Indonesia holds rate steady to help narrow C/A deficit

     Indonesia's central bank kept its benchmark BI 7-day reverse repo rate steady at 6.0 percent, reiterating this "is consistent with ongoing efforts to reduce the current account deficit to a manageable threshold and maintain the attractiveness of domestic financial assets."
     However, Bank Indonesia (BI) omitted a reference from its December statement that the policy rate was also kept steady in consideration of the global trend in interest rates in the next few months, illustrating the recent downward shift in the outlook for U.S. and European growth and thus monetary policy.
      The decision to keep the rate steady was largely expected after BI Governor Perry Warjiyo on Wednesday told a panel of lawmakers that BI's policy remains pre-emptive and the policy rate had almost reached its peak.
     Wariyo added a more favorable outlook for U.S. interest rates would allow Indonesia to rely on other instruments to stabilize financial markets and support economic growth.

      Last year BI raised its policy rate 6 times and by a total of 175 basis points to bolster the exchange rate of the rupiah, which fell sharply from February to November on concern over the country's widening current account deficit and capital outflows amid a general strengthening of the U.S. dollar that drew strength from the Federal Reserve's rate hikes.
     But since BI's last rate hike in mid-November, supported by currency and bond market intervention, the rupiah has roared back to levels seen last June.
    Today the rupiah was trading at 14,188 to the dollar, up 7.3 percent from lows seen in late October and up 1.9 percent this year. However, the rupiah is still down 4.3 percent since the start of 2018.
      In today's statement BI said it was continuing its strategy of maintaining liquidity in the rupiah money market and foreign exchange market as part of its aim to keep the current account deficit below 2.5 percent of gross domestic product in 2019.
     In the third quarter of last year Indonesia's current account deficit almost doubled to US$8.8 billion, or 3.37 percent of GDP, the widest since the second quarter of 2014, boosted by the rising cost of oil imports.

Turkey maintains rate and tightening bias

     Turkey's central bank left its policy rate - the one-week repo rate - steady at 24.0 percent,  as expected, citing "some" improvement to the outlook for inflation but cautioned that risks to price still prevail and it will maintain its tight monetary policy stance until there is a "significant improvement" in the outlook for inflation.
      The Central Bank of the Republic of Turkey (CBRT), which has maintained its rate since raising its sharply in September as prices began to rise in response to the fall in the lira's exchange rate, reiterated its guidance from December that it was keeping a close eye on inflation expectations, prices, the lagged effect of past rate hikes and fiscal policy, confirming that "if needed, further monetary tightening will be delivered."
     Turkey's inflation rate has decelerated in the last two months and CBRT said the rebalancing of the economy was becoming more noticeable and import prices and domestic demand had helped improve the outlook for inflation.
      External demand was also maintaining its strength while economic activity was continuing to slow down, partly due to tight financial conditions. The improvement in the current account was expected to continue to improve, the central bank said.
      Headline inflation in December eased to 20.3 percent from 21.62 percent in November and a 15-year high of 25.24 percent in October but most analysts had expected the CBRT to keep its rate steady this month due to the tightening bias that has remained in place since September last year and to avoid any pressure on the lira.
      The CBRT's medium-term inflation target is 5.0 percent and last November the central bank raised its inflation forecast for 2019 to 15.2 percent from an earlier 9.3 percent and forecast inflation would decelerate to 9.3 percent by the end of 2020.
      September's 625-basis point rate hike came after two earlier hikes in May and June, with the policy rate rising by a total of 16 percentage points last year.
      The sharp hike in September came after the central bank in July kept its rate steady, disappointing financial markets and raising further doubts over CBRT's independence from political influence and its commitment to fighting inflation.
      After falling sharply in August, the September hike helped reverse the trend of the lira and since early December last year it has remained relatively stable.
      Today the lira was trading at 5.35 to the U.S. dollar, down a bit over 1 percent this year and down almost one-third since the start of 2018.

Kazakhstan maintains rate but may tighten in March

     Kazakhstan's central bank kept its base rate steady at 9.25 percent but warned it may raise its rate in March if oil markets remain volatile amid improving domestic demand and upward pressure on import prices from Russia.
     The National Bank of Kazakhstan (NBK), which raised its rate in October 2018, said it still expects inflation to remain within the upper range of its new and lower inflation target for 2019 in the absence of any significant shocks.
     However, NBK said there was upward pressure on inflation from higher oil prices, a potential for inflationary pressure on domestic prices from imports from Russia, where inflation is estimated to rise further, and an expansion in domestic demand from fiscal incentives.
     "Anchoring inflationary expectations around the current level and improving their resistance in the short term remains an important objective of the National Bank of Kazakhstan," NBK said, underscoring that preventing inflation from exceeding its target remains a "high priority."
     Headline inflation in Kazakhstan, where oil accounts for around 60 percent of exports, was steady for the third month in a row in December at 5.3 percent but core inflation rose for the second month to 6.4 percent, above a 2018-low of 6.07 percent in August and 6.2 percent in December 2017.
     The NBK has lowered its inflation target in recent years from 6.0-8.0 percent in 2016/17 to 5.0-7.0 percent in 2018 and 4.0-6.0 percent in 2019.
     By the end of 2020 and following years NBK wants to lower inflation to close to 4.0 percent.
     The NBK's 25-basis points rate hike in October last year came after it kept the rate unchanged from June when it wrapped up a two-year easing campaign in which it lowered the rate by a total of 800 points.
     NBK said current conditions still allow it to keep its monetary policy stance close to neutral, a level that maintains a balance between reaching its inflation target and keeping economic growth close to its potential level.
     But there is considerable uncertainty regarding the future outlook, NBK said, and domestic demand is rising due to growing real income while consumer lending was still up 11 percent year-on-year in November 2018 despite slowing slightly.
     Kazakhstan's economy is in the midst of a major transformation that aims to reduce the footprint of the state and the economy's reliance of oil following the fall in oil prices in 2014, which hit growth sharply in 2015 and 2016.
      In the first 9 months of 2018 Kazakhstan's gross domestic product grew 4.2 percent and the International Monetary Fund has forecast average growth of 3.7 percent in 2018, down from 4.0 percent in 2017, and growth of 3.2 percent in 2019 and 2020.
     The exchange rate of the tenge, which often moves in synch with the Russian ruble, fell steadily last year and has continued to decline this year. Today the tenge was trading at 379.2 to the U.S. dollar, down 1.6 percent this year and down 12.2 percent since the start of 2018.

This week in monetary policy: Kazakhstan, Turkey, Fiji, Indonesia and South Africa

    This week - January 13 through January 19 - central banks from 5 countries or jurisdictions are scheduled to decide on monetary policy: Kazakhstan, Turkey, Fiji, Indonesia and South Africa.

    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 3
JAN 13 - JAN 19, 2019:
COUNTRY	DATE	RATE	LATEST	YTD	1 YR AGO
KAZAKHSTAN	14-Jan	0.25%	0	0	0.10%
TURKEY	16-Jan	24.00%	0	1600	8.00%
FIJI	17-Jan	0.50%	0	0	0.50%
INDONESIA	17-Jan	6.00%	25	175	4.25%
SOUTH AFRICA	17-Jan	6.75%	25	0	6.75%

    www.CentralBankNews.info

Peru holds rate, policy easy as economy below potential

     Peru's central bank kept its monetary policy rate unchanged at 2.75 percent, saying it appropriate to maintain an expansive monetary policy as long as inflation expectations remain anchored and economic activity remains below its potential.
     The Central Reserve Bank of Peru (BCRP), which has kept its rate steady since lowering it in March last year, added inflation is projected to remain within the target range and around 2 percent.
     Between May 2017 and March 2018 BCRP cut its key rate by 150 basis points. BCRP targets inflation of 2.0 percent, plus/minus 1 percentage point.
     In December Peru's inflation rate was largely steady at 2.19 percent compared with 2.17 percent in November but still at a 2018 high and in line with the central bank's 2.0 percent target.
     In its December inflation report, released earlier today, BCRP's forecast for inflation in 2019 was raised slightly to 2.1 percent from 2.0 percent forecast in September while inflation in 2018 was estimated at 2.1 percent, up from 2017's 1.4 percent. In 2020 inflation is seen averaging 2.0 percent.
     BCRP added that most indicators of business expectations had improved and were optimistic while economic activity continued to improve.
     In its latest forecast, BCRP maintained its forecast for the economy to expand by 4.0 percent in 2019, similar to growth in 2018, which was up from 2.5 percent in 2017.
     Growth in 2020 was also forecast at 4.0 percent.
     Peru's gross domestic product slowed in the third quarter to year-on-year growth of 2.3 percent from 5.5 percent in the second quarter when mining output and public works slowed.
    After sliding most of last year, Peru's sol has gained strength this year and was trading at 3.34 to the U.S. dollar today, up 0.9 percent this year but down 2.4 percent since the start of 2018.

      www.CentralBankNews.info

This week in monetary policy: Israel, Romania, Canada, Poland, Serbia and Peru

    This week - January 6 through January 12 - central banks from 6 countries or jurisdictions are scheduled to decide on monetary policy: Israel, Romania, Canada, Poland, Serbia and Peru.

    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 2
JAN 6 - JAN 12, 2019:
COUNTRY	DATE	RATE	LATEST	YTD	1 YR AGO
ISRAEL	7-Jan	0.25%	0	0	0.10%
ROMANIA	8-Jan	2.50%	0	0	2.00%
CANADA	9-Jan	1.75%	0	0	1.25%
POLAND	9-Jan	1.50%	0	0	1.50%
SERBIA	10-Jan	3.00%	0	0	3.50%
PERU	10-Jan	2.75%	0	0	3.00%

    www.CentralBankNews.info

China cuts reserve ratio 1 pct point, frees up 800 bln yuan

      The People's Bank of China (PBOC) became the first central bank in 2019 to change its monetary policy stance, lowering its reserve requirement ratio for large financial institutions by a total of one percentage point, resulting in the release of a net 800 billion yuan in funds can be used to boost loans to private companies.
      The cut in the amount of funds that banks must hold at China's central bank will take place in two steps, with the first cut of 0.5 percentage points as of Jan. 15 and the second of 0.5 points as of Jan. 25, coinciding with the Spring Festival, also known as Chinese New Year of the Lunar New Year, when liquidity conditions tend to tighten.
      The lower reserve requirement will release a total of about 1.5 trillion yuan of funds but the PBOC will not renew a Medium Term Lending Facility (MLF) that expires in the first quarter of this year, resulting in a net release of 800 billion yuan.
      In its statement, PBOC said China's economy was continuing to develop in a healthy manner and it would continue to implement a "prudent" monetary policy, with a "moderate" degree of tightness.
      A spokesman added the cut in the reserve ratio did not signify a "flood" of funds and the orientation of a stable monetary policy had not changed.
      PBOC's has now cut its reserve requirement for large banks four times since 2017.
      In 2018 the reserve ratio was cut by a total of 250 basis points, with the ratio cut by 100 points in April - the first cut since February 2016 - then by 50 points in June and by 100 points in October.

      www.CentralBankNews.info

     

Dominican Rep. holds rate, attentive to U.S. Fed, dollar

     The Dominican Republic's central bank kept its monetary policy rate at 5.50 percent, saying it is attentive to the normalization of monetary policy in the United States and its impact on the dollar and the price of oil and is "prepared to react in a timely manner to any factor that can generate inflationary deviations."
     The Central Bank of the Dominican Republic (BCRD), which has maintained its rate since raising it by 25 basis points in July, added inflation is forecast to gradually converge to its target range of 4.0 percent, plus/minus 1 percentage point, over the next year.
     Inflation in the Dominican Republic dropped by 0.35 percent in November for accumulated inflation in the first 11 months of 1.39 percent, in line with the bank's forecast for inflation to end the year at 1.3 percent, BCRD said.
      Economic activity is continuing to grow above its potential in the context of an absence of inflationary pressures, the central bank said, adding gross domestic product is estimated to expand by 7.0 percent during the year, driven by investment and private consumption.
      The Dominican peso has depreciated steadily this year against the U.S. dollar and was trading at 50.45 to the dollar today, down 5.3 percent this year.

     www.CentralBankNews.info
     
     

Trinidad & Tobago holds rate, slack growth, low inflation

      Trinidad and Tobago's central bank left its benchmark repo rate at 5.0 percent, balancing the implications of international financial developments for the country's external balances against a slackening of growth momentum in the third quarter amidst very low inflation.
      The Central Bank of Trinidad and Tobago (CBTT), which in June raised its rate for the first time since December 2015, added domestic inflationary impulses have been very muted this year in the context of sluggish demand.
      Inflation fell to 1.0 percent in November from 1.2 percent in October and the central bank said preliminary data used to gauge non-energy economic activity was also lower in the third quarter of this year relative to the same period in 2017.
       After a positive first half, energy production declined in the third quarter as year-on-year gas output waned due to the base effect and maintenance. Crude oil output also slipped in the context of maturing fields and methanol output fell due to repair work.
      In the second quarter gross domestic product grew by an annual 2.8 percent, down from 3.2 percent in the first quarter.
      But private sector credit continued to grow at a steady pace, the central bank said, with lending to consumers up an annual 7.1 percent in October while lending to businesses fell 1.3 percent, reversing a growth trend since the start of the year.
       A widening of the negative differential between Trinidad and Tobago and U.S. 3-month treasury yields over the fourth quarter of mid-December to minus 112 basis points from minus 89 reflected faster increases in U.S. yields, CBTT said.
       In September the International Monetary Fund said it expected Trinidad and Tobago's economy to slowly recover from a deep recession, underpinned by a strong recovery in gas production while weak activity in construction, financial services, trade, continued foreign exchange shortages, and slow pace of public investment dampens non-energy sector growth.
      The IMF forecast 2018 growth of 1.0 percent, up from a contraction of 2.6 percent in 2017, and 2019 growth of 0.9 percent.
       Inflation is seen averaging 2.3 percent this year, up from 1.9 percent last year, and 3.1 percent in 2019.
       Trinidad and Tobago's dollar has weakened slightly this year to around 6.80 today per U.S. dollar, down 0.4 percent.

Sri Lanka maintains rate to stabilize economy, markets

     Sri Lanka's central bank kept it policy rates steady, saying the current monetary policy stance is appropriate to stabilize overall economic conditions and domestic financial markets despite subdued inflation and economic growth that remains below its potential level.
     The Central Bank of Sri Lanka (CBS), which in November lowered banks' reserve requirements to boost liquidity but also raised its two policy rates to maintain a neutral policy stance, added the decision to keep rates steady today came amid an uptick in private sector credit and continued pressure on external reserves.
      CBS kept its Standing Deposit Facility Rate (SDFR) at 8.0 percent, the Standing Lending Facility Rate (SLFR) at 9.0 percent, and the Statutory Reserve Ratio (SRR) at 6.0 percent. In November CBS raised SDRF by 75 basis points and SLFR by 50 points.
      Last month's 150 basis point cut in SRR freed up around 90 billion rupees in liquidity but the central bank said the liquidity deficit continued to widen and it had continued open market operations to manage liquidity on an overnight, short-term and long-term basis.
      Despite tight liquidity, CBS said annual growth of credit to the private sector has accelerated since September, partly reflecting anticipation by the private sector of measures by the government and central bank to curb excessive import growth.
     Sri Lanka's trade deficit widened further in the first 10 months of the year despite measures to curb imports of motor vehicles, non-essential goods and a fall in the rupee's exchange rate.
     Sri Lanka's rupee has been falling sharply since September, depreciating by 15.9 percent against the U.S. dollar this year as of Dec. 27, the central bank said, adding gross official reserves amounted to 7.0 billion at the end of November, enough to pay for 3.7 months of imports, down from US$7.9 billion at the end of October.
     Sri Lanka's headline inflation rate rose slightly to 3.3 percent in November from 3.2 percent in October and core inflation also remains subdued, CBS said, adding it expects inflation on average to remain below 5 percent in 2019 and stabilize in a range of 4 - 6 percent thereafter.
      Sri Lanka's economy grew by a modest 2.9 percent year-on-year in the third quarter of the year, down from 3.6 percent in the second quarter and data shows that economic growth will continue to be low in the fourth quarter before picking up gradually next year, CBS said.

Egypt holds rate, lowers inflation target to 9% by Q4 2020

      Egypt's central bank left its key interest rates unchanged, as expected, and lowered its inflation target to an average of 9.0 percent, plus/minus 3 percentage points, during the fourth quarter of 2020, from the target of 13 percent for the fourth quarter of this year, which was set in May 2017.
      The Central Bank of Egypt (CBE), which has maintained its rates since March, added that exogenous factors outside the scope of monetary policy may lead to temporary deviations from the new inflation target that was set as inflation continues to gradually decline.
       The CBE kept its overnight deposit rate, the overnight lending rate and the rate on the main operation at 16.75 percent, 17.75 percent and 17.25 percent, respectively. 
      Egypt's headline inflation rate eased to 15.7 percent in November from 17.7 percent in October due to a favorable comparison and the partial reversal of a rise in some vegetable prices.
      Core inflation fell to 7.9 percent in November from 8.9 percent in October, the lowest rate since February 2016.
     "Current policy rates and the inflation outlook remain in line with achieving the targeted disinflation path," CBE said, adding it will not hesitate to adjust its policy stance to achieve its mandate of price stability.
       Inflation in Egypt soared early last year and hit almost 33 percent in July 2017 in response to a rise in regulated prices, such as electricity, tobacco and other fees, as the government slashed subsidies to energy and raised taxes in connection with a US$12 billion International Monetary Fund (IMF) aid package.
       In addition, the CBE in November 2016 floated the pound, which quickly lost more than half of its value, boosting import prices and inflation.
      Analysts are not expecting the CBE to begin cutting its rate until inflation calms down after further government subsidy cuts next year.
      Egypt's economy has been growing steadily for the last 6 quarters with annual growth of 5.4 percent in both the second and first quarters.
       In the third quarter of this year, CBE said the unemployment rate had stabilized at 10.0 percent and while private domestic demand and net exports declined, public demand rose.
       The CBE also said Egypt's finance ministry was targeting a primary surplus of 2.0 percent of gross domestic product in the 2018/19 fiscal year, which began July 1, up from a preliminary 0.1 percent in the previous year, and to maintain this surplus thereafter.
      Since May Egypt's pound has been relatively steady and was trading at 17.89 to the U.S. dollar today, down 0.3 percent this year.