Tuesday, September 28, 2021

Seychelles maintains rate, economy not yet recovered

      The Central Bank of Seychelles (CBS) kept its monetary policy rate (MPR) steady for the fourth quarter, saying the economy has not yet fully recovered from the effects of the COVID-19 pandemic despite a pick-up in economic activity.
      CBS left its policy rate at 2.0 percent after cutting it, and the overall interest corridor, by 100 basis points at its last board meeting on June 30, the bank's fourth rate cut since September 2019. 
      Since then, the rate has been lowered 3.50 percentage points.
      At its June meeting, the bank's board also said it had approved lowering the minimum reserve requirement to 10.0 percent from 13.00 percent if liquidity conditions warranted such an adjustment.
      In today's statement, following a board meeting on Sept. 27, CBS said the reserve requirement on rupee-denominated deposit liabilities had been lowered to 10 percent as of July 14 and will be maintained at this level in the fourth quarter.
      The bank's board said it was disappointed the general reduction in interest rates had not been fully transmitted by the banking sector  
     While the country's tourism sector had improved since entry requirements for visitors was relaxed on March 25, CBS said visitor arrivals and earnings remain far below pre-pandemic levels.
      The Republic of Seychelles is made up of 115 islands of the east coast of Africa and relies heavily on tourism, which has been devastated by the pandemic.
     "There are promising signs of a partial recovery, with some improvement in production statistics and overall domestic activity, although the effects of the pandemic are still being felt across various sectors of the economy, CBS said.
      In late July the board of the International Monetary Fund approved a 32-month extended arrangement for the Seychelles of US$105.6 million - 323 percent of the country's quota - allowing for the immediate disbursement of $34.26 million.
     The IMF forecast gross domestic product growth this year of 6.9 percent after a contraction of 12.9 percent last year, and growth of 7.7 percent in 2022.
     Inflation is seen averaging 10.0 percent this year, up from 1.2 percent last year, and 3.7 percent in 2022.

Monday, September 27, 2021

Angola postpones policy decision to Sept. 30

      Angola's central bank postponed the final decision and announcement of its monetary policy decision until Thursday, Sept. 30 from today, as was scheduled.
      The Bank of Angola (BOA), which raised its rate in July for the first time since November 2017, said on its website the 100th session of its monetary policy committee would conclude on Sept. 30 so final deliberations and communication to the public, including the usual press conference, would take place on that date.
     The central bank said the committee meeting was starting to update the bank's operational framework.
     BOA raised its policy interest rate by 450 basis points to 20.0 percent in July in response to faster-than-expected inflation, the bank's third tightening of its monetary policy stance this year. 
     The rate hike came as a surprise because the monetary policy committee brought forward its meeting scheduled for July 29 by four weeks to July 2 following the release of inflation data that showed higher-than-expected inflationary pressures.
     After stabilizing around 25 percent from November through May, Angola's inflation rate has picked up speed and rose to 26.09 percent in August from 25.76 percent in July.
      Following BOA's rate hike in July, Governor Jose de Lima Massano said in an interview maintaining the benchmark interest rate would help ensure greater stability in the economy. 
     However, he also said the bank would consider changing borrowing costs if there is a significant change in the trajectory of inflation.
     Massano also said Angola's economy was set to stagnate this year after 5 straight years of contraction and first return to growth in 2022. 
     He forecast growth of 2.36 percent in 2022 and growth of 3.0 to 4.0 percent from 2023.
      In June Angola's National Assembly amended the country's constitution to give the central bank more independence by changing the way the governor is appointed and the mandate of the bank to focus on price stability and financial stability.

Sunday, September 26, 2021

This week in monetary policy: Ghana, Angola, Honduras, Morocco, Kenya, Lesotho, Fiji, Thailand, Guatemala, Uruguay, Czech Rep., Bulgaria, Mexico, Trinidad & Tobago, Jamaica & Colombia

     This week - September 27 through October 2 - central banks from 16 countries or jurisdictions are scheduled to decide on monetary policy: Ghana, Angola, Honduras, Morocco, Kenya, Lesotho, Fiji, Thailand, Guatemala, Uruguay, Czech Republic, Bulgaria, Mexico, Trinidad and Tobago, Jamaica and Colombia.
     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 be accessed by clicking on This Week.

SEP 27- OCT 2, 2021
MOROCCO28-Sep1.50%001.50%         FM
KENYA28-Sep7.00%007.00%         FM
THAILAND29-Sep0.50%000.50%         EM
CZECH REPUBLIC30-Sep0.75%14:3025500.25%         EM
BULGARIA30-Sep0.00%000.00%         FM
MEXICO30-Sep4.50%13:0025254.25%         EM
TRINIDAD & TOBAGO30-Sep3.50%003.50%
COLOMBIA 30-Sep1.75%001.75%         EM

Friday, September 24, 2021

UAE starts gradual withdrawal of crises measures

      The central bank of the United Arab Emirates (UAE) said it is starting a "gradual and well-calibrated" withdrawal of extraordinary stimulus measures taken last year during the height of the COVID-19 pandemic to avoid restricting credit supply and economic growth.
     "Our assessment, confirmed by recent economic data, affirms the UAE economy's gradual recovery," Khaled Mohamed Balama, governor of the Central Bank of the UAE (CBUAE) said in a statement.
     "As we enter the next phase of the post-COVID recovery, there will be less need for extraordinary stimulus measures," he added on Sept. 23.
       Last year CBUAE, as other central banks, cut its main interest rates and undertook various measures to ensure the flow of liquidity to the banking system and to support economic activity.
       CBUAE grouped its different measures - such as financing for loan deferrals and zero-cost liquidity -under a Targeted Economic Support Scheme (TESS).
       In April the central bank extended key parts of TESS until mid-2022, including allowing banks to access a zero-cost liquidity facility up to June 30, 2022 to provide new loans and financing to those most affected by the pandemic.
       It also extended financing for loan deferrals until the end of 2021 but will phase out the outstanding financing by Dec. 31, 2021.
      Today CBUAE said 15 percent of banks' loan portfolios had benefitted from the loan deferral program and confirmed the program would be phased out by the end of this year.
       It also confirmed that in the short term it would maintain the temporarily lowered reserve requirements for banks and the level of loan-to-value ratio on mortgage loans for first-time home buyers.
       CBUAE previously decided regulatory measures that allow banks to maintain lower capital and liquidity buffers will expire by the end of this year but said today is was looking at extending these for a limited period to facilitate a smooth economic recovery.
      UAE groups seven emirates, including Abu Dhabi and Dubai, and its oil and natural gas reserves are the 6th and 7th largest in the world, respectively.

Thursday, September 23, 2021

Turkey surprises with rate cut, lira hits new record lows

     Turkey's central bank lowered its policy rate for the first time in two years, surprising many but not all analysts, saying a revision of its monetary policy stance was needed as past monetary tightening was now dampening credit, domestic demand and commercial loans.
     The Central Bank of the Republic of Turkey (CBRT) cut its policy rate, or the one-week repo auction rate, by 1 percentage point to 18.0 percent in the first rate cut since September 2019.
      Despite recent comments by the bank's governor, Sahap Kavcioglu, the vast majority of analysts expected the central bank to maintain its rate today as Turkey's headline inflation is continuing to accelerate and the bank had pledged to keep rates above inflation.
      However, in a conference call with investors on Sept. 1, Kavcioglu omitted earlier pledges of keeping the policy rate above inflation and that tight monetary policy would be maintained decisively.
      A week later, Kavcioglu - who was appointed in March by Turkey's strong-willed president, Recep Tayyip Erdogan - then shifted the bank's policy focus to core inflation, which some analysts saw paving the way for lower interest rates as demanded by Erdogan.
     In retrospect, these hints by Kavcioglu - the bank's fourth governor since 2019 - turned out to foreshadow today's sharp change in policy. 
     Kavcioglu was appointed by Erdogan on March 21 this year after he fired Naci Agbal, who had raised the rate for the third time on March 18.
     Reflecting today's surprise policy decision, the Turkish lira once again fell to new record lows, ensuring continued upward pressure on import prices and thus inflation.
     The lira plunged 1.25 percent after the rate cut to 8.77 to the U.S. dollar to be down 15.3 percent this year and down 32 percent since the start of 2020.
      Explaining its decision to lower the policy rate, the bank's monetary policy committee said monetary tightening had a decelerating impact on credit and domestic demand, and a higher-than-expected contractionary effect on commercial loans.
     Turkey's headline inflation rate rose to 19.25 percent in August, up from 14.97 percent in January and 18.95 percent in July - almost four times the bank's 5.0 percent medium-term target.
      But core inflation, which strips out energy, food, alcohol and tobacco, eased to 16.7 percent from 17.21 percent in July and from a 2021-high of 17.77 percent in April.
      Formalizing the bank's abandonment of its earlier guidance, the policy committee today said it would use all available instruments until there are strong signs inflation is declining and the 5.0 percent inflation target is achieved.
      In its August statement the committee had said it would maintain a tight monetary policy stance decisively until there is a significant fall in inflation and the policy rate would be set above inflation.
      Despite the change to the guidance and surprise to financial markets, the committee said it would continue to "take its decisions in a transparent, predictable and data-driven framework."

Norway raises rate, as expected, sees December hike

     Norway's central bank raised its key interest rate for the first time in two years, as it had signaled in recent months, and said it would most likely raise the rate again in December as the economy was now normalizing and economic activity higher than before the COVID-19 pandemic struck.
     Norges Bank (NB) raised its policy rate by 25 basis points to 0.25 percent, the first rate hike since September 2019, and the first change in rates since May last year when the rate was slashed for the third time in three months to support economic activity during the pandemic.
     "A normalizing economy now suggest that it is appropriate to begin a gradual normalization of the policy rate," said Governor Oeystein Olsen, who last month said he would step down at the end of February 2022 after turning 70.
     Olsen became governor of NB in 2011 and is in his second six-year term.
     NB has been transparent in informing investors and financial markets of its intent to tighten monetary policy. 
     In March this year NB pulled forward the date for a rate hike to the second half of this year from the first half of next year, and in June the central bank then said it would most likely raise the rate in September as economic activity was bouncing back faster than expected.
     This forecast was confirmed last month.
     NB said the economic upswing was likely to continue through the autumn, with increasing economic activity and rising wages helping push up inflation towards the bank's 2.0 percent target.
     In its updated monetary policy report, NB raised its forecast for economic growth this year to 3.0 percent from June's forecast of 2.9 percent and the 2022 forecast to 3.8 percent from 3.6 percent.
     In the second quarter of this year Norway's gross domestic product jumped 6.1 percent year-on-year.
     Norway's inflation rate has hovered around 3 percent most of this year and rose to 3.4 percent in August and NB raised its forecast for inflation to average 3.2 percent this year from 2.8 percent.
     For 2022 inflation is seen averaging 1.5 percent, up from June's forecast of 1.1 percent.
     "Based on the Committee's current assessment of the outlook and balance of risks, the policy rate will most likely be raised further in December," Olsen said.
     The path of the policy rate in coming years was raised, with NB forecasting an average 0.1 percent this year and then 0.9 percent in 2022, up from the previous forecast of 0.8 percent.
      In 2023 NB expects the policy rate to average 1.4 percent in 2023, up from from 1.3 percent, and then 1.6 percent in 2024, also 0.1 percent higher than forecast in June.
     Commenting on the balance of risks, NB's monetary policy and financial stability committee said there was still a risk the pandemic would have a lasting impact on employment, which favors supporting economic growth, while capacity constraints may result in higher prices and wages.
     "Nevertheless, the Committee judges that the risk of inflation becoming too high is limited," NB said.

Wednesday, September 22, 2021

Brazil raises rate 5th time, sees similar hike in October

        Brazil's central bank raised its main interest rate for the fifth time this year and said it expects to raise the rate by the same amount at its next meeting as "the balance of risks indicate it appropriate to advance the process of monetary tightening further into the restrictive territory."
      The Central Bank of Brazil (BCB) raised its Selic rate by 1.0 percentage points for the second month in a row to 6.25 percent and has now raised the rate 4.25 percentage points this year following earlier rate hikes in March, May, June and August.
     BCP's monetary policy committee, or Copom, is next scheduled to meet on Oct. 26.

Paraguay raises rate 2nd time to meet inflation target

     Paraguay's central bank raised its benchmark interest rate for the second consecutive month, saying it considers it appropriate to continue normalizing monetary policy to ensure it meets its inflation target in the medium term.
     Although the Central Bank of Paraguay (BCP) said the acceleration in inflation is mainly due to external factors, it added the risk of a misalignment of inflation expectations and second-round effects may become more relevant during an improving economy and a better outlook for public health.
     BCP raised its monetary policy rate by 50 basis points to 1.50 percent and has now raised it 75 points following an earlier hike in August, the central bank's first rate hike in 5-1/2 years.
     Inflation in the land-locked South American country accelerated for the fourth month to 5.6 percent in August from 5.2 percent in July and 2.6 percent in January, above BCP's target of 4.0 percent.
    "Inflation has picked up in recent months, above what was previously expected, which is largely explained by the impact of high international commodity prices and higher external demand for beef," BCP's monetary policy committee said on Sept. 21.
     Internationally, the growth prospects for Paraguay's main trading partners has continued to improve and domestic economic activity has continued to expand from last year, especially services, manufacturing and livestock, the bank said.
     A reduction in infections, progress in rolling our COVID-19 vaccinations and greater mobility may continue to lead to better consumer expectations and aid the recovery of those parts of the service sector that was most hard hit by the pandemic, BCP added.
     Paraguay's gross domestic product grew 0.6 percent year-on-year in the first quarter of this year, down from 1.0 percent growth in the fourth quarter of 2020.


Tuesday, September 21, 2021

Hungary raises rate 4th time but slows tightening pace

     Hungary's central bank raised its key interest rates for the fourth time in a row but slowed the pace of monetary tightening slightly, saying the fourth wave of the COVID-19 pandemic has raised the risks to the economic recovery and inflation is seen easing by the start of next year.
     The National Bank of Hungary (NBH) raised its central bank rate by another 15 basis points to 1.65 percent and has now raised it by 1.05 percentage points this year following earlier hikes of 30 basis points each in the months of June, July and August.
     The central bank, or Magyar Nemzeti Bank (MNB) in Hungarian, also raised its other main rates that are linked to the base rate, by 15 basis points. 
     The overnight deposit rate is now 0.70 percent, the overnight collateralized lending rate 2.60 percent and the one-week collateralized lending rate at 2.60 percent.
     "The Monetary Council will continue the cycle of interest hikes until the outlook for inflation stabilizes around the central bank target in a sustainable manner and inflation risks become evenly balanced on the horizon of monetary policy," NBH said, reiterating its recent guidance.
     The last time NBH's key rate was at 1.65 percent was in May 2015 when the central bank was in the later stages of an monetary easing cycle that began in August 2012, when the rate was cut from 7.0 percent, and ended in May 2016 when the rate was cut to 0.90 percent.
     Between May 2016 and June 2020 the rate was kept steady before it was cut in two consecutive months to 0.60 percent during the height of the COVID-19 pandemic.
     But with the economy rebounding swiftly from restrictions during the pandemic and inflationary pressures rising, NBH turned hawkish in June this year to prevent inflation expectations from detaching from its target.
     In addition to raising its rate in June - the first rate hike in a decade - the central bank also began phasing out the monetary tools used to support economic activity during the COVID crises, such as the Funding for Growth Go! scheme and a long-term collateralized lending facility.
     In August the central bank began gradually withdrawing its purchases of government securities - known as quantitative easing - and lowered the weekly amount of purchases by 10 billion forint to 50 billion starting Aug. 23.
     Today the central bank decided to lower the weekly amount by another 10 billion forint to 40 billion starting Sept. 27 and reiterated it was not planning to sell any of the bonds on its balance sheet but hold them to maturity.
     While NBH continues to its foreign currency swaps to provide euro liquidity at the end of quarters, it said it would gradually phase out the swap facility used to provide forint liquidity.
      Hungary's economy continued its recovery in the third quarter of this year - after reaching pre-pandemic levels of output in the second quarter, but the central bank said a new wave of the pandemic had boosted the risks to the economy while the peak of inflation was in sight.
     "These warrant a continuation of the monthly interest rate tightening cycle with lower pace," NBH said, raising its forecast for economic growth this year to 6.5 to 7.0 percent from June's forecast of 6.2 percent.
     In the second quarter of this year Hungary's gross domestic product grew 17.9 percent from the same quarter last year after shrinking 2.1 percent in the first quarter.
     Next year NBH forecast growth of 5 to 6 percent in 2022, unchanged from its previous forecast.
     After rising sharply in April, inflation in Hungary eased from a high of 5.3 percent in June to 4.6 percent in July and 4.9 percent in August.
    "Some the inflation risks, indicated in June, materialized in the summer months; however, risks to the outlook remain on the upside," NBH said, warranting continued monetary tightening.
     The central bank said it expects inflation to rise further in the autumn and remain above 5 percent during the rest of the year but then begin to decline from the start of next year and return to the tolerance band of 2.0 to 4.0 percent in the second quarter.
     In the second half of next year, inflation is seen stabilizing around the central bank's midpoint target of 3.0 percent.

Monday, September 20, 2021

Pakistan raises rate as recovery tops expectations

     Pakistan's central bank raised it monetary policy rate for the first time in more than two years - the 10th emerging market central bank to raise rates this year - as the pace of the economic recovery has exceeded expectations and this could lead to a rise in inflation in coming months.
     The State Bank of Pakistan (SBP) raised its policy rate by 25 basis points to 7.25 percent, the first rate hike since July 2019 and the highest policy rate since June 2018.
     As other central banks, SBP last year lowered its interest rates in response to the COVID-19 pandemic and cut it 5 times and by a total of 6.25 percentage points from March to June. 
     Since then it kept the rate steady as economic activity slowly improved, with the recovery picking up speed during the summer despite a fourth wave of the pandemic.
     Although the rate hike surprised many analysts that expected SBP to keep the rate steady today, the central bank in late July already said it would be prudent to begin normalizing its monetary policy stance through a gradual degree in accommodation to ensure inflation doesn't become entrenched at a high level.
     "Looking ahead, in the absence of unforeseen circumstances, the MPC (the monetary policy committee) expects monetary policy to remain accommodative in the near term, with possible further gradual tapering of stimulus to achieve mildly positive real interest rates over time," SBP said. 
     The pace of further tapering of stimulus would depend on continued strength of demand and fiscal policy, among other factors, the bank added.   
     Prior to the pandemic, SBP had been in a monetary tightening cycle and raised its rate 7 times and by a total of 7.25 percentage points from May 2018 to July 2019, to ensure inflation remained within its target range.
      Despite the faster-than-expected economic recovery, inflation has been kept in check by declining food prices and headline inflation eased to 8.4 percent in both July and August from around 11 percent in both April and May.
    "While year-on-year inflation has declined since June, rising demand pressures together with higher imported inflation could begin to manifest in inflation readings later in the fiscal year," the bank said.
     With continued progress in vaccinations and signs the latest COVID wave remains contained, the central bank said the economic recovery appears less vulnerable to pandemic-related uncertainty so monetary policy should gradually pivot from catalyzing a economic recovery to sustaining it.
     Although inflation has been steady in the last two months, SBP said inflation expectations of both households and businesses had drifted up and wage growth was picking up, with the outlook for inflation largely dependent on demand, administered prices along with fuel, electricity and global commodity prices.
     In July SBP expected inflation to ease in the second half of this year and then coverage to its target range of 5 - 7 percent in the medium term.
     Pakistan's economy in fiscal 2022, which began on July 1, is expected to expanded toward the upper end of SBP's forecast range of 4 - 5 percent, notwithstanding some of the uncertainty with respect to a spillover from Afghanistan.

Sunday, September 19, 2021

This week in monetary policy: Pakistan, Japan, Indonesia, Sweden, Hungary, Paraguay, China, USA, Brazil, Taiwan, Switzerland, UK, South Africa, Philippines, Norway, Turkey & Zimbabwe

      This week - September 20 through September 25 - central banks from 17 countries or jurisdictions are scheduled to decide on monetary policy: Pakistan, Japan, Indonesia, Sweden, Hungary, Paraguay, China, United States of America, Brazil, Taiwan, Switzerland, United Kingdom, South Africa, Philippines, Norway, Turkey and Zimbabwe.
      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 be accessed by clicking on This Week.

SEP 20 - SEP 25, 2021
PAKISTAN20-Sep7.00%007.00%         EM
JAPAN21-Sep-0.10%00-0.10%         DM
INDONESIA21-Sep3.50%0-254.00%         EM
SWEDEN21-Sep0.00%9:30000.00%         DM
HUNGARY21-Sep1.50%30900.60%         EM
CHINA22-Sep3.85%9:30003.85%         EM
UNITED STATES22-Sep0.25%14:00000.25%         DM
BRAZIL22-Sep5.25%18:301003252.00%         EM
TAIWAN23-Sep1.125%001.125%         EM
SWITZERLAND23-Sep-0.75%9:3000-0.75%         DM
UNITED KINGDOM23-Sep0.10%12:00000.10%         DM
SOUTH AFRICA23-Sep3.50%003.50%         EM
PHILIPPINES23-Sep2.00%002.25%         EM
NORWAY23-Sep0.00%10:00000.00%         DM
TURKEY23-Sep19.00%14:00020010.25%         EM