Wednesday, August 16, 2017

Namibia cuts rate 25 bps amid weak economy, easing CPI

    Namibia's central bank cut its benchmark repo rate by 25 basis points to 6.75 percent "to support domestic economic activity" amid declining inflation and an increase in international reserves that are  sufficient to sustain the currency peg between the Nambian dollar and the South African rand.
     It is Bank of Namibia's first rate cut since August 2012 and the first change in rates since a rate hike in April 2016, and comes a month after the bank cut its 2017 growth forecast to 2.1 percent from 2.9 percent due to uncertainty around a recovery in the price of uranium.
     "Activity in the domestic economy remained weak during the first six months of 2017," the central bank said, adding growth in private sector credit extension (PSCE) continued to slow, with annual growth averaging 8.5 percent in the first six months, down from 12.5 percent in the same 2016 period.
     Slower growth in credit, which is in line with general domestic weakness, was due to reduced growth in credit advance to both households and businesses, especially in the form of mortgage and installment credit.
     Namibia's economy shrank by an annual rate of 2.7 percent in the first quarter of this year for the fourth consecutive quarter of contraction in a row, and up from a decline in Gross Domestic Product of 1.4 percent in the fourth quarter of 2016.
     The decline in economic activity was mainly reflected in construction, manufacturing, wholesale, retail and transport while there was some improvement in mining and communication as well as livestock.
     Namibia's inflation rate eased to 5.4 percent in July from 6.1 percent in June due to lower food inflation.
      The country's stock of international reserves rose to N$32.7 billion as of July 31 to cover 5.5 months of imports, up from N$24.2 billion as of June 1, mainly due to a repatriation of funds by financial institutions, inflow from the African Development Bank and repayments by the National Bank of Angola.
      Namibia's central bank maintains a one-to-one peg to South Africa's rand and on July 20 the South African Reserve Bank cut its repo rate by 25 basis points on a worsening outlook for growth.
      Against the U.S. dollar, the Namibian dollar was trading at 13.2 today, up 3.8 percent this year.

Thailand holds rate, monitoring rise in baht's FX rate

     Thailand's central bank left its policy rate at 1.50 percent, as expected, and maintained an accommodative monetary policy stance as improving domestic demand is not yet sufficiently broad-based and inflation had risen at a slightly slower pace than expected.
      But the Bank of Thailand (BOT), which has maintained its rate since April 2015, also put financial markets on notice that it was concerned about the rise in the exchange rate of the baht, which it attributed to the country's stronger external position along with "decreased investor confidence in the US dollar."
      "However, the Committee noted that the stronger appreciation of the baht relative to those of regional currencies in some periods might affect business adjustments and thus would continue to closely monitor developments in the foreign exchange market," the BOT's monetary policy committee said.
      The BOT has in recent months voiced its concern over the strength of the baht but today's statement is stronger than last month's statement when it merely observed that recent movements in the exchange rate were in line with regional currencies.
       The baht, which was hit sharply during the "taper tantrum" of 2013, has been rising steadily since  December last year on rising optimism about the prospects for global growth and emerging market economies.
      Today the baht was trading at 33.28 to the U.S. dollar, up 7.6 percent this year.
      Thailand's headline inflation rate rose to a lower-than-expected 0.17 percent in July from a fall of 0.05 percent in June, the second month of deflation, as fresh food prices fell due to improved harvest while inflationary pressures from domestic demand remained low.
       But the BOT still expects inflation to slowly rise in the second half of this year as supply side pressures slowly dissipate and domestic demand recovers. The BOT targets inflation of 1-4 percent.
      The outlook for Thailand's economy has been improving due to a rise in a wide range of merchandise exports, a continued expansion in tourism and higher agricultural output.
     And while domestic demand is also expanding, the BOT said it was not sufficiently broad-based while public investment growth was softer than expected and construction investment moderated.
     Thailand's Gross Domestic Product grew by an annual rate of 3.3 percent in the first quarter of this year, up from 3.0 percent in the previous quarter.
      In June the International Monetary Fund raised its 2017 growth forecast for Thailand to 3.2 percent from 3 percent while the BOT has forecast growth of 3.5 percent, up from 2016's 3.2 percent.

Tuesday, August 15, 2017

Armenia maintains rate for 3rd time, inflation seen rising

     Armenia's central bank left its benchmark refinancing rate at 6.0 percent for the third time in a row, confirming that it still expects inflation to gradually rise due to improving economic activity and a recovery of domestic demand amid a restrained fiscal policy.
      The Central Bank of Armenia (CBA) has maintained its rate since February after slashing the rate 12 times by a total of 450 basis points beginning in August 2015.
      Armenia's inflation rate dropped 2.6 percent in July from June for an annual rate of 0.9 percent, down from 1.1 percent, due to a seasonal fall in agricultural product prices.
      With more stable international commodity markets, the CBA said it didn't expect any significant inflationary effects from the external sector in coming months so inflation should gradually rise due to improving domestic demand and high economic activity.
      The CBA reiterated its view from June that it expects inflation to stabilize around its target by the end of this year and remain in that range during the forecast horizon, with monetary and credit conditions remaining unchanged for some time.
     The CBA, which targets inflation of 2.50 - 5.50 percent around a 4.0 percent midpoint, will issue its third quarter inflation report on Aug. 25.
     Armenia's Gross Domestic Product jumped by an annual 6.5 percent in the first quarter of this year from minus 1.0 percent in the previous quarter, for the strongest expansion since the first quarter of 2013.
     Armenia's economy was hit hard by Russia's economic crises, with the exchange rate of its dram plunging in November 2014 in response to the fall in Russia's ruble. But after a series of rate hikes between December 2014 and February 2015, the dram stabilized.
     Since August 2015 the CBA has been easing its monetary policy and growth in the first quarter of this year was boosted by the sectors of manufacturing, electricity, trade, transportation, information, financial and accommodation.
      Last month the International Monetary Fund said Armenia's economy was showing signs of a recovery after the past falls in remittances and the price of copper, the country's main export, had weighed on growth since late 2014.
      The IMF forecast 2017 and 2018 growth of 2.9 percent, respectively, and 3.0 percent in 2019, sharply up from 0.2 percent in 2016.
       Armenia's medium-term growth is projected at 3.5 to 4.0 percent with potential growth now estimated to be 1 percentage point lower than in the pre-crises period, with risks stemming from remittances, copper prices and growth in its key trading partners.
      Improving economic activity is also pushing up inflation and private sector credit growth, the IMF said, forecasting 1.8 percent inflation by end-2017, rising to 4.0 percent by the end of 2018 and 2019. This compares with minus 1.1 percent inflation end-2016.
      The exchange rate of Armenia's dram has been slowly appreciating this year and was trading at 478.3 to the U.S. dollar today, up 1.2 percent this year.

Saturday, August 12, 2017

This week in monetary policy: Armenia, Thailand, Namibia, Egypt and Chile

    This week (August 13 through August 19) central banks from 5 countries or jurisdictions are scheduled to decide on monetary policy: Armenia, Thailand, Namibia, Egypt 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, 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.

AUG 13 - AUG 19, 2017:
COUNTRY                 DATE                RATE           LATEST                 YTD               1 YR AGO       MSCI
ARMENIA 15-Aug 6.00% 0 -25 7.25%
THAILAND 16-Aug 1.50% 0 0 1.50%          EM
NAMIBIA 16-Aug 7.00% 0 0 7.00%
EGYPT 17-Aug 18.75% 200 400 11.75%          EM
CHILE 17-Aug 2.50% 0 -100 3.50%          EM

Friday, August 11, 2017

Uganda holds rate, in neutral as inflation on target

    Uganda's central bank left its Central Bank Rate (CBR) at 10.0 percent and adopted a neutral monetary policy stance as it expects inflation to remain around its medium term target while economic activity is picking up with output approaching the country's potential.
     The Bank of Uganda (BOU), which has cut CBR by 200 basis points this year, added its forecast for inflation was largely unchanged from June, with headline and core inflation seen remaining within a range of 5.0 percent, plus/minus 2 percentage points, and thus consistent with its medium-term target of 5 percent.
     Uganda's headline inflation rate eased to 5.7 percent in July from 6.4 percent in June and is likely to decline in coming months as food prices continue to ease following good harvests, BOU said.
     Core inflation declined to 4.5 percent in July from 4.9 percent, averaging 5 percent in the 12 months, equal to the BOU's target.
     The country's economy gathered momentum in the first half of this year, with updated growth forecasts suggesting that growth will improve further going forward, helped by an accommodative monetary policy, a recovery in external demand and foreign direct investment, increased activity in the agricultural sector and fiscal stimulus in the 2017/18 budget.
      The BOU raised its forecast for economic growth in the current financial year, which began on July 1, to 5.0 - 5.5 percent, adding this would be consistent with a closing of the output gap by the end of the financial year.
      In its previous monetary policy statement from June, the BOU forecast 2017/18 growth of 5.0 percent, down from its forecast in April of 5.5 percent.
    In the last financial year of 2016/17 growth was estimated to have slowed slowed to 3.9 percent, down from 4.7 percent in 2015/16. 


Thursday, August 10, 2017

Mozambique cuts new rate by 25 bps on easing inflation

    Mozambique's central bank cut its new benchmark monetary policy interest rate (MIMO) by 25 basis points to 21.50 percent, saying the continued decline in consumer prices reinforced its forecast that inflation would be lower by the end of this year amid higher food supply, moderate domestic demand, exchange rate stability and favorable commodity prices.
      The Bank of Mozambique also lowered other key rates, such as the permanent liquidity facility rate, by 25 basis points to 22.50 percent and the permanent deposit facility by 25 points to 16.0 percent.
      The central bank also cut the mandatory reserve ratio on local currency and foreign currency liabilities by 50 basis points to 15.0 percent starting from the new reporting period on Sept. 7.
      Mozambique's central bank introduced its new benchmark interest rate on April 15 and set it at  21.75 percent. The same month the central bank cut its previous benchmark rate, the standing facility rate, by 50 basis points to 22.75 percent in the first change in rates since a 600 basis point rate hike in October 2016.
      Mozambique's inflation rate eased to 16.2 percent in July from 18.1 percent in June but the central bank said the risks to inflation remain high, especially from the fiscal side and this imposed a prudence in the conduct of monetary policy.
     "The level of domestic public indebtedness remains high and represents a risk factor for inflation projections," the central bank said, pointing to public revenues that are below expectations in the context of a suspension of external support to the budget and high domestic debt, which requires a more robust fiscal consolidation.
      Mozambique's economy has been hit by several severe blows in recent years, leading to a sharp fall in the exchange rate of its metical currency. 
     On top of a decline in global commodity prices, including coal, the government hid almost US$1.4 billion of debt, the equivalent of 10 percent of its Gross Domestic Product. This led to foreign donors, including the International Monetary Fund, to withdrew funding to the country.
    The metical hit record lows of around 78.5 to the U.S. dollar in October 2016 but has firmed since then, helped by central bank rate hikes and rising commodity prices.
    Today the metical was trading at 61 to the dollar, up 16.7 percent this year, as there are also signs of an improving economy. 
     The economic climate index rose for the third consecutive month in June, reflecting increased optimism among businesses regarding future demand and employment. And while this backs up expectations for a recovery in the economy this year, output remains below potential, the bank said.
     Last month the IMF forecast that Mozambique's economy would grow by up to 4.7 percent this year, up from 3.8 percent in 2016, due to a surge in coal production and exports.
     In addition to welcoming the central bank's introduction of a new monetary policy regime centered around its MIMO rate, the IMF said the October 2016 rate hike had helped push down inflation from a peak of 26 percent in November 2016 despite a large rise in fuel prices in March, rebalanced the foreign exchange market and therefore helped the metical appreciate by some 30 percent since September 2016.
      Mozambique's international reserves rose to US$2.446 billion as of Aug. 9 from $2.290 billion in May, a level that is sufficient to cover 6.1 months of imports, excluding large projects.

Zambia cuts rate by 150 bps for third consecutive time

     Zambia's central bank cut its policy rate for the third consecutive time by 150 basis points, citing the continued decline in inflation and inflation projections that indicate inflation will remain well anchored within the bank's 6 - 8 percent target range over the next eight quarters.
      The Bank of Zambia (BOZ) cut its policy rate to 11.0 percent from 12.50 percent and has now cut it by a total of 450 points this year following similar cuts in February and May.
      As in February and May, the BOZ also lowered its statutory reserve ratio by 300 basis points, with the reserve ratio now at 9.50 percent, down 900 points this year.
     Zambia's monthly inflation rate in July was minus 0.1 percent, the lowest monthly rate since October 2011.
      The annual inflation rate in July eased to 6.6 percent from 6.8 percent in June as the continued pass-through from a rise in the kwacha's exchange rate and lower prices for some food items moderated inflation pressure despite a 50 percent average increase in electricity tariffs in May.
      Inflation is forecast to remain at the current level for the remained of this year and then trend toward the lower band of the BOZ's target range over the medium term, with the forecast taking into account an announced electricity tariff increase in September and the recent fall in fuel prices.
    "Moreover, risks to inflation are, on balance, currently assessed to favor low and stable inflation," the BOZ said, adding a bumper maize harvest this season, a relatively stable exchange rate, and a recovery in commodity prices, especially for copper, are expected to support low inflation.
     After tumbling 42 percent against the dollar in 2015 and hitting a record low of 13.9 to the U.S. dollar in November that year, the kwacha appreciated steadily last year and has continued rising this year.
     Today the kwacha was trading at 8.90 to the dollar, up 11.9 percent since the start of this year.
     Although real lending rates in Zambia remain high and continue to constrain access to credit, especially by productive sectors in the economy, the BOZ still expects the country's growth prospects to continue to improve due to higher agricultural output, a recovery in electricity generation, and higher mining output that is supported by better prices and electricity supply.
      The BOZ raised its 2017 growth forecast to 4.3 percent from a previous 3.9 percent and its 2018 forecast to 5.1 percent from 4.6 percent. In 2016 the grew by an estimated 3.0 percent.
      Total domestic credit grew by 6.5 percent in the second quarter to K55.6 billion, the same as in the first quarter, with the BOZ pointing to a 1.6 percent rise in credit to the private sector after almost a year of contraction due to lower lending rates, improved liquidity conditions and a willingness by banks to lend as growth prospects brighten.


Wednesday, August 9, 2017

New Zealand holds rate, still sees 1st hike in Sept 2019

     New Zealand's central bank left its benchmark Official Cash Rate (OCR) steady at 1.75 percent, as expected, and reiterated its recent guidance that "monetary policy will remain accommodative for a considerable period" as its policy may need to adjust to the many uncertainties.
      The Reserve Bank of New Zealand (RBNZ) also maintained its forecast for the first interest rate hike to come in September 2019 when the OCR rate is seen rising to 1.9 percent from 1.8 percent. The second rate hike is seen coming in March 2020 when OCR rises to 2.0 percent.
      In its latest monetary policy statement, the RBNZ forecast the OCR rate would then rise further to 2.1 percent by September 2020.
      The forecast for inflation this year was lowered to reflect the waning impact of higher fuel and food prices, with the RBNZ saying headline inflation should rise gradually as capacity pressures rise, pushing inflation back to the midpoint of its target range.
      After easing to 1.3 percent by December this year, New Zealand's inflation rate is seen remaining low in early 2018, hitting 0.7 percent by March next year, before slowly rising to 2.0 percent by March 2019.
      New Zealand's inflation rate eased to a lower-than-expected 1.7 percent in the second quarter of this year from 2.2 percent in the first quarter, well within the central bank's target band of 1 -3 percent.

Sunday, August 6, 2017

This week in monetary policy: Argentina, Honduras, New Zealand, Philippines, Serbia, Zambia, Mozambique, Mexico and Peru

    This week (August 6 through August 12) central banks from 9 countries or jurisdictions are scheduled to decide on monetary policy: Argentina, Honduras, New Zealand, Philippines, Serbia, Zambia, Mozambique, Mexico and Peru.
    Following table includes the name of the country, the date of the next policy decision, the current policy rate, the result of the last policy decision, the change in the policy rate year to date, the rate one year ago, and the country’s MSCI classification.
    The table is updated when the latest decisions are announced and can always accessed by clicking on This Week.

AUG 6 - AUG 12, 2017:
COUNTRY                 DATE                RATE           LATEST                 YTD               1 YR AGO       MSCI
ARGENTINA 8-Aug 26.25% 0 150 28.25%          FM
HONDURAS 8-Aug 5.50% 0 0 5.50%
NEW ZEALAND 10-Aug 1.75% 0 0 2.00%          DM
PHILIPPINES 10-Aug 3.00% 0 0 3.00%          EM
SERBIA 10-Aug 4.00% 0 0 4.00%          FM
ZAMBIA 10-Aug 12.50% -150 -300 15.50%
MOZAMBIQUE 10-Aug 21.75% 0 -150 17.25%
MEXICO 10-Aug 7.00% 25 125 4.25%          EM
PERU 10-Aug 3.75% -25 -50 4.25%          EM