Moldova's central bank lowered its base rate by a further 200 basis points to 17.0 percent, along with its overnight rates, as inflation in February decelerated faster than it had expected.
The National Bank of Moldova (NBM) has now cut its rate by 250 basis points this year, following a 50 point cut in February as it slowly normalizes its policy stance following total hikes of 1300 points in 2015 in response to accelerating inflation from a depreciation of the leu currency.
The NBM reiterated that it cut its rate to help anchor inflation expectations as it seek to keep inflation close to its target of 5.0 percent, plus/minus 1.5 percentage points.
Headline inflation in Moldova - a former Soviet state between Romania and Ukraine - declined to 10.3 percent in February from 13.4 percent in January due to lower food and regulated prices.
Moldova's economic output in the fourth quarter of 2015 shrank by 3.3 percent from the same 2014 period, slightly less than the contraction of 3.7 percent in the third quarter, due to the impact of drought on agricultural output, which fell by 18.3 percent, and a decline in domestic demand and investments.
However, the NBM added that economic growth by supported by a depreciation of the leu, which had improved the competitiveness of domestic products.
The leu fell by almost 21 percent against the U.S. dollar last year, pulled down by the economic crises in Russia, but has been firming since late January.
Today the leu was trading around 19.5 to the dollar, slightly up from 19.7 at the start of the year.
On Feb. 1 a grenade was thrown at the house of the central bank's governor, Dorin Dragutanu, during the night but no one was hurt.
Dragutanu tendered his resignation to the parliament in September, saying he was being used as a scapegoat by politicians over a banking scandal in which US$1 billion disappeared from the country's banking system.
But a new central bank governor has not been named and Dragutanu remains in his post.
With today's rate cut, the central bank's overnight loan rate was lowered to 20.0 percent from 22.0 percent while the overnight deposit rate was cut to 14.0 percent from 16.0 percent.
Thursday, March 31, 2016
Czech holds rate, extends FX commitment to mid-2017
The central bank of the Czech Republic maintained its key interest rate at technically zero but extended its commitment to using the exchange rate as an additional monetary policy tool to "mid-2017" from last month's guidance of the "the first half of next year" as the outlook had turned "slightly anti-inflationary."
The Czech National Bank (CNB), which has kept a lid on the exchange rate of the koruna against the euro since November 2013, said lower inflation at home and abroad, slower wage growth and the outlook for food prices comprised downside risks to inflation.
By contrast, the recent rise in oil prices amounted to a slight upside risk.
As on Feb. 4, the board of the CNB again discussed using negative interest rates as a policy tool, but made no further comments in its statement.
Inflation in the Czech Republic eased to 0.5 percent in February from 0.6 percent in January, below the bank's forecast as food prices had continued to fall in contrast to its expectations of an increase.
The CNB expects inflation to hit its target of 2.0 percent in the first half of 2017 and then slightly exceed it.
Economic growth in the fourth quarter of 2015 slowed to an annual rate of 4.0 percent from 4.7 percent whereas the forecast had called for growth more than one percentage point higher due to lower-than-expected growth fixed investment and inventories, and exports, the CNB said.
The CNB cut its benchmark two-week repo rate to its current level of 0.05 percent - what the CNB describes as "technically zero" - in November 2012 and has been keeping the koruna at or below 27 to the euro since November 2013 by intervening in the foreign exchange market.
The Czech National Bank (CNB), which has kept a lid on the exchange rate of the koruna against the euro since November 2013, said lower inflation at home and abroad, slower wage growth and the outlook for food prices comprised downside risks to inflation.
By contrast, the recent rise in oil prices amounted to a slight upside risk.
As on Feb. 4, the board of the CNB again discussed using negative interest rates as a policy tool, but made no further comments in its statement.
Inflation in the Czech Republic eased to 0.5 percent in February from 0.6 percent in January, below the bank's forecast as food prices had continued to fall in contrast to its expectations of an increase.
The CNB expects inflation to hit its target of 2.0 percent in the first half of 2017 and then slightly exceed it.
Economic growth in the fourth quarter of 2015 slowed to an annual rate of 4.0 percent from 4.7 percent whereas the forecast had called for growth more than one percentage point higher due to lower-than-expected growth fixed investment and inventories, and exports, the CNB said.
The CNB cut its benchmark two-week repo rate to its current level of 0.05 percent - what the CNB describes as "technically zero" - in November 2012 and has been keeping the koruna at or below 27 to the euro since November 2013 by intervening in the foreign exchange market.
Tuesday, March 29, 2016
Angola hikes rates 200 bps as inflation tops 20 percent
Angola's central bank raised its key interest rates by 200 basis points, citing accelerating inflation from higher administered prices and the depreciation of the kwanza's exchange rate.
The National Bank of Angola (BNA) has now raised its rates by 300 basis points this year, following a 100 point hike in February, bringing total rate hikes since it embarked on a tightening cycle in October 2014 to 525 basis points.
The central bank's Basic Interest Rate (BNA) was raised to 14.0 percent from 12.0 percent, the rate on the standing liquidity transfer facility to 16 percent and the rate on its liquidity absorption facility to 2.25 percent from 1.75 percent.
Angola's inflation rate accelerated to 20.26 percent in February from 17.34 percent in January, with food and alcoholic drinks, housing electricity and fuels, and miscellaneous goods and services contributing most to inflation by rising 1.69 percent, 0.31 percent and 0.22 percentage points, respectively.
In addition to higher import prices from a falling currency, prices have also been boosted by government cuts to petrol subsidies at the start of the year.
Angola's kwanza has been hit hard by the fall in crude oil prices since the middle of 2014 and the central bank has devalued the kwanza several times. Angola is Africa's second largest crude oil producer and relies on revenue from oil exports for almost all its foreign exchange earnings.
The kwanza was trading at 159.8 to the dollar today, down 15.4 percent so far this year following a depreciation of 24 percent in 2015.
The fall in oil revenue has affected Angola's economy, with credit to the economy up by only 0.48 percent in February compared with 3.01 percent in January.
Last year the BNA often voiced its concern over the growth in credit, which was up by a cumulative 17.5 percent as recently as December 2015.
The BNA has forecast economic growth this year of 3.3 percent, down from 4.9 percent in 2015 and the lowest level since 2009, as the fall in oil prices cuts into exports and government revenue.
Earlier this month Angola's president appointed Valter Felipe da Silva as new governor of the central bank as part of a cabinet reshuffle. Da Silva replaced Jose Pedro de Morais who resigned after 14 months as governor.
www.CentralBankNews.info
The National Bank of Angola (BNA) has now raised its rates by 300 basis points this year, following a 100 point hike in February, bringing total rate hikes since it embarked on a tightening cycle in October 2014 to 525 basis points.
The central bank's Basic Interest Rate (BNA) was raised to 14.0 percent from 12.0 percent, the rate on the standing liquidity transfer facility to 16 percent and the rate on its liquidity absorption facility to 2.25 percent from 1.75 percent.
Angola's inflation rate accelerated to 20.26 percent in February from 17.34 percent in January, with food and alcoholic drinks, housing electricity and fuels, and miscellaneous goods and services contributing most to inflation by rising 1.69 percent, 0.31 percent and 0.22 percentage points, respectively.
In addition to higher import prices from a falling currency, prices have also been boosted by government cuts to petrol subsidies at the start of the year.
Angola's kwanza has been hit hard by the fall in crude oil prices since the middle of 2014 and the central bank has devalued the kwanza several times. Angola is Africa's second largest crude oil producer and relies on revenue from oil exports for almost all its foreign exchange earnings.
The kwanza was trading at 159.8 to the dollar today, down 15.4 percent so far this year following a depreciation of 24 percent in 2015.
The fall in oil revenue has affected Angola's economy, with credit to the economy up by only 0.48 percent in February compared with 3.01 percent in January.
Last year the BNA often voiced its concern over the growth in credit, which was up by a cumulative 17.5 percent as recently as December 2015.
The BNA has forecast economic growth this year of 3.3 percent, down from 4.9 percent in 2015 and the lowest level since 2009, as the fall in oil prices cuts into exports and government revenue.
Earlier this month Angola's president appointed Valter Felipe da Silva as new governor of the central bank as part of a cabinet reshuffle. Da Silva replaced Jose Pedro de Morais who resigned after 14 months as governor.
www.CentralBankNews.info
Armenia cuts rate 25 bps and set to ease further
Armenia's central bank lowered its benchmark refinancing rate by 25 basis points to 8.25 percent and said it will continue to ease its monetary policy further in light of the expected economic conditions and the absence of additional external and internal risks.
The Central Bank of Armenia (CBA), which has now cut its rate by 225 basis points since embarking on an easing cycle in August 2015, added that its board considers it "expedient" to continue to gradually ease monetary conditions and last year's easing was largely sufficient to offset deflationary pressures.
The CBA expects slow global economic growth and lower international commodity prices to continue to transmit deflation to domestic prices in coming months.
In February Armenia's inflation rate fell further to minus 1.7 percent in February from minus 0.4 percent in January, mainly due to a fall in prices of imported food.
Armenia's economic activity index in January and February rose by an annual rate of 4.7 percent, exceeding expectations slightly, but the CBA and government is continuing to stimulate domestic demand as it remains low, the central bank said.
At the same time, the CBA said it had seen a significant increase in external demand and exports that has helped offset weak demand on aggregate demand. Low prices from commodities and food products on international markets is also preserving the purchasing power, lowering costs and leading to a gradual decline in inflation expectations.
In December the CBA said it believed it had now largely overcome the inflationary risks from the fall in the dram's exchange rate.
The dram plunged in November and December in 2014 in response to the fall in Russia's ruble - Armenia's largest trading partner - but gradually stabilized as the central bank raised rates three times by a total of 375 basis points from December to February 2015.
In 2015 the dram depreciated by 1.8 percent against the U.S. dollar in 2015 compared with a 14.7 percent fall in 2014.
Since mid-February the dram has been on a firming trend and was quoted at 482.16 to the dollar today, up 2.8 percent since hitting 495.9 on Feb. 14 and up 0.3 percent since the start of this year.
www.CentralBankNews.info
The Central Bank of Armenia (CBA), which has now cut its rate by 225 basis points since embarking on an easing cycle in August 2015, added that its board considers it "expedient" to continue to gradually ease monetary conditions and last year's easing was largely sufficient to offset deflationary pressures.
The CBA expects slow global economic growth and lower international commodity prices to continue to transmit deflation to domestic prices in coming months.
In February Armenia's inflation rate fell further to minus 1.7 percent in February from minus 0.4 percent in January, mainly due to a fall in prices of imported food.
Armenia's economic activity index in January and February rose by an annual rate of 4.7 percent, exceeding expectations slightly, but the CBA and government is continuing to stimulate domestic demand as it remains low, the central bank said.
At the same time, the CBA said it had seen a significant increase in external demand and exports that has helped offset weak demand on aggregate demand. Low prices from commodities and food products on international markets is also preserving the purchasing power, lowering costs and leading to a gradual decline in inflation expectations.
In December the CBA said it believed it had now largely overcome the inflationary risks from the fall in the dram's exchange rate.
The dram plunged in November and December in 2014 in response to the fall in Russia's ruble - Armenia's largest trading partner - but gradually stabilized as the central bank raised rates three times by a total of 375 basis points from December to February 2015.
In 2015 the dram depreciated by 1.8 percent against the U.S. dollar in 2015 compared with a 14.7 percent fall in 2014.
Since mid-February the dram has been on a firming trend and was quoted at 482.16 to the dollar today, up 2.8 percent since hitting 495.9 on Feb. 14 and up 0.3 percent since the start of this year.
www.CentralBankNews.info
Sri Lanka holds rate, inflation seen in single-digit levels
Sri Lanka's central bank left its key rates unchanged, saying inflation is expected to remain in low to mid single-digit levels for the rest of this year while market interest rates have already risen, reflecting the tightening of monetary policy last month.
The Central Bank of Sri Lanka, which raised its key rates, including the standing deposit facility rate (SDRF) by 50 basis points to 6.50 percent in February, added that gross official reserves were estimated to have decreased to US$6.6 billion by the end of February from $7.3 billion end-2015, but mainly due to debt service payments and the supply of foreign exchange to cover the demand from foreign investors who moved their funds away from the government securities market.
The Sri Lanka rupee has depreciated this month and was quoted at 148 to the U.S. dollar immediately after the decision by the central bank, down from 147.5 at yesterday's close and 2.6 percent lower than at the start of the year.
The central bank said the rupee had "remained broadly unchanged" against the U.S. dollar so far this year.
About half of the economists surveyed had expected the central bank to raise rates again today to ease pressure on the rupee while the other half had expected the bank to stand pat while it observes the results of last month's tightening.
In 2015 the central bank cut rates by 50 basis points.
Sri Lanka's headline inflation rate rose to 2.7 percent in February from 0.9 percent in January due to base effects, with the central bank saying the increasing trend seen in core inflation continuing in February, with core inflation rising to 5.7 percent in February from 4.6 percent in January.
Last month the central bank's head of research forecast inflation of 4 -5 percent this year.
Provisional estimates show that Sri Lanka's economy grew by 4.8 percent in 2015, marginally below 2014's 4.9 percent, mainly due to a 5.3 percent rise in service-related activities. Growth was largely driven by higher consumption while investment activities declined, the bank added.
The Central Bank of Sri Lanka, which raised its key rates, including the standing deposit facility rate (SDRF) by 50 basis points to 6.50 percent in February, added that gross official reserves were estimated to have decreased to US$6.6 billion by the end of February from $7.3 billion end-2015, but mainly due to debt service payments and the supply of foreign exchange to cover the demand from foreign investors who moved their funds away from the government securities market.
The Sri Lanka rupee has depreciated this month and was quoted at 148 to the U.S. dollar immediately after the decision by the central bank, down from 147.5 at yesterday's close and 2.6 percent lower than at the start of the year.
The central bank said the rupee had "remained broadly unchanged" against the U.S. dollar so far this year.
About half of the economists surveyed had expected the central bank to raise rates again today to ease pressure on the rupee while the other half had expected the bank to stand pat while it observes the results of last month's tightening.
In 2015 the central bank cut rates by 50 basis points.
Sri Lanka's headline inflation rate rose to 2.7 percent in February from 0.9 percent in January due to base effects, with the central bank saying the increasing trend seen in core inflation continuing in February, with core inflation rising to 5.7 percent in February from 4.6 percent in January.
Last month the central bank's head of research forecast inflation of 4 -5 percent this year.
Provisional estimates show that Sri Lanka's economy grew by 4.8 percent in 2015, marginally below 2014's 4.9 percent, mainly due to a 5.3 percent rise in service-related activities. Growth was largely driven by higher consumption while investment activities declined, the bank added.
Kyrgyzstan cuts rate 200 bps but sees inflation pressures
The central bank of Kyrgyzstan cut its benchmark discount rate by 200 basis points to 8.0 percent to help stimulate the economy in light of the low level of general inflation and the decline in economic activity.
It is the first change in rates by the National Bank of the Kyrgyz Republic (NBKR) since September 2015, when the rate was raised by 200 basis points, but the central bank said there are still medium-term inflationary pressures despite the current trend toward a reduction in overall prices.
The rate cut comes after the central bank in February said it intended to maintain rates in the coming period but would take appropriate measures depending on the economic situation. Last year the NBKR cut its rate by a net 50 points after both increases and decreases.
The inflation rate in Kyrgyzstan declined to 1.3 percent in February from 1.8 percent in January and eased further to 0.8 percent as of March 18, the central bank said, adding it expects a "moderate increase in prices for 2016," close to its target of 5 -7 percent by the end of the year.
Kyrgyzstan's Gross Domestic Product declined by 7.8 percent in the January-February period, the central bank said, attributing this to reduced output from the Kumtor gold mine.
Excluding Kumtor, GDP fell by 0.1 precent in first two months of this year as economic activity continues to the impacted by low growth in the country's trading partners.
The low price of oil and the slowdown in Russia, Kazakhstan and China will exert pressure on the economy through fewer remittances and reduced trade.
In 2015 Kyrgyzstan's economy expanded by 3.5 percent and in December the International Monetary Fund forecast growth this year of 3.6 percent.
After falling sharply in 2014 and 2015, the exchange rate of the Kyrgyzstani som has appreciated since mid-February. The som was trading at 70.85 to the U.S. dollar today, down lows of 75.9 at the start of this year and through mid-February for an appreciation of 7.1 percent.
Last month the IMF noted the NBKR had been successful in steering the foreign exchange market through a "particularly turbulent period," but going forward interventions in the foreign exchange market should be limited to smoothing excessive volatility to avoid depleting reserves and eroding competitiveness.
The IMF in December estimated that Kyrgyzstan's gross international reserves would decline to US$1.770 billion in 2016 from $1.856 billion in 2014 and then further to $1.586 billion in 2016 before rising to $1.776 billion in 2017.
The IMF also forecast that inflation would average 8.9 percent in 2016 and then 6.9 percent in 2017 compared with 7.4 percent in 2015.
In 2015 the som lost 22.4 percent of its value against the U.S. dollar and the IMF cautioned that the process of de-dollarizing the economy is a long-term process that requires policies to strengthen the financial sector and the current program of converting foreign currency mortgages should not be extended.
www.CentralBankNews.info
It is the first change in rates by the National Bank of the Kyrgyz Republic (NBKR) since September 2015, when the rate was raised by 200 basis points, but the central bank said there are still medium-term inflationary pressures despite the current trend toward a reduction in overall prices.
The rate cut comes after the central bank in February said it intended to maintain rates in the coming period but would take appropriate measures depending on the economic situation. Last year the NBKR cut its rate by a net 50 points after both increases and decreases.
The inflation rate in Kyrgyzstan declined to 1.3 percent in February from 1.8 percent in January and eased further to 0.8 percent as of March 18, the central bank said, adding it expects a "moderate increase in prices for 2016," close to its target of 5 -7 percent by the end of the year.
Kyrgyzstan's Gross Domestic Product declined by 7.8 percent in the January-February period, the central bank said, attributing this to reduced output from the Kumtor gold mine.
Excluding Kumtor, GDP fell by 0.1 precent in first two months of this year as economic activity continues to the impacted by low growth in the country's trading partners.
The low price of oil and the slowdown in Russia, Kazakhstan and China will exert pressure on the economy through fewer remittances and reduced trade.
In 2015 Kyrgyzstan's economy expanded by 3.5 percent and in December the International Monetary Fund forecast growth this year of 3.6 percent.
After falling sharply in 2014 and 2015, the exchange rate of the Kyrgyzstani som has appreciated since mid-February. The som was trading at 70.85 to the U.S. dollar today, down lows of 75.9 at the start of this year and through mid-February for an appreciation of 7.1 percent.
Last month the IMF noted the NBKR had been successful in steering the foreign exchange market through a "particularly turbulent period," but going forward interventions in the foreign exchange market should be limited to smoothing excessive volatility to avoid depleting reserves and eroding competitiveness.
The IMF in December estimated that Kyrgyzstan's gross international reserves would decline to US$1.770 billion in 2016 from $1.856 billion in 2014 and then further to $1.586 billion in 2016 before rising to $1.776 billion in 2017.
The IMF also forecast that inflation would average 8.9 percent in 2016 and then 6.9 percent in 2017 compared with 7.4 percent in 2015.
In 2015 the som lost 22.4 percent of its value against the U.S. dollar and the IMF cautioned that the process of de-dollarizing the economy is a long-term process that requires policies to strengthen the financial sector and the current program of converting foreign currency mortgages should not be extended.
www.CentralBankNews.info
Monday, March 28, 2016
Rwanda holds rate, accommodative stance yields results
Rwanda's central bank maintained its key repo rate at 6.5 percent, saying the current accommodative policy stance "continues to yield expected positive results," including subdued inflation, improving aggregate demand and rising credit to the private sector.
The National Bank of Rwanda, which last cut its rate by 50 basis points in June 2014, said inflation had remained below the bank's objective of 5.0 percent since December 2015 and declined to 4.4 percent in February from 4.5 percent in the previous two months.
The central bank targets Rwanda's urban inflation rate while the consumer price inflation rate eased to 6.0 percent in February from 6.6 percent in the previous month, the third consecutive month of decline.
The central bank added that outstanding credit to the private sector grew by an annual 23.7 percent in February compared with 19.2 percent in the same 2015 month, contributing to overall economic growth of 6.9 percent in 2015, slightly down from 7.0 percent in 2014.
Last month the central bank's governor, John Rwangombwa, forecast growth of 6.3 percent this year, mainly due to smaller expansions in agriculture, construction and services sectors. He also said inflation was expected to remain within a 4.5 to 5.5 percent range this year.
But a widening of the trade deficit by 12.7 percent in the first two months of this year to US$ 297.02 million exerted further pressure on the foreign exchange market, with the franc depreciating by 2.6 percent against the U.S. dollar as of March 24 from December 2015, the bank said.
In 2015 Rwanda's franc depreciated by 7.4 percent against the dollar and was trading at 758.5 to the dollar today compared with 745 at the start of this year.
The central bank also said profits in Rwanda's financial sector had continued to improve, with the return on assets in the banking sector up an annual 2.1 percent in December 2015 while non-performing loans (NPL) at 6.2 percent in December compared with 6.0 percent in December 2014 and 7 percent in December 2013.
The central bank's target is to bring the NPL ratio below 5.0 percent.
www.CentralBankNews.info
The National Bank of Rwanda, which last cut its rate by 50 basis points in June 2014, said inflation had remained below the bank's objective of 5.0 percent since December 2015 and declined to 4.4 percent in February from 4.5 percent in the previous two months.
The central bank targets Rwanda's urban inflation rate while the consumer price inflation rate eased to 6.0 percent in February from 6.6 percent in the previous month, the third consecutive month of decline.
The central bank added that outstanding credit to the private sector grew by an annual 23.7 percent in February compared with 19.2 percent in the same 2015 month, contributing to overall economic growth of 6.9 percent in 2015, slightly down from 7.0 percent in 2014.
Last month the central bank's governor, John Rwangombwa, forecast growth of 6.3 percent this year, mainly due to smaller expansions in agriculture, construction and services sectors. He also said inflation was expected to remain within a 4.5 to 5.5 percent range this year.
But a widening of the trade deficit by 12.7 percent in the first two months of this year to US$ 297.02 million exerted further pressure on the foreign exchange market, with the franc depreciating by 2.6 percent against the U.S. dollar as of March 24 from December 2015, the bank said.
In 2015 Rwanda's franc depreciated by 7.4 percent against the dollar and was trading at 758.5 to the dollar today compared with 745 at the start of this year.
The central bank also said profits in Rwanda's financial sector had continued to improve, with the return on assets in the banking sector up an annual 2.1 percent in December 2015 while non-performing loans (NPL) at 6.2 percent in December compared with 6.0 percent in December 2014 and 7 percent in December 2013.
The central bank's target is to bring the NPL ratio below 5.0 percent.
www.CentralBankNews.info
Israel holds rate, no place for additional monetary easing
Israel's central bank left its key interest rate steady at 0.1 percent and once again confirmed its guidance that "monetary policy will remain accommodative for a considerable time" in light of inflation, economic growth, the exchange rate and the monetary policies of major central banks.
But the Bank of Israel (BOI), which has maintained its rate since cutting it by 15 basis points in February 2015, also said that there were signs of inflation turning around in the next few months and at this point there was no need for the BOI to follow other central banks and pursue various forms of extraordinary monetary policy measures.
BOI Governor Karnit Flug said the low level of inflation expectations were mainly the result of administrative price reductions and lower oil prices.
In contrast, Israel's labor market is showing strength and there are risks from the continued rise in home prices and expanding housing credit, leading the bank's monetary policy committee "to the belief that there was no place for additional monetary accommodation" although it repeated that such tools remain available if needed.
The BOI's research staff updated its forecasts from December and saw the key policy rate unchanged at 0.10 percent for the remainder of this year and then rising from the second quarter of 2017 before ending the year at 0.50 percent.
Israel's inflation is forecast to average 0.2 percent by the fourth quarter of 2016, then 0.8 percent by the first quarter of 2017 and to 1.4 percent by the end of 2017, moving into the BOI's inflation target of 1-3 percent by the middle of next year.
In February Israel's inflation rate rose to minus 0.2 percent in February from minus 0.6 percent in January with the rise attributed to a comparison to last year when water, electricity and fuel prices were cut. Excluding energy prices and administrative price reductions, inflation over the last 12 months was 0.9 percent, the BOI said.
Based on the recent turnaround in oil prices, the BOI said there was a relatively sharp increase in inflation expectations, with one-year expectations derived from capital markets positive at 0.2 percent compared with a negative 0.2 percent in the previous months, the first time inflation expectations were positive in three months.
Forecasts from private people for the next 12 months look for inflation to rise by 0.6 percent, up from 0.4 percent in the previous months while three-year expectations rose to 1.3 percent from 0.9 percent.
The rise in home prices is also continuing, the BOI said, noting they rose by an annual 7.8 percent in January and the number of transactions remains elevated, reaching an average of 8,600 in November-January and in 2015 there were 47,800 building starts, up 3.9 percent from 2014.
Israel's economy is forecast to expand by 2.8 percent this year, up from 2015's 2.5 percent, as exports, excluding diamonds and start-ups) rebound from a contraction of 1.3 percent last year to growth of 3.5 percent. This forecast is unchanged from December.
For 2017 Israel's Gross Domestic Product is seen rising by 3.0 percent, 0.1 percentage points down from the previous forecast, as exports only rise by 5.6 percent.
GDP in the fourth quarter rose by an annual 2.3 percent, down from 2.7 percent in the third quarter, but Flug said initial data pointed to some slowdown in the first quarter of this year.
But the Bank of Israel (BOI), which has maintained its rate since cutting it by 15 basis points in February 2015, also said that there were signs of inflation turning around in the next few months and at this point there was no need for the BOI to follow other central banks and pursue various forms of extraordinary monetary policy measures.
BOI Governor Karnit Flug said the low level of inflation expectations were mainly the result of administrative price reductions and lower oil prices.
In contrast, Israel's labor market is showing strength and there are risks from the continued rise in home prices and expanding housing credit, leading the bank's monetary policy committee "to the belief that there was no place for additional monetary accommodation" although it repeated that such tools remain available if needed.
The BOI's research staff updated its forecasts from December and saw the key policy rate unchanged at 0.10 percent for the remainder of this year and then rising from the second quarter of 2017 before ending the year at 0.50 percent.
Israel's inflation is forecast to average 0.2 percent by the fourth quarter of 2016, then 0.8 percent by the first quarter of 2017 and to 1.4 percent by the end of 2017, moving into the BOI's inflation target of 1-3 percent by the middle of next year.
In February Israel's inflation rate rose to minus 0.2 percent in February from minus 0.6 percent in January with the rise attributed to a comparison to last year when water, electricity and fuel prices were cut. Excluding energy prices and administrative price reductions, inflation over the last 12 months was 0.9 percent, the BOI said.
Based on the recent turnaround in oil prices, the BOI said there was a relatively sharp increase in inflation expectations, with one-year expectations derived from capital markets positive at 0.2 percent compared with a negative 0.2 percent in the previous months, the first time inflation expectations were positive in three months.
Forecasts from private people for the next 12 months look for inflation to rise by 0.6 percent, up from 0.4 percent in the previous months while three-year expectations rose to 1.3 percent from 0.9 percent.
The rise in home prices is also continuing, the BOI said, noting they rose by an annual 7.8 percent in January and the number of transactions remains elevated, reaching an average of 8,600 in November-January and in 2015 there were 47,800 building starts, up 3.9 percent from 2014.
Israel's economy is forecast to expand by 2.8 percent this year, up from 2015's 2.5 percent, as exports, excluding diamonds and start-ups) rebound from a contraction of 1.3 percent last year to growth of 3.5 percent. This forecast is unchanged from December.
For 2017 Israel's Gross Domestic Product is seen rising by 3.0 percent, 0.1 percentage points down from the previous forecast, as exports only rise by 5.6 percent.
GDP in the fourth quarter rose by an annual 2.3 percent, down from 2.7 percent in the third quarter, but Flug said initial data pointed to some slowdown in the first quarter of this year.
Sunday, March 27, 2016
This week in monetary policy: Israel, Angola, Kyrgyzstan, Sri Lanka, Czech Republic, Romania, Moldova and Fiji
This week (March 28 through April 2) central banks from 8 countries or
jurisdictions are scheduled to decide on monetary policy: Israel, Angola, the Kyrgyz Republic, Sri Lanka, the Czech Republic, Romania, Moldova and Fiji.
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.
| WEEK 13 | ||||||
| MAR 28-APR 2, 2016: | ||||||
| COUNTRY | DATE | RATE | LATEST | YTD | 1 YR AGO | MSCI |
| ISRAEL | 28-Mar | 0.10% | 0 | 0 | 0.10% | DM |
| ANGOLA | 28-Mar | 12.00% | 0 | 100 | 9.25% | |
| KYRGYZSTAN | 28-Mar | 10.00% | 0 | 0 | 11.00% | |
| SRI LANKA | 29-Mar | 6.50% | 50 | 50 | 6.50% | FM |
| CZECH REPUBLIC | 31-Mar | 0.05% | 0 | 0 | 0.05% | EM |
| ROMANIA | 31-Mar | 1.75% | 0 | 0 | 2.00% | FM |
| MOLDOVA | 31-Mar | 19.00% | -50 | -50 | 13.50% | |
| FIJI | 31-Mar | 0.50% | 0 | 0 | 0.50% |
Thursday, March 24, 2016
Trinidad holds rate on tepid economy, low inflation
Trinidad and Tobago's central bank left its benchmark repo rate steady at 4.75 percent, citing "somewhat tepid domestic economic activity, low inflation and slow global growth."
The Central Bank of Trinidad and Tobago (CBTT), which last month paused in its tightening campaign after eight consecutive rate hikes since September 2014, added that inflation remains well contained by historical standards despite the rise in February, a likely effect of a larger number of items becoming subject to sales tax as of Feb. 1.
Trinidad and Tobago's headline inflation rate rose to 3.4 percent in February from 2.4 percent in January and 6.2 percent in February last year. The Valued Added Tax (VAT) rate was lowered to 12.50 percent from 15 percent but a wider number of items were subject to VAT.
Food inflation in February jumped to 9.4 percent form 4.5 percent in January while core inflation was relatively unchanged at 2.1 percent as compared with 2.0 percent.
The economy of Trinidad and Tobago is facing economic headwinds due to lower energy prices, with initial estimates showing that the energy sector shrank by around 5.0 percent year-on-year in the fourth quarter.
The island's Gross Domestic Product contracted by an annual rate of 2 percent in the third quarter of 2015, the third consecutive quarter of shrinkage, and the central bank said the lull in economic activity may have continued into this year. GDP in 2014 grew by only 0.8 percent.
Earlier this month, the International Monetary Fund said "Trinidad and Tobago's economy is confronting a major shock with the sharp fall in energy prices that accelerated through early 2016," forecasting a contraction in GDP of 1 percent this year.
After trading in a relatively narrow range from mid-2014 through October 2015, Trinidad's dollar has depreciated sharply in recent months and was trading at 6.59 to the U.S. dollar today, down 2.6 percent so far this year and down 3.9 percent since the start of 2015.
Based on historical patterns, the CBTT said the pass-through effects of this depreciation to domestic prices could take about 2 to 3 months.
The Central Bank of Trinidad and Tobago (CBTT), which last month paused in its tightening campaign after eight consecutive rate hikes since September 2014, added that inflation remains well contained by historical standards despite the rise in February, a likely effect of a larger number of items becoming subject to sales tax as of Feb. 1.
Trinidad and Tobago's headline inflation rate rose to 3.4 percent in February from 2.4 percent in January and 6.2 percent in February last year. The Valued Added Tax (VAT) rate was lowered to 12.50 percent from 15 percent but a wider number of items were subject to VAT.
Food inflation in February jumped to 9.4 percent form 4.5 percent in January while core inflation was relatively unchanged at 2.1 percent as compared with 2.0 percent.
The economy of Trinidad and Tobago is facing economic headwinds due to lower energy prices, with initial estimates showing that the energy sector shrank by around 5.0 percent year-on-year in the fourth quarter.
The island's Gross Domestic Product contracted by an annual rate of 2 percent in the third quarter of 2015, the third consecutive quarter of shrinkage, and the central bank said the lull in economic activity may have continued into this year. GDP in 2014 grew by only 0.8 percent.
Earlier this month, the International Monetary Fund said "Trinidad and Tobago's economy is confronting a major shock with the sharp fall in energy prices that accelerated through early 2016," forecasting a contraction in GDP of 1 percent this year.
After trading in a relatively narrow range from mid-2014 through October 2015, Trinidad's dollar has depreciated sharply in recent months and was trading at 6.59 to the U.S. dollar today, down 2.6 percent so far this year and down 3.9 percent since the start of 2015.
Based on historical patterns, the CBTT said the pass-through effects of this depreciation to domestic prices could take about 2 to 3 months.
Turkey holds key rate, begins simplifying rate structure
Turkey's central bank left its benchmark repo rate steady at 7.50 percent but trimmed its overnight marginal funding and late liquidity lending rates by 25 basis points as it takes a first step in simplifying its interest rate structure in response to an easing of volatility in global financial markets.
However, the Central Bank of the Republic of Turkey (CBRT) added that it would still maintain a tight policy stance as the improvement in underlying core inflation "remains limited."
Last August the CBRT said in a road map that it would simplify its rate structure by narrowing its wide interest rate corridor and shift to a single policy rate. However, the process of simplifying this structure would first begin when there was less uncertainty in global financial markets.
With today's decision, the central bank's overnight funding rate was cut to 10.5 percent while the borrowing rate was maintained at 7.25 percent. The lending rate in the late liquidity window was cut to 12.0 percent while the borrowing rate was maintained at 0.0 percent.
The central bank's cut to the upper band of its rate corridor was expected by some economists and comes at what was expected to be Governor Erdem Basci's last monetary policy meeting before his term ends in April. A successor has yet to be named.
Turkey's lira, which has been falling since the "taper tantrum" in May 2013, has recently reversed course in light of improved global sentiment toward emerging markets. After falling 20 percent against the U.S. dollar in 2015, the lira has gained 1.4 percent this year, quoted at 2.88 today.
Turkey's consumer price inflation rate eased to 8.78 percent in February from 9.58 percent in January while core inflation rose to 9.7 percent from 9.6 percent.
In January the CBRT raised its 2016 inflation forecast to 7.5 percent from 6.5 percent on the government's 30 percent increase in minimum wages, the impact of past depreciation of the lira and a continued rise i food prices.
Inflation is seen easing to 6 percent in 2017 and then hit the central bank's target of 5 percent in 2018.
The central bank said loan growth in Turkey was continuing at "reasonable rates" in response to the tight monetary policy and macro prudential measures, with demand from Europe supporting exports at an increasing pace despite elevated risks in other export markets.
It added that structural reform measures by the government should help boost potential growth.
However, the Central Bank of the Republic of Turkey (CBRT) added that it would still maintain a tight policy stance as the improvement in underlying core inflation "remains limited."
Last August the CBRT said in a road map that it would simplify its rate structure by narrowing its wide interest rate corridor and shift to a single policy rate. However, the process of simplifying this structure would first begin when there was less uncertainty in global financial markets.
With today's decision, the central bank's overnight funding rate was cut to 10.5 percent while the borrowing rate was maintained at 7.25 percent. The lending rate in the late liquidity window was cut to 12.0 percent while the borrowing rate was maintained at 0.0 percent.
The central bank's cut to the upper band of its rate corridor was expected by some economists and comes at what was expected to be Governor Erdem Basci's last monetary policy meeting before his term ends in April. A successor has yet to be named.
Turkey's lira, which has been falling since the "taper tantrum" in May 2013, has recently reversed course in light of improved global sentiment toward emerging markets. After falling 20 percent against the U.S. dollar in 2015, the lira has gained 1.4 percent this year, quoted at 2.88 today.
Turkey's consumer price inflation rate eased to 8.78 percent in February from 9.58 percent in January while core inflation rose to 9.7 percent from 9.6 percent.
In January the CBRT raised its 2016 inflation forecast to 7.5 percent from 6.5 percent on the government's 30 percent increase in minimum wages, the impact of past depreciation of the lira and a continued rise i food prices.
Inflation is seen easing to 6 percent in 2017 and then hit the central bank's target of 5 percent in 2018.
The central bank said loan growth in Turkey was continuing at "reasonable rates" in response to the tight monetary policy and macro prudential measures, with demand from Europe supporting exports at an increasing pace despite elevated risks in other export markets.
It added that structural reform measures by the government should help boost potential growth.
Taiwan cuts rate to boost growth, stem capital inflows
Taiwan's central bank cut its policy rates, including the benchmark discount rate, by a further 12.5 basis points, as expected, to help maintain financial stability by stemming the inflow of capital and stimulate the economy.
The Central Bank of the Republic of China (Taiwan) has now cut its rates three times since September 2015 by a total of 62.5 basis points, with the discount rate now at 1.50 percent, the rate on accommodations with collateral at 1.875 percent and the rate on accommodations without collateral at 3.75 percent.
The monetary easing is in response to a "sluggish" pace of economic growth in export-dependent Taiwan along with "surges of capital inflows to the domestic market - a reaction to easing in Japan and Europe - that have pushed up the exchange rate of Taiwan's dollar.
"To maintain financial stability while taking into consideration subdued inflation expectations and a widened negative output gap, the Board judged that reducing policy rates will help create a stable financial environment and in turn stimulate the economy," the central bank said.
The central bank added that volatile global financial markets had disrupted domestic foreign exchange and financial markets and confirmed that if there are "disorderly" movements in the exchange rate it would step in to maintain an orderly market.
Taiwan's dollar depreciated from May 2015 until late January this year but since then it has been firming. Today it was trading at 32.5 to the U.S. dollar, up 1.4 percent since the start of this year.
In 2015 the Taiwan dollar (TWD) depreciated by 4.2 percent against the U.S. dollar.
The weakening of the global economy has led to declining exports - they fell by an annual 11.8 percent in February and have declined for the last year - weighing on production, investment and consumption. Exports account for about 70 percent of Taiwan's output.
Nevertheless, the central bank said public spending should return to positive this year, helping boost domestic demand. The government still expects the economy to expand quarter by quarter this year and grow by 1.47 percent for the full year. In mid-February it cut the 2016 estimate from 2.32 percent.
In the fourth quarter of 2015 Taiwan's Gross Domestic Product shrank by 0.52 percent year-on-year, slightly less than the 0.8 percent annual contraction seen in the third quarter.
The inflation rate jumped to 2.4 percent in February from 0.8 percent in January as crop damage from cold weather pushed up the prices of vegetables and fruit while core inflation, which excludes vegetables, fruit and energy, rose by only 0.73 percent, the bank said.
For 2016 the central bank said the Directorate-General of Budget, Accounting and Statistics (DGBAS) forecast inflation of 0.69 percent in light of low international commodity prices, including oil, and a wider negative output gap.
The Central Bank of the Republic of China (Taiwan) has now cut its rates three times since September 2015 by a total of 62.5 basis points, with the discount rate now at 1.50 percent, the rate on accommodations with collateral at 1.875 percent and the rate on accommodations without collateral at 3.75 percent.
The monetary easing is in response to a "sluggish" pace of economic growth in export-dependent Taiwan along with "surges of capital inflows to the domestic market - a reaction to easing in Japan and Europe - that have pushed up the exchange rate of Taiwan's dollar.
"To maintain financial stability while taking into consideration subdued inflation expectations and a widened negative output gap, the Board judged that reducing policy rates will help create a stable financial environment and in turn stimulate the economy," the central bank said.
The central bank added that volatile global financial markets had disrupted domestic foreign exchange and financial markets and confirmed that if there are "disorderly" movements in the exchange rate it would step in to maintain an orderly market.
Taiwan's dollar depreciated from May 2015 until late January this year but since then it has been firming. Today it was trading at 32.5 to the U.S. dollar, up 1.4 percent since the start of this year.
In 2015 the Taiwan dollar (TWD) depreciated by 4.2 percent against the U.S. dollar.
The weakening of the global economy has led to declining exports - they fell by an annual 11.8 percent in February and have declined for the last year - weighing on production, investment and consumption. Exports account for about 70 percent of Taiwan's output.
Nevertheless, the central bank said public spending should return to positive this year, helping boost domestic demand. The government still expects the economy to expand quarter by quarter this year and grow by 1.47 percent for the full year. In mid-February it cut the 2016 estimate from 2.32 percent.
In the fourth quarter of 2015 Taiwan's Gross Domestic Product shrank by 0.52 percent year-on-year, slightly less than the 0.8 percent annual contraction seen in the third quarter.
The inflation rate jumped to 2.4 percent in February from 0.8 percent in January as crop damage from cold weather pushed up the prices of vegetables and fruit while core inflation, which excludes vegetables, fruit and energy, rose by only 0.73 percent, the bank said.
For 2016 the central bank said the Directorate-General of Budget, Accounting and Statistics (DGBAS) forecast inflation of 0.69 percent in light of low international commodity prices, including oil, and a wider negative output gap.
Wednesday, March 23, 2016
Philippines holds rates on manageable inflation outlook
The central bank of the Philippines maintained its key policy rates, including the overnight borrowing rate at 4.0 percent, as the outlook for inflation remains "manageable" and the conditions for economic growth remain "robust" with domestic demand continuing to be buoyant.
Bangko Sentral ng Pilipinas (BSP), which has kept rates steady since September 2014, confirmed that it still expects inflation to settle within its target range of 3.0 percent, plus/minus 1 percentage point, in 2016-2017.
The BSP also reiterated its view from the previous meeting in February that the risks to the outlook for inflation remain tilted to the downside from slower-than-expected global economic activity and potential second-round effects from lower oil prices.
Upside risks to inflation emanate from the impact of the dry weather from El Nino on food prices and utility rates as well as pending petitions for power rate changes.
The BSP made no reference to the implementation of its new interest rate structure.
On Tuesday the BSP's deputy governor, Diwa Guinigundo, said the central bank was on track to implement the interest rate corridor system (IRC) in the second quarter and an announcement would be made 15 days prior to the implementation, aimed at improving the transmission of the bank's monetary policy to money market rates.
Consumer prices in the Philippines rose by an annual rate of 0.9 percent in February, down from January's 1.3 percent, while Gross Domestic Product grew by an annual 6.3 percent in the fourth quarter of 2015, up from 6.1 percent in the third quarter.
Last month the International Monetary Fund (IMF) said the Philippine economy had "performed remarkably well" in the face of the weak external environment and 2016 growth was projected to rise to 6.0 percent from 5.8 percent in 2015 and then to 6.2 percent in 2017.
Inflation averaged 1.4 percent in 2015 and should rise to 2 percent this year, the IMF said Feb. 17.
Bangko Sentral ng Pilipinas (BSP), which has kept rates steady since September 2014, confirmed that it still expects inflation to settle within its target range of 3.0 percent, plus/minus 1 percentage point, in 2016-2017.
The BSP also reiterated its view from the previous meeting in February that the risks to the outlook for inflation remain tilted to the downside from slower-than-expected global economic activity and potential second-round effects from lower oil prices.
Upside risks to inflation emanate from the impact of the dry weather from El Nino on food prices and utility rates as well as pending petitions for power rate changes.
The BSP made no reference to the implementation of its new interest rate structure.
On Tuesday the BSP's deputy governor, Diwa Guinigundo, said the central bank was on track to implement the interest rate corridor system (IRC) in the second quarter and an announcement would be made 15 days prior to the implementation, aimed at improving the transmission of the bank's monetary policy to money market rates.
Consumer prices in the Philippines rose by an annual rate of 0.9 percent in February, down from January's 1.3 percent, while Gross Domestic Product grew by an annual 6.3 percent in the fourth quarter of 2015, up from 6.1 percent in the third quarter.
Last month the International Monetary Fund (IMF) said the Philippine economy had "performed remarkably well" in the face of the weak external environment and 2016 growth was projected to rise to 6.0 percent from 5.8 percent in 2015 and then to 6.2 percent in 2017.
Inflation averaged 1.4 percent in 2015 and should rise to 2 percent this year, the IMF said Feb. 17.
Thailand holds rate, says baht rise not helpful to recovery
Thailand's central bank left its policy rate steady at 1.50 percent but confirmed that it had lowered its growth forecast, adding there are risks to growth from the fragile global economy and the divergence of monetary policy in advanced economies that could affect capital flows and exchange rate movements, including the Thai baht.
The Bank of Thailand (BOT), which cut its rate by 50 basis points last year, added that inflationary pressures remain low and inflation remains in negative territory due to the fall in oil prices around the end of 2015.
After falling from April to September 2015, the baht has been appreciating since mid-January, a move the BOT said "might not be as conducive the the economic recovery as it could be."
The baht was trading at 35.13 to the U.S. dollar today, down sharply from 34.9 yesterday, but still up by 2.5 percent since the start of this year.
The central bank's governor, Veerathai Santiprabhob, said earlier this month that the BOT was planning to lower its growth forecast for this year from 3.5 percent projected in December due to increased downside risks.
BOT's monetary policy committee reviewed the new forecast at its meeting but will first publish it on March 31. In December the 2016 growth forecast was cut to 3.5 percent from 3.7 percent.
Thailand's Gross Domestic Product grew by a larger-than-expected annual rate of 2.8 percent in the fourth quarter of last year, down from 2.9 percent, for full-year growth of 2.8 percent.
The BOT said public expenditure, tourism and higher investment by certain businesses was supporting economic activity but "overall economic momentum slowed" as the effects of the government's tax rebate measures and accelerated car purchases prior to this year's increase in taxes had dissipated.
Exports were also continuing to contract "markedly" and were only likely to recover slowly.
Thailand's exports fell by 8.9 percent in January to US$15.710 billion, the 13th month of decline and the biggest drop since November 2011.
Thailand's headline inflation rate fell by 0.5 percent in February, the 14th consecutive month of deflation. In December the central bank lowered its forecast for 2016 inflation to 0.8 percent from a previous 1.2 percent, well below its target of 2.5 percent, plus/minus 1.5 percentage points.
The Bank of Thailand (BOT), which cut its rate by 50 basis points last year, added that inflationary pressures remain low and inflation remains in negative territory due to the fall in oil prices around the end of 2015.
After falling from April to September 2015, the baht has been appreciating since mid-January, a move the BOT said "might not be as conducive the the economic recovery as it could be."
The baht was trading at 35.13 to the U.S. dollar today, down sharply from 34.9 yesterday, but still up by 2.5 percent since the start of this year.
The central bank's governor, Veerathai Santiprabhob, said earlier this month that the BOT was planning to lower its growth forecast for this year from 3.5 percent projected in December due to increased downside risks.
BOT's monetary policy committee reviewed the new forecast at its meeting but will first publish it on March 31. In December the 2016 growth forecast was cut to 3.5 percent from 3.7 percent.
Thailand's Gross Domestic Product grew by a larger-than-expected annual rate of 2.8 percent in the fourth quarter of last year, down from 2.9 percent, for full-year growth of 2.8 percent.
The BOT said public expenditure, tourism and higher investment by certain businesses was supporting economic activity but "overall economic momentum slowed" as the effects of the government's tax rebate measures and accelerated car purchases prior to this year's increase in taxes had dissipated.
Exports were also continuing to contract "markedly" and were only likely to recover slowly.
Thailand's exports fell by 8.9 percent in January to US$15.710 billion, the 13th month of decline and the biggest drop since November 2011.
Thailand's headline inflation rate fell by 0.5 percent in February, the 14th consecutive month of deflation. In December the central bank lowered its forecast for 2016 inflation to 0.8 percent from a previous 1.2 percent, well below its target of 2.5 percent, plus/minus 1.5 percentage points.
Tuesday, March 22, 2016
Hungary cuts rates 15 bps and will cut until inflation rises
Hungary's central bank cut its key rates by 15 basis points, it first rate cut since July 2015, pushing the deposit rate into negative territory, and said "interest rate cuts will continue as long as monetary conditions become consistent with the sustainable achievement of the inflation target."
The National Bank of Hungary (NBH)'s monetary council cut its base rate to 1.20 percent and said it will from now only also decide on the overnight deposit and lending rates, the width of its interest rate corridor. The deposit rate was cut to minus 0.05 percent and the lending rate to 1.45 percent.
"The Monetary Council remains ready to use every instrument at its disposal to contain second-round inflationary effects," the bank said, citing persistently low cost-side inflationary pressure, the slowdown global growth and a historically low level of inflation expectations that have heightened the risk of second-round effects that may result in below-target inflation over a sustained period.
The rate cuts come in connection with the NBH's March inflation forecast in which it revised downward "significantly" the path of inflation from its December forecast to "substantially" below its target of 3.0 percent, plus/minus 1 percentage point due to a lower cost environment that expected.
Despite what the central bank described as dynamic growth in the fourth quarter of last year, there is still unused capacity in the economy and inflationary pressures will remain moderate for an extended period.
Hungary's headline inflation rate eased to 0.3 percent in February from 0.9 percent in January, and inflation expectations fell further to a historically low level. Core inflation dropped to 1.4 percent from 1.5 percent in the same period.
"Inflation remains below the 3 percent target over the forecast period, and only approaches it in the first half of 2018," the central bank said.
Hungary's Gross Domestic Product grew by an annual rate of 3.2 percent in the fourth quarter of 2015, up from 2.4 percent in the third quarter for full-year growth of close to 3 percent, with an expansion in services and industry the main driver.
In the central bank's view, growth of around 3 percent can be maintained in light of its growth supporting program, steps by the government to encourage home construction and to facilitate the faster draw-down of European Union transfers.
The National Bank of Hungary (NBH)'s monetary council cut its base rate to 1.20 percent and said it will from now only also decide on the overnight deposit and lending rates, the width of its interest rate corridor. The deposit rate was cut to minus 0.05 percent and the lending rate to 1.45 percent.
"The Monetary Council remains ready to use every instrument at its disposal to contain second-round inflationary effects," the bank said, citing persistently low cost-side inflationary pressure, the slowdown global growth and a historically low level of inflation expectations that have heightened the risk of second-round effects that may result in below-target inflation over a sustained period.
The rate cuts come in connection with the NBH's March inflation forecast in which it revised downward "significantly" the path of inflation from its December forecast to "substantially" below its target of 3.0 percent, plus/minus 1 percentage point due to a lower cost environment that expected.
Despite what the central bank described as dynamic growth in the fourth quarter of last year, there is still unused capacity in the economy and inflationary pressures will remain moderate for an extended period.
Hungary's headline inflation rate eased to 0.3 percent in February from 0.9 percent in January, and inflation expectations fell further to a historically low level. Core inflation dropped to 1.4 percent from 1.5 percent in the same period.
"Inflation remains below the 3 percent target over the forecast period, and only approaches it in the first half of 2018," the central bank said.
Hungary's Gross Domestic Product grew by an annual rate of 3.2 percent in the fourth quarter of 2015, up from 2.4 percent in the third quarter for full-year growth of close to 3 percent, with an expansion in services and industry the main driver.
In the central bank's view, growth of around 3 percent can be maintained in light of its growth supporting program, steps by the government to encourage home construction and to facilitate the faster draw-down of European Union transfers.
Morocco cuts rate 25 bps, inflation falls, FX reserves rise
Morocco's central bank cut its key policy rate by 25 basis points to 2.25 percent, citing a downward revision of its inflation forecast, weak non-agricultural growth, the continued reduction of the budget deficit and rising foreign exchange reserves.
The Bank of Morocco, which had maintained its rate since cutting it by 25 basis points in December 2014, noted the downward trend in inflation in recent months and revised down its 2016 forecast to 0.5 percent from 1.6 percent forecast in December due to decelerating core inflation from slower domestic demand and low inflation in the euro area.
In 2017 inflation is expected to rise to 1.4 percent due to higher core inflation and a rise in the prices of fuel and lubricants. This forecast doesn't reflect the removal of the sugar subsidy that has not yet been implemented. In December the central bank said the cut in sugar subsidies should add 0.27 point to inflation this year and 0.48 point in the first quarter of 2017.
Morocco's headline inflation rate rose to 0.9 percent in February from January's 0.3 percent, the lowest point seen since 2.4 percent in July 2015. In 2015 inflation averaged 1.6 percent.
Morocco's economy grew by an annual rate of 4.7 percent in the fourth quarter of last year, up from 4.5 percent in the third quarter, with the High Commission for Planning (BAM) estimating full year growth of 4.2 percent with non-agricultural output up by 3 percent as compared with a 14.6 percent increase in agriculture valued added due to a record cereal crop.
For 2016 BAM is forecasting growth of 1.0 percent as agriculture output contracts by 13.8 percent, based on lower cereal output due to climate and vegetation data, and non-agricultural growth drops to 2.9 percent. In December the central bank forecast 2016 growth of 2.1 percent.
But for 2017 Morocco's economy should accelerate and expand 3.9 percent, reflecting rises of 10.8 percent in agriculture valued added and a 3.1 percent rise in non-agricultural output.
Morocco's current account deficit in 2015 was estimated by the central bank to have narrowed to 2.3 percent of Gross Domestic Product due to a 18.6 percent fall in the trade deficit from a 28.1 percent decline in the energy bill.
Assuming average oil prices of $38.4 per barrel this year and $44.6 in 2017, the current account deficit is expected to ease further to 0.1 percent of GDP in 2016 and 0.3 percent in 2017, further strengthening foreign exchange reserves to import coverage of 7 months and 21 days by end-2016 and 8 months and 15 days end-2017 as compared to 6 months and 24 days in 2015.
Data from the central bank shows that Morocco's foreign exchange reserves rose to 234.4 billion dirhams as of March 11 - or US$24.0 billion - up from 224.6 billion dirhams, or $22.7 billion, on Dec. 31, 2015.
Data for Morocco's government shows a budget surplus in January after a deficit of 42.7 billion dirhams in 2015. Helped by low oil prices and grants from the Gulf Cooperation Council, the deficit should reach 3.7 percent of GDP in 2016 and 3.1 percent in 2017, the central bank said.
www.CentralBankNews.info
The Bank of Morocco, which had maintained its rate since cutting it by 25 basis points in December 2014, noted the downward trend in inflation in recent months and revised down its 2016 forecast to 0.5 percent from 1.6 percent forecast in December due to decelerating core inflation from slower domestic demand and low inflation in the euro area.
In 2017 inflation is expected to rise to 1.4 percent due to higher core inflation and a rise in the prices of fuel and lubricants. This forecast doesn't reflect the removal of the sugar subsidy that has not yet been implemented. In December the central bank said the cut in sugar subsidies should add 0.27 point to inflation this year and 0.48 point in the first quarter of 2017.
Morocco's headline inflation rate rose to 0.9 percent in February from January's 0.3 percent, the lowest point seen since 2.4 percent in July 2015. In 2015 inflation averaged 1.6 percent.
Morocco's economy grew by an annual rate of 4.7 percent in the fourth quarter of last year, up from 4.5 percent in the third quarter, with the High Commission for Planning (BAM) estimating full year growth of 4.2 percent with non-agricultural output up by 3 percent as compared with a 14.6 percent increase in agriculture valued added due to a record cereal crop.
For 2016 BAM is forecasting growth of 1.0 percent as agriculture output contracts by 13.8 percent, based on lower cereal output due to climate and vegetation data, and non-agricultural growth drops to 2.9 percent. In December the central bank forecast 2016 growth of 2.1 percent.
But for 2017 Morocco's economy should accelerate and expand 3.9 percent, reflecting rises of 10.8 percent in agriculture valued added and a 3.1 percent rise in non-agricultural output.
Morocco's current account deficit in 2015 was estimated by the central bank to have narrowed to 2.3 percent of Gross Domestic Product due to a 18.6 percent fall in the trade deficit from a 28.1 percent decline in the energy bill.
Assuming average oil prices of $38.4 per barrel this year and $44.6 in 2017, the current account deficit is expected to ease further to 0.1 percent of GDP in 2016 and 0.3 percent in 2017, further strengthening foreign exchange reserves to import coverage of 7 months and 21 days by end-2016 and 8 months and 15 days end-2017 as compared to 6 months and 24 days in 2015.
Data from the central bank shows that Morocco's foreign exchange reserves rose to 234.4 billion dirhams as of March 11 - or US$24.0 billion - up from 224.6 billion dirhams, or $22.7 billion, on Dec. 31, 2015.
Data for Morocco's government shows a budget surplus in January after a deficit of 42.7 billion dirhams in 2015. Helped by low oil prices and grants from the Gulf Cooperation Council, the deficit should reach 3.7 percent of GDP in 2016 and 3.1 percent in 2017, the central bank said.
www.CentralBankNews.info
Monday, March 21, 2016
Kenya holds to boost credibility, anchor expectations
Kenya's central bank left its Central Bank Rate (CBR) unchanged at 11.50 percent to anchor inflation expectations further and enhance the credibility of its policy stance.
The Central Bank of Kenya (CBK), which raised its rate by 300 basis points in 2015 in response to a plunge in the shilling's exchange rate, added the global economic outlook had weakened since its previous meeting in January but the impact of volatility in financial markets and heightened uncertainty in emerging markets and advanced economies "is expected to be minimal due to the diversification of its export products and markets, and stable financial linkages."
Since September last year, the shilling's exchange rate has been relatively stable, with the central bank attributing this to a narrowing of the current account deficit on improved exports, strong diaspora remittances and a lower bill for oil imports.
The shilling was trading at 3.85 to the U.S. dollar today, little changed from 3.82 at the start of this year, but down 17 percent since the end of 2014.
The CBK's foreign exchange reserves rose to US$7.379.3 billion, or 4.7 months of imports, up from $7.023.7 billion at the Jan. 20 meeting of the bank's monetary policy committee.
On March 14, the new 2-year International Monetary Fund precautionary arrangement of $1.5 billion was approved, providing additional buffers against short-term shocks and reflecting confidence in Kenya's macroeconomic policies, the bank said.
Kenya's inflation rate eased to 6.84 percent in February from January's 7.78 percent, within the government's target range of 2.5 to 7.5 percent around a midpoint target of 5.0 percent.
Inflation is forecast to average 6.7 percent this year and 6.1 percent in 2017, underpinning expectations by economists that the CBK will cut rates in the second half of this year.
The CBK said the government's revised budget estimates, currently before the National Assembly, should continue to ease pressure on domestic borrowing and interest rates. Last month the country's Treasury revised down its borrowing requirement by 53.3 billion shillings to 168 billion.
The Central Bank of Kenya (CBK), which raised its rate by 300 basis points in 2015 in response to a plunge in the shilling's exchange rate, added the global economic outlook had weakened since its previous meeting in January but the impact of volatility in financial markets and heightened uncertainty in emerging markets and advanced economies "is expected to be minimal due to the diversification of its export products and markets, and stable financial linkages."
Since September last year, the shilling's exchange rate has been relatively stable, with the central bank attributing this to a narrowing of the current account deficit on improved exports, strong diaspora remittances and a lower bill for oil imports.
The shilling was trading at 3.85 to the U.S. dollar today, little changed from 3.82 at the start of this year, but down 17 percent since the end of 2014.
The CBK's foreign exchange reserves rose to US$7.379.3 billion, or 4.7 months of imports, up from $7.023.7 billion at the Jan. 20 meeting of the bank's monetary policy committee.
On March 14, the new 2-year International Monetary Fund precautionary arrangement of $1.5 billion was approved, providing additional buffers against short-term shocks and reflecting confidence in Kenya's macroeconomic policies, the bank said.
Kenya's inflation rate eased to 6.84 percent in February from January's 7.78 percent, within the government's target range of 2.5 to 7.5 percent around a midpoint target of 5.0 percent.
Inflation is forecast to average 6.7 percent this year and 6.1 percent in 2017, underpinning expectations by economists that the CBK will cut rates in the second half of this year.
The CBK said the government's revised budget estimates, currently before the National Assembly, should continue to ease pressure on domestic borrowing and interest rates. Last month the country's Treasury revised down its borrowing requirement by 53.3 billion shillings to 168 billion.
Ghana maintains rate to help bring down inflation
Ghana's central bank left its policy rate steady at 26.0 percent, saying there is need "to maintain the current monetary policy stance which together with fiscal consolidation would help bring inflation further down."
The Bank of Ghana, which raised its rate by 500 basis points in 2015 to curb inflation from a rapid depreciation of the cedi's exchange rate, added that the risks to the outlook for inflation and economic growth were considered to be balanced.
Ghana's inflation rate eased to 18.5 percent in February from 19 percent in January, pulled down by lower non-food inflation and a more stable exchange rate in recent months. Core inflation, which excludes energy and utilities, has been trending downward since December.
The central bank expects inflation to peak in the first quarter and then slowly decelerate towards its target band by mid-2017, the same forecast as in January.
The central bank, which targets inflation of 8.0 percent, plus/minus 2 percentage points, added that upside risks to the outlook come from second round effects of higher transportation costs and tight external financing conditions.
Inflation expectations remain high, the bank said, driving up by higher utility tariffs and petroleum prices but "there is no clear evidence of a further deterioration in inflation expectations in the near term."
Since August last year, the exchange of the cedi has been relatively stable, reflecting the bank's rate hikes, improved liquidity on the foreign exchange market and renewed investor interest in debt instruments, the bank said.
As of March 17, the cedi was down 1.4 percent this year against the U.S. dollar compared with a depreciation of 11.2 percent in the same period last year. The cedi was quoted around 3.85 to the dollar today as compared with 3.815 at the start of the year.
The process of cutting the government budget deficit remains on track, the bank said, adding that preliminary data shows a deficit of 7.1 percent of Gross Domestic Product in 2015 compared with a deficit of 10.2 percent in 2014.
"Continued commitment to the budget implementation coupled with the tight monetary policy stance is expected to offset some of the inflation pressures through weaker aggregate demand," the central bank said, adding that changes in crude oil prices and tight external financial may pose risks to the budget in terms of lower oil revenue and financing of the deficit.
The Bank of Ghana, which raised its rate by 500 basis points in 2015 to curb inflation from a rapid depreciation of the cedi's exchange rate, added that the risks to the outlook for inflation and economic growth were considered to be balanced.
Ghana's inflation rate eased to 18.5 percent in February from 19 percent in January, pulled down by lower non-food inflation and a more stable exchange rate in recent months. Core inflation, which excludes energy and utilities, has been trending downward since December.
The central bank expects inflation to peak in the first quarter and then slowly decelerate towards its target band by mid-2017, the same forecast as in January.
The central bank, which targets inflation of 8.0 percent, plus/minus 2 percentage points, added that upside risks to the outlook come from second round effects of higher transportation costs and tight external financing conditions.
Inflation expectations remain high, the bank said, driving up by higher utility tariffs and petroleum prices but "there is no clear evidence of a further deterioration in inflation expectations in the near term."
Since August last year, the exchange of the cedi has been relatively stable, reflecting the bank's rate hikes, improved liquidity on the foreign exchange market and renewed investor interest in debt instruments, the bank said.
As of March 17, the cedi was down 1.4 percent this year against the U.S. dollar compared with a depreciation of 11.2 percent in the same period last year. The cedi was quoted around 3.85 to the dollar today as compared with 3.815 at the start of the year.
The process of cutting the government budget deficit remains on track, the bank said, adding that preliminary data shows a deficit of 7.1 percent of Gross Domestic Product in 2015 compared with a deficit of 10.2 percent in 2014.
"Continued commitment to the budget implementation coupled with the tight monetary policy stance is expected to offset some of the inflation pressures through weaker aggregate demand," the central bank said, adding that changes in crude oil prices and tight external financial may pose risks to the budget in terms of lower oil revenue and financing of the deficit.
Sunday, March 20, 2016
This week in monetary policy: Ghana, Kenya, Hungary, Nigeria, Morocco, Paraguay, Thailand, Philippines, Taiwan, Turkey and Trinidad & Tobago
This week (March 21 through March 26) central banks from 11 countries or
jurisdictions are scheduled to decide on monetary policy: Ghana, Kenya, Hungary, Nigeria, Morocco, Paraguay, Thailand, Philippines, Taiwan, Turkey, and Trinidad and 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, 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.
| WEEK 12 | ||||||
| MAR 21-MAR 26, 2016: | ||||||
| COUNTRY | DATE | RATE | LATEST | YTD | 1 YR AGO | MSCI |
| GHANA | 21-Mar | 26.00% | 0 | 0 | 21.00% | |
| KENYA | 21-Mar | 11.50% | 0 | 0 | 8.50% | FM |
| HUNGARY | 22-Mar | 1.35% | 0 | 0 | 1.95% | EM |
| NIGERIA | 22-Mar | 11.00% | 0 | 0 | 13.00% | FM |
| MOROCCO | 22-Mar | 2.50% | 0 | 0 | 2.50% | FM |
| PARAGUAY | 22-Mar | 6.00% | 0 | 25 | 6.50% | |
| THAILAND | 23-Mar | 1.50% | 0 | 0 | 1.75% | EM |
| PHILIPPINES | 23-Mar | 4.00% | 0 | 0 | 4.00% | EM |
| TAIWAN | 24-Mar | 1.63% | -12.5 | 0 | 1.88% | EM |
| TURKEY | 24-Mar | 7.50% | 0 | 0 | 7.50% | EM |
| TRINIDAD & TOBAGO | 24-Mar | 4.75% | 0 | 25 | 3.75% | |
Friday, March 18, 2016
Mexico holds rate as February hike changed peso trend
Mexico's central bank left its benchmark target for the interbank overnight rate steady at 3.75 percent, as expected, noting the combination of last month's surprise rate hike and the government's move to cut spending had broken the negative trend in the peso's exchange rate and flattened the yield curve, as the bank had aimed for.
The Bank of Mexico, which raised its policy rate by 50 basis points on February 17 at an extraordinary board meeting, added that authorities' message that the peso would be anchored by healthy economic fundamentals had led to an appreciation of the peso and higher stock prices amid an environment of lower volatility in international financial markets.
Nevertheless, the central bank said volatility could return to financial markets and the market for oil remains characterized by significant structural imbalance between supply and demand so it will remain "very vigilant" regarding the macroeconomic fundamentals of the country.
The peso started depreciating in mid-2014 and lost 14.5 percent against the U.S. dollar last year, and continued to decline at the start of this year. But since the rate hike last month, and the government's plan to slash spending in response to lower revenue from oil, the peso has rebounded and is practically unchanged since the start of this year.
It was trading at 17.4 to the dollar today, up almost 10 percent since a low on Feb. 11.
Mexico's inflation rate rose to 2.87 percent in February from January's 2.61 percent and the central bank said it expects inflation to top 3.0 percent this year but then end the year around its target.
The central bank targets inflation of 3.0 percent, plus/minus 1 percentage point.
In its latest quarterly inflation report, the central bank lowered its growth forecast for this year to between 2 and 3 percent from its previous forecast of 2.5 to 3.5 percent.
For 2017 the central bank expects growth of 2.5 to 3.5 percent, down from its earlier forecast of 3-4 percent.
www.CentralBankNews.info
The Bank of Mexico, which raised its policy rate by 50 basis points on February 17 at an extraordinary board meeting, added that authorities' message that the peso would be anchored by healthy economic fundamentals had led to an appreciation of the peso and higher stock prices amid an environment of lower volatility in international financial markets.
Nevertheless, the central bank said volatility could return to financial markets and the market for oil remains characterized by significant structural imbalance between supply and demand so it will remain "very vigilant" regarding the macroeconomic fundamentals of the country.
The peso started depreciating in mid-2014 and lost 14.5 percent against the U.S. dollar last year, and continued to decline at the start of this year. But since the rate hike last month, and the government's plan to slash spending in response to lower revenue from oil, the peso has rebounded and is practically unchanged since the start of this year.
It was trading at 17.4 to the dollar today, up almost 10 percent since a low on Feb. 11.
Mexico's inflation rate rose to 2.87 percent in February from January's 2.61 percent and the central bank said it expects inflation to top 3.0 percent this year but then end the year around its target.
The central bank targets inflation of 3.0 percent, plus/minus 1 percentage point.
In its latest quarterly inflation report, the central bank lowered its growth forecast for this year to between 2 and 3 percent from its previous forecast of 2.5 to 3.5 percent.
For 2017 the central bank expects growth of 2.5 to 3.5 percent, down from its earlier forecast of 3-4 percent.
www.CentralBankNews.info
Colombia raises rate 7th month in row as inflation rises
Colombia's central bank raised its policy rate for the seventh consecutive month to "ensure that inflation converges to the target in 2017 and contributes to reducing the current account deficit."
The Central Bank of Colombia raised its policy rate by another 25 basis points to 6.50 percent and has now raised it by 200 basis points since embarking on a tightening cycle in September 2015.
Rising food prices and the effect of the depreciation of Colombia's peso on import prices continues to exert pressure on inflation, the bank said, adding inflation expectations remain high while the risk of a slowdown in demand in excess of the decline in national income is moderate.
Although the El Nino weather pattern and the peso's devaluation are temporary shocks, the central bank said they still raise the risk of inflation being slower to converge to the target, both due to the direct impact on prices and inflation expectations.
Colombia's inflation rate accelerated further in February to 7.59 percent, the highest rate since December 2008, from January's 7.45 percent, with the cost of food up by 11.9 percent.
Inflation expectations by analysts one- and two-years ahead were 4.5 percent and 3.8 percent, the bank said.
The central bank targets inflation of 3.0 percent, plus/minus 1 percentage point.
Colombia's economy grew by a faster-than-expected annual rate of 3.3 percent in the fourth quarter of last year, up from 3.2 percent in the third quarter as domestic demand weakened less than expected and exports and imports fell lower than forecast.
For the full 2015 year, growth was 3.1 percent and the central bank has forecast 2.7 percent growth this year in a range of 1.5 to 3.2 percent.
The current account deficit in 2015 eased by US$ 668 million to $18.925 billion, the bank said.
Colombia's peso has been falling since mid-2014, when crude oil prices started to plunge, and fell by 25 percent against the U.S. dollar in 2015.
But since mid-February the peso has been firming, helped by the rate hikes and the central bank's willingness to support the currency by auctioning dollar call options when the peso falls 3 percent from its 20-day moving average.
The peso was trading at 3,073 to the dollar today, up 3.3 percent so far this year.
The Central Bank of Colombia raised its policy rate by another 25 basis points to 6.50 percent and has now raised it by 200 basis points since embarking on a tightening cycle in September 2015.
Rising food prices and the effect of the depreciation of Colombia's peso on import prices continues to exert pressure on inflation, the bank said, adding inflation expectations remain high while the risk of a slowdown in demand in excess of the decline in national income is moderate.
Although the El Nino weather pattern and the peso's devaluation are temporary shocks, the central bank said they still raise the risk of inflation being slower to converge to the target, both due to the direct impact on prices and inflation expectations.
Colombia's inflation rate accelerated further in February to 7.59 percent, the highest rate since December 2008, from January's 7.45 percent, with the cost of food up by 11.9 percent.
Inflation expectations by analysts one- and two-years ahead were 4.5 percent and 3.8 percent, the bank said.
The central bank targets inflation of 3.0 percent, plus/minus 1 percentage point.
Colombia's economy grew by a faster-than-expected annual rate of 3.3 percent in the fourth quarter of last year, up from 3.2 percent in the third quarter as domestic demand weakened less than expected and exports and imports fell lower than forecast.
For the full 2015 year, growth was 3.1 percent and the central bank has forecast 2.7 percent growth this year in a range of 1.5 to 3.2 percent.
The current account deficit in 2015 eased by US$ 668 million to $18.925 billion, the bank said.
Colombia's peso has been falling since mid-2014, when crude oil prices started to plunge, and fell by 25 percent against the U.S. dollar in 2015.
But since mid-February the peso has been firming, helped by the rate hikes and the central bank's willingness to support the currency by auctioning dollar call options when the peso falls 3 percent from its 20-day moving average.
The peso was trading at 3,073 to the dollar today, up 3.3 percent so far this year.
Russia holds, may keep tight policy longer than planned
Russia's central bank left its key rate unchanged at 11.0 percent, as expected, and said it "may conduct its moderately tight monetary policy for a more prolonged time than previously planned" as the risks of an increase in inflation remain high despite the recent decline and a stabilization in financial and commodity markets.
The Bank of Russia, which has not cut its rate in since July 2015 despite decelerating inflation, added these risks include the oil market, persistently high inflation expectations and the government budget, in particular the prospects for extra indexation of pensions and wages.
"Despite growing oil prices and ruble strengthening in the latest period, the accumulated weakening of the ruble, impacted by the drop in oil prices, between late 2015 and early 2016, is still putting pro-inflationary pressure on the economy, contributing to continued high inflation expectations," the bank said after a meeting of its board of directors.
In a separate statement, Bank of Russia Governor Elvira Nabiullina, said the risks surrounding the budget may the the most important of the risks to inflation and "a balanced fiscal policy is essential for the economy" as a more conservative fiscal policy would allow for a softer monetary policy.
She added that stability and caution in monetary policy was very important and in order to keep interest rates steady and low, inflation expectations have to decrease further and there has to be a sustainable low growth in consumer prices.
"Given the situation, it would be sound not to act rashly to prevent moving in the opposite direction afterwards," Nabiulllina said, adding she wants to ensure a steady path of declining inflation to its target of 4.0 percent by end-2017, including less than 6 percent in March 2017.
Russia's inflation rate continued to fall to 8.1 percent in February, a low not seen since September 2014, and eased further to 7.9 percent as of March 14, a faster drop than expected, as inflation is constrained by weak consumption, a dwindling share of imports in consumption so the pass-through of the exchange rate to inflation is declining, and the global downtrend in food prices.
The central bank lowered its forecast for oil prices to average $30 a barrel this year from Decembers forecast of $50 before it gradually rises to $40 in 2018 in light of the continued oversupply in the market, slower growth in China's economy, more supplies from Iran and tighter competitions for market share.
"This is why the certain recovery in crude prices seen in the recent weeks may prove to be unsustainable," the central bank said.
Under its baseline scenario, Nabiullina said the central bank was forecasting a contraction in Gross Domestic Product of between 1.3 and 1.5 percent in 2016 and close-to-zero growth in 2017 before it starts to expand in 2018 as an expansion of the non-energy sector and the import-substituting sector helps the economic recovery.
This compares with the bank's growth forecast from December for the economy to shrink by 0.5 to 1.0 percent this year as compared with 2015's contraction of 3.7 percent.
Russia's rouble has been under pressure since oil prices started to collapse in mid-2014 with the conflict in Ukraine and the imposition of Western sanctions adding further pressure.
But after hitting record lows in mid-January, the rouble has strengthened and was trading at 67.5 to the U.S. dollar today, up 8.7 percent since the start of this year.
The Bank of Russia, which has not cut its rate in since July 2015 despite decelerating inflation, added these risks include the oil market, persistently high inflation expectations and the government budget, in particular the prospects for extra indexation of pensions and wages.
"Despite growing oil prices and ruble strengthening in the latest period, the accumulated weakening of the ruble, impacted by the drop in oil prices, between late 2015 and early 2016, is still putting pro-inflationary pressure on the economy, contributing to continued high inflation expectations," the bank said after a meeting of its board of directors.
In a separate statement, Bank of Russia Governor Elvira Nabiullina, said the risks surrounding the budget may the the most important of the risks to inflation and "a balanced fiscal policy is essential for the economy" as a more conservative fiscal policy would allow for a softer monetary policy.
She added that stability and caution in monetary policy was very important and in order to keep interest rates steady and low, inflation expectations have to decrease further and there has to be a sustainable low growth in consumer prices.
"Given the situation, it would be sound not to act rashly to prevent moving in the opposite direction afterwards," Nabiulllina said, adding she wants to ensure a steady path of declining inflation to its target of 4.0 percent by end-2017, including less than 6 percent in March 2017.
Russia's inflation rate continued to fall to 8.1 percent in February, a low not seen since September 2014, and eased further to 7.9 percent as of March 14, a faster drop than expected, as inflation is constrained by weak consumption, a dwindling share of imports in consumption so the pass-through of the exchange rate to inflation is declining, and the global downtrend in food prices.
The central bank lowered its forecast for oil prices to average $30 a barrel this year from Decembers forecast of $50 before it gradually rises to $40 in 2018 in light of the continued oversupply in the market, slower growth in China's economy, more supplies from Iran and tighter competitions for market share.
"This is why the certain recovery in crude prices seen in the recent weeks may prove to be unsustainable," the central bank said.
Under its baseline scenario, Nabiullina said the central bank was forecasting a contraction in Gross Domestic Product of between 1.3 and 1.5 percent in 2016 and close-to-zero growth in 2017 before it starts to expand in 2018 as an expansion of the non-energy sector and the import-substituting sector helps the economic recovery.
This compares with the bank's growth forecast from December for the economy to shrink by 0.5 to 1.0 percent this year as compared with 2015's contraction of 3.7 percent.
Russia's rouble has been under pressure since oil prices started to collapse in mid-2014 with the conflict in Ukraine and the imposition of Western sanctions adding further pressure.
But after hitting record lows in mid-January, the rouble has strengthened and was trading at 67.5 to the U.S. dollar today, up 8.7 percent since the start of this year.
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