Wednesday, December 7, 2016

Canada maintains rate as growth in line with forecast

    Canada's central bank left its benchmark Bank Rate at 0.50 percent, as widely expected, and said economic activity was largely as it had forecast with more moderate growth seen in the current quarter following a strong rebound in the third quarter from a very weak first half of the year.
    The Bank of Canada (BOC), which has maintained its rate since its last easing in July 2015, said consumption was robust and supported by new child benefits while the impact of federal infrastructure spending had yet to show up in economic data.
    Business investment and non-energy exports continue to disappoint and while there have been gains in employment there is still a significant amount of economic slack, in contrast the United States, the BOC said, almost foreshadowing next week's U.S. Federal Reserve decision.
    In October the BOC lowered its forecast for Canada's Gross Domestic Product to grow by 1.1 percent this year, down from 1.3 percent forecast in July, and to 2.0 percent in 2017, down from 2.2 percent. In 2018 the country's economy is still seen expanding by 2.1 percent.
    Canada's GDP grew by an annual rate of 1.3 percent in the third quarter, up from 1.1 percent in the second quarter when oil output was affected by wildfires in Alberta.
    Canada's inflation rate has risen in recent months but is still "slightly below expectations, largely due to lower food prices," the central bank said.
    Headline inflation in October rose to 1.5 percent in from 1.3 percent in September while core inflation eased to 1.7 percent from 1.8 percent in the previous two months.
    The BOC said the higher core inflation rate shows that economic slack is being offset by past exchange rate depreciation though this effect is dissipating.
    Canada's dollar has been trending downward against the U.S. dollar since 2013 but reversed course in mid-January this year when it rose sharply. But since early May it has been easing but was trading at 1.33 to the USD this morning, still up 4.1 percent since the start of the year. 

Namibia keeps rate, growth seen higher, inflation lower

     Namibia's central bank left its benchmark repurchase rate steady at 7.0 percent, saying economic growth is expected to improve in 2017 after a slowdown this year while inflation is expected to decline next year.
    The Bank of Namibia, which raised its rate twice this year by a total of 50 basis points, said inflation rose to an average of 6.6 percent in the first 10 months of this year, up from 3.4 percent in 2015, driven by higher prices of housing, water, electricity, fuel, transport and food.
    On a monthly basis, the annual inflation rate rose to 7.3 percent in October from 6.9 percent in September and is expected to average 6.7 percent this year before easing to 5.9 percent in 2017.
    The expansion in private sector credit, which worried the central bank earlier in the year, slowed to an annual rate of 11.8 percent in the first 10 months of the year compared with growth of 15.5 percent in the year-ago period. The slowdown was seen in both corporate and individual credit.
    Namibia's economy has been hit by lower output of diamonds, zinc, cement, blister copper along with a decline in construction, agriculture and transport. Wholesale and retail trade, however, has been positive.
   For 2016 the central bank forecast growth of 2.5 percent, down from 5.3 percent in 2015, but growth should improve next year.
    In September the International Monetary Fund (IMF) also estimated growth of 2.5 percent this year, with growth seen accelerating to above 5 percent in 2017 and 2018 as production from new mines ramps up.
   In the second quarter of this year, Namibia's Gross Domestic Product shrank by an annual rate of 1.2 percent from 3.4 percent growth in the first quarter.
    As of Nov. 30, the central bank said the stock of international reserves had  risen to N$25.0 billion from 22.6 billion in October , for import cover of about 3.3 months, up from 2.9 months previously reported.


India holds rate to gauge impact of bank note withdrawal

    India's central bank left its benchmark repo rate unchanged at 6.25 percent, surprising most analysts who had expected a rate cut, saying "it is prudent to wait and watch" how the withdrawal of large bank notes affect inflation and economic growth which is expected to take a hit from disruption to demand.
    In an unanimous 6-0 decision by the Reserve Bank of India's (RBI) recently-installed Monetary Policy Committee, said it was retaining its accommodative policy stance, but was also taking note of "heightened uncertainty" in global financial markets, with the imminent tightening of U.S. monetary policy already triggering bouts of volatility that could have macroeconomic implications for emerging market economies and the exchange rate of their currencies.
    Despite the decline in headline inflation to 4.2 percent in October from 4.39 percent in September, the RBI pointed to a "downward inflexibility in inflation excluding food and fuel which could set a resistance level for future downward movements in the headline."
    A surge in financial market turbulence and changes to crude oil prices could "put the inflation target for Q4 of 2016-17 at some risk," the RBI said, adding there had been a rise in the prices of several items - wheat, gram and sugar - that was masked by the decline in October inflation.
    While the withdrawal of bank notes could lead to a temporary reduction in inflation of 10-15 basis points in the current quarter from lower demand for perishable items, the RBI projected inflation of 5 percent in the fourth quarter of 2016-17, with risks tiled to the upside due to base effects in December and February and a possible rise in oil prices following OPEC's output cut.
    The RBI has a medium-term inflation target of 4 percent, plus/minus 2 percentage points.
     Earlier this month India's Prime Minister Narendra Modi banned 500 and 1,000 rupee bank notes - some 86 percent of currency in circulation - to root out corruption and tax evasion. The process has hit consumer demand and economists have lowered their economic short-term growth forecasts.
    The RBI said "supply disruptions in the backwash currency replacement may drag down growth this year," but this should be temporary and growth then rebound strongly.
    India's economy slowed in the second quarter to an expansion of 1.4 percent from the first quarter - on a year-to-year basis it grew by 7.3 percent, up from 7.1 percent - but the RBI said its outlook for the current 2016-17 financial year "has turned uncertain" after the slowdown and the impact of the bank note withdrawal that is still playing out.
    The RBI revised downward its growth forecast for 2016-17, which began on April 1, to 7.1 percent from 7.6 percent, adding that downside risks could arise from disruptions in cash-intensive sectors, such as retail trade, hotels, restaurants and transportation, and through a compression of aggregate demand in connection with the wealth effect.
    In a separate statement, the RBI said it was withdrawing the Nov. 26 temporary hike in the incremental cash reserve ratio (CRR) to 100 percent for deposits from Sept. 16 to Nov. 11 as of Dec. 10 with liquidity that will be released to be absorbed by a mix of securities that will be issued under the raised ceiling for issues unde the Market Stabilization Scheme (MSS) and the liquidity adjustment facility operations.

Monday, December 5, 2016

Australia maintains rate and neutral guidance

    Australia's central bank left its benchmark cash rate at 1.50 percent, as widely expected, and confirmed its neutral stance by saying the current policy was "consistent with sustainable growth in the economy and achieving the inflation target over time."
    But the Reserve Bank of Australia (RBA), which cut its rate by a total of 50 basis points in May and August, sounded slightly more optimistic about the outlook for the economy and inflation, saying a rise in commodity prices was helping boost national income while the global outlook for inflation was "more balanced than it has been for some time."
    Australia is a major exporter of iron ore, coal, gold, crude oil and natural gas, with the gradual rise in prices this year, following a slump in 2014, improving its terms of trade and thus export earnings.
    The country's Gross Domestic Product grew by an annual rate of 3.3 percent in the second quarter of this year, the fastest rate since the second quarter of 2012, but the RBA said it expects a slowdown by the end of the year before economic activity picks up again.
   "The outlook for business investment remains subdued, although measures of business sentiment remain above average," RBA Governor Philip Lowe said.
   Australia's inflation rate rose slightly to 1.3 percent in the third quarter from 1.0 percent in the second quarter, below the RBA's target of 2-3 percent, with continued subdued growth in labour costs expected to keep inflation low for some time.
    As in recent months, the RBA again said an appreciating exchange rate could "complicate" the economy's adjustment to lower mining investment.
    The Australian dollar has firmed since mid-January but remains far below par to the U.S. dollar that was seen from 2011 to early 2013. Today the Australian dollar, known as the Aussie, was trading at 1.34 to the U.S. dollar, up 1.2.2 percent since the start of this year.
    Last week Paris-based OECD said it expected Australia's growth to strengthen to an annual rate of about 3 percent by 2018 and the RBA will raise its rate sometime before the end of next year.

Sunday, December 4, 2016

This week in monetary policy: Australia, Argentina, India, Namibia, Canada, Poland, euro area, Serbia and Ukraine

    This week (December 4 through December 10) central banks from 9 countries or jurisdictions are scheduled to decide on monetary policy: Australia, Argentina, India, Namibia, Canada, Poland, the euro area, Serbia and Ukraine.
    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.

DEC 4 - DEC 10, 2016:
COUNTRY       DATE           RATE      LATEST        YTD     1 YR AGO    MSCI
AUSTRALIA 6-Dec 1.50% 0 -50 2.00%       DM
ARGENTINA 6-Dec 24.75% -50 -1,200             N/A       FM
INDIA 7-Dec 6.25% -25 -50 6.75%       EM
NAMIBIA 7-Dec 7.00% 0 50 6.50%
CANADA 7-Dec 0.50% 0 0 0.50%       DM
POLAND 7-Dec 1.50% 0 0 1.50%       EM
EURO AREA 8-Dec 0.00% 0 -5 0.05%       DM
SERBIA 8-Dec 4.00% 0 -50 4.50%       FM
UKRAINE 8-Dec 14.00% -100 -800 22.00%       FM

Wednesday, November 30, 2016

Brazil cuts rate 25 bps, larger cuts depend on inflation

    Brazil's central bank lowered its benchmark Selic rate by another 25 basis points to 13.75 percent, saying "the magnitude of monetary easing and a possible speeding up of its pace will depend on inflation forecasts and expectations."
     The Central Bank of Brazil, which has now cut its rate by 50 basis points following last month's cut - the bank's first rate cut since August 2012 - added the policy decision was unanimous by the members of its Copom committee and no bias was indicated.
    In its guidance, the central bank also said the pace of disinflation may intensify if the country's economic recovery is delayed further and is more gradual than anticipated.
    "The Committee judges that convergence of inflation to the 4.5% target over the relevant horizon for the conduct of monetary policy, which includes 2017 and 2018, is compatible with a gradual easing of monetary conditions," the central bank said.
    Brazil's inflation rate fell to 7.87 percent in October from 8.48 percent in September to the lowest rate since February 2015, with the central bank saying the drop was better than expected and partly due to lower food prices but also signs of more widespread disinflation.
    The central bank said 2016 inflation forecasts in the reference and market scenarios had dropped to around 6.6 percent from around 7 percent seen last month.
    Forecasts for 2017 show inflation around 4.4 percent and 4.7 percent, respectively, while
forecasts for 2018 for the two scenarios were around 3.6 percent and 4.6 percent, respectively.
     Brazil's economy shrank by 0.8 percent in the third quarter from the second quarter for the seventh quarter of contraction in a row. On an annual basis, Gross Domestic Product shrank by 2.9 percent compared with a decline of 3.6 percent in the second quarter.
    "The set of indicators released since the last Copom meeting suggests weaker-than-expected economic activity in the short run," the central bank said, adding forecast for growth this year and next year had been revised downward.
      The exchange rate of Brazil's real fell from August 2014 until it hit a record low of around 4.15 to the U.S. dollar in January this year. The real then firmed to around 3.12 in late October before again weakening in the last six weeks.
    The real was trading at 3.39 to the dollar today, still almost 17 percent higher than at the start of this year.

Angola holds rate and rules out devaluation of kwanza

    Angola's central bank maintained its benchmark BNA rate at 16.00 percent and said it was committed to preserve the value of the national currency, "which is why there will be no devaluation of the kwanza."
     The National Bank of Angola (BNA), which has raised its rate by 500 basis points this year to curb inflation, said it would continue to exchange 165.8 kwanza per U.S. dollar "so there is no need for market operators to change the prices of goods and services."
     The BNA also said it taken note of a deceleration in inflation due to its control of liquidity and an increases in the supply of goods and services.
    Angola's inflation rate rose to 40.4 percent in October, the highest rate since July 2004, from 39.4 percent in September, continuing the upward trend since 2015.
    The fall in crude oil prices from mid-2014 has lead to a shortage of foreign exchange in Angola, undermined government revenue and hit the exchange rate of the kwanza.
    The central bank, which has devalued the kwanza several times in the last year, said commercial banks had purchased US$1.268 billion in October, a decrease of 9.24 percent.
    In October credit to the economy rose by 0.42 percent while gross credit to the central government rose 0.82 percent.
    In September the International Monetary Fund (IMF) forecast 1.25 percent output growth in 2017, up from zero growth this year, due to a recovery in the non-oil sector from higher public spending.
    Inflation was forecast to reach 45 percent by the end of the year before declining to 20 percent next year as tight monetary conditions and a stable kwanza supports disinflation.
    The IMF also said monthly inflation had started to subside and while sales of foreign exchange had helped ease pressures on the market, it added that greater exchange rate flexibility, along with supporting macroeconomic policies, would be essential to maintain the exchange rate, prevent a misallocation of resources and accelerate growth.


Monday, November 28, 2016

Sri Lanka maintains rates as credit growth decelerates

    Sri Lanka's central bank maintained its key policy rates, saying the growth of credit had decelerated as it had expected and demand pressures are expected to remain well contained so "inflation is expected to remain stable in mid-single digit level in the period ahead."
    The Central Bank of Sri Lanka has raised its two key rates by 100 basis points this year to slow the growth in private sector credit from commercial banks, which eased to annual growth of 25.6 percent in September from 27.3 percent in August and 28.5 percent in July.
    Nevertheless, broad money grew by an annual rate of 18.4 percent in September, up from 17.3 percent in August, as public sector borrowing expanded.
    Liquidity in the domestic money markets, however, have returned to a balanced level, the central bank said, adding this will help stabilize market rates at current levels.
    Sri Lanka's inflation rate rose to 4.2 percent in October from 3.9 percent in September, with changes in taxes - Value-Added Tax has been raised to 15 percent and a Nation Building Tax began on Nov. 1 - expected to have a one-off impact while the overall impact of the 2017 budget on inflation is seen as favorable.
   The central bank noted the trade deficit had contracted by 12 percent in September from the same month last year as export earnings grew for the second consecutive month while import expenditure declined.
   Gross official reserves were estimated at US$6.1 billion at the end of October, down from $6.5 billion end-September while the exchange rate of the Sri Lankan rupee was trading at 148.4 to the U.S. dollar today, down almost 3 percent since the start of this year.
    Economic activity in Sri Lanka in the second quarter of this year was hit by adverse weather, with growth decelerating to an annual rate of 2.6 percent from 5.2 percent in the first quarter.
    The central bank raised its two key rates, the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) in February and July.    SLFR now stands at 7.0 percent and the SDRF at 8.50 percent.

Kyrgyz cuts rate another 50 bps, further easing expected

    The central bank of the Kyrgyz Republic cut its policy rate by a further 50 basis points to 5.50 percent in light of low inflation and said it intends to continue with its stimulative monetary policy in the absence of external shocks to help neutralize deflationary forces.
    The National Bank of the Kyrgyz Republic (NBKR) has now cut its rate by 450 basis points this year following cuts of 200 points in both March and May.
    Inflation in Kyrgyzstan fell to minus 0.2 percent in October from 0.3 percent in September, just above the record low of minus 0.60 percent seen in April this year.
     The NBKR said it expects inflation to be close to zero at the end of this year with the low inflation environment continuing in coming months but in the medium term inflation is still expected to return to its target range of 5-7 percent.
    Kyrgyzstan's economy is continuing to improve, with economic activity turning positive in the third quarter and real Gross Domestic Product up by 2.7 percent in the first 10 months, the bank said.
    Excluding output from the Kumtor gold mine, the country's economy grew by 3.3 percent as domestic consumption recovered, it added.
    Domestic financial markets remain stable, the central bank said, adding that the exchange rate of the som had appreciated by 9.0 percent from the beginning of the year to Nov. 28, with intervention in the foreign exchange market only carried out to smooth short-term fluctuations.
    The som, which fell swiftly from early 2014 until December 2015, has firmed since February this year and was trading at 69.0 to the U.S. dollar today, up from 75.9 at the start of the year.
    Last month the International Monetary Fund said the NBKR had "done a good job steering the economy through the recent period of volatility" and could relax its policy given the decline in inflation while still remaining vigilant for signs of fiscal and exchange rate pressures.


Kenya holds rate on mild inflation, rate cap uncertainty

    Kenya's central bank left its Central Bank Rate (CBR) at 10.0 percent, citing mild inflationary pressures, and the need for more "conclusive information" on prevailing domestic and global economic uncertainties.
    The Central Bank of Kenya (CBK), which has cut its rate by 150 basis points following cuts in May and September, said global growth prospects remain fragile in the wake of the U.K. Brexit decision and political developments in the U.S. and "uncertainty relating to the tightening of U.S. monetary policy and its implications for global capital flows remain a concern."
    The CBK said there still wasn't enough data on the impact of the decision by Kenya's government to impose a cap on banks' lending and deposit rates for form a "conclusive analysis," and it was closely monitoring developments.
    As of Sept. 14, lending and deposit rates at Kenya's banks were capped at 4 percentage points above the central bank's CBK rate.
    The exchange rate of Kenya's shilling has weakened only slightly in recent months despite speculation that it could take a hit from the government's decision to impose a cap on banks' rates.
    The shilling was trading at 101.9 to the U.S. dollar today, up 0.4 percent this year, with the central bank saying the foreign exchange market had remained relatively stable despite global volatility following the U.S. Presidential elections and the seasonal rise in demand for foreign exchange by corporates to finance dividend payments.
    While the government imposed the limit in an effort to boost local lending, there were fears that it could unnerve investors and lead to a shift into foreign currencies.
    Local banks criticized the limit, saying credit may dry up if they can't price loans according to risks, and the International Monetary Fund (IMF) expressed its concern over the measure, saying experience from other countries shows rate controls are ineffective, give rise to unintended negative consequences and can lead to lower economic growth and undermine efforts to reduce poverty.
    "In addition, interest rates limits undermine the effectiveness of monetary policy aimed at ensuring price stability and supporting sustainable economic growth," the IMF said on Nov. 4.
    The central bank's stock of foreign exchange reserves of US$7.305 billion - down from $7.803.6 billion in September - along with the precautionary arrangements with the IMF of $1.5 billion "have continued to provide adequate buffers against short-term shocks," the CBK said.
    Kenya's inflation rate rose slightly to 6.47 percent in October from 6.34 percent in September, but remains within the government's target range of 2.5 to 7.5 percent.
    Kenya's economy grew by an annual rate of 6.2 percent in the second quarter of this year, up from 5.9 percent in the same 2015 quarter and the first quarter, and while the non-bank private sector remains optimistic for higher growth this year, the central bank said "banks were cautious as they continue to monitor the potential impact of the capping of interest rates."

Israel maintains rate and to keep policy accommodative

    Israel's central bank left its benchmark interest rate at 0.10 percent, as expected, and confirmed that it will keep its monetary policy "accommodative for a considerable time," in light of inflation, the global economy, the exchange rate and the monetary policy of major central banks.
    The Bank of Israel (BOI), which has maintained the rate since its last cut in February 2015, also reiterated that the risks of achieving its inflation target "remain high."
    Israel's remains in the grip of deflation, with consumer prices falling by 0.3 percent in October, the smallest decline since February, and well below the BOI's target of 1-3 percent.
    But the BOI said the inflation rate has been rising for several months as the effect of lower energy prices and other price reductions abates, and medium and long-term expectations moved up this month following the U.S. Presidential election while short-term expectations were steady.
   Third-year forward inflation expectations rose to 1.36 percent from 1.0 percent last month while 3-5 year forward expectations rose to 1.45 percent from 1.2 percent. Longer-term expectations (5-10 years) rose to 2.37 percent from 2.25 percent.
    The central bank added that economic activity remains "positive," noting that first estimates of third quarter Gross Domestic Product show an annual increase of 3.2 percent, driven by investment and private consumption while exports declined.
    The exchange rate of the shekel "continues to weigh on the growth of exports and of the tradable sector," the BOI said, adding that it appreciated by 1.6 percent in terms of the nominal effective exchange rate from the previous policy discussion through Nov. 25.
   The shekel, which fell sharply from August 2014 to March 2015, has risen slightly this year and was trading at 3.86 to the U.S. dollar today, up 0.8 percent this year.