Central Bank News: January 2018

Wednesday, January 31, 2018

Belarus cuts rate another 50 bps, inflation seen in target

The central bank of Belarus lowered its benchmark refinancing rate by another 50 basis points to 10.50 percent citing its forecast that inflation will be within its target range this year and the continuing economic recovery.
The National Bank of the Republic of Belarus has now cut its refi rate by 14.50 percentage points since March 2016 when it began an easing cycle by lowering rates from 25.0 percent.
The new refinancing rate will take effect on Feb. 14.

The central bank struck a neutral tone in its guidance today, saying future rate decisions would depend on the expected trajectory of inflation, the economy, and the likelihood and magnitude of risks that would prevent inflation from meeting the bank's target.

Inflation in the former Soviet republic of Belarus eased to an average of 4.6 percent in 2017 from 10.6 percent in 2016 and is estimated to be around 5.0 percent in coming months and then be within the target in 2018.
The economic recovery and the increase in consumption due to higher income still don't exert pressure on inflation, the bank said, adding low inflation in Belarus' main trading partners is also holding back price increases, describing the risk as inflation from external factors as low.
In a separate statement, the central bank's board discussed its monetary policy guidelines for 2018 and set an inflation target of no more than 6.0 percent, down from 9.0 percent in 2017, due to continued high inflation expectations and the recovery of domestic demand.
However, the central bank also reiterated its goal of lowering inflation to 5.0 percent by the end of 2020.

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US Fed leaves rate steady, but sees rising inflation

The Federal Reserve left its benchmark federal funds rate at 1.25-1.50 percent, as almost universally expected, but said it expects inflation to move up this year before stabilizing around its 2.0 percent objective, signaling that it is likely to continue to raise rates this year.

The statement about inflation by the U.S. central bank, which has raised its rate five times since starting its tightening cycle in December 2015, contrasts with its view in December last year when it said it expected inflation to remain below 2 percent in the near term before stabilizing around the target in the medium term.

But as in December, the Fed said near-term risks to the economic outlook "appear roughly balanced, but the Committee is monitoring inflation developments closely."

In today's statement the Fed's policy-making arm, the Federal Open Market Committee (FOMC) also said measures of inflation compensation had risen in recent months but remained low while surveys of longer term inflation expectations were little changed.

In December the FOMC said measures of inflation compensation remained low.

Consumer price inflation in the U.S. has fluctuated between a high of 2.7 percent in February to a low of 1.6 percent in June and was at 2.1 percent in December, down from 2.2 percent in November.

Today's meeting by the FOMC marked the last rate-setting meeting by Janet Yellen, the first woman to lead the Fed who took over in February 2014.

As expected, the FOMC unanimously elected Jerome Powell as its next chairman, effective Feb.3, and he is scheduled to be sworn in on Feb. 5. Today's policy decision was also unanimous.

Mirroring its view from December, the FOMC described U.S. economic activity as rising at "a solid rate," with the labour market also continuing to strengthen.

"Gains in employment, household spending, and business fixed investment have been solid, and the unemployment rate has stayed low," the FOMC said, adding that with "further gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labour market conditions will remain strong."

The U.S. economy has been picking up speed since the third quarter of 2016, with Gross Domestic Product expanding by an annual rate of 2.5 percent in the fourth quarter of 2017. This was the sixth consecutive quarter of stronger growth, and up from 2.3 percent in the third quarter.

The unemployment rate was steady at 4.1 percent in December, the lowest rate since 2000.

Last year the Fed raised its fed funds rate three times and forecast in December that it would hike the rate another three times this year

After moving sideways from early 2015 to late 2016, the U.S. dollar rose in the final months quarter of 2016 and then steadily declined against the euro throughout 2017 to hit 1.24 today, down 3.2 percent since the start of this year.
In an update of its longer-run goals and monetary policy strategy, the FOMC also reaffirmed its goal of 2 percent inflation as measured by the personal consumption expenditure index.

Georgia holds rate, no more tightening necessary for now

Georgia's central bank kept its refinancing rate steady at 7.25 percent, saying further tightening of monetary policy was not necessary "at this stage" as the exchange rate of the lari had recently strengthened and inflation is forecast to decrease in the first months of this year.
A drop of almost 9 percent in the lari's exchange rate from Oct. 22 to Nov. 19 led the National Bank of Georgia (NBG) to reverse course in December and raise its rate in contrast to its guidance from Oct. 25 that it expected to gradually reduce its rate to a neutral level.
On Dec. 13 the NBG raised its rate by 25 basis points to 7.25 percent and said "the magnitude and duration of further monetary policy tightening" would depend on how fast the pressure on prices from the exchange rate would decrease.
But after the lari started to fall in late October, the central bank began warning in November that it was ready to tighten its policy if the fall in the exchange rate posed a risk to inflation. It attributed to decline in the lari to speculation that the lari would be devalued.
The combination of verbal intervention and the December rate hike appears to have borne fruit, with the lari reversing course in early December.
Today the lari was trading at 2.50 to the U.S. dollar, up 3.6 percent since the start of this year and up 9.2 percent since the low on Nov. 19, 2017. Compared with the start of 2017, the lari is up 6.4 percent.
In today's statement, the NBG's monetary policy committee said the impact on inflation from the "significant deterioration" of the lari's exchange rate had not yet been exhausted, adding the fall had not only raised pressure on inflation but also strengthened inflation expectations, necessitating its rate hike in December.
But current forecasts call for inflation to decline in the first months of this year and then be close to the bank's 2018 target of 3.0 percent on average.
In December the International Monetary Fund forecast average 2018 inflation of 2.8 percent, with a rate of 3.2 percent end-year.
In December Georgia's inflation rate eased to 6.7 percent from 6.9 percent in November, with a single exogenous factor that is not affected by monetary policy - a rise in taxes on tobacco and fuel - accounting for about 2.9 percent of the inflation rate.
This year the exogenous impact of higher electricity and water tariffs will add about 0.3 percentage points to inflation in January while the rise in oil prices in the second half of 2017 that continued this year will contribute to about 0.5 percentage points of inflation, NBG said.
Georgia's current account deficit is expected to continue to improve this year, continuing last year's trend as the export of goods improves, while revenue from tourism and money transfers rise.
A decline in the current deficit will also help reduce pressure on inflation from the exchange rate, the NBG added.
Georgia's current account deficit narrowed to US$130.6 million in the third quarter of 2017 compared with a deficit of $344.16 in the same 2016 quarter for the smallest gap since the first quarter of 2005.
Last year the central bank's reserves rose to US$3.39 billion, the highest since 2013.

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Tuesday, January 30, 2018

Moldova maintains rate, sees steady drop in inflation

Moldova's central bank left its basic interest rate at 6.50 percent, saying this decision was based on the latest economic forecasts that showed a slight easing of the rate of growth in 2018 and 2019, mainly due to disinflationary pressures on aggregate demand and the effect of a high base in 2017.
Today's decision by the National Bank of Moldova (NBM) follows the bank's shift to a neutral policy stance in December 2017 after 22 months of rate cuts in which the key rate was lowered by 13 percentage points from February 2016.
The NBM's latest forecast shows that inflation will decline steadily from 7.3 percent in December to around 2.5 percent by the fourth quarter of 2018.
Subsequently, inflation is seen returning to the bank's target of 5.0 percent, plus/minus 1.5 percentage points, in the second quarter of 2019.
For the full 2018 year the NBM forecasts average inflation of 3.7 percent and 4.7 percent for 2019.
In the third quarter of 2017 Moldova's economy grew by an annual rate of 5.4 percent, up from 2.5 percent in the second quarter, supported by household consumption and fixed investments.

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Monday, January 29, 2018

Colombia cuts rate 25 bps but says easing cycle over

Colombia's central bank returned to the easing cycle and cut its benchmark interest rate by another 25 basis points to 4.50 percent due to uncertainty over its economic recovery weak but said its board now "considers that the reduction cycle of the interest rate has been completed."
It is the first rate cut by the Central Bank of Colombia (CBC) this year following 9 cuts in 2017, with the most recent cut in November. The decision to cut the rate by the bank's board was narrow, with four members voting for a cut while the other three members voted to maintain the rate.
The central bank has now cut its rate by 325 basis points since December 2016 when it embarked on its current easing cycle. The decision to maintain the rate in December 2017 was unanimous.
"After assessing the risk balance of the weakness of the economic activity and its expected recovery and the pace of convergence of inflation to its target, the Board deemed appropriate to reduce the benchmark interest rate to 4.5%," the bank said in a decision that expected by some, but not all economists.
"Some indicators suggest that at this level the monetary policy stance is slightly expansionary. With the information available, the Board considers that the reduction cycle of the interest rate has been completed," the CBC added.
Colombia's growth in the third quarter of 2017 disappointed with an annual rate of 2.0 percent but this was up from 1.2 percent and 1.3 percent in the preceding quarters.
Data for the fourth quarter confirm that domestic demand remains weak, with the central bank maintaining its growth forecast of 1.6 percent for the full year.
For 2018 growth is seen accelerating to 2.7 percent, helped by faster external demand, the impact of past rate cuts, investments in civil works, resulting in better use of capacity.
But the CBC stressed the uncertainty behind its growth forecast, with investments and national income set to rise if oil remains at the current level for a prolonged period of time. With a recovery of oil prices, Colombia's terms of trade and external income are continuing to improve, leading to a forecast of a current account deficit of 3.3 percent in 2018, down from an estimated 3.5 percent in 2017.
Colombia's inflation rate was largely steady at 4.09 percent in December from 4.12 percent in November, with analysts' forecasts for 2018 and 2019 at 3.47 percent and 3.33 percent, respectively.
But the CBC said a less-than-favourable behavior of some components of CPI showed there was a risk that inflation might be slower than expected to converge to target. But inflation is still expected to fall in coming months as the impact of lower taxes at the start of 2017 dissipates.

Angola maintains rate as inflation decelerates

Angola's central bank left its benchmark BNA rate at 18.0 percent, saying it was paying particular attention to inflation, which rose slightly in December but declined on an annual basis.
The National Bank of Angola (BNA), which raised its rate by 200 basis points in November 2017 and then revamped its exchange rate regime on Jan. 4, added net international reserves declined by 6.64 percent in December to US$13.299.71 billion.
Angola's monthly inflation rate was 1.2 percent in December compared with 1.04 percent in the previous month and 2.04 percent in December 2016.
Year-on-year inflation in December eased to 23.67 percent from 24.7 percent.
Since 2016 the BNA had fixed the kwanza to the U.S. dollar at 166 but on the black market it often changed hands at up to 400 per dollar.
The fall in crude oil prices in mid-2014 hit the foreign exchange earnings of Africa's second largest oil producer hard, with the international reserves also declining.
After taking over as BNA governor in late October, Jose Massano moved swiftly to abandon the BNA-administered exchange rate to an exchange rate band, with a reference rate determined by auctions of foreign exchange.
On Jan. 23 the BNA held the fifth such auction, selling 81.8 million euros that were fully absorbed by 17 of 26 participating banks at weighted average selling rate of 253.706 kwanza based on a highest rate of 253.747 and the lowest rate of 253.126.
The currency sold at that auction was mainly intended for the import of raw materials, parts, accessories and manufacturing while for food, medicine and private operations, the BNA will maintain a mechanism of direct sales through commercial banks.
Against the U.S. dollar, the kwanza was quoted by banks at 203.6, down 18.5 percent from before the shift to a new exchange rate regime.

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Bangladesh maintains rate but inflation risks on upside

The central bank of Bangladesh left its benchmark repurchase and reverse repurchase rates steady at 6.75 and 4.75 percent for the second half of the 2018 financial year along with the ceiling for domestic credit growth at 15.8 percent in order to accommodate the targeted economic growth of 7.4 percent with up to 6.0 percent inflation.
Bangladesh Bank (BB), which has maintained its rates since cutting them to the current level in January 2016, added in its monetary policy statement for January-June that the continuing negative trend in government borrowing from banks should leave room for 16.8 percent private sector credit growth, up from the previous projection of 16.3 percent in H2 FY18, which began in January.
Bangladesh is seeing a robust pickup in investment and output activities, imports and credit to the private sector that is supported by progress in addressing the country's infrastructural deficiencies and the broad-based rise in global economic output and trade.
Apart from higher imports of food grains to cover crop losses from flooding in August 2017, imports are mainly of capital machinery and production inputs which should bode well for growth.
However, this also poses a near-term challenge of containing inflationary pressure and protecting the balance of payments, according to the report that was accompanied by a press conference with BB Governor Fazle Kabir.
Domestic credit grew by 14.5 percent in the first half of FY18, in line with BB's target, although private domestic sector credit grew by 18.1 percent, substantially topping the 16.2 percent target as a decline in government bank borrowing helped ease the pressure on liquidity.
Strong domestic demand, credit growth, growing exports and remittances has kept Bangladesh's economy on track to reach the 7 plus percent growth for financial 2018 while weather-related supply shocks and rising global commodity prices boosted inflation to 6.12 percent in September.
But by December inflation eased to 5.83 percent from 5.91 percent in November as food inflation was steady at 7.13 percent and non-food inflation only rose 3.85 percent, down from 4.1 percent.
"Looking ahead, inflation risks appear to be on the upside, as demonstrated by BB's inflation expectation survey," but food inflation pressure should ease from imports and the rice harvests.
BB is projecting inflation of 5.7-6.0 percent in June 2018, assuming favorable global outcome.
Bangladesh's Gross Domestic Product was estimated to have risen 7.28 percent in financial 2017, which ended June 30, 2017, despite flood-related crop losses.
Economic activity remains strong, with exports in the July-December 2017 period up by 7.2 percent from 1.7 percent in FY17. Remittances have reversed their declining trend in FY16 and were up 12.5 percent in the same period.
Imports were up 27.6 percent in July-November, with capital machinery imports up 37.5 percent and industrial raw material imports up 18.9 percent, BB said, projecting overall economic growth in FY18 of 7.1-7.4 percent, assuming continued political stability.
"Moderation of the transient imbalance from credit-fueled high import growth to sustainable trend will be a key priority for monetary and macro-prudential policies in H2 FY18 and will be important to keep in check the inflationary risks from rising global commodity prices and any spillovers from food to non-food inflation, against the backdrop of elevated inflation expectations," BB said.
Bangladesh Bank will focus its macro-prudential measures in H2 FY18 on bringing back monetary aggregates to sustainable growth mainly by "intensive, intrusive supervision focusing on quality and sectoral composition of credit flows rather than by restricting access to credit for productive pursuits," BB said.
The central bank will focus on curbing "imprudent unproductive lending" and require banks to rationalize their advance/deposit ratios to "curb their over exuberance in lending" and encourage banks to avoid investment financing exposure to corporate borrowers and instead help in corporate bond issuance in capital markets so banks are only used as interim bridge financing windows.
The gradual depreciation of the exchange rate of the taka against the U.S. dollar is helping export competitiveness, liming the current account deficit, BB added.
The taka was trading at 83.26 to the dollar today, down 0.6 percent this year and down 5.2 percent since the start of 2017.

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Sunday, January 28, 2018

This week in monetary policy: Bangladesh, Angola, Colombia, Hungary, Moldova, Georgia, Bulgaria, USA, Tajikistan, Dominican Rep., Czech Rep. and Chile

This week (January 28 through February 3) central banks from 12 countries or jurisdictions are scheduled to decide on monetary policy: Bangladesh, Angola, Colombia, Hungary, Moldova, Georgia, Bulgaria, United States, Tajikistan, Dominican Republic, Czech Republic and Chile.

Following table includes the name of the country, the date of the next policy decision, the current policy rate, the result of the last policy decision, the change in the policy rate year to date, the rate one year ago, and the country’s MSCI classification.

The table is updated when the latest decisions are announced and can always accessed by clicking on This Week.

WEEK 5
JAN 28- FEB 3, 2018:
COUNTRY	DATE	RATE	LATEST	YTD	1 YR AGO	MSCI
BANGLADESH	29-Jan	6.75%	0	0	6.75%	FM
ANGOLA	29-Jan	18.00%	0	0	16.00%
COLOMBIA	29-Jan	4.75%	0	0	7.50%	EM
HUNGARY	30-Jan	0.90%	0	0	0.90%	EM
MOLDOVA	30-Jan	6.50%	0	0	9.00%
GEORGIA	31-Jan	7.25%	25	0	6.75%
BULGARIA	31-Jan	0.00%	0	0	0.00%	FM
UNITED STATES	31-Jan	1.50%	25	0	0.75%	DM
TAJIKISTAN	31-Jan	14.75%	-125	-125	11.00%
DOMINICAN REP.	31-Jan	5.25%	0	0	5.50%
CZECH REP.	1-Feb	0.50%	0	0	0.05%	EM
CHILE	1-Feb	2.50%	0	0	3.25%	EM

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Thursday, January 25, 2018

Malaysia raises rate 25 bps, policy still accommodative

Malaysia's central bank raised its benchmark Overnight Policy Rate (OPR) by 25 basis points to 3.25 percent, as expected by many economists following the bank's guidance in November, and said its monetary policy stance still remains accommodative after the hike.
It is Bank Negara Malaysia's (BNM) first change in rates since a rate cut in July 2016 and the first rate increase since July 2014.
Malaysia's rate increase follows South Korea's rate hike in November 2017, illustrating how monetary policy in Asian economies is starting to tighten in response to strong global growth that has already triggered rate hikes in the United States, Canada and the United Kingdom.
"With the economy firmly on a steady growth path, the MPC (monetary policy committee) decided to normalize the degree of monetary accommodation," BNM said, adding that it also recognized the need to prevent the build-up of risks from interest being too low for a long time.
The rate hike comes after the BNM at its last meeting in November 2017 signaled it was getting ready to raise rates by saying it may consider reviewing the current degree of monetary accommodation, leading to speculation that it would raise rates in the first quarter of 2018.
In today's statement, the BNM said its policy stance remains accommodative despite the rate hike, signaling that it is likely to raise rates further.
However, it didn't show its hand regarding the timing of any further hikes, merely saying it would continue to assess the balance of risk surrounding the outlook for growth and inflation.
With global growth becoming more entrenched and synchronized, Malaysia's exports are rising and helping pull up the domestic economy that will remain the key driver of growth this year as infrastructure projects continue and export and domestic companies boost capital spending.
"Overall, growth is expected to remain strong in 2018," the BNM said.
Malaysia's economy expanded by an annual rate of 6.2 percent in the third quarter of last year, up from 5.8 percent in the second quarter, and was estimated to have grown between 5.5 and 6.0 percent in the full 2017 year by the International Monetary Fund in December.
Growth this year was forecast to ease slightly to 5.0-5.5 percent by the IMF.
Despite strong growth, Malaysia's inflation rate and credit growth remain contained, with inflation in December of 3.5 percent and averaging 3.7 percent in 2017.
This year the central bank expects inflation to ease, helped by a stronger exchange rate of the ringgit that will help offset higher energy and commodity prices.
"However, the trajectory of headline inflation will be dependent on future global oil prices which remain highly uncertain," the BNM said.
After tumbling in the immediate aftermath of last year's election of Donald Trump as U.S. president, Malaysia's ringgit has been appreciating steadily since early 2017 and was trading at 3.8 to the U.S. dollar today, up 6.6 percent this year and 18 percent since the start of 2017.

Argentina cuts rate 75 bps, policy still contractionary

Argentina's central bank lowered its monetary policy rate for the second time in a row, saying it still considers the current contractionary bias of monetary policy to be "somewhat high" but it will be cautious in changing its policy to suit the path of disinflation.
The Central Bank of Argentina (BCRA) cut its policy rate by another 75 basis points to 27.25 percent and has now cut the rate by 150 points this year following a similar-sized cut on Jan. 9.
Argentina's headline inflation rate rose slightly to 24.8 percent in December from 22.4 percent in November but this reflected a rise in regulated prices of gas and electricity. The government has been slashing subsidies on a wide range of services to reduce its fiscal deficit.
And while inflation in 2017 fell by almost 12 percentage points from 2016, the BCRA said this deceleration was not as fast as it wanted, with 2017 inflation averaging 24.8 percent.
Reiterating earlier comments, the central bank said the the deviation of inflation from its 2017 target of 12-17 percent was due to a premature relaxation of monetary policy between October 2016 and March 2017 - when the rate was cut by a total of 200 basis points - and a higher-than-expected increase in regulated prices.
But the central bank then raised rates in April, October and November last year, with the result that inflation has been trending lower in recent months and is expected to continue to decline this year as regulated prices are expected to rise by 21.8 percent this year, below a 38.7 percent rise in 2017.
"The central bank will conduct its monetary policy to reach its intermediate target of 15% in 2018," the BCRA, referring to the new inflation target that was set by the government in December.
In late December Mauricio Macri's government pushed back its aim to lower inflation to 5 percent by one year to 2020 and raised its 2018 target to 15 percent from a previous 8-12 percent.
For 2019 the inflation target is 10 percent.
The International Monetary Fund has forecast 2018 inflation of 16.3 percent, 2019 inflation of 11.8 percent and 10.0 percent in 2020.
After stabilizing in the second half of 2017, Argentina's peso has been falling since early December and was trading at 19.33 to the U.S. dollar today, down 3.6 percent this year and down 19.2 percent since the start of 2017.

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Sunday, January 21, 2018

This week in monetary policy: Ghana, Kenya, Japan, Nigeria, Argentina, Paraguay, Fiji, Malaysia, Norway, Ukraine, euro area and Malawi

This week (January 21 through January 27) central banks from 12 countries or jurisdictions are scheduled to decide on monetary policy: Ghana, Kenya, Japan, Nigeria, Argentina, Paraguay, Fiji, Malaysia, Norway, Ukraine, the euro area and Malawi.