Thursday, July 19, 2018

South Africa holds rate as inflation outlook deteriorates

      South Africa's central bank left its benchmark repurchase rate at 6.50 percent but noted the deteriorating outlook for inflation and raised its implied path of policy rates to five rate hikes by the end of 2020 from four hikes.
      The South African Reserve Bank (SARB), which cut its rate by 25 basis points in late March, lowered its forecast for headline inflation this year to 4.8 percent from a previous 4.9 percent but raised the 2019 forecast to 5.6 percent from 5.2 percent and the 2020 forecast to 5.4 percent from 5.2 percent.
      SARB said it still considers its policy stance to be accommodative but had noted the deteriorating inflation outlook and said it would not hesitate to act if inflation moves significantly away from the midpoint of its target range of 3 - 6 percent.
      The repurchase rate is now seen ending this year at 6.9 percent, up from 6.7 percent previously forecast, and then ending at 7.3 percent in 2019, up from 7.1 percent, and ending at 7.7 percent by the end of 2020, up from 7.6 percent.
      "While headline inflation is comfortably within the inflation target band, indications are that we have passed the low point of the current cycle," SARB Governor Lesetja Kganyago said.
      Although the impact of an increase in Value-Added-Tax on April 1 on inflation appears to be less than anticipated, Kganyago said a weaker rand and higher oil prices have pushed up the inflation trajectory.
      South Africa's headline inflation rate rose to 4.6 percent in June from 4.4 percent in May and is up  sharply from 3.8 percent in March.
       Since the previous meeting of SARB's monetary policy committee in May, the rand has fallen 7.2 percent against the U.S. dollar and SARB considers it to be undervalued.
       But the exchange rate of the rand is expected to remain volatile and SARB forecast the nominal exchange rate would drop by an average of 0.8 percent this year and then a further 4.6 percent in 2019 and another 2.1 percent in 2020.
       The rand eased in response to SARB's decision and was trading at 13.5 to the U.S. dollar and is down 8.3 percent this year.
       The outlook for South Africa's economy is slightly weaker than SARB had forecast in May, with the economy in 2018 now seen only expanding by 1.2 percent, down from 1.7 percent previously forecast and down from 1.3 percent in 2017.
       In the first quarter, the economy shrank by 2.2 percent from the previous quarter.
       The forecast for 2019 of 1.9 percent is slightly up from 1.7 percent previously forecast while the 2020 forecast is unchanged at 2.0 percent, helping close the negative output gap.

Indonesia holds rate to keep rupiah and markets stable

      Indonesia's central bank left its benchmark BI 7-day reverse repo rate steady at 5.25 percent, saying this was consistent with its efforts to maintain the attractiveness of domestic financial markets "against a backdrop of pervasive uncertainty blighting the global financial markets in order to maintain stability in general and Rupiah exchange rate stability in particular."
      The decision to maintain steady rates comes after Bank Indonesia (BI) raised its rate three times this year by a total of 100 basis points, most recently on June 29, to strengthen the rupiah's exchange rate while also intervening in the currency and government securities markets to maintain market liquidity.
      Moving forward, BI said it would remain vigilant of uncertainty in global financial markets and maintain the rupiah's exchange rate in line with fundamental values.
      The rupiah fell around 0.8 percent in response to BI's decision to maintain rates today to 14,538 per U.S. dollar and is now down 6.7 percent since the start of this year despite rising in the wake of the first two rate hikes in May.
      The central bank said U.S. economic growth is high with rising inflation while growth in Europe is weaker than expected and China's economic growth is not yet improving. This is prompting appreciation of the U.S. dollar against nearly all currencies, including the rupiah and high uncertainty in global financial markets has also resulted in a reversal of capital from emerging markets.
      Momentum of growth in Indonesia continued to build in the second quarter of this year on strong domestic demand, backed by fiscal stimulus, higher incomes, controlled inflation and growing consumer confidence, BI said, adding that solid investment is expected to continue.
       But export growth is lower than forecast due to sliding international commodity prices, BI said, forecasting that growth this year would approach the lower end of the forecast range of 5.1 - 5.5 percent.
      Indonesia's economy decelerated to annual growth of 5.06 percent in the first quarter of this year from 5.19 percent in the previous quarter.
      Indonesia's inflation rate eased to 3.12 percent in June from 3.23 percent in May and is forecast by BI to remain around the midpoint of its target range of 3.5 percent, plus/minus 1 percentage point, in 2018.

Tuesday, July 17, 2018

Angola cuts rate 150 bps as inflation continues to fall

      Angola's central bank lowered its benchmark BNA rate by 150 basis points to 16.50 percent and cut the ratio on mandatory reserves in kwanza by a further 100 points to 18 percent, citing a fall in inflation for the eight consecutive month and expectations that inflation would be lower than forecast.
      Today's easing follows the National Bank of Angola's (BNA) decision in May to unify the rate on its marginal lending facility with that of its basic interest, the BNA rate, and a 200 basis point cut in the ratio on mandatory reserves.
       Angola's inflation rate fell to 19.52 percent in June from 26.25 in October last year while the monetary base, the operational variable of monetary policy since last November, contracted by 7.75 percent in June and by 4.58 percent year-on-year.
       The BNA has forecast inflation of 23 percent this year and now expects the rate to be lower.
       BNA said gross international reserves in June had declined to US$17.50 billion in June from $18.98 billion in May and $18.06 billion in December 2017, equivalent to 7.3 months of imports.
       As part of major overhaul of its policy operations following the arrival of Jose Massano as BNA governor in October last year, the central bank in January replaced its fixed exchange rate regime with a floating regime with bands and set the reference rate for the kwanza via auctions.
       Since Jan. 9 the kwanza has depreciated steadily and was trading at 253.6 to the U.S. dollar today, down 34.5 percent since the currency began to float.

Saturday, July 14, 2018

Pakistan raises rate another 100 bps to curb demand

      Pakistan's central bank raised its monetary policy rate by another 100 basis points to 7.50 percent "to curb aggregate demand and ensure near-term stability."
      The State Bank of Pakistan (SBP) has now raised its key rate by 175 basis points this year following hikes in January and May as inflation continues to accelerate against a backdrop of a rising fiscal deficit and a widening current account deficit.
       In its statement, the SBP's monetary policy committee said the strong fiscal expansion in the second half of the 2018 fiscal year, which ended June 30, was likely to offset the recent monetary tightening on domestic demand while higher oil prices continued to inflate the import bill, inflation projections were rising and there was now a notable reduction in the differential between U.S. and Pakistani interest rates.
       The State Bank of Pakistan issued the following statement:

This week in monetary policy: Angola, Indonesia and South Africa

    This week - July 15 through July 21 - central banks from 3 countries or jurisdictions are scheduled to decide on monetary policy: Angola, Indonesia and South Africa.
    Angola's central bank had originally scheduled the  meeting of its monetary policy committee for July 20 but on July 11 this meeting was brought forward to July 17.
    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 15 - JUL 21, 2018:
COUNTRY                   DATE                     RATE                LATEST                    YTD              1 YR AGO
SOUTH AFRICA19-Jul6.50%0-256.75%

Thursday, July 12, 2018

Ukraine raises rate 50 bps to stem risks of rising inflation

       Ukraine's central bank raised its key policy rate by 50 basis points to 17.50 percent to ensure inflation will meet the bank's target next year, pointing to several threats to this goal, including investors' reluctance to purchase the assets of developing countries at a time of rising yields in advanced economies, such as the United States.
       Other threats to inflation stem from rising domestic demand, active labor migration, excessively high inflation expectations and growing risks that Ukraine won't receive the next tranche of aid from the International Monetary Fund (IMF), the National Bank of Ukraine (NBU) said.
       The rate hike took many investors by surprise as it follows the NBU's previous policy statement in May in which it said "monetary conditions are sufficient tight to bring inflation back to its medium-term target."
       Today the NBU warned that if the risks to meeting its inflation goal rise further, or if new threats to inflation or financial stability emerge, "the NBU could raise the key policy rate again to a level required to bring inflation back to its target over the forecast horizon."
       The NBU has now raised its policy rate by a total of 500 basis points since October 2017 - including 300 points this year - when it began a tightening campaign to prevent inflation expectations and inflation from rising due to buoyant consumer demand.
       Ukraine's inflation rate has been declining steadily this year and fell to 9.9 percent in June from 11.7 percent in May while the exchange rate of the hryvnia has been steady since early March after rising sharply in February.
      The NBU said the drop in June inflation was below its forecast due to an increase in the supply of food from favorable weather and higher imports. In addition, a stronger exchange rate had a "favorable" effect on the cost of imported goods and services.
      While maintaining its forecast for inflation to end this year at 8.9 percent, the central bank said the recent decline in inflation will be neutralized in the second half of this year due to greater-than-expected increases in utility prices by the end of 2018, a factor that will continue to affect inflation levels in the first three quarters of 2019, keeping it above the NBU's target before the fourth quarter.
      At the same time, inflation in the second half of this year and next year will face upward pressure from high domestic demand from wage growth and remittances, inflation expectations that continue to exceed the central bank's targets and declining interest of investors in Ukrainian debt due to the trend of rising yields in developed countries and postponed financing under the IMF program.
      NBU said tighter monetary policy will thus help drive inflation down and bring it to the target range by the fourth quarter of 2019 and it therefore left its inflation forecast for end-2019 unchanged at 5.8 percent.
       By 2020 inflation is expected to decelerate further to 5.0 percent, the midpoint of its target range of 4 - 6 percent.
       The NBU said it was also maintaining its forecast for 2018 economic growth of 3.4 percent but lowered the 2019 forecast to 2.5 percent from 2.9 percent due to tighter monetary conditions from falling inflation and tighter fiscal policy from the repayment of public debt.
      By 2020 Ukraine's economy is expected to expand by 2.9 percent, but this is based on the assumption that the government continues with structural reforms per the IMF agreement.
      The main risk to the NBU's growth forecast stems from the lack of progress in implementing structural reforms that are required for financial stability and continued cooperation with the IMF.
       In the first quarter of this year Ukraine's Gross Domestic Product grew by an annual rate of 3.1 percent, up from 2.2 percent in the previous quarter.
      After tumbling in 2014 and 2015, the hryvnia depreciated slightly in 2016 and 2017 but has appreciated this year, supported by the NBU's tighter monetary policy. 
       In June the central bank's governor, Yakiv Smolii, said the central bank had abandoned a fixed exchange rate and financial markets were now determining the hryvinia's exchange rate.
      Today the hryvnia was trading at 26.24 to the U.S. dollar, up 7.7 percent this year.

Wednesday, July 11, 2018

Canada raises rate another 25 bps and sees further hikes

      Canada's central bank raised its monetary policy rate by another 25 basis points to 1.50 percent and expects further rate hikes will be needed to keep inflation near its target though it will continue to be guided by the level of economic activity and inflation.
      The Bank of Canada (BOC) has now raised its key rate, the target for the overnight rate, four times and by a total of 100 basis points in the last 12 months.
      "Governing council expects that higher interest rates will be warranted to keep inflation near target and will continue to take a gradual approach, guided by incoming data," the BOC said, confirming financial markets' expectations that interest rates in Canada will continue to rise.
      It is the BOC's second rate hike this year and was expected by most economists following the central bank's guidance in May in which it said economic data had reinforced the governing council's view that "higher interest rates will be warranted to keep inflation near target."
      Today's rate hike comes against a backdrop of growing volatility in global financial markets in response to concern over United States trade protectionism, including an increase in tariffs between Canada and the U.S., and negotiations over the North American Free Trade Agreement (NAFTA) that original went into effect in 1994.
      In the July monetary policy report, the BOC estimated that uncertainty over future trading relationships and U.S. trade actions already implemented will subtract about 0.67 percent from Canada's Gross Domestic Product by the end of 2020, an amount BOC described as "modest."
      U.S. tariffs on steel and aluminum imposed on June 1 is estimated to reduce Canadian exports by C$3.6 billion, or 0.6 percent, and mostly be felt in the second half of this year.
      The impact of Canada's countermeasures are expected to reduce imports by C$3.9 billion, or 0.6 percent, by raising the cost of users of steel, aluminum and iron, temporarily boosting inflation by about 0.1 percentage point until the third quarter of 2019.
       Tensions and uncertainty over trade are taking place against still-solid global growth that has boosted oil prices and stronger-than-expected U.S. growth that has weakened the Canadian dollar while the economy is operating close to capacity.
       The BOC raised its forecast for Canada's economic growth in 2019 to 2.2 percent from April's forecast of 2.1 percent and the 2020 forecast to 1.9 percent from 1.8 percent.
      The forecast for growth this year was left at 2.0 percent, down from 3.0 percent in 2017, with the composition of growth shifting away from household spending towards business investment and exports as households adjust to higher interest rates and tighter mortgage regulations.
      Inflation is seen remaining close to the bank's target of 2.0 percent though it will accelerate to 2.5 percent in the third and fourth quarters of this year and average 2.4 percent for the year. It will then ease in 2019 but still average 2.2 percent and then 2.1 percent in 2020.
      The Canadian dollar briefly rose on BOC's rate hike but then eased to trade at 1.314 to the U.S. dollar, down 4.3 percent this year.

Monday, July 9, 2018

Kazakhstan maintains rate, limited potential for easing

      Kazakhstan's central bank left its base rate at 9.0 percent, as it signaled last month, and said the risks to inflation in the short and medium term, especially from the external sector and fiscal policy, would limit the potential for further monetary easing this year.
      The National Bank of Kazakhstan (NBK), which has cut its rate by 125 basis points this year, added inflation was forecast to remain within the bank's target corridor this year and 2019.
      In June the NBK said monetary conditions had reached a neutral level, signaling it was ready to shift into a neutral policy stance after cutting the rate by a total of 800 basis points since May 2016.
      While the NBK in June also noted the reduced potential for further rate cuts due to a slowdown in the downward trend in inflation and higher inflationary risks, it added that monetary conditions might be tightened to reduce inflationary expectations.
      Today the NBK said monetary conditions continue to be maintained at a neutral level but the operational benchmark of monetary policy - the tenge overnight index average known as TONIA - was closer to the lower boundary of the rate corridor.
       The central bank would therefore consider narrowing the corridor in the second half of the year to increase the operational efficiency of regulating monetary and credit conditions.
      Last month the International Monetary Fund (IMF) noted Kazakhstan's economy was continuing to recover from the shock of lower oil prices and slower economic growth in its main trading partners and strong exports of oil and metals was now boosting activity, helping narrow the current account deficit while inflation has remained within the central bank's target range.
       The IMF also said the central bank's rate cuts had been appropriate and consistent with keeping real interest rates close to neutral level and going forward the NBK should resist calls for accommodation and the balance of risks warrant a "cautious approach to further easing."
      Kazakhstan's inflation rate eased to 5.9 percent in June from 6.2 percent in May, mainly due to seasonal trends in agricultural food markets and continued slowdown in domestic prices.
      The NBK targets inflation of 5 -7 percent and based on a comparison with the third quarter of last year the central bank expects a noticeable slowdown in inflation by the end of this year.
      Inflationary expectations for the year ahead in June was steady at 6 percent, the same as in May and February while changes in March and April reflected market conditions, NBK said.
      Economic activity remains positive, with all major industries contributing to growth in excess of the country's potential in the first five months, supported by higher domestic demand and investment and external demand, which introduces inflationary pressures.
      While oil prices are continuing to have a positive impact on economic activity, NBK said international food prices dropped in June for the first time this year due to increased trade tension between countries.
      Although cereals prices fell, the central bank said production prospects had deteriorate, strengthening the inflationary background and further inflationary pressures are possible due to higher inflation in its main trading partners.
       During June the tenge continued to depreciate against a firmer U.S. dollar, with the volume of short-term notes from the central bank from non-residents easing to 241 billion tenge from 454 billion in March, a further factor in weakening the exchange rate, NBK said.
      Today the tenge was trading at 343.9 to the dollar,  down 3.2 percent this year.


Sunday, July 8, 2018

This week in monetary policy: Kazakhstan, Israel, Argentina, Malaysia, Poland, Canada, South Korea, Serbia, Ukraine & Peru

    This week - July 8 through July 14 - central banks from 10 countries or jurisdictions are scheduled to decide on monetary policy: Kazakhstan, Israel, Argentina, Malaysia, Poland, Canada, South Korea, Serbia, Ukraine and Peru.
    Following table includes the name of the country, the date of the next policy decision, the current policy rate, the result of the last policy decision, the change in the policy rate year to date, the rate one year ago, and the country’s MSCI classification.
    The table is updated when the latest decisions are announced and can always accessed by clicking on This Week.

JUL 8 - JUL 14, 2018:
COUNTRY                   DATE                     RATE                LATEST                    YTD              1 YR AGO
SOUTH KOREA12-Jul1.50%001.25%

Wednesday, July 4, 2018

Albania holds rate, continues to intervene to curb lek rise

      Albania's central bank left its key interests rate at 1.0 percent a month after cutting it, saying "expectations for the future remain positive," as the current monetary policy stance is keeping financing costs low and interventions in currency markets is preventing exchange rate appreciation.
       The Bank of Albania, which on June 6 lowered its rate by 25 basis points in the first cut since May 2016, added that it expects further growth in economic activity and better utilization of production capacities, helping boost wages and enabling inflation to return to the target in 2020.
       In his statement, Governor Gent Sejko said the bank's supervisory council found it necessary to continue intervening in the currency market though it reiterated this was an extraordinary and temporary monetary policy instrument, aimed at complying with the price stability objective.
      "As such, its duration will be only limited, conditioned by the prevention of the negative impact of the exchange rate on the achievement of the inflation target," Sejko said.
      Albania has had a free float of the lek since 1992 but after the lek in May hit highs against the euro not seen in the last 10 years the central bank began intervening to prevent it from rising even faster, threatening to lower inflation and delay its return to the bank's target.
      Albania's inflation rate was steady at 2.1 percent in May and April, in the lower bound of the central bank's target of 3.0 percent, plus/minus 1 percentage point.
       Since the bank's supervisory board authorized currency intervention on June 6, the lek has stabilized after rising sharply from February through May.
      Today the lek was trading at 126.5 to the euro, down 2 percent since hitting a high of around 124 on June 6. But it still remains 5.2 percent higher than at the start of the year.
      "The baseline scenario suggests that the Albanian economy will continue to grow, driving the build-up of domestic inflationary pressures," Sejko said, adding the higher exchange rate will tend to decelerate inflation of the next quarters the this is expected to be transitional so inflation should return to the target in 2020.

Romania maintains rate, sees inflation slowly leveling off

      Romania's central bank left its monetary policy rate at 2.50 percent, saying the "latest assessment reconfirm the outlook for the annual inflation rate to level off above the variation band of the target over the next months, followed by its decline near the upper bound of the variation band at the end of this year, in line with the May 2018 medium-term forecast."
      But the National Bank of Romania (NBR), which has raised its rate three times this year by 75 basis points to curb inflation, added uncertainties and risks surrounding its inflation outlook were "significant", pointing to labour market conditions, administered prices and oil prices, volatility in financial markets, the pace of growth in the euro area and "the danger of escalating trade protectionism."
       At its next scheduled monetary policy meeting on Aug. 6, the bank's board will discuss an update to the May inflation report, in which it raised the forecast for 2018 fourth quarter headline inflation to 3.6 percent after reaching 5.2 percent in the second quarter and 4.9 percent in the third quarter.
      In 2019 inflation is seen remaining high and ending the year at 3.0 percent, within the NBR's target range of 1.5 - 3.5 percent.
      Romania's headline inflation rate accelerated for the ninth month in a row to 5.4 percent in May from 5.2 percent in April due to larger-than-expected increases in fuel and tobacco prices.
      Last month the International Monetary Fund (IMF) forecast average 2018 inflation of 4.7 percent and then dropping to 3.1 percent in 2019.
      While inflation is rising, Romania's economy has slowed more than expected, NBR said, noting annual growth dropped to 4.0 percent in the first quarter from 6.7 percent with household consumption, which has been the main driver of growth, "shrinking considerably."
      Data also showed a deceleration in the growth of industrial output in April compared with the first quarter but a pick-up in trade and services.
      But credit issuance remained robust in the second quarter, with annual growth at 6.4 percent in May and 6.8 percent in April due to consumer credit at a record highs.
      The IMF forecast growth this year of 5.1 percent, down from 6.9 percent last year, and then 3.5 percent in 2019.
      Romania's leu has been relatively stable this year against the euro after easing in 2017. The leu was trading at 4.66 to the euro today, unchanged since the start of 2018.