Wednesday, April 18, 2018

Canada holds rate, still cautious but looking to tighten

      Canada's central bank left its benchmark target for the overnight rate at 1.25 percent, as expected, and confirmed it still expects to raise rates further by saying "higher interest rates will be warranted over time, although some monetary policy accommodation will still be needed to keep inflation on target."
       The Bank of Canada (BOC), which has raised its rate three times since July 2017, said its governing council had noticed "some progress" in the dynamics of inflation and wage growth but as in its previous policy statement from March it added that it would "remain cautious with respect to future policy adjustments, guided by incoming data."
       Growth in Canada was weaker than expected in the first quarter, but BOC expects growth to rebound in the second quarter, resulting in 2 percent average growth in the first half of this year.
       The reason for slower growth in the first three months was due to a slowdown in exports, mainly from transportation bottlenecks, and lower activity in the housing market from new mortgage guidelines and other measures than pulled forward transactions to 2017.
        BOC expects this weakness to be unwound as the year progresses and over the next three years, Canada's economy is seen operating slightly above its potential rate, supported not only by fiscal stimulus by the federal and provincial governments but also upward revisions to the country's output potential in its latest monetary policy report.
        Exports are expected to strengthen due to foreign demand but BOC said both exports and investments "are being held back by ongoing competitiveness challenges and uncertainty about trade policies."
        BOC forecast growth this year of 2.0 percent, down from its January forecast of 2.2 percent, and well below 2017's growth of 3.0 percent.
        Growth in 2019 is seen rising to 2.1 percent, up from 1.6 percent previously forecast, and then easing to 1.8 percent in 2020.
         On Tuesday the International Monetary Fund (IMF) lowered its forecast for Canada's growth this year to 2.1 percent from January's forecast of 2.3 percent. For 2019 the IMF sees 2.0 percent growth.
         Canada's headline inflation rate rose to 2.2 percent in February from 1.7 percent in January and BOC said inflation is now expected to be higher than it forecast in January on higher gasoline prices and wage increases.
        This year inflation is expected to average 2.3 percent, up from its previous forecast of 2.0 percent, and above the BOC's 2.0 percent target. In 2017 inflation averaged 1.6 percent.
        In 2019 inflation is then seen easing to 2.1 percent and remaining at that level in 2020.

Monday, April 16, 2018

Kazakhstan cuts rate 25 bps and will continue easing

      Kazakhstan's central bank lowered its base rate by another 25 basis points to 9.25 percent and said  it "will continue the policy of the gradual reduction of the base rate, securing the maintenance of the neutral monetary conditions."
      It is the third rate cut in a row by the National Bank of Kazakhstan (NBK) and in line with the central bank's guidance from March that it would continue to gradually reduce its base rate toward a neutral policy stance, in which there is a balance between the pursuit of price stability and economic growth.
      The rate cut comes after the central bank last week confirmed its economic outlook and said there was a high likelihood that inflation this year would ease to below the lower boundary of its 5-7 percent target range.
      The NBK has now cut its key rate by 100 basis points this year and by a total of 775 points since embarking on an monetary easing cycle in May 2016.
       Inflation in Kazakhstan rose slightly to 6.6 percent in March from 6.5 percent in February due to a rise in the cost of some imported products based on world market prices along with an "emerging increase of the domestic demand among households," NBK said.
       However, inflationary expectations are continuing to decline, with expectations for one-year ahead down to 5.8 percent in March from 7.1 percent in December.
       The exchange rate of Kazakhstan's tenge also remains favorable, the central bank said, noting oil prices are above US$65 per barrel while inflation in its main trading partners is moderate.
       Despite the recent hit to Russia's stock market from new U.S. sanctions, the NBK said it still sees the external sector as positive and the recent volatility in the tenge's exchange rate in response to the fall in Russian assets was considered "short-term and moderate."
       "This is why the National Bank does not consider it necessary to tighten the monetary policy conditions as a response to tenge deprecation," the central bank said.
       The tenge fell by up to 3.8 percent last week on worries over Russia but was still trading at 329.2 to the U.S. dollar today, 1.1 percent higher than at the start of the year.
       In August 2015 the tenge plunged following the central bank's move to a floating exchange rate regime and has been relatively steady since May 2016 when the central bank started cutting rates.
      The NBK moved to a floating exchange rate regime in response to capital outflows and the conversion of many tenge bank deposits to foreign currency. Oil accounts for about 60 percent of Kazakhstan's exports and over 10 percent of its Gross Domestic Product. 
       Economic activity in Kazakhstan is continuing to strengthen on the back of broad-based growth in such sectors as mining of oil and iron ore, engineering, agriculture, trade and transportation.
       Despite a 4.5 percent decline in building industry in January-February, the central bank said fixed capital investments had expanded by 54.4 percent in the first two months.
       Gross Domestic Product grew by an annual rate of 4.0 percent in the fourth quarter of last year and in its inflation report from February the central bank forecast 2.9 percent growth this year and 2.8 percent in the first nine months of 2019.

Sunday, April 15, 2018

This week in monetary policy: Kazakhstan, Israel, Canada and Indonesia

     This week - April 15 through April 21 - central banks from 4 countries or jurisdictions are scheduled to decide on monetary policy: Kazakhstan, Israel, Canada and Indonesia.
    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.

APR 15 - APR 21, 2018:
COUNTRY            DATE              RATE          LATEST             YTD           1 YR AGO      MSCI
KAZAKHSTAN16-Apr9.50%-25-7511.00%         FM
ISRAEL16-Apr0.10%000.10%         DM
CANADA18-Apr1.25%0250.50%         DM
INDONESIA19-Apr4.25%004.75%         EM

Thursday, April 12, 2018

Singapore tightens policy to curb rising inflation

        Singapore's central bank tightened its monetary policy by increasing "slightly" the appreciation slope of the Singapore dollar from zero percent in light of rising inflation due to an improving labour market as the island state's economy is likely to continue on its steady expansion path in 2018.
        The Monetary Authority of Singapore (MAS), which targets the value of the Singapore dollar against a basket of currencies as a way to control inflation, added the width of the policy band and the level of which it is centered will remain unchanged.
       "This policy stance is consistent with a modest and gradual appreciation path of the S$NEER (S$ Nominal Effective Exchange Rate) policy band that will ensure medium-term price stability," MAS said.
         MAS had kept the appreciation rate of the Singapore dollar against an undisclosed basket of currencies at zero percent since April 2016 and the last time it increased the slope of the appreciation was in April 2012. 
         But in its previous policy review from October 2017, MAS dropped the reference to maintaining the neutral stance for an "extended period, " signaling it was ready to tighten its policy.
         Singapore's economy grew by an annual rate of 4.3 percent in the first quarter of this year, according to advance estimates by the trade and industry ministry, up from 3.6 percent in the full 2017 year.
        Barring a setback in global trade, MAS expects Singapore's economy to continue expanding in coming quarters with growth slightly above the middle of its forecast range of 1.5-3.5 percent.
        However, MAS was also clearly concerned that rising trade tensions between the United States and China could impact global trade, and said its "measured adjustment" to its policy stance took into account the uncertainty presented by the ongoing trade tensions.
        Singapore's headline inflation rate rose to 0.5 percent in February from zero percent in January while MAS core inflation, which excludes private road and accommodation costs, rose to an average of 1.6 percent in January-February from 1.4 percent in the fourth quarter of last year.
        In coming quarters, MAS expects imported inflation to rise mildly due to rising global demand with oil prices rising moderately as compared with 2017.
        "Should economic conditions evolve as expected MAS Core inflation will rise gradually over the course of this year. For 2018 core inflation should come within the upper half of the 1-2% forecast range, " MAS said.


Peru holds rate steady, sees inflation in range in Q2

       Peru's central bank left its policy rate steady at 2.75 percent, noting the fall in inflation in the last five months, declining inflation expectations and economic activity that is below potential.
       The Central Reserve Bank of Peru (BCRP), which cut its rate in March and January this year, also reiterated its recent guidance that it is paying close attention to inflation and would consider making additional changes to the policy rate if it were necessary.
       BCRP has been in an easing cycle since May 2017 and has lowered the key rate six times by a total of 150 basis points.
       Peru's inflation rate has been falling rapidly since March last year when food prices jumped in response to devastating floods that killed more than 100 people and wiped out crops and roads.
       In March inflation fell to only 0.36 percent, sharply down from 3.97 percent 12 months ago, and well below the BCRP's target range of 1-3 percent.
       The central bank said inflation is projected to return to its target range in the second quarter and then gradually converge to 2.0 percent by the end of this year. But inflation expectations 12 months ahead have continued to decline to 2.18 percent.
       The Peruvian sol has been relatively steady in the last year and was trading at 3.22 to the U.S. dollar today, up 0.9 percent this year.

Mexico maintains rate, still ready to act in timely manner

       Mexico's central bank left its benchmark interest rate steady at 7.50 percent, as expected by some but not all economists, saying this decision reflects the recent evolution in inflation, which is largely in line with its expectations.
       But as in February, the Bank of Mexico (Banxico) confirmed it would "act in a timely and firm manner" to ensure that inflation and inflation expectations converge to its midpoint target of 3.0 percent.
       Banxico last raised its rate by 25 basis points in February but struck a more neutral tone in contrast to earlier hawkish statements as inflation has been decelerating in the last three months while the Mexican peso has been appreciating since late December.
       Since the U.S. Federal Reserve began tightening its monetary policy in December 2015, Mexico's central bank has raised its rate 12 times by a total of 450 basis points to curb the fall in the peso, which has pushed up import prices and thus inflation.
       But the peso has been rising this year and inflation in March fell to 5.04 percent - its lowest level since February 2017 - from 5.34 percent in February, with inflation expectations for the end of this year steady and medium- and long-term expectations steady around 3.50 percent.
       In February Banxico said it expected inflation to hit its target in early 2019.
       Today the peso was trading at 18.2 to the U.S. dollar, up 8.2 percent this year.
       Banxico also said the latest economic data showed that economic activity continued to improve in the first months of this year, driven by services and some recovery of industry while exports continued to show a positive trajectory.
        However, Mexico's economy is still facing risks so the balance of risks to growth remains on the downside, the central bank said.

Serbia cuts rate 25 bps, inflation falls more than expected

      Serbia's central bank lowered its key policy rate by another 25 basis points to 3.0 percent to boost economic activity on faster-than-expected fall in inflation in the last three months.
       It is the second consecutive rate cut by the National Bank of Serbia (NBS), which has now cut it by 50 basis points this year. The NBS has been in an monetary policy easing cycle since May 2013 and has cut the rate by a total of 875 basis points since then.
       The NBS left its deposit rate unchanged at 1.75 percent, narrowing the interest rate corridor to 1.25 percentage points from 1.50 percent.
         "The expected movement in inflation and its underlying factors going forward allow for further monetary policy easing," NBS said, noting headline inflation in March eased to 1.4 percent from 1.5 percent in February and 1.9 percent in January.
        Low inflationary pressures were also confirmed by core inflation, which fell to 0.8 percent, NBS said, adding inflation is projected to remain around the current level in coming months before coming closer to its midpoint in 2019, boosted by stronger domestic demand.
       NBS targets inflation of 3.0 percent, plus/minus 1.5 percentage points.
       Serbia's Gross Domestic Product grew by an annual rate of 2.5 percent in the fourth quarter of last year, up from 2.1 percent in the third quarter.
       Serbia's dinar has been rising steadily against the euro in the last 12 months, with the NBS intervening on many occasions to curb its rise.
       Today the dinar was trading at 118.14 to the euro, up 0.5 percent this year and up 4.1 percent since the start of 2017.

Wednesday, April 11, 2018

Mozambique cuts rate another 150 bps on low inflation

       Mozambique's central bank lowered its new monetary policy rate for the fifth consecutive time, saying the positive performance of inflation along with projections that inflation will be in single digits by the end of this year, justified continuing the easing cycle.
        The Bank of Mozambique (BM) cut its MIMO (monetary policy rate) rate by another 150 basis points to 16.50 percent and has now cut it by 525 basis points since April last year when MIMO replaced the standing facility rate as the new signal rate and set at 21.75 percent.
        In addition to lowering MIMO further, the central bank also lowered the rate on its permanent lending facility by 100 basis points to 18.0 percent, but retained the rate on its permanent deposit facility at 12.50 percent along with the reserve ratio for domestic currency at 14.0 percent and the foreign currency ratio at 22.0 percent.
        BM again said that its monetary policy committee would continue to monitor economic and financial data and risks and may take necessary correction action before its next meeting in June.
        The committee added it is still conducting a prudent monetary policy, taking into account the risks underlying inflation, the risks associated with a sustainable public debt and the uncertainty surrounding the prices of administered goods.
        Mozambique's inflation rate rose slightly to 3.05 percent in March from 2.93 percent in February  but was sharply down from 21.6 percent in March 2017.
        The economic climate index in February also improved for the sixth consecutive month, BM said, reflecting optimism over the prospects for employment and demand, and improved economic activity in the first quarter of this year.
        However, data from February showed bank credit to the private sector continued to stagnate.
        In the third quarter of last year Mozambique's Gross Domestic Product grew by an annual rate of 2.9 percent, down from 3.1 percent in the second quarter.
        In the domestic market, there was a easing of pressure on the exchange rate due to the central bank's recent measures after the metical hit 62.92 to the U.S. dollar on March 15 but then rose to 60.98 on April 10.
        Today the Metical was quoted at 60.89 to the dollar, down 3.2 percent this year.
        BM said international reserves remained at a comfortable level, with gross international reserves at US$3.260 billion - enough for 7.2 months of imports -  at the end of the first quarter, despite sales in the market to pay for fuel and external debt service.
        This compares with reserves of $3.188 billion as of mid-February.

Congo cuts rate 600 bps as inflation falls, growth strong

      The central bank of the Democratic Republic of Congo (DRC) cut its monetary policy rate by 600 basis points to 14.0 percent "in view of the good economic situation, both internationally and nationally, favourable macroeconomic prospects and the absence of imminent risks."
      It is the first rate cut by the Central Bank of Congo (BCC) since November 2013 and the first change in rates since June 2017 when the rate was raised to 20 percent from 14 percent.
      BCC said in a statement from April 10 that domestic prices had continued to decelerate in March, with the inflation rate down to 50.41 percent from 52.74 percent at the end of February, BCC said.
       Data shows Congo's headline inflation eased for the sixth consecutive month in February to 48.85 percent in February from a 2017 high of 70.75 percent in August.
       Continuing this declining trend, the central bank forecast inflation should end this year at 12.34 percent compared with an optimal target of 7.0 percent.
       Congo, previously known as Zaire,  is Africa's largest copper exporter and depends on raw materials for 95 percent of export revenue.
       It's economy is benefitting from global demand and rising prices of raw materials, such as gold, diamonds, copper and cobalt, with economic growth this year seen accelerating to 4.3 percent from 3.7 percent last year and 2.4 percent in 2016, BCC said.
       The 2018 forecast is down from the central banks' forecast last month of 5.2 percent.
       Congo's foreign exchange reserves are rising on the back of higher exports and BCC said they had now reached US$1 billion, enough for 4 weeks and 2 days of imports, up from $810 million in December.
       BCC said copper prices had stabilized around US$6,810 per tonne, while cobalt prices were continuing to rise exponentially to $87,221.55 per tonne in March, a monthly rise of 4.08 percent.
       And this month prices have already reached $95,000, the central bank added.
       Strong economic growth is supporting the exchange rate of Congo's franc, which plunged between November 2016 and August 2017.
       But since September last year the franc has been more stable and in the first three months of this year it depreciated by 1.49 percent compared with depreciation of 11.27 percent in the same 2017 period, the central bank said.
        Barring any shocks, the BCC forecast the franc would depreciate by 9.09 percent by the end of 2018 compared with depreciation of 23.65 percent in 2017.
        Today the franc was quoted at 1,570.5 to the U.S. dollar, unchanged since the start of 2018.


Tuesday, April 10, 2018

Argentina holds rate, April inflation to ease from March

     Argentina's central bank left its monetary policy rate at 27.25 percent and confirmed it expects inflation to decelerate after the impact of a hike in regulated prices, such as utilities and transportation, and the recent peso depreciation wanes.
      The Central Bank of Argentina (BCRA), which has kept its rate steady since cutting it twice in January by a total of 150 basis points, added it expects core inflation to remain high in April but to decline from March.
      Argentina's headline inflation rate rose to 25.4 percent in February from 25.0 percent in January and 24.8 percent in December, and the most recent survey of market expectations shows a rise in expected 2018 headline inflation to 20.3 percent from 19.9 percent and a rise in core inflation to 18.1 percent from 17.1 percent.
      In addition, inflation expectations for 2019 rose to 14.3 percent from 14.0 percent and to 10.0 percent for 2020 from 9.7 percent, BCRA said, adding expected inflation for the next 12 months rose to 17.8 percent from 17.6 percent.
      The central bank targets inflation of 15 percent for 2018 and 10 percent in 2019. In late December Argentina's government pushed back its goal of lowering inflation to 5 percent by one year to 2020 and raised the 2018 target to 15 percent from a previous 8-12 percent.
      After decelerating during last year, Argentina's inflation rate has risen this year due to sharp increases in regulated prices, to reduce the government deficit, and a rapid fall in the exchange rate of the peso from December to March.
       The BCRA has often maintained the recent rise inflation is transitory and once these factors evaporate, inflation will continue its downward trend.
       Among the reasons for lower inflation are a more restrictive monetary policy that last year, wage increases in line with the 15 percent inflation goal and a slowdown in changes to regulated prices after April.
       In addition, BCRA said its continuing intervention in the foreign exchange market means it doesn't expect any significant depreciation of the peso in coming months.
        As in recent months, BCRA said intervention in the currency market is complementary and not a substitute for monetary policy, and it remains convinced that depreciation in excess of what has already occurred is not justified by the economy or the planned course of monetary policy.
        The central bank added that it considers its current policy bias as adequate to ensure that inflation declines toward its goal, but it "is ready to act by adjusting its monetary policy rate if this does not happen."
        After falling from early December through early March, the peso has stabilized in recent weeks and was trading at 20.15 to the U.S. dollar today, down 7.7 percent this year.


Monday, April 9, 2018

Azerbaijan cuts rate 200 bps for 2nd time on low inflation

     Azerbaijan's central bank cut its benchmark refinancing rate by 200 basis points for the second time in a row, pointing to single-digit inflation, a positive foreign sector, a stable foreign exchange market and intensifying economic activity.
      The Central Bank of Azerbaijan (CBA) has now cut its rate by 400 basis points this year as it slowly unwinds four rate hikes two years ago that were aimed a bolstering confidence in the manat currency and curb inflation after the plunge in global crude oil prices.
       Between February and September 2016 the CBA raised its key rate by 12 percentage points and then kept the rate steady until February this year when it cut it by 200 basis points and said further cuts were available as it gradually transitions to a neutral monetary policy.
       Recent forecasts show macroeconomic stability and economic activity will intensify throughout the year, providing a basis for a gradual normalization of monetary conditions, the CBA said in today's statement by its board.
      Azerbaijan's inflation rate fell to 4.7 percent in February from 5.5 percent in January, sharply down from 2017 highs of 14 percent in July and August, with the CBA attributing the fall to management of money supply, changes to world food prices and a decline in inflation expectations.
       Illustrating improved exports, CBA said foreign trade turnover had risen 31 percent in January-March from the same period last year, with non-oil exports up by 37 percent, helping boost Azerbaijan's strategic currency reserves to US$2.2 billion by the end of the first quarter.
      The CBA said Azerbaijan's economy grew by 2.3 percent in the first quarter of this year, with the non-oil sector growing by 3 percent. Last year the country's Gross Domestic Product grew by 01. percent, up from 3.8 percent contraction in 2016.
        Azerbaijan's balance of payments is expected to remain favorable the rest of this year, helping keep the exchange rate of the manat stable, one of the important factors affecting inflation and inflation expectations that is also helping the de-dollarization of bank deposits.
        Oil and gas account for about 95 percent of Azerbaijan's exports and 75 percent of government revenue so the fall in world crude oil prices in the second half of 2014 hit the economy hard, undermining confidence in the manat.
        From 2011 the CBA effectively pegged its manat to the U.S. dollar so the CBA had to draw heavily on its reserves to defend it. But as local depositors switched into U.S. dollars, the CBA was forced to abandon first its dollar-peg in early 2015 and then later that year a dollar-euro basket peg.
        In December 2015 the CBA then switched to a floating exchange rate regime that finally helped stabilize the exchange rate. Over the last 12 months, the manat has been trading close to 1.7 to the U.S. dollar.