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.

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.

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.

Wednesday, July 20, 2016

Paraguay cuts rate by 25 bps while inflation rises in June

    Paraguay's central bank cut its monetary policy rate by another 25 basis points to adopt a more expansive policy stance to ensure that inflation converges to its 4.5 percent inflation.
    The Central Bank of Paraguay has now cut its rate by 50 basis points following a cut in May. This cut came after a 25 point hike in January and cuts totaling 100 points in 2015 on rising inflation.
    Although data for economic activity show clear signs of recovery, the central bank said there is still room for further improvement in some sectors and there is a moderate dynamic in credit.
    It added that on the international level, the pressures and risks to domestic inflation have eased due a postponement of rate changes by the U.S. Federal Reserve.
    Paraguay's inflation rate accelerated to 4.7 percent in June from 3.5 percent in May, but is down from a 2016-high of 5.2 percent in January when higher food prices pushed up inflation.
    In May the International Monetary Fund forecast that inflation is expected to ease to 4.5 percent during the year and remain at that level in 2017. The central bank targets inflation of 4.5 percent, plus/minus 2 percentage points.
   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 bounced back and was trading at 5,546.2 today, up 4.2 percent since the start of this year.
    In June the IMF said in its latest annual assessment that Paraguay's economy is expected to remain resilient this year and in 2017 though it will be tested if commodity prices remain weak and the economy of Brazil - its largest trading partner - remains in recession.
     The IMF expects economic growth in Paraguay of around 3 percent this year, similar to 2015, and 3.25 percent in 2017, led by agriculture and construction. The soy harvest, the country's major export crop, is expected to very good this year.

Brazil holds rate as Copom looks for further disinflation

    Brazil's central bank left its benchmark Selic rate steady at 14.25 percent, saying higher-than-expected inflation may persist due to food prices, uncertainty regarding the implementation of economic adjustments and a prolonged period of above-target, high inflation that can delay the process of disinflation.
    In the first meeting of the Central Bank of Brazil's policy committee chaired by Ilan Goldfjan, the statement by Copom flushed out some of the issues that resulted in a unanimous policy decision. Under its past president, Alexandre Tombini, the central bank typically issued very brief statements.
    While concern over inflation triggered the decision to maintain the rate, Copom added his could be countered by the possibility of a quicker implementation of economic changes that improve confidence and lower inflation expectations, and the possibility that spare capacity in the economy leads to more rapid disinflation that expected.
    But the base case scenario and the current balance of risks indicate there is no room for a loosening of monetary policy, the central bank said.
    Brazil's inflation rate eased to 8.84 percent in June from 9.32 percent in May.
    Although Copom said its projections for inflation remained relatively stable, they were lower than in the last inflation report and inflation was projected around 4.5 percent in 2017.
    However, the central bank added that financial markets project inflation next year of around 5.3 percent, above the bank's midpoint target of 4.5 percent. This year the central bank has a target range of 2 percentage points around that target but this narrows to 1.5 points in 2017.
    The central bank added that recent data show a stabilization of economic activity in the short term, but the economy continues to operate with a "high level of idleness," with the external environment challenging and the dynamics of the global economic recovery fragile and uncertain.
    Brazil's economy contracted by an annual rate of 5.4 percent in the first quarter of this year, its eight consecutive quarter of shrinkage.

Mauritius cuts rate 40 bps, citing Brexit and US election

    The central bank of Mauritius cut its benchmark repo rate by 40 basis points to 4.00 percent to support the economy, saying "the downside risks to the domestic growth outlook outweighed the risks to the inflation outlook."
    It is the first cut in rates by the Bank of Mauritius since a 25 point cut in November last year.
    "Taking into account the uncertainty created by Brexit and potential for the US November elections to increase market volatility, the MPC deemed it important to support investment activity in the  country and raise the growth potential of the economy," the central bank said.

Tuesday, July 19, 2016

Turkey again trims upper rate, to add liquidity if needed

    Only days after a failed military coup, Turkey's central bank continued along its path towards simplifying the interest rate structure by lowering the upper limit of its rate corridor for the fifth consecutive month and maintaining a tight monetary policy stance due to the inflation outlook.
   And while the Central Bank of the Republic of Turkey (CBRT) again confirmed that its policy stance was linked to inflation, it added that "market developments will be closely monitored and the necessary liquidity measures will continue to the taken to support financial stability."
    On Sunday, following an attempted coup late Friday, the central bank assured the country's banks that it would provide them with "needed liquidity without limits," with intraday liquidity at zero percent, and foreign exchange could be used without limits to obtain lira liquidity.
    The central bank acknowledged that recent "domestic developments have led to fluctuations in financial markets," but that its liquidity measures had "alleviated the volatility" in markets.
    Turkey's lira and government bonds fell sharply in response to reports about military action late Friday. The lira quickly dropped 4 percent but recovered some of its losses on Monday and was trading at 2.98 to the U.S. dollar today compared with 2.88 on Thursday, down 3.4 percent. Compared with the start of the year, the lira is down 2.0 percent.
    While the CBRT maintained its benchmark one-week repo rate at 7.50 percent, it lowered the overnight marginal funding rate by 25 basis points to 8.75 percent and the late liquidity lending rate by 25 points to 10.25 percent.
    The overnight funding rate has now been cut by 200 basis points since March.
     But unlike last month, the CBRT said headline inflation may show "a marked increase" in the short term due to changes to unprocessed food and tobacco prices while the trend in core inflation is "expected to improve gradually."
    In June the central bank said inflation had showed a "marked decline in recent months" and the trend in core inflation had improved.
    Turkey's consumer price inflation rose to 7.64 percent in June from 6.58 percent in May on higher food prices while core inflation eased to 8.7 percent from 8.8 percent.