Mexico's central bank raised its key policy rate by a larger-than-expected 50 basis points to prevent further depreciation of the peso and anchor inflation expectations.
The Bank of Mexico has now raised its rate three times by a total of 125 basis points since December last year when the U.S. Federal Reserve raised its rate for the first time since July 2006. The Bank of Mexico's benchmark target for the overnight rate now stands at 4.25 percent.
After appreciating from early February to late April this year, the exchange rate of Mexico's peso fell sharply in May and then hit a record low of 19.5 per U.S. dollars in the wake of last week's vote by the U.K. to withdraw from the European Union.
The U.K. decision, known as Brexit, slammed global financial markets as the balance of risks to growth were seen to have deteriorated with the result that major central banks in advanced economies would continue with an easy policy even longer than expected to support economic activity.
The fall in the peso heightened expectations that the central bank would raise its rate today, with most economists looking for a 25-basis-points hike.
But along with a rebound in global financial markets in recent days, the peso has also firmed and rose further today in reaction to the central bank's rate hike.
The peso was trading at 18.25 to the dollar in mid-afternoon Thursday, up from 18.3 at the start of this month and 19.5 on June 24 but still down 5.8 percent since the start of this year.
The central bank said it was closely following all inflation determinants and expectations, especially the exchange rate and its possible transfer to consumer prices, and confirmed that it would remain vigilant with respect to the monetary position between Mexico and the U.S.
Mexico's inflation rate rose to 2.6 percent in May from 2.54 percent in April but the central bank said the underlying price index was moving to be near 3 percent in the first half of June due to changes to services prices, partly due to peso depreciation.
The central bank, which targets inflation of 3.0 percent, plus/minus 1 percentage point, said it expected headline inflation to end the year "slightly" above 3 percent, though it cautioned that further depreciation of the peso remains an upside risk along with higher prices for agricultural goods.
Among the downside risks to inflation, the central bank mentioned further price reductions in telecommunication services and electricity due to structural reforms. In addition the peso could reverse some of its depreciation which would negatively affect economic activity.
"It is estimated that the balance of risks for inflation in the time horizon in which monetary policy has an effect has deteriorated compared to the previous decision," the central bank said.
Mexico's economy grew by an annual rate of 2.6 percent in the first quarter, up from 2.4 percent in the first quarter but the central bank said second quarter data showed less dynamism, with industrial production becoming sluggish in April.
"Given the changing external environment, it is considered that the balance of risks to growth compared to the previous monetary policy decision has deteriorated," the bank said.
www.CentralBankNews.info
Thursday, June 30, 2016
Fiji maintains rate, sees no threat from higher inflation
Fiji's central bank left its Overnight Policy Rate (OPR) unchanged at 0.5 percent, saying the recent uptick in world commodity prices, particularly crude oil and food prices, do not pose any immediate threat to domestic inflation and external stability.
Barry Whiteside, chairman of the Reserve Bank of Fiji, which has maintained its rate since October 2011, said the further rise in inflation in May to 5.2 percent from April's 3.8 percent was mainly due to domestic supply shortages and temporary hikes of agricultural products linked to the recent natural disasters.
"Notwithstanding any further shocks, inflation is expected to ease over the coming months," Whiteside added.
Fiji was hit by Tropical Cyclone Winston in February, the worst cyclone ever recorded in the Southern Hemisphere, leaving 42 people dead. The government estimated damage of 1 billion Fijian dollars, or US$460 million. Fiji was also hit by flooding in April.
Fiji's economy has gradually recovered following the natural disasters, with consumption and investment picking up, supported by the accommodative monetary policy, government measures to assist the recovery, higher inward remittances and tourism revenue.
"Nevertheless, downside risks remain particularly to the global growth outlook, as concerns have emerged on the effects of Britain's exit from the European Union," Whiteside said, adding that the 2016/17 national budget should further boost confidence and support growth.
In May the Reserve Bank lowered its forecast for 2016 economic growth to 2.4 percent from a previous estimate of 3.5 percent due to natural disasters. In 2015 Fiji's economy grew by 4.2 percent.
Fiji's foreign reserves as of June 30 amounted to $1.979 billion, or 5.5 months of imports, down from $1.984 billion as of April 28.
Barry Whiteside, chairman of the Reserve Bank of Fiji, which has maintained its rate since October 2011, said the further rise in inflation in May to 5.2 percent from April's 3.8 percent was mainly due to domestic supply shortages and temporary hikes of agricultural products linked to the recent natural disasters.
"Notwithstanding any further shocks, inflation is expected to ease over the coming months," Whiteside added.
Fiji was hit by Tropical Cyclone Winston in February, the worst cyclone ever recorded in the Southern Hemisphere, leaving 42 people dead. The government estimated damage of 1 billion Fijian dollars, or US$460 million. Fiji was also hit by flooding in April.
Fiji's economy has gradually recovered following the natural disasters, with consumption and investment picking up, supported by the accommodative monetary policy, government measures to assist the recovery, higher inward remittances and tourism revenue.
"Nevertheless, downside risks remain particularly to the global growth outlook, as concerns have emerged on the effects of Britain's exit from the European Union," Whiteside said, adding that the 2016/17 national budget should further boost confidence and support growth.
In May the Reserve Bank lowered its forecast for 2016 economic growth to 2.4 percent from a previous estimate of 3.5 percent due to natural disasters. In 2015 Fiji's economy grew by 4.2 percent.
Fiji's foreign reserves as of June 30 amounted to $1.979 billion, or 5.5 months of imports, down from $1.984 billion as of April 28.
Romania holds rate,ready to use tools amidst uncertainty
Romania's central bank left its monetary policy rate at 1.75 percent but said it was ready to use all its available tools during this period of heightened uncertainty and volatility on global financial markets following the U.K.'s referendum on the European Union (EU).
The National Bank of Romania (NBR), which has maintained its rate since May 2015, said recent volatility in markets affected the leu's exchange rate less than those of its regional peers as its international reserves remain adequate and the external position is sustainable, helping ensure that the country's economy is resilient to adverse external shocks.
The leu, which fell from July 2014 to March 2015, fell by 4.6 percent to 4.15 to the U.S. dollar on news that the UK had voted to leave the EU. But since then, the leu has gradually firmed and was trading at 4.07 to the dollar today, up almost 2 percent since the start of this year.
"The most recent macroeconomic developments show the annual inflation rate remaining in negative territory, along with economic growth picking up, solely on the back of stronger domestic demand," the NBR said.
Romania's inflation rate fell further to minus 3.5 percent in May from minus 3.3 percent in April, but this was in line with the central bank's expectations and follows a cut in Value Added Tax (VAT) rates to 20 percent from 24 percent and the drop in global food and energy prices.
The NBR expects inflation to remain in negative territory in the short term though it should gradually rise as the impact of the reduced VAT rate fades out.
However, the central bank added that the prospects for inflation to gradually return to positive territory is surrounded by domestic and external risks amid the heightened uncertainty.
In May the central bank cut its forecast for inflation this year to finish at 0.6 percent from a previous estimate of 1.4 percent. By the end of 2017 inflation is seen at 2.7 percent, down from 3.4 percent, but within the central bank's target range of 1.5 to 3.5 percent.
At its next meeting in August, the bank's board will update its inflation forecast.
Economic growth in Romania gathered momentum in the first quarter of this year as annual growth rose to 4.3 percent from 3.8 percent in the previous quarter, boosted by fiscal stimulus and higher household income that spurred consumption and imports.
The National Bank of Romania (NBR), which has maintained its rate since May 2015, said recent volatility in markets affected the leu's exchange rate less than those of its regional peers as its international reserves remain adequate and the external position is sustainable, helping ensure that the country's economy is resilient to adverse external shocks.
The leu, which fell from July 2014 to March 2015, fell by 4.6 percent to 4.15 to the U.S. dollar on news that the UK had voted to leave the EU. But since then, the leu has gradually firmed and was trading at 4.07 to the dollar today, up almost 2 percent since the start of this year.
"The most recent macroeconomic developments show the annual inflation rate remaining in negative territory, along with economic growth picking up, solely on the back of stronger domestic demand," the NBR said.
Romania's inflation rate fell further to minus 3.5 percent in May from minus 3.3 percent in April, but this was in line with the central bank's expectations and follows a cut in Value Added Tax (VAT) rates to 20 percent from 24 percent and the drop in global food and energy prices.
The NBR expects inflation to remain in negative territory in the short term though it should gradually rise as the impact of the reduced VAT rate fades out.
However, the central bank added that the prospects for inflation to gradually return to positive territory is surrounded by domestic and external risks amid the heightened uncertainty.
In May the central bank cut its forecast for inflation this year to finish at 0.6 percent from a previous estimate of 1.4 percent. By the end of 2017 inflation is seen at 2.7 percent, down from 3.4 percent, but within the central bank's target range of 1.5 to 3.5 percent.
At its next meeting in August, the bank's board will update its inflation forecast.
Economic growth in Romania gathered momentum in the first quarter of this year as annual growth rose to 4.3 percent from 3.8 percent in the previous quarter, boosted by fiscal stimulus and higher household income that spurred consumption and imports.
Taiwan cuts rate 12.5 bps as Brexit poses risks to outlook
Taiwan's central bank cut its policy rates for the fourth consecutive time by 12.5 basis points to support economic growth in light of the current slack in the global economy and the fallout from the UK decision to leave the European Union that have compounded downside risks to global trade and the economic outlook.
The Central Bank of the Republic of China (Taiwan) (CBC) cut its benchmark discount rate to 1.375 percent and has now cut it by a total of 50 basis points since September 2015.
The bank's other key rates, the rate on accommodations with collateral and the rate on accommodations without collateral were cut by the same amount to 1.75 percent and 3.625 percent, respectively, from July 1. The decision of the bank's board was unanimous.
The central bank added that its accommodative monetary policy stance could be complemented by the "flexible application of macro-prudential measures when necessary" while an expansionary fiscal policy and structural reforms may also be implemented to support economic growth.
The CBC also confirmed that it would intervene in foreign exchange markets to maintain an orderly market "if global financial market turmoil created by the UK referendum leads to excess volatility and disorderly movements in the NT dollar exchange rate."
The central bank said last week's vote by the UK vote to leave the EU, known as Brexit, would "likely affect monetary policies of major economies, international raw materials, and in turn, outlook for the global economy."
In addition, the central bank said it would "ensure that market liquidity is sufficient to support regular economic activity," echoing moves by other central banks worldwide.
The rate cut was largely expected by financial markets as sluggish global growth has muted demand for Taiwanese exports and inflationary pressures remain weak.
The CBC noted the government's downward revision of its 2016 growth forecast to 1.06 percent from 1.47 percent in May and the outlook for the domestic economy "might shift towards a more cautious one" in light of increased uncertainty surrounding the global economy.
Taiwan's economy grew by only 0.78 percent in the first quarter from the fourth quarter of last year but on an annual basis it contracted for the third straight quarter. Year-on-year Gross Domestic Product in the first quarter shrank by 0.68 percent following falls of 0.89 percent and 0.8 percent in the preceding two quarters.
The CBC added that the unemployment rate had risen by 0.21 percentage points to 3.88 percent for the first five months of the year, indicating the slowdown was starting to weigh on the labor market.
Taiwan's inflation rate also eased to 1.24 percent in May from 1.87 percent in April with the central bank expecting soft demand and the negative output gap to exert downward pressure in the next six months despite the rebound of oil and commodity prices.
Taiwan's government forecasts annual inflation of 0.63 percent in the second half of this year, down from an average 1.67 percent in the first five months, and 1.09 percent for the full year.
Taiwan's dollar (TWD) depreciated by 4.2 percent against the U.S. dollar last year, dropping from May 2015 until late January this year.
But since then it has been firming and rose further today, probably because financial markets expect the CBC to hold rates.
The TWD was trading at 32.17 to the U.S. dollar today, up 2.5 percent since the start of the year.
The Central Bank of the Republic of China (Taiwan) (CBC) cut its benchmark discount rate to 1.375 percent and has now cut it by a total of 50 basis points since September 2015.
The bank's other key rates, the rate on accommodations with collateral and the rate on accommodations without collateral were cut by the same amount to 1.75 percent and 3.625 percent, respectively, from July 1. The decision of the bank's board was unanimous.
The central bank added that its accommodative monetary policy stance could be complemented by the "flexible application of macro-prudential measures when necessary" while an expansionary fiscal policy and structural reforms may also be implemented to support economic growth.
The CBC also confirmed that it would intervene in foreign exchange markets to maintain an orderly market "if global financial market turmoil created by the UK referendum leads to excess volatility and disorderly movements in the NT dollar exchange rate."
The central bank said last week's vote by the UK vote to leave the EU, known as Brexit, would "likely affect monetary policies of major economies, international raw materials, and in turn, outlook for the global economy."
In addition, the central bank said it would "ensure that market liquidity is sufficient to support regular economic activity," echoing moves by other central banks worldwide.
The rate cut was largely expected by financial markets as sluggish global growth has muted demand for Taiwanese exports and inflationary pressures remain weak.
The CBC noted the government's downward revision of its 2016 growth forecast to 1.06 percent from 1.47 percent in May and the outlook for the domestic economy "might shift towards a more cautious one" in light of increased uncertainty surrounding the global economy.
Taiwan's economy grew by only 0.78 percent in the first quarter from the fourth quarter of last year but on an annual basis it contracted for the third straight quarter. Year-on-year Gross Domestic Product in the first quarter shrank by 0.68 percent following falls of 0.89 percent and 0.8 percent in the preceding two quarters.
The CBC added that the unemployment rate had risen by 0.21 percentage points to 3.88 percent for the first five months of the year, indicating the slowdown was starting to weigh on the labor market.
Taiwan's inflation rate also eased to 1.24 percent in May from 1.87 percent in April with the central bank expecting soft demand and the negative output gap to exert downward pressure in the next six months despite the rebound of oil and commodity prices.
Taiwan's government forecasts annual inflation of 0.63 percent in the second half of this year, down from an average 1.67 percent in the first five months, and 1.09 percent for the full year.
Taiwan's dollar (TWD) depreciated by 4.2 percent against the U.S. dollar last year, dropping from May 2015 until late January this year.
But since then it has been firming and rose further today, probably because financial markets expect the CBC to hold rates.
The TWD was trading at 32.17 to the U.S. dollar today, up 2.5 percent since the start of the year.
Tuesday, June 28, 2016
Armenia cuts rate 25 bps but omits further cut guidance
Armenia's central bank cut its benchmark refinancing rate by a further 25 basis points to 7.50 percent to help the deflationary environment gradually disappear so inflation returns to its target.
But the Central Bank of Armenia (CBA) did not reiterate last month's guidance that it expected to ease its policy stance further, signaling that it will pause in coming months.
The central bank said it expected the low inflation environment to continue in coming months but inflation expectations will remain relatively stable. The CBA targets inflation of 4.0 percent, plus/minus 1.5 percentage points.
The CBA, which has now cut its rate by 300 basis points since embarking on an easing cycle in August 2015, including cuts of 125 points this year, added that economic activity in the first five months of the year was relatively high as aggregate demand recovered.
Although domestic demand remains low, it is recovering faster than expected due to recent government stimulus policies and there is also relative stability in international commodity markets, with some products showing inflationary trends.
Armenia's economy grew by an annual rate of 4.4 percent in the first quarter of this year, up from 1.9 percent in the previous quarter while the inflation rate fell to minus 2.1 percent in May from minus 1.9 percent in April.
After plunging in November and December 2014 in response to the fall in Russia's ruble - Armenia's largest trading partner - Armenia's dram has firmed since February this year.
Today the dram was trading at 476 to the U.S. dollar, up 1.6 percent this year.
www.CentralBankNews.info
But the Central Bank of Armenia (CBA) did not reiterate last month's guidance that it expected to ease its policy stance further, signaling that it will pause in coming months.
The central bank said it expected the low inflation environment to continue in coming months but inflation expectations will remain relatively stable. The CBA targets inflation of 4.0 percent, plus/minus 1.5 percentage points.
The CBA, which has now cut its rate by 300 basis points since embarking on an easing cycle in August 2015, including cuts of 125 points this year, added that economic activity in the first five months of the year was relatively high as aggregate demand recovered.
Although domestic demand remains low, it is recovering faster than expected due to recent government stimulus policies and there is also relative stability in international commodity markets, with some products showing inflationary trends.
Armenia's economy grew by an annual rate of 4.4 percent in the first quarter of this year, up from 1.9 percent in the previous quarter while the inflation rate fell to minus 2.1 percent in May from minus 1.9 percent in April.
After plunging in November and December 2014 in response to the fall in Russia's ruble - Armenia's largest trading partner - Armenia's dram has firmed since February this year.
Today the dram was trading at 476 to the U.S. dollar, up 1.6 percent this year.
www.CentralBankNews.info
Monday, June 27, 2016
Russia raises reserve ratio on FX by another 75 bps
The Bank of Russia has raised its required reserve ratio on ruble and foreign currency liabilities of financial institutions by 75 basis points to help "absorb the part of liquidity inflow resulting from the Reserve Fund spending to finance the budget deficit and discourage growth of foreign currency denominated liabilities in the liability structure of credit institutions."
The hike in reserve requirements follows a June 10 increase by Russia's central bank in the reserve requirement on bank's foreign currency liabilities by 100 basis points, a move that was also taken to discourage banks from lending to Russians in foreign currencies.
At that point, the reserve ratio on ruble lending was left at 4.25 percent but the central bank said on June 10 that it was ready to take measures to mop up liquidity in light of a shift to surplus in the banking sector.
As of Aug. 1, the reserve ratio on banks' liabilities in foreign currency will be raised to 7.00 percent from 6.25 percent that was scheduled to go into effect on July 1, while the ratio on lending in rubles, other than to individuals, will rise to 5.0 percent from 4.25 percent.
The hike in reserve requirements follows a June 10 increase by Russia's central bank in the reserve requirement on bank's foreign currency liabilities by 100 basis points, a move that was also taken to discourage banks from lending to Russians in foreign currencies.
At that point, the reserve ratio on ruble lending was left at 4.25 percent but the central bank said on June 10 that it was ready to take measures to mop up liquidity in light of a shift to surplus in the banking sector.
As of Aug. 1, the reserve ratio on banks' liabilities in foreign currency will be raised to 7.00 percent from 6.25 percent that was scheduled to go into effect on July 1, while the ratio on lending in rubles, other than to individuals, will rise to 5.0 percent from 4.25 percent.
Israel maintains rate as Brexit uncertainty to linger
Israel's central bank maintained its key policy rate at 0.10 percent but said "uncertainty regarding the implications of the Brexit, and the continued decline of exports in recent months" strengthens the view that monetary policy will remain accommodative for a considerable time.
The Bank of Israel's (BOI) guidance of keeping its monetary policy stance "accommodative for a considerable time" is the same as in recent months but the central bank added today that that risks to achieving its inflation target and to economic growth have risen.
Last month the BOI, which has kept its key rate unchanged since cutting it by 15 basis points in February last year, said risks to achieving its inflation target "remains high" while risks to growth have increased.
Noting the sharp reaction of global financial markets to last week's vote by Britain to pull out of the European Union (EU), the BOI said it was still too early to asses whether the short-term effects on financial markets had run its course as uncertainty is expected to continue in coming months while the monetary policy of major central banks is expected to remain "very accommodative."
Israel's inflation rate rose slightly to minus 0.8 percent in May from minus 0.9 percent in April and the BOI said there was a slight increase in one-year inflation expectations while the rapid rise in wages and continued increase in private consumption will support the return of inflation to the bank's target range of 1-3 percent in a bout a year.
In an update to its quarterly forecast, BOI staff projected that inflation this year will average 0.0 percent, up from minus 0.9 percent in 2015, and then 1.2 percent in 2017.
In March BOI staff forecast inflation this year of 0.2 percent and 1.4 percent in 2017.
Economic growth is forecast to average 2.4 percent this year, below last year's 2.5 percent, and then rise to 2.9 percent in 2017, with private consumption up by 4.3 percent this year before easing to 2.8 percent next year.
In March the BOI forecast economic growth of 2.8 percent this year and 3.0 percent in 2017.
In the first three months of this year, Israel's Gross Domestic Product grew by an annual rate of 1.7 percent, down from 2.1 percent in the previous quarter. Although this level of growth is seen as low, the BOI said it still shows growth at a level that characterized in the past few years.
"The decline in exports is concentrated in a number of industries that were affected by factors, some of which are not expected to persist, and private consumption continues to lead growth, supported by the low interest rate and the increase in wages," the BOI said.
The Bank of Israel's (BOI) guidance of keeping its monetary policy stance "accommodative for a considerable time" is the same as in recent months but the central bank added today that that risks to achieving its inflation target and to economic growth have risen.
Last month the BOI, which has kept its key rate unchanged since cutting it by 15 basis points in February last year, said risks to achieving its inflation target "remains high" while risks to growth have increased.
Noting the sharp reaction of global financial markets to last week's vote by Britain to pull out of the European Union (EU), the BOI said it was still too early to asses whether the short-term effects on financial markets had run its course as uncertainty is expected to continue in coming months while the monetary policy of major central banks is expected to remain "very accommodative."
Israel's inflation rate rose slightly to minus 0.8 percent in May from minus 0.9 percent in April and the BOI said there was a slight increase in one-year inflation expectations while the rapid rise in wages and continued increase in private consumption will support the return of inflation to the bank's target range of 1-3 percent in a bout a year.
In an update to its quarterly forecast, BOI staff projected that inflation this year will average 0.0 percent, up from minus 0.9 percent in 2015, and then 1.2 percent in 2017.
In March BOI staff forecast inflation this year of 0.2 percent and 1.4 percent in 2017.
Economic growth is forecast to average 2.4 percent this year, below last year's 2.5 percent, and then rise to 2.9 percent in 2017, with private consumption up by 4.3 percent this year before easing to 2.8 percent next year.
In March the BOI forecast economic growth of 2.8 percent this year and 3.0 percent in 2017.
In the first three months of this year, Israel's Gross Domestic Product grew by an annual rate of 1.7 percent, down from 2.1 percent in the previous quarter. Although this level of growth is seen as low, the BOI said it still shows growth at a level that characterized in the past few years.
"The decline in exports is concentrated in a number of industries that were affected by factors, some of which are not expected to persist, and private consumption continues to lead growth, supported by the low interest rate and the increase in wages," the BOI said.
Sunday, June 26, 2016
This week in monetary policy: Israel, Kyrgyzstan, Rwanda, Taiwan, Fiji, Romania, Bulgaria, Czech Republic and Mexico
This week (June 27 through July 2) central banks from 10 countries or
jurisdictions are scheduled to decide on monetary policy: Israel, Kyrgyz Republic, Rwanda, Taiwan, Fiji, Romania, Bulgaria, Czech Republic and Mexico.
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.
|
Policy remix needed to tackle pent-up risks, BIS says
(Following press release was provided by the Bank for International Settlements. Click to read the 86th Annual Report of the BIS.)
There is an urgent need to rebalance policy in order to shift to a more robust and sustainable global expansion and address accumulated vulnerabilities, the Bank for International Settlements (BIS) writes in its 86th Annual Report, calling for prudential, fiscal and structural policies to play a greater role.
“We need policies that we will not once again regret when the future becomes today,” the BIS says in the report, released today, which describes a broad-based economic realignment as financial cycles mature, commodity prices fall, the dollar strengthens and global liquidity starts to tighten.
In its flagship economic report, the BIS argues that growth rates are not far from historical averages. Still, it identifies a risky combination of unusually low productivity growth, historically high global debt and shrinking room for policy manoeuvre, which leaves the global economy highly exposed, not least to shocks and political risks.
The recommended policy rebalancing should be incorporated into a long-term framework with a stronger focus on preventing costly financial boom-bust cycles, the BIS says. Prudential, fiscal and structural policies need to work alongside monetary policy, with a clear delineation of responsibilities.
The structure of taxes and subsidies could be adjusted to remove the bias towards debt accumulation, for example by eliminating the tax advantage of debt over equity, and the quality of public spending could be improved by focusing more on investment. Throughout this process, prudently assessing fiscal space and maintaining sound public finances are key.
Safer and stronger banks will also contribute to a more resilient economy since better capitalised banks lend more and stronger market-makers mean more robust market liquidity.
Over the last year, major economies’ interest rates – adjusted for inflation – have edged further into negative territory and the stock of sovereign bonds trading at negative yields has hit record highs. The persistence of such exceptionally low rates has raised questions about their impact on the profitability and resilience of financial institutions, the sustainability of asset prices and the broader economy.
The BIS authors look at concerns about the declining impact of monetary policy on the domestic economy and the increasing prominence of external channels of transmission, such as exchange rates.
They examine the merits of a financial stability-oriented monetary policy and conclude that leaning against the wind brings the greatest benefits when monetary policymakers take financial stability into account all the time, during both booms and busts.
Other new research in the Annual Report discusses anomalies in financial markets; how financial risk-taking can undermine the traditional impact of currency moves on an economy; the role of global value chains in the globalisation of inflation dynamics and the treatment of sovereign debt on banks’ balance sheets.
The BIS’s financial results, which were also published in the Annual Report, included a balance sheet total of SDR 231.4 billion (USD 326.1 billion) at end- March 2016 and a net profit of SDR 412.9 million (USD 581.9 million).
www.CentralBankNews.info
There is an urgent need to rebalance policy in order to shift to a more robust and sustainable global expansion and address accumulated vulnerabilities, the Bank for International Settlements (BIS) writes in its 86th Annual Report, calling for prudential, fiscal and structural policies to play a greater role.
“We need policies that we will not once again regret when the future becomes today,” the BIS says in the report, released today, which describes a broad-based economic realignment as financial cycles mature, commodity prices fall, the dollar strengthens and global liquidity starts to tighten.
In its flagship economic report, the BIS argues that growth rates are not far from historical averages. Still, it identifies a risky combination of unusually low productivity growth, historically high global debt and shrinking room for policy manoeuvre, which leaves the global economy highly exposed, not least to shocks and political risks.
The recommended policy rebalancing should be incorporated into a long-term framework with a stronger focus on preventing costly financial boom-bust cycles, the BIS says. Prudential, fiscal and structural policies need to work alongside monetary policy, with a clear delineation of responsibilities.
The structure of taxes and subsidies could be adjusted to remove the bias towards debt accumulation, for example by eliminating the tax advantage of debt over equity, and the quality of public spending could be improved by focusing more on investment. Throughout this process, prudently assessing fiscal space and maintaining sound public finances are key.
Safer and stronger banks will also contribute to a more resilient economy since better capitalised banks lend more and stronger market-makers mean more robust market liquidity.
Over the last year, major economies’ interest rates – adjusted for inflation – have edged further into negative territory and the stock of sovereign bonds trading at negative yields has hit record highs. The persistence of such exceptionally low rates has raised questions about their impact on the profitability and resilience of financial institutions, the sustainability of asset prices and the broader economy.
The BIS authors look at concerns about the declining impact of monetary policy on the domestic economy and the increasing prominence of external channels of transmission, such as exchange rates.
They examine the merits of a financial stability-oriented monetary policy and conclude that leaning against the wind brings the greatest benefits when monetary policymakers take financial stability into account all the time, during both booms and busts.
Other new research in the Annual Report discusses anomalies in financial markets; how financial risk-taking can undermine the traditional impact of currency moves on an economy; the role of global value chains in the globalisation of inflation dynamics and the treatment of sovereign debt on banks’ balance sheets.
The BIS’s financial results, which were also published in the Annual Report, included a balance sheet total of SDR 231.4 billion (USD 326.1 billion) at end- March 2016 and a net profit of SDR 412.9 million (USD 581.9 million).
www.CentralBankNews.info
Friday, June 24, 2016
Central Bank News Link List - Jun 24: Brexit vote triggers shock, silence but market chaos averted
Here's today's
Central Bank News' link list, click through if
you missed the previous link list. The list comprises news about central banks
that is not covered by Central Bank News. The list is updated during the day
with the latest developments so readers don't miss any important news.
- Brexit vote triggers shock, silence but market chaos averted (Reuters)
- Asia central banks, policymakers to calm markets after Brexit vote (Reuters)
- G7 finance ministers, central bank governors monitoring markets (Bank of Canada)
- U.S. Fed monitoring global financial markets (Federal Reserve)
- Carney discusses additional measures – analysts hear rate cuts (Bloomberg)
- Traders weigh chance of Fed cutting U.S. rates after Brexit (Reuters)
- Senior Japan officials to meet Saturday to discuss markets (MNI)
- Britain could face recession, BoE to ease policy – Reuters poll
- ECB ready to provide liquidity in euros, other currencies (Bloomberg)
- Lagarde welcomes central bank cooperation after Brexit (FT)
- Swiss central bank confirms FX intervention after Brexit (Reuters)
- Global central banks raise cash offer to quell Brexit panic (Bloomberg)
- China to keep liquidity ample, yuan stable after Britain vote: c.bank (Reuters)
- Brexit forces Asia’s central banks to consider new policy moves (WSJ)
- Brexit implications for Asia’s economies: analyst roundup (Bloomberg)
- Raghuram Rajan in ‘Basel huddle’ of central banks as Brexit roils markets (PTI)
- Bank of Canada: Monitoring the situation closely (MNI)
- Norway’s central bank provides $1.6 bln liquidty to banks after Brexit (Reuters)
- Denmark’s Rohde: No reason for UK vote to affect krone FX rate (Nationalbank)
- Swedish cenbank says ready to take necessary actions after Brexit vote (Reuters)
- Kenya cenbank ready to intervene to ensure smooth operations (Central Bank of Kenya)
- HKMA chief: HK dollar FX rates, interest rates remain stable after Brexit (WSJ)
- BSP’s Tetangco sees near-term volatility in domestic markets (GMA News)
- Ready to curb excessive currency volatility: Singapore central bank (Reuters)
- Taiwanese central bank likely to loosen policy in June meeting (EconoTimes)
- South Africa’s central bank says little room to defer policy response (Reuters)
Sri Lanka maintains rate, growth in line with expectation
Sri Lanka's central bank left its key policy rates steady, as expected, saying growth in the first quarter was broadly in line with expectations while inflation is expected to ease and remain in mid-single digits in the medium term.
The Central Bank of Sri Lanka last raised its key rates, the Standing Deposit Facility Rate (SDRF) and the Standing Lending Facility Rate (SLFR), by 50 basis points in February to 6.50 percent and 8.0 percent, respectively.
Sri Lanka's inflation rate picked up speed in May to 4.8 percent from 3.1 percent in April, an acceleration that was expected due to May's increase in Value Added Tax (VAT) to 15 percent from 11 percent and the removal of certain exemptions to raise government revenue.
The International Monetary Fund (IMF) - which earlier this month approved aid of US$1.5 billion, with immediate payment of $168.1 million, to help Sri Lanka meet balance of payment needs until it can adjust its macroeconomic policies - forecasts average inflation this year of 4.1 percent, up from 0.9 percent in 2015.
For 2017 the IMF sees inflation rising to 5.3 percent before easing to 5.1 percent in 2018, 5 percent in 2019 and the same in 2020.
Although Sri Lanka's economy expanded by an annual rate of 5.5 percent in the first quarter of the year, up from 2.5 percent in the previous quarter, the IMF said the economy was beginning to show signs of strain from the weak external environment and the challenges of policy adjustment.
The IMF forecasts annual growth of 5.0 percent this year and the following two years compared with 4.8 percent last year.
The linchpin of the IMF-led reform program is a reduction in Sri Lanka's fiscal deficit to 3.5 percent of Gross Domestic Product by 2020 from 6.9 percent in 2015 by rebuilding tax revenues, controlling expenditures and putting state enterprises on a more commercial footing.
Revenue last year rose 1.5 percentage points to 13.1 percent of GDP, but this was mainly due to one-off measures and taxes from a temporary surge in vehicle imports. Meanwhile, expenditures rose by 2.1 points to 19.9 percent of GDP.
The IMF also wants Sri Lanka to commit itself to a flexible exchange rate that will enable it to adjust to external forces and allow the central bank to rebuild foreign exchange reserves and focus more closely on price stability.
Sri Lanka's rupee has been facing downward pressure for months due to capital outflows and has been depreciating steadily since late August until early this month when market sentiment improved following the IMF's approval of the Extended Fund Facility (EFF), which the central bank expects should help strengthen the country's external position.
The rupee was trading at 146.6 to the U.S. dollar today, down 1.7 percent this year.
Sri Lankan shares have been also been under pressure recently, with the benchmark Colombo index hitting its lowest close in two months on Thursday in response to a downwards revision of Sri Lanka's outlook to negative from stable by Moody's and a government proposal from June 15 to reintroduce capital gains, especially on land sales.
The Central Bank of Sri Lanka last raised its key rates, the Standing Deposit Facility Rate (SDRF) and the Standing Lending Facility Rate (SLFR), by 50 basis points in February to 6.50 percent and 8.0 percent, respectively.
Sri Lanka's inflation rate picked up speed in May to 4.8 percent from 3.1 percent in April, an acceleration that was expected due to May's increase in Value Added Tax (VAT) to 15 percent from 11 percent and the removal of certain exemptions to raise government revenue.
The International Monetary Fund (IMF) - which earlier this month approved aid of US$1.5 billion, with immediate payment of $168.1 million, to help Sri Lanka meet balance of payment needs until it can adjust its macroeconomic policies - forecasts average inflation this year of 4.1 percent, up from 0.9 percent in 2015.
For 2017 the IMF sees inflation rising to 5.3 percent before easing to 5.1 percent in 2018, 5 percent in 2019 and the same in 2020.
Although Sri Lanka's economy expanded by an annual rate of 5.5 percent in the first quarter of the year, up from 2.5 percent in the previous quarter, the IMF said the economy was beginning to show signs of strain from the weak external environment and the challenges of policy adjustment.
The IMF forecasts annual growth of 5.0 percent this year and the following two years compared with 4.8 percent last year.
The linchpin of the IMF-led reform program is a reduction in Sri Lanka's fiscal deficit to 3.5 percent of Gross Domestic Product by 2020 from 6.9 percent in 2015 by rebuilding tax revenues, controlling expenditures and putting state enterprises on a more commercial footing.
Revenue last year rose 1.5 percentage points to 13.1 percent of GDP, but this was mainly due to one-off measures and taxes from a temporary surge in vehicle imports. Meanwhile, expenditures rose by 2.1 points to 19.9 percent of GDP.
The IMF also wants Sri Lanka to commit itself to a flexible exchange rate that will enable it to adjust to external forces and allow the central bank to rebuild foreign exchange reserves and focus more closely on price stability.
Sri Lanka's rupee has been facing downward pressure for months due to capital outflows and has been depreciating steadily since late August until early this month when market sentiment improved following the IMF's approval of the Extended Fund Facility (EFF), which the central bank expects should help strengthen the country's external position.
The rupee was trading at 146.6 to the U.S. dollar today, down 1.7 percent this year.
Sri Lankan shares have been also been under pressure recently, with the benchmark Colombo index hitting its lowest close in two months on Thursday in response to a downwards revision of Sri Lanka's outlook to negative from stable by Moody's and a government proposal from June 15 to reintroduce capital gains, especially on land sales.
Thursday, June 23, 2016
Ukraine cuts rate another 150 bps and further cuts likely
Ukraine's central bank continued to roll back its high interest rates by cutting its policy rate by 150 basis points to 16.50 percent and said it would "proceed with monetary policy easing to support the recovery of economic activity when it is not in conflict with achievement of inflation targets."
The National Bank of Ukraine (NBU) has now lowered its key rate by 550 basis points this year and by 13.50 percentage points since starting the easing cycle in August 2015.
From April 2014 through March 2015 the NBU hiked its rate by a total of 23.5 percentage points, with the key rate topping out at 30.0 percent to support the exchange rate of the hryvnia and prevent inflation from getting out of control.
Inflation in May fell further to 7.5 percent from 9.8 percent in April, in line with the central bank's projections, and a far cry from an inflation rate of 60.9 percent in April last year.
The deceleration in headline inflation is due to a strengthening of the hryvinia's exchange rate, improved commodity prices and better food supply, while there is "insignificant" upward pressure from demand, the central bank said.
The rise of the hryvnia along with the sustained slowdown in inflation has also triggered a "significant decrease" in inflation expectations, with the NBU expecting headline inflation to reach its target of 12 percent, plus/minus 3 percentage points, by the end of this year and then 8.0 percent, plus/minus 2 percentage points, by the end of 2017.
By late 2019 the central bank is targeting inflation of 5.0 percent.
One of the reasons that inflation will pick up in the second half of this year is due to higher tariffs for public utilities, but the central bank said it has already taken this into account so it will not require a response by monetary policy.
The hryvnia came under severe pressure in February 2014 following political unrest, the annexation of Crimea by Russia and armed conflict in Eastern Ukraine. Last year it lost 24 percent against the U.S. dollar although capital controls and rate hikes by the central bank slowed its fall.
The hryvnia started out the year on a weak footing but since mid-March it has been rising and was trading at 24.8 to the dollar today, marginally down from 24.0 at the start of this year.
A delay in a third tranche of funds from the International Monetary Fund under its $17.5 billion bailout program is keeping investors on the sidelines and the central bank said earlier this month the country risks damaging its reputation and economic stability if it fails to push through reforms that aim to limit the power of vested interests and modernize the economy.
The IMF is expected to decide on disbursing the aid next month.
The National Bank of Ukraine (NBU) has now lowered its key rate by 550 basis points this year and by 13.50 percentage points since starting the easing cycle in August 2015.
From April 2014 through March 2015 the NBU hiked its rate by a total of 23.5 percentage points, with the key rate topping out at 30.0 percent to support the exchange rate of the hryvnia and prevent inflation from getting out of control.
Inflation in May fell further to 7.5 percent from 9.8 percent in April, in line with the central bank's projections, and a far cry from an inflation rate of 60.9 percent in April last year.
The deceleration in headline inflation is due to a strengthening of the hryvinia's exchange rate, improved commodity prices and better food supply, while there is "insignificant" upward pressure from demand, the central bank said.
The rise of the hryvnia along with the sustained slowdown in inflation has also triggered a "significant decrease" in inflation expectations, with the NBU expecting headline inflation to reach its target of 12 percent, plus/minus 3 percentage points, by the end of this year and then 8.0 percent, plus/minus 2 percentage points, by the end of 2017.
By late 2019 the central bank is targeting inflation of 5.0 percent.
One of the reasons that inflation will pick up in the second half of this year is due to higher tariffs for public utilities, but the central bank said it has already taken this into account so it will not require a response by monetary policy.
The hryvnia came under severe pressure in February 2014 following political unrest, the annexation of Crimea by Russia and armed conflict in Eastern Ukraine. Last year it lost 24 percent against the U.S. dollar although capital controls and rate hikes by the central bank slowed its fall.
The hryvnia started out the year on a weak footing but since mid-March it has been rising and was trading at 24.8 to the dollar today, marginally down from 24.0 at the start of this year.
A delay in a third tranche of funds from the International Monetary Fund under its $17.5 billion bailout program is keeping investors on the sidelines and the central bank said earlier this month the country risks damaging its reputation and economic stability if it fails to push through reforms that aim to limit the power of vested interests and modernize the economy.
The IMF is expected to decide on disbursing the aid next month.
Philippines holds new rate, inflation risks now balanced
The central bank of the Philippines left its new policy rate, the rate on its overnight reverse repurchase facility (RRP), unchanged at 3.0 percent, along with the other new rates that form the upper and lower bound of its interest rate corridor (IRC) that took effect on June 3.
Bangko Sentral ng Pilipinas (BSP) said today's decision by its monetary board was based on the view that inflation continues to be manageable - a phrase often used by the BSP - with the latest forecast showing that inflation is likely to settle near the lower end of its target range this year and rise to the midpoint in 2017 and 2018.
This forecast compares with its statement in May that inflation should settle within its target range this year and 2017. Last month it acknowledged that expectations had declined slightly.
The BSP, which targets inflation of 3.0 percent, plus/minus 1 percentage point, said the overall balance of risks surrounding its inflation outlook was now deemed to be "broadly balanced," an improvement from last month when the risks were tilted to the downside.
In addition to the recent recovery of oil prices, the BSP said improved rainfall should ease the upside risks to food and utility prices in coming months, although pending petitions for higher electricity rates remain an upside risk.
Headline inflation in the Philippines rose to 1.6 percent in May from 1.1 percent in the two preceding months.
But while the new information supports keeping rates steady, the BSP also said the continued uncertainty surrounding monetary policy in major advanced countries "requires a steady hand on policy settings in order to retain flexibility in the period ahead."
The central bank introduced its new rate structure to improve the transmission of its policy to money markets and financial markets.
The IRC comprises an overnight lending facility (OLF) that forms the upper bound of the rate corridor. This rate is 3.50 percent. The lower bound is comprised of the overnight deposit facility (ODF), which is set at 2.5 percent.
The RRP is the central bank's benchmark rate and was cut to the current level of 3.0 percent from a previous 4.0 percent as part of the change. RRP is set in the middle of the rate corridor.
Bangko Sentral ng Pilipinas (BSP) said today's decision by its monetary board was based on the view that inflation continues to be manageable - a phrase often used by the BSP - with the latest forecast showing that inflation is likely to settle near the lower end of its target range this year and rise to the midpoint in 2017 and 2018.
This forecast compares with its statement in May that inflation should settle within its target range this year and 2017. Last month it acknowledged that expectations had declined slightly.
The BSP, which targets inflation of 3.0 percent, plus/minus 1 percentage point, said the overall balance of risks surrounding its inflation outlook was now deemed to be "broadly balanced," an improvement from last month when the risks were tilted to the downside.
In addition to the recent recovery of oil prices, the BSP said improved rainfall should ease the upside risks to food and utility prices in coming months, although pending petitions for higher electricity rates remain an upside risk.
Headline inflation in the Philippines rose to 1.6 percent in May from 1.1 percent in the two preceding months.
But while the new information supports keeping rates steady, the BSP also said the continued uncertainty surrounding monetary policy in major advanced countries "requires a steady hand on policy settings in order to retain flexibility in the period ahead."
The central bank introduced its new rate structure to improve the transmission of its policy to money markets and financial markets.
The IRC comprises an overnight lending facility (OLF) that forms the upper bound of the rate corridor. This rate is 3.50 percent. The lower bound is comprised of the overnight deposit facility (ODF), which is set at 2.5 percent.
The RRP is the central bank's benchmark rate and was cut to the current level of 3.0 percent from a previous 4.0 percent as part of the change. RRP is set in the middle of the rate corridor.
Norway maintains rate but raises forecasts slightly
Norway's central bank maintained its key policy rate at 0.50 percent, saying that its forecast for the policy rate was little changed since March and "there are still prospects that the key policy rate may be reduced in the course of the year."
Norges Bank, which cut its rate by 25 basis points in March, added that growth was likely to remain weak and inflation, which has been higher than 2.5 percent target, should ease due to lower wage growth and a somewhat stronger krone.
In an update to its quarterly monetary policy report, Norges Bank maintained its forecast for the key policy rate to average 0.5 percent this year but for 2017 it raised it slightly to 0.3 percent from 0.2 percent forecast in the March report.
For 2018 the policy rate forecast was also raised to 0.3 percent from 0.2 percent and for 2019 the forecast was raised to 0.6 percent from 0.5 percent.
The central bank also raised its inflation forecast for this year to 3.3 percent from 3.1 percent forecast in March but lowered the 2017 forecast to 2.2 percent from 2.3 percent.
For 2018 inflation is seen easing further to 1.9 percent from 2.1 percent previously seen and for 2019 to 1.7 percent, unchanged from March.
The 2016 forecast for growth in mainland Norway was unchanged at 0.8 percent while the 2017 forecast was lowered to 1.6 percent from 1.8 percent.
For 2018 and 2019 growth was seen picking up to 2.1 percent and 2.3 percent, respectively, below the March forecast of 2.3 percent and 2.5 percent respectively.
The central bank again voiced its concern over the rise in Norwegian home prices, saying vulnerabilities may increase if the rapid rise in house prices persists.
The countercyclical capital buffer for banks is set to rise to 1.5 percent on June 30 from 1.0 percent following earlier recommendations by the central bank to the finance ministry, which decides on the buffer every quarter.
The buffer aims to strengthen the financial soundness of banks and their resilience to loan losses in a future downturn. The central bank's assessment of financial imbalances is based on credit-to-GDP ratios and credit has been expanding faster than economic growth for a while.
While the growth of credit has eased in recent quarters, economic growth has declined so the ratio of credit has risen, and house prices have continued to accelerate, a sign that financial imbalances are building up.
Norway's economy expanded by an annual rate of 0.7 percent in the first quarter of this year, up from 0.1 percent in the previous quarter while headline inflation was 3.4 percent in May, up from 3.2 percent in April.
Earlier this month, Norway's Finance Ministery Siv Jensen told reporters that fiscal policy is now helping support the economy after monetary policy had done its job. In May the government said it would use 206 billion kroner of its oil income to help stimulate the economy by 1.1 percentage point.
The exchange rate of Norway's krone typically fluctuates with crude oil prices and since mid-January it has been firming following a decline since mid-2014.
The krone firmed further today following the central bank's decision, quoted at 8.17 to the U.S. dollar compared with 8.25 yesterday and 8.84 a the start of the year for a 8.2 percent appreciation this year.
Norges Bank, which cut its rate by 25 basis points in March, added that growth was likely to remain weak and inflation, which has been higher than 2.5 percent target, should ease due to lower wage growth and a somewhat stronger krone.
In an update to its quarterly monetary policy report, Norges Bank maintained its forecast for the key policy rate to average 0.5 percent this year but for 2017 it raised it slightly to 0.3 percent from 0.2 percent forecast in the March report.
For 2018 the policy rate forecast was also raised to 0.3 percent from 0.2 percent and for 2019 the forecast was raised to 0.6 percent from 0.5 percent.
The central bank also raised its inflation forecast for this year to 3.3 percent from 3.1 percent forecast in March but lowered the 2017 forecast to 2.2 percent from 2.3 percent.
For 2018 inflation is seen easing further to 1.9 percent from 2.1 percent previously seen and for 2019 to 1.7 percent, unchanged from March.
The 2016 forecast for growth in mainland Norway was unchanged at 0.8 percent while the 2017 forecast was lowered to 1.6 percent from 1.8 percent.
For 2018 and 2019 growth was seen picking up to 2.1 percent and 2.3 percent, respectively, below the March forecast of 2.3 percent and 2.5 percent respectively.
The central bank again voiced its concern over the rise in Norwegian home prices, saying vulnerabilities may increase if the rapid rise in house prices persists.
The countercyclical capital buffer for banks is set to rise to 1.5 percent on June 30 from 1.0 percent following earlier recommendations by the central bank to the finance ministry, which decides on the buffer every quarter.
The buffer aims to strengthen the financial soundness of banks and their resilience to loan losses in a future downturn. The central bank's assessment of financial imbalances is based on credit-to-GDP ratios and credit has been expanding faster than economic growth for a while.
While the growth of credit has eased in recent quarters, economic growth has declined so the ratio of credit has risen, and house prices have continued to accelerate, a sign that financial imbalances are building up.
Norway's economy expanded by an annual rate of 0.7 percent in the first quarter of this year, up from 0.1 percent in the previous quarter while headline inflation was 3.4 percent in May, up from 3.2 percent in April.
Earlier this month, Norway's Finance Ministery Siv Jensen told reporters that fiscal policy is now helping support the economy after monetary policy had done its job. In May the government said it would use 206 billion kroner of its oil income to help stimulate the economy by 1.1 percentage point.
The exchange rate of Norway's krone typically fluctuates with crude oil prices and since mid-January it has been firming following a decline since mid-2014.
The krone firmed further today following the central bank's decision, quoted at 8.17 to the U.S. dollar compared with 8.25 yesterday and 8.84 a the start of the year for a 8.2 percent appreciation this year.
Wednesday, June 22, 2016
Colombia raises rate 10th month in a row to curb inflation
Colombia's central bank raised its policy rate for the 10 consecutive month and reiterated its statement from May that it must ensure that the recent shocks to inflation remain temporary and inflation converges towards its target in 2017.
The Central Bank of Colombia raised its policy rate by another 25 basis points to 7.50 percent, as expected, and has now raised it by 300 points since embarking on a tightening cycle in September 2015. This year it has raised its key rate by 175 points.
"Increases in food prices and the pass-through of nominal depreciation to consumer prices continue to exert inflationary pressures," the central bank said, showing little inclination to pause in its tightening campaign.
Colombia's headline inflation rate rose to 8.2 percent in May from 7.93 percent in April, with the central bank again noting that the impact of the El Nino weather pattern on food prices and the magnitude of the depreciation of the peso had moved inflation and inflation expectations away from its target and also triggered indexation mechanisms.
But core inflation eased to 6.55 percent in May from 6.69 percent and expectations embedded in public debt bonds for 2, 3 and 5 years eased to 4.0 percent and 4.5 percent from 4.3 percent and 4.7 percent in May.
The central bank targets inflation of 3.0 percent, plus/minus 1 percentage point, and Colombia's government earlier this month raised its inflation forecast for this year to 6.5 percent.
Colombia's economy has been slowed by low oil and commodity prices with annual growth the first quarter of 2.5 percent down from 3.4 percent in the previous quarter as domestic demand slowed less than expected.
The central bank said its staff had retained its growth forecast of between 1.5 and 3.2 percent, with 2.5 percent as the most likely figure.
The Central Bank of Colombia raised its policy rate by another 25 basis points to 7.50 percent, as expected, and has now raised it by 300 points since embarking on a tightening cycle in September 2015. This year it has raised its key rate by 175 points.
"Increases in food prices and the pass-through of nominal depreciation to consumer prices continue to exert inflationary pressures," the central bank said, showing little inclination to pause in its tightening campaign.
Colombia's headline inflation rate rose to 8.2 percent in May from 7.93 percent in April, with the central bank again noting that the impact of the El Nino weather pattern on food prices and the magnitude of the depreciation of the peso had moved inflation and inflation expectations away from its target and also triggered indexation mechanisms.
But core inflation eased to 6.55 percent in May from 6.69 percent and expectations embedded in public debt bonds for 2, 3 and 5 years eased to 4.0 percent and 4.5 percent from 4.3 percent and 4.7 percent in May.
The central bank targets inflation of 3.0 percent, plus/minus 1 percentage point, and Colombia's government earlier this month raised its inflation forecast for this year to 6.5 percent.
Colombia's economy has been slowed by low oil and commodity prices with annual growth the first quarter of 2.5 percent down from 3.4 percent in the previous quarter as domestic demand slowed less than expected.
The central bank said its staff had retained its growth forecast of between 1.5 and 3.2 percent, with 2.5 percent as the most likely figure.
Thailand holds rate as economy, inflation recovering
Thailand's central bank kept its policy rate at 1.50 percent, saying the economy is expected to continue to recover and inflation on track to return to its target, and it wanted to maintain some "policy space" room in light of the global risks it faces, including the U.K. vote on the European Union, financial stability concerns in China, a fragile global economic recover and monetary policy divergence among major advanced economies.
The Bank of Thailand (BOT), which cut its rate by 50 basis points in 2015, added its monetary policy should remain accommodative and it was ready to use a mix of tools to ensure that monetary conditions were conducive to economic recovery and ensuring financial stability.
The decision by the BOT was widely expected by economists despite the International Monetary Fund's (IMF) call earlier this month for the BOT to cut rates to help boost economic growth that is below that of most other countries in Southeast Asia.
Thailand's Gross Domestic Product grew by a faster-than-expected annual rate of 3.2 percent in the first quarter of this year, up from 2.8 percent in the fourth quarter of 2015, and BOT Governor Veerathai Santipbrabhob recently said the economy was expected to expand 3.1 percent this year, up from 2.8 percent last year.
Despite a fall in exports, Thailand's economy is growing on the back of strong public spending and improved tourism revenue.
However, the BOT said there were still downside risks from slower-than-expected growth in its trading partners and fragile confidence in the private sector. But concerns linked to drought has subsided and prices of some agricultural commodities have shown signs of recovery.
Inflation is also starting to rise, helped by domestic demand and higher prices of energy and food, the BOT said, adding that it expects inflation to return to its target band in the second half of this year.
Thailand's headline inflation rate rose to 0.46 percent in May from 0.07 percent in April, the second month in a row of positive inflation after 15 months of deflation.
The BOT targets headline inflation of 2.5 percent, plus/minus 1.5 percentage points.
In contrast to its statement from March, the BOT made no mention of the exchange rate of the Thai baht, which has been stable this year. In March the BOT said the recent rise of the baht was not conducive to the economic recovery as its could be.
The baht was trading at 39.8 to the U.S. dollar today, slightly weaker than 39.1 at the start of this year.
The Bank of Thailand (BOT), which cut its rate by 50 basis points in 2015, added its monetary policy should remain accommodative and it was ready to use a mix of tools to ensure that monetary conditions were conducive to economic recovery and ensuring financial stability.
The decision by the BOT was widely expected by economists despite the International Monetary Fund's (IMF) call earlier this month for the BOT to cut rates to help boost economic growth that is below that of most other countries in Southeast Asia.
Thailand's Gross Domestic Product grew by a faster-than-expected annual rate of 3.2 percent in the first quarter of this year, up from 2.8 percent in the fourth quarter of 2015, and BOT Governor Veerathai Santipbrabhob recently said the economy was expected to expand 3.1 percent this year, up from 2.8 percent last year.
Despite a fall in exports, Thailand's economy is growing on the back of strong public spending and improved tourism revenue.
However, the BOT said there were still downside risks from slower-than-expected growth in its trading partners and fragile confidence in the private sector. But concerns linked to drought has subsided and prices of some agricultural commodities have shown signs of recovery.
Inflation is also starting to rise, helped by domestic demand and higher prices of energy and food, the BOT said, adding that it expects inflation to return to its target band in the second half of this year.
Thailand's headline inflation rate rose to 0.46 percent in May from 0.07 percent in April, the second month in a row of positive inflation after 15 months of deflation.
The BOT targets headline inflation of 2.5 percent, plus/minus 1.5 percentage points.
In contrast to its statement from March, the BOT made no mention of the exchange rate of the Thai baht, which has been stable this year. In March the BOT said the recent rise of the baht was not conducive to the economic recovery as its could be.
The baht was trading at 39.8 to the U.S. dollar today, slightly weaker than 39.1 at the start of this year.
Tuesday, June 21, 2016
Morocco holds rate, raises RRR and inflation forecast
Morocco's central bank left its key policy rate at 2.25 percent as it revised upwards its forecast for inflation this year to 1.6 percent from 0.5 percent forecast in March due to a sharp rise in food prices.
The Bank of Morocco, which in March cut its rate by 25 basis points due to a downward revision in inflation expectations and weak non-agricultural growth, added that it was raising the required reserve ratio (RRR) by 300 basis points to 5.0 percent due to improved bank liquidity and would start to pay interest on the required reserves of "banks making more efforts in terms of lending."
While the forecast for headline inflation this year was revised upwards, the central bank said the forecast for core inflation this year remained "virtually unchanged" at 0.6 percent.
Headline inflation in 2017 is seen easing to 1.0 percent, down from the previous forecast of 1.4 percent, as the shock of higher food prices dissipates while core inflation is seen rising along with fuel and lubricants.
Morocco's consumer price inflation rate eased to 1.6 percent in April from 1.8 percent in March while Gross Domestic Product grew by an annual 4.7 percent in the final 2015 quarter for full-year growth of 4.5 percent due to a 12.8 percent rise in agriculture value added and a 3.5 percent increase in non-agricultural activities.
For 2016 the central bank raised its growth forecast to 1.2 percent 1.0 percent seen in March as agricultural production was seen expanding more than expected in March - at 9.0 percent - while non-agricultural growth was seen rising 2.8 percent.
For 2017 the central bank expects growth to accelerate to 4.0 percent as agricultural value-added is expected to rise 10 percent and non-agricultural out put by 3.2 percent.
Helped by a continued strong performance of the country's automotive industry, the central bank said exports were up by 2.0 percent at the end of May, with the current account deficit seen easing to 2.0 percent of GDP this year and 0.8 percent in 2017.
The Bank of Morocco, which in March cut its rate by 25 basis points due to a downward revision in inflation expectations and weak non-agricultural growth, added that it was raising the required reserve ratio (RRR) by 300 basis points to 5.0 percent due to improved bank liquidity and would start to pay interest on the required reserves of "banks making more efforts in terms of lending."
While the forecast for headline inflation this year was revised upwards, the central bank said the forecast for core inflation this year remained "virtually unchanged" at 0.6 percent.
Headline inflation in 2017 is seen easing to 1.0 percent, down from the previous forecast of 1.4 percent, as the shock of higher food prices dissipates while core inflation is seen rising along with fuel and lubricants.
Morocco's consumer price inflation rate eased to 1.6 percent in April from 1.8 percent in March while Gross Domestic Product grew by an annual 4.7 percent in the final 2015 quarter for full-year growth of 4.5 percent due to a 12.8 percent rise in agriculture value added and a 3.5 percent increase in non-agricultural activities.
For 2016 the central bank raised its growth forecast to 1.2 percent 1.0 percent seen in March as agricultural production was seen expanding more than expected in March - at 9.0 percent - while non-agricultural growth was seen rising 2.8 percent.
For 2017 the central bank expects growth to accelerate to 4.0 percent as agricultural value-added is expected to rise 10 percent and non-agricultural out put by 3.2 percent.
Helped by a continued strong performance of the country's automotive industry, the central bank said exports were up by 2.0 percent at the end of May, with the current account deficit seen easing to 2.0 percent of GDP this year and 0.8 percent in 2017.
Hungary holds rate but may use unconventional tools
Hungary's central bank left its base rate steady at 0.90 percent, as it pledged last month, but tempered its guidance of maintaining the current rate and loose monetary conditions for "an extended period" by saying it it may deploy "unconventional tools" if deemed necessary.
The National Bank of Hungary (MNB), which in May ended its latest easing cycle after cuts totaling 45 basis points this year, said the country's economy was picking up again after decelerating at the start of the year and the disinflationary impact of the economy was gradually decreasing.
This is a more optimistic view of the impact of domestic demand on inflation than last month when the central bank said that the real economy had a disinflationary impact over the policy horizon and inflation was first expected to approach the bank's 3.0 percent target in the first half of 2018.
The optimism is based on recent data showing that Hungary's economy is bouncing back after a sharp slowdown in construction from lower drawdown of European Union funds and temporary factory shutdowns dented output in the first quarter.
But industrial output already recovered in April with rising production, retail sales continued to expand in April, household consumption is expected to rise in coming quarters and unemployment remains low, with the consequence that the central bank expects the economy to pick up "markedly."
The slowdown in the first quarter will result in a temporary widening of the negative output gap, but higher growth and the government's budget for next year will boost demand so this gap closes.
Last month the central bank confirmed that it still expects growth this year of around 3 percent despite the slower-than expected deceleration in the first quarter.
Hungary's Gross Domestic Product grew by only 0.9 percent year-on-year in the first quarter of this year, down from 3.2 percent in the final 2015 quarter.
Headline inflation declined by 0.2 percent in May from 0.2 percent in April, while the rolling unemployment rate in the February-April period fell to 5.8 percent from 6 percent in the preceding period.
Hungary's forint has been stable for the last 12 months but fell 0.5 percent in response to the central bank's guidance to 314.6 per euro. But it was largely unchanged from 314.7 at the start of this year.
The National Bank of Hungary (MNB), which in May ended its latest easing cycle after cuts totaling 45 basis points this year, said the country's economy was picking up again after decelerating at the start of the year and the disinflationary impact of the economy was gradually decreasing.
This is a more optimistic view of the impact of domestic demand on inflation than last month when the central bank said that the real economy had a disinflationary impact over the policy horizon and inflation was first expected to approach the bank's 3.0 percent target in the first half of 2018.
The optimism is based on recent data showing that Hungary's economy is bouncing back after a sharp slowdown in construction from lower drawdown of European Union funds and temporary factory shutdowns dented output in the first quarter.
But industrial output already recovered in April with rising production, retail sales continued to expand in April, household consumption is expected to rise in coming quarters and unemployment remains low, with the consequence that the central bank expects the economy to pick up "markedly."
The slowdown in the first quarter will result in a temporary widening of the negative output gap, but higher growth and the government's budget for next year will boost demand so this gap closes.
Last month the central bank confirmed that it still expects growth this year of around 3 percent despite the slower-than expected deceleration in the first quarter.
Hungary's Gross Domestic Product grew by only 0.9 percent year-on-year in the first quarter of this year, down from 3.2 percent in the final 2015 quarter.
Headline inflation declined by 0.2 percent in May from 0.2 percent in April, while the rolling unemployment rate in the February-April period fell to 5.8 percent from 6 percent in the preceding period.
Hungary's forint has been stable for the last 12 months but fell 0.5 percent in response to the central bank's guidance to 314.6 per euro. But it was largely unchanged from 314.7 at the start of this year.
Turkey cuts upper rate 50 bps, core inflation improves
Turkey's central bank continued to take "measured steps towards simplification" of its interest rate structure by cutting the upper band of its rate corridor for the fourth month in a row but maintained its tight monetary policy and liquidity stance to ensure the resilience of the country's economy against global financial volatility and inflation.
The Central Bank of the Republic of Turkey (CBRT) cut the overnight marginal funding rate by another 50 basis points to 9.0 percent but left the overnight borrowing rate at 7.25 percent, a move that was expected by most economists.
The late liquidity lending rate was also cut by 50 basis points to 10.5 percent while the borrowing rate was unchanged at 0 percent.
But the benchmark one-week repo rate was left at 7.50 percent, unchanged since February 2015, as the central bank cites inflation expectations, pricing behavior and "other factors," a likely reference to the need to keep rates high enough to avoid depreciation of the lira.
The overnight marginal funding rate has now been cut by 175 basis points since March, with the CBRT citing the "marked decline" in inflation in recent months due to unprocessed food prices.
But unlike last month, the CBRT said the trend in core inflation had improved. Last month it said the underlying trend in core inflation remained limited.
Turkey's headline inflation rate was largely unchanged in May at 6.58 percent compared with 6.57 percent in April while the core inflation rate eased to 8.8 percent from 9.3 percent.
The central bank targets inflation of 5 percent and a recent survey by the CBRT showed inflation is expected to reach 7.64 percent by the end of this year.
The exchange rate of Turkey's lira continues to be relatively stable and was trading at 2.89 to the U.S. dollar today, 1 percent higher than at the start of this year.
The CBRT reiterated its assessment of the economic activity as displaying "a moderate and stable course of growth," with domestic demand helping growth and demand from the European Union supporting Turkish exports.
The Central Bank of the Republic of Turkey (CBRT) cut the overnight marginal funding rate by another 50 basis points to 9.0 percent but left the overnight borrowing rate at 7.25 percent, a move that was expected by most economists.
The late liquidity lending rate was also cut by 50 basis points to 10.5 percent while the borrowing rate was unchanged at 0 percent.
But the benchmark one-week repo rate was left at 7.50 percent, unchanged since February 2015, as the central bank cites inflation expectations, pricing behavior and "other factors," a likely reference to the need to keep rates high enough to avoid depreciation of the lira.
The overnight marginal funding rate has now been cut by 175 basis points since March, with the CBRT citing the "marked decline" in inflation in recent months due to unprocessed food prices.
But unlike last month, the CBRT said the trend in core inflation had improved. Last month it said the underlying trend in core inflation remained limited.
Turkey's headline inflation rate was largely unchanged in May at 6.58 percent compared with 6.57 percent in April while the core inflation rate eased to 8.8 percent from 9.3 percent.
The central bank targets inflation of 5 percent and a recent survey by the CBRT showed inflation is expected to reach 7.64 percent by the end of this year.
The exchange rate of Turkey's lira continues to be relatively stable and was trading at 2.89 to the U.S. dollar today, 1 percent higher than at the start of this year.
The CBRT reiterated its assessment of the economic activity as displaying "a moderate and stable course of growth," with domestic demand helping growth and demand from the European Union supporting Turkish exports.
Sunday, June 19, 2016
UPDATE-This week in monetary policy: Turkey, Hungary, Morocco, Thailand, Colombia, Paraguay, Philippines, Norway, Ukraine and Sri Lanka
(Following item is updated with news the central bank of Mauritius on June 17 said the meeting of its monetary policy committee scheduled for June 22 was postponed while it awaits the government budget. It will announce a MPC meeting in due course).
This week (June 20 through June 25) central banks from 10 countries or jurisdictions are scheduled to decide on monetary policy: Turkey, Hungary, Morocco, Thailand, Colombia, Paraguay, the Philippines, Norway, Ukraine and Sri Lanka.
This week (June 20 through June 25) central banks from 10 countries or jurisdictions are scheduled to decide on monetary policy: Turkey, Hungary, Morocco, Thailand, Colombia, Paraguay, the Philippines, Norway, Ukraine and Sri Lanka.
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 25 | ||||||
| JUN 20 - JUN 25, 2016: | ||||||
| COUNTRY | DATE | RATE | LATEST | YTD | 1 YR AGO | MSCI |
| TURKEY | 21-Jun | 7.50% | 0 | 0 | 7.50% | EM |
| HUNGARY | 21-Jun | 0.90% | 0 | -45 | 1.50% | EM |
| MOROCCO | 21-Jun | 2.25% | 0 | -25 | 2.50% | FM |
| THAILAND | 22-Jun | 1.50% | 0 | 0 | 1.50% | EM |
| COLOMBIA | 22-Jun | 7.25% | 25 | 150 | 4.50% | EM |
| PARAGUAY | 22-Jun | 5.75% | -25 | 0 | 6.00% | |
| PHILIPPINES | 23-Jun | 4.00% | 0 | 0 | 4.00% | EM |
| NORWAY | 23-Jun | 0.50% | -25 | -25 | 1.00% | DM |
| UKRAINE | 23-Jun | 18.00% | -100 | -400 | 30.00% | FM |
| SRI LANKA | 24-Jun | 6.50% | 0 | 50 | 6.00% | FM |
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