Friday, July 31, 2015

Trinidad & Tobago raises rate 25 bps for 6th time in a row

    Trinidad and Tobago's central bank raised its benchmark repurchase rate by 25 basis points for the sixth consecutive time to 4.25 percent but said the rate still remains below its longer term average and it "views the monetary policy stance as supportive to economic growth."
   The Central Bank of Trinidad and Tobago has now raised its rate by a total of 150 basis points since embarking on its tightening campaign in September 2014. In 2015 it has raised the rate 100 points.
    The main factor behind the decision to raise the rate was the recent forward guidance by the U.S. Federal Reserve regarding the start of a normalization of monetary policy, followed by the potential for core inflation pressures to pick up over the next few months and finally the weaker-than-expected growth in the non-energy sector in the first half of this year.
    "Despite slower-than-expected growth in the non-energy sector in the first half of 2015, the MPC (Monetary Policy Committee) anticipates a respectable performance in the non-energy sector in the second half of 2015," the central bank said.
    Referring to this week's statement by the Fed, the central bank said it had "hinted the U.S. labor market is reaching a position where a rate hike could be possible this year,"and over the past few months an improving U.S. economy have led to rising yields on 10-year Treasuries.
    As a result, the differential between Trinidad and Tobago and U.S. 10-year bonds has narrowed substantially to 69 basis points at the end of July from 82 points at the end of May.
    "Higher domestic rates are necessary to enhance yields of TT$ instruments to mitigate potential capital outflows," the central bank said.
    In addition, the central bank said rising inflationary pressures remain a concern, with pressures expected to pick up in the rest of this year due to a possible rise in food inflation, strong consumer credit, public sector wage agreements that is likely to lift consumer spending and higher public spending in the remaining four months of fiscal 2015.
    The central bank said headline inflation was steady at just over 5.50 percent in June while core inflation slowed marginally to just below 2 percent.

Colombia holds rate and cuts 2015 growth forecast

    Colombia's central bank maintained its benchmark intervention rate at 4.5 percent, saying temporary price shocks should reverse during the monetary policy horizon though the "recent depreciation of the peso could delay the convergence of inflation to the target."
    The Central Bank of Colombia, which raised its rate by 125 basis points in 2014 to curb inflation, added that it expects the country's economy in the second quarter to expand at a pace that is similar to the first quarter, with the drop in oil prices and other commodity prices that are exported having a negative impact on national income, partly explaining the "sharp devaluation" of the peso's exchange rate.
    Colombia's economy expanded by 0.8 percent in the first quarter from the fourth quarter and on an annual basis Gross Domestic Product grew by 2.8 percent, down from 3.5 percent in the fourth quarter and the lowest annual growth rate since the fourth quarter of 2012.
    For 2015 the central bank lowered its growth forecast to 2.8 percent from a previous forecast of 3.2 percent, adding growth could be in a range of 1.8 to 3.4 percent. In 2014 GDP grew 4.8 percent.
    The central bank noted that inflation remained relatively stable in June and inflation expectations one and two years ahead remain around the bank's midpoint target of 3.0 percent.
    Colombia's inflation rate rose marginally to 4.42 percent in June from 4.41 percent in May, above the central bank's upper limit of 4.0 percent.
    Colombia's peso has been depreciating for the last 12 months, with the pace accelerating from May. Today the peso was trading at 2,880 to the U.S. dollar for a decline this year of 17 percent.
    Last month Colombia's finance minister, Mauricio Cardenas, was quoted as saying policymakers expect inflation to slow toward the end of the year and are not considering any rise in interest rates, with the rise in inflation due to short-lived supply shocks, particularly to potatoes and rice.

Russia cuts rate 50 bps, GDP may shrink above forecast

    Russia's central bank cut its key policy rate by a 50 basis points to 11.0 percent to reflect that "the balance of risks shifts towards the considerable economy cooling despite a slight increase in inflation risks," and said further rate cuts would depend on the risk of higher inflation compared with the risk of further economic slowdown.
    The Bank of Russia, which has now cut its rate by 600 basis points in 2015 as it continues to roll back last year's 1,150 points of rate increases, still sees inflation decelerating sharply early next year to below 7.0 percent by July due to slack domestic demand and then reaching its target of 4.0 percent by 2017.
    Russia's consumer price inflation rate rose slightly to 15.8 percent as of July 27 from 15.3 percent in June but down from a 2015-high of 16.9 percent in March. The central bank said the rise in July inflation was expected and caused by a greater increase in utility tariffs as compared with 2014.
    But Russia's economy is mired in recession and the central bank said it expects Gross Domestic Product in the second quarter to shrink even more in the second quarter than in the first quarter when it contracted by an annual rate of 2.2 percent.
    On a quarterly basis, first quarter GDP fell by 1.29 percent following declines of 0.55 percent in the fourth quarter and 0.34 percent in the third quarter.
    "Due to a more significant domestic demand shrinkage than expected in the first half of 2015, the output forecast may be revised downwards," the central bank said.
    Last month the Bank of Russia said 2016 GDP could expand by 0.7 percent if oil prices recover to $70 a barrel but if they remain around $60, then the economy could contract by 1.2 percent.
    The ruble fell 45 percent against the U.S. dollar in 2014, hit by the fall in oil prices and Western sanctions over the conflict in Ukraine, before recovering in February this year.
    But since mid-May it has again depreciated to trade at 61 to the U.S. dollar today, practically unchanged since the start of 2015.

Thursday, July 30, 2015

Dominican Rep. holds rate, inflation seen below target

    The Central Bank of the Dominican Republic (CBDR) left it monetary policy rate steady at 5.00 percent, saying forecast still show that inflation will remain below the lower limit of the bank's target for 2015 before converging to the center of the target range at the end of the forecast horizon.
    Inflation in the Dominican Republic rose to 0.62 percent in June from 0.23 percent in May and a 2015-low of minus 0.04 percent in April.
    The central bank targets inflation of 4.0 percent, plus/minus 1.0 percentage point. It has cut the rate by 125 basis points this year, most recently in May.
    Domestic production, demand and employment remains on track to expand along its expected path, the central bank said, adding the current account deficit is projected at 2.0 percent of Gross Domestic Product by the end of the year, helping the foreign exchange market remains stable and the accumulation of foreign exchange reserves, currently equal to 3.4 months of imports.
    In May the central bank's governor raised his forecast for economic growth this year to around 6 percent, up from the previous forecast of 5.0-5.5 percent.

Ukraine holds rate to support trend to lower inflation

    The central bank of Ukraine held its benchmark discount rate steady at 30.0 percent to "consolidate  the positive developments in the money market and support the trend to lower inflation," reiterating the reasoning it also used in its June policy statement.
   The National Bank of Ukraine (NBU) added that it expects a further slowdown in inflation as long as the current balance in the money market continues, setting up the conditions for a sustainable reduction in inflation risks and thus monetary easing.
    The NBU raised its rate by 1,600 basis points this year, most recently by 1,050 points in March, and by a total of 2,350 points since April 2014 to protect the value of the hryvnia and curb inflation.
    At today's meeting, the NBU board noted the gradual decrease in inflationary pressures and discussed possible changes in monetary instruments. It did not comment further on what those changes might be.
    Ukraine's inflation rate eased to 57.5 percent in June from 58.4 percent in May and 60.9 percent in April, the highest rate seen since hyperinflation in the mid-1990s when it hit an all-time high of 530.3 percent in September 1995.
    On the interbank and cash segments of the foreign exchange market in July, the central bank said demand for foreign currency was lower than supply, helping fluctuations in the exchange rate against the U.S. dollar stay in a "fairly narrow range."
    The hryvnia depreciated by almost 50 percent against the U.S. dollar last year following the outbreak of armed conflict in Eastern Ukraine and the occupation of the Crimean peninsula by pro-Russian forces.
    But following a cease-fire agreement in late February, rate hikes and administrative measures, the hryvnia has bounced back and stabilized. Today it was trading at 21 to the dollar, down 25 percent this year after hitting a low of 33.7 in late February.

Egypt holds rate as commodities counter inflation risks

    Egypt's central bank left its benchmark overnight deposit rate at 8.75 percent and repeated its view from June that upside risks to inflation from domestic supply shocks are largely mitigated by contained imported inflation from the fall in global commodity prices.
    The Central Bank of Egypt (CBE), which has maintained rates since a surprise rate cut in January, also repeated that risks to the global economy could pose downside risks to domestic growth despite the boost to growth from investments in domestic mega projects.
    Egypt's headline inflation rate eased to 11.4 percent in June from 13.1 percent in May, mainly due to a drop in prices of fresh vegetables. Core consumer price inflation was largely steady at 8.07 percent in June compared with 8.14 percent the previous month.

Mexico maintains rate, economy is weak and inflation low

    Mexico's central bank held its benchmark target for the overnight interest rate steady at 3.0 percent, as expected, but added that the economy continues to show weakness while headline inflation is expected to remain below the target in 2015.
    However, the Bank of Mexico added that "the possible monetary policy actions of the Federal Reserve could have additional repercussions on exchange rates, inflation expectations and the dynamics of prices in Mexico."
    The central bank will therefore remain attentive to inflation, the exchange rate, the slack in the economy and the monetary stance between Mexico and the United States, so it is in a position to take the necessary measures to strengthen the convergence of inflation to its 3.0 precent target.
    Mexico's inflation rate fell to less-than-expected 2.87 percent in June from 2.88 percent in May but the central bank attributed this to lower prices for energy, raw materials and services rather than the impact of a depreciation of the peso.
    Expectations for headline and core inflation by end 2015 and end-2016 have declined to an average of below 3 percent while long-run expectations remain well anchored, the bank said.
    Given the expected slack in the economy in coming quarters, the central bank expects overall inflation to remain below 3 percent for the rest of this year but then reach levels close to 3 percent in 2016. This forecast, however, is subject to upside risks from a depreciation of the peso and downside risks from lower economic activity, further decreased in energy prices and services, including telecommunications.
    Economic activity in Mexico continues to moderate, the bank said, with investment and exports deteriorating from the second half of last year while consumption has grown. The balance of risks to growth have deteriorated compared to the previous policy decision in June.
    The peso started declining in May 2014 and it has continued to drop this year as investors are concerned that a rise in U.S. rates will trigger an outflow of funds from emerging markets, such as Mexico, and into U.S. dollar assets.
    The peso was trading at 16.27 to the U.S. dollar today, down 9.4 percent since the start of 2015.

Bangladesh holds rate, to mull easing when inflation falls

    The central bank of Bangladesh held its benchmark repurchase rate steady at 7.25 percent, but said "easing will be considered after point-to-point headline general inflation and core CPI inflation take a sustained declining trend."
    The Bangladesh Bank, which has maintained its rate since February 2013, said the current level of inflation is "moderate," but the government's 6.2 percent target for fiscal 2016, which began on July 1, "implies that we need to go for further reduction by slightly pressing the brake on the price level."
    The current level of money supply in Bangladesh is cautious but at the same time "generously accommodative for growth generating pursuits," the bank said.
    The central bank said general inflation eased to 6.40 percent in June from 6.87 percent in January but core inflation rose to 6.74 percent from 6.08 percent in January, warranting a cautious policy stance.
    "Gains in inflation declined earned over this period do not yet make a case for easing of policy interest rats, given that both headline point-to-point CPI inflation and core CPI inflation have edged up recently," the bank said, attributing the fall in inflation to declining food prices.
    The bank added that the fall in global fuel prices may have played a role in dampening inflationary concerns but the government did not adjust prices. Given that food occupies almost 60 percent of the consumption basket, this played a major role in pulling down inflation.
    The government of Bangladesh is targeting 7 percent economic growth in fiscal 2016 compared with an estimated 6.5 percent in fiscal 2015.
    Gross Domestic Product in 2014 grew by 6.12 percent in calendar 2014 and policymakers are aiming to break out of the pattern of growth around 6 percent that has persisted for the past 12 years.

Fiji maintains rate, economy on track for 4.3% growth

    Fiji's central bank left its benchmark Overnight Policy Rate (OPR) steady at 0.50 percent, saying the country's economy remains on track to reach the 4.3 percent growth forecast for this year while the bank's twin objectives remain intact.
   The Reserve Bank of Fiji (RBF), which has maintained its rate since November 2011, said the improved outlook for tourism and gold, and buoyant demand is supporting the growth outlook along with improved business confidence, continued credit demand and investment in projects.
    Downside risks are represented by a potential decline in government spending and weather-related hit to cane output, RBF Governor Barry Whiteside said in a statement.
    Fiji's economy expanded by 4.1 percent last year and the International Monetary Fund in April forecast 3.3 percent growth in 2015.
    Fiji's inflation rate rose to 0.8 percent in June from 0.6 percent in May, and Whiteside said he expects inflationary pressure to remain "subdued" due to modest growth in the country's trading partners because the expected pick-up in global growth has not yet materialized.
    Fiji's foreign reserves amounted to US$1.988.6 billion as of July 30 - equal to 5 months of imports -  from $1.987 billion as of June 30.

Moldova raises rate 200 bps, sees accelerating inflation

    Moldova's central bank raised its benchmark base rate by 200 basis points to 17.50 percent, saying it expects inflation to accelerate in coming quarters to above the upper limit of its inflation target as the depreciation of the leu will raise the prices of imported goods and services and due to the comparison with last year's lower base.
    The National Bank of Moldova (NBM), which has now raised its rate by 11 percentage points this year, added that it expects the negative output gap in the economy to continue over the next eight quarters due to weak domestic demand, which will reduce future inflationary pressures.
    The central bank's council approved the latest inflation report, which will be presented on Aug. 6, that raised the forecast for average inflation in 2015 by 1.2 percentage points to 9.3 percent and the 2016 forecast by 5.2 points to 11.6 percent compared with the May forecast.
    The central bank, which targets inflation at a midpoint of 5.0 percent, within a range of 3.5 to 6.5 percent, said it expects inflation to return to its target range in the second quarter of 2017.
    In addition to raising its base rate, NBM also raised the rate on overnight loans by 200 basis points to 20.5 percent and the rate on overnight deposits to 14.50 percent from 12.50 percent.
    In order to sterilize some of the excess liquidity and improve the transmission of the policy decisions, the central bank also raised the required reserves for leu and non-convertible deposits by 600 basis points to 32.0 percent for the period Sept. 8 through Oct. 7. Reserves on freely convertible currencies was maintained at 14.0 percent.
    Moldova's inflation rate rose to 8.3 percent in June from 8.1 percent in May for the highest rate since November 2011, mainly due to higher core inflation and food prices.
    The Moldavian leu has been depreciating since July 2014 and hit a low of 4.2 to the U.S. dollar in mid-March. Since then it has appreciated, trading at 4.0 today but still down 7.5 percent this year.
    NBM said its policy stance was still affected by a complexity of risks, with the emphasis on inflationary risks. Weak economic activity in the euro area and recession in Russia - its main trading partners - affects the foreign income of households and domestic exporters.
    "The escalation of geopolitical tension in the region could cause additional inflationary pressures," the NBM said.
    Moldova is a former Soviet state that is located between Romania to the west and Ukraine to the north, south and ease.
    Exports and imports in the first two months of the year fell by 18.3 and 25.0 percent, respectively, from the same period last year while industrial production was up by 1.8 percent, NBM said.

Wednesday, July 29, 2015

Brazil raises rate 50 bps,signals pause in tightening cycle

    Brazil's central bank raised its benchmark Selic rate by another 50 basis points to 14.25 percent, but signaled that it will pause in its tightening campaign by saying that it will be necessary to maintain the rate at this level for a "sufficiently long period" in order for inflation to converge toward its target by the end of 2016.
    The Central Bank of Brazil has now raised its Selic rate by 250 basis points this year and by 700 points since embarking on its current monetary tightening cycle in April 2014 in an effort to bring inflation down to its target of 4.5 percent, plus/minus 2 percentage points.
   The central bank's monetary policy committee, known as Copom, was unanimous in its decision.
   The Selic rate is now at its highest level since September 2006 as inflation in June rose to 8.89 percent from May's 8.47 percent, reaching the highest annual rate since December 2003 when the Selic rate was 16.50 percent.
    Brazil's Gross Domestic Product shrank by 0.2 percent in the first quarter of 2015 from the final quarter of last year for annual decline of 1.6 percent, the fourth consecutive quarter of a contraction of economic output.
   The real has been falling since July 2011, when it was trading around 1.55 to the U.S. dollar, and has now depreciated to 3.33, a fall of 53 percent. Since the beginning of this year it has fallen 20 percent.
    While today's rate hike was widely expected, the central bank has recently signaled that it was close to ending its tightening campaign as inflationary expectations have come down.