Wednesday, October 26, 2016

Georgia maintains rate, sees 6% rate in next 2 quarters

    Georgia's central bank left its policy rate unchanged at 6.50 percent, saying past rate cuts were not fully reflected in the economy, but it expects to cut the rate to 6.0 percent over the next two quarters.
    The National Bank of Georgia (NBG) has cut its rate four times this year by a total of 150 basis points and said in September that it aimed to cut the policy rate to 6.0 percent in the "medium term" as demand is still expected to remain weak and inflation expectations indicate that the rate has to be cut further to reach a neutral level.
    But the central bank said there had been an increase in demand for variable rate loans denominated in lari, which had helped improve the transmission mechanism of its monetary policy.
    To further improve this transmission, the central bank wants its loosening to have further effect and decided therefore to maintain the rate this month.
    Georgia's inflation rate eased to 01 percent in September from 0.9 percent in August and the central bank expects inflation to return to its target in the second half of 2017.


Tuesday, October 25, 2016

Hungary keeps base rate, cuts overnight, RR rates

    Hungary's central bank maintained its benchmark base rate rate at 0.90 percent, as widely expected, but continued its policy of easing overall monetary conditions by lowering the overnight lending rate by 10 basis points and cutting the required reserve ratio by 100 basis points..
    The National Bank of Hungary (NBH) last cut its key rate in May but is now limiting the use of its main policy tool, the 3-month deposit facility, to encourage banks to buy government debt and offer cheaper loans to consumers and businesses.
    Last month the NBH lowered the total limit on the use of its 3-month deposit facility to 900 billion forint by the end of 2016, pushing out at least 200-400 billion forints from its facility.
     While cutting the overnight lending rate to 1.05 percent to "increase the banking system's liquidity and ease monetary conditions further," the central bank left the overnight deposit rate at minus 0.05 percent. This resulted in a narrowing of the interest rate corridor so rates on one-week central bank loans fell by 5 basis points to 1.0 percent, the NBH said.
    By cutting the reserve requirement to 1.0 percent from 2.0 percent as of Dec. 1, the central bank expanded the freely available liquidity in the banking system by 170 billion forint.
    "The Bank aims to ease monetary conditions and provide a corresponding degree of support to the economy through a decline in money market rates," the central bank said, adding it considers the limit on its three-month deposit stock and potential future changes "an integral part of monetary policy instruments."
    In a separate move, the central bank said it was offering to accept 150 billion forints of funds from banks in its 3-month deposit facility. At the last unlimited tender in September, banks deposited 687 billion forints in the facility.

Sunday, October 23, 2016

This week in monetary policy: Hungary, Georgia, Sweden, Norway, Israel, Ukraine, Moldova, Fiji and Russia

    This week (October 23 through October 29 central banks from 9 countries or jurisdictions are scheduled to decide on monetary policy: Hungary, Georgia, Sweden, Norway, Israel, Ukraine, Moldova, Fiji and Russia.
    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.

OCT 23 - OCT 29, 2016:
COUNTRY       DATE           RATE      LATEST        YTD     1 YR AGO    MSCI
HUNGARY 25-Oct 0.90% 0 -45 1.35%       EM
GEORGIA 26-Oct 6.50% -25 -150 7.00%
SWEDEN 27-Oct -0.50% 0 -15 -0.35%       DM
NORWAY 27-Oct 0.50% 0 -25 0.75%       DM
ISRAEL 27-Oct 0.10% 0 0 0.10%       DM
UKRAINE 27-Oct 15.00% -50 -700 22.00%       FM
MOLDOVA 27-Oct 9.50% -50 -1,000 19.50%
FIJI 27-Oct 0.50% 0 0 0.50%
RUSSIA 28-Oct 10.00% -50 -50 -100       EM

Thursday, October 20, 2016

ECB maintains rates as growth risks tilted to downside

    The European Central Bank (ECB) left is key policy rates steady, as widely expected, but raised the prospect of changing its policy measures in December by underscoring that risks to economic growth "remain tilted to the downside" and it will continue to use all available instruments to ensure that inflation continues to rise.
    The ECB, which in March cut its benchmark refinancing rate to zero, confirmed that monthly asset purchases of 80 billion euros were still intended to run until the end of March 2017, or beyond if necessary to ensure that inflation is moving toward the target of just below, but close to 2 percent.
    But ECB President Mario Draghi said the ECB remained "committed to preserving the very substantial degree of monetary accommodation," a sign the ECB may either extend its asset purchases beyond March next year or adjust it to encompass other securities or loosen some of its restrictions.
     In December the ECB will update its economic forecasts through to 2019 while the governing council will also hear from committees about the options for ensuring that its purchase program is proceeding smoothly, addressing concerns the ECB is running out of bonds to buy.
    Draghi said the euro area economy in the third quarter had continued to expand at a rate that was "around the pace" of the second quarter and further ahead growth should proceed at a "moderate but steady pace."
    In the second quarter the euro zone economy grew by 0.3 percent from the first quarter for annual growth of 1.6 percent, down from 1.7 percent in the first quarter.
    In September the ECB revised upwards its 2016 growth forecast to 1.7 percent from 1.6 percent, but lowered its outlook for 2017 growth to 1.6 percent from 1.7 percent and its 2017 forecast to 1.6 percent from 1.7 percent.
    Domestic demand will continue to be supported by the ECB's easy policy and largely neutral fiscal policy in 2017 but Draghi said the recovery was still being dampened by subdue foreign demand, the necessary adjustments of balance sheets in a number of sectors and the sluggish pace of structural reforms, which he once again called on governments to accelerate to reduce unemployment and boost the potential growth.
    "Structural reforms are necessary in all euro area countries," said Draghi.
    Inflation in the euro area rose to 0.4 percent in September from 0.2 percent in August.
    In its latest forecast, the ECB expects inflation to average 0.2 percent this year, 1.2 percent in 2017 and 1.6 percent in 2018.

Turkey maintains repo and overnight rate on low lira

    Turkey's central bank left its benchmark one-week repo rate steady at 7.50 percent but surprised financial markets by pausing in its policy of lowering the overnight funding rate, saying "recent developments in exchange rates and other cost factors restrain the improvement in the inflation outlook and thus necessitate the maintenance of a cautious monetary policy stance."
    The Central Bank of the Republic of Turkey (CBRT) has cut the overnight funding rate by 250 basis points to 8.25 percent since March, most recently last month, as part of a simplification of its monetary policy framework and efforts to stimulate demand and economic growth.
    But the benchmark rate, the one-week repo rate, has been maintained since February 2015 as the central bank tries to push down inflation.
    "The Committee stated that the direction and the timing of the next step in the monetary policy simplification process will be data dependent," the central bank said, adding its usual guidance that it will maintain a cautious policy stance and the outlook for inflation will determine its decisions.
    Turkey's headline inflation rate eased to 7.28 percent in September from 8.05 percent in August as food prices declined for the first on a monthly basis since 2003. The CBRT has forecast year-end inflation of 7.5 percent.
     While the exchange rate of the lira has weakened this year - on Tuesday it hit a record low of 3.11 to the U.S. dollar - it rose in response to the central bank's decision today.
    The lira was trading at 3.06 to the U.S. dollar shortly after news of the CBRT's decision to maintain rates, up from 3.07. But it is still down 4.6 percent compared with the the start of this year.
    Turkey's economy decelerated in the third quarter, the CBRT said, noting the decline in tourism revenue and moderate consumer lending. But the central bank said it expected domestic demand to start to recover in the fourth quarter, helped by recent supportive measures and incentives.
   Turkey's Gross Domestic Product grew by an annual rate of 3.1 percent in the second quarter, down from 4.7 percent in the first quarter.

Indonesia cuts rate another 25 bps, trims growth forecast

    Indonesia's central bank cut is new benchmark interest rate by 25 basis points for the second month in a row to stimulate domestic demand, including credit, to stimulate domestic demand at a time that inflation will remain close to the floor of its target range and economic growth is slightly weaker than expected.
     Bank Indonesia (BI) cut its BI 7-day Reverse Repo Rate (BI 7-day RR Rate) to 4.75 percent from 5.0 percent, brining the total cut in that rate to 50 basis points following the cut in September.
    BI adopted the 7-day rate as its new benchmark rate in August to improve the transmission of its monetary policy decisions to money markets. Prior to August BI cut its previous benchmark rate, the BI rate, four times from January through June by a  total of 100 points.
    Indonesia's inflation rate rose to 3.07 percent in September from 2.79 percent in August but BI reiterated that inflation is expected to fall towards the floor of its target corridor of 3 - 5 percent.
    Indonesia's economy in the third quarter was slightly weaker than BI had expected and the impact of government spending is now seen as "somewhat limited" as spending is adjusted in the second half of this year.
    Sluggish world trade has also undermined the country's exports while the rupiah's exchange rate has continued to appreciate, making the country's exports less competitive.
    Economic growth this year is therefore expected to be around the lower end of the 4.9 percent to 5.3 percent range that BI has forecast, a slight downgrade in its forecast.
    In August BI cut its growth forecast to 4.9-5.3 percent  from a previous 5.0-5.4 percent and last month confirmed that expectation.
    Indonesia's Gross Domestic Product grew by an annual rate of 5.18 percent in the second quarter, up from 4.91 percent in the first quarter, but BI said consumption in the third quarter had remained limited and private investment, particularly non-construction investment, had remained weak.
     After being hit hard in 2013 - the year of the "taper tantrum" when the rupiah fell by 21 percent - the rupiah continued to depreciate until October 2015.
    Since then it has been rising on positive sentiment about the economy along with a tax amnesty that encouraged Indonesians abroad to repatriate funds.
    The rupiah was trading at 13,003 to the U.S. dollar today, up 6.1 percent this year.

Wednesday, October 19, 2016

Canada keeps rate steady but cuts growth forecast

    Canada's central bank left its benchmark target for the overnight rate at 0.50 percent, as widely expected, but lowered its growth forecast for this year and next year due to a slowdown in housing sales and a lower-than-expected increase in exports.
    The Bank of Canada (BOC), which cut its rate twice last year by a total of 50 basis points, said it considers the risks around its latest inflation forecast to be "roughly balanced, albeit in a context of heightened uncertainty."
    In September the BOC said that the risks to inflation had "titled somewhat to the downside" since its previous Monetary Policy Report in July.
    The BOC has often been concerned about the impact of rising home prices in parts of the country but said new housing measures by the government to promote more stability should help cushion the risks to financial stability.
    The central bank 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.
    In the second quarter of this year Canada's economy grew by an annual rate of 0.9 percent, down from 1.2 percent in the first quarter but the BOC still expects economic activity to exceed the country's potential in the second half of this year as it continues to adjust to the shock from lower oil prices and a hit to growth from wildfires in Alberta.
    "This projection implies that the economy returns to full capacity around mid-2018, materially later than the Bank had anticipated in July," the BOC said.
    Exports are now seen growing by only 0.2 percent this year, down from 0.3 percent seen in July, and by 0.8 percent in 2017, down from 1.1 percent. In 2018 exports are forecast to grow 1.0 percent, down from 1.3 percent.
    Canada's inflation rate continues to be below expectations due to weak gasoline, food and telecommunications prices.
   In August headline inflation fell to 1.1 percent from 1.3 percent in July and the BOC trimmed its 2016 inflation forecast to 1.5 percent from 1.6 percent and the 2017 forecast to 1.9 percent from a previous forecast of 2.1 percent.
   In 2018 inflation is seen averaging 1.9 percent, just below the BOC's 2.0 percent target, and below the July forecast of 2.0 percent.
    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 slightly and was trading at 1.31 to the USD this morning, up 6.1 percent since the start of the year.

Tuesday, October 18, 2016

Chile maintains rate, confirms neutral guidance

    Chile's central bank left its monetary policy interest rate 3.50 percent, confirming its neutral guidance that future rate changes depend on the inflationary outlook.
    The Central Bank of Chile, which has maintained its rate this year after raising it by 50 basis points in 2015, most recently in December, noted that inflation in September was "unexpectedly low" so inflation approached its 3.0 percent target sooner than expected.
     Chile's inflation rate eased further to 3.1 percent in September from 3.4 percent in August and the central bank said expectations revolve around the bank's target. The central bank targets inflation of 3.0 percent within a 2 - 4 percent range.
     In August the central bank dropped its tightening bias that it had maintained since December as inflation continued to decline, with inflation in August falling below the central bank's upper limit for the first time since November 2015.

Global lending to emerging markets rises in Q2 - BIS

    Cross-border lending to emerging market economies rose for the first time in a year during the second quarter of 2016 against a backdrop of overall stagnant international banking activity,  according to the Bank for International Settlements (BIS).
    International bank lending data from the end of June showed that cross-border claims on borrowers from emerging markets rose by $110 billion to an outstanding stock of $3.3 trillion, partially offsetting a $379 billion decline seen in the previous three quarters.
   A $61 billion increase in second quarter lending to China dominated a $70 billion rise in lending to emerging Asia but total claims on China were still down 24 percent year-on-year while claims on emerging markets in Asia were down 15 percent.
    Cross-border lending to Latin America and the Caribbean also grew in the second quarter, up by $11 billion, with claims on  Mexico and Brazil growing by $6 billion and $4 billion, respectively. BIS said Spanish banks accounted for a substantial share of lending to Brazil.
    Lending to Africa and the Middle East also rose in the second quarter - up by $33 billion - pushing the annual growth growth to 12 percent to a record $573 billion in outstanding claims. Most of the loans went to the United Arab Emirates (a rise of $17 billion), Saudi Arabia (up by $9 billion) and Qatar, up by $4 billion.
    But overall data for global cross-border credit showed that outstanding claims at the end of June were largely unchanged from June last year at $27.4 trillion, with claims on lenders from advanced economies of $19.7 trillion
    Although global cross-border claims were up by $464 billion in the second quarter, intragroup banking activity accounted for most of this increase so BIS said that on a consolidated basis, claims were virtually unchanged.

    Click to read BIS international banking statistics at end-June 2016.


Uganda cuts rate another 100 bps to support growth

     Uganda's central bank cut its benchmark Central Bank Rate (CBR) by 100 basis points to 13.0 percent, saying there is scope to ease its monetary policy stance "to support the domestic economic growth momentum, especially against the ongoing global economic slowdown" as core inflation is forecast to remain around the medium term target in the next 12 months.
     The Bank of Uganda (BOU) has now cut its key rate by 400 basis points this year. The BOU also lowered its rediscount rate and bank rate to 17 percent and 18 percent, respectively, as the band around the CBR was maintained at plus/minus 3 percentage points and the margin on the rediscount rate at 4 percentage points.
     Uganda's core inflation rate dropped to 4.1 percent in September from 4.9 percent in August while headline inflation eased to 4.2 percent from 4.8 percent, with the central bank saying its forecast for 2016 and 2017 remains unchanged from August despite a slightly higher forecast for headline inflation due to higher-than-expected food prices.
    BOU expects core inflation to remain around its midpoint target of 5.0 percent in the current 2016/17 financial year, which began July 1, with the exchange rate and the impact of less-than-normal rains on harvests and food prices the main uncertainties.
    Inflation is currently held back by weak consumer demand, decreasing inflation expectations and a relatively stable exchange rate of the shilling on the back of moderately tight monetary policy in the past year. However, drought in many parts of Uganda has pushed up food prices, with annual food crop inflation up to 5.1 percent in the last three months from minus 1.9 percent, the BOU said.
    After depreciating in 2014 and 2015, the shilling has been stable since March this year and was trading at 3,465.1 to the U.S. dollar today, down 2.7 percent this year.
    Uganda's economy grew by 3.9 percent in the second calendar quarter of this year from the same period last year and by 4.8 percent in the 2015/16 financial year, up from an earlier BOU estimate of 4.6 percent.
    Recent data point indicate that a "significant pick-up in economic activity" in the fourth quarter of the fourth quarter of 2015/16 had carried over to the first quarter of the current fiscal year,  BOU said.
    The BOU said its overall economic outlook remained largely unchanged but lowered its forecast for economic growth in 2016/17 to 5.0 percent from its August forecast of 5.5 percent.
    For financial year 2017/18 BOU forecast growth of between 5.0 percent and 5.5 percent.


Monday, October 17, 2016

Botswana maintains rate, inflation seen in target range

    Botswana's central bank left its Bank Rate steady at 5.5 percent as "the prevailing monetary policy stance is consistent with maintaining inflation within the Bank's medium-term objective range of 3 - 6 percent."
    Bank Botswana (BB), which cut its rate by 50 basis points in August, added that "subdued domestic demand pressures and benign foreign price developments contribute to the positive inflation outlook in the medium term."
    Botswana's inflation rate rose slightly to 2.8 percent in September from a historic low of 2.6 percent  in August, with the central bank saying that it inflation outlook is subject to downside risks from sluggish global economic activity and the resultant low commodity prices.
    On the other hand, inflation could also be affected by unexpectedly large rises in administrative prices and government levies along with  higher-than-expected global food and oil prices.
    In its August midterm review, BB forecast that inflation would remain low and stable in line with its objective, with implementation of monetary policy focused on entrenching expectations of low and sustainable inflation through timely responses to price developments.
    Botswana's inflationary pressures are likely to remain restrained by low inflation in its trading partners apart from in South Africa where inflation is seen averaging 6.6 percent this year and remaining above the upper end of the central bank's target range for the rest of this year.
   The relative strength of Botswana's pula against South Africa's rand should help moderate imported inflation, BB said in August.
    BB's exchange rate policy entails a 0.38 percent upward rate of crawl for the nominal effective exchange rate for the rest of this year.
   The pula, which had been depreciating steadily against the U.S. dollar since August 2011, has rebounded since hitting 12 to the dollar on Jan 20 this year. Today the pula was trading at 10.8 to the dollar, up 4.6 percent since the start of 2016.
    Botswana's Gross Domestic Product contracted by 1.3 percent in the second quarter from the first quarter due to lower mining output. On an annual basis, GDP grew 1.6 percent, down from 2.7 percent in the first quarter.