Thursday, October 22, 2020

Israel maintains rate but boosts asset purchases

     Israel's central bank left its main interest rate steady but boosted its purchases of government bonds and said it would continue to implement an accommodative monetary policy after a second lockdown last month to prevent the spread of COVID-19 led to a sharp decline in economic activity.
     The Bank of Israel (BOI) kept its main interest rate at 0.10 percent, unchanged since April when it cut it for the first time in five years in response to the economic hit from the coronavirus.
     Prior to the April rate cut, BOI on March 23 launched a program to purchase 50 billion shekels of government bonds in the secondary markets to lower the cost of credit and boost economic activity.
     "In view of the crises continuing to impact Israel and the world, the Committee decided to increase the government-bond purchase program by NIS 35 billion and thus continue to support financing ability in the economy, in view of the strengthening of the coronavirus crises and its economic effects," BOI said, adding the bond purchases will allow it to lower the cost of credit for companies and households as a complementary tool to its short term interest rate policy.
    "The Monetary Committee will continue to operate the tools at its disposal to the extent necessary in order to implement the extent of monetary accommodation required, and to ensure the continued orderly activity of financial markets in Israel," BOI said, adding it will expand the use of its existing tools, including the interest rate tool and operate additional ones to the extent it assesses the crises is lengthening and moderate the negative economic impact.
     BOI also decided to extend credits to banks at a negative 0.1 percent against loans they give to small businesses at an interest rate not exceeding the prime rate plus 1.3 percent.
     After recovering following the first lockdown in the Spring, Israel's economy took a hit after a second lockdown was imposed on Sept. 18 after the country saw a surge in infections.
     Prior to the second lockdown, unemployment had stabilized around 11 to 12 percent but it then jumped to 19 percent in the second half of September as the number of unemployment rose by about 300,000, the central bank said.
     BOI's research staff has forecast two possible scenarios. Under the first, in which control over the pandemic is achieved, the economy is expected to contract by 5 percent this year and then expand by 6.5 percent in 2021.
     But in a more serious scenario, BOI sees growth contracting by 6.5 percent in 2020 and expand by just 1 percent in 2021, with debt also rising more.
     Israel's gross domestic product shrank by an annual 7.9 percent in the second quarter of this year after expanding by 0.5 percent in the first quarter. On a quarterly basis, GDP shrank 8.1 percent in the second quarter and shrinking 1.8 percent in the first quarter, meeting the technical definition of recession.
     Israel is also experiencing deflation, with consumer prices falling by 0.7 percent in September, the 6th consecutive month of deflation.
     Although the shekel is skirting with 10-year highs against the U.S. dollar, the BOI is more concerned with its trade-weighted level and against the euro - most of Israel's trade is with the euro area - the shekel has lost ground this year.
     After tumbling in March, the shekel has risen steadily against the dollar and was trading at 3.38 after today's decision, up 2.4 percent since the start of this year.
     But against the euro, the shekel was trading at 4.0 today, down 3 percent this year.

Turkey holds key rate but widens rate corridor, lira hit

     Turkey's central bank once again surprised financial markets by keeping its main interest rate steady but continued its recent policy of tightening monetary conditions through a variety of other tools by raising the upper bound of its interest rate corridor.
     The Central Bank of the Republic of Turkey (CBRT) kept its one-week repo rate steady at 10.25 percent but widened the margin between the late liquidity window lending rate and overnight lending to 300 basis points by raising the late liquidity rate by 150 points to 14.75 percent.
      Today's decision by the bank's monetary policy committee follows last month's surprise 200 basis point hike in the one-week repo rate, the first outright rate hike in two years, and a series of back-door measures to tighten policy in response to accelerating inflation and a steady drop in the lira.
     "As a result of fast economic recovery with strong credit momentum, and financial market developments, inflation followed a higher-than-envisaged path," CBRT said, adding financial conditions had tightened following its earlier steps to contain inflation expectations and risks to the outlook.
     "Accordingly, the Committee has decided to keep the policy rate unchanged, while enhancing flexibility in liquidity management and continuing with liquidity measures until inflation outlook displays a significant improvement," the bank added.
     After falling steadily since early August, Turkey's lira rose at the start of this week, likely in anticipation of another rate hike. But in response to today's decision, the lira nose-dived 2 percent to a new record low of 7.96 to the U.S. dollar and is now down 25.3 percent this year.
     Turkey's inflation rate has been steady the last three months at 11.75 percent in September, 11.77 percent in August and 11.76 percent in July, only slightly below a 2020-high of 12.62 percent in June.
     According to Reuters, 17 economists polled had expected CBRT to raise its rate between 100 and 300 basis points to ensure a positive real interest rate.
      Although CBRT said "the recovery in economic activity continues," it also noted the expected moderation in imports had begun due to a phasing out of policies to support the economy from the impact of COVID-19 while exports were recovering - helped by the level of the exchange rate and relatively low commodity prices - helping support the current account.
      Turkey's gross domestic product shrank by a quarterly 11 percent in the second quarter after the first quarter fell 0.1 percent. On a year-on-year basis, GDP contracted 9.9 percent in the second quarter after it rose 4.4 percent in the first quarter.
      "While global economic activity has shown signs of partial recovery in the third quarter following the normalization steps taken by several countries, uncertainties on global economic recovery persist," the central bank said, adding advanced and emerging economies are continuing to maintain expansive monetary and fiscal policies.

Wednesday, October 21, 2020

Mozambique holds rate as inflation seen rising in 2021

     Mozambique's central bank left its key interest rate steady for the second time, saying this decision was justified by a deterioration of the risks and uncertainties in the context of an expected rise in prices in 2021 against the backdrop of repressed economic activity.
     The Bank of Mozambique (BOM) kept its monetary policy rate (MIMO) at 10.25 percent, as in August, after lowering it twice this year (in April and June) by a total of 250 basis points. 
     Since April 2017, when BOM began cutting its rate, MIMO has been cut 13 times and by a total of 11.50 percentage points.
     Mozambique's inflation rate rose to 2.98 percent in September from 2.75 percent in August and BOM said it expects higher domestic prices next year as the government's price containment measures expire along with supply shocks.
     Nevertheless, BOM said inflation is still expected to remain in single digits due to weak demand as the economy is still expected to shrink this year and only recover slowly in 2021.
     Mozambique's gross domestic product shrank by an annual 3.25 percent in the second quarter of this year following growth of 1.68 percent in the first quarter.
     Since the previous meeting of BOM's monetary policy committee CPMO, it said risks and uncertainties had risen, pointing to the threat of a second wave of COVID-19 and the U.S. presidential election.
     Despite last year's peace agreement between the country's government and the main opposition group, which ended sporadic violence that dragged on since a civil war ended in 1992, Mozambique is still experiencing fighting with Islamist insurgents close to the northern border with Tanzania.
     The fighting threatens the development of Mozambique's huge offshore natural gas fields in the northern province of Cabo Delgado that were discovered in 2010 and are expected to deliver liquified natural gas in 2024, helping transform the impoverished country's economy.
     Earlier this month BOM proposed investing more than half of the country's estimated lifetime revenue of $96 billion from the LNG field in a sovereign wealth fund that would be controlled by the government but managed by the central bank.



Sunday, October 18, 2020

This week in monetary policy: China, Hungary, Uzbekistan, Namibia, Mozambique, Sri Lanka, Ukraine, Turkey, Uganda, Israel, Paraguay, Russia & Eastern Caribbean

    This week - October 19 through October 24 - central banks from 13 countries or jurisdictions are scheduled to decide on monetary policy: China, Hungary, Uzbekistan, Namibia, Mozambique, Sri Lanka, Ukraine, Turkey, Uganda, Israel, Paraguay, Russia and East Caribbean.
     Following table includes the name of the country, the date of the next policy decision, the current policy rate, the local time a policy decision is announced, 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.


WEEK 43
OCT 19 - OCT 24, 2020:
CHINA20-Oct3.85%0-304.20%         EM
HUNGARY20-Oct0.60%0-300.90%         EM
UZBEKISTAN21-Oct14.00%-100-20016.00%
NAMIBIA21-Oct3.75%-25-2756.50%
MOZAMBIQUE21-Oct10.25%16:000-25012.75%
SRI LANKA22-Oct4.50%7:300-2507.00%         FM
UKRAINE22-Oct6.00%0-75015.50%         FM
TURKEY22-Oct10.25%14:00200-17514.00%         EM
UGANDA22-Oct7.00%0-2009.00%
ISRAEL22-Oct0.10%16:000-150.25%         DM
PARAGUAY22-Oct0.75%0-3254.00%
RUSSIA23-Oct4.25%13:300-2006.50%         EM
EAST CARIBBEAN23-Oct2.00%0-4506.50%

 

    www.CentralBankNews.info                    


Friday, October 16, 2020

Argentina cuts Leliq 2nd week and raises overnight repo

     Argentina's central bank lowered its benchmark Leliq interest rate for the second consecutive week and raised the overnight repo rate, continuing what it says is a harmonization of its monetary policy interest rates to maintain a positive real return on savings in pesos.
     The Central Bank of the Argentine Republic (BCRA) lowered the interest rate on Leliq notes by another 100 basis points to 36.0 percent it said in a statement from Oct. 15 and has now lowered it by 200 points this month following a similar cut on Oct. 8.
     Since December 2019, when BCRA began lowering the Leliq rate it has been cut by 27 percentage points from 63.0 percent, including 19 percentage points this year.
     The bank's overnight repo rate was raised another 300 basis points to 30 percent and this rate has now been raised by 11 percentage points this month following hikes on Oct. 1, Oct. 8 and Oct. 15.
      BCRA also said it was offering 7-day repos with a interest rate of 33.0 percent and "to complete the transmission of the harmonization of rates," it would also increase the minimum guaranteed rate of fixed terms with an annual yield of 34 percent for deposits of under US$1 million and at 32 percent for other deposits.
      The central bank's change in rates is likely to further encourage banks to shift their purchases toward Treasury bonds instead of Leliq notes.
      In September Argentina emerged from its 9th sovereign default since 1816 following an agreement with international creditors over the restructuring of $65 billion of debt.
      Argentina's peso was trading around 77.47 to the U.S. dollar today. down 22.7 percent this year.


Thursday, October 15, 2020

UPDATE-This week in monetary policy: Indonesia, South Korea, Singapore, Belarus and Chile

    (Following item is updated without Sri Lanka as the Central Bank of Sri Lanka on Oct. 14 announced it was rescheduling its monetary policy announcement that was scheduled for Oct. 16 to Thursday, Oct. 22, local time 07:30. The bank did not give any reason for the delay.)

   This week - October 12 through October 17 - central banks from 5 countries or jurisdictions are scheduled to decide on monetary policy: Indonesia, South Korea, Singapore, Belarus and Chile.
   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.

WEEK 42
OCT 12 - OCT 17, 2020:
INDONESIA13-Oct4.00%0-1005.00%         EM
SOUTH KOREA14-Oct0.50%0-751.25%         EM
SINGAPORE14-Oct           N/A        08:00           N/A           N/A           N/A         DM
BELARUS14-Oct7.75%0-1259.50%
CHILE15-Oct0.50%0-1251.75%         EM

 

    www.CentralBankNews.info                    

Wednesday, October 14, 2020

Belarus holds rate as inflation rises from falling ruble

      The central bank of the country of Belarus, which continues to see widespread protests over a contested presidential election on Aug. 9, left its benchmark interest rate steady, saying inflation is still expected to decline toward its target despite a recent acceleration due to a weakening of the exchange rate.
     The National Bank of the Republic of Belarus (NBRB) kept its refinancing rate at 7.75 percent, unchanged since June when it was cut following a request by the country's president, Alexander Lukashenko, who has ruled the country since 1994.
     NBRB has cut its refi rate three times this year by a total of 125 basis points and 19 times since April 2016 by a total of 17.25 percentage points.
     On Aug. 12, when the board last met, it decided to meet today, ahead of a previously scheduled meeting on Nov. 11, which also will be held.
     On Monday European Union (EU) foreign ministers agreed to sanction Lukashenko and other senior officials amid worsening police violence against protesters who say the August election, in which Lukashenko said he won with 80 percent of the vote, was rigged.
     Tens of thousands of Belarusians have demonstrated every weekend since August to demand new elections and on Sunday 713 people were detained by police, which now is allowed to use military-style weapons. 
     Exiled Belarusian opposition leader Sviatlana Tsikhanouskya, who protesters say won the election, has set a deadline of Oct. 25 for Lukashenko to leave office or face nationwide strikes that would paralyze the country.
     The EU cited a complete lack of will by Lukashenko to engage in any discussions over holding new elections leaves it will little choice other than to proceed with sanctions.
     Following the election, the Belarusian ruble has continued to weaken though it has recovered in the last month after hitting a record low of 2.68 to the U.S. dollar on Sept. 3. Today it was trading at 2.58 to the dollar, down 18.6 percent this year.
     In January the central bank and government adopted a strategy to improve trust in the Belarusian ruble, which was introduced in July 2016, and reduce reliance on foreign currencies in domestic transactions.
     More than 90 percent of government debt is denominated in foreign currency and the strategy includes full transitioning to inflation targeting by 2021.
     In September the central bank said its reserves had declined by 15.7 percent that month to US$7.5 billion and it paid down $351.7 million in external debt. Belarus has some $3.6 billion of U.S. dollar bonds outstanding and some $8 billion in loans from Russia.
    Inflation in Belarus rose to a higher-than-expected 6.1 percent in September from 5.6 percent in August, with NBRB saying this was due to higher prices for imported goods due to a weakening of the ruble in August against a background of higher demand for foreign currency.
     Inflation by the end of this year is estimated to be around 6 percent, with the weakening of the ruble pushing up inflation in the short term, the central bank said.
     In the medium term NBRB said prolonged disinflationary factors are expected to dominate and push inflation back to its targeted trajectory near 5 percent.
    In the first quarter of this year Belarus' gross domestic product shrank 0.20 percent year-on-year.


     

Monday, October 12, 2020

This week in monetary policy: Indonesia, South Korea, Singapore, Belarus, Chile and Sri Lanka

    This week - October 12 through October 17 - central banks from 6 countries or jurisdictions are scheduled to decide on monetary policy: Indonesia, South Korea, Singapore, Belarus, Chile and Sri Lanka.
     Following table includes the name of the country, the date of the next policy decision, the current policy rate, the local time a decision is announced, 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.

 

WEEK 42
OCT 12 - OCT 17, 2020:
INDONESIA13-Oct4.00%0-1005.00%         EM
SOUTH KOREA14-Oct0.50%0-751.25%         EM
SINGAPORE14-Oct           N/A        08:00           N/A           N/A           N/A         DM
BELARUS14-Oct7.75%0-1259.50%
CHILE15-Oct0.50%0-1251.75%         EM
SRI LANKA16-Oct4.50%        07:300-2507.00%         FM

   

 www.CentralBankNews.info                    


Friday, October 9, 2020

Argentina cuts Leliq rate first time since March

    Argentina's central bank lowered its benchmark Leliq interest rate for the first time since March but also raised its one-day repo rate in a move it said continues the strategy of unifying the reference rates used in its monetary policy.
     The Central Bank of the Argentine Republic (BCRA) cut the interest rate on Leliq notes by 100 basis points to 37.0 percent, the first cut since March 5, which it said would gradually aligning Treasury rates with the rates used by the central bank in its sterilization instruments.
     Since December 2019, when the central bank began cutting the Leliq rate, BCRA has cut it by 26 percentage points from 63.0 percent and by 18 percentage points in 2020.
     The one-day repo rate was raised by 3 percentage points to 27.0 percent, complementing a 5 percentage point hike in the previous week, the central bank said in a statement on Oct. 8.
     The two rates diverged at the start of the COVID-19 pandemic when the government took action to mitigate the economic and financial effects of the health crises, BCRA said.
     It added the raise in the repo rate and the cut to Leliq rate to align it with Treasury rates will gradually lower the cost of the "quasi-cost of sterilization while increasing its effectiveness in influencing short-term rates in the economy."
     The change in rates is likely to further shift banks' purchases of debt toward Treasury bonds instead of Leliq notes, a move BCRA has encouraged by lowering the amount of Leliq notes banks can hold while raising the amount of Treasury bonds.
     In addition to the change in interest rates, BCRA said it would be more flexible about restructuring plans  submitted by companies that have monthly debt maturities in excess of US$1 million as far as their access to foreign exchange markets.
     On October 1, when BCRA raised the one-day repo rate to 24 percent from 19 percent, it also abandoned its uniform devaluation mechanism of the peso as part of a framework of a managed float in which the daily depreciation rate will be gradually adapted to situation in markets.
     In September Argentina emerged from its ninth sovereign default sine 1816 following an agreement to restructure $65 billion of foreign debt.


Thursday, October 8, 2020

Botswana cuts rate 2nd time in 2020 amid recession

    Botswana's central bank cut its policy rate for the second time this year, saying "the current state of the economy and the outlook for both domestic and external economic activity provide scope for further easing monetary policy to support domestic economic activity."
    The Bank of Botswana (BoB) cut its Bank Rate by another 50 basis points to 3.75 percent and has now cut it by 100 points this year following a similar-sized cut in April.
    Since December 2010, when BoB began lowering its key interest rate, the Bank Rate has been cut 12 times and by a total of 6.25 percentage points.
     The rate cut comes against a backdrop of below-target inflation and a sharp contraction in economic activity as both the country's important mining sector and tourism have been hit by the fallout from the COVID-19 pandemic.
      Botswana's gross domestic product shrank 24.8 percent in the second quarter from the first quarter, which also saw a 0.8 percent quarterly decline. Year-on-year the economy shrank 24 percent in the second quarter and in the 12 months to June GDP fell 4.2 percent compared with growth of 3.9 percent last year.
     BoB said the country's finance and economic development ministry had trimmed its estimate for the economy to contract by 8.9 percent this year from an earlier forecast of 13.1 percent, with growth in 2021 of 7.7 percent.
     The International Monetary Fund (IMF) forecast Botswana's economy will shrink 9.6 percent this year, up from its April forecast of 5.4 percent, and then grow 8.6 percent next year.
     "Even with recovery in 2021, the contraction in 2020 equates, approximately, to a two-year loss of output," the central bank said, adding the difference in forecasts reflect the current challenges of making forward projections when there is uncertainty about the duration of constrained economic activity and the pace of recovery.
     Botswana's inflation rate rose marginally to 1.0 percent in August from 0.9 percent in the previous two months, well below BoB's target range of 3 to 6 percent, as consumption and spending are disrupted, leading to subdued domestic demand pressures while foreign prices are also subdued.
     Although the overall risks to inflation are skewed to the downside, the central bank confirmed its outlook from August that inflation is expected to return to its target range in the third quarter of 2021.

Tuesday, October 6, 2020

India to announce delayed policy decision on Oct. 9

     India's central bank will announce the results of its delayed monetary policy review on Friday, Oct. 9 after the government on Monday appointed three new external members to the Reserve Bank of India's (RBI) monetary policy committee (MPC).
     On Sept. 28 RBI rescheduled its policy meeting that was planned to conclude on Oct. 1 to a future date, but without any explanation for the delay.
     Today RBI announced this review would now take place from Oct. 7 to Oct. 9 after the government on Monday appointed economist Ashima Goyal, Jayanth R. Varma and Shashanka Bhide as members of the central bank's MPC.
     RBI's first monetary policy committee was constituted by the government in September 2016 and the committee held its inaugural meetings on Oct. 3 and Oct. 4 that year. 
     The creation of the MPC came after India's government reshuffled the central bank's monetary policy framework as part of its adoption of inflation targeting.
     Prior to 2016 the governor of the RBI had been solely responsible for taking monetary policy decisions under the advice the bank's technical advisory committee. Since then policy decisions have been taken by the MPC.
      The MPC comprises six members, with three from RBI, including the bank's governor, the deputy governor in charge of monetary policy and an officer of RBI nominated by the bank's central board of directors.
     The other three MPC members are appointed by the government for terms of four years.
     RBI, which targets inflation of 4.0 percent, plus/minus 2 percentage points, is expected to keep its rates on hold for the rest of this year as its balances above-target inflation amid recession.
      RBI has cut its policy rate twice this year by a total of 115 basis points to 4.0 percent following cuts in March and May. 
      Since then the rate has been kept steady, including at its last meeting in early August when it also decided to continue with "an accommodative stance as long as it is necessary to revive growth and mitigate the impact of COVID-19 on the economy while ensuring that inflation remains within the target going forward."
     India's inflation rate eased slightly to 6.69 percent in August from 6.73 percent in July but has remained above RBI's upper limit since April. 
     In August RBI said it expected inflation to remain elevated in the second quarter of the current 2020-21 fiscal year, which began April 1, before moderating in the second half of 2020-21.
     India's gross domestic product shrank a worse-than-expected 23.9 percent year-on-year in the first quarter of 2020-21, and RBI expects growth for the full year to be negative.