Pakistan maintains rate to let policy changes 'unfold'

       Pakistan's central bank kept its monetary policy rate at 6.0 percent, despite expectations that it would raise the rate to bolster the rupee's exchange rate, saying it wanted to allow some time "for the impact of recent policy developments to unfold."

       The State Bank of Pakistan (SBP), which in January raised its rate by 25 basis points, added the government is mobilizing external inflows, both official and commercial, with the aim of narrowing the current account gap and this "will play a pivotal rose in maintaining adequate level of SBP's foreign exchange reserves and anchoring sentiments in the FX markets."
       SBP said the decision to keep the rate steady today came after "detailed deliberations" by its monetary policy committee.
        Pakistan's rupee has weakened sharply since early December in what dealers have described as a devaluation by the SBP, which employs a managed float regime.
        Analysts have attributed the pressure on the rupee from concern over Pakistan's widening current account deficit amid strong economic growth and rising imports, declining foreign exchange reserves and concern the country may be put back on a global watchlist for terrorist financing.
        On Dec. 11, 2017 the rupee fell around 3 percent to 109 per U.S. dollar and then settled around 4.2 percent lower at 110.5 until March 20, 2018 when it fell another 3 percent and continued to weaken in the following days.
       Today the rupee was trading at 115.47 to the dollar, down 4.3 percent this year and down 9 percent since early December.
        The central bank said the impact of this depreciation on exports and imports was going to unfold gradually in coming months and acknowledged that financing the current account deficit "is challenging as a healthy growth in FDI and higher official inflows were insufficient to finance it completely."
        It added SBP's foreign exchange reserves dropped to US$11.78 billion as of March 22 from $13.5 billion on Jan 19 and $2.6 billion in June 2017.
        But the central bank said economic growth in Pakistan remains strong and inflation is considered "within comfortable bonds," with improvements in exports and remittances expected to bear fruit in the medium term and sustain growth without a risk to stability.
        In the July-February period exports from Pakistan grew 12.2 percent compared with a decline of 0.8 percent in the same period last year and remittances from workers' abroad has grown by 3.4 percent during the 2018 fiscal year, which began July 1.
      "However, the growth in imports remains high," the SBP said, pushing the current account deficit during the July-February period up by 50 percent from last year to US$10.8 billion.
      Earlier this month the International Monetary Fund (IMF) warned that surging imports could widen Pakistan's current account deficit to 4.8 percent of GDP in the current 2017/18 fiscal year, which ends June 30, leading to a further decline in international reserves in the context of a limited flexibility of the exchange rate.
       In February news agencies reported that Paris-based Financial Action Task Force (FATF) would officially put Pakistan back on its terrorist financing watchlist in June as part of an overall U.S. strategy to cut alleged links to Islamist militants in Afghanistan and India.

       Reports about the move by the inter-government body, which was set up in 1989 to combat money laundering and terrorist financing, comes after earlier reports that Pakistan had been given a three-month reprieve before being placed on the list, which hampers international banking.

       Pakistan was on FATF's watchlist for three years until 2015. Currently, North Korea and Iran are on FATF's list of countries that are considered a risk to the international financial system.

  Pakistan's current account deficit widened sharply last year and hit US$3.867 billion in the fourth quarter, up from $3.557 billion in the third quarter for a 2017 deficit of 4.1 percent of Gross Domestic Product, up from 1.7 percent in 2016.

       Pakistan's inflation rate eased to 3.8 percent in February from 4.42 percent in January and SBP forecast that inflation should remain below the FY18 target of 6.0 percent and close to it in FY19, including the impact of second round effects of the exchange rate depreciation, demand pressures and volatile oil prices.

Egypt cuts rate 100 bps as inflation falls, economy grows

      Egypt's central bank lowered its key policy rates by another 100 basis points, as expected, noting inflation was continuing to decline while economic growth last year was the fastest since 2010.
      The Central Bank of Egypt (CBE) has now cut its key rates by 200 basis points this year following a similar cut in February, the first rate cut since January 2015.
      "In its last meeting on February 15, 2018 the MPC (monetary policy committee) began to ease its tight stance on interest rates that successfully managed to tame monthly inflation," CBE said, adding:
       "Cutting key policy rates today remains consistent with tight real monetary conditions and with achieving the inflation target of 13 percent (+_3 percent) in 2018 and single digits thereafter."
      The central bank today lowered its benchmark overnight deposit rate to 16.75 percent, the overnight lending rate to 17.75 percent, and the rate on its main operations and discount facility to 17.25 percent.
       The main risk surrounding CBE's outlook for inflation includes inflationary expectations, the timing and magnitude of reforms to subsidies, demand-side pressures, crude oil developments and the pace of tightening financial conditions.
       Egypt's headline inflation rate declined to 14.4 percent in February after peaking at 33 percent in July while the core inflation rate fell to 11.9 percent from a peak of 35.3 percent.
        It was the lowest headline inflation rate since October 2016 and the lowest core inflation rate since April 2016, CBE added.
       In November 2016 the CBE floated the pound, which quickly lost over half its value. Since then the pound has been slowly appreciating and was trading at 17.62 to the U.S. dollar today, up 1.1 percent this year but still down just under 50 percent since before the float.
        Meanwhile, Egypt's economy grew by an annual rate of 5.3 percent in the fourth quarter of 2017, the sixth consecutive quarter of annual growth, for 2017 growth of 5.0 percent.
        At the same time, unemployment is declining and fell to 11.3 percent in December, the lowest since December 2010.
       "The pickup of economic growth was largely boosted by higher net external demand, due to more competitive exchange rates, followed by public domestic demand, which have more than offset lower private domestic demand," CBE said.

Angola maintains rate as inflation continues to decelerate

      Angola's central bank left its benchmark BNA rate at 18.0 percent for the third time after switching to a floating exchange rate system and said it had sold 672.75 million euros to commercial banks in the period under review for accumulated sales of 1.509.85 billion euros in 2018.
      The National Bank of Angola (BNA) on Jan. 9 replaced its fixed exchange rate system with a floating exchange system with bands, and began actions of foreign exchange to set a reference rate.
       The kwanza immediately plunged from its previous rate of around 166 to the dollar and was trading at 214.12 today, down 22.5 percent since then.
       On secondary and informal markets, BNA said the differential in the exchange rate of the kwanza to the U.S. dollar declined by 60.2 percentage points as the rate changed from 150.618 to 90.409 between Jan. 9 and Feb. 28.
       In February the central bank's gross international reserves declined to US$17.482.15 billion from 17.983.76 billion in December, but this is still enough for 7.28 months of imports.
       Today's meeting by the BNA's monetary policy committee is the third since the new exchange rate system was adopted and the key BNA rate, and other rates, have been maintained since the rate was raised by 200 basis points in November 2017.
       Angola's inflation rate is continuing to decelerate from just over 41 percent in December 2016 and fell to 21.47 percent in February from 22.72 percent in January.
       The monetary base, which became an operating variable of monetary policy in November last year, grew by 2.57 percent in February for a 0.72 percent rise year-on-year.
       Credit issued rose by 3.89 percent in February, for annual growth of 8.02 percent, with BNA noting a rise credit to individuals and for construction.
        The BNA's policy statement came as Angolan prosecutors on Monday charged Jose Filomeno dos Santos, son of the former president, and Valter Filipe da Silva, former central bank governor, along with four others, with attempted fraud by transferring $500 million out of the central bank to U.K. banks.
       Dos Santos and da Silva are the highest profile figures to be charged since President Joao Lourenco last September took over from Jose Eduardo dos Santos, vowing to root out an endemic culture of corruption. Dos Santos had been in power for almost 38 years.
       In late October last year Lourenco replaced da Silva with Jose Massano as BNA governor.
      The following month Massano then raised the rate for the first time since June 2016 to tackle accelerating inflation and shifted the operational framework of monetary policy to regulate liquidity.
       Earlier this month the International Monetary Fund (IMF) said Angola's economy was seeing a mild recovery and the better outlook for oil prices had opened a window of opportunity to strengthen macroeconomic policies and carry through structural reforms so the country can "realize its full potential."
       "The new administration is rightly focused on restoring macroeconomic stability and improving governance," the IMF said.
       IMF forecast that growth this year would accelerate to 2.25 percent from 1.0 percent last year, driven by a more efficient system of allocating foreign exchange, additional availability of foreign exchange due to higher oil prices, natural gas producing inching up toward full capacity, and improved business sentiment.
       Inflation is expected to remain high and hit 24.75 percent by the end of this year, mainly due to the depreciation of the kwacha's exchange rate, IMF said.
       The IMF also described BNA's tightening of monetary policy "appropriate" as it supports the new exchange rate regime, adding the pass-through of the depreciation had been contained so far.
       While there are still pressures in the foreign exchange market as the backlog of purchase orders are gradually eliminated, IMF said further reforms to the allocation mechanism is required, including phasing out direct sales.
       Angola's fiscal policy is aimed at reducing deficits, with the overall deficit hitting 6 percent of Gross Domestic Product in 2017 while public debt hit 64 percent of GDP.
        The 2018 budget calls for reducing the deficit to 3.5 percent of GDP and higher than forecast oil prices should be used to clear domestic payment arrears and retire public debt, IMF said, adding the objective of lowering public debt to under 60 percent of GDP provided "an adequate fiscal anchor."

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Czech Rep. holds rate, risks now slightly anti-inflationary

      The Czech National Bank (CNB) kept its benchmark 2-week repo rate steady at 0.75 percent but downgraded the risks to its forecast as "slightly anti-inflationary" from balanced so "a further rise in rates at the close of this year at the earliest and especially next year is consistent with the forecast."
      The central bank of the Czech Republic said inflation in January and February was "markedly" below its forecast from the star of this year though it is still expected to remain above its 2.0 percent target this year and return to the target in 2019.
       Overall economic growth and wage growth in the fourth quarter of 2017 were slightly below its forecast so the risks to the inflation forecast were now seen as slightly anti-inflationary though a more gradual appreciation of the exchange rate of the koruna may act in the opposite direction, CNB said.
       In February, when the CNB last raised its rate, it saw the risks to inflation as balanced.
       The CNB has raised its rates three times and by a total of 70 basis points since August 2017 when it became the first central bank in Europe to start tightening its policy after the global financial crises to curb accelerating inflation from a booming economy that was driving up wages.
      But inflation has been decelerating since hitting 2.9 percent in October last year and fell to 2.2 percent in January and then to 1.8 percent in February.
       CNB had forecast that inflation in February would be 2.2 percent but food prices were lower than expected and core inflation was also "somewhat" below expectations.
       The Czech economy grew by an annual rate of 5.2 percent in the fourth quarter of 2017, below the bank's forecast of 5.4 percent, while average wages grew 8.0 percent, below CNB's forecast of 8.1 percent.
       But CNB added the pace of overall economic growth was only slightly below its forecast, due to slower-than-expected growth in household consumption, and the overall dynamics remain robust due to a strong labour market and rapid growth in household income.
       Data for industrial production and retail sales remained strong in January, construction output had accelerated again after slowing in December, and economic sentiment remains favorable, indicating that growth remained robust at the start of the year.
        Confirming its confidence about the outlook, the CNB said economic growth in the effective euro area - the share of those countries in the euro area that import Czech goods - in 2018 is currently forecast at 2.5 percent as compared with its past forecast of 2.3 percent, and 2019 growth is seen at 2.1 percent compared with its forecast at the start of the year of 2.0 percent.  
       The same measure shows consumer prices rising an unchanged 1.7 percent in 2018 and 1.8 percent in 2019.
       Prior to its rate hike in August 2017, the CNB in April removed its cap on the exchange rate of its koruna against the euro, with the result the koruna rose sharply.
       But since February the koruna has depreciated against the euro and was trading at 25.4 today, up 0.5 percent since Jan. 1, 2018. But compared with the upper limit of 27 to the euro, which CNB imposed from November 2013 to April 2017, the koruna is still 6.3 percent higher.

South Africa cuts rate 25 bps, inflation seen within target

     South Africa's central bank lowered its key repurchase rate by 25 basis points to 6.50 percent, as expected by some analysts, citing an improved outlook on inflation and economic growth but underscored that "future policy decisions will be highly data-dependent and sensitive to the assessment of the balance of risks to the outlook."
      It is the second rate cut by the South African Reserve Bank (SARB) since July 2017, with the move supported by four members of its monetary policy committee while the other three members wanted to retain the rate.
      In an update to its quarterly forecast, SARB now projects one increase of its repo rate of 25 basis points by the end of 2019, down from three increases previously forecast, with two further rate hikes forecast by the end of 2020.
      However, SARB Governor Lesetja Kganyago repeated that this implied rate path is only a "broad policy guide" that can change in either direction in response to new developments and the MPC "does not mechanically respond to changes in the path."
      SARB's rate cut comes against the backdrop of falling inflation, an appreciating rand and an improved growth outlook.
      South Africa's headline inflation rate fell to 4.0 percent in February, the lowest since March 2015, and SARB's forecast also showed moderate improvement despite the planned increase in Value-Added-Tax (VAT) on April 1 to 15 percent from 14 percent.
      "Although the bottom of the inflation cycle has likely been reached, the trajectory of headline inflation is forecast to remain within the target range, with core inflation expected to remain below 5% for most of the forecast period," Kganyago said.
       The VAT hike is expected to add 0.6 percentage points to the upward trajectory of headline inflation for four quarters but the improved exchange rate has softened the impact, with inflation seen averaging 4.9 percent this year, unchanged from the previous forecast, and then 5.2 percent in 2019, down from 5.4 percent and 5.1 percent in 2020.
       And while inflation expectations have fallen, SARB said it would prefer to see them closer to the midpoint of its target range of 3-6 percent. Average inflation expectations in the first quarter eased to 5.2 percent for 2018 from 5.7 percent, and 2019 expectations to 5.3 percent from 5.9 percent.
      "Although the growth outlook has improved, the outlook remains relatively constrained," Kganyago said, with little pressure on inflation from demand, despite higher consumption.
       SARB raised its 2018 growth forecast to 1.7 percent from a previous 1.4 percent but lower the 2019 outlook to 1.5 percent from 1.6 percent. For 2020 it forecast growth of 2.0 percent.
       In the fourth quarter of 2017 the economy grew by a higher-than-expectred annual rate of 1.5 percent, with leading business indicators continuing their upward trend in January, supported by higher business and consumer confidence.
        South Africa's rand has been firming since mid-November, supported by political developments. weakness in the U.S. dollar, and then by Moody's decision last week to raise its outlook to stable from negative, reducing the risk of a significant sell-off out government bonds.
      The rand was trading at 11.79 to the U.S. dollar today, up 4.9 percent this year and up 22.7 percent since Nov. 13 last year.

Rwanda maintains key rate as inflation seen below 5%

      Rwanda's central bank kept its benchmark repo rate at 5.5 percent to encourage the banking sector to continue financing the economy and "cement the outcomes of its previous decisions" as inflation is not expected to exceed the 5.0 objective this year and pressures on the Rwandan Franc have remained subdued.
      The National Bank of Rwanda (BNR) cut its key repo rate by 50 basis points in December 2017, its third rate cut since it began an easing cycle in December 2016 with cuts totaling 100 basis points.
      Rwanda's economy outpaced expectations last year and inflation has decelerated sharply, easing to minus 1.3 percent in February from 0.1 percent in January and 8.1 percent in February 2017 on ample food supply.
       "In line with good weather conditions and exchange rate stability, headline inflation is estimated to evolve around 1.4 percent in 2018Q1 and is projected at around 2.0 percent in 2018Q2," the bank's monetary policy committee said.
       The economy grew by 6.1 percent in 2017, above 5.2 percent initially projected, and above 6.0 pectin 2016, mainly due to good output by services and agriculture.
      "The economy continued to perform well in 2018Q1 as indicated by the high frequency indicators of economic activities," BNR added.
      Earlier this month the central bank's governor, John Rwangombwa, forecast growth this year of 6.5 percent as good climate conditions should help farmers.
      Rwanda's franc has been depreciating steadily in the last decade and fell by 0.8 percent against the U.S. dollar as of March 20 from December 2017, the bank said, projecting depreciation of 4.5 percent by end-December 2018.
      Today the franc was trading at 851.4 to the dollar, down 0.9 percent this year.
      In the accompanying statement by the Financial Stability Committee, BNR said the assets of the financial sector were continuing to increase, the financial sector remains well capitalized, there is sufficient liquidity and the ratio of non-performing loans of banks fell to 7.6 percent in December from 8.2 percent in June 2017.
      Last week the International Monetary Fund (IMF) and Rwanda's government reach preliminary agreement on policies that support the completion of the ninth review of its program, with the IMF forecasting growth this year and 2019 of 7-8 percent while inflation should stay within the target range.
      The IMF said Rwanda's economy was rebounding and external imbalances had continued to decline on the basis of exchange rate adjustments and other policies that have helped improve the competitiveness and diversity the country's production and exports.
        With foreign exchange reserves accumulating faster than anticipated, the pressure on the Franc has abated and easier monetary policy has helped bolster the private sector's use of bank credit, which rose by just over 13 percent in January year-on-year.
     "Continued exchange rate flexibility should ensure that Rwanda's exports remain competitive and the ample availability of foreign exchange in the economy," the IMF said.
       And while the central bank is set to keep its policy stance broadly neutral in the near term, it is implementing policies that "move to a more forward-looking interest rate-based policy framework while carefully monitoring financial sector developments."
 
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Hungary maintains rates and loose policy guidance

      Hungary's central bank left its key interest rates unchanged, as universally expected, and confirmed its guidance from recent months that "maintaining the base rate and the loose monetary conditions at both the short and long ends for an extended period is necessary to achieve the inflation target in a sustainable manner."

      The National Bank of Hungary (NBH) has maintained its base rate at 0.90 percent since May 2016 and last month the deputy governor, Martin Nagy, told a local newspaper the base rate would remain steady until the end of 2020 to ensure loose monetary conditions.

      Echoing its previous statement from February, the NBH also said it expects to reach its inflation target in a sustainable manner by mid-2019 and economic output, which is now close to its potential level, will continue to pick up further this year before slowing down gradually from 2019.

       In February Hungary's inflation rate was steady at 2.1 percent from January and is expected to remain in the lower half of the central bank's tolerance range of 3.0 percent, plus/minus 1 percentage point, in coming months.

       But the central bank's measures of underlying inflation remain below core inflation, which was 2.4 percent in February, and the NBH still doesn't see any upward pressure on inflation from wages.

       While the NBH has kept its key policy rate steady for almost 2 years, it lowered the overnight deposit rate by 10 basis points to minus 0.15 percent in September 2017 to counter downside risks to inflation and began employing a range of unconventional instruments to keep long-term interest rates low. 

       Most recently the central bank in January launched interest rate swaps and a program of mortgage note purchases on top of earlier limits on the stock of deposits that banks can hold at the NBH in order to ensure they lend out funds.

      In June the bank's council will decide on the amount of liquidity that it wants to crowd out after setting the maximum stock of interest rate swaps in the first half of this year at 600 billion forints. 

      In the first quarter of this year the average amount of liquidity crowded out exceeded the 400-600 billion  forint target set in December.

      "The council's aim is that the loose monetary conditions have their effect not only at the short but also the longer end of the yield curve," the central bank said, adding it also takes into account the relative position of domestic long-term yields to international yields.

       In recent months the short end of the yield curve has shifted upwards in parallel with international yields but over a longer horizon spreads relative to the euro area decreased significantly.

       Domestic demand in Hungary is continuing to strengthen and the central bank expects growth this year in excess of 4 percent after the economy grew 4.4 percent in 2017.

Armenia maintains rate but still committed to tightening

      Armenia's central bank maintained its benchmark refinancing rate at 6.0 percent but said its board remains committed to a gradual neutralization of the current monetary stimulus as inflation is expected to rise slightly over the next 12 months but still remain within its target range.
      The Central Bank of Armenia (CBA) has kept its rate steady since February 2017 after cutting it 12 times by a total of 450 basis points from August 2015.
      Since November last year, the CBA's board has said it wants to gradually neutralize its current monetary stimulus, which is helping boost domestic demand and lending.
      But inflation is only slowly rising and inflation expectations have eased since the start of the year, the CBA said, adding that it still expects weak inflationary effects from the external sector.
      Armenia's inflation rate rose to 3.3 percent in February from 2.7 percent in January and deflation of 0.2 percent in February last year.
      The central bank targets inflation at a midpoint of 4.0 percent, plus/minus 1.5 percentage points.
      Economic activity in the first quarter of this year slightly exceeded the central bank's expectations due to high growth in industry, construction and services, the bank said.
       In its fourth quarter inflation report, CBA forecast 2018 growth of 4.7 - 5.8 percent.
       In the fourth quarter of 2017, Armenia's Gross Domestic Product grew by an annual 11.2 percent, up from 4.6 percent in the third quarter, and the highest growth rate seen since the third quarter of 2008.

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Kyrgyzstan maintains rate, inflation seen in target range

      Kyrgyzstan's central bank left its policy rate at 5.0 percent and forecast that inflation should move toward its target range of 5.0 - 7.0 percent, in the absence of external and domestic inflation shocks, based on current dynamics in global commodity markets and growing aggregate demand.
      The National Bank of the Kyrgyz Republic (NBKR), which has kept its rate steady since December 2016, added that maintaining the rate at this level will help stimulate the economy.
       Kyrgyzstan's inflation rate rose to 3.5 percent in February from 3.2 percent in January but NBKR said inflation had eased to 2.9 percent as of March 16 as food prices had slowed while the cost of coal, fuel and lubricants provided a positive contribution.
      Economic output in the Kyrgyz Republic continues to be supported by steady remittances from abroad and higher wages, with higher output from the main sectors in the economy.
      Gross Domestic Product grew by 2.7 percent in the January and February period, excluding the Kumtor gold mine. Including output from Kumtor, output grew 3.3 percent, the central bank said.
       In 2017 Kyrgyzstan's economy grew 4.5 percent, with remittances up 25 percent in U.S. dollar terms.
       The situation remains stable on the domestic foreign exchange market, with the som appreciating 1.0 percent as of March 26 and the NBKR said it did not participate in the market.
       Today the som was trading at 68.19 to the dollar, up 1.13 percent this year.

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Ghana cuts rate 200 bps, on track to meet inflation target

      Ghana's central bank lowered its monetary policy rate by a further 200 basis points to 18.0 percent, saying inflation is continuing to decline amid moderate price pressures, and it is on course to meet the its inflation target within the forecast horizon.
       It is the Bank of Ghana's (BOG) first rate cut this year, but it has now cut the policy rate by 800 basis points since beginning an easing cycle in November 2016.
       In January the BOG noted emerging pressure on underlying inflation in the last two months of 2017 so it kept the policy rate steady to ensure it reaches its inflation target this year.
       But in today's statement, the BOG's monetary policy committee said its current inflation forecast provided scope for a rate cut that would translate gains in disinflation to the market and "reinforce the fiscal consolidation process by easing the burden of interest payments on the budget."
       Ghana's headline inflation rate rose slightly to 10.6 percent in February from 10.3 percent in January but BOG said the rise in February came from higher oil prices and the overall trend from 2017 of falling inflation had continued this year.
       The bank's main measure of core inflation, which excludes energy and utilities, dropped to 11.3 percent in February from 12.6 percent in December and inflation expectations by businesses, consumers and the financial sector showed that expectations were anchored toward the medium-term inflation target of 8.0 percent, plus/minus 2 percentage points.
        Prices of Ghana's main exports, such as gold, cocoa and crude oil, rebounded somewhat in the first two months of this year, and data and surveys show that the growth momentum seen in 2017 was continuing this year.
        Interest rates on the money market are migrating downward but the recovery of private sector credit is still slow, BOG said, with private sector credit expanding by only 1.2 percent in real terms in January, down from 2.1 percent in January last year.
        Ghana's economy grew by an annual rate of 9.3 percent in the third quarter of last year, up from 9.0 percent in the second quarter, and BOG said growth prospects for 2018 remain positive, supported by crude oil production, a gradual recovery in the non-oil sector and favourable sentiment.
       The government's budget deficit is also continuing to narrow and fell to 6.0 percent of Gross Domestic Product in 2017 compared with a target of 6.3 percent, helping total debt decline to 69.8 percent of GDP in 2017, down from 73.1 percent of GDP in December 2016.
        Domestic debt amounted to 66.7 billion Cedi while external debt was 75.8 billion, with the maturity profile showing an increase in longer-dated instruments.
        Ghana's trade balance was also in surplus in the first two months of this year due to higher oil exports while gross international reserves dropped to US$6.9 billion as of March 20, down from $7.6 billion in December 2017 due to coupon payments on a sovereign bond and energy sector payments.
        The foreign exchange market has also remained calm in the first quarter of this year, BOG said, with the Cedi appreciating by 0.2 percent against the U.S. dollar in the year to March 23 compared with a deprecation of 5.0 percent in the same period of 2017.
        The cedi was trading at 4.40 to the dollar today, up 3.2 percent this year.

This week in monetary policy: Ghana, Kyrgyzstan, Hungary, Armenia, Argentina, Jamaica, Thailand, South Africa, Albania, Fiji, Czech Rep, Angola, Egypt, Trinidad & Tobago, Dominican Rep. and Bulgaria

     This week - March 25 through March 31 - central banks from 16 countries or jurisdictions are scheduled to decide on monetary policy: Ghana, Kyrgyz Republic, Hungary, Armenia, Argentina, Jamaica, Thailand, South Africa, Albania, Fiji, Czech Republic, Angola, Egypt, Trinidad and Tobago, Dominican Republic and Bulgaria.

     Earlier today, on March 25, interest rate cuts by the Central Bank of Jordan took effect.

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

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

WEEK 13
MAR 25 - MAR 31, 2018:
COUNTRY	DATE	RATE	LATEST	YTD	1 YR AGO	MSCI
JORDAN	25-Mar	4.25%	25	25	3.50%	FM
GHANA	26-Mar	20.00%	-100	0	23.50%	FM
KYRGYZSTAN	26-Mar	5.00%	0	0	5.00%
HUNGARY	27-Mar	0.90%	0	0	0.90%	EM
ARMENIA	27-Mar	6.00%	0	0	6.00%
ARGENTINA	27-Mar	27.25%	0	-150	24.75%	FM
JAMAICA	27-Mar	2.75%	-25	-50	5.00%
THAILAND	28-Mar	1.50%	0	0	1.50%	EM
SOUTH AFRICA	28-Mar	6.75%	0	0	7.00%	EM
ALBANIA	28-Mar	1.25%	0	0	1.25%
FIJI	29-Mar	0.50%	0	0	0.50%
CZECH REPUBLIC	29-Mar	0.75%	25	25	0.05%	EM
ANGOLA	29-Mar	18.00%	0	0	16.00%
EGYPT	29-Mar	17.75%	-100	-100	14.75%	EM
TRINIDAD & TOBAGO	29-Mar	4.75%	0	0	4.75%
DOMINICAN REP	29-Mar	5.25%	0	0	5.50%
BULGARIA	30-Mar	0.00%	0	0	0.00%	FM

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Jordan raises all monetary policy rates 25 bps

       Jordan's central bank raised all its monetary policy interest rates by 25 basis points, effective Sunday, March 25, to "strengthen the pillars of monetary and financial stability, limit foreseen inflationary pressures, and maintain a competitive return on financial instruments denominated in Jordanian dinars."
       The rate hike by the Central Bank of Jordan (CBJ) follows the U.S. Federal Reserve's 25-basis-point rate increase on March 21, and is in line with the CBJ's policy since March 2017, when it has been shadowing the Fed's rate hikes.
       The Jordanian dinar has had a fixed exchange rate to the U.S. dollar since 1995 and is the nominal pillar of its monetary policy.
        "The decision adjusts the structure of local interest rates to be more consistent with the recent trends and developments in the global and regional rates," CBJ said.
       The CBJ's main policy rate, the one-week repo rate, is now 4.25 percent, the rediscount rate 5.25 percent, the rate of repurchase agreements 5.0 percent and the overnight deposit rate 3.25 percent.
        But while the central bank raised its policy rates, it retained the rate on lending programs that target small and medium enterprises in the vital sectors of industry, tourism, agriculture, renewable energy, engineering consultants and information technology to "promote economic growth creation, particularly for youth.
        The central bank's rate on projects in the capital of Amman was maintained at 1.75 percent and rates on projects in other was unchanged at 1.0 percent.
       Jordan's inflation rate rose to 3.7 percent in February from 3.0 percent in January.

      www.CentralBankNews.info

Mongolia cuts rate another 100 bps and RR by 150 bps

      Mongolia's central bank continued to ease its monetary policy stance to stimulate economic activity by cutting its policy rate by another 100 basis points to 10.0 percent and the reserve requirements of banks' tugrik deposits to 10.5 percent from 12.0 percent.
      The Bank of Mongolia (BOM) has now cut its policy rate by 500 basis points since December 2016 as the economic outlook has improved after a reform program with the International Monetary Fund (IMF) was agreed in May 2017.
      Mongolia's inflation rate was unchanged at 6.9 percent in February and January, off highs of almost 15 percent in the summer of 2014 and up from deflation in the second half of 2016.
     "External demand is improving and export prices are kept high and have a positive impact on the balance of payments and economic activity, BOM said, adding inflation will continue to stabilize around its target level of 8.0 percent.
     Mongolia's economy was hit hard by the fall in commodity prices in 2014 and 2015, with its tugrik plunging in the second half of 2016, forcing the central bank to raise rates sharply.
      In May last year the IMF and Mongolia agreed on a 3-year, $425 million loan as part of a total financing package worth $5.5 billion that was supported by Japan, Korea, the World Bank and the Asian Development Bank, the fourth-largest aid package in IMF history.
      Since then commodity prices have also been rising, with Mongolia's coal exports to China up as China has been closing its mines and banned the import of coal from North Korea.
      In February the IMF completed its third review of Mongolia's extended fund facility, saying the economy was doing better than expected, led by commodity exports and a pickup in domestic demand.
      The IMF forecast growth this year of 5.0 percent and 6.3 percent in 2019, saying currency reserves have risen by $1.8 billion, government debt has fallen sharply, and this has resulted in a largely stable exchange rate, a fall in interest rates and improved the government's debt service.
      Last year Mongolia's economy grew 5.1 percent, up from 1.2 percent in 2016.
      The fiscal deficit narrowed to 1.9 percent of Gross Domestic Product in 2017, sharply below the target of 10.6 percent and 17 percent in 2016, and authorities are aiming for continued prudence this year while strengthening tax administration and continuing public investment projects.
      Mongolia is also strengthening its banking system, passed a new Bank of Mongolia law and work is underway to improve the regulatory and supervisory framework and a new deposit insurance law.
      The exchange rate of the tugrik has been appreciating since early 2017 and was trading at  2,393.5 to the U.S. dollar today, up 1.2 percent this year and  up 3.7 percent since the start of 2017.

     www.CentralBankNews.info

       

     

Russia cuts rate 25 bps, will continue to ease to neutral

      Russia's central bank lowered its key monetary policy rate by another 25 basis points to 7.25 percent, as widely expected, and confirmed it still expects to "continue to reduce the key rate and will complete the transition to neutral monetary policy in 2018."
       It was the Bank of Russia's second rate cut this year after six cuts in 2017.
       The central bank has now cut the key rate by 975 basis points since January 2015 when it slowly began unwinding a massive, 750 point rate hike in December 2014 that was aimed a protecting the ruble after it tumbled following the Ukraine conflict.
       In separate comments, Elvira Nabiullina, governor of the Bank of Russia, confirmed the neutral policy rate was still estimated to be 6 -7 percent. She said the central bank still hadn't reached the end of the easing cycle, and "we admit there is still potential for further reduction in the key rate."
       Analysts had widely expected the rate cut after inflation was steady at an all-time low of 2.2 percent in February and January, and after the bank's head of monetary policy, Igor Dmitriev, last Friday said he would recommend a rate cut to the bank's board.
      "Annual inflation remains sustainably low," and below the central bank's target of 4.0 percent for longer than expected, thus allowing for a quicker transition to a neutral monetary policy stance, the central bank said.
        Inflation is expected to continue to decelerate and hit a new low in the second quarter due to the comparison with high food prices last year but then rise in the second half of the year as domestic demand recovers further.
        For 2018 the central bank forecast that inflation would average between 3.0 and 4.0 percent and then be close to 4.0 percent in 2019.
        Looking at the factors driving inflation, the central bank said investments in agriculture and production are now reducing inflation's dependence on weather conditions, which is helping restrain the growth of food prices, while a new budget rule is reducing the sensitivity of the economy, the exchange rate and inflation to changes in oil prices.
       "We are already seeing a ruble exchange rate which is less sensitive to oil prices," Nabiullina said, but this also means that fluctuations in the exchange rate were previously consider a temporary factor and now its changes will have more of a fundamental nature.
       Although inflation expectations are falling, the central bank said they are still way above the inflation target and still sensitive to any possible increase in food prices.
        Nabiullina also said money market interest rates were currently below the bank's key rate due to a strong surplus of liquidity. This is likely to last for some time, she said, and while the central bank is taking this situation into account when making rate decisions, it is seeking to bring money rates closer to the key rate without constraining interbank credit.
        Russia's economy is also continuing to recover from recession in 2015 and 2016, with industrial production growing in January and February while investment and consumer demand is growing, supported by higher wages and expanded retail lending.
        The central bank forecast growth in 2018 to 2020 of 1.5 to 2.0 percent, around the country's potential, and revised upwards its oil price assumption to $61, $55 and $50 a barrel in 2018, 2019 and 2020, respectively, from its December forecast of $55, $45 and $42.
        In the third quarter of 2017 Russia's economy grew by an annual rate of 1.8 percent, down from 2.5 percent in the second quarter.
        Russia's ruble has been rising steadily since January 2016 and was trading at 57.15 to the U.S. dollar today, up 0.9 percent this year and up 7.2 percent since the start of 2017.

Macau raises rate 25 bps as it tracks HK rate hike

      Macau, the small peninsula known for its giant casinos and shopping malls, raised its benchmark discount rate by 25 basis points to 2.0 percent, tracking Hong Kong's rate hike.
      Macau's de-facto central bank, the Monetary Authority of Macao (AMCM), said as its pataca currency is linked to the Hong Kong dollar, changes in policy rates in Hong Kong and Macau should be consistent in order to maintain the linked exchange rate system.
      Earlier today the Hong Kong Monetary Authority (HKMA) raised its base rate by 25 basis points to 2.0 percent in response to the U.S. Federal Reserve's 25-point rate hike on March 21. The Hong Kong dollar is pegged to the U.S. dollar.
      AMCM said local market interest rates would gradually move up this year in view of the external and financial market developments and it wants to remind the public that higher mortgage rates will increase the financial burden of borrowers, "hence, those that rely on mortgages for property purchases should prudently assess their repayment ability."
       "Meanwhile, local banks should assess the impacts of interest-rate adjustments on their operating positions and properly manage the potential risk," AMCM added.
      Macau was part of Portugal until 1999 when it became an autonomous region of China, under the same "one country, two systems" policy that saw Hong Kong revert back to China in 1997. Macau is only 62 kilometers from Hong Kong.
      Under the agreement between Portugal and China, Macau is guaranteed its own monetary and legal system until 2049.

       www.CentralBankNews.info

Bahrain raises key rate 25 bps, Qatar raises deposit rate

       Bahrain and Qatar's central bank joined other central banks that peg their currencies to the U.S. dollar and raised their policy rate by 25 basis points following the U.S. Federal Reserve's much-anticipated increase of its benchmark federal funds rate by 25 basis points to 1.50 - 1.75 percent.
       The Central Bank of Bahrain (CBB) raised the interest rate on its one-week deposit facility by 25 basis points to 2.0 percent.
       CBB also raised its overnight deposit rate to 1.75 percent from 1.50 percent, the one-month deposit rate to 2.65 percent from 2.40 percent and the lending rate to 3.75 percent from 3.50 percent.
       But while the Qatar Central Bank (QCB) raised its deposit rate by 25 basis points to 1.75 percent, it maintained the benchmark lending rate at 5.0 percent and the repurchase rate at 2.50 percent, saying the changes took into account the "evolving domestic and international macroeconomic developments."
       The Fed's rate hike on Wednesday was closely followed with rate hikes by the central banks of Kuwait and the United Arab Emirates.
       However, last week Saudi Arabia and Oman last week raised their rates.
       Bahrain, Qatar, Saudi Arabia, Oman, Kuwait and the UAE are members of the Gulf Cooperation Council (GCC), with their currencies pegged to the U.S. dollar.

      www.CentralBankNews.info


   

China raises 7-day repo rate 5 bps, HK raises base rate

      China raised its 7-day reverse repurchase rate, used for money market operations, by 5 basis points to 2.55 percent, saying this was in line with market expectations and "a normal reaction" to the U.S. Federal Reserve's increase of its key interest rate on March 21.
       But the People's Bank of China (PBOC) again left its benchmark one-year lending rate at 4.35 percent. This rate was last cut in October 2015.
       Hong Kong's central bank, the Hong Kong Monetary Authority (HKMA), also raised its base rate by 25 basis points to 2.0 percent in response to the Fed's 25 point increase in its fed funds rate to 1.50 - 1.75 percent.
        Hong Kong's monetary policy tracks that of the U.S., with the Hong Kong dollar trading in a band of 7.75 - 7.85 to the U.S. dollar. In recent months the Hong Kong dollar has come under pressure as the spread between Hibor, the local lending rate,  and Libor has widened due to an abundance of liquidity in the banking system.
       The PBOC's rate increase comes days after the National People's Congress (NPC) named Yi Gang as successor to Governor Zhou Xiaochuan, who has been at the helm of the PBOC since 2002. 
      Yi, deputy governor of PBOC, joined the PBOC in 1997 after first earning a business degree at Hamline University in Minnesota, then a Ph.D in economics at the University of Illinois before joining the University of Indianapolis as professor in 1986.
       In 2017 the PBOC raised various short- and medium-term rates four times, with two of the increases following Fed rate hikes in March and December. However, it did not change rates following the Fed's rate hike in June.
       The rate on the the PBOC's 7-day reverse repo rate was last raised on Dec. 14, 2017 -  in line with the Fed's rate hike on Dec. 13 - by 5 basis points to 2.50 percent. A few days later the 14-reverse repo rate was raised to 2.65 percent from 2.60 percent.
       In a statement on its website, PBOC said the interest spread between China and the U.S. will help guide the relationship of open market rates to currency rates, and help market players form interest rate expectations and "restrict irrational financial behavior," stabilizing leverage ratios.
       Since the beginning of this year, the PBOC said it had stepped up the fine-tuning and anticipatory open market operations to maintain stable, moderately flexible liquidity in the banking system, and to guide the rational growth of money and credit.
       The combination with a slight upward movement of open market interest rates is conducive to supply, the PBOC added.
       Analysts expect the PBOC to raise its reverse repurchase rates several times this year as it attempts to deleverage the economy but then also lower the reserve requirement rate from 17 percent to support smaller businesses.
       China has been tightening up its regulatory structure in recent years to better control shadow financing and reduce the risks in the financial system while still maintaining economic growth.
       The gradual increase in interest rates is also aimed at squeezing asset bubbles and curbing the growth of debt

       Last week the NPC changed some of China's financial regulatory structure, merging its banking and industry regulatory commissions into one group and giving the PBOC the power to draft key regulations and prudential oversight. 

      www.CentralBankNews.info

 

Brazil cuts rate 25 bps, easing in May seen appropriate

       Brazil's central bank lowered its benchmark Selic interest rate by another 25 basis points to 6.50 percent and said additional easing at the next meeting of its monetary policy committee would be "appropriate" as this would mitigate the risk that inflation would not meet its target.
       However, the Central Bank of Brazil added this expectation for the May 16 meeting of its policy committee, known as Copom, could change if further easing is unnecessary.
       Beyond the May meeting, Copom said it "deems it appropriate to interrupt the monetary easing process," while it evaluates the next steps, barring changes to its forecast and the balance of risks.
       Today's rate cut was expected by analysts after inflation in February eased further to 2.84 percent from January's 2.86 percent, below its target of 4.5 percent, plus/minus 1.5 percentage points.
       Prior to the release of the latest data, Copom in February said it would pause in its easing campaign though it didn't completely shut the door on further cuts by saying it could change its view if the balance of risks changed along with inflation and inflation forecasts.
      "The Committee judges that its baseline inflation scenario has evolved in a more benign fashion than expected since the turn of the year," Copom said, adding its projections for inflation this year based on the Focus survey now stand at 3.8 percent for this year and 4.1 percent for 2019.
      This compares with its forecast from February for 2018 and 2019 inflation of 4.2 percent.
      Reflecting today's rate cut, the central bank assumed that the policy rate would end this year at 6.50 percent and then rise to 8.0 percent by the end of 2019.
      Brazil's central bank has now cut its rate 7.75 percentage points since embarking on an easing cycle in October 2016.