This week in monetary policy: Australia, Thailand, Albania, United Kingdom, Czech Republic and Romania

    This week (August 1 through August 6) central banks from 6 countries or jurisdictions are scheduled to decide on monetary policy: Australia, Thailand, Albania, the United Kingdom, the Czech Republic and Romania.

    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 31
AUG 1 - AUG 6, 2016:
COUNTRY	DATE	RATE	LATEST	YTD	1 YR AGO	MSCI
AUSTRALIA	2-Aug	1.75%	0	-25	2.00%	DM
THAILAND	3-Aug	1.50%	0	0	1.50%	EM
ALBANIA	3-Aug	1.25%	-25	-50	2.00%
UNITED KINGDOM	4-Aug	0.50%	0	0	0.50%	DM
CZECH REPUBLIC	4-Aug	0.05%	0	0	0.05%	EM
ROMANIA	4-Aug	1.75%	0	0	1.75%	FM

    www.CentralBankNews.info

Trinidad & Tobago holds rate, muted economic activity

    Trinidad and Tobago's left its benchmark repo rate at 4.75 percent "against the backdrop of muted domestic economic activity, low inflation and an uncertain global economic outlook."
    The Central Bank of Trinidad and Tobago (CBTT) has held its rate steady since January 2015 when it wrapped up a tightening campaign after eight consecutive rate hikes since September 2014 as inflation was now considered to be contained.
     Since the CBTT's last monetary decision in late May, liquidity in the financial system has declined, private sector credit growth has slowed, and energy sector production has declined on an annual basis with the output of natural gas and crude petroleum down by 11.6 percent and 9.5 percent, respectively, in the January-May period.
    Last month the International Monetary Fund (IMF) said that Trinidad and Tobago's economy was estimated to have shrunk by 2.1 percent in 2015 and is forecast to contract by another 2.7 percent this year as it continues to feel the effects of lower energy prices and domestic supply side constraints, which are widening the government's deficit and pushing the current account into deficit.
    For 2018 the IMF, which supports the central bank's current pause in monetary tightening due to the challenges facing the economy, forecast a rebound in the economy, with growth at 2.3 percent.
    Trinidad' and Tobago's headline inflation rate eased marginally to 3.4 percent in June from 3.5 percent while core inflation, which excludes food prices, rose to 2.2 percent from 2.1 percent.
    The IMF forecasts 2016 inflation of 4.6 percent, up from 1.5 percent last year, and 4.7 percent in 2017.

Colombia raises rate 11th month in a row to curb inflation

    Colombia's central bank raised its policy rate for the 11th month in a row and once again said it recognizes that the shocks to consumer prices, and thus inflation, are transitory, but it still has to anchor inflation expectations to ensure that inflation converges to its target.
    The Central Bank of Colombia raised its rate by another 25 basis points to 7.75 percent and has now raised its by 325 basis points since embarking on a tightening cycle in September 2015. This year it has raised the rate by a total of 200 points by raising it every single month of the year.
    Noting that both consumer price and core inflation rose in June, the central bank said this was due to the past depreciation of the peso, which was partly transmitted to consumer prices, the lagged effect of the El Nino weather on the harvest and thus food prices, inflation expectations in excess of the target and by the activation of some inflation indexation.
    A trucking strike will affect July prices, but this impact should quickly fade, the bank said.
    The rise in inflation comes at the same time that Colombia's economy is adjusting "in an orderly" manner to the strong shocks since 2014, such as the fall in crude oil prices, with the result that the current account deficit is gradually improving.
    Colombia's headline inflation rate rose to a new 2016-high of 8.6 percent in June and the highest rate seen since December 2000. Core inflation rose to 6.82 percent, with inflation expectations one to two years ahead at 4.6 percent and 3.7 percent, respectively.
    Colombia's economy grew by an annual rate of 2.5 percent in the first quarter and data show that growth in the second quarter will be similar, the bank said.
    The central bank's staff, however, lowered its 2016 growth forecast to 2.3 percent from 2.5 percent, within a range of 1.5-3.0 percent.

Russia holds rate to bring down inflation expectations

    Russia's central bank maintained its key policy rate at 10.50 percent, as expected, saying the recent decline in inflation expectations had stalled but that it would consider further rate cuts when inflation decelerates further, as it expects.
    The Bank of Russia, which cut its rate last month for the first time since July 2015, added that was keeping rates "at a level that encourages savings, brings down inflation expectations and promotes sustainable inflation reduction to the target level."
     Russia's headline inflation rate rose slightly to 7.5 percent in June from 7.3 percent in May, but then resumed its easing trend this month as expected, falling to 7.2 percent as of July 25, the central bank said, helped by a steady financial market, weak consumer demand and administered prices.
     "At the same time, there has been a stop in the decline of core inflation, seasonally adjusted monthly growth rates of consumer prices and inflation expectations," the central bank said.
    Russia's core inflation rate was steady at 7.5 percent in June and May, down only slightly from 7.6 percent in April.
    But the central bank expects inflation and inflation expectations to ease further due to low demand and an expected good crop yield.
    The central bank confirmed that it still expects inflation to reach its target level of 4 percent by late 2017 as it dips below 5 percent in July 2017.
    Russia's economy is continuing to recover, the bank said, with positive growth in the second half of this year "possible" and annual growth rates entering positive territory next year.
    However, some industries are still stagnating or contracting while investment continues to decline while non-commodity exports are still expanding and import substitution is rising.
   Russia's Gross Domestic Product shrank by an annual rate of 1.2 percent in the first quarter of this year, up from a fall of 3.8 percent in the fourth quarter of last year.

BOJ boosts ETF purchases, USD lending program

    Japan's central bank once again widened its highly accommodative monetary policy stance by increasing its purchases of exchange-traded funds (ETFs) and its U.S. dollar lending program to support Japanese firms' overseas activities.
    The Bank of Japan (BOJ), which surprised financial markets in January by applying a negative interest rate of minus 0.1 percent on banks' deposits that exceed reserve requirements, will double its purchases of ETFs to an annual pace of 6 trillion yen from 3.3 trillion and also double the U.S. dollar lending program to US$24 billion - about 2.5 trillion yen - from $12 billion to provide dollars for up to 4 years to support Japanese firms activities abroad through financial institutions.
    The latest initiative to boost economic activity and inflation was described as "enhancement of monetary easing" by the BOJ and aimed at preventing  international uncertainties, such as the U.K.'s decision to leave the European Union (EU) and slower growth in emerging markets, from leading to a deterioration in domestic business confidence and consumer sentiment as well as ensure smooth funding in foreign currencies by Japanese firms and financial institutions.
    The BOJ noted that Japan's government is currently compiling a large-scale stimulus package along with fiscal and structural policy initiatives, which together with its own measures should "provide synergy effects on the economy."  The package has been estimated at 20-30 trillion yen.
    The other planks in the BOJ's aggressive easing campaign, which goes back to April 2013 when it launched an aggressive campaign to rid the country of 15 years of deflation, were unchanged. This includes a goal of boosting the monetary base by an annual 80 trillion yen and applying a negative interest rate of minus 0.1 percent on some current account balances.
    Once again, the BOJ also lowered its forecast for economic growth in the current 2016 fiscal year, which began April 1, to 1.0 percent from 1.2 percent forecast in April, partly due to slow growth in emerging economies and uncertainties associated with the U.K. vote to leave the EU.
    The forecast for inflation was trimmed to 0.1 percent from 0.5 percent, reflecting an appreciation of the yen's exchange rate and a delay in any improvement to inflation expectations.
    The BOJ expects consumer price inflation to be slightly negative or around 0 percent due to the fall in energy prices, but then slowly accelerate toward the 2.0 percent target. In June Japan's headline inflation rate was steady at minus 0.4 percent .
    But for fiscal 2017 members of the BOJ's policy board raised their growth forecast to 1.3 percent from a previous 0.1 percent, reflecting the government's decision to postpone the planned hike in consumption taxes in April 2017 until October 2019 and demand linked to the Olympic Games.
    Inflation in 2017 is now seen rising to 1.7 percent, unchanged from April's forecast that excluded the impact of the planned hike in consumption tax to 10 percent from 8 percent, but below the previous 2.7 percent forecast for headline inflation.
    But the BOJ added that it expects the inflation rate to reach 2 percent during fiscal 2017 and then average around 2 percent thereafter.
    For fiscal 2018 the growth forecast was trimmed to 0.9 percent form 1.0 percent while the inflation forecast was unchanged at 1.9 percent.
    "Looking ahead, sluggishness is expected to remain in exports and production for some time, and the pace of economic recovery is likely to remain slow," the BOJ said, with domestic demand slowly trending higher and exports to rise as overseas economies, including advanced economies, strengthen.

Egypt maintains rate on balanced risk to inflation, growth

    Egypt's central bank left its key policy rates steady, as expected by most economist, saying the current rates were appropriate given the balance of risks surrounding the outlook for inflation and economic growth.
    In its statement, the Central Bank of Egypt's (CBE) monetary policy committee dropped last month's reference to the need for fiscal consolidation. Egypt is expected to replace its current sales tax with a long-awaited Value Added Tax (VAT) by September as part of a fiscal reform that also aims to cut energy subsidies to help trim the budget deficit.
    The CBE, which has raised its rates by a total of 250 basis points following hikes in March and June, acknowledged the headline inflation rate accelerated to 13.97 percent in June from 12.30 percent in May but noted the monthly rate had dropped to 0.78 percent from 3.05 percent in May.
    The rise in inflation was partly due to unfavorable base effects and inflation was also pushed up by higher food prices, particularly red meat and poultry, along with seasonal increases for clothing and footwear in connection with Eid-Al-Fitr festivities that mark the end of Ramadan.
    The central bank made little reference to the exchange rate of the Egyptian pound apart from saying that the pass-through of previous movements to domestic prices remained limited.
    Last week CBE Governor Tarek Amer said to a local news agency that the time was not right to float the pound, with a devaluation depending on what the bank considers to be an appropriate time.
    The pound is currently trading around 8.88 to the U.S. dollar following an almost 14 percent devaluation in March to help relieve years of foreign currency shortage by creating a more favorable investment climate and attract capital inflows.
    However, a black market for foreign currency continues to exist, with the pound trading above 11 to the dollar.
    The CBE's main benchmark overnight deposit rate was maintained at 11.75 percent, the overnight lending rate at 12.75 percent and the rate on its main operation at 12.25 percent. The discount rate was left at 12.25 percent.

Ukraine cuts rate 100 bps and expects further easing

    Ukraine's central bank cut its key policy rate by another 100 basis points to 15.50 percent and said it would ease its policy stance further if the risks to price stability continue to abate, as it expects.
    The National Bank of Ukraine (NBU) has now cut its rate by 650 basis points so far this year and by 1,450 points since starting its easing campaign in August last year in response to easing inflationary pressures and a stabilization of the hryvnia's exchange rate on financial markets.
    From April 2014 through March 2015 the NBU raised its rate by a total of 23.5 percentage points, with the key rate topping out at 30.0 percent to support the embattled hryvnia and prevent inflation from getting out of control.
    Ukraine's headline inflation rate decelerated further to 6.9 percent in June from 7.5 percent in May, continuing the fall from 60.9 percent in April 2015, and the central bank said actual inflation fell at an even faster pace due to low demand, a gradual appreciation of the hryvnia and high food supply.
    The decline in inflation, along with the exchange rate appreciation, also helped lower inflation expectations of households, businesses and the financial community, the NBU added.
    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 2016 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 and unchanged from the NBU's last policy meeting in June.
    With international financial markets remaining broadly favorable, the central bank said it was able to continue to replenish its international reserves while not hampering a further rise in the exchange rate. Another relaxation of administrative measures last month did not destabilize the FX market.
    The central bank reiterated that it expects inflation to approach its target of 12 percent by the end of this year, mainly due to higher utility tariffs, and then 8 percent by the end of 2017, helped by a slowdown in imported inflation from lower exchange rate volatility and inflation expectations.
    Headline inflation may even drop below the 12 percent objective by the end of this year if the impact of subdued consumer demand, high crops and favorable external conditions has a stronger-than-forecast effect on inflation, the central bank said.
    The NBU maintained its forecast for economic growth of 1.1 percent by the end of this year and by 3.0 percent by the end of 2017, but lowered its forecast for the current account deficit to US$1.8 billion from $2.3 billion due to lower natural gas imports, better terms of trade, a high crop yield and larger private remittances from abroad.
     A detailed forecast will be published in the inflation report on Aug. 4.

Sri Lanka raises rates 50 bps to curb inflation pressure

     Sri Lanka's central bank raised its key policy rates by another 50 basis points to "curb excessive demand in order to pre-empt the escalation of inflationary pressure and to support the balance of payments" and said it would continue to monitor economic development and adjust its monetary policy stance as necessary.
    The Central Bank of Sri Lanka raised its Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) by 50 basis points each to 7.0 percent and 8.50 percent, respectively. The two rates have now been raised by 100 points this year following a similar hike in February.
   "The Board is of the view that tightening of monetary policy in a forward looking manner will ensure the maintenance of inflation at mid-single digits in the medium term, which is supportive of the growth momentum in the economy," the bank said.
     Although most economists surveyed had not expected a rate hike, the move is not a completely surprise as it follows an acceleration of inflation and a sustained increase in domestic credit that widened the trade deficit.
    Sri Lanka's inflation rate rose to 6.0 percent in June from 4.8 percent in the previous month, the highest rate since October 2013 as prices were pushed up by an increase in Value-Added-Tax (VAT) to 15 percent from 11 percent to reduce a rising budget deficit.
    Despite rising market interest rates following the central bank's tightening earlier this year,  credit to the private sector by commercial banks rose by an annual rate of 28 percent in May, continuing the strong pace of 28.1 percent seen in April, and provisional data show that high growth of credit to the private sector continued in June, which the central bank said "could create excessive demand and high inflation in the economy in the future."
     Growing credit also widened the trade deficit, with the central bank noting the cumulative deficit for the first five months had risen by an annual 1.4 percent.
    Sri Lanka's rupee has been slowly but gradually depreciating since September last year and was trading at 145.8 to the U.S. dollar today, down 1.2 percent this year.

U.S. Fed holds rate but George returns to hawkish stance

    The central bank of the United States left its benchmark federal funds rate steady at 0.25-0.50 percent, as widely expected, but Ester George, president of the Kansas City Fed, voted to raise the rate by 25 basis points, reflecting an improvement in the economic outlook.
     The dissent by George is hardly a surprise and comes after she earlier this month said low rates were creating risks and welcomed the rebound in hiring in June, and that the issues surrounding Britain's decision to leave the European Union were more of a long-term concern.
     George already voted to raise the rate in March and April but then joined the majority in June by agreeing to keep the fed funds rate steady.
    In December last year the Fed raised its rate for the first time since July 2006 and last month it forecast that the fed feds rate would average 0.9 percent this year, implying two rate hikes this year.
    In its statement, the Federal Open Market Committee (FOMC) noted that "near-term risks to the economic outlook have diminished," a more upbeat view than in June when the Fed's policy-making body said it "continues to closely monitor inflation indicators and global economic and financial developments," a clear reference to uncertainty over Brexit.
    The FOMC also said the "labor market strengthened" and "job gains were strong in June" as economic activity expanded at a "moderate rate," a stark contrast to its statement from last month when it said the pace of improvement in the labor market slowed and job gains diminished.
   U.S. employers added 287,000 workers in June, the most since last October, in contrast to May when only 11,000 jobs were added.
    Inflation is still seen remaining low in the near term, partly due to past declines in energy prices, but then rising toward the Fed's 2.0 percent target in the medium term as the impact of the fall in energy prices dissipates and the labor market strengthens further.
    U.S. consumer price inflation was steady at 1.0 percent in June from May while the unemployment rate rose to 4.9 percent from 4.7 percent. The U.S. Gross Domestic Product grew by an annual rate of 2.1 percent in the first quarter of this year, up from 2.0 percent in the previous quarter.

Georgia cuts rate 25 bps and expects to ease to 6%

    Georgia's central bank lowered its benchmark refinancing rate by a further 25 basis points to 6.75 percent as its continues to roll back its tight monetary policy stance and said it expects to cut the rate further to 6.0 percent in the medium term.
    The National Bank of Georgia (NBG) has now cut its rate by 125 basis points since April when it embarked on an easing cycle following last year's rate hikes that totaled 400 points.
    Today's rate cut follows last month's guidance that further policy softening would depend on the forecast for inflation.
    Georgia's inflation rate in June fell by more than expected to 1.1 percent from 2.1 percent in May as food prices fell more than expected amidst weak aggregate demand and declining inflation expectations.
    Foreign demand remains weak, the central bank said, with exports in the first half of the year down by 12 percent.
    The NBG targets inflation of 5 percent this year, then 4 percent in 2017 and 3 percent afterwards.
   
    www.CentralBankNews.info

 

Nigeria hikes rate 200 bps to boost naira, curb inflation

     Nigeria's central bank raised its Monetary Policy Rate (MPR) by 200 basis points to 14.0 percent due to its concern over a significant rise in inflation but also recognized that it lacks the instruments to jumpstart growth and cannot undermine its primary mandate and stability of the financial system.
    The Central Bank of Nigeria (CBN) has now raised its rate by 300 basis points this year following a hike in March. The central bank's monetary policy committee voted by a majority of five to raise the rate while three members voted to maintain the rate.
    "The Committee noted that inflation had risen significantly, eroding real purchasing power of fixed income earners and dragging growth," the central bank said, adding that members of the MPC agree that the country is passing though a difficult phase, dealing with critical supply gaps, but remains concerned over recession and the prospects of negative growth.
    Nigeria's inflation rate accelerated to 16.5 percent in June from 15.6 percent in May, resulting in negative real interest rates, which discouraging savings, and doesn't support the recent flexible foreign exchange market as foreign investors remain lukewarm and unwilling to bring in new capital.
    "Members further noted that there existed a substantial amount of international capital in negative yielding investments globally and Nigeria stood a chance of attracting such investments with sound macroeconomic policies," the CBN said.
    An increase in the policy rate should give impetus for improving the liquidity of the foreign exchange market, the central bank said, helping boost manufacturing and industrial output.
    Nigeria's naira was trading at 310.3 to the U.S. dollar, down 36 percent this year.

Hungary holds rate, to decide on 3-month repo in Sept

    Hungary's central bank left its base rate at 0.90 percent, as widely expected, confirming that the disinflationary impact from the real economy was gradually decreasing but there is still a degree on unused capacity in the economy and inflation will remain moderate for an extended period.
    The National Bank of Hungary (MNB), which wrapped up its latest easing cycle in May after cutting the rate by 45 basis points this year, added that its monetary council would decide on the required level of the three-month deposit rate and the operational use of that facility in September.
    The MNB is planning to change the use of its main policy tool, the three-month deposit facility, to encourage banks to offer cheaper loans and to buy government debt by lowering the amount from 1,600 billion forints that banks can deposit, and conduct monthly, rather than weekly, tenders.
     However, the council added that "a watchful approach to monetary policy is still warranted due to uncertainty in the global financial environment" with real money market rates still in negative territory and declining further as inflation rises.
    The MNB also confirmed its guidance that it would maintain the current base rate and maintain loose monetary conditions "for an extended period" if its current forecasts hold.

UPDATE-This week in monetary policy: Israel, Kenya, Bangladesh, Hungary, Nigeria, Georgia, USA, Sri Lanka, Ukraine, Moldova, Egypt, Fiji, Japan, Russia, Angola, Colombia and Trinidad & Tobago

    (Following item from July 24 has been updated with Sri Lanka)

   This week (July 25 through July 30) central banks from 17 countries or jurisdictions are scheduled to decide on monetary policy: Israel, Kenya, Bangladesh, Hungary, Nigeria, Georgia, the United States, Sri Lanka, Ukraine, Moldova, Egypt, Fiji, Japan, Russia, Angola, Colombia 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 30
JUL 25 - JUL 30, 2016:
COUNTRY	DATE	RATE	LATEST	YTD	1 YR AGO	MSCI
ISRAEL	25-Jul	0.10%	0	0	0.10%	DM
KENYA	25-Jul	10.50%	0	-100	11.50%	FM
BANGLADESH	26-Jul	6.75%	0	-50	7.25%	FM
HUNGARY	26-Jul	0.90%	0	-45	1.35%	EM
NIGERIA	26-Jul	12.00%	0	100	13.00%	FM
GEORGIA	27-Jul	7.00%	-50	-100	5.50%
UNITED STATES	27-Jul	0.50%	0	0	0.25%	DM
SRI LANKA	28-Jul	6.50%	0	50	6.00%	FM
UKRAINE	28-Jul	16.50%	-150	-550	30.00%	FM
MOLDOVA	28-Jul	10.00%	-300	-950	17.50%
EGYPT	28-Jul	11.75%	100	250	8.75%	EM
FIJI	28-Jul	0.50%	0	0	0.50%
JAPAN	29-Jul	-0.10%	0	-20	0.10%	DM
RUSSIA	29-Jul	10.50%	-50	-50	11.00%	EM
ANGOLA	29-Jul	16.00%	200	500	10.25%
COLOMBIA	29-Jul	7.50%	25	175	4.50%	EM
TRINIDAD & TOBAGO	29-Jul	4.75%	0	0	4.25%

    www.CentralBankNews.info

Bangladesh holds rate, inflation seen easing to 5.45%

    The central bank of Bangladesh will maintain its key policy rates, the repo and reverse repo rate, at a 6.75 percent and 4.75 percent, in the first half of the 2017 fiscal year, which began on July 1, but said it would adjust monetary growth and rates if necessary to keep inflation around 6 percent.
    Bangladesh Bank (BB) said consumer price inflation had been on a slowly declining trend for the last couple of years - the 12-month average rate fell to 5.92 percent in June 2016 from 7.28 percent in July 2014 - but a further decline due to lower fuel and commodity prices may not be strongly attained.
    BB, which cut its rates by 50 basis points in January, forecast inflation of 5.45 percent in December this year, down from 6.2 percent target for June 2016, with 6 percent seen as "a safe zone" as data and studies suggest that 6 percent inflation, along with one standard deviation, is a growth maximizing threshold.
    Consumer price inflation rose slightly to 5.53 percent in June from 5.45 percent in May and down from 6.07 percent in January this year.
    The recent decline in inflation is mainly due to falling food prices while non-food inflation has edged up due to a boost in consumption following the historically highest salary hike for the public sector, with BB expecting the private sector to follow suit, putting upward pressure on inflation.
    The economy of Bangladesh attained almost all key objectives in fiscal 2016, which ended June 30, with broad money (M2) growth below the target until May this year and likely to remain within the ceiling of 15.0 percent by the end of June.
    For fiscal 2017 the target for broad money is 15.5 percent based on Gross Domestic Product growth of 7.2 percent and consumer price inflation of 5.8 percent.
    Private sector credit grew robustly throughout FY16 and was at 16.4 percent in May, overshooting the targeted end-June ceiling of 14.8 percent. However, with the government's small net bank borrowing at the end of FY16, overall domestic credit growth remained below the targeted path and is likely to be within the 15.5 percent ceiling by end-June.
   Domestic credit is projected to grow by an annual rate of 16.4 percent in FY17, with credit to the private sector up by 16.5 percent and growth to the public sector of 15.9 percent.
    Bangladesh's government targets economic growth of 7.2 percent for fiscal 2017, up from the FY16 target of 7.0 percent, with BB forecasting growth of 7.1-7.3 percent, above the World Bank's 6.3 percent forecast for 2017 and the International Monetary Fund's forecast of 6.9 percent.
    Data indicate that Bangladesh's GDP will grow by 7.05 percent in FY16, up from 6.55 percent in FY2015.
    BB follows an foreign exchange rate policy of a managed float and has been buying taka to keep it from appreciating, keeping the exchange rate stable for almost three years since early 2013.
   The take was trading at 78.48 to the U.S. dollar today, little changed from 78.43 at the start of this year, with BB's foreign exchange reserves reaching "an adequately comfortable level" of US$30 billion in June - the equivalent of almost 8 months of imports - and expected reach a record high of $33 billion by the end of fiscal 2017.
    Under its new governor, Fazle Kabir who took over in March, BB is working on a transition path toward targeting market interest rates from the current monetary policy approach of mainly targeting the money stock, which is most useful for underdeveloped countries with limited external openness.

    www.CentralBankNews.info

   
 

Kenya leaves rate on hold, inflation seen in target range

    Kenya's central bank left its Central Bank Rate (CBR) steady at 10.50 percent, as forecast, saying inflation is expected to remain within the target range in the short term although the recent increase in fuel tax is expected to exert temporary upward pressure on consumer prices despite moderate demand pressure.
    The Central Bank of Kenya (CBK), which cut its rate by 100 basis points in May in response to easing inflation, added that it was keeping the policy rate steady today to help anchor inflation expectations.
    Kenya's inflation rate rose to 5.8 percent in June from 5.0 percent in May but remained within the government's target range of 2.5 percent to 7.5 percent.
    The 3-month annualised non-food-non-fuel inflation rate eased to 3.3 percent in June from 5.2 percent in May, "indicating that there were no significant demand pressures in the economy," the CBK said.

Israel maintains rate, risks to inflation, growth still high

    Israel's central bank left its key policy rate at 0.10 percent, as expected, saying the "risks to achieving the inflation target and to growth remain high," building on last month's statement when it said that the risks to growth and inflation had increased due to the uncertainty created by Britain's decision to leave the European Union (EU).
    The Bank of Israel (BOI), which cut its rate by 15 basis points in 2015, also repeated that it "will use the tools available to it and will examine the need to use various tools" to reach its inflation objective of 1-3 percent, encourage growth and employment, and a stable financial system.
    Israel's inflation rate was steady at minus 0.8 percent in June from May, as forecast, but excluding energy and lower administered prices, the inflation rate was 0.6 percent.
    "The inflation environment continues to increase moderately," the BOI said, noting that short-term expectations remain stable but remain below the lower bound of the target range.
    Israel's shekel has firmed this month and on July 4 dealers reportedly said that the BOI had bought U.S. dollars as the shekel firmed.
    "The level of the effective exchange rate continues to weigh on the growth of exports and of the tradable sector," the BOI said.
    The shekel was trading at 3.84 to the dollar today, up 1.3 percent since the start of the year. In terms of the effective exchange rate, the BOI said the shekel was up 1.7 percent from June 26 through July 22, a rate of appreciation that is similar to that of the past 12 months.

This week in monetary policy: Israel, Kenya, Bangladesh, Hungary, Nigeria, Georgia, USA, Ukraine, Moldova, Egypt, Fiji, Japan, Russia, Angola, Colombia and Trinidad & Tobago

    This week (July 25 through July 30) central banks from 16 countries or jurisdictions are scheduled to decide on monetary policy: Israel, Kenya, Bangladesh, Hungary, Nigeria, Georgia, the United States, Ukraine, Moldova, Egypt, Fiji, Japan, Russia, Angola, Colombia 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 30
JUL 25 - JUL 30, 2016:
COUNTRY	DATE	RATE	LATEST	YTD	1 YR AGO	MSCI
ISRAEL	25-Jul	0.10%	0	0	0.10%	DM
KENYA	25-Jul	10.50%	-100	-100	11.50%	FM
BANGLADESH	26-Jul	6.75%	-50	-50	7.25%	FM
HUNGARY	26-Jul	0.90%	0	-45	1.35%	EM
NIGERIA	26-Jul	12.00%	0	100	13.00%	FM
GEORGIA	27-Jul	7.00%	-50	-100	5.50%
UNITED STATES	27-Jul	0.50%	0	0	0.25%	DM
UKRAINE	28-Jul	16.50%	-150	-550	30.00%	FM
MOLDOVA	28-Jul	10.00%	-300	-950	17.50%
EGYPT	28-Jul	11.75%	100	250	8.75%	EM
FIJI	28-Jul	0.50%	0	0	0.50%
JAPAN	29-Jul	-0.10%	0	-20	0.10%	DM
RUSSIA	29-Jul	10.50%	-50	-50	11.00%	EM
ANGOLA	29-Jul	16.00%	200	500	10.25%
COLOMBIA	29-Jul	7.50%	25	175	4.50%	EM
TRINIDAD & TOBAGO	29-Jul	4.75%	0	0	4.25%

    www.CentralBankNews.info

Mozambique raises rate 300 bps to alter inflation,FX trend

   Mozambique's central bank tightened its monetary policy stance further in an effort to change the current trend of rising inflation and a falling exchange rate from the suspension of foreign aid, lower availability of foreign exchange due to lower exports, the impact of floods and droughts on food supply, military tensions in some regions and the downgrade of the country's credit rating.
    The Bank of Mozambique raised its benchmark standing lending facility rate by another 300 basis points to 17.25 percent and the deposit facility rate by the same amount to 10.25 percent.
    The reserve requirement for metical liabilities was raised by 250 basis points to 13.0 percent with effect from Aug. 22.
    The Bank of Mozambique, which has now raised its rate by 750 basis points this year, added that it would intervene in interbank markets to ensure the monetary base reaches the target of 82.051 billion meticais in July, up from 77.1 billion in June that was 1.6 billion above the bank's target for that month and 36.0 percent higher than a year ago.
    The meeting by the central bank's monetary policy committee was postponed from July 18 until today for unspecified "technical reasons" according to local press reports.
    Mozambique's inflation rate accelerated further to a 2016-high of 19.72 percent in June from 18.27 percent in May as the exchange rate of the metical has continued to fall.
    The metical was already weakening from the fall in global commodity prices from late 2014 but was hit hard by the suspension of foreign aid following the discovery
    The metical was trading at 66.5 to the U.S. dollar today, down 28 percent since the start of the year, and 50 percent since the start of 2015, with the central bank governor, Ernesto Gove, last month saying the decline in international reserves was undermining its ability to stability the foreign exchange market.
    Mozambique's trade deficit narrowed by 34 percent to US$871 million in the first quarter of the year, reflecting a 22.7 percent fall in imports due to the depreciation of the metical and slower domestic demand, particularly from large investment projects. Exports, however, also continued to fall - down by 19.3 percent, due to lower commodity prices and reduced revenue from tourism and transport services, the central bank said.
    Net International Reserves (NIR) in June rose by US$ 221 million to $1.920 billion due to deposits of $207 million held by credit institutions at the central bank to establish mandatory foreign currency reserves.

    www.CentralBankNews.info

South Africa holds rate, ready to act on inflation threats

    South Africa's central bank left its benchmark repurchase rate steady at 7.0 percent, as expected, but said it remains concerned about the trajectory of inflation and it "remains ready to act appropriately to any significant change in the inflation outlook."
    The South African Reserve Bank (SARB), which has raised its rate by 200 basis points since January 2014, including 75 points this year, added a weak domestic economy, along with a rise in the rand's exchange rate and a marginal improvement in inflation, had provided it with room to delay a further tightening of policy "for now."
    However, SARB Governor Lesetja Kganyago added that the bank's monetary policy committee, which was unanimous in its decision, was aware that such favorable factors could reverse quickly and the impact of a higher rand on the outlook for inflation would depend on whether the exchange rate was sustained at this stronger level.
   South Africa's headline inflation rate rose to 6.3 percent in June from 6.1 percent in May but the bank lowered its outlook for 2016 inflation to average 6.6 percent from a previous 6.7 percent.
   "Nevertheless, inflation is still expected to accelerate further this year and is only expected to return to within the target range of 3-6 percent during the third quarter of 2017," Kganyago said, adding that inflation is expected to lead at 7.1 percent in the fourth quarter of this year, down from a previous forecast of 7.3 percent due to lower administered prices for petrol.
    For 2017 inflation is expected to average 6.0 percent, down from 6.2 percent, and then 5.5 percent in 2018, up from 5.4 percent.
    After depreciating steadily since 2011, the rand has been firming since mid-January and has reversed losses following the U.K. referendum on the European Union. The rand was trading at 14.2 to the U.S. dollar today, up on the SARB's policy decision, to have appreciated 9.3 percent this year, stronger than the central bank had expected.
    "Despite this recent strength, the rand remains vulnerable to possible "risk-off" global scenarios; changes in US monetary policy expectations; and domestic concerns including the possibility of ratings downgrades later in the year," Kganyago said.
    He added that the outlook for economic growth "remains extremely challenging." Although the 0.2 percent annual contraction in first quarter growth is expected to be the low point in the cycle, the recovery is expected to be weak.
    SARB revised down its growth forecast for 2016 to zero percent from a previous 0.6 percent. For 2017 growth is forecast of 1.1 percent, down from 1.3 percent, and for 2018 growth is seen at 1.5 percent, down from 1.7 percent.
    "The outlook is clouded by uncertainty surrounding the longer term market and global growth implications of Brexit," Kganyago added.

ECB maintains policy but will act if Brexit threatens goal

    The European Central Bank (ECB) left its key policy rates and monthly asset purchases unchanged, as widely expected, but underlined that it would "act by using all the instruments available within its mandate" if uncertainties surrounding Britain's exit from the European Union (EU) threaten the pass-through of its accommodative monetary policy to the real economy.
    The ECB, which in March cut its benchmark refinancing rate to zero percent and boosted its monthly asset purchases by 20 billion euros to 80 billion, added that euro area financial markets had "weathered the spike in uncertainty and volatility with encouraging resilience" following the UK vote to leave the EU due to the readiness of central banks to provide liquidity if needed.
    ECB President Mario Draghi said the highly supportive financing conditions were still helping support credit creation and the ECB's baseline scenario of an ongoing economic recovery and an increase in inflation.
    Over coming months, armed with more information and new staff forecasts, Draghi said the ECB governing council would be in a better position to assess the risks to inflation and growth.
    Draghi admitted that the risks to euro area growth remain tilted to the downside due to the outcome of the UK referendum and other geopolitical uncertainties, subdued growth in emerging markets, balance sheet adjustments in a number of sectors and sluggish implementation of structural reforms.
    In addition to maintaining key interest rates, Draghi confirmed the ECB's guidance that it intends to keep rates "at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases." He also confirmed that the current asset purchase program was intended to run until the end of March 2017, or beyond if necessary.
    The gross domestic product of the 19 countries in the euro area expanded by an annual 1.7 percent in the first quarter of this year, unchanged from the fourth quarter of 2015, supported by domestic demand, and recent data point to "ongoing growth in the second quarter of 2016, though at a lower rate than in the first quarter," Draghi said.
    In June the ECB revised upwards its 2016 growth forecast to 1.6 percent from the previous forecast of 1.4 percent but kept the 2017 forecast unchanged at 1.7 percent. For 2018 growth is seen unchanged at 1.7 percent, slightly below the March forecast of 1.8 percent.
    Euro area inflation improved to 0.1 percent in June, up from minus 0.1 percent in May, due to higher energy and services prices, but Draghi still expects inflation to remain very low in coming months before picking up in late 2016 and following years.
    The ECB staff forecasts 2016 average inflation of 0.2 percent before rising to 1.3 percent and 1.6 percent in the following two years. This is still well-below the ECB target for inflation to be below, but close to 2 percent.