Hungary's central bank left its key interest rates unchanged and affirmed its guidance that its monetary policy stance will continue to be accommodative as "persistently buoyant domestic demand is boosting, and weakening external activity is restraining the pace of price increase."
In March the National Bank of Hungary (NBH) tightened its policy stance for the first time since May 2016 when it raised the overnight deposit rate by 10 basis points to minus 0.05 percent as it kicked off its long-awaited phase of policy normalization due to meeting its inflation target.
The benchmark base rate, however, was left unchanged at 0.90 percent in March as the central bank remains "very very cautious" - to quote Deputy Govenor Marton Nagy - and will only take further tightening steps as needed.
The bank's monetary council said today it was applying a cautious approach in its policy decisions and would rely on projections for the economy and inflation.
After a steady stream of cuts to its benchmark rate from August 2012 to June 2016 - the rate was cut by a total of 610 basis points - the NBH was still confronted with low inflation and responded with a series of unconventional measures, similar to the policy of major central banks.
In the case of Hungary, the NBH launched low-cost lending programs, lowered its overnight lending rate and the required reserve requirement, and also decided to limit the use of its 3-month deposit facility, which had become its main monetary instrument from 2015 to end-2018, to encourage banks to buy government debt and offer cheaper loans.
Faced with a tightening of monetary conditions in September 2017, the NBH lowered its overnight deposit rate by 10 basis points to minus 0.15 percent to ensure it would meet its inflation target of 3.0 percent, plus/minus 1 percentage point.
In response to improving growth in Europe and easy monetary policy, Hungary's inflation rate finally started accelerating in early 2018 and by September last year the central bank began preparing financial markets for "the gradual and cautious normalization of monetary policy," a move it then began to execute on March 26 this year.
NBH's increase of the deposit rate, which represents the bottom of its interest rate corridor that is used to reduce the volatility of overnight rates, in March was the first time it was raised since September 2017.
After this increase, the width of the bank's asymmetric interest rate corridor is 95 basis points, with the interest paid on overnight, collateralized loans equal to the base rate.
But NBH is only tightening its policy gradually, aware that tightening against a backdrop of easing by the European Central Bank (ECB) will push up the exchange rate of the forint and thus tighten monetary conditions and push down inflation again.
The forint began rising against the euro at the beginning of July last year until late March this year and since then it has fall back to trade at 323.9 to the euro today, down 0.7 percent this year.
Today the central bank said it was launching a corporate bond purchase program (Bond Funding for Growth Scheme) worth 300 billion forint on July 1 as a complement to its Funding for Growth Scheme Fix that was launched at the start of this year.
After a dip in December and January, Hungary's headline inflation rate rose to 3.7 percent in March from 3.1 percent in February, boosted by higher fuel prices.
Core inflation rose to 3.8 percent in March from 3.5 percent in February, boosted by the hike in taxes on tobacco at the start of 2019.
The central bank confirmed its outlook for inflation to fluctuate around its target in coming quarters, with core inflation excluding indirect taxes continuing to rise until the fall when it then starts to decline.
Hungary's economy strengthened steadily through 2018 on the back of corporate and household lending and although gross domestic product is expected to slow this year from last year's 4.9 percent pace, the NBH still expects growth to remain strong.
Tuesday, April 30, 2019
Armenia holds rate, confirms easy policy for long time
Armenia's central bank left its refinancing rate unchanged at 5.75 percent, confirming it expects to maintain stimulative monetary conditions for a long time to achieve its inflation target as inflation is expected to remain below the target in coming months due to the overall macroeconomic conditions.
The Central Bank of Armenia (CBA) lowered its rate by 25 basis points in January in the first cut since February 2017 and at that time said it expected to maintain easy conditions for a long time. CBA reiterated this guidance in its previous policy decision in March.
Armenia's headline inflation rate was stable at 1.9 percent in February and March, below its target of 4.0 percent, plus/minus 1.5 percentage points.
Weakening global demand and persistent low inflationary environment is leading to more lenient monetary conditions by central banks in major economies so the CBA board said it is not expecting any inflationary pressures from the external sector in coming months.
Economic activity in Armenia in the first three months of the year was, as expected, high, with growth of 6.5 percent, supported mainly by private consumption, CBA said.
At the same time, fiscal policy acted more than a constraint on activity than expected with the deficit significantly less than forecast.
But during the year fiscal policy is expected to have a neutral impact on inflation as its contractionary effect on demand should be reversed, the bank added.
CBA said the main downside risks stem from weak private demand and tighter fiscal policy.
Armenia's dram currency has appreciated since early March and was trading at 481.5 to the U.S. dollar today, up 0.5 percent this year.
In February Armenia and International Monetary Fund (IMF) staff agreed on a 3-year precautionary, $250 million, stand-by arrangement that will be considered by the IMF board in May.
The agreement aims to support the government's reforms and strengthen the country's resilience against external shocks.
In its statement from Feb. 26, the IMF said Armenia's economy has been robust but growth moderated to more sustainable levels last year due to a slowdown in its trading partners.
This year growth is expected to ease to about 4.5 percent due to a weaker global environment and copper prices and then remain in the 4-5 percent range in the medium term.
Inflation is expected to gradually converge to CBA's target over the next 2 years, the current account deficit is expected to gradually narrow to around 5 percent of GDP and the fiscal deficit is projected at around 2.5 percent of GDP this year and 2 percent in the medium term.
The IMF added the current monetary policy stance was appropriate and it welcomed authorities' intention to maintain the existing flexible exchange rate regime.
www.CentralBankNews.info
The Central Bank of Armenia (CBA) lowered its rate by 25 basis points in January in the first cut since February 2017 and at that time said it expected to maintain easy conditions for a long time. CBA reiterated this guidance in its previous policy decision in March.
Armenia's headline inflation rate was stable at 1.9 percent in February and March, below its target of 4.0 percent, plus/minus 1.5 percentage points.
Weakening global demand and persistent low inflationary environment is leading to more lenient monetary conditions by central banks in major economies so the CBA board said it is not expecting any inflationary pressures from the external sector in coming months.
Economic activity in Armenia in the first three months of the year was, as expected, high, with growth of 6.5 percent, supported mainly by private consumption, CBA said.
At the same time, fiscal policy acted more than a constraint on activity than expected with the deficit significantly less than forecast.
But during the year fiscal policy is expected to have a neutral impact on inflation as its contractionary effect on demand should be reversed, the bank added.
CBA said the main downside risks stem from weak private demand and tighter fiscal policy.
Armenia's dram currency has appreciated since early March and was trading at 481.5 to the U.S. dollar today, up 0.5 percent this year.
In February Armenia and International Monetary Fund (IMF) staff agreed on a 3-year precautionary, $250 million, stand-by arrangement that will be considered by the IMF board in May.
The agreement aims to support the government's reforms and strengthen the country's resilience against external shocks.
In its statement from Feb. 26, the IMF said Armenia's economy has been robust but growth moderated to more sustainable levels last year due to a slowdown in its trading partners.
This year growth is expected to ease to about 4.5 percent due to a weaker global environment and copper prices and then remain in the 4-5 percent range in the medium term.
Inflation is expected to gradually converge to CBA's target over the next 2 years, the current account deficit is expected to gradually narrow to around 5 percent of GDP and the fiscal deficit is projected at around 2.5 percent of GDP this year and 2 percent in the medium term.
The IMF added the current monetary policy stance was appropriate and it welcomed authorities' intention to maintain the existing flexible exchange rate regime.
www.CentralBankNews.info
Sunday, April 28, 2019
UPDATE-This week in monetary policy: Hungary, Armenia, Bulgaria, Dominican Rep., Georgia, USA, Czech Rep., Albania, UK, Malawi & Belarus
(Following item has been updated to change the date of the monetary policy decision by the Reserve Bank of Malawi to May 3 from April 30)
This week - April 28 through May 4 - central banks from 11 countries or jurisdictions are scheduled to decide on monetary policy: Hungary, Armenia, Bulgaria, Dominican Republic, Georgia, United States, Czech Republic, Albania, United Kingdom, Malawi and Belarus.
This week - April 28 through May 4 - central banks from 11 countries or jurisdictions are scheduled to decide on monetary policy: Hungary, Armenia, Bulgaria, Dominican Republic, Georgia, United States, Czech Republic, Albania, United Kingdom, Malawi and Belarus.
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, and the rate one year ago.
The table is updated when the latest decisions are announced and can always accessed by clicking on This Week.
| WEEK 18 | |||||
| APR 28 - MAY 4, 2019: | |||||
| COUNTRY | DATE | RATE | LATEST | YTD | 1 YR AGO |
| HUNGARY | 30-Apr | 0.90% | 0 | 0 | 0.90% |
| ARMENIA | 30-Apr | 5.75% | 0 | -25 | 6.00% |
| BULGARIA | 30-Apr | 0.00% | 0 | 0 | 0.00% |
| DOMINICAN REP | 30-Apr | 5.50% | 0 | 0 | 5.25% |
| GEORGIA | 1-May | 6.50% | -25 | -50 | 7.25% |
| UNITED STATES | 1-May | 2.50% | 0 | 0 | 1.75% |
| CZECH REP. | 2-May | 1.75% | 0 | 0 | 0.75% |
| ALBANIA | 2-May | 1.00% | 0 | 0 | 1.25% |
| UNITED KINGDOM | 2-May | 0.75% | 0 | 0 | 0.50% |
| MALAWI | 3-May | 14.50% | -150 | -150 | 16.00% |
| BELARUS | 3-May | 10.00% | 0 | 0 | 10.50% |
Friday, April 26, 2019
Azerbaijan cuts rate 7th time as inflation in target range
Azerbaijan's central bank cut its benchmark discount rate for the 7th time, saying inflation within the target range, stable inflation expectations and a favorable external environment allows for the continuation of normalization of monetary policy.
The Central Bank of the Republic of Azerbaijan (CBA) cut its rate by another 25 basis points to 8.75 percent and has now lowered its key rate by a total of 625 basis points since February 2018. It is the third rate cut this year.
Azerbaijan's headline inflation rate rose to 2.1 percent in March from 1.9 percent in February, within the bank's target range of 4.0 percent, plus/minus 2 percentage points.
CBA said statement 12-month inflation in March was 2.5 percent, close to the bottom of the band, with food prices and non-food below general inflation while demand, non-monetary factors, monetary conditions and the exchange rate keeping inflation within the target range.
"Recent forecasts show that inflation will remain within the target (4+/-2%) during the rest of 2019," CBA said, adding that international finance and credit organizations also predicted inflation will remain in single digits this year.
The Central Bank of the Republic of Azerbaijan (CBA) cut its rate by another 25 basis points to 8.75 percent and has now lowered its key rate by a total of 625 basis points since February 2018. It is the third rate cut this year.
Azerbaijan's headline inflation rate rose to 2.1 percent in March from 1.9 percent in February, within the bank's target range of 4.0 percent, plus/minus 2 percentage points.
CBA said statement 12-month inflation in March was 2.5 percent, close to the bottom of the band, with food prices and non-food below general inflation while demand, non-monetary factors, monetary conditions and the exchange rate keeping inflation within the target range.
"Recent forecasts show that inflation will remain within the target (4+/-2%) during the rest of 2019," CBA said, adding that international finance and credit organizations also predicted inflation will remain in single digits this year.
Azerbaijan's inflation rate has tumbled since mid-2017 when it hit 14 percent and decelerated faster than expected in 2018, triggering CBA's rate cuts as its main priority is to keep inflation within the target range and promote economic activity.
CBA lowered its inflation target for 2019 to 4.0 percent from last year's target of 6-8 percent.
A 34 percent rise in oil prices since the start of the year helped boost Azerbaijan's trade surplus in the first quarter and the current account is expected to show a considerable surplus at the end of the year, CBA said.
Azerbaijan's economy has also been growing since the start of this year, with growth up 3.0 percent year-on-year in the first quarter as non-oil growth was up 1.7 percent.
Fiscal stimulus as part of a social reform package is expected to boost economic activity further but CBA said high domestic production is a pre-condition for higher consumer demand not to trigger excess inflationary pressure.
The exchange rate of Azerbaijan's manat has been largely steady since mid-2017 around 1.70 to the U.S. dollar.
Following the fall in crude oil prices in mid-2014, the manat came under heavy pressure as local depositors began switching into U.S. dollars. At that point, the manat was effectively pegged to the U.S. dollar so the CBA had to draw on its reserves to defend it.
But by early 2015 the CBA was forced to abandon its dollar-peg and then later that year it also abandoned a dollar-euro basket peg.
In December 2015 the CBA then switched to a floating exchange rate regime that finally helped stabilize the exchange rate.
But by early 2015 the CBA was forced to abandon its dollar-peg and then later that year it also abandoned a dollar-euro basket peg.
In December 2015 the CBA then switched to a floating exchange rate regime that finally helped stabilize the exchange rate.
Today CBA said the process of de-dollarization was continuing, with individuals' dollar savings now at 60.5 percent and residents' at 58.7 percent.
Russia maintains rate but sees possible cuts in Q2 or Q3
Russia's central bank left its key rate steady at 7.75 percent but said inflation was now subsiding after peaking in March and "if the situation develops in line with the baseline forecast, the Bank of Russia admits the possibility of turning to cutting the key rate in Q2-Q3 2019."
The Bank of Russia raised its rate twice last year in pre-emptive moves to limit inflation and today's decision was largely expected following recent statements by Governor Elvira Nabiullina in March and on April 13.
Today the central bank said the rate hikes in September and December, which followed rate cuts in February and March, "were sufficient to curb the effects of one-off pro inflationary factors" and confirmed its forecast for inflation to return to 4.0 percent in the first half of 2020.
Following the March meeting of the bank's board of directors, Nabiullina said she had every reason to believe last year's rate hikes were likely to bring inflation back to near the bank's target in the first half of 2020.
Her confidence in the path of inflation was supported by the bank's lowering of its forecast for inflation to reach 4.7-5.2 percent by the end of this year from a previous forecast of 5.0-5.5 percent.
Earlier this month in Washington D.C., Nabiullina then said she saw the probability of a rate cut this year and the rise in the rouble was helping curb price rises.
Last year's rate hikes came in response to higher import prices from a fall in the ruble, higher food prices, and a rise in consumer prices ahead of an increase in value added tax to 20 percent from 18 percent at the start of this year.
As a consequence, Russia's inflation rate accelerated in the second half of 2018 from a year-low of 2.3 percent in May and rose steadily through March this year when it hit 5.3 percent.
But the central bank said inflation had now passed the peak and decelerated to 5.1 percent as of April 22, slightly below its forecast, and the pass-through of the VAT hike to prices had largely materialized while consumer demand was still constraining inflation.
In addition, the rise in the rouble since the start of this year and declining prices for motor fuel and certain food products would temporarily slow down consumer price growth, the bank said.
Last year the rouble fell in response to fresh sanctions by the U.S. April but began to bounce back in September following the central bank's first rate hike. This year the ruble has continued to gain strength and has risen 7.7 percent so far to trade at 64.65 against the U.S. dollar today.
Inflation expectations by households rose slightly after falling in March while expectations among businesses have continued to decline but remain at an elevated level, the bank added.
Economic activity in Russia remains close to its potential but the hike in VAT slowed retail sales and business activity in the first quarter of this year and there is no upward pressure on prices from consumer demand and labour markets, the bank said, adding industrial production grew moderately but below the fourth quarter of last year.
In the fourth quarter of last year Russia's gross domestic product grew 2.7 percent year-on-year and the central bank confirmed its forecast for 2019 growth of 1.2 to 1.7 percent.
In 2018 Russia's economy grew 2.3 percent but this was above forecasts by both the central bank and the economy ministry and followed an sharp upward revision of construction growth in the first 11 months of the year by Rosstat, the federal statistics service.
The next monetary policy meeting by the bank's board is scheduled for June 14.
The Bank of Russia raised its rate twice last year in pre-emptive moves to limit inflation and today's decision was largely expected following recent statements by Governor Elvira Nabiullina in March and on April 13.
Today the central bank said the rate hikes in September and December, which followed rate cuts in February and March, "were sufficient to curb the effects of one-off pro inflationary factors" and confirmed its forecast for inflation to return to 4.0 percent in the first half of 2020.
Following the March meeting of the bank's board of directors, Nabiullina said she had every reason to believe last year's rate hikes were likely to bring inflation back to near the bank's target in the first half of 2020.
Her confidence in the path of inflation was supported by the bank's lowering of its forecast for inflation to reach 4.7-5.2 percent by the end of this year from a previous forecast of 5.0-5.5 percent.
Earlier this month in Washington D.C., Nabiullina then said she saw the probability of a rate cut this year and the rise in the rouble was helping curb price rises.
Last year's rate hikes came in response to higher import prices from a fall in the ruble, higher food prices, and a rise in consumer prices ahead of an increase in value added tax to 20 percent from 18 percent at the start of this year.
As a consequence, Russia's inflation rate accelerated in the second half of 2018 from a year-low of 2.3 percent in May and rose steadily through March this year when it hit 5.3 percent.
But the central bank said inflation had now passed the peak and decelerated to 5.1 percent as of April 22, slightly below its forecast, and the pass-through of the VAT hike to prices had largely materialized while consumer demand was still constraining inflation.
In addition, the rise in the rouble since the start of this year and declining prices for motor fuel and certain food products would temporarily slow down consumer price growth, the bank said.
Last year the rouble fell in response to fresh sanctions by the U.S. April but began to bounce back in September following the central bank's first rate hike. This year the ruble has continued to gain strength and has risen 7.7 percent so far to trade at 64.65 against the U.S. dollar today.
Inflation expectations by households rose slightly after falling in March while expectations among businesses have continued to decline but remain at an elevated level, the bank added.
Economic activity in Russia remains close to its potential but the hike in VAT slowed retail sales and business activity in the first quarter of this year and there is no upward pressure on prices from consumer demand and labour markets, the bank said, adding industrial production grew moderately but below the fourth quarter of last year.
In the fourth quarter of last year Russia's gross domestic product grew 2.7 percent year-on-year and the central bank confirmed its forecast for 2019 growth of 1.2 to 1.7 percent.
In 2018 Russia's economy grew 2.3 percent but this was above forecasts by both the central bank and the economy ministry and followed an sharp upward revision of construction growth in the first 11 months of the year by Rosstat, the federal statistics service.
The next monetary policy meeting by the bank's board is scheduled for June 14.
Thursday, April 25, 2019
Sweden holds rate but delays next hike on low inflation
Sweden's central bank left its key repo rate steady at minus 0.25 percent, as widely expected, but delayed any further tightening of its monetary policy stance by pushing back the time for its next rate hike until the end of this year or early next year to ensure inflation remains around its target.
Sveriges Riksbank in December 2018 raised its rate for the first time in 7-1/2 years and had planned to raise the rate a second time in the second half of this year as economic activity has remained solid and inflation is close to the bank's 2.0 percent target.
"However, the outcomes in recent months imply that inflationary pressures are a little weaker than expected," and together with lower inflation abroad - especially in the euro area - this indicates inflation will be lower in coming years, the Riksbank said, adding:
"The repo rate is expected to be raised again towards the end of the year or at the beginning of next year and rate rises thereafter are expected to occur at a somewhat slower pace."
The Riksbank forecast the repo rate would average minus 0.2 percent this year, the same as it forecast in February, and then rise to 0.1 percent in 2020, down from its earlier forecast of 0.3 percent, and then 0.5 percent in 2021, down from 0.8 percent.
Underscoring its continued expansionary monetary policy, the Riksbank also nsaid it would purchase government bonds at a nominal value of 45 billion Swedish crowns, or krona, between July 2019 and December 2020, an amount equal to around half of the payments and coupons it will receive on its current stock of government bonds.
As other major central banks, the Riksbank has used asset purchases - known as quantitative easing - as an additional easing tool since the global financial crises to hold down bond yields.
The Riksbank first began buying bonds in February 2015 but concluded this program in December 2017. Since then it has continued to reinvest principal payments and coupons, and at the end of March its bond holdings amounted to 316 billion krona, down from 355 billion at the end of January but up from 290 billion in December 2017.
The decision to buy 45 billion krona of bonds means the Riksbank will maintain its level of holdings close to the average level since net purchases were concluded and is part of its strategy of gradually normalizing monetary policy.
In December 2020 the Riksbank's board will decide if it wants to continue to purchase bonds and in the long run it expects its holdings to be smaller than today but the exact size is unclear.
Sweden's inflation rate has fluctuated around 2.0 percent since mid-2017 but the Riksbank said continued low inflation and low interest rates abroad, along with uncertainty over global developments "emphasize that there is a need to proceed with caution in monetary policy."
Headline inflation in Sweden was steady at 1.9 percent in the first three months of this year and is seen averaging 2.0 percent this year, down from its previous forecast of 2.2 percent,
Next year inflation is forecast to rise to 2.3 percent in 2020, down from 2.6 percent previously forecast, and then to rise to 2.6 percent in 2021, down from 3.0 percent.
Sweden's economy grew faster than expected in the fourth quarter of last year, partly due to a bounce-back from a weak third quarter, but is now expected to enter a period of lower growth due to slower demand for its exports and an easing of domestic demand from lower housing investment.
Gross domestic product is estimated to have expanded 2.3 percent in 2018 but is then expected to slow to 1.7 percent in 2019 but this is about its February forecast of 1.3 percent.
The Riksbank's forecast for 2020 and 2021 GDP growth are unchanged, at 1.9 percent and 1.8 percent, respectively.
In response to the Riksbank's decision, the krona fell almost 1-1/2 percent to 9.55 to the U.S. dollar, the lowest level since mid-2002, and is now down almost 6 percent this year.
Two of the Riksbank's deputy governors, Martin Floden and Henry Ohlsson, did not agree with the decision to buy bonds from July through December next year, saying there are risks associated with these purchases and they don't contribute to reaching the monetary policy target "in a clear way," according to the bank's release.
Sveriges Riksbank in December 2018 raised its rate for the first time in 7-1/2 years and had planned to raise the rate a second time in the second half of this year as economic activity has remained solid and inflation is close to the bank's 2.0 percent target.
"However, the outcomes in recent months imply that inflationary pressures are a little weaker than expected," and together with lower inflation abroad - especially in the euro area - this indicates inflation will be lower in coming years, the Riksbank said, adding:
"The repo rate is expected to be raised again towards the end of the year or at the beginning of next year and rate rises thereafter are expected to occur at a somewhat slower pace."
The Riksbank forecast the repo rate would average minus 0.2 percent this year, the same as it forecast in February, and then rise to 0.1 percent in 2020, down from its earlier forecast of 0.3 percent, and then 0.5 percent in 2021, down from 0.8 percent.
Underscoring its continued expansionary monetary policy, the Riksbank also nsaid it would purchase government bonds at a nominal value of 45 billion Swedish crowns, or krona, between July 2019 and December 2020, an amount equal to around half of the payments and coupons it will receive on its current stock of government bonds.
As other major central banks, the Riksbank has used asset purchases - known as quantitative easing - as an additional easing tool since the global financial crises to hold down bond yields.
The Riksbank first began buying bonds in February 2015 but concluded this program in December 2017. Since then it has continued to reinvest principal payments and coupons, and at the end of March its bond holdings amounted to 316 billion krona, down from 355 billion at the end of January but up from 290 billion in December 2017.
The decision to buy 45 billion krona of bonds means the Riksbank will maintain its level of holdings close to the average level since net purchases were concluded and is part of its strategy of gradually normalizing monetary policy.
In December 2020 the Riksbank's board will decide if it wants to continue to purchase bonds and in the long run it expects its holdings to be smaller than today but the exact size is unclear.
Sweden's inflation rate has fluctuated around 2.0 percent since mid-2017 but the Riksbank said continued low inflation and low interest rates abroad, along with uncertainty over global developments "emphasize that there is a need to proceed with caution in monetary policy."
Headline inflation in Sweden was steady at 1.9 percent in the first three months of this year and is seen averaging 2.0 percent this year, down from its previous forecast of 2.2 percent,
Next year inflation is forecast to rise to 2.3 percent in 2020, down from 2.6 percent previously forecast, and then to rise to 2.6 percent in 2021, down from 3.0 percent.
Sweden's economy grew faster than expected in the fourth quarter of last year, partly due to a bounce-back from a weak third quarter, but is now expected to enter a period of lower growth due to slower demand for its exports and an easing of domestic demand from lower housing investment.
Gross domestic product is estimated to have expanded 2.3 percent in 2018 but is then expected to slow to 1.7 percent in 2019 but this is about its February forecast of 1.3 percent.
The Riksbank's forecast for 2020 and 2021 GDP growth are unchanged, at 1.9 percent and 1.8 percent, respectively.
In response to the Riksbank's decision, the krona fell almost 1-1/2 percent to 9.55 to the U.S. dollar, the lowest level since mid-2002, and is now down almost 6 percent this year.
Two of the Riksbank's deputy governors, Martin Floden and Henry Ohlsson, did not agree with the decision to buy bonds from July through December next year, saying there are risks associated with these purchases and they don't contribute to reaching the monetary policy target "in a clear way," according to the bank's release.
Ukraine cuts rate 50 bps, inflation determines next step
Ukraine's central bank lowered its policy rate for the first time in 8 months as inflation has steadily declined but it remains careful about the next step in a new cycle of easing as there are risks that may hinder these plans and "further steps will depend on the realization of inflation risks and an improvement in inflation expectations."
The National Bank of Ukraine (NBU) cut its key policy rate by 50 basis points to 17.50 percent, the first easing after a monetary tightening cycle from October 2017 to September 2018 that included 6 rate hikes and a total increase in the key rate of 550 points.
After the hike in September the NBU maintained its rate 18.0 percent, quickly boosting the exchange rate of the hryvnia and thus lowering import prices and inflation.
But inflation was slow to decline and remained above the bank's target of 6.0 percent for the end of 2018 due higher administered prices, tariffs, oil, and strong consumer demand and wages. In 2018 inflation averaged 9.8 percent, down from 13.7 percent in 2017.
But since December inflation has fallen and last month NBU said it may switch to a monetary easing cycle if new forecasts in April show falling risks of inflation and improved expectations.
In line with its forecast from January, Ukraine's inflation rate has continued to decelerate with headline inflation falling to 8.6 percent in March and core inflation falling to 7.6 percent, "evidence that underlying inflationary pressures continued to weaken in early 2019," NBU said.
NBU said it still expects inflation to decline to 6.3 percent by the end of this year and then drop into its target range of 5.0 percent, plus/minus 1 percentage point, in early 2020 as wage growth slows, prices for natural gas decline, food product supply improves and the rise in the hryvnia helps limit the rise in the prices of non-foods.
This will also help core inflation slow to 5.0 percent this year and then 3.7 percent in 2020 while further rise in tariffs to market levels and higher taxes on alcohol and tobacco restrains price falls.
"Despite the electoral events, the situation on the Ukrainian financial market remains benign and inflation expectations continue to improve among households, businesses, banks, and financial analysts," NBU said, referring to the election of comedian Volodymyr Zelenskiy as president.
As in January, the central bank expects Ukraine's economy to slow this year to growth of 2.5 percent from an estimated 3.3 percent in 2018 due to slower global growth and trade, tight fiscal policy to repay debt, and continued tight monetary policy.
In 2020 the central bank expects growth to accelerate to 2.9 percent and then 3.7 percent in 2021, boosted by its gradual easing of monetary policy that will bolster domestic demand and spur investments once the parliamentary elections are over this year.
In addition to the uncertainty surrounding the presidential and parliamentary elections, NBU said a range of external risks were important, including the risk of global recession and lower commodity prices, stronger geopolitical tensions, uncertainty over gas transit in 2020 and pipelines being constructed, and any escalation of military conflict and trade restrictions by Russia.
The hryvnia was trading at 26.7 to the U.S. dollar today, up 3 percent this year.
The National Bank of Ukraine (NBU) cut its key policy rate by 50 basis points to 17.50 percent, the first easing after a monetary tightening cycle from October 2017 to September 2018 that included 6 rate hikes and a total increase in the key rate of 550 points.
After the hike in September the NBU maintained its rate 18.0 percent, quickly boosting the exchange rate of the hryvnia and thus lowering import prices and inflation.
But inflation was slow to decline and remained above the bank's target of 6.0 percent for the end of 2018 due higher administered prices, tariffs, oil, and strong consumer demand and wages. In 2018 inflation averaged 9.8 percent, down from 13.7 percent in 2017.
But since December inflation has fallen and last month NBU said it may switch to a monetary easing cycle if new forecasts in April show falling risks of inflation and improved expectations.
In line with its forecast from January, Ukraine's inflation rate has continued to decelerate with headline inflation falling to 8.6 percent in March and core inflation falling to 7.6 percent, "evidence that underlying inflationary pressures continued to weaken in early 2019," NBU said.
NBU said it still expects inflation to decline to 6.3 percent by the end of this year and then drop into its target range of 5.0 percent, plus/minus 1 percentage point, in early 2020 as wage growth slows, prices for natural gas decline, food product supply improves and the rise in the hryvnia helps limit the rise in the prices of non-foods.
This will also help core inflation slow to 5.0 percent this year and then 3.7 percent in 2020 while further rise in tariffs to market levels and higher taxes on alcohol and tobacco restrains price falls.
"Despite the electoral events, the situation on the Ukrainian financial market remains benign and inflation expectations continue to improve among households, businesses, banks, and financial analysts," NBU said, referring to the election of comedian Volodymyr Zelenskiy as president.
As in January, the central bank expects Ukraine's economy to slow this year to growth of 2.5 percent from an estimated 3.3 percent in 2018 due to slower global growth and trade, tight fiscal policy to repay debt, and continued tight monetary policy.
In 2020 the central bank expects growth to accelerate to 2.9 percent and then 3.7 percent in 2021, boosted by its gradual easing of monetary policy that will bolster domestic demand and spur investments once the parliamentary elections are over this year.
In addition to the uncertainty surrounding the presidential and parliamentary elections, NBU said a range of external risks were important, including the risk of global recession and lower commodity prices, stronger geopolitical tensions, uncertainty over gas transit in 2020 and pipelines being constructed, and any escalation of military conflict and trade restrictions by Russia.
The hryvnia was trading at 26.7 to the U.S. dollar today, up 3 percent this year.
Turkey maintains rate but no longer sees need to tighten
Turkey's central bank left its policy rate steady at 24.0 percent and its commitment to maintain a tight monetary policy stance until there is a significant improvement in the outlook for inflation but also turned slightly less hawkish by omitting any reference to further monetary tightening.
As in March, the Central Bank of the Republic of Turkey (CBRT) said there had been some improvement in inflation indicators but higher food and import prices along with high inflation expectations continue to pose risks to price stability.
"Accordingly, the Committee has decided to maintain the tight monetary policy stance until inflation outlook displays a significant improvement," the bank's monetary policy committee said, reiterating its commitment to keep interest rates in order to push inflation down toward its target of 5.0 percent.
"Factors affecting inflation will be closely monitored and monetary stance will be determined to keep inflation in line with the targeted path," the central bank said, dropping its previous reference to closely monitoring factors that affect inflation and "if needed, further monetary tightening will be delivered."
It is the first major change in CBRT's policy stance since September 2018 when it raised its key rate by 6.25 percentage points in the wake of rate hikes in May and June, bringing the total tightening in 2018 to 16 percentage points.
The reaction of financial markets was swift, with the lira dropping 1.3 percent to 5.98 to the U.S. dollar to be down 11.7 percent this year and 36.4 percent since the start of 2018.
In 2018 the lira fell 28 percent against the dollar, pushing up inflation, dampening sentiment and making it more expensive for companies and banks to service their debt.
The change in tone by CBRT is bound to reinforce investors' concern over the independence of the central bank amid a steady barrage of criticism over its high interest rates by Turkish President Recep Tayyip Erdogan.
Turkey's headline inflation rate rose slightly to 19.71 percent in March from 19.67 percent in February and a poll by Reuters earlier this month showed inflation is only expected to drop to 15.5 percent by the end of this year, in line with government forecasts.
Turkey's economy is in recession after contracting by 2.4 percent and 1.6 percent, respectively, in the third and fourth quarters of 2018 and the International Monetary Fund has forecast a 2.5 percent contraction this year and 2.5 percent growth in 2020.
As in March, the Central Bank of the Republic of Turkey (CBRT) said there had been some improvement in inflation indicators but higher food and import prices along with high inflation expectations continue to pose risks to price stability.
"Accordingly, the Committee has decided to maintain the tight monetary policy stance until inflation outlook displays a significant improvement," the bank's monetary policy committee said, reiterating its commitment to keep interest rates in order to push inflation down toward its target of 5.0 percent.
"Factors affecting inflation will be closely monitored and monetary stance will be determined to keep inflation in line with the targeted path," the central bank said, dropping its previous reference to closely monitoring factors that affect inflation and "if needed, further monetary tightening will be delivered."
It is the first major change in CBRT's policy stance since September 2018 when it raised its key rate by 6.25 percentage points in the wake of rate hikes in May and June, bringing the total tightening in 2018 to 16 percentage points.
The reaction of financial markets was swift, with the lira dropping 1.3 percent to 5.98 to the U.S. dollar to be down 11.7 percent this year and 36.4 percent since the start of 2018.
In 2018 the lira fell 28 percent against the dollar, pushing up inflation, dampening sentiment and making it more expensive for companies and banks to service their debt.
The change in tone by CBRT is bound to reinforce investors' concern over the independence of the central bank amid a steady barrage of criticism over its high interest rates by Turkish President Recep Tayyip Erdogan.
Turkey's headline inflation rate rose slightly to 19.71 percent in March from 19.67 percent in February and a poll by Reuters earlier this month showed inflation is only expected to drop to 15.5 percent by the end of this year, in line with government forecasts.
Turkey's economy is in recession after contracting by 2.4 percent and 1.6 percent, respectively, in the third and fourth quarters of 2018 and the International Monetary Fund has forecast a 2.5 percent contraction this year and 2.5 percent growth in 2020.
Wednesday, April 24, 2019
BOJ to keep extremely low rates to at least spring 2020
Acknowledging "high uncertainties regarding the outlook for economic activity and prices," the Bank of Japan (BOJ) said it will maintain its current policy of extremely low interest rates at least to the spring of 2020 and relax its standards for collateral used to obtain credit.
Since September 2016 the BOJ has employed ultra-easy monetary policy that uses a combination of a negative interest rate of minus 0.1 percent to banks' reserves that exceed reserve requirements along with asset purchases aimed at keeping Japanese government bond yields around zero percent.
While the BOJ confirmed it will maintain this negative interest rate and buy government bonds of around 80 trillion yen to keep yields low, it said it wanted to clarify that it will "persistently continue with powerful monetary easing" and in the case of a rapid rise in bond yields, it would purchase Japanese government bonds, or JGBs, "promptly and appropriately."
"The Bank intends to maintain the current extremely low levels of short- and long-term interest rates for an extended period of time, at least through around spring 2020, taking into account uncertainties regarding economic activity and prices including developments in overseas economies and the effects of the scheduled consumption tax hike (in October 2019)," BOJ said.
It is the first time the BOJ has included a time frame for its ultra-easy monetary. Its recent guidance, for example, in March merely stated it would "maintain the current extremely low levels of short- and long-term interest rates for an extended period of time."
The BOJ still expects Japan's economy to continue to expand through fiscal 2021 despite the impact of slower global growth, with domestic demand continuing to trend upwards and exports rising moderately despite some weakness.
"With regard to the risk balance, risks to both economic activity and prices are skewed to the downside," BOJ said in it its latest economic outlook.
Inflation, which remains far below BOJ's 2.0 percent target, is still expected to slowly rise toward 2.0 percent but it acknowledged that momentum toward meeting this target is "not yet sufficiently firm, and thus developments in prices continue to warrant careful attention."
In March Japan's headline inflation rate rose to 0.5 percent from 0.2 percent in February and January while gross domestic product only grew an annual 0.3 percent in the fourth quarter, up from 0.1 percent in the third quarter.
The BOJ lowered its estimate for GDP growth for fiscal 2018, which ended April 1, to 0.6 percent from January's forecast of 0.9 percent.
For fiscal 2019, Japan's economy is seen growing 0.8 percent, down from a previous 0.9 percent, and for fiscal 2020 the economy is seen growing 0.9 percent, down from 1.0 percent seen in January. For fiscal 2021, the BOJ forecast growth of 1.2 percent.
Inflation for fiscal 2018 was estimated at 0.8 percent and at 1.1 percent for fiscal 2019, unchanged from January. For fiscal 2020 inflation for all items was forecast at 1.4 percent, down from January's forecast of 1.5 percent and for fiscal 2021 inflation is seen at 1.6 percent, still below its target.
Since September 2016 the BOJ has employed ultra-easy monetary policy that uses a combination of a negative interest rate of minus 0.1 percent to banks' reserves that exceed reserve requirements along with asset purchases aimed at keeping Japanese government bond yields around zero percent.
While the BOJ confirmed it will maintain this negative interest rate and buy government bonds of around 80 trillion yen to keep yields low, it said it wanted to clarify that it will "persistently continue with powerful monetary easing" and in the case of a rapid rise in bond yields, it would purchase Japanese government bonds, or JGBs, "promptly and appropriately."
"The Bank intends to maintain the current extremely low levels of short- and long-term interest rates for an extended period of time, at least through around spring 2020, taking into account uncertainties regarding economic activity and prices including developments in overseas economies and the effects of the scheduled consumption tax hike (in October 2019)," BOJ said.
It is the first time the BOJ has included a time frame for its ultra-easy monetary. Its recent guidance, for example, in March merely stated it would "maintain the current extremely low levels of short- and long-term interest rates for an extended period of time."
The BOJ still expects Japan's economy to continue to expand through fiscal 2021 despite the impact of slower global growth, with domestic demand continuing to trend upwards and exports rising moderately despite some weakness.
"With regard to the risk balance, risks to both economic activity and prices are skewed to the downside," BOJ said in it its latest economic outlook.
Inflation, which remains far below BOJ's 2.0 percent target, is still expected to slowly rise toward 2.0 percent but it acknowledged that momentum toward meeting this target is "not yet sufficiently firm, and thus developments in prices continue to warrant careful attention."
In March Japan's headline inflation rate rose to 0.5 percent from 0.2 percent in February and January while gross domestic product only grew an annual 0.3 percent in the fourth quarter, up from 0.1 percent in the third quarter.
The BOJ lowered its estimate for GDP growth for fiscal 2018, which ended April 1, to 0.6 percent from January's forecast of 0.9 percent.
For fiscal 2019, Japan's economy is seen growing 0.8 percent, down from a previous 0.9 percent, and for fiscal 2020 the economy is seen growing 0.9 percent, down from 1.0 percent seen in January. For fiscal 2021, the BOJ forecast growth of 1.2 percent.
Inflation for fiscal 2018 was estimated at 0.8 percent and at 1.1 percent for fiscal 2019, unchanged from January. For fiscal 2020 inflation for all items was forecast at 1.4 percent, down from January's forecast of 1.5 percent and for fiscal 2021 inflation is seen at 1.6 percent, still below its target.
Canada maintains rate but drops reference to rate hikes
Canada's central bank left its benchmark target for the overnight unchanged for the fourth time in a row and turned even more dovish by dropping any references to the need for further rate hikes and signaling it may even consider cutting interest rates.
The Bank of Canada (BOC), which has maintained its key rate at 1.75 percent since October 2018 when it raised it for the 5th time since July 2017, said economic growth has slowed even more than it forecast in January and "an accommodative policy interest rate continues to be warranted."
"We will continue to evaluate the appropriate degree of monetary policy accommodation as new data arrive," BOC said in its statement, adding it was keeping a close eye on household spending, oil markets and global trade policy to see how factors that are weighing on growth dissipate.
In January the BOC lowered its growth forecast and then in March it began its shift toward a more dovish policy stance - a shift also seen in the U.S. and Europe - by saying there was increased uncertainty about the timing of further rate hikes in light of slowing economic growth.
"Ongoing uncertainty related to trade conflicts has undermined business sentiment and activity, contributing to a synchronous slowdown across many countries," BOC said.
Canada's economy slowed in the second half of last year and growth in the first half of this year is now expected to be even slower than anticipated in January as last year's fall in oil prices and transportation limits had curbed investment and exports in the energy sector while investment and exports in other sectors had been affected by trade policy uncertainty and the global economic slowdown.
Gross domestic product growth in the fourth quarter of 2018 fell to only 0.1 percent from the third quarter for annual growth of 1.6 percent, down from 1.9 percent in the third quarter.
But GDP grew 0.3 percent in January from December after two straight months of decline and BOC expects growth to pick up in the second quarter, helped by the decision by major central banks to slow down the pace of monetary policy normalization, which has improved financial conditions and sentiment in financial markets.
"Our belief is that the slowdown of growth to a below-potential pace will prove to be temporary," BOC Governor Stephen Poloz said.
In its latest monetary policy report, BOC lowered its forecast for 2019 economic growth to 1.2 percent from January's forecast of 1.7 percent, and its 2018 estimate to 1.8 percent from 2.0 percent.
The forecast for 2020 was unchanged at 2.1 percent and for 2021 growth is seen at 2.0 percent.
Canada's headline inflation rate has ticked up in the last three months to 1.9 percent in March along with core inflation, which also rose to 1.6 percent.
BOC raised its forecast for 2019 headline inflation to 1.9 percent from January's 1.7 percent forecast and down from 2.3 percent in 2018. For 2020 and 2021 inflation is seen at BOC's target of 2.0 percent.
A further illustration of the weakening outlook came from the central bank's lowering of its estimate of the neutral rate by 25 basis points to 2.25 - 3.25 percent from its 2018 estimate. The neutral rate is the rate that is consistent with economic activity at its potential level and inflation around the BOC's 2.0 percent target.
In response to the central bank's policy statement, the Canadian dollar dropped 0.5 percent to 1.351 per U.S. dollar but later bounced back to 1.349 to be up 0.8 percent since the start of this year.
The Bank of Canada (BOC), which has maintained its key rate at 1.75 percent since October 2018 when it raised it for the 5th time since July 2017, said economic growth has slowed even more than it forecast in January and "an accommodative policy interest rate continues to be warranted."
"We will continue to evaluate the appropriate degree of monetary policy accommodation as new data arrive," BOC said in its statement, adding it was keeping a close eye on household spending, oil markets and global trade policy to see how factors that are weighing on growth dissipate.
In January the BOC lowered its growth forecast and then in March it began its shift toward a more dovish policy stance - a shift also seen in the U.S. and Europe - by saying there was increased uncertainty about the timing of further rate hikes in light of slowing economic growth.
"Ongoing uncertainty related to trade conflicts has undermined business sentiment and activity, contributing to a synchronous slowdown across many countries," BOC said.
Canada's economy slowed in the second half of last year and growth in the first half of this year is now expected to be even slower than anticipated in January as last year's fall in oil prices and transportation limits had curbed investment and exports in the energy sector while investment and exports in other sectors had been affected by trade policy uncertainty and the global economic slowdown.
Gross domestic product growth in the fourth quarter of 2018 fell to only 0.1 percent from the third quarter for annual growth of 1.6 percent, down from 1.9 percent in the third quarter.
But GDP grew 0.3 percent in January from December after two straight months of decline and BOC expects growth to pick up in the second quarter, helped by the decision by major central banks to slow down the pace of monetary policy normalization, which has improved financial conditions and sentiment in financial markets.
"Our belief is that the slowdown of growth to a below-potential pace will prove to be temporary," BOC Governor Stephen Poloz said.
In its latest monetary policy report, BOC lowered its forecast for 2019 economic growth to 1.2 percent from January's forecast of 1.7 percent, and its 2018 estimate to 1.8 percent from 2.0 percent.
The forecast for 2020 was unchanged at 2.1 percent and for 2021 growth is seen at 2.0 percent.
Canada's headline inflation rate has ticked up in the last three months to 1.9 percent in March along with core inflation, which also rose to 1.6 percent.
BOC raised its forecast for 2019 headline inflation to 1.9 percent from January's 1.7 percent forecast and down from 2.3 percent in 2018. For 2020 and 2021 inflation is seen at BOC's target of 2.0 percent.
A further illustration of the weakening outlook came from the central bank's lowering of its estimate of the neutral rate by 25 basis points to 2.25 - 3.25 percent from its 2018 estimate. The neutral rate is the rate that is consistent with economic activity at its potential level and inflation around the BOC's 2.0 percent target.
In response to the central bank's policy statement, the Canadian dollar dropped 0.5 percent to 1.351 per U.S. dollar but later bounced back to 1.349 to be up 0.8 percent since the start of this year.
Sunday, April 21, 2019
This week in monetary policy: Botswana, Canada, Paraguay, Fiji, Japan, Indonesia, Sweden, Turkey, Ukraine, Mozambique, Russia, Azerbaijan & Colombia
This week - April 21 through April 27 - central banks from 13 countries or jurisdictions are scheduled to decide on monetary policy: Botswana, Canada, Paraguay, Fiji, Japan, Indonesia, Sweden, Turkey, Ukraine, Mozambique, Russia, Azerbaijan and Colombia.
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, and the rate one year ago.
The table is updated when the latest decisions are announced and can always accessed by clicking on This Week.
| WEEK 17 | |||||
| APR 21 - APR 27, 2019: | |||||
| COUNTRY | DATE | RATE | LATEST | YTD | 1 YR AGO |
| BOTSWANA | 24-Apr | 5.00% | 0 | 0 | 5.00% |
| CANADA | 24-Apr | 1.75% | 0 | 0 | 1.25% |
| PARAGUAY | 24-Apr | 4.75% | -25 | -50 | 5.25% |
| FIJI | 25-Apr | 0.50% | 0 | 0 | 0.50% |
| JAPAN | 25-Apr | -0.10% | 0 | 0 | -0.10% |
| INDONESIA | 25-Apr | 6.00% | 0 | 0 | 4.25% |
| SWEDEN | 25-Apr | -0.25% | 0 | 0 | -0.50% |
| TURKEY | 25-Apr | 24.00% | 0 | 0 | 8.00% |
| UKRAINE | 25-Apr | 18.00% | 0 | 0 | 17.00% |
| MOZAMBIQUE | 25-Apr | 14.25% | 0 | 0 | 16.50% |
| RUSSIA | 26-Apr | 7.75% | 0 | 0 | 7.25% |
| AZERBAIJAN | 26-Apr | 9.00% | -25 | -75 | 11.00% |
| COLOMBIA | 26-Apr | 4.25% | 0 | 0 | 4.25% |
Saturday, April 20, 2019
Uzbekistan holds rate to lower inflation and expectations
Uzbekistan's central bank left its key refinancing rate unchanged at 16.0 percent, saying this moderately tight monetary policy would continue to curb inflation and consolidate the declining trend of inflationary expectations.
The Central Bank of the Republic of Uzbekistan (CBU), which has maintained its rate since a 200 basis point hike in September 2018, said it retained its forecast for inflation this year of 13.5-15.5 percent but would lower it for the first half of the year if it was confident inflation would decelerate.
Inflation in land-locked Uzbekistan, east of the Caspian Sea, was near the lower border of the central bank's forecast in the first quarter of this year at 13.6 percent, lower than expected, with the main forces emanating from continued economic reforms, including an increase in energy tariffs for businesses in November 2018, an expansion in the number of firms paying value-added-tax (VAT) and a slight weakening of the national currency, the som.
Inflation in the second and third quarters of this year is is expected to be close to last year. In 2018 and 2017 inflation averaged 14.3 percent and 14.4 percent, respectively.
In the fourth quarter of this year the central bank expects a decline in inflation, partly due to the comparison with the fourth quarter of 2018, and inflation should approach the lower boundary of its inflation forecast.
Inflationary expectations by businesses and the public in the medium term remain higher than for the short term, showing some concern by respondents about a rise in prices, CBU said.
The exchange rate of the som has been depreciating gradually this year, after a sharp fall in September last year, and was trading around 8,455 to the U.S. dollar, down 1.4 percent this year.
Uzbekistan's economy is in the midst of major economic reforms begun in 2016, with reforms so far including liberalization of foreign exchange, tax reform and an upgrade in the quality and availability of economic statistics.
Last week the central bank said it was implementing three major projects to upgrade the payment system, which in a few months will allow the interbank payment system to function 24 hours, 7 days a week in contrast to the current system which doesn't permit financial transactions after 5 p.m. local time and on the weekends and holidays.
Economic activity in the first quarter of this year was in line with CBU's forecast, with the growth of credit in som slowing to 8.6 percent from 16.7 percent in the first quarter of last year.
In March the International Monetary Fund (IMF) said excessive credit growth - mainly funded by the government - was a major risk to macroeconomic stability as rapid growth had helped finance a surge in capital imports and bolstered investment in housing and infrastructure following decades of underinvestment.
"Given persistent inflationary pressure, the monetary stance needs to remain tight," IMF said last month, noting CBU aimed to bring inflation back to single digits and to facilitate the move to inflation targeting a new central bank law should provide CBU will sufficient independence to conduct its policies effectively.
The IMF expects growth in Uzbekistan to pick up to 5.5 percent this year, from 5.1 percent in 2018, and then 6.0 percent in 2020 and 2021. Despite lower commodity prices and slowing external demand, strong investment and private consumption should underpin growth.
IMF forecast inflation will hover around 15 percent this year, reflecting the delayed impact of energy price hikes for businesses in November last year, robust wage growth and projected increases in VAT collections as the number of firms paying VAT has risen significantly.
IMF forecast inflation will average 15.6 percent this year and then decelerate to 12.4 percent in 2020 and 9.1 percent in 2021.
www.CentralBankNews.info
The Central Bank of the Republic of Uzbekistan (CBU), which has maintained its rate since a 200 basis point hike in September 2018, said it retained its forecast for inflation this year of 13.5-15.5 percent but would lower it for the first half of the year if it was confident inflation would decelerate.
Inflation in land-locked Uzbekistan, east of the Caspian Sea, was near the lower border of the central bank's forecast in the first quarter of this year at 13.6 percent, lower than expected, with the main forces emanating from continued economic reforms, including an increase in energy tariffs for businesses in November 2018, an expansion in the number of firms paying value-added-tax (VAT) and a slight weakening of the national currency, the som.
Inflation in the second and third quarters of this year is is expected to be close to last year. In 2018 and 2017 inflation averaged 14.3 percent and 14.4 percent, respectively.
In the fourth quarter of this year the central bank expects a decline in inflation, partly due to the comparison with the fourth quarter of 2018, and inflation should approach the lower boundary of its inflation forecast.
Inflationary expectations by businesses and the public in the medium term remain higher than for the short term, showing some concern by respondents about a rise in prices, CBU said.
The exchange rate of the som has been depreciating gradually this year, after a sharp fall in September last year, and was trading around 8,455 to the U.S. dollar, down 1.4 percent this year.
Uzbekistan's economy is in the midst of major economic reforms begun in 2016, with reforms so far including liberalization of foreign exchange, tax reform and an upgrade in the quality and availability of economic statistics.
Last week the central bank said it was implementing three major projects to upgrade the payment system, which in a few months will allow the interbank payment system to function 24 hours, 7 days a week in contrast to the current system which doesn't permit financial transactions after 5 p.m. local time and on the weekends and holidays.
Economic activity in the first quarter of this year was in line with CBU's forecast, with the growth of credit in som slowing to 8.6 percent from 16.7 percent in the first quarter of last year.
In March the International Monetary Fund (IMF) said excessive credit growth - mainly funded by the government - was a major risk to macroeconomic stability as rapid growth had helped finance a surge in capital imports and bolstered investment in housing and infrastructure following decades of underinvestment.
"Given persistent inflationary pressure, the monetary stance needs to remain tight," IMF said last month, noting CBU aimed to bring inflation back to single digits and to facilitate the move to inflation targeting a new central bank law should provide CBU will sufficient independence to conduct its policies effectively.
The IMF expects growth in Uzbekistan to pick up to 5.5 percent this year, from 5.1 percent in 2018, and then 6.0 percent in 2020 and 2021. Despite lower commodity prices and slowing external demand, strong investment and private consumption should underpin growth.
IMF forecast inflation will hover around 15 percent this year, reflecting the delayed impact of energy price hikes for businesses in November last year, robust wage growth and projected increases in VAT collections as the number of firms paying VAT has risen significantly.
IMF forecast inflation will average 15.6 percent this year and then decelerate to 12.4 percent in 2020 and 9.1 percent in 2021.
www.CentralBankNews.info
Thursday, April 18, 2019
Credit to non-bank financial firms continues to grow-BIS
The rapid growth of credit to non-bank financial institutions (NBFIs) since the global financial crises continued in the fourth quarter of 2018 when total worldwide cross-border bank claims grew only 1.0 percent, according to the Bank for International Settlements (BIS).
After growing in 2016, global cross-border lending was largely steady in the last 2 years as higher lending to borrowers from advanced economies in 2018 was offset by a decline in lending to borrowers from emerging and developing economies, and offshore centers, BIS said in its latest release of international banking statistics for the end of 2018.
Total global cross-border claims grew by $134 billion, or 1.0 percent year-on-year, during the fourth quarter of last year to an outstanding amount of $29 trillion, propelled by an 8 percent rise in claims on NBFIs, short-hand for an vast number of firms that provide financial services but do not have a full banking license and do not accept customer deposits.
One of the effects of the global financial crises was that banking regulators tightened their supervision of major banks, forcing them to retreat from some riskier financing operations.
Into this breach, stepped non-bank financial firms, such as insurance companies, specialized lenders, or institutional investors such as pension funds and brokerage firms.
Between end-2015 and end-2018 cross-border claims on NBFIs grew by an annual pace of 8 percent in stark contrast to 0 percent growth in lending to banks and only 2 percent growth in lending to non-financial borrowers.
Another illustration of the shrinking role of banks is that cross-border claims on banks fell by an annual 1 percent by end-2018 while claims on non-banks was up by nearly 5 percent, data from BIS, know as the central banks' bank, showed.
The bulk of credit to NBFIs, nearly 80 percent, is focused on a small number of jurisdictions, with nearly half of the total global stock of $6 trillion in claims against borrowers in the US (24 percent), the euro area (23 percent), the Cayman Islands (18 percent) and the UK (14 percent).
After rising sharply in 2016 and 2017, lending to emerging and developing economies slowed last year, especially to borrowers in developing Europe, while lending to Latin American revived.
Overall claims on emerging market and developing economies slowed from 9 percent growth at the end of 2017 to 3 percent by the end of 2018, with roughly half of the $30 billion in claims in the fourth quarter going to borrowers in developing Asia and Pacific.
Claims on Asia and Pacific rose $15 billion in the fourth quarter, bringing annual growth to 5 percent, with claims on China up $9 billion, the Philippines by $4 billion, Indonesia by $3 billion and Thailand by $2 billion.
In contrast, cross-border lending to Taiwan fell by $11 billion, Swiss-based BIS said.
Click here to read BIS international banking statistics at end-December 2018
www.CentralBankNews.info
After growing in 2016, global cross-border lending was largely steady in the last 2 years as higher lending to borrowers from advanced economies in 2018 was offset by a decline in lending to borrowers from emerging and developing economies, and offshore centers, BIS said in its latest release of international banking statistics for the end of 2018.
Total global cross-border claims grew by $134 billion, or 1.0 percent year-on-year, during the fourth quarter of last year to an outstanding amount of $29 trillion, propelled by an 8 percent rise in claims on NBFIs, short-hand for an vast number of firms that provide financial services but do not have a full banking license and do not accept customer deposits.
One of the effects of the global financial crises was that banking regulators tightened their supervision of major banks, forcing them to retreat from some riskier financing operations.
Into this breach, stepped non-bank financial firms, such as insurance companies, specialized lenders, or institutional investors such as pension funds and brokerage firms.
Between end-2015 and end-2018 cross-border claims on NBFIs grew by an annual pace of 8 percent in stark contrast to 0 percent growth in lending to banks and only 2 percent growth in lending to non-financial borrowers.
Another illustration of the shrinking role of banks is that cross-border claims on banks fell by an annual 1 percent by end-2018 while claims on non-banks was up by nearly 5 percent, data from BIS, know as the central banks' bank, showed.
The bulk of credit to NBFIs, nearly 80 percent, is focused on a small number of jurisdictions, with nearly half of the total global stock of $6 trillion in claims against borrowers in the US (24 percent), the euro area (23 percent), the Cayman Islands (18 percent) and the UK (14 percent).
After rising sharply in 2016 and 2017, lending to emerging and developing economies slowed last year, especially to borrowers in developing Europe, while lending to Latin American revived.
Overall claims on emerging market and developing economies slowed from 9 percent growth at the end of 2017 to 3 percent by the end of 2018, with roughly half of the $30 billion in claims in the fourth quarter going to borrowers in developing Asia and Pacific.
Claims on Asia and Pacific rose $15 billion in the fourth quarter, bringing annual growth to 5 percent, with claims on China up $9 billion, the Philippines by $4 billion, Indonesia by $3 billion and Thailand by $2 billion.
In contrast, cross-border lending to Taiwan fell by $11 billion, Swiss-based BIS said.
Click here to read BIS international banking statistics at end-December 2018
www.CentralBankNews.info
Monday, April 15, 2019
Kazakhstan cuts rate 25 bps, inflation expectations ease
Kazakhstan's central bank lowered its base rate by 25 basis points to 9.0 percent, the first change in since a rate hike in October 2018, saying this cut should help keep inflation within the target corridor in 2019 and 2010 while maintaining economic growth.
The National Bank of Kazakhstan (NBK) said future decisions about the base rate will depend on how inflation evolves as compared with its forecast and expectations for 2020.
Today's policy easing comes after Kazakhstan's new president, Kassym-Jomart Tokayev, on April 12 ordered the central bank to find ways to lower banks' lending rates, according to Reuters.
Tokayev, former speaker of the country's upper house, was named interim head of state until an election on June 9 following President Nursultan Nazarbayev's surprise resignation in March after almost 30 years in office.
Nazarbayev, 78, led oil-rich Kazakhstan since 1989 when it was still part of the Soviet Union and was then elected president in 1991 and re-elected in successive elections, most recently in 2015.
In February Nazarbayev accepted the resignation of NBK's chairman, Daniyar Akishev, and nominated cabinet minister Erbolat Dossaev, 48, as his replacement as part of a broader reshuffling of the cabinet.
The change in NBK leadership followed Nazarbayev's call on the central bank and the government cabinet to boost economic growth to 5 percent this year from an estimated 4.1 percent in 2018.
Inflation in Kazakhstan was steady at 4.8 percent in March and February, within NBK's target corridor of 4.0-6.0 percent, and the central bank noted a slowdown in inflation in its major trading partners as well as higher commodity prices, including oil prices.
However, NBK said inflation expectations had continued to decline and this should have a beneficial effect on stabilizing inflation in the future.
In NBK's quarterly forecast from March, inflation expectations 12 months ahead were 4.5 percent, with the inflation trajectory revised downwards from the November-December forecast.
By 2020 some inflationary risks were possible from the waning impact of lower tariffs on regulated services, continued growth in consumer demand from fiscal stimulus and the gradual elimination of the output gap by the end of third quarter of 2020, the inflation report said.
Domestic demand in Kazakhstan expanded 9.4 percent in the first two months of this year on an annual basis, helped by higher income and a 13.5 percent rise in consumer loans.
In its inflation report NBK forecast that economic growth in 2019-2020 would slow to below 4.0 percent, around its potential, with domestic demand the key driver.
In the fourth quarter of last year, Kazakhstan's gross domestic product grew an unchanged 4.1 percent year-on-year from the third quarter.
www.CentralBankNews.info
The National Bank of Kazakhstan (NBK) said future decisions about the base rate will depend on how inflation evolves as compared with its forecast and expectations for 2020.
Today's policy easing comes after Kazakhstan's new president, Kassym-Jomart Tokayev, on April 12 ordered the central bank to find ways to lower banks' lending rates, according to Reuters.
Tokayev, former speaker of the country's upper house, was named interim head of state until an election on June 9 following President Nursultan Nazarbayev's surprise resignation in March after almost 30 years in office.
Nazarbayev, 78, led oil-rich Kazakhstan since 1989 when it was still part of the Soviet Union and was then elected president in 1991 and re-elected in successive elections, most recently in 2015.
In February Nazarbayev accepted the resignation of NBK's chairman, Daniyar Akishev, and nominated cabinet minister Erbolat Dossaev, 48, as his replacement as part of a broader reshuffling of the cabinet.
The change in NBK leadership followed Nazarbayev's call on the central bank and the government cabinet to boost economic growth to 5 percent this year from an estimated 4.1 percent in 2018.
Inflation in Kazakhstan was steady at 4.8 percent in March and February, within NBK's target corridor of 4.0-6.0 percent, and the central bank noted a slowdown in inflation in its major trading partners as well as higher commodity prices, including oil prices.
However, NBK said inflation expectations had continued to decline and this should have a beneficial effect on stabilizing inflation in the future.
In NBK's quarterly forecast from March, inflation expectations 12 months ahead were 4.5 percent, with the inflation trajectory revised downwards from the November-December forecast.
By 2020 some inflationary risks were possible from the waning impact of lower tariffs on regulated services, continued growth in consumer demand from fiscal stimulus and the gradual elimination of the output gap by the end of third quarter of 2020, the inflation report said.
Domestic demand in Kazakhstan expanded 9.4 percent in the first two months of this year on an annual basis, helped by higher income and a 13.5 percent rise in consumer loans.
In its inflation report NBK forecast that economic growth in 2019-2020 would slow to below 4.0 percent, around its potential, with domestic demand the key driver.
In the fourth quarter of last year, Kazakhstan's gross domestic product grew an unchanged 4.1 percent year-on-year from the third quarter.
www.CentralBankNews.info
Saturday, April 13, 2019
This week in monetary policy: Kazakhstan, South Korea, Tajikistan and Uzbekistan
This week - April 14 through April 20 - central banks from 4 countries or jurisdictions are scheduled to decide on monetary policy: Kazakhstan, South Korea, Tajikistan and Uzbekistan.
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, and the rate one year ago.
The table is updated when the latest decisions are announced and can always accessed by clicking on This Week.
| WEEK 16 | |||||
| APR 14 - APR 20, 2019: | |||||
| COUNTRY | DATE | RATE | LATEST | YTD | 1 YR AGO |
| KAZAKHSTAN | 15-Apr | 9.25% | 0 | 0 | 9.25% |
| SOUTH KOREA | 18-Apr | 1.75% | 0 | 0 | 1.50% |
| TAJIKISTAN | 18-Apr | 14.00% | 0 | 0 | 14.00% |
| UZBEKISTAN | 20-Apr | 16.00% | 0 | 0 | 14.00% |
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