Sunday, August 9, 2020

This week in monetary policy: New Zealand, Rwanda, Belarus, Serbia, Uganda, Egypt, Mexico & Peru

    This week - August 9 through August 15 - central banks from 8 countries or jurisdictions are scheduled to decide on monetary policy: New Zealand, Rwanda, Belarus, Serbia, Uganda, Egypt, Mexico 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, and the rate one year ago.

    The table is updated when the latest decisions are announced and can always accessed by clicking on This Week.

AUG 9 - AUG 15, 2020:
NEW ZEALAND12-Aug0.25%0-751.00%         DM
SERBIA13-Aug1.25%0-1002.50%         FM
EGYPT13-Aug9.25%0-30014.25%         EM
MEXICO13-Aug5.00%-50-2258.00%         EM
PERU13-Aug0.25%0-2002.50%         EM

Friday, August 7, 2020

Moldova cuts rate 3rd time 2020 to keep inflation on target

     The central bank of Moldova cut its policy rate for the third time this year and its reserve requirement for the second time to keep inflation in its target range and counter the disinflationary pressures from measures to contain the Covid-19 pandemic and lower fiscal spending.
     The National Bank of Moldova (NBM) lowered its base rate by 25 basis points to 3.0 percent and narrowed its interest rate corridor by 100 points by lowering the rate on overnight loans by 75 points to 5.50 percent and raising the rate on overnight deposits by 25 points to 0.5 percent on overnight loans to "streamline the transmission mechanism of monetary policy decisions."
     "This measure creates conditions for maintaining inflation in the range of +/- percentage points from the medium-term inflation target of 5.0 percent," NBM said on Aug. 6.
     NBM, which said the policy decision by its executive board was unanimous, has now cut its base rate by 250 basis points this year following two cuts in March.
     Since December 2019, when the central bank also cut its rate for the first time after raising it in July 2019, the rate has been lowered 450 points.
     In addition to the rate cuts, NBM also cut its required reserve ratio on banks' leu and non-convertible liabilities by another 100 basis points to to 32 percent for the period of Aug. 16 to Sept. 15 and then for the period of Sept. 16 to Oct. 15.
     The reserve ratio on freely convertible currencies was raised 300 basis points to 27.0 percent for the same to application periods as on lei-denominated liabilities, the bank said, adding the decision to continue to balance the reserve ratios aims to improve financial intermediation in the domestic currency and was discussed during last month's talks with the International Monetary Fund (IMF).
      The policy decision followed the bank's third inflation report, which will be published on Aug. 13, which forecasts that aggregate demand will generate disinflationary pressures by the third quarter of 2021, mainly due to measures taken by the government to ease the pandemic, and the reduced budget expenditures in the first half of this year and a decrease in some regulated tariffs.
      On July 27 the IMF said its staff and Moldova had agreed on an economic reform program supported by a 3-year extended credit facility and extended fund facility agreements, allowing access to about US$558 million.
     Approval of this agreement is expected by the IMF executive board in September, subject to the country's implementation of a number of actions in the area of central bank independence, financial sector oversight and fiscal transparency.
     "The successful clean-up of the banking sector in the aftermath of the major bank fraud is a credit to the supervisory work of the NBM," the IMF said, adding it is in Moldova's interest to preserve the independence of the central bank and is also a critical requirement under the latest agreement.
     In March Moldova detained two current and two former senior central bank officials on suspicion of involvement in the US$1 billion theft from three banks in 2014-2015, triggering a political crises in the former Soviet republic.
      The theft led to street protests, a freeze in aid by the IMF and the European Union, a plunge in the leu's exchange rate and a rise in inflation.
      Inflation in Moldova, which is located between Ukraine and Romania, close to the Black Sea, rose to 4.3 percent in June from 4.1 percent in May and its gross domestic product grew 0.5 percent in the first quarter from the previous quarter for annual growth of 0.9 percent.
      After falling in the first three months of the year, the leu has been rising May and rose further today to 16.6 to the U.S. dollar, up 4.2 percent this year.

Thursday, August 6, 2020

Romania cuts rate 3rd time in 2020 to underpin recovery

     Romania's central bank lowered its monetary policy rate for the third time this year, saying this should help underpin a recovery of economic activity and help bring inflation in line with its target in the medium term while still safeguarding financial stability.
     The National Bank of Romania (NBR) cut its policy rate by 25 basis points to 1.50 percent and has now cut it 100 points this year following cuts in March and May.
     NBR also cut its deposit facility rate by the same amount to 1.0 percent and its Lombard lending facility rate to 2.0 percent.
     The rate cut reflects the August inflation report, which slightly revised downward the expected trajectory of inflation although the uncertainty surrounding projection continue to be "extremely elevated" with two-way risks to the outlook, the board said on Aug. 5.
     The bank's board scrapped its schedule of meetings to discuss monetary policy weeks ago in light of the uncertainty facing the country's economy and still only holds meeting when deemed necessary.
     In the inflation report, which will be published on Aug. 6, inflation is seen rising slightly in July but then remaining relatively stable in the upper half of the variation band until the end of this year before declining and hovering around the mid-point of the target.
     Given the transmission lag from the rate cuts, NBR said the rate cuts should underpin a recovery of economic activity, bring and strengthen inflation in line with its target of 2.5 percent, plus/minus 1 percentage points.
     Romania's inflation rate rose to 2.6 percent in June from 2.3 percent in May and while gross domestic product decelerated sharply to annual growth of 2.4 percent in the first quarter from 4.3 percent in the previous quarter, output was still a positive 0.3 percent quarter-on-year.
     "On the domestic front, the incoming data and information since the last NBR board meeting at end-May have shown a severe impact of the coronavirus pandemic, especially in April, but also the economic and financial effects of the gradual relaxation of the restrictive measures starting in May," NBR said.
     The main risk surrounding the economic outlook stems from the coronavirus pandemic, which has resurged, and the associated containment measures that weigh on the speed of economic recovery, the government's fiscal measures and the possibility of higher transfers in the run-up to this year's elections,  the bank's monetary policy, and the impact of funds allocated to Romania from the European Union's economic recovery package.
     "Given the liquidity shortfall on the money market, the Board decided to further conduct repo transactions and continue to purchase leu-denominated government securities on the secondary market," NBR said.

Wednesday, August 5, 2020

Brazil cuts rate 5th time in '20, easing room now small

     Brazil's central bank lowered its key interest rate for the 5th time this year but said the remaining space for further monetary easing is now small and any further changes to the current degree of stimulus would be gradual and depend on the outlook for fiscal policy and inflation.
     The Central Bank of Brazil (BCB) cut its benchmark Selic rate by 25 basis points to 2.0 percent and has now cut it by 250 basis points this year following cuts in February, March, May and June.
     BCB has been on an easing path since October 2016 and has lowered the rate 12 percentage points since then as inflation has gradually decelerated since topping 10 percent in January that year.
     Although the central bank is now taking its foot off the gas pedal, it said the current economic environment still required "extraordinarily high monetary stimulus" and it didn't foresee any reduction in the degree of stimulus unless inflation expectations and projections approached its target for this year, next year and to a lesser extent for 2022.
     Brazil's inflation rate ticked up to 2.13 percent in June from 1.88 percent in May, well below the bank's target of 4.0 percent, plus/minus 1.5 percentage points.
     It noted inflation expectations for this year, 2021 and 2022 from the Focus survey were around 1.6 percent, 3.0 percent and 3.5 percent, respectively.
     The inflation forecasts by the central bank's monetary policy committee, or Copom, based on a constant exchange rate, are around 1.9 percent this year, 3.0 percent for 2021 and 3.4 percent for 2022.
      This forecast assumes an interest rate trajectory that ends 2020 at 2.0 percent and then rises to 3.0 percent in 2021 and 5.0 percent in 2022.

Georgia cuts rate 3rd time in '20, sees 5% GDP contraction

     Georgia's central bank lowered its key interest rate for the third time this year as it continues what it described as a "gradual exit from the tightened policy stance at a slower pace," adding inflation is expected to continue to decline during the rest of this year due to weak demand as the economy shrinks.
     The National Bank of Georgia (NBG) cut its refinancing rate by another 25 basis points to 8.0 percent and has now cut it by 100 points this year following cuts in April and June.
      Between September and December last year NBG raised its rate four times and by 250 basis points to curb inflationary pressures from a fall in the lari's exchange rate.
     "The NBG will continue to monitor the developments in the economy and financial markets and will use all instruments at its disposal in order to ensure the price stability," the central bank said.
     Inflation in Georgia declined for the third consecutive month to 5.7 percent in July and NBG said the latest forecast shows inflation will continue to decline the rest of this year and fall below the 3.0 percent target in the first half of 2021 before it then rises and approaches the target from below.
      The fall in inflation will be driven by weak aggregate demand and the central bank forecast a 5.0 percent contraction in the economy this year.
     "The revision of economic growth forecast followed a larger-than-expected decline in global economic activity and external demand than was evident in the early stages of the pandemic," the central bank said.
     Georgia's gross domestic product grew by an annual 2.2 percent in the first quarter of this year, down from 5.1 percent in the previous quarter.
      Preliminary data showed a 7.7 percent annual fall in economic activity in June while revenue from international travelers was down 97 percent in the same month, exports fell an annual 14 percent and imports fell 22 percent.
     However, compared with the months of April and May, there are signs of a recovery in domestic demand due to fiscal stimulus and better-than-expected credit activity and remittances, NBG added.
     Following the rate hikes last year, Georgia's lari strengthened before it tumbled in March this year, along with most other currencies. 
      The sharp fall forced NBG to intervene six times in the foreign exchange market and in early April the central bank accounted a series of emergency measures in response to the COVID-19 pandemic, including the provision of $400 million through swaps to commercial banks and microfinance institutions, an easing of banks' capital requirements and allowing them to use foreign currency buffers to manage lari liquidity.
     Since mid-June the lari has been more stable and was trading at 3.07 to the U.S. dollar today, up 14 percent since a low of 3.50 on March 27 but still down 6.8 percent since the start of this year.

Sunday, August 2, 2020

This week in monetary policy: Australia, Thailand, Georgia, Albania, Brazil, India, UK, Czech Rep. & Moldova

     This week - August 3 through August 8 - central banks from 9 countries or jurisdictions are scheduled to decide on monetary policy: Australia, Thailand, Georgia, Albania, Brazil, India, United Kingdom, Czech Republic and Moldova.

    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, and the rate one year ago.

    The table is updated when the latest decisions are announced and can always accessed by clicking on This Week.

AUG 3 - AUG 8, 2020:
AUSTRALIA4-Aug0.25%0-501.00%         DM
THAILAND5-Aug0.50%0-751.50%         EM
BRAZIL5-Aug2.25%-75-2256.00%         EM
INDIA6-Aug4.00%-40-1155.40%         EM
UNITED KINGDOM6-Aug0.10%0-650.75%         DM
CZECH REPUBLIC6-Aug0.25%0-1752.00%         EM
MOLDOVA 6-Aug3.25%0-2257.50%

Honduras cuts rate 3rd time, sees larger economic slump

      Honduras' central bank lowered its monetary policy rate for the third time this year to help ease the negative impact of measures to curb the spread of the Covid-19 pandemic on employment and economic activity, which is now seen contracting more than previously expected.
     The Central Bank of Honduras (BCH) cut its policy rate by another 75 basis points to 3.75 percent and has now cut it 175 points this year following cuts in February and March.
     This rate cut should encourage a reduction in the cost of financing and thus stimulate demand for credit and encourage a resurgence of investment and consumption, the bank said in a statement on July 31.
     Since December 2019, when BCH began easing, the rate has been cut 200 basis points.
     The bank's board said it would continue to evaluate the impact on the economy from the COVID-19 pandemic so it could take appropriate measures in a timely manner to mitigate the effects on the country's economy.
     A review of the economy and an update of forecast shows a higher-than-expected contraction of the economy in the second quarter due to the combination of shocks to both supply and demand, necessitating additional monetary measures, the bank said.
     BCH lowered its estimate of economic contraction this year to 7.0 to 8.0 percent from a May forecast of a shrinkage of 2.9 to 3.9 percent.
     In the first quarter of this year Honduras' gross domestic product shrank 1.2 percent year-on-year and by 2.6 percent from the fourth quarter of 2019. In the full year of 2019 the economy grew 2.7 percent.
     "Even with a gradual opening of the national economy, the depth of the loss recorded to date allows us to anticipate that there will be a fall of annual gross domestic product in 2020 higher than expected in May, but then anticipating a recovery for 2021," BCH said.
     GDP is forecast to expand 4.5 to 5.5 percent in 2021, up from the May forecast of 4.0 to 4.5 percent.
     In addition to lowering its policy rate, BCH also cut the interest rate on its permanent credit facility by 75 basis points to 4.25 percent and the rate on direct reporting operations to 4.75 percent.
     BCH raised its estimate for an increase in credit to the private sector in 2020 to 6.8 percent from an earlier 4.5 percent, which should help cushion the fall in disposable income and cash flow, and raised the estimate for total deposits in the banking system to 9.1 percent from an earlier 4.2 percent due to greater savings by households for precautionary reasons.
     Despite the negative economic scenario this year, the central bank expects the country's external position to strengthen as a partial improvement in the U.S. labour market will boost remittances more than expected.
     In addition, external financing to mitigate the effects of Covid-19 would lead to a larger-than-expected accumulation of reserves to a level that exceeds six months of imports, BCH said.
     In June the International Monetary Fund (IMF) released some US$233 million to help Honduras meet urgent balance of payments and financing needs after the country in late March drew down US$143 million from its available IMF resources.
     Inflation in Honduras, which rose to 2.65 percent in June from 2.29 percent in May, is expected to remain close to the lower limit of the central bank's tolerance range of 4.0 percent, plus/minus 1 percentage point, in 2020 and 2021.
     Honduras' lempira has appreciated since late May against the U.S. dollar and was trading at 24.7 against the dollar on Friday, largely unchanged on the year, after declining in March and April.


Friday, July 31, 2020

Colombia cuts rate 5th month in a row to boost activity

    Colombia's central bank cut its benchmark interest rate for the fifth time this year, saying the balance of risks suggest it is appropriate to provide an additional boost the economy and the impact of monetary policy will be greater if the conditions associated with the COVID-19 pandemic allow for a gradual reopening of different economic sectors.
     The Central Bank of Colombia cut its main interest rate by another 25 basis points to 2.25 percent and has now cut it by 200 points this year following earlier cuts in March, April, May and June. 
      The central bank's board noted that inflation in June had decelerated to 2.19 percent from 2.85 percent in May and inflation expectations are continuing to decline, with the rate below the central bank's target of 3.0 percent.
      Aggregate demand in the economy is weaker than expected, the bank said, adding spare capacity is high and the labor market is deteriorating within the context of global economic uncertainty.
     But financial market conditions have improved since the start of the pandemic, with the abundant liquidity in global and local markets reflected in lower sovereign risk premia and foreign exchange volatility.
     Colombia's economy shrank 2.4 percent in the first quarter of this year from the previous quarter and the government has forecast 5.5 percent contraction this year. Year-on-year the economy grew 1.1 percent in the first quarter.
     Today the bank said its technical team had lowered its estimate for the economy's contraction this year to between 6 and 10 percent from an earlier forecast of 2 to 7 percent contraction. Consumer price inflation will be between 1 and 2 percent.
     Colombia's peso fell sharply in March against the U.S. dollar, as most other currencies, and then bounced back from April until mid-July. 
      Since then, it has eased and fell further today to trade at 3,732.8 to the dollar today, down 12 percent this year.

Azerbaijan cuts rate 15th time as inflation below target

     Azerbaijan's central bank  lowered its benchmark interest rate for the third time this year and for the 15th time in 2-1/2 years, saying this decision took into account that actual and projected inflation was below the midpoint of its target range, the continued improvement in the international situation, the stability in the foreign exchange market and the anti-inflationary effects of weaker demand from the COVID-19 pandemic.
     The Central Bank of the Republic of Azerbaijan (CBA) cut its discount rate by another 25 basis points to 6.75 percent and has now cut it by 75 points this year following earlier cuts in January and June.
     Since February 2018, when CBA embarked on a monetary easing cycle, the rate has been cut 15 times and by a total of 8.25 percentage points from 15.0 percent.
      The floor of its interest rate corridor is now 6.25 percent and the ceiling at 7.25 percent.
      "The next decisions on the parameters of the interest rate corridor will depend on the degree of deviation of actual inflation from the forecast, changes in the situation in global markets, as well as the recovery of domestic demand and economic activity," CBA said after a meeting of its board on July 30.
      Inflation in Azerbaijan rose to 3.0 percent in June from 2.9 percent in May but remains below the midpoint of CBA's target range of 4.0 percent, plus/minus 2 percentage points.
      Inflation expectations are also continuing to decline, the bank said and the latest forecast points to inflation in a range of 3.0 to 3.5 percent by the end of this year.
      Lower imports and an improved international situation, along with a recovery of oil prices, helped the country's external balance and the country's foreign exchange reserves have now risen 1.2 percent since the start of the year to $US5.71 billion while CBA's foreign exchange reserves have risen 3.3 percent this year.
      But necessary measures to restrict activity due to the pandemic had a negative impact on economic activity in June and July and the confidence of households has also declined, the bank said despite anti-crises measures by the government and the central bank.
     "Significant uncertainties remain in the global environment over the medium term over the duration and effects of the pandemic," CBA said.

Wednesday, July 29, 2020

Lesotho cuts rate 5th time in 2020, sees 5.7% contraction

    The Central Bank of Lesotho (CBL) cut its key interest rate for the fifth time this year, saying this would help "ensure that the domestic cost of borrowing and lending remain aligned with the cost of funds elsewhere in the region."
     CBL cut its CBL rate by 25 basis points to 3.50 percent and has now cut it 300 points this year following earlier cuts in January, March, April and May.
     Since July 2019, when the central bank began its current easing cycle, the rate has been cut 350 basis points.
     "Domestically, growth has remained subdued," CBL said on July 28, confirming its forecast for the country's economy to contract 5.7 percent this year, with risks to the domestic outlook from the possible spread and infection control measures of COVID-19, exposure to international economic developments, domestic structural rigidities and policy uncertainty.
     But CBL also increased its target floor for Net International Reserves (NIR) to $550 million from $530 million, the level it was lowered to in May, saying the NIR target remains consistent with maintaining the exchange rate peg between the loti and the South African rand.
     The Kingdom of Lesotho is surrounded by South Africa and its economy relies on remittances from its workers in South Africa. Along with Namibia and Eswatini (former Swaziland), Lesotho is part of the rand monetary area that uses South Africa's rand as a common currency.
     Lesotho introduced its loti currency in 1980 and it trades on par with the rand.
     The South African Reserve Bank (SARB) has also cut its policy rate five times this year and by 300 basis points, with the most recent cut on July 23.
     Lesotho was the last country to register confirmed cases of COVID-19 on the African continent but the number of infections are now rising and threatening to put pressure on the healthcare system.
      "Indications are that the worst of the pandemic is still ahead," CBL said, adding there are fears the pandemic will likely come in waves over time as being seen in Europe and the U.S.
      Economic growth in sub-Saharan Africa is forecast by the International Monetary Fund (IMF) to fall by 3.2 percent this year and while CBL has loosened its monetary policy stance, it has also emphasized the importance of preserving adequate reserves to guarantee the peg to the rand as it is of "paramount importance" given the fixed exchange rate is a key to macroeconomic stability, CBL said.
      Lesotho's economic performance in the second quarter was generally weak, CBL said, adding its measure of economic activity showed output declined by 1.2 percent in May compared with a 1.3 percent expansion in April.
      For the full year, CBL confirmed its forecast from May for an economic contraction of 5.7 percent this year compared with estimated growth of 2.6 percent in 2019, with the decline led by the textiles and clothing industry, construction and mining.
      In the medium-term, the central bank projects the economy will average growth of 5.1 percent in 2021 and 2022, with the recovery conditional on COVID-19 containment but led by a strong rebound in mining and construction, and a broad-based recovery helped by the domestic policy response.
      Lesotho's inflation rate rose to 4.9 percent in June from 4.0 percent in May and is expected to average 4.2 percent this year before rising to 4.7 percent in 2021 and 5.2 percent in 2022, CBL said.
      The country's balance of payments position improved in the first quarter due to a decline in the trade deficit and gross international reserves rose to 4.7 months of import cover from 4.3 percent in the previous quarter.

Monday, July 27, 2020

Tajikistan cuts rate 2nd time as inflation decelerates

     Tajikistan's central bank lowered its key interest rate for the second time this year, citing a stabilization of global and domestic inflation expectations, and to support economic activity during the negative impact of the coronavirus pandemic.
     The National Bank of Tajikistan (NBT) cut its refinancing rate by another 100 basis points to 10.75 percent and has now cut it by 200 points this year following a similar-sized cut in April.
     But the refinancing rate is only 150 basis points below the start of this year as NBT in January raised its rate by 50 points due to rising inflationary pressures. 
     The central bank said inflation in Tajikistan - which borders China, Kyrgyzstan, Afghanistan and Uzbekistan - was 8.4 percent in June, down 0.3 percentage points from June 2019 after rising earlier this year due to a rise in the prices of basic food items as the outbreak of the virus caused a supply shortage of some items amid a low level of domestic competition and limited international trade.
     NBT targets inflation of 7.0 percent, plus/minus 2 percentage points and inflation eased to 10.0 percent in May from 10.6 percent in April.
     To help meet the needs for some imports, such as flour, wheat, sugar, oil, fuel, medicine and fertilizers, the NBT approved the use of 104.3 million somoni from the international reserves.
     This move helped ease some of the pressures on the exchange rate, the central bank said, along with the price level and since May prices and the exchange rate have been relatively stable.
     The exchange rate of the somoni, which replaced the Tajikistani ruble in 2000, has been depreciating since 2014 and on March 30 the central bank made what it said was a one-time correction in the official exchange rate to the U.S. dollar of up to 5 percent to ease market pressure.
    Today the somoni was trading at 10.2 to the dollar, 4.9 percent below its level at the start of 2020.
    Tajikistan's economy grew 3.5 percent in the first half of this year, boosted by a 9.2 percent rise in industrial production and an 8.2 percent rise in agricultural output, 4.0 percentage points below the same period last year due to the negative impact of the pandemic, which mainly hit services, construction and retail trade, NBT said.
     It added monetary stimulus worldwide and low inflation will lead to higher demand and a resumption of global growth in coming years. 
      Inflationary risks in Tajikistan, however, are likely to ease due to a relatively good harvest, lower demand from a decline in remittances, slower exports and slower economic growth, stable inflation in major trading partners, lower interest rates and a relatively stable foreign exchange market due to a decline in imports.
    NBT, which is moving toward inflation targeting, began lowering its key interest rate in January 2018 from 16.0 percent but then had to reverse course after a second rate cut and raise the rate in February 2019. 
     But in May last year it returned to the easing path and continued with another rate cut in November 2019 before it had to reverse course in January this year, shortly after the International Monetary Fund said tighter monetary policy might be needed to mitigate possible second-round effects from a rise in inflation.
     NBT is one of only six central banks to have raised rates this year in stark contrast to the 92 banks that have cut rates this year in response to the collapse of economic activity in March from measures worldwide to contain the spread of the COVID-19 pandemic.
     In May the IMF's executive board approved a disbursement of US$189.5 million to help Tajikistan meet urgent balance of payment and fiscal financing needs and help prevent severe economic and human disruption from the pandemic.
      The IMF forecast a 2.0 percent contraction in Tajikistan's economy while the budget  deficit could rise to 7.7 percent of gross domestic product.