries with limited external openness.

    www.CentralBankNews.info

   
 

Monday, July 25, 2016

Kenya leaves rate on hold, inflation seen in target range

    Kenya's central bank left its Central Bank Rate (CBR) steady at 10.50 percent, as forecast, saying inflation is expected to remain within the target range in the short term although the recent increase in fuel tax is expected to exert temporary upward pressure on consumer prices despite moderate demand pressure.
    The Central Bank of Kenya (CBK), which cut its rate by 100 basis points in May in response to easing inflation, added that it was keeping the policy rate steady today to help anchor inflation expectations.
    Kenya's inflation rate rose to 5.8 percent in June from 5.0 percent in May but remained within the government's target range of 2.5 percent to 7.5 percent.
    The 3-month annualised non-food-non-fuel inflation rate eased to 3.3 percent in June from 5.2 percent in May, "indicating that there were no significant demand pressures in the economy," the CBK said.

Israel maintains rate, risks to inflation, growth still high

    Israel's central bank left its key policy rate at 0.10 percent, as expected, saying the "risks to achieving the inflation target and to growth remain high," building on last month's statement when it said that the risks to growth and inflation had increased due to the uncertainty created by Britain's decision to leave the European Union (EU).
    The Bank of Israel (BOI), which cut its rate by 15 basis points in 2015, also repeated that it "will use the tools available to it and will examine the need to use various tools" to reach its inflation objective of 1-3 percent, encourage growth and employment, and a stable financial system.
    Israel's inflation rate was steady at minus 0.8 percent in June from May, as forecast, but excluding energy and lower administered prices, the inflation rate was 0.6 percent.
    "The inflation environment continues to increase moderately," the BOI said, noting that short-term expectations remain stable but remain below the lower bound of the target range.
    Israel's shekel has firmed this month and on July 4 dealers reportedly said that the BOI had bought U.S. dollars as the shekel firmed.
    "The level of the effective exchange rate continues to weigh on the growth of exports and of the tradable sector," the BOI said.
    The shekel was trading at 3.84 to the dollar today, up 1.3 percent since the start of the year. In terms of the effective exchange rate, the BOI said the shekel was up 1.7 percent from June 26 through July 22, a rate of appreciation that is similar to that of the past 12 months.

Sunday, July 24, 2016

This week in monetary policy: Israel, Kenya, Bangladesh, Hungary, Nigeria, Georgia, USA, Ukraine, Moldova, Egypt, Fiji, Japan, Russia, Angola, Colombia and Trinidad & Tobago

    This week (July 25 through July 30) central banks from 16 countries or jurisdictions are scheduled to decide on monetary policy: Israel, Kenya, Bangladesh, Hungary, Nigeria, Georgia, the United States, Ukraine, Moldova, Egypt, Fiji, Japan, Russia, Angola, Colombia and Trinidad and Tobago.
    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.

WEEK 30
JUL 25 - JUL 30, 2016:
COUNTRY       DATE           RATE      LATEST        YTD     1 YR AGO    MSCI
ISRAEL 25-Jul 0.10% 0 0 0.10%       DM
KENYA 25-Jul 10.50% -100 -100 11.50%       FM
BANGLADESH 26-Jul 6.75% -50 -50 7.25%       FM
HUNGARY 26-Jul 0.90% 0 -45 1.35%       EM
NIGERIA 26-Jul 12.00% 0 100 13.00%       FM
GEORGIA 27-Jul 7.00% -50 -100 5.50%
UNITED STATES 27-Jul 0.50% 0 0 0.25%       DM
UKRAINE 28-Jul 16.50% -150 -550 30.00%       FM
MOLDOVA 28-Jul 10.00% -300 -950 17.50%
EGYPT 28-Jul 11.75% 100 250 8.75%       EM
FIJI 28-Jul 0.50% 0 0 0.50%
JAPAN 29-Jul -0.10% 0 -20 0.10%       DM
RUSSIA 29-Jul 10.50% -50 -50 11.00%       EM
ANGOLA 29-Jul 16.00% 200 500 10.25%
COLOMBIA 29-Jul 7.50% 25 175 4.50%       EM
TRINIDAD & TOBAGO 29-Jul 4.75% 0 0 4.25%


Thursday, July 21, 2016

Mozambique raises rate 300 bps to alter inflation,FX trend

   Mozambique's central bank tightened its monetary policy stance further in an effort to change the current trend of rising inflation and a falling exchange rate from the suspension of foreign aid, lower availability of foreign exchange due to lower exports, the impact of floods and droughts on food supply, military tensions in some regions and the downgrade of the country's credit rating.
    The Bank of Mozambique raised its benchmark standing lending facility rate by another 300 basis points to 17.25 percent and the deposit facility rate by the same amount to 10.25 percent.
    The reserve requirement for metical liabilities was raised by 250 basis points to 13.0 percent with effect from Aug. 22.
    The Bank of Mozambique, which has now raised its rate by 750 basis points this year, added that it would intervene in interbank markets to ensure the monetary base reaches the target of 82.051 billion meticais in July, up from 77.1 billion in June that was 1.6 billion above the bank's target for that month and 36.0 percent higher than a year ago.
    The meeting by the central bank's monetary policy committee was postponed from July 18 until today for unspecified "technical reasons" according to local press reports.
    Mozambique's inflation rate accelerated further to a 2016-high of 19.72 percent in June from 18.27 percent in May as the exchange rate of the metical has continued to fall.
    The metical was already weakening from the fall in global commodity prices from late 2014 but was hit hard by the suspension of foreign aid following the discovery
    The metical was trading at 66.5 to the U.S. dollar today, down 28 percent since the start of the year, and 50 percent since the start of 2015, with the central bank governor, Ernesto Gove, last month saying the decline in international reserves was undermining its ability to stability the foreign exchange market.
    Mozambique's trade deficit narrowed by 34 percent to US$871 million in the first quarter of the year, reflecting a 22.7 percent fall in imports due to the depreciation of the metical and slower domestic demand, particularly from large investment projects. Exports, however, also continued to fall - down by 19.3 percent, due to lower commodity prices and reduced revenue from tourism and transport services, the central bank said.
    Net International Reserves (NIR) in June rose by US$ 221 million to $1.920 billion due to deposits of $207 million held by credit institutions at the central bank to establish mandatory foreign currency reserves.

    www.CentralBankNews.info

South Africa holds rate, ready to act on inflation threats

    South Africa's central bank left its benchmark repurchase rate steady at 7.0 percent, as expected, but said it remains concerned about the trajectory of inflation and it "remains ready to act appropriately to any significant change in the inflation outlook."
    The South African Reserve Bank (SARB), which has raised its rate by 200 basis points since January 2014, including 75 points this year, added a weak domestic economy, along with a rise in the rand's exchange rate and a marginal improvement in inflation, had provided it with room to delay a further tightening of policy "for now."
    However, SARB Governor Lesetja Kganyago added that the bank's monetary policy committee, which was unanimous in its decision, was aware that such favorable factors could reverse quickly and the impact of a higher rand on the outlook for inflation would depend on whether the exchange rate was sustained at this stronger level.
   South Africa's headline inflation rate rose to 6.3 percent in June from 6.1 percent in May but the bank lowered its outlook for 2016 inflation to average 6.6 percent from a previous 6.7 percent.
   "Nevertheless, inflation is still expected to accelerate further this year and is only expected to return to within the target range of 3-6 percent during the third quarter of 2017," Kganyago said, adding that inflation is expected to lead at 7.1 percent in the fourth quarter of this year, down from a previous forecast of 7.3 percent due to lower administered prices for petrol.
    For 2017 inflation is expected to average 6.0 percent, down from 6.2 percent, and then 5.5 percent in 2018, up from 5.4 percent.
    After depreciating steadily since 2011, the rand has been firming since mid-January and has reversed losses following the U.K. referendum on the European Union. The rand was trading at 14.2 to the U.S. dollar today, up on the SARB's policy decision, to have appreciated 9.3 percent this year, stronger than the central bank had expected.
    "Despite this recent strength, the rand remains vulnerable to possible "risk-off" global scenarios; changes in US monetary policy expectations; and domestic concerns including the possibility of ratings downgrades later in the year," Kganyago said.
    He added that the outlook for economic growth "remains extremely challenging." Although the 0.2 percent annual contraction in first quarter growth is expected to be the low point in the cycle, the recovery is expected to be weak.
    SARB revised down its growth forecast for 2016 to zero percent from a previous 0.6 percent. For 2017 growth is forecast of 1.1 percent, down from 1.3 percent, and for 2018 growth is seen at 1.5 percent, down from 1.7 percent.
    "The outlook is clouded by uncertainty surrounding the longer term market and global growth implications of Brexit," Kganyago added.

ECB maintains policy but will act if Brexit threatens goal

    The European Central Bank (ECB) left its key policy rates and monthly asset purchases unchanged, as widely expected, but underlined that it would "act by using all the instruments available within its mandate" if uncertainties surrounding Britain's exit from the European Union (EU) threaten the pass-through of its accommodative monetary policy to the real economy.
    The ECB, which in March cut its benchmark refinancing rate to zero percent and boosted its monthly asset purchases by 20 billion euros to 80 billion, added that euro area financial markets had "weathered the spike in uncertainty and volatility with encouraging resilience" following the UK vote to leave the EU due to the readiness of central banks to provide liquidity if needed.
    ECB President Mario Draghi said the highly supportive financing conditions were still helping support credit creation and the ECB's baseline scenario of an ongoing economic recovery and an increase in inflation.
    Over coming months, armed with more information and new staff forecasts, Draghi said the ECB governing council would be in a better position to assess the risks to inflation and growth.
    Draghi admitted that the risks to euro area growth remain tilted to the downside due to the outcome of the UK referendum and other geopolitical uncertainties, subdued growth in emerging markets, balance sheet adjustments in a number of sectors and sluggish implementation of structural reforms.
    In addition to maintaining key interest rates, Draghi confirmed the ECB's guidance that it intends to keep rates "at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases." He also confirmed that the current asset purchase program was intended to run until the end of March 2017, or beyond if necessary.
    The gross domestic product of the 19 countries in the euro area expanded by an annual 1.7 percent in the first quarter of this year, unchanged from the fourth quarter of 2015, supported by domestic demand, and recent data point to "ongoing growth in the second quarter of 2016, though at a lower rate than in the first quarter," Draghi said.
    In June the ECB revised upwards its 2016 growth forecast to 1.6 percent from the previous forecast of 1.4 percent but kept the 2017 forecast unchanged at 1.7 percent. For 2018 growth is seen unchanged at 1.7 percent, slightly below the March forecast of 1.8 percent.
    Euro area inflation improved to 0.1 percent in June, up from minus 0.1 percent in May, due to higher energy and services prices, but Draghi still expects inflation to remain very low in coming months before picking up in late 2016 and following years.
    The ECB staff forecasts 2016 average inflation of 0.2 percent before rising to 1.3 percent and 1.6 percent in the following two years. This is still well-below the ECB target for inflation to be below, but close to 2 percent.

Indonesia holds rate, assured past cuts will boost growth

   Indonesia's central bank maintained its monetary policy stance, saying it "is assured that looser monetary and macroprudential policies will bolster economic growth momentum."  
    Bank Indonesia (BI) has cut its current and future benchmark interest rates four times this year, most recently in June, by a total of 100 basis points, but most economists had expected the central bank to cut rates another time today to boost economic growth further.
    But BI said it believed that the macroeconomy was stable, reflected by low and stable inflation that is within its target corridor, that the current account deficit was healthier and the exchange rate of the rupiah was relatively stable.
   Although economic growth "remained limited" in the second quarter, BI said it expected growth to continue to gain momentum on the back of its looser policy, coupled with fiscal stimulus in the form of the government's tax amnesty bill and other measures.
   Household consumption is seen improving, based on recent retail sales data and stronger car sales, while investment growth showed significant signs of improvement. Exports remain weak although several commodities showed early signs of recovery, BI said.
    The BI confirmed its 2016 growth forecast of 5.0 to 5.4 percent, up from 4.8 percent in 2015. In the first quarter of this year, Indonesia's economy grew by an annual 4.92 percent, down from 5.04 percent in the previous quarter.
    But BI also acknowledged that the global economy is expected to slow from uncertainty linked to Britain's exit from the European Union (EU), while China and India were also expected to grow slower. The impact of Brexit on the United States is expected to delay a further rate increase until the end of this year.
    Indonesia's currency, the rupiah, has risen in response to an easing of uncertainty around the U.S. fed funds rate, the limited effect on financial markets from Brexit and positive sentiment around the government's tax amnesty bill that is estimated to bring in 165 trillion rupiah to the state.
    The rupiah was trading at 13,111.7 to the U.S. dollar today, up 5.2 percent this year, with the BI also saying it had risen as non-resident capital inflows surged after a slight correction in response to Britain's vote to leave the EU.
    Indonesia's headline inflation rate rose slightly to 3.45 percent in June from 3.33 percent in May, but this is the lowest rate during Ramadan for the past four years and within the BI's target of 4.0 percent, plus/minus 1 percentage point.
    Core inflation also remained under control in line with limited domestic demand, appreciation of the rupiah and anchored inflation expectations, BI said. Core inflation in June rose to 3.49 percent from 3.41 percent.