This week in monetary policy: Kenya, Paraguay, Hungary, Lesotho, Morocco, New Zealand, Thailand, Czech Rep., Fiji, Philippines, Egypt, Mexico, Colombia & Trinidad and Tobago

    This week - September 23 through September 28 - central banks from 14 countries or jurisdictions are scheduled to decide on monetary policy: Kenya, Paraguay, Hungary, Lesotho, Morocco, New Zealand, Thailand, Czech Republic, Fiji, Philippines, Egypt, Mexico, Colombia and Trinidad & Tobago.

    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 39
SEP 23 - SEP  28, 2019:
KENYA	23-Sep	9.00%	0	0	9.00%	FM
PARAGUAY	23-Sep	4.25%	-25	-100	5.25%
HUNGARY	24-Sep	0.90%	0	0	0.90%	EM
LESOTHO	24-Sep	6.50%	-25	-25	6.50%
MOROCCO	24-Sep	2.25%	0	0	2.25%	FM
NEW ZEALAND	25-Sep	1.00%	-50	-75	1.75%	DM
THAILAND	25-Sep	1.50%	-25	-25	1.50%	EM
CZECH REPUBLIC	25-Sep	2.00%	0	25	1.50%	EM
FIJI	26-Sep	0.50%	0	0	0.50%
PHILIPPINES	26-Sep	4.25%	-25	-50	4.50%	EM
EGYPT	26-Sep	14.25%	-150	-250	16.75%	EM
MEXICO	26-Sep	8.00%	-25	-25	7.75%	EM
COLOMBIA	27-Sep	4.25%	0	0	4.25%	EM
TRINIDAD & TOBAGO	27-Sep	5.00%	0	0	5.00%

    www.CentralBankNews.info

China's new benchmark LPR down 5 bps to 4.20 percent

     China's Loan Prime Rate (LPR), the country's new benchmark interest rate, was lowered by 5 basis points to 4.20 percent and is now 11 points lower than in August when it was introduced.
     On Aug. 17 the People's Bank of China (PBOC) reformed its system for setting LPR in an effort to improve the transmission of its monetary policy, lower the cost of financing, and made it the pricing benchmark for all types of loans by commercial lenders instead of its lending rate.
     LPR, the average of prices submitted by 18 banks, currently comprises two varieties, a 1 year and a 5 year, and is published on the 20th of each month.
     On Aug. 20 LPR was published for the first time since the reform of LPR and set at 4.25 percent, 6 basis points below the 4.31 percent it had been since it was introduced in October 2013, and 10 points below the lending rate's 4.35 percent. The 5-year rate was set at 4.85 percent.
     Today PBOC's website showed a graph with the 1 year LPR at 4.20 percent for September, down from 4.25 percent in August and 4.35 percent in July.
     The 5-year LPR was unchanged at 4.85 percent from August.

     www.CentralBankNews.info
   
 

Indonesia cuts rate 3rd month in a row to boost growth

     Indonesia's central bank lowered its benchmark interest rates for the third consecutive month in what it said was a preemptive move to "drive the momentum of domestic economic growth amid slowing global economic conditions."
     Bank Indonesia (BI) cut its benchmark BI 7-day Reverse Repo Rate (BI7DRR) by another 25 basis points to 5.25 percent and has now cut it by 75 points following cuts in July and August.
     BI also cut its deposit facility rate to 4.50 percent and the lending facility rate to 6.0 percent.
     The central bank said the rate cut was consistent with its forecast for inflation that remains below the midpoint of its 2019 target range of 3.5 percent, plus/minus 1 percentage point, and to ensure that domestic financial assets remain attractive.
     In addition to the rate cut, BI said it had also relaxed its macro prudential policies to boost the capacity of bank lending and to encourage the demand for credit. This includes easing the ratio of loan-to-value/financing to value for property loans and advances for motor vehicles that are environmentally friendly.
     BI said tensions between the U.S. and China around trade was continuing to put pressure on the world economy and kept up uncertainty in global financial markets, affecting Indonesia's economy.
     "Exports are not expected to improve due to global demand and declining commodity prices..." BI said, adding exports of motor vehicles are still growing.
     BI confirmed its forecast for economic growth to be below the midpoint of the range of 5.0 to 5.4 percent and then rise toward the midpoint of the range of 5.1 to 5.5 percent in 2020.
     Indonesia's inflation rate remains under control and BI confirmed its forecast for inflation to be below the midpoint of its target range this year and then within its 2020 target range of 3.0 percent, plus/minus 1 percentage points.

     www.CentralBankNews.info
 

Norway raises rate 4th time but says now likely to pause

     Norway's central bank raised its policy rate for the fourth time since September 2018 but signaled it would now pause in further tightening due to "considerable uncertainty surrounding global growth prospects."
     Norges Bank (NB) raised its policy rate by another 25 basis points to 1.50 percent and has now raised it by 1 percentage point since September last year and by 0.75 points this year to contain inflation from solid domestic growth.
     But weaker global growth along with lower interest rates has now led the central bank to lower its economic forecast, with a smaller rate rise seen as compared with its June monetary policy report, according to NB Governor Oeystein Olsen.
     "The Executive Board's current assessment of the outlook and balance of risks suggest that the policy rate will most likely remain at this level in the coming period," Olsen said.
     In June NB lowered its forecast for its policy rate to average 2.2 percent from an earlier 2.3 percent, and then decline to 1.9 percent in 2020 and 1.7 percent in 2021 and 2022.
     In August, when the central bank kept its rate steady, it maintained its forecast for another rate hike this year but acknowledged that the global risk outlook now entailed greater uncertainty about policy rates going forward.
    Unlike most other advanced economies, Norway's economy is still enjoying solid growth,  capacity utilization is slightly above normal, and the exchange rate of the krone weaker than expected, factors that in insolation would suggest continued rate hikes.
     "A higher policy rate may also mitigate the risk of a renewed acceleration in debt growth and house price inflation," Oystein said.
     But low interest rates abroad and considerable uncertainty surrounding global growth prospects suggest a more cautious approach to setting interest rates, he added.

BOJ holds rates, but may ease in October on rising risks

     Japan's central bank left its ultra-easy monetary policy stance steady but held out the prospect of further easing at its next policy meeting in October as the growing downside risks from the slowdown in the global economy may halt any progress in achieving the inflation target.
     The Bank of Japan (BOJ) has used a combination of a negative interest rate of minus 0.1 percent on banks' excess reserves and asset purchases to keep the yield on government bonds around zero percent since September 2016, and said today it would continue with this policy to boost inflation.
     However, the BOJ's policy board has clearly turned more worried about the impact of the global economic slowdown on the domestic economy.
     "Downside risks concerning overseas economies seem to be increasing, and it also is necessary to pay close attention to their impact on firms' and households' sentiment in Japan," the BOJ said.
      "Given that, recently, slowdowns in overseas economies have continued to be observed and their downside risks seem to be increasing, the Bank judged that it is becoming necessary to pay close attention to the possibility that the momentum toward achieving the price stability target will be lost," BOJ said, adding it would reexamine the outlook at its next meeting when it updates its outlook.
      Among the risks to the economy and inflation, BOJ pointed to U.S. economic policies and the consequences of protectionist moves, developments in emerging and commodity-exporting economies, such as China, (including the effects of US policies and protectionism), global changes in IT-related goods, the UK's exit from the European Union and geopolitical risks.
     The prospect of a new round of monetary policy easing by the BOJ was already expected by economists following the BOJ's change to its statement in July when it added that it "will not hesitate to take additional easing measures if there is a greater possibility that the momentum toward achieving the price stability target will be lost."
     In April the BOJ tweaked its forward policy guidance by adding a time frame for the first time for maintaining its ultra-low levels of interest rates in contrast to the earlier guidance of maintaining low rates for "an extended period of time."
     Today the BOJ confirmed it would maintain its low interest rates for an extended time, "at least through around spring 2020," and keep rates low by purchasing government bonds so their amount rises by an annual pace of about 80 trillion yen.
     As part of its policy of "Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control", the BOJ will also continue to buy exchange-traded funds (ETFs) and real estate investment trusts (Reits) so the outstanding amounts rise at an annual pace of about 6 trillion yen and about 90 billion yen, respectively. It will also continue to buy commercial paper and corporate bonds so the outstanding amounts remain about 2.2 trillion and 3.2 trillion yen, respectively.
     The BOJ next issues its quarterly economic outlook in October and in the previous one from July it lowered its forecast for economic growth in fiscal 2019, which began April 1, to 0.7 percent from April's forecast of 0.8 percent.
     For fiscal 2020 the growth outlook was steady at 0.9 percent but for fiscal 2021 the outlook was lowed to 1.1 percent from 1.2 percent.
     "With regard to the outlook, Japan's economy is likely to continue on a moderate expanding trend, despite being affected by the slowdown in overseas economies for the time being," BOJ said today, adding that although exports had shown some weakness, industrial production had been more or less flat, helped by higher domestic demand, and labor market conditions remained tight.
     In the second quarter Japan's gross domestic product grew an annual 1.0 percent, the same as in the first quarter.
     Despite its ultra-low interest rates and massive asset purchases, known as quantitative easing, the BOJ is still far from reaching its target of 2.0 percent inflation, with headline inflation down to 0.5 percent in July from 0.7 percent in the previous two months.
     In its forecast from July the BOJ also lowered its outlook for consumer price inflation to 1.0 percent for fiscal 2019 from April's forecast of 1.1 percent. For 2020 inflation is seen averaging 1.3 percent, down from 1.4 percent, and then rising to 1.6 percent in fiscal 2021.

US Fed cuts rate 25 bps second time amid uncertainty

     The U.S. Federal Reserve lowered its benchmark interest rate for the second time this year due to muted inflation pressures and the impact of global developments for the economic outlook, and confirmed its guidance from June and July that it would "act as appropriate to sustain the expansion."
     The U.S. central bank cut its target range for the federal funds rate by another 25 basis points to 1.75 - 2.0 percent and has now cut it by 50 points this year following a cut in July as global monetary policy continues to loosen to counter weaker business investment and exports as a consequence of the uncertainty unleashed by the trade conflict between the U.S. and China.
     "This action supports the Committee's view that sustained expansion of economic activity, strong labour market conditions, and inflation near the Committee's symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain," the FOMC, the Fed's policy-making committee said.
      Illustrating this pervasive uncertainty about the economic outlook, seven FOMC members voted in favor of the 25-point rate cut while one member, James Bullard of the St. Louis Fed, voted to cut the rate by 50 points while Esther George and Eric Rosengren voted to maintain the rate.
      Another example of the split within the FOMC was reflected in the so-called dot plot, which shows members' assessment of how rates should evolve. Seven members see another 25 basis point rate cut this year while five see no further cuts and five think the rate should be 25 points higher.
      In an update to its economic projections, the FOMC lowered its forecast for the federal funds rate to average 1.9 percent this year, down from its June projection of 2.4 percent, and forecast the rate would remain steady next year to average 1.9 percent, down from 2.1 percent forecast in June.
     But in 2021 the Fed projects it will return to monetary tightening and sees the fed funds rate rising to 2.1 percent and then to 2.4 percent in 2022 as inflation slowly rises to the Fed's 2.0 percent target in 2021 and 2022.
     The forecast for economic growth in coming years is largely as projected in June, with economic growth seen easing to 2.0 percent in 2020, 1.9 percent in 2021 and 1.8 percent in 2022. This year growth is seen at 2.2 percent, up from June's forecast of 2.1 percent.
     To help implement its monetary policy stance, the FOMC also decided to lower the rate paid on required and excess reserve balances to 1.80 percent.
     The Fed said by setting this rate below the top range for the federal funds rate is aimed at fostering trading in the fed funds market at rates that are within its target range.

Pakistan maintains rate, current stance to lower inflation

     Pakistan's central bank left its policy rate steady after nine rate hikes since January 2018, saying the current policy stance was appropriate to being inflation down to its target range of 5 -7 percent over the next two years.
     The State Bank of Pakistan (SBP), which has raised its rate by a total of 7.50 percentage points over the last 20 months, including 3.25 percentage points this year, added inflation had been largely as expected since its last monetary policy meeting in July and inflation projections for fiscal 2020 were largely unchanged.
      SBP's decision to keep its rate steady today comes after it said on July 16 that it was finished raising rates in response to the fall in the rupee over the last 18 months and from now on interest rates would be set in response to the outlook for inflation.
      Since late July the rupee has risen and volatility subsided after the introduction of a market-based exchange rate system that followed an agreement with the International Monetary Fund (IMF) in May, which included a US$6.0 billion support package and unlocked another $38 billion from international partners.
      After today's policy decision the rupee jumped 0.5 percent to 156.1 to the U.S. dollar and is up 3.1 percent since July 29. But compared with early December 2017, before the SBP began raising rates to defend the rupee, the rupee has lost one-third of its value.
      Prior to the IMF-deal - the country's 13th since 1988 - Pakistan had followed a "strong rupee" exchange rate policy and effectively fixed it against the U.S. dollar at a rate that was too high, with the result the central bank had burned through reserves to defend it.
      Pakistan's inflation rate rose to 11.63 percent in August from 10.3 percent in July, reflecting the pass-through of earlier exchange rate depreciation, higher utility and food prices.
      SBP confirmed its previous forecast for inflation to average 11 -12 percent in fiscal 2020, up from an average of 7.3 percent in 2018/19.
      Pakistan's economy has been slowing as expected but SBP confirmed its forecast for growth to average around 3.5 percent in fiscal 2020, which began on July 1, up from 3.3 percent in fiscal 2019.

Vietnam cuts key rates first time since July 2017

      Vietnam's central bank lowered its key interest rates by 25 basis point for the first time in over two years to support economic growth at a time of a "less favourable" state of the world economy in which many central banks, including the U.S. Federal Reserve and the European Central Bank, have lowered their interest rates.
      The State Bank of Vietnam (SBV) cut its benchmark refinancing rate by 25 basis points to 6.0 percent, the rediscount rate to 4.0 percent and the overnight lending rate to 7.0 percent, and the rate on valuable papers offered through open market operations to 4.50 percent.
      It was SBV's first rate cut since July 2017 and the new rates will take effect on Sept. 16, SBV said in a statement from Sept. 13.
      The central bank added the economy continues to be stable, inflation is under control and money and foreign exchange markets are stable.
      As most other economies worldwide, Vietnam has been affected by the slowdown in global trade and its gross domestic product has slowed slightly to annual growth of 6.7 percent in the second quarter from 6.8 percent in the first quarter and 7.3 percent in the fourth quarter of last year.
      In July the International Monetary Fund forecast Vietnam's economic growth would ease to 6.5 percent this year and 2020 from 7.1 percent in 2018, with activity supported by higher income and consumption by the growing and urbanizing middle class, a strong harvest and manufacturing.
      Vietnam's inflation rate eased to 2.26 percent in August from 2.44 percent in July but the IMF forecast it would average 3.6 percent this year and 3.8 percent next year compared with 3.5 percent in 2018.
     Vietnam's dong has been relatively stable in the last 12 months, trading at 23,249.9 against the U. S. dollar, down 0.3 percent this year.

     www.CentralBankNews.info

This week in monetary policy: Pakistan, USA, Brazil, Japan, Indonesia, Taiwan, Norway, Switzerland, UK, South Africa, China, Mongolia & Ghana

    This week - September 15 through September 21 - central banks from 13 countries or jurisdictions are scheduled to decide on monetary policy: Pakistan, the United States, Brazil, Japan, Indonesia, Taiwan, Norway, Switzerland, United Kingdom, South Africa, China, Mongolia and Ghana.
    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 38
SEP 15 - SEP  21, 2019:
PAKISTAN	16-Sep	13.25%	100	325	8.50%	EM
UNITED STATES	18-Sep	2.25%	-25	-25	2.25%	DM
BRAZIL	18-Sep	6.00%	-50	-50	6.50%	EM
JAPAN	19-Sep	-0.10%	0	0	-0.10%	DM
INDONESIA	19-Sep	5.50%	-25	-50	5.75%	EM
TAIWAN	19-Sep	1.375%	0	0	1.375%	EM
NORWAY	19-Sep	1.25%	0	50	0.75%	DM
SWITZERLAND	19-Sep	-0.75%	0	0	-0.75%	DM
UNITED KINGDOM	19-Sep	0.75%	0	0	0.75%	DM
SOUTH AFRICA	19-Sep	6.50%	-25	-25	6.50%	EM
CHINA (LPR)	20-Sep	4.25%	-6	-6	4.31%	EM
MONGOLIA	20-Sep	11.00%	0	0	10.00%
GHANA	20-Sep	16.00%	0	0	17.00%	FM

    www.CentralBankNews.info

Azerbaijan cuts rate 10th time, inflation decides future

     Azerbaijan's central bank cut its benchmark interest rate for the 10th time since February 2018 but signaled it may now pause by saying future decisions on interest rates will be based on actual and projected inflation along with the impact of internal and external risks to inflation.
     The Central Bank of the Republic of Azerbaijan (CBA) cut its discount rate by 25 basis points to 8.0 percent and has now cut it by 7 percentage points since last February. It is CBA's sixth rate cut this year, with the rate cut 175 points.
     CBA's reference to inflation determining its next rate move compares with its guidance from July when it said the trend toward a neutral policy stance would continue as long as inflation is expected to remain within its target of 4.0 percent, plus/minus 2 percentage points.
      Today CBA said it latest forecast sees inflation remaining within its target range by the end of 2019 and while inflation expectations had not changed, external factors - such as volatile trade, currency and commodity markets in the context of worsening global growth - now have a greater potential to impact inflation than domestic factors.
      Azerbaijan's inflation rate eased to 2.6 percent in August from 2.7 percent in July but is expected to rise to within the target range by the end of this year due to rising fiscal spending and consumption.
      In the first 7 months of the year, gross domestic product expanded by 2.5 percent, with the growth in the non-oil sector 3 percent and currency reserves have risen 10.5 percent, or by US$4.7 billion, since the start of the year to $49.4 billion.

     www.CentralBankNews.info

   

ECB cuts deposit rate 10 bps, restarts QE at 20 bln euros

     The European Central Bank (ECB) lowered one of its key policy rates and restarted its asset purchases, and signaled it could loosen its policy further to ensure inflation rises towards its target amid protracted economic weakness and persistent downside risks.
      The ECB, the central bank for the 19 counties that share the euro, cut its deposit rate by another 10 basis points to minus 0.50 percent, the first cut since March 2016, but left its benchmark refinancing rate steady at 0.0 percent and the lending rate at 0.25 percent.
       The ECB omitted its previous reference of keeping rates low through the first half of 2020 and said it now expects rates "to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistent reflected in underlying inflation dynamics."
      As signaled in July, the ECB restarted its asset purchase program - known as quantitative easing - and will be buying securities worth 20 billion euros from Nov. 1, with the program to "run as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates."
     The ECB's previous asset purchase program was wrapped up at the end of 2018 after the ECB had accumulated some 2.6 trillion euros of bonds. At that point, the ECB was still optimistic the economic slowdown in the second half of last year was temporary.
      In addition, reinvestments of any maturing securities will continue "for an extended period" past the date the ECB stars raising rates, or as long as necessary to maintain favorable liquidity conditions.
      The ECB, which in March decided to proceed with another round of targeted longer-term refinancing operations, TLTRO III, said this would be adjusted to ensure favorable bank lending conditions, with maturities lengthened to 3 years from 2 years.
     To blunt some of the sting from the negative rate on banks' earnings, the ECB will also create a two-tier system for reserve renumeration, which exempts parts of banks' holdings of excess liquidity from the negative deposit facility.
     "Today's decisions were taken in response to the continued shortfall of inflation with respect to our aim," ECB President Mario Draghi said in his last press conference before handing over the stewardship to Christine Lagarde on Nov. 1 after eight years.
     In an update to its economic forecasts, the ECB lowered its forecast for economic growth in 2019 to 1.1 percent from June's forecast of 1.2 percent and 2018's 1.9 percent.
     In 2020 the euro area economy is expected to remain sluggish with growth of 1.2 percent, down from the previous forecast of 1.4 percent, and then improve to 1.4 percent in 2021.
     "The risks surrounding the euro area growth outlook remain tilted to the downside," Draghi said, referring to the rising threat of protectionism, vulnerabilities in emerging markets and other geopolitical factors.
    In the second quarter of this year the euro area gross domestic product grew by an annual 1.2 percent, down from 1.3 percent in the first quarter.
     Inflation is also well below the ECB's target of close to, but below, 2 percent. In August and July inflation was 1.0 percent and the ECB expects inflation to decline further before rising towards the end of the year.
     The ECB lowered its forecast for inflation this year to average 1.2 percent, down from June's forecast of 1.3 percent, and then decline further in 2020 to only 1.0 percent, sharply down from June's  forecast of 1.4 percent.
     By 2021 inflation is forecast to pick up speed to 1.5 percent.
     To help the ECB in its quest to boost growth and inflation, Draghi appealed to euro area governments to not only step up the pace of reform to structural policies to boost productivity and growth potential but also use any space for fiscal stimulus.
     "In view of the weakening economic outlook and the continued prominence of downside risks, governments with fiscal space should act in an effective and timely manner," Draghi said.