Gambia's central bank left its monetary policy rate steady at 12.50 percent, saying risks to domestic inflation had subsided since February while inflation expectations are well anchored, and the exchange rate of the dalasi is projected to remain broadly stable, supported by market confidence and improved supply.
The Central Bank of The Gambia (CBG) cut its rate by 100 basis points in February due to declining inflation and to continue its support of private sector growth. It also increased the reserve maintenance period to 2 weeks to give commercial banks more flexibility in liquidity management.
Since May 2017 the central bank has lowered its key rate by 750 basis points as inflation has steadily decelerated since almost 9 percent in January that year.
In April Gambia's headline inflation rate rose to 6.9 percent from 6.1 percent in March due to a one-off increase in postal charges as food inflation decelerated to 6.3 percent, reflecting a stable exchange rate and moderate global food prices.
The central bank's core measure of inflation, which strips out utility, energy and volatile food, eased to 6.0 percent in April from 6.6 percent in April 2018.
CBG targets inflation of 5.0 percent.
Gambia's economy rebounded strongly last year, with growth estimated of 6.5 percent compared with 4.8 percent in 2017, driven by the services sector, including tourism and trade, financial services and insurance, transport and telecommunications. Agriculture also recovered to slow 0.9 percent after shrinking 4.4 percent in 2017.
Although delayed rain fall, flooding and long dry spells continue to affect crop yields, CBG said early data show that growth will remain robust in 2019, helped by support from its development partners, higher remittances, tourism and foreign direct investment.
Gambia's foreign exchange market is functioning smoothly, the bank said, saying the volume of transactions had risen to US$638.5 million in the first quarter, up 25.7 percent from fourth quarter 2018.
The dalasi's exchange rate is also broadly stable, rising against pound sterling, euro and the CFA from April 2018 to April 2019, but against the U.S. dollar is was down by 4.8 percent.
www.CentralBankNews.info
Friday, May 31, 2019
Sri Lanka cuts rates 50 bps, Easter bombs to dent growth
Sri Lanka's central bank cut its two main interest rates by 50 basis points, as widely expected, saying economic growth this year is expected to be lower than earlier projected as the Easter Sunday attacks "have affected confidence and sentiments of economic agents, particularly disrupting tourism and related activities."
The Central Bank of Sri Lanka (CBS) added "increased trade tensions, weakened business confidence and softened external demand" was also softening global economic growth, which has "prompted key advanced economies to become increasingly dovish, while several emerging market economies have also relaxed their monetary policy stance to support economic activity given subdued inflation pressures."
CBS cut its Standing Deposit Facility Rate (SDFR) to 7.50 percent and the Standing Lending Facility Rate (SLFR) to 8.50 percent "to stabilize inflation at mid-single digit levels and enable the economy to reach its potential."
It is the central bank's first change in its policy rates since it raised rates by 75 basis points in November last year to maintain a neutral policy stance as it also lowered banks' reserve requirements by 150 points to boost liquidity after all three major credit ratings agencies lowered their ratings in the wake of a political crises.
In February this year CBS then lowered its reserve ratio by a further 100 basis points to 5.0 percent to boost a persistent deficit of liquidity in money markets and boost credit growth.
Although CBS then maintained its rates in April, it warned its could reduce rates in the coming period if current trends in global financial markets, trade and credit growth continue as inflation expectations in Sri Lanka were well anchored.
"These trends have continued, and in addition, the economy has been affected by the Easter Sunday attacks and its adverse spillover effects on related sectors," CBS said.
And while growth is likely to weaken, global oil prices have remained elevated due to geopolitical uncertainty.
Following a slight slowdown of growth in 2018 to 3.2 percent from 3.4 percent in 2017, CBS the economy was expected to have picked up speed in the first quarter of this year due to improved output from agriculture and industry-related activites.
However, the bombings, which killed more than 250 people, have hurt Sri Lanka's tourism business, the country's third largest source of foreign currency, making it unlikely it would meet targeted growth this year of 3 - 4 percent.
The central bank's cuts in reserve ratios and liquidity injections had helped lower call money rates by around 50 basis points so far this year, lowering yields on government bonds, and in April CBS also imposed maximum interest rates on deposits to further lower the cost of funds for financial institutions and allow then to lower lending rates and boost credit flow.
However, CBS said market lending rates had "failed to show any sign of commensurate downward adjustment" and credit by commercial banks to the private sector had contracted on a cumulative basis in the first four months of the year.
Earnings from tourism is expected to rebound with the support of tighter security conditions, a relaxation of travel advisories and a promotional campaign while the receipt of funds from the International Monetary Fund this month should help boost investor sentiment.
Sri Lanka's inflation rate rose for the fourth month in a row to 4.5 percent in April and is expected to remain within the bank's target range of 4-6 percent this year and beyond.
Despite the Easter bombings and its affect on growth, Sri Lanka's rupee has risen this year, supported by the receipt of IMF funds, and has appreciated by 3.7 percent so far against the U.S. dollar.
Today the rupee was trading at 176.4 to the dollar.
Thursday, May 30, 2019
Fiji maintains rate but growth seen easing from 2018
Fiji's central bank left its benchmark Overnight Policy Rate (OPR) unchanged at 0.50 percent as the economy is poised to continue expanding for the 10th consecutive year, though at a more moderate pace than in 2018, while its twin objectives of price stability and and adequate foreign reserves remain intact.
The Reserve Bank of Fiji (RBF), which has maintained its rate since October 2011, said recent data showed a deceleration in economic activity in tandem with the slowing global economy, the government's expected fiscal consolidation and a natural slowdown in growth after 9 years of expansion.
RBP Governor Ariff Ali said private sector credit grew by 8.3 percent in April, unchanged from March but slower than growth in the first two months, reflecting slower consumptions and investment borrowing.
On May 10 RBF lowered its 2019 growth forecast to 2.7 percent from an earlier forecast of 3.4 percent, and down from 4.2 percent in 2018, as overall aggregated demand is expected to be modest this year on slower private sector credit and consolidation in the 2019-20 national budget.
For 2020 and 2021 the central bank forecast broad-based growth of around 3.0 percent, with major contributions from agriculture, manufacturing, information and communication, wholesale & retail trade, and the accommodation & food services sectors.
The next update of economic projections is in October.
Fiji's inflation rate fell to 2.1 percent in April from 4.0 percent in March from lower prices of food and non-alcoholic beverages, utilities and transport. By year-end inflation is expected around 3.5 percent.
Fiji's foreign reserves were comfortable at $1,931.4 million as of May 30, sufficient for 4.2 months of import cover, down from $1,932.4 million as of April 25 but up from $1,923.7 million as of March 28.
In February the International Monetary Fund said Fiji's economy had recovered well from several natural disasters but cautioned external conditions were becoming less favorable due to low sugar prices, higher oil prices and slowing growth in its main trading partners.
It called on Fiji's government to speed up fiscal consolidation to rebuild fiscal space and support external stability, adding monetary policy may need to be tightened to help narrow the current account deficits and preserve foreign reserves in tandem with fiscal consolidation if less favorable external conditions persist.
The IMF forecast gross domestic product growth this year of 3.4 percent and 3.3 percent in 2020, with inflation averaging 3.5 percent this year and 3.0 percent in 2020.
The central government's budget was seen narrowing to a deficit of 3.6 percent of GDP this year from 4.4 percent in 2018 and to 3.3 percent in 2020 while public debt was seen rising to 50.2 percent of GDP in 2019 from 49.8 percent in 2018 and then to 50.4 percent in 2020.
The Reserve Bank of Fiji (RBF), which has maintained its rate since October 2011, said recent data showed a deceleration in economic activity in tandem with the slowing global economy, the government's expected fiscal consolidation and a natural slowdown in growth after 9 years of expansion.
RBP Governor Ariff Ali said private sector credit grew by 8.3 percent in April, unchanged from March but slower than growth in the first two months, reflecting slower consumptions and investment borrowing.
On May 10 RBF lowered its 2019 growth forecast to 2.7 percent from an earlier forecast of 3.4 percent, and down from 4.2 percent in 2018, as overall aggregated demand is expected to be modest this year on slower private sector credit and consolidation in the 2019-20 national budget.
For 2020 and 2021 the central bank forecast broad-based growth of around 3.0 percent, with major contributions from agriculture, manufacturing, information and communication, wholesale & retail trade, and the accommodation & food services sectors.
The next update of economic projections is in October.
Fiji's inflation rate fell to 2.1 percent in April from 4.0 percent in March from lower prices of food and non-alcoholic beverages, utilities and transport. By year-end inflation is expected around 3.5 percent.
Fiji's foreign reserves were comfortable at $1,931.4 million as of May 30, sufficient for 4.2 months of import cover, down from $1,932.4 million as of April 25 but up from $1,923.7 million as of March 28.
In February the International Monetary Fund said Fiji's economy had recovered well from several natural disasters but cautioned external conditions were becoming less favorable due to low sugar prices, higher oil prices and slowing growth in its main trading partners.
It called on Fiji's government to speed up fiscal consolidation to rebuild fiscal space and support external stability, adding monetary policy may need to be tightened to help narrow the current account deficits and preserve foreign reserves in tandem with fiscal consolidation if less favorable external conditions persist.
The IMF forecast gross domestic product growth this year of 3.4 percent and 3.3 percent in 2020, with inflation averaging 3.5 percent this year and 3.0 percent in 2020.
The central government's budget was seen narrowing to a deficit of 3.6 percent of GDP this year from 4.4 percent in 2018 and to 3.3 percent in 2020 while public debt was seen rising to 50.2 percent of GDP in 2019 from 49.8 percent in 2018 and then to 50.4 percent in 2020.
Monday, May 27, 2019
Kyrgyzstan cuts rate 25 bps again, trims inflation outlook
Kyrgyzstan's central bank lowered its benchmark discount rate by another 25 basis points to 4.25 percent and lowered its inflation forecast once again amid moderate aggregate demand, the growth prospects of its trading partners and the low risk of inflation this year.
However, the National Bank of the Kyrgyz Republic (NBKR) cautioned it may consider changing the current direction of monetary policy in the event of internal and external risks.
It is the 7th rate cut by NBKR since March 2016 and the second this year following a cut in February. The discount rate has been cut by 575 basis points since March 2016.
The central bank said the country's economy had developed in line with its expectations and price dynamics remain low while economic activity has increased.
Kyrgyzstan suffered from deflation from February through April but as of May 17 annual inflation was 0.3 percent, up from minus 0.5 percent in April, as the decline in food prices slowed to around zero, NBKR said.
Core inflation, however, continued to decline to 0.7 percent in March from 0.8 percent in February, hitting lows not seen since early 2017, the central bank added.
With food prices on world markets lower than forecast due to higher supply, NBKR said it was not expecting any significant risk to domestic inflation from external sources.
NBKR again lowered its inflation forecast and now expects maximum inflation of 4.0 percent by the end of this year, with an annual average of 1.0 percent.
As in March, the central bank said it expects inflation in the medium term to be within its target range of 5.0 to 7.0 percent.
In March the central bank forecast inflation would could reach 5 percent by the end of this year and average around 3.0 percent this year, down from December's forecast inflation would average 5-7 percent this year.
Kyrgyzstan's economy is continuing to expand, with real gross domestic product in the first four months of this year up by 5.7 percent and up by 1.6 percent when excluding the Kumtor gold mine.
www.CentralBankNews.info
However, the National Bank of the Kyrgyz Republic (NBKR) cautioned it may consider changing the current direction of monetary policy in the event of internal and external risks.
It is the 7th rate cut by NBKR since March 2016 and the second this year following a cut in February. The discount rate has been cut by 575 basis points since March 2016.
The central bank said the country's economy had developed in line with its expectations and price dynamics remain low while economic activity has increased.
Kyrgyzstan suffered from deflation from February through April but as of May 17 annual inflation was 0.3 percent, up from minus 0.5 percent in April, as the decline in food prices slowed to around zero, NBKR said.
Core inflation, however, continued to decline to 0.7 percent in March from 0.8 percent in February, hitting lows not seen since early 2017, the central bank added.
With food prices on world markets lower than forecast due to higher supply, NBKR said it was not expecting any significant risk to domestic inflation from external sources.
NBKR again lowered its inflation forecast and now expects maximum inflation of 4.0 percent by the end of this year, with an annual average of 1.0 percent.
As in March, the central bank said it expects inflation in the medium term to be within its target range of 5.0 to 7.0 percent.
In March the central bank forecast inflation would could reach 5 percent by the end of this year and average around 3.0 percent this year, down from December's forecast inflation would average 5-7 percent this year.
Kyrgyzstan's economy is continuing to expand, with real gross domestic product in the first four months of this year up by 5.7 percent and up by 1.6 percent when excluding the Kumtor gold mine.
www.CentralBankNews.info
Ghana holds rate as inflation expectations anchored
Ghana's central bank left its monetary policy rate unchanged at 16.0 percent, saying the recent pass-through of a lower exchange rate had slowed the process of disinflation, but core inflation remains subdued and inflation expectations are anchored.
The Bank of Ghana (BOG) also said the moderation in global economic growth and an easing of global financing conditions means global interest rates are likely to remain broadly steady, which has reduced the risk of sudden portfolio reversals out of emerging and frontier markets if investor sentiment were to shift in response to deepening trade, geopolitical tensions or a sharper than expected slowdown in global growth.
BOG, which cut its rate 100 basis points in January as it extended a monetary easing cycle that began in November 2016, added it was ready to take appropriate measures to maintain price stability.
Ghana's headline inflation rate has accelerated in the last 4 months to 9.5 percent in April from 9.0 percent in January due to the impact of the decline in the cedi, but BOG said this rise did not appear to have become embedded in underlying inflation as its measure of core inflation, which excludes fuel and utilities, declined in April and inflation expectations remain anchored.
Ghana's foreign exchange market has calmed down since a bout of volatility in February and March when many emerging market economies were hit. The rebound of the cedi in late March was due to its supportive fundamentals along with improved supply of foreign exchange following the Eurobond issue.
The cedi has been depreciating against the U.S. dollar since 2010 and so far this year the exchange rate is down 6.7 percent to 5.22 per U.S. dollar. In trade-weighted terms, BOG said the real effective exchange rate was broadly aligned with underlying fundamentals.
Economic activity in Ghana slowed last year but remains relatively strong as gross domestic product in the fourth quarter grew 6.8 percent, down from 7.4 percent in the third quarter, for full-year growth of 6.3 percent, down from 8.1 percent in 2017.
BOG added its latest composite index of economic activity showed evidence of increased activity with annual growth of 4.0 percent in March, up from 2.9 percent a year earlier, with sentiment supported by the cedi's recovery from a recent fall in March, followed by a rebound, and favorable growth prospects even though consumer sentiment weakened slightly due to higher prices.
Ghana's gross international reserves rose to US$9.9 billion, equivalent to 5.1 months of import cover, at the end of March from $7.0 billion end-December. By the end of April reserves had declined to $9.3 billion due to energy-related payments and payments of externally held domestic debt.
The Bank of Ghana (BOG) also said the moderation in global economic growth and an easing of global financing conditions means global interest rates are likely to remain broadly steady, which has reduced the risk of sudden portfolio reversals out of emerging and frontier markets if investor sentiment were to shift in response to deepening trade, geopolitical tensions or a sharper than expected slowdown in global growth.
BOG, which cut its rate 100 basis points in January as it extended a monetary easing cycle that began in November 2016, added it was ready to take appropriate measures to maintain price stability.
Ghana's headline inflation rate has accelerated in the last 4 months to 9.5 percent in April from 9.0 percent in January due to the impact of the decline in the cedi, but BOG said this rise did not appear to have become embedded in underlying inflation as its measure of core inflation, which excludes fuel and utilities, declined in April and inflation expectations remain anchored.
Ghana's foreign exchange market has calmed down since a bout of volatility in February and March when many emerging market economies were hit. The rebound of the cedi in late March was due to its supportive fundamentals along with improved supply of foreign exchange following the Eurobond issue.
The cedi has been depreciating against the U.S. dollar since 2010 and so far this year the exchange rate is down 6.7 percent to 5.22 per U.S. dollar. In trade-weighted terms, BOG said the real effective exchange rate was broadly aligned with underlying fundamentals.
Economic activity in Ghana slowed last year but remains relatively strong as gross domestic product in the fourth quarter grew 6.8 percent, down from 7.4 percent in the third quarter, for full-year growth of 6.3 percent, down from 8.1 percent in 2017.
BOG added its latest composite index of economic activity showed evidence of increased activity with annual growth of 4.0 percent in March, up from 2.9 percent a year earlier, with sentiment supported by the cedi's recovery from a recent fall in March, followed by a rebound, and favorable growth prospects even though consumer sentiment weakened slightly due to higher prices.
Ghana's gross international reserves rose to US$9.9 billion, equivalent to 5.1 months of import cover, at the end of March from $7.0 billion end-December. By the end of April reserves had declined to $9.3 billion due to energy-related payments and payments of externally held domestic debt.
Turkey raises FX reserve requirements another 200 bps
Turkey's central bank raised its reserve requirement for banks' foreign currency deposits by a further 200 basis points, "to support financial stability," withdrawing another US$4.2 billion of liquidity from the market.
Today's move follows the Central Bank of the Republic of Turkey's (CBRT) 100-basis-point increase in the FX reserve requirement earlier this month in a move that also included a lowering of the upper limit of foreign exchange banks could use as part of their reserves at the central bank.
As a result of the May 9 increase in FX requirements, US$3 billion of FX liquidity was withdrawn from the market.
On May 9 CBRT also suspended its one-week repo auctions "for a period of time," effectively raising its lending rates by 150 basis points as banks would have to obtain funds via overnight rates that are above the benchmark repo rate at 24.0 percent.
On May 21 press reports said the central bank had started to offer funds at 24.0 percent through repo actions.
After plunging in August last year and then rebounding from September through January this year, Turkey's lira has faced fresh pressure since February from a combination of the threat of U.S. sanctions, uncertainty over local elections, and continued questions over the central bank's independence and commitment to fighting inflation.
Today the lira was trading at 6.05 to the U.S. dollar, down 12.7 percent this year following last year's 28 percent drop.
On April 25, when CBRT left its repo rate steady, unchanged since September 2018, it puzzled analysts by dropping a reference to tightening its monetary policy if needed despite the inflationary pressures from a declining lira.
Turkey's inflation rate has only inched down to 19.5 percent in April form 20.35 percent in January while it's economy fell into recession in the last two quarters of 2018 as gross domestic product dropped 1.6 percent quarter-on-quarter in the third quarter and then 2.4 percent in the fourth quarter for an annual decline of 3.0 percent.
Following the change to its guidance in April, CBRT Governor Murat Cetinkaya held a briefing in connection with the latest inflation report where he sought to ease concerns the central bank was giving in to political pressure to lower interest rates and boost the economy.
According to press reports, Cetinkaya said additional tightening would still be delivered if upside risks to inflation materialize but he failed to answer why the policy statement had dropped its reference to further tightening if needed.
In its inflation report, CBRT maintained its forecast for inflation to fluctuate between 12.1 percent and 17.1 percent this year, ending the year at 14.6 percent.
In 2020 inflation is seen fluctuating between 5.1 percent and 11.3 percent, ending the year at 8.2 percent before gradually stabilizing around CBRT's 5.0 percent target.
www.CentralBankNews.info
Today's move follows the Central Bank of the Republic of Turkey's (CBRT) 100-basis-point increase in the FX reserve requirement earlier this month in a move that also included a lowering of the upper limit of foreign exchange banks could use as part of their reserves at the central bank.
As a result of the May 9 increase in FX requirements, US$3 billion of FX liquidity was withdrawn from the market.
On May 9 CBRT also suspended its one-week repo auctions "for a period of time," effectively raising its lending rates by 150 basis points as banks would have to obtain funds via overnight rates that are above the benchmark repo rate at 24.0 percent.
On May 21 press reports said the central bank had started to offer funds at 24.0 percent through repo actions.
After plunging in August last year and then rebounding from September through January this year, Turkey's lira has faced fresh pressure since February from a combination of the threat of U.S. sanctions, uncertainty over local elections, and continued questions over the central bank's independence and commitment to fighting inflation.
Today the lira was trading at 6.05 to the U.S. dollar, down 12.7 percent this year following last year's 28 percent drop.
On April 25, when CBRT left its repo rate steady, unchanged since September 2018, it puzzled analysts by dropping a reference to tightening its monetary policy if needed despite the inflationary pressures from a declining lira.
Turkey's inflation rate has only inched down to 19.5 percent in April form 20.35 percent in January while it's economy fell into recession in the last two quarters of 2018 as gross domestic product dropped 1.6 percent quarter-on-quarter in the third quarter and then 2.4 percent in the fourth quarter for an annual decline of 3.0 percent.
Following the change to its guidance in April, CBRT Governor Murat Cetinkaya held a briefing in connection with the latest inflation report where he sought to ease concerns the central bank was giving in to political pressure to lower interest rates and boost the economy.
According to press reports, Cetinkaya said additional tightening would still be delivered if upside risks to inflation materialize but he failed to answer why the policy statement had dropped its reference to further tightening if needed.
In its inflation report, CBRT maintained its forecast for inflation to fluctuate between 12.1 percent and 17.1 percent this year, ending the year at 14.6 percent.
In 2020 inflation is seen fluctuating between 5.1 percent and 11.3 percent, ending the year at 8.2 percent before gradually stabilizing around CBRT's 5.0 percent target.
www.CentralBankNews.info
Sunday, May 26, 2019
This week in monetary policy: Ghana, Kenya, Kyrgyzstan, Hungary, Canada, Fiji, Gambia, South Korea, Sri Lanka, Bulgaria, Colombia and Dominican Rep.
This week - May 26 through June 1- central banks from 12 countries or jurisdictions are scheduled to decide on monetary policy: Ghana, Kenya, Kyrgyz Republic, Hungary, Canada, Fiji, Gambia, South Korea, Sri Lanka, Bulgaria, Colombia and Dominican Republic.
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 22 | |||||
| MAY 26 - JUN 1, 2019: | |||||
| COUNTRY | DATE | RATE | LATEST | YTD | 1 YR AGO |
| GHANA | 27-May | 16.00% | 0 | -100 | 17.00% |
| KENYA | 27-May | 9.00% | 0 | 0 | 9.50% |
| KYRGYZSTAN | 27-May | 4.50% | -25 | -25 | 4.75% |
| HUNGARY | 28-May | 0.90% | 0 | 0 | 0.90% |
| CANADA | 29-May | 1.75% | 0 | 0 | 1.25% |
| FIJI | 30-May | 0.50% | 0 | 0 | 0.50% |
| GAMBIA | 30-May | 12.50% | -100 | -100 | 13.50% |
| SOUTH KOREA | 31-May | 1.75% | 0 | 0 | 1.50% |
| SRI LANKA | 31-May | 8.00% | 0 | 0 | 7.25% |
| BULGARIA | 31-May | 0.00% | 0 | 0 | 0.00% |
| COLOMBIA | 31-May | 4.25% | 0 | 0 | 4.25% |
| DOMINICAN REP. | 31-May | 5.50% | 0 | 0 | 5.25% |
Friday, May 24, 2019
Angola cuts rate another 25 bps as inflation declines
Angola's central bank cut its benchmark BNA rate by a further 25 basis points to 15.50 percent and said this was based on the fact that "inflation continued on its downward trajectory, as well and the evolution of the monetary base in national currency, the monetary policy operational variable, which contracted 0.54 percent in the last 12 months."
It is the third rate cut by the National Bank of Angola since July 2018 and the second cut this year, bringing the total cut to the BNA rate in the current easing cycle to 250 basis points.
Angola's inflation rate fell for the fourth month in a row to 17.36 percent in April from 17.56 percent in March for the lowest level since January 2016 despite the steady, but continued depreciation of the exchange rate of the kwanza since January 2018 when Governor Jose Massano replaced the bank's fixed exchange rate regime with a floating regime.
Since then BNA has used auctions to set a reference rate for the kwanza, which was trading at 328.9 to the U.S dollar today, down 6.1 percent since the start of this year and down 50 percent from its level when it was pegged to the dollar around 166.
Massano's first move after taking over BNA in October 2017 - part of President Joao Laurenco's move to clean up Angola's image as a corrupt state - was to raise the BNA rate by 200 basis points to hammer home his commitment to lower inflation.
In addition to the rate hike in November 2017 and the new currency regime, Massano has overhauled BNA policy framework by adopting the monetary base as an operational variable for monetary policy to better control liquidity, lowered and changed the basis for banks' mandatory reserves, and unified the rate on the marginal lending facility with the bank's basic interest rate.
As many other oil exporting nations, Angola was hit hard by the plunge in crude oil prices in 2014 and suffered from a shortage of foreign currency. Inflation rose sharply in 2016 and hit 41.12 percent in December that year but has slowly, but surely, been falling since then.
In April Angola's gross international reserves amounted to US$16.33 billion, enough to cover 8.97 months of imports, up from $15.99 billion in February.
www.CentralBankNews.info
It is the third rate cut by the National Bank of Angola since July 2018 and the second cut this year, bringing the total cut to the BNA rate in the current easing cycle to 250 basis points.
Angola's inflation rate fell for the fourth month in a row to 17.36 percent in April from 17.56 percent in March for the lowest level since January 2016 despite the steady, but continued depreciation of the exchange rate of the kwanza since January 2018 when Governor Jose Massano replaced the bank's fixed exchange rate regime with a floating regime.
Since then BNA has used auctions to set a reference rate for the kwanza, which was trading at 328.9 to the U.S dollar today, down 6.1 percent since the start of this year and down 50 percent from its level when it was pegged to the dollar around 166.
Massano's first move after taking over BNA in October 2017 - part of President Joao Laurenco's move to clean up Angola's image as a corrupt state - was to raise the BNA rate by 200 basis points to hammer home his commitment to lower inflation.
In addition to the rate hike in November 2017 and the new currency regime, Massano has overhauled BNA policy framework by adopting the monetary base as an operational variable for monetary policy to better control liquidity, lowered and changed the basis for banks' mandatory reserves, and unified the rate on the marginal lending facility with the bank's basic interest rate.
As many other oil exporting nations, Angola was hit hard by the plunge in crude oil prices in 2014 and suffered from a shortage of foreign currency. Inflation rose sharply in 2016 and hit 41.12 percent in December that year but has slowly, but surely, been falling since then.
In April Angola's gross international reserves amounted to US$16.33 billion, enough to cover 8.97 months of imports, up from $15.99 billion in February.
www.CentralBankNews.info
Thursday, May 23, 2019
South Africa holds rate as growth, inflation seen lower
South Africa's central bank kept its benchmark repurchase rate steady at 6.75 percent despite a lower outlook for economic growth and a decline in inflation as three members of its monetary policy committee voted to maintain the rate while two members voted to cut by 25 basis points.
"Any future policy adjustments will continue to be data dependent," South African Reserve Bank (SARB) Governor Lesetja Kganyago said, adding the rate path generated by the bank's latest projection model implied one rate cut of 25 basis points by the end of the first quarter of 2020, a sharp shift from March when the model implied a rate hike this year.
"Over the past few months, global growth has rebounded somewhat, but significant downside risks remain, in particular from threats to the global trade regime," Kganyago said, adding business and consumer confidence continues to weigh on economic activity as constraints on electricity and a strike in a major gold mine contributed to a weak performance in the first quarter.
South Africa's gross domestic product is now expected to shrink in the first quarter of this year and the bank's leading business cycle indicator has trended lower since March 2018, with the risks to the growth forecast seen on the downside, limited by weak confidence and growing pressure on disposable income and declining fixed investments.
SARB lowered its forecast for GDP this year to 1.0 percent from the March forecast of 1.3 percent but left its 2020 and 2021 forecasts for growth unchanged at 1.8 percent and 2.0 percent, respectively.
As before, SARB said the challenges facing the country's economy are primarily structural and can't be solved by monetary policy, making it urgent for policy makers to combine prudent macroeconomic policies with structural reform to raise potential growth and lower overall costs.
Weak demand and lower food prices has helped curb inflation, which has come down sharply in recent months, and SARB now expects inflation to peak at 5.5 percent in the first quarter of next year and settle at 4.5 percent in the last two quarters of 2021, within SARB's target of 3.0 to 6.0 percent.
In April South Africa's headline inflation rate eased to 4.4 percent, and the central bank lowered its forecast for 2019 inflation to average 4.5 percent from a previous forecast of 4.8 percent. For 2020 inflation is seen rising to 5.1 percent and then easing to 4.6 percent in 2021.
South Africa's rand has benefitted from improved sentiment towards risk assets in recent months due to easier monetary conditions in advanced economies and risen 1.5 percent against the U.S. dollar since the last policy meeting in March.
Today the rand weakened in response to SARB's decision to trade at 14.5 to the dollar, unchanged since the start of the year.
"Any future policy adjustments will continue to be data dependent," South African Reserve Bank (SARB) Governor Lesetja Kganyago said, adding the rate path generated by the bank's latest projection model implied one rate cut of 25 basis points by the end of the first quarter of 2020, a sharp shift from March when the model implied a rate hike this year.
"Over the past few months, global growth has rebounded somewhat, but significant downside risks remain, in particular from threats to the global trade regime," Kganyago said, adding business and consumer confidence continues to weigh on economic activity as constraints on electricity and a strike in a major gold mine contributed to a weak performance in the first quarter.
South Africa's gross domestic product is now expected to shrink in the first quarter of this year and the bank's leading business cycle indicator has trended lower since March 2018, with the risks to the growth forecast seen on the downside, limited by weak confidence and growing pressure on disposable income and declining fixed investments.
SARB lowered its forecast for GDP this year to 1.0 percent from the March forecast of 1.3 percent but left its 2020 and 2021 forecasts for growth unchanged at 1.8 percent and 2.0 percent, respectively.
As before, SARB said the challenges facing the country's economy are primarily structural and can't be solved by monetary policy, making it urgent for policy makers to combine prudent macroeconomic policies with structural reform to raise potential growth and lower overall costs.
Weak demand and lower food prices has helped curb inflation, which has come down sharply in recent months, and SARB now expects inflation to peak at 5.5 percent in the first quarter of next year and settle at 4.5 percent in the last two quarters of 2021, within SARB's target of 3.0 to 6.0 percent.
In April South Africa's headline inflation rate eased to 4.4 percent, and the central bank lowered its forecast for 2019 inflation to average 4.5 percent from a previous forecast of 4.8 percent. For 2020 inflation is seen rising to 5.1 percent and then easing to 4.6 percent in 2021.
South Africa's rand has benefitted from improved sentiment towards risk assets in recent months due to easier monetary conditions in advanced economies and risen 1.5 percent against the U.S. dollar since the last policy meeting in March.
Today the rand weakened in response to SARB's decision to trade at 14.5 to the dollar, unchanged since the start of the year.
Wednesday, May 22, 2019
Zambia raises rate 50 bps as inflation seen above limit
Zambia's central bank raised its policy rate by 50 basis points to 10.25 percent and warned it may have to raise rates further if "upside risks to inflation persist and keep inflation above the target range."
It is Bank of Zambia's (BOZ) first rate hike since November 2015 and the first rate change since February last year when the central bank paused after cutting the rate 5 times by a total of 575 basis points since February 2017.
Today's rate hike comes after the bank three months ago warned it may have to tighten its policy if inflation looked to exceed its target range of 6.0 to 8.0 percent.
Zambia's inflation rate rose to 7.7 percent in April from 7.5 percent in March due to the pass-through from a fall in the kwacha and higher prices of maize and its products and BOZ now projects inflation will exceed the upper bound of its target range during the next 8 quarters to Q1 2021.
"Lower maize output, continued elevated fiscal deficits, high debt service payments, and the decline in gross international reserves are among the key upside risks to inflation," BOZ said, adding these factors have also exerted pressure on the exchange rate.
In late 2015 Zambia's kwacha tumbled on low copper prices and a poor harvest, boosting inflation to almost 23 percent in February 2016. But the central bank's tightening campaign, a rebound in copper prices and better harvest helped shore up the exchange rate and push down inflation.
But fiscal deficits remain large and debt service has been rising, taking their toll on growth, which the International Monetary Fund in April forecast would slow to 2.3 percent this year from 3.7 percent last year due to the impact of drought on agricultural output.
"Indicators of economic activity point to subdued economic growth during the first quarter of 2019," BOZ said, with mining output, cement production, consumer spending and tourist arrivals all showing negative growth.
In the first quarter of this year the kwacha remained relatively stable but from April 1 to May 17 it fell by 14.9 percent to around 14.0 per U.S. dollar, with BOZ attributing this to elevated demand for petroleum products, reduced supply of foreign exchange and negative market sentiment.
www.CentralBankNews.info
It is Bank of Zambia's (BOZ) first rate hike since November 2015 and the first rate change since February last year when the central bank paused after cutting the rate 5 times by a total of 575 basis points since February 2017.
Today's rate hike comes after the bank three months ago warned it may have to tighten its policy if inflation looked to exceed its target range of 6.0 to 8.0 percent.
Zambia's inflation rate rose to 7.7 percent in April from 7.5 percent in March due to the pass-through from a fall in the kwacha and higher prices of maize and its products and BOZ now projects inflation will exceed the upper bound of its target range during the next 8 quarters to Q1 2021.
"Lower maize output, continued elevated fiscal deficits, high debt service payments, and the decline in gross international reserves are among the key upside risks to inflation," BOZ said, adding these factors have also exerted pressure on the exchange rate.
In late 2015 Zambia's kwacha tumbled on low copper prices and a poor harvest, boosting inflation to almost 23 percent in February 2016. But the central bank's tightening campaign, a rebound in copper prices and better harvest helped shore up the exchange rate and push down inflation.
But fiscal deficits remain large and debt service has been rising, taking their toll on growth, which the International Monetary Fund in April forecast would slow to 2.3 percent this year from 3.7 percent last year due to the impact of drought on agricultural output.
"Indicators of economic activity point to subdued economic growth during the first quarter of 2019," BOZ said, with mining output, cement production, consumer spending and tourist arrivals all showing negative growth.
In the first quarter of this year the kwacha remained relatively stable but from April 1 to May 17 it fell by 14.9 percent to around 14.0 per U.S. dollar, with BOZ attributing this to elevated demand for petroleum products, reduced supply of foreign exchange and negative market sentiment.
www.CentralBankNews.info
Iceland cuts rate 50 bps as economic outlook worsens
Iceland's central bank cut its key interest rates, the 7-day deposit rate, by 50 basis points to 4.0 percent, sharply reversing its tightening bias from March, due to a swift deterioration in the economic growth outlook from a drop in tourism and exports of marine products.
It is the first rate cut by the Central Bank of Iceland (CBI) since October 2017 and the first change in rates since a rate hike in November 2018.
In it latest monetary bulletin, CBI slashed its growth forecast for 2019 to a drop in output of 0.4 percent from a previous forecast of 1.8 percent growth and 2018's robust growth of 4.6 percent when a boom in tourism helped the country emerge from the ravages of the 2008 financial crises.
The central bank also lowered its outlook for growth in 2020 to 2.4 percent from a previous 2.8 percent but retained its 2021 forecast of 2.6 percent.
"But the outlook has clouded over," CBI said in its bulletin, noting the collapse of budget airline WOW in March would lead to a further drop in tourist arrivals.
WOW already began downsizing its fleet of aircraft at the start of this year and the outlook is for tourist arrivals to decline by 10.5 percent this year from last year before slowly rising again in 2020 to 2.3 million, largely the same as in 2018.
"The outlook is highly uncertain, however, and the possibly of a deeper contraction and slower recovery cannot be excluded," CBI said, adding tourism could be affected by the high exchange rate of the krona, uncertainty surrounding Icelandair's use of its new Boeing 737 Max jets this summer and any impact from the recent temporary strikes.
In a second blow to its economy, Iceland's exports have been hit by a collapse of the fishing of capelin, a small fish that grazes on plankton and krill at the edge of the ice shelf.
After the collapse of herring stocks in the late 1960s, Icelandic fishermen turned to capelin but for the first time since 1963 there is no catch expected this year, a devastating blow to local fishing villages and a hit to exports and a 0.4 percentage point loss to the country's gross domestic product.
Although CBI expects the capelin catch to resume in 2020, it added this "assumption is highly uncertain, not least if rising ocean temperatures cause caplin spawning grounds to move outside Iceland's fishing waters," which would mean the growth outlook for the next 2 years could turn out to be overly optimistic.
The hit to economic activity will also create economic slack and curb inflation.
CBI now expects consumer price inflation this year of 3.2 percent, down from February's forecast of 3.5 percent, 2.6 percent in 2020, down from 2.8 percent, and 2.2 percent in 2021, down from 2.4 percent.
Boosted by tourism and high wages, Iceland's inflation rate rose to 3.7 percent in December last year, well above the bank's 2.50 percent target, and in its previous policy statement from March CBI said inflation expectations topped its target and this could cal for a tighter monetary stance in coming months.
In April' Iceland's inflation rate rose to 3.3 percent from 2.9 percent in March while GDP grew 4.0 percent in the 2018 fourth quarter year-on-year, up from 2.5 percent in the third quarter.
It is the first rate cut by the Central Bank of Iceland (CBI) since October 2017 and the first change in rates since a rate hike in November 2018.
In it latest monetary bulletin, CBI slashed its growth forecast for 2019 to a drop in output of 0.4 percent from a previous forecast of 1.8 percent growth and 2018's robust growth of 4.6 percent when a boom in tourism helped the country emerge from the ravages of the 2008 financial crises.
The central bank also lowered its outlook for growth in 2020 to 2.4 percent from a previous 2.8 percent but retained its 2021 forecast of 2.6 percent.
"But the outlook has clouded over," CBI said in its bulletin, noting the collapse of budget airline WOW in March would lead to a further drop in tourist arrivals.
WOW already began downsizing its fleet of aircraft at the start of this year and the outlook is for tourist arrivals to decline by 10.5 percent this year from last year before slowly rising again in 2020 to 2.3 million, largely the same as in 2018.
"The outlook is highly uncertain, however, and the possibly of a deeper contraction and slower recovery cannot be excluded," CBI said, adding tourism could be affected by the high exchange rate of the krona, uncertainty surrounding Icelandair's use of its new Boeing 737 Max jets this summer and any impact from the recent temporary strikes.
In a second blow to its economy, Iceland's exports have been hit by a collapse of the fishing of capelin, a small fish that grazes on plankton and krill at the edge of the ice shelf.
After the collapse of herring stocks in the late 1960s, Icelandic fishermen turned to capelin but for the first time since 1963 there is no catch expected this year, a devastating blow to local fishing villages and a hit to exports and a 0.4 percentage point loss to the country's gross domestic product.
Although CBI expects the capelin catch to resume in 2020, it added this "assumption is highly uncertain, not least if rising ocean temperatures cause caplin spawning grounds to move outside Iceland's fishing waters," which would mean the growth outlook for the next 2 years could turn out to be overly optimistic.
The hit to economic activity will also create economic slack and curb inflation.
CBI now expects consumer price inflation this year of 3.2 percent, down from February's forecast of 3.5 percent, 2.6 percent in 2020, down from 2.8 percent, and 2.2 percent in 2021, down from 2.4 percent.
Boosted by tourism and high wages, Iceland's inflation rate rose to 3.7 percent in December last year, well above the bank's 2.50 percent target, and in its previous policy statement from March CBI said inflation expectations topped its target and this could cal for a tighter monetary stance in coming months.
In April' Iceland's inflation rate rose to 3.3 percent from 2.9 percent in March while GDP grew 4.0 percent in the 2018 fourth quarter year-on-year, up from 2.5 percent in the third quarter.
Tuesday, May 21, 2019
Nigeria holds rate amid slower global growth, uncertainty
Nigeria's central bank kept its monetary policy rate at 13.50 percent as 9 of its 11 monetary policy members decided this would allow time to better understand the momentum of domestic economic growth amid the declining trend in global output and persistent uncertainties.
The Central Bank of Nigeria (CBN), which in March cut its rate for the first time in 3-1/2 year, added maintaining the rate would also allow time to evaluate the bank's impact of its intervention policies to support lending to priority sectors.
Although an uptick in inflation to 11.37 percent in April from 11.25 percent in March should be monitored and could have resulted in monetary tightening, CBN's monetary policy committee said a tightening would limit the ability of deposit money banks (DMBs) to boost credit and an increase in the cost of credit would further diminish investment flow and have a negative effect on output given the fragile state of the economy.
Although two MPC's members voted to lower the policy rate by another 25 basis to "aggressively stimulate growth," a majority argued there was a need to restrain from further easing to avoid exacerbating inflationary pressures, which would likely put pressure on the naira's exchange rate.
In March CBN cut its rate by 50 basis points, the first change in rates since a 200 point hike in July 2016 and the first rate cut since November 2015, due to a steady decline in inflation, a stable naira, a robust level of reserves and a positive outlook for growth this year.
Nigeria, which relies on oil for about 80 percent of its exports, was hit hard by the fall in crude oil prices in 2014 which led to a chronic shortage of foreign exchange and capital flight.
Instead of letting its naira depreciate, the central bank propped up the exchange rate via capital controls and invention before finally scrapping a peg to the U.S. dollar in June 2016. CBN then chose a system of multiple exchange rates rather than a float, with the most recent change in August 2017 when the central bank unified its different exchange rates.
Since then the naira has been more stable and was trading at 360 to the U.S. dollar today, up 1.0 percent since the start of this year.
Nigeria's economy slowed in the first quarter of this year to an annual rate of 2.01 percent from 2.38 percent in the fourth quarter of last year but was up from 1.89 percent in first quarter 2018.
CBN said actual output remains well below the economy's long-run potential, calling on banks to "urgently" put in place policies that would promote lending to consumers and for mortgages, which "will greatly and positively impact on the flow of credit and ultimately result in output growth."
The bank's MPC took note of the government's reappointment and prompt confirmation of Godwin Emefiele for a second 5-year term as governor, saying this would help build policy credibility and deliver stability to domestic financial markets.
The Central Bank of Nigeria (CBN), which in March cut its rate for the first time in 3-1/2 year, added maintaining the rate would also allow time to evaluate the bank's impact of its intervention policies to support lending to priority sectors.
Although an uptick in inflation to 11.37 percent in April from 11.25 percent in March should be monitored and could have resulted in monetary tightening, CBN's monetary policy committee said a tightening would limit the ability of deposit money banks (DMBs) to boost credit and an increase in the cost of credit would further diminish investment flow and have a negative effect on output given the fragile state of the economy.
Although two MPC's members voted to lower the policy rate by another 25 basis to "aggressively stimulate growth," a majority argued there was a need to restrain from further easing to avoid exacerbating inflationary pressures, which would likely put pressure on the naira's exchange rate.
In March CBN cut its rate by 50 basis points, the first change in rates since a 200 point hike in July 2016 and the first rate cut since November 2015, due to a steady decline in inflation, a stable naira, a robust level of reserves and a positive outlook for growth this year.
Nigeria, which relies on oil for about 80 percent of its exports, was hit hard by the fall in crude oil prices in 2014 which led to a chronic shortage of foreign exchange and capital flight.
Instead of letting its naira depreciate, the central bank propped up the exchange rate via capital controls and invention before finally scrapping a peg to the U.S. dollar in June 2016. CBN then chose a system of multiple exchange rates rather than a float, with the most recent change in August 2017 when the central bank unified its different exchange rates.
Since then the naira has been more stable and was trading at 360 to the U.S. dollar today, up 1.0 percent since the start of this year.
Nigeria's economy slowed in the first quarter of this year to an annual rate of 2.01 percent from 2.38 percent in the fourth quarter of last year but was up from 1.89 percent in first quarter 2018.
CBN said actual output remains well below the economy's long-run potential, calling on banks to "urgently" put in place policies that would promote lending to consumers and for mortgages, which "will greatly and positively impact on the flow of credit and ultimately result in output growth."
The bank's MPC took note of the government's reappointment and prompt confirmation of Godwin Emefiele for a second 5-year term as governor, saying this would help build policy credibility and deliver stability to domestic financial markets.
Monday, May 20, 2019
Jamaica hikes rate to curb risk inflation falls below target
Jamaica's central bank said its third rate hike this year was aimed at stimulating an even faster expansion of private sector credit and economic activity to to help inflation return to the midpoint of its target and reduce the risk inflation will fall below its target in the next three years.
The Bank of Jamaica (BOJ), which on Saturday announced the 50-basis-point cut in its policy rate to 0.75 percent on Twitter ahead of today's press release, has now lowered its rate 11 times and by a total of 300 basis points since July 2017 when it adopted the overnight deposit rate as its policy rate as part of a reform of its monetary policy framework.
In addition to rate hikes, BOJ has also loosened its policy stance by lowering the reserve requirement for commercial banks twice this year by a total of 500 basis points to lower the cost of credit for businesses and households to boost economic activity and inflation.
Jamaica's inflation rate has come down following a 2013 agreement with the International Monetary Fund (IMF) and after fluctuating within BOJ's target range of 4-6 percent in 2017, inflation fell below the lower limit in March last year and then again toward the end of 2018 and in the first three months of this year.
In April the inflation rate rose to 4.0 percent from 3.4 percent in March and the central bank expects inflation to rise and average 4.5 percent over the next 8 quarters.
However, BOJ also said there will be months when inflation falls below the lower limit and after March 2020 inflation will decline towards the bottom of its target range and only slowly return to the mid-point over the following three years.
"Of note, the projected trajectory of inflation is lower than previously forecasted," BOJ said, adding this reflects its view that inflation expectations are now lower than previously assessed and the projected pace of expansion in domestic demand after next March will be slower due to headwinds from the global economy.
In general, BOJ said economic data remain positive, with foreign reserves above the level deemed adequate, the current account sustainable, market interest rates low, labour market conditions continue to improve and the fiscal performance is strong.
Jamaica's dollar has fluctuated between 137 and 126 to the U.S. dollar since early 2018 and this year has depreciated since mid-March after dropping from early February.
Today the Jamaican dollar was trading at 135.6 to the U.S. dollar, down almost 6 percent this year.
The Bank of Jamaica (BOJ), which on Saturday announced the 50-basis-point cut in its policy rate to 0.75 percent on Twitter ahead of today's press release, has now lowered its rate 11 times and by a total of 300 basis points since July 2017 when it adopted the overnight deposit rate as its policy rate as part of a reform of its monetary policy framework.
In addition to rate hikes, BOJ has also loosened its policy stance by lowering the reserve requirement for commercial banks twice this year by a total of 500 basis points to lower the cost of credit for businesses and households to boost economic activity and inflation.
Jamaica's inflation rate has come down following a 2013 agreement with the International Monetary Fund (IMF) and after fluctuating within BOJ's target range of 4-6 percent in 2017, inflation fell below the lower limit in March last year and then again toward the end of 2018 and in the first three months of this year.
In April the inflation rate rose to 4.0 percent from 3.4 percent in March and the central bank expects inflation to rise and average 4.5 percent over the next 8 quarters.
However, BOJ also said there will be months when inflation falls below the lower limit and after March 2020 inflation will decline towards the bottom of its target range and only slowly return to the mid-point over the following three years.
"Of note, the projected trajectory of inflation is lower than previously forecasted," BOJ said, adding this reflects its view that inflation expectations are now lower than previously assessed and the projected pace of expansion in domestic demand after next March will be slower due to headwinds from the global economy.
In general, BOJ said economic data remain positive, with foreign reserves above the level deemed adequate, the current account sustainable, market interest rates low, labour market conditions continue to improve and the fiscal performance is strong.
Jamaica's dollar has fluctuated between 137 and 126 to the U.S. dollar since early 2018 and this year has depreciated since mid-March after dropping from early February.
Today the Jamaican dollar was trading at 135.6 to the U.S. dollar, down almost 6 percent this year.
Pakistan raises rate 150 bps after IMF deal, rupee rises
Pakistan's central bank raised its policy rate for the third time this year and the 8th time since January last year, saying the rate hike was required to address underlying inflationary pressures from the recent rise in inflation, a sharp fall in the rupee's exchange rate, the elevated fiscal deficit and potential increases in utility tariffs.
The State Bank of Pakistan (SBP) raised its policy rate by a higher-than-expected 150 basis points to 12.25 percent and has now raised it by 225 points this year following hikes in January and March.
Since January 2018, when SBP began tightening its monetary policy, the rate has been raised by a total of 6.50 percentage points.
The rate hike is the first under SBP's new governor, Reza Baqir, former International Monetary Fund economist, who was appointed on May 4, the day after former Governor Tariq Bajwa and the head of the tax collection body were removed from their posts.
Last week the IMF and Pakistan reached a staff-level agreement for a 39-month extended fund facility of US$6.0 billion aimed at supporting major reforms to improve public finances, the energy sector and loss-making state-owned enterprises that drain public finances.
The agreement also includes a market-determined exchange rate for the rupee, with IMF saying authorities are focused on reducing inflation and are committed to strengthening SBP's "operational independence and mandate."
The rupee rose around 1 percent in response to the rate hike to 146.8 to the U.S. dollar, reversing some of last week's 4.8 percent plunge in its exchange rate. Since the start of this year the rupee has fallen 4.8 percent and since the start of 2018 it has lost 25 percent of its value.
"SBP will continue to closely monitor the situation and stands ready to take measures, as needed, to address any unwarranted volatility in the foreign exchange market," SBP said, adding the current level of reserves are below the standard of three months of import cover.
Pakistan's inflation rate has been boosted by an increase in domestic fuel prices, higher food prices and inputs costs that are likely to keep upward pressure on inflation "for some time," SBP said, adding surveys also show most households expect higher inflation over the next 6 months.
Pakistan's consumer price inflation rate eased slightly to 8.8 percent in April from 9.4 percent in March and SBP forecast average inflation in fiscal 2019, which ends June 30, of 6.5 - 7.5 percent and "considerably higher" inflation in fiscal 2020.
The fiscal deficit in fiscal 2019 is also likely to be considerable higher than last year due to a shortfall in revenue collection, higher-than-budgeted interest payments and securities expenditures, adding to inflationary pressures because a growing portion of this deficit has been financed through borrowing from the central bank.
"A greater reliance on central bank financing of the widening fiscal deficit has diluted the impact of previous rate hikes," SBP said, "the resulting increase in monetization of the deficit has added to inflationary pressures."
The government borrowed 45.8 trillion rupees from SBP from July 2018 through May 10, 2.4 times the borrowing during the same period in fiscal 2018, and a major portion of this (3.7 trillion rupees) reflect a shifty away from commercial banks that are reluctant to lend at prevailing rates.
SBP expects the IMF agreement to unlock external financing and thus improve economic activity with growth down this year but then rising modestly in fiscal 2020, supported by a rebound in agriculture and government incentives for export industries.
Pakistan's current account deficit narrowed 29 percent to US$9.6 billion from July to March from a deficit of $13.6 billion in the same period last year while reserves fell to $8.8 billion as of May 10 from $10.5 billion at the end of March.
The State Bank of Pakistan (SBP) raised its policy rate by a higher-than-expected 150 basis points to 12.25 percent and has now raised it by 225 points this year following hikes in January and March.
Since January 2018, when SBP began tightening its monetary policy, the rate has been raised by a total of 6.50 percentage points.
The rate hike is the first under SBP's new governor, Reza Baqir, former International Monetary Fund economist, who was appointed on May 4, the day after former Governor Tariq Bajwa and the head of the tax collection body were removed from their posts.
Last week the IMF and Pakistan reached a staff-level agreement for a 39-month extended fund facility of US$6.0 billion aimed at supporting major reforms to improve public finances, the energy sector and loss-making state-owned enterprises that drain public finances.
The agreement also includes a market-determined exchange rate for the rupee, with IMF saying authorities are focused on reducing inflation and are committed to strengthening SBP's "operational independence and mandate."
The rupee rose around 1 percent in response to the rate hike to 146.8 to the U.S. dollar, reversing some of last week's 4.8 percent plunge in its exchange rate. Since the start of this year the rupee has fallen 4.8 percent and since the start of 2018 it has lost 25 percent of its value.
"SBP will continue to closely monitor the situation and stands ready to take measures, as needed, to address any unwarranted volatility in the foreign exchange market," SBP said, adding the current level of reserves are below the standard of three months of import cover.
Pakistan's inflation rate has been boosted by an increase in domestic fuel prices, higher food prices and inputs costs that are likely to keep upward pressure on inflation "for some time," SBP said, adding surveys also show most households expect higher inflation over the next 6 months.
Pakistan's consumer price inflation rate eased slightly to 8.8 percent in April from 9.4 percent in March and SBP forecast average inflation in fiscal 2019, which ends June 30, of 6.5 - 7.5 percent and "considerably higher" inflation in fiscal 2020.
The fiscal deficit in fiscal 2019 is also likely to be considerable higher than last year due to a shortfall in revenue collection, higher-than-budgeted interest payments and securities expenditures, adding to inflationary pressures because a growing portion of this deficit has been financed through borrowing from the central bank.
"A greater reliance on central bank financing of the widening fiscal deficit has diluted the impact of previous rate hikes," SBP said, "the resulting increase in monetization of the deficit has added to inflationary pressures."
The government borrowed 45.8 trillion rupees from SBP from July 2018 through May 10, 2.4 times the borrowing during the same period in fiscal 2018, and a major portion of this (3.7 trillion rupees) reflect a shifty away from commercial banks that are reluctant to lend at prevailing rates.
SBP expects the IMF agreement to unlock external financing and thus improve economic activity with growth down this year but then rising modestly in fiscal 2020, supported by a rebound in agriculture and government incentives for export industries.
Pakistan's current account deficit narrowed 29 percent to US$9.6 billion from July to March from a deficit of $13.6 billion in the same period last year while reserves fell to $8.8 billion as of May 10 from $10.5 billion at the end of March.
This week in monetary policy: Pakistan, Israel, Nigeria, Iceland, Zambia, Paraguay, South Africa & Egypt
This week - May 20 through May 25 - central banks from 8 countries or jurisdictions are scheduled to decide on monetary policy: Pakistan, Israel, Nigeria, Iceland, Zambia, Paraguay, South Africa and Egypt.
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 21 | |||||
| MAY 19- MAY 25, 2019: | |||||
| COUNTRY | DATE | RATE | LATEST | YTD | 1 YR AGO |
| PAKISTAN | 20-May | 10.75% | 0 | 75 | 6.50% |
| ISRAEL | 20-May | 0.25% | 0 | 0 | 0.10% |
| NIGERIA | 21-May | 13.50% | -50 | -50 | 14.00% |
| ICELAND | 22-May | 4.50% | 0 | 0 | 4.25% |
| ZAMBIA | 22-May | 9.75% | 0 | 0 | 9.75% |
| PARAGUAY | 22-May | 4.75% | -50 | -50 | 5.25% |
| SOUTH AFRICA | 23-May | 6.75% | 0 | 0 | 6.50% |
| EGYPT | 23-May | 15.75% | 0 | -100 | 16.75% |
Saturday, May 18, 2019
Jamaica cuts rate 11th time, reserve ratio 2nd time in '19
Jamaica's central bank lowered its policy rate for the the 11th time and its cash reserve requirement for the second time this year, saying the series of cuts to the reserve requirement was possible "given the entrenchment of macroeconomic stability in Jamaica."
The Bank of Jamaica (BOJ) announced the 50 basis point cut in its policy rate to 0.75 percent on its Twitter page, saying the new rate would take effect on May 20 and a press release will follow.
BOJ was scheduled to release its second quarterly monetary policy report and an interest rate decision on Friday, May 17.
BOJ has now cut its policy rate 11 times and by a total of 300 basis points since July 1, 2017 when it adopted the overnight deposit rate as its new policy rate as part of a major overhaul of its monetary policy framework, which this year even included reggae music videos, radio jingles and television adds to spread the word about inflation targeting.
It is BOJ's third rate cut this year following cuts in February and March, with the rate cut 100 points this year.
In a separate press release from May 15, BOJ announced the 200-basis-point cut to the reserve requirement to 7.0 percent, saying this would "increase liquidity in the financial system by $12.3 billion and thereby support the expansion of credit to businesses and households at a lower rate and on better terms."
In February, when BOJ also cut its rate and reserve requirement, it said the cut to the requirement - or the amount of money deposit-taking institutions are required to hold at the central bank against liabilities - was the first in a series over the next 12 month.
"The timing and scope for the next reduction will be determined on the basis of market conditions," BOJ said today, confirming its statement from February.
The new reserve requirement will take effect on June 3, reducing the overall liquidity asset requirement to 21.0 percent.
In April Fitch Ratings said it was expecting BOJ to lower its policy rate by an additional 25 basis points at its May meeting as inflation remains below its target and over the longer term rising energy and food costs would cause inflation to pick up, leading policy makers to raise rates in 2020.
As a result of reforms to BOJ which have "seemingly caused inflation expectations to be firmly anchored", Fitch said it had lowered its long-term average inflation forecast for Jamaica to 5.50 percent from 6.0 percent for the years from 2021 to 2028.
After decades of high inflation, fiscal deficits and growing debt, Jamaica and the International Monetary Fund (IMF) in 2013 agreed on a reform program that has helped bring down inflation from over 26 percent in mid-2008 to 4.0 percent in April this year.
At the same time unemployment has fallen steadily from over 16 percent in 2013 to 8 percent in February this year while fiscal deficits over the last 20 years are now being replaced with surpluses, helping bring down the ballooning debts.
In April the IMF concluded its Fifth review under the stand-by arrangement with Jamaica, saying all criteria were met, including tabling the new Bank of Jamaica Act that makes inflation-targeting a cornerstone of monetary policy, and an ongoing commitment to strengthen domestic institutions is needed as Jamaica prepares to exit from the IMF's financial arrangements later this year.
"Unemployment is near all-time lows, business confidence is high, and the economy is estimated to have expanded by 1.8 percent in 2018, buoyed by mining, construction and agriculture," IMF said on April 22, adding international reserves were now comfortable under a more flexible exchange rate.
IMF projected Jamaica's public debt would fall below 100 percent of gross domestic product for the first time since 2000/2001 to 98.7 percent in fiscal 2018/19 while the government was reducing the primary surplus by 1/2 percent to 6.5 percent of GDP for the fiscal 2019/20 budget without compromising the medium-term anchor to provide resources for security, infrastructure, school meals and transportation.
IMF also said further monetary easing was needed to restore inflation to the midpoint of BOJ's target of 4-6 percent.
"The BOJ's recent reduction in the reserve requirement on Jamaican dollar deposits will help make policy accommodative but further rate cuts are likely to be needed," IMF said, adding BOJ should also continue to reduce its footprint in the foreign exhange market by limiting sales to disorderly market conditions.
www.CentralBankNews.info
The Bank of Jamaica (BOJ) announced the 50 basis point cut in its policy rate to 0.75 percent on its Twitter page, saying the new rate would take effect on May 20 and a press release will follow.
BOJ was scheduled to release its second quarterly monetary policy report and an interest rate decision on Friday, May 17.
BOJ has now cut its policy rate 11 times and by a total of 300 basis points since July 1, 2017 when it adopted the overnight deposit rate as its new policy rate as part of a major overhaul of its monetary policy framework, which this year even included reggae music videos, radio jingles and television adds to spread the word about inflation targeting.
It is BOJ's third rate cut this year following cuts in February and March, with the rate cut 100 points this year.
In a separate press release from May 15, BOJ announced the 200-basis-point cut to the reserve requirement to 7.0 percent, saying this would "increase liquidity in the financial system by $12.3 billion and thereby support the expansion of credit to businesses and households at a lower rate and on better terms."
In February, when BOJ also cut its rate and reserve requirement, it said the cut to the requirement - or the amount of money deposit-taking institutions are required to hold at the central bank against liabilities - was the first in a series over the next 12 month.
"The timing and scope for the next reduction will be determined on the basis of market conditions," BOJ said today, confirming its statement from February.
The new reserve requirement will take effect on June 3, reducing the overall liquidity asset requirement to 21.0 percent.
In April Fitch Ratings said it was expecting BOJ to lower its policy rate by an additional 25 basis points at its May meeting as inflation remains below its target and over the longer term rising energy and food costs would cause inflation to pick up, leading policy makers to raise rates in 2020.
As a result of reforms to BOJ which have "seemingly caused inflation expectations to be firmly anchored", Fitch said it had lowered its long-term average inflation forecast for Jamaica to 5.50 percent from 6.0 percent for the years from 2021 to 2028.
After decades of high inflation, fiscal deficits and growing debt, Jamaica and the International Monetary Fund (IMF) in 2013 agreed on a reform program that has helped bring down inflation from over 26 percent in mid-2008 to 4.0 percent in April this year.
At the same time unemployment has fallen steadily from over 16 percent in 2013 to 8 percent in February this year while fiscal deficits over the last 20 years are now being replaced with surpluses, helping bring down the ballooning debts.
In April the IMF concluded its Fifth review under the stand-by arrangement with Jamaica, saying all criteria were met, including tabling the new Bank of Jamaica Act that makes inflation-targeting a cornerstone of monetary policy, and an ongoing commitment to strengthen domestic institutions is needed as Jamaica prepares to exit from the IMF's financial arrangements later this year.
"Unemployment is near all-time lows, business confidence is high, and the economy is estimated to have expanded by 1.8 percent in 2018, buoyed by mining, construction and agriculture," IMF said on April 22, adding international reserves were now comfortable under a more flexible exchange rate.
IMF projected Jamaica's public debt would fall below 100 percent of gross domestic product for the first time since 2000/2001 to 98.7 percent in fiscal 2018/19 while the government was reducing the primary surplus by 1/2 percent to 6.5 percent of GDP for the fiscal 2019/20 budget without compromising the medium-term anchor to provide resources for security, infrastructure, school meals and transportation.
IMF also said further monetary easing was needed to restore inflation to the midpoint of BOJ's target of 4-6 percent.
"The BOJ's recent reduction in the reserve requirement on Jamaican dollar deposits will help make policy accommodative but further rate cuts are likely to be needed," IMF said, adding BOJ should also continue to reduce its footprint in the foreign exhange market by limiting sales to disorderly market conditions.
www.CentralBankNews.info
Sunday, May 12, 2019
This week in monetary policy: Romania, Poland, Indonesia, Mexico, Mauritius and Jamaica
This week - May 12 through May 18 - central banks from 6 countries or jurisdictions are scheduled to decide on monetary policy: Romania, Poland, Indonesia, Mexico, Mauritius and Mexico.
Following table includes the name of the country, the date of the next policy decision, the current policy rate, the result of the last policy decision, the change in the policy rate year to date, 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 20 | |||||
| MAY 12 - MAY 18, 2019: | |||||
| COUNTRY | DATE | RATE | LATEST | YTD | 1 YR AGO |
| ROMANIA | 15-May | 2.50% | 0 | 0 | 2.50% |
| POLAND | 15-May | 1.50% | 0 | 0 | 1.50% |
| INDONESIA | 16-May | 6.00% | 0 | 0 | 4.75% |
| MEXICO | 16-May | 8.25% | 0 | 0 | 7.50% |
| MAURITIUS | 17-May | 3.50% | 0 | 0 | 3.50% |
| JAMAICA | 17-May | 1.25% | -25 | -50 | 2.50% |
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