The central bank of the Dominican Republic lowered its monetary policy rate by 50 basis points to 5.0 percent to revitalize private credit and ensure economic growth reaches its targeted rate of 5.50 percent while inflation is expected to remain below the lower limit of the bank's target range this year.
It is the first change in interest rates by the Central Bank of the Dominican Republic (BCRD) since a rate hike in June 2018 and the first rate cut since August 2017. The last time the rate was at 5.0 percent was in October 2016.
BCRD said in a statement from June 28 that it had also lowered the rate on overnight deposits to 3.50 percent from 4.0 percent and the rate on repurchases to 6.50 percent from 7.0 percent.
Inflation in the Dominican Republic fell to 1.31 percent in May, the seventh month in a row with inflation below the central bank's target range of 4.0 percent, plus/minus 1 percentage point.
Core inflation, which excludes volatile goods such as food and fuel, fell to 1.98 percent in May and the central bank said inflation expectations had fallen across the monetary policy horizon.
BCRD expects inflation to remain below 3.0 percent until the end of 2019 before it then rises toward the 4.0 percent midpoint in 2020.
Along with a deceleration of global economic activity amid higher geopolitical risks and trade disputes, private investment in the Dominican Republic has also slowed, with the monthly IMAE index showing growth of 5.1 percent in the January - May period, down from 5.7 percent in the first quarter of this year.
The central bank said it would continue to monitor the moderation of the global economy and its possible impact on domestic demand, and is prepared to react in a timely manner to any deviation from the goals outlined in its monetary program.
Last month the International Monetary Fund (IMF) said strong private investment and a boost to consumption from monetary stimulus after a slowdown in 2017 had helped increase economic growth in the Dominican Republic last year to 7.0 percent.
However, growth this year is forecast to slow to 5.5 percent and then 5.2 percent in 2020 due to a less supportive external environment, slower credit and higher oil prices.
The IMF forecast inflation would gradually rise to the central bank's target as food and oil prices pick up, estimating inflation this year would average 2.1 percent and 4.1 percent in 2020 from 3.6 percent in 2018.
www.CentralBankNews.info
Sunday, June 30, 2019
Wednesday, June 26, 2019
Iceland cuts rate 2nd time as economy seen shrinking
Iceland's central bank lowered its benchmark policy rate for the second month in a row as a contraction in the economy is expected to become more obvious in coming months with the decline in tourism now seen deeper than previously expected.
The Central Bank of Iceland (CBI) cut the rate on 7-day deposits by 25 basis points to 3.25 percent and has now cut it by 75 points this year following a cut in May when the outlook for the economy worsened sharply from a fall in tourism and a plunge in exports of marine products.
Iceland's economy expanded by an annual 1.7 percent in the first quarter of the year, the slowest growth since the first quarter of 2014 and line with CBI's forecast from May when it slashed its outlook for 2019 output to a shrinkage of 0.4 percent from an earlier forecast of 1.8 percent growth and 2018's robust expansion of 4.6 percent.
Although CBI said the latest economic data do not change its view of the expected slowdown, domestic demand could turn out to be more resilient than assumed but "the outlook is for the contraction in tourism to be deeper than previously expected."
In May the central bank forecast tourist arrivals would drop 10.5 percent this year from 2018 due to the combination of a collapse of budget airline WOW, the impact of the strong krona, temporary strikes and uncertainty surrounding Icelandair's use of Boeing 737 Max jets.
Inflation is also largely in line with the central bank's forecast that it has peaked and will decline toward the bank's target of 2.5 percent during the year though a further decline in the krona's exchange rate could change the outlook.
"Inflation expectations have fallen since the MPC's last meeting, and the monetary stance has therefore tightened again," CBI said.
Iceland's inflation rate eased to 3.3 percent in June from 3.6 percent in May.
After rising steadily from early 2015 to mid-2017 on Iceland's economic boom, the krona has been dropping since April 2018 and was trading at 124.6 to the U.S. dollar today, down 6.6 percent so far this year.
While the central bank acknowledged the economic contraction would present a challenge to both households and businesses, it said the economy was much more resilient than before and it has considerably more scope to respond to the weakening economy while proposals to ease fiscal policy will also pull in the same direction.
The Central Bank of Iceland (CBI) cut the rate on 7-day deposits by 25 basis points to 3.25 percent and has now cut it by 75 points this year following a cut in May when the outlook for the economy worsened sharply from a fall in tourism and a plunge in exports of marine products.
Iceland's economy expanded by an annual 1.7 percent in the first quarter of the year, the slowest growth since the first quarter of 2014 and line with CBI's forecast from May when it slashed its outlook for 2019 output to a shrinkage of 0.4 percent from an earlier forecast of 1.8 percent growth and 2018's robust expansion of 4.6 percent.
Although CBI said the latest economic data do not change its view of the expected slowdown, domestic demand could turn out to be more resilient than assumed but "the outlook is for the contraction in tourism to be deeper than previously expected."
In May the central bank forecast tourist arrivals would drop 10.5 percent this year from 2018 due to the combination of a collapse of budget airline WOW, the impact of the strong krona, temporary strikes and uncertainty surrounding Icelandair's use of Boeing 737 Max jets.
Inflation is also largely in line with the central bank's forecast that it has peaked and will decline toward the bank's target of 2.5 percent during the year though a further decline in the krona's exchange rate could change the outlook.
"Inflation expectations have fallen since the MPC's last meeting, and the monetary stance has therefore tightened again," CBI said.
Iceland's inflation rate eased to 3.3 percent in June from 3.6 percent in May.
After rising steadily from early 2015 to mid-2017 on Iceland's economic boom, the krona has been dropping since April 2018 and was trading at 124.6 to the U.S. dollar today, down 6.6 percent so far this year.
While the central bank acknowledged the economic contraction would present a challenge to both households and businesses, it said the economy was much more resilient than before and it has considerably more scope to respond to the weakening economy while proposals to ease fiscal policy will also pull in the same direction.
Monday, June 24, 2019
Kyrgyzstan holds rate as inflation moving toward target
Kyrgyzstan's central bank left its benchmark discount rate steady at 4.25 percent, citing the positive dynamics of aggregate demand and low inflation risks from foreign markets, with inflation in the medium term expected to approach the bank's target range of 5 - 7 percent.
The decision to maintain the rate comes after the National Bank of the Kyrgyz Republic (NBKR) cut its rate twice this year, most recently in May, and seven times since March 2016. Since March 2016 the discount rate has been cut by 575 basis points.
As in May, NBKR said it may consider changing the current direction of its monetary policy "in the case of risks in the internal and external environment."
The central bank said inflation as of June 14 rose to 0.9 percent as the prices of fruits and vegetables recovered, up from 0.1 percent in May following deflation in the previous three months.
NBKR said it maintained its forecast for inflation to be 4.0 percent year-on-year at the most by December and average 1.0 percent in the absence of shocks.
Economic growth is also continuing, with real gross domestic product up 5.6 percent in the first 5 months of the year and up by 1.5 percent when output from the Kumtor gold mine is excluded.
www.CentralBankNews.info
The decision to maintain the rate comes after the National Bank of the Kyrgyz Republic (NBKR) cut its rate twice this year, most recently in May, and seven times since March 2016. Since March 2016 the discount rate has been cut by 575 basis points.
As in May, NBKR said it may consider changing the current direction of its monetary policy "in the case of risks in the internal and external environment."
The central bank said inflation as of June 14 rose to 0.9 percent as the prices of fruits and vegetables recovered, up from 0.1 percent in May following deflation in the previous three months.
NBKR said it maintained its forecast for inflation to be 4.0 percent year-on-year at the most by December and average 1.0 percent in the absence of shocks.
Economic growth is also continuing, with real gross domestic product up 5.6 percent in the first 5 months of the year and up by 1.5 percent when output from the Kumtor gold mine is excluded.
www.CentralBankNews.info
Sunday, June 23, 2019
This week in monetary policy: Kyrgyzstan, Hungary, New Zealand, Thailand, Iceland, Czech Rep., Fiji, Botswana, Mexico, Jamaica, Bulgaria, Trinidad & Tobago and Dominican Rep.
This week - June 23 through June 29 - central banks from 13 countries or jurisdictions are scheduled to decide on monetary policy: Kyrgyz Republic, Hungary, New Zealand, Thailand, Iceland, Czech Republic, Fiji, Botswana, Mexico, Jamaica, Bulgaria, Trinidad and Tobago, 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, the rate one year ago and the country's MSCI classification.
The table is updated when the latest decisions are announced and can always accessed by clicking on This Week.
| WEEK 26 | ||||||
| JUN 23 - JUN 29, 2019: | ||||||
| KYRGYZSTAN | 24-Jun | 4.25% | -25 | -50 | 4.75% | |
| HUNGARY | 25-Jun | 0.90% | 0 | 0 | 0.90% | EM |
| NEW ZEALAND | 26-Jun | 1.50% | -25 | -25 | 1.75% | DM |
| THAILAND | 26-Jun | 1.75% | 0 | 0 | 1.50% | EM |
| ICELAND | 26-Jun | 4.00% | -50 | -50 | 4.25% | |
| CZECH REPUBLIC | 26-Jun | 2.00% | 25 | 25 | 1.00% | EM |
| FIJI | 27-Jun | 0.50% | 0 | 0 | 0.50% | |
| BOTSWANA | 27-Jun | 5.00% | 0 | 0 | 5.00% | |
| MEXICO | 27-Jun | 8.25% | 0 | 0 | 7.75% | EM |
| JAMAICA | 27-Jun | 0.75% | -50 | -100 | 2.00% | |
| BULGARIA | 28-Jun | 0.00% | 0 | 0 | 0.00% | FM |
| TRINIDAD & TOBAGO | 28-Jun | 5.00% | 0 | 0 | 5.00% | |
| DOMINICAN REP. | 28-Jun | 5.50% | 0 | 0 | 5.25% | |
Friday, June 21, 2019
Mongolia maintains rate as inflation seen around target
Mongolia's central bank left its policy rate steady at 11.0 percent, saying inflation is expected to remain around its target level amid heightened risks for the global economic outlook and the uncertain outlook for commodity prices.
The Bank of Mongolia (BOM), which has kept its rate steady since raising it by 1 percentage point in November 2018 to bolster the exchange rate of the tughrik, said fiscal discipline, resiliency in the banking sector, and independence of the central bank is essential to weather the potential external risks and to sustain macroeconomic stability.
In its statement from June 19, BOM's monetary policy committee noted the deepening of the trade dispute between the U.S. and China, which is amplifying external risks, and said a potential deterioration in its terms of trade coincided with the completion of a large mining project and the maturing of large external debt, which makes it important to sustain the external balance and build financial buffers at all levels, including households, companies, local regions and communities.
At an unscheduled policy meeting on Nov. 27, 2018 BOM raised its rate after the tughrik came under pressure in the second half of the year and ended 8.0 percent lower during the year in light of a growing external deficits from a relatively high fiscal deficit, rising U.S. interest rates and China's decision to limit coal imports.
But this year the tughrik has been more stable, with the tughrik today trading at 2,661 to the U.S. dollar, down just under 1 percent this year, as economic growth has improved and inflation stabilized.
Mongolia's inflation rate rose to 7.9 percent in May from 7.0 percent in April due to higher meat prices from a disruption in domestic supply and gasoline prices.
But BOM demand-driven core inflation was stable. BOM's inflation target is 8.0 percent.
Rapid growth in mining, an expansion in corporate lending and increased investments and tight fiscal policy have helped boost Mongolia's economy, with growth in the first quarter up 8.6 percent, the fifth consecutive quarter of accelerating annual growth, and the strongest expansion since the third quarter of 2014.
BOM has forecast 2019 growth of at least 6.9 percent after growth of over 6 percent in 2018.
In January the International Monetary Fund (IMF) said Mongolia's growth remains strong and tight fiscal policy led to a surplus in 2018, adding authorities dampened excessive domestic demand that was limiting the build-up of international reserves and were ready to tighten further.
www.CentralBankNews.info
The Bank of Mongolia (BOM), which has kept its rate steady since raising it by 1 percentage point in November 2018 to bolster the exchange rate of the tughrik, said fiscal discipline, resiliency in the banking sector, and independence of the central bank is essential to weather the potential external risks and to sustain macroeconomic stability.
In its statement from June 19, BOM's monetary policy committee noted the deepening of the trade dispute between the U.S. and China, which is amplifying external risks, and said a potential deterioration in its terms of trade coincided with the completion of a large mining project and the maturing of large external debt, which makes it important to sustain the external balance and build financial buffers at all levels, including households, companies, local regions and communities.
At an unscheduled policy meeting on Nov. 27, 2018 BOM raised its rate after the tughrik came under pressure in the second half of the year and ended 8.0 percent lower during the year in light of a growing external deficits from a relatively high fiscal deficit, rising U.S. interest rates and China's decision to limit coal imports.
But this year the tughrik has been more stable, with the tughrik today trading at 2,661 to the U.S. dollar, down just under 1 percent this year, as economic growth has improved and inflation stabilized.
Mongolia's inflation rate rose to 7.9 percent in May from 7.0 percent in April due to higher meat prices from a disruption in domestic supply and gasoline prices.
But BOM demand-driven core inflation was stable. BOM's inflation target is 8.0 percent.
Rapid growth in mining, an expansion in corporate lending and increased investments and tight fiscal policy have helped boost Mongolia's economy, with growth in the first quarter up 8.6 percent, the fifth consecutive quarter of accelerating annual growth, and the strongest expansion since the third quarter of 2014.
BOM has forecast 2019 growth of at least 6.9 percent after growth of over 6 percent in 2018.
In January the International Monetary Fund (IMF) said Mongolia's growth remains strong and tight fiscal policy led to a surplus in 2018, adding authorities dampened excessive domestic demand that was limiting the build-up of international reserves and were ready to tighten further.
www.CentralBankNews.info
Thursday, June 20, 2019
Norway raises rate 3rd time and sees another hike in 2019
Norway's central bank lived up to its past guidance about monetary policy and raised its key rate for the third time since September 2018, bucking the global trend of declining interest rates and slowing economic growth, and said it is likely to raise the rate further later this year.
Norges Bank (NB) raised its policy rate by another 25 basis points to 1.25 percent and has now raised it by 75 basis points during its current tightening cycle as economic growth remains solid, capacity utilization is above normal and underlying inflation is a bit above the bank's target.
"Our current assessment of the outlook and balance or risks suggest that the policy rate will most likely be increased further in the course of 2019," NB Governor Oyestein Olsen said.
However, the central bank's board is also aware of the possibility of a further escalations of global trade tensions, which could spill over to the country's economy and lead to lower oil prices.
"Uncertainty surrounding the effects of monetary policy suggest a cautious approach to interest rate setting," Olsen said.
Today's rate hike was well-telegraphed by NB in May and thus widely expected by analysts but the Norwegian krone still rose 1.3 percent to 8.55 per U.S. dollar and is now 1.7 percent up this year as it reverses some of its weakness during 2018 when the dollar rose across the board.
Norway's oil-dependent economy has been booming since 2016 and in September 2018 the central bank raised its rate for the first time in over 7 years to rein in inflation.
The second rate hike following in March this year and NB forecast that it was likely to raise the rate again in the next 6 months to curb inflation from faster-than-expected economic growth and a weak exchange rate of the krone.
In May NB confirmed it was on track to raise the rate in June and earlier this moth a central bank survey showed that Norwegian companies had boosted their output at the fastest pace since 2012, cementing expectations the rate would be raised today.
NB still considers its monetary policy stance to be accommodative and kept its forecast for the policy rate in coming years unchanged from March, adding the rate path would be adjusted in response to a change in economic prospects.
This year the policy rate is seen averaging 1.1 percent, then rising to 1.6 percent in 2020, and 1.7 percent in 2021 and 2022.
Despite the softening in global growth, Norway's economy has expanded at a slightly faster pace than the central bank easier projected and tighter labor market conditions suggest higher wages.
Norway's gross domestic product grew an annual 2.5 percent in the first quarter of this year, up from 1.9 percent in the previous quarter,
In its second monetary policy report of 2019, NB lowered its 2019 growth forecast for the mainland to 2.6 percent from 2.7 percent, steady from 2018's growth of 2.6 percent.
"There are prospects that the upswing will continue into 2020, owing in part to higher activity in oil services," NB said, adding further out the decline in investment was likely to dampen growth.
In May Norway's headline inflation rate eased to a 2019-low of 2.5 percent while the core rate, which excludes taxes and energy products, dropped to 2.3 percent from 2.6 percent in April. Both measures, however, remain above NB's target of 2.0 percent.
NB forecast consumer price inflation of 2.2 percent this year, down fro 2.3 percent, and below 2018's 2.7 percent. In 2020 inflation is seen easing further to 1.9 percent and then steadying at 2.0 percent in 2021 and 2022.
Norges Bank (NB) raised its policy rate by another 25 basis points to 1.25 percent and has now raised it by 75 basis points during its current tightening cycle as economic growth remains solid, capacity utilization is above normal and underlying inflation is a bit above the bank's target.
"Our current assessment of the outlook and balance or risks suggest that the policy rate will most likely be increased further in the course of 2019," NB Governor Oyestein Olsen said.
However, the central bank's board is also aware of the possibility of a further escalations of global trade tensions, which could spill over to the country's economy and lead to lower oil prices.
"Uncertainty surrounding the effects of monetary policy suggest a cautious approach to interest rate setting," Olsen said.
Today's rate hike was well-telegraphed by NB in May and thus widely expected by analysts but the Norwegian krone still rose 1.3 percent to 8.55 per U.S. dollar and is now 1.7 percent up this year as it reverses some of its weakness during 2018 when the dollar rose across the board.
Norway's oil-dependent economy has been booming since 2016 and in September 2018 the central bank raised its rate for the first time in over 7 years to rein in inflation.
The second rate hike following in March this year and NB forecast that it was likely to raise the rate again in the next 6 months to curb inflation from faster-than-expected economic growth and a weak exchange rate of the krone.
In May NB confirmed it was on track to raise the rate in June and earlier this moth a central bank survey showed that Norwegian companies had boosted their output at the fastest pace since 2012, cementing expectations the rate would be raised today.
NB still considers its monetary policy stance to be accommodative and kept its forecast for the policy rate in coming years unchanged from March, adding the rate path would be adjusted in response to a change in economic prospects.
This year the policy rate is seen averaging 1.1 percent, then rising to 1.6 percent in 2020, and 1.7 percent in 2021 and 2022.
Despite the softening in global growth, Norway's economy has expanded at a slightly faster pace than the central bank easier projected and tighter labor market conditions suggest higher wages.
Norway's gross domestic product grew an annual 2.5 percent in the first quarter of this year, up from 1.9 percent in the previous quarter,
In its second monetary policy report of 2019, NB lowered its 2019 growth forecast for the mainland to 2.6 percent from 2.7 percent, steady from 2018's growth of 2.6 percent.
"There are prospects that the upswing will continue into 2020, owing in part to higher activity in oil services," NB said, adding further out the decline in investment was likely to dampen growth.
For 2020 growth is seen easing to 1.9 percent, up from the March forecast of 2.0 percent, and then slowing further to 1.2 percent in 2021 and 1.2 percent in 2022.
Inflation in Norway picked up through 2018, partly due to higher electricity prices and wages, but this year prices have edged lower but largely as the central bank had expected.In May Norway's headline inflation rate eased to a 2019-low of 2.5 percent while the core rate, which excludes taxes and energy products, dropped to 2.3 percent from 2.6 percent in April. Both measures, however, remain above NB's target of 2.0 percent.
NB forecast consumer price inflation of 2.2 percent this year, down fro 2.3 percent, and below 2018's 2.7 percent. In 2020 inflation is seen easing further to 1.9 percent and then steadying at 2.0 percent in 2021 and 2022.
Wednesday, June 19, 2019
Mozambique cuts rate 100 bps as inflation seen low
Mozambique's central bank lowered its benchmark monetary policy rate, MIMO, by 100 basis points to 13.25 percent, saying inflation has slowed four months in a row and is expected to remain low and stable in the medium term.
It is Bank of Mozambique's (BM) first rate cut this year but the rate has now been lowered by 10 percentage points since April 2017 as inflation has steadily decelerated since topping 26 percent in November 2016 and the exchange rate of the metical has risen since hitting almost 80 to the U.S. dollar in October 2016.
BM also lowered its deposit rate by 100 basis points and the rate on its permanent lending facility to 10.25 percent and 16.25 percent, respectively. However, it left the reserve ratio of domestic currency deposits at 14.0 percent and foreign currency deposits at 36.0 percent.
BM said the rate cut reflected the improved outlook for inflation and the prospect of lower pressure on the exchange rate along with demand that remains below potential.
The metical was trading at 62.0 to the dollar today, up 4.5 percent from a low of 64.8 in late April but down 0.6 percent since the start of the year.
Mozambique was hit hard by Tropical Cyclones Idai and Kenneth in March and April, with the International Monetary Fund earlier this month forecasting economic growth would slow to 1.8 percent from 3.3 percent last year from the damage to infrastructure and productive capacity.
In April IMF approved $118 million in emergency assistance to Mozambique, with the death toll estimated of at least 1,000 from the two cyclones.
Mozambique's inflation rate eased to 2.42 percent in May from 3.27 percent in April but the IMF sees it rising to 8.5 percent by the end of the year.
www.CentralBankNews.info
It is Bank of Mozambique's (BM) first rate cut this year but the rate has now been lowered by 10 percentage points since April 2017 as inflation has steadily decelerated since topping 26 percent in November 2016 and the exchange rate of the metical has risen since hitting almost 80 to the U.S. dollar in October 2016.
BM also lowered its deposit rate by 100 basis points and the rate on its permanent lending facility to 10.25 percent and 16.25 percent, respectively. However, it left the reserve ratio of domestic currency deposits at 14.0 percent and foreign currency deposits at 36.0 percent.
BM said the rate cut reflected the improved outlook for inflation and the prospect of lower pressure on the exchange rate along with demand that remains below potential.
The metical was trading at 62.0 to the dollar today, up 4.5 percent from a low of 64.8 in late April but down 0.6 percent since the start of the year.
Mozambique was hit hard by Tropical Cyclones Idai and Kenneth in March and April, with the International Monetary Fund earlier this month forecasting economic growth would slow to 1.8 percent from 3.3 percent last year from the damage to infrastructure and productive capacity.
In April IMF approved $118 million in emergency assistance to Mozambique, with the death toll estimated of at least 1,000 from the two cyclones.
Mozambique's inflation rate eased to 2.42 percent in May from 3.27 percent in April but the IMF sees it rising to 8.5 percent by the end of the year.
www.CentralBankNews.info
US Fed holds rate but sees cut in 2021 amid uncertainty
The Federal Reserve, the U.S. central bank, left its benchmark target for the federal funds rate steady at 2.25 to 2.50 percent but acknowledged growing uncertainty about the economic outlook and forecast a rate cut next year, a sharp change from March when it had forecast a rate hike.
Echoing Chairman Jerome Powell's statement from June 4, the Fed said it would "act as appropriate to sustain the expansion" in light of the rising uncertainty and muted inflation pressures, a another sharp change from March when the Fed said it would be "patient" while observing global economic and financial developments.
Today's statement by the Fed's policy-making body, the Federal Open Market Committee (FOMC), continues the steady shift away from its tightening monetary policy stance since January this year following 9 rate hikes since December 2015.
Unlike its decisions in January and March, the FOMC was split today, with James Bullard, president of the St. Louis Fed, voting for a 25 basis point cut. The other 9 committee members voted to maintain the rate.
In an update to its economic forecast, the FOMC projected the funds rate would average 2.4 percent this year, unchanged from its March forecast, but then drop to 2.1 percent in 2020 as compared with an increase to 2.6 percent that was projected in March, implying one cut of 25 basis points.
In 2021 the rate was seen rising back up to 2.4 percent, but still down from 2.6 percent previously forecast.
Illustrating the downward path in rates, the longer-run funds rate was forecast at 2.5 percent, down from 2.8 percent, as economic growth was seen decelerating to 2.0 percent in 2020 from 2.1 percent in 2019 and then 1.8 percent in 2021.
As in March, the Fed said the U.S. labor market remains strong, but added economic activity was "rising at a moderate rate," down from its March view that activity was rising "at a solid rate," as business fixed investment has been "soft" despite household spending picking up from earlier in the year.
The jobless rate was forecast to slowly rise to 3.8 percent in 2021 from 3.7 percent in 2020 and 3.6 percent in 2019 while inflation, as expressed in personal consumption expenditure, is seen slowly rising to 2.0 in 2021 from 1.9 percent in 2020 and 1.5 percent this year, down from the March forecast of 1.8 percent.
Echoing Chairman Jerome Powell's statement from June 4, the Fed said it would "act as appropriate to sustain the expansion" in light of the rising uncertainty and muted inflation pressures, a another sharp change from March when the Fed said it would be "patient" while observing global economic and financial developments.
Today's statement by the Fed's policy-making body, the Federal Open Market Committee (FOMC), continues the steady shift away from its tightening monetary policy stance since January this year following 9 rate hikes since December 2015.
Unlike its decisions in January and March, the FOMC was split today, with James Bullard, president of the St. Louis Fed, voting for a 25 basis point cut. The other 9 committee members voted to maintain the rate.
In an update to its economic forecast, the FOMC projected the funds rate would average 2.4 percent this year, unchanged from its March forecast, but then drop to 2.1 percent in 2020 as compared with an increase to 2.6 percent that was projected in March, implying one cut of 25 basis points.
In 2021 the rate was seen rising back up to 2.4 percent, but still down from 2.6 percent previously forecast.
Illustrating the downward path in rates, the longer-run funds rate was forecast at 2.5 percent, down from 2.8 percent, as economic growth was seen decelerating to 2.0 percent in 2020 from 2.1 percent in 2019 and then 1.8 percent in 2021.
As in March, the Fed said the U.S. labor market remains strong, but added economic activity was "rising at a moderate rate," down from its March view that activity was rising "at a solid rate," as business fixed investment has been "soft" despite household spending picking up from earlier in the year.
The jobless rate was forecast to slowly rise to 3.8 percent in 2021 from 3.7 percent in 2020 and 3.6 percent in 2019 while inflation, as expressed in personal consumption expenditure, is seen slowly rising to 2.0 in 2021 from 1.9 percent in 2020 and 1.5 percent this year, down from the March forecast of 1.8 percent.
Moldova raises rate 50 bps to curb inflationary pressure
Moldova's central bank raised its base rate 50 basis points to 7.0 percent to curb rising inflationary pressures from higher wages and credit along with fiscal spending in 2019 and 2020.
It is the first change in rates by the National Bank of Moldova (BNM) since the central bank wrapped up an easing cycle in December 2017 after cuts totaling 13 percentage points from February 2016, and the first rate hike since August 2015.
In addition to raising the base rate, BNM raised the rate on overnight credit by 50 basis points to 10.0 percent and the overnight deposit rate by the same amount to 4.0 percent.
The required reserve ratio on leu deposits and non-convertible currencies was maintained at 42.5 percent while the ratio on freely convertible currencies was raised 300 basis points to 17.0 to "discourage financial intermediation in foreign currency."
The central bank said the rate increases were a first step toward mitigating inflationary expectations and pressures, and to stimulate savings, to keep inflation within the target range of 5.0 percent, plus/minus 1.5 percentage points, as data point to a significant increase in aggregate demand as outlined in the May inflation report.
Moldova's inflation rate rose for the fifth consecutive month to 4.6 percent in May from 3.2 percent in April.
In its May statement, BNM new loans by banks had risen 32.4 percent in the first quarter of this year from the same period last year as the weighted average interest rate on loans had decreased 1.25 percentage points in the same period.
Moldova's leu has depreciated 5.5 percent against the U.S. dollar this year and was trading at 18.20 to the dollar today.
www.CentralBankNews.info
It is the first change in rates by the National Bank of Moldova (BNM) since the central bank wrapped up an easing cycle in December 2017 after cuts totaling 13 percentage points from February 2016, and the first rate hike since August 2015.
In addition to raising the base rate, BNM raised the rate on overnight credit by 50 basis points to 10.0 percent and the overnight deposit rate by the same amount to 4.0 percent.
The required reserve ratio on leu deposits and non-convertible currencies was maintained at 42.5 percent while the ratio on freely convertible currencies was raised 300 basis points to 17.0 to "discourage financial intermediation in foreign currency."
The central bank said the rate increases were a first step toward mitigating inflationary expectations and pressures, and to stimulate savings, to keep inflation within the target range of 5.0 percent, plus/minus 1.5 percentage points, as data point to a significant increase in aggregate demand as outlined in the May inflation report.
Moldova's inflation rate rose for the fifth consecutive month to 4.6 percent in May from 3.2 percent in April.
In its May statement, BNM new loans by banks had risen 32.4 percent in the first quarter of this year from the same period last year as the weighted average interest rate on loans had decreased 1.25 percentage points in the same period.
Moldova's leu has depreciated 5.5 percent against the U.S. dollar this year and was trading at 18.20 to the dollar today.
www.CentralBankNews.info
Tuesday, June 18, 2019
Morocco maintains rate as inflation now seen rebounding
Morocco's central bank left its monetary policy rate steady at 2.25 percent and confirmed its forecast from March that inflation should average 0.6 percent this year and raised its forecast for 2020 inflation to average 1.2 percent from an earlier 1.1 percent due to an expected recovery in domestic demand.
The Bank of Morocco, or Bank Al-Maghrib (BAM), has kept its rate steady since March 2016 and said inflation has remained low in the first four months of the year due to a decline in food prices and to a lesser extent prices of fuels and lubricants.
Morocco's inflation rate rose to 0.2 percent in April but averaged minus 0.1 percent in the first four months, down from 1.9 percent in 2018.
Next year inflation is expected to pick up as domestic demand is seen rising 1.5 percent, up from 0.8 percent in 2019, and 1.1 percent in 2018.
Since June 2018 BAM had continuously lowered its inflation due to lower food prices and weak domestic demand.
Morocco's economy slowed last year due to a general weakening of the global economy, with gross domestic product expanding 3.0 percent from 4.2 percent in 2017.
BAM raised its forecast for 2019 growth to 2.8 percent from the March forecast of 2.7 percent and the 2020 growth forecast to 4.0 percent from 39 percent, helped by strong sales of phosphates and its derivatives, and a rebound in automotive sales as the PSA plant begins operations in the second half of 2020.
Imports are expected to slow on lower energy and capital goods imports, and based on the assumption of Gulf states grants of 2 billion dirhams in 2019 and 1.8 billion in 2020, the current account deficit should narrow to 3.1 percent of GDP in 2020 from 4.5 percent in 2019 and 5.5 percent in 2018.
www.CentralBankNews.info
The Bank of Morocco, or Bank Al-Maghrib (BAM), has kept its rate steady since March 2016 and said inflation has remained low in the first four months of the year due to a decline in food prices and to a lesser extent prices of fuels and lubricants.
Morocco's inflation rate rose to 0.2 percent in April but averaged minus 0.1 percent in the first four months, down from 1.9 percent in 2018.
Next year inflation is expected to pick up as domestic demand is seen rising 1.5 percent, up from 0.8 percent in 2019, and 1.1 percent in 2018.
Since June 2018 BAM had continuously lowered its inflation due to lower food prices and weak domestic demand.
Morocco's economy slowed last year due to a general weakening of the global economy, with gross domestic product expanding 3.0 percent from 4.2 percent in 2017.
BAM raised its forecast for 2019 growth to 2.8 percent from the March forecast of 2.7 percent and the 2020 growth forecast to 4.0 percent from 39 percent, helped by strong sales of phosphates and its derivatives, and a rebound in automotive sales as the PSA plant begins operations in the second half of 2020.
Imports are expected to slow on lower energy and capital goods imports, and based on the assumption of Gulf states grants of 2 billion dirhams in 2019 and 1.8 billion in 2020, the current account deficit should narrow to 3.1 percent of GDP in 2020 from 4.5 percent in 2019 and 5.5 percent in 2018.
www.CentralBankNews.info
Sunday, June 16, 2019
This week in monetary policy: Uganda, Morocco, Thailand, Moldova, USA, Mozambique, Brazil, Japan, Taiwan, Philippines, Indonesia, Norway, UK, Mongolia & Paraguay
This week - June 16 through June 22 - central banks from 15 countries or jurisdictions are scheduled to decide on monetary policy: Uganda, Morocco, Thailand, Moldova, USA, Mozambique, Brazil, Japan, Taiwan, Philippines, Indonesia, Norway, UK, Mongolia and Paraguay.
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.
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 25 | |||||
| JUN 16 - JUN 22, 2019: | |||||
| COUNTRY | DATE | RATE | LATEST | YTD | 1 YR AGO |
| UGANDA | 18-Jun | 10.00% | 0 | 0 | 9.00% |
| MOROCCO | 18-Jun | 2.25% | 0 | 0 | 2.25% |
| THAILAND | 19-Jun | 1.75% | 0 | 0 | 1.50% |
| MOLDOVA | 19-Jun | 6.50% | 0 | 0 | 6.50% |
| UNITED STATES | 19-Jun | 2.50% | 0 | 0 | 2.00% |
| MOZAMBIQUE | 19-Jun | 14.25% | 0 | 0 | 15.75% |
| BRAZIL | 19-Jun | 6.50% | 0 | 0 | 6.50% |
| JAPAN | 20-Jun | -0.10% | 0 | 0 | -0.10% |
| TAIWAN | 20-Jun | 1.375% | 0 | 0 | 1.375% |
| PHILIPPINES | 20-Jun | 4.50% | -25 | -25 | 3.50% |
| INDONESIA | 20-Jun | 6.00% | 0 | 0 | 5.25% |
| NORWAY | 20-Jun | 1.00% | 0 | 25 | 0.50% |
| UNITED KINGDOM | 20-Jun | 0.75% | 0 | 0 | 0.50% |
| MONGOLIA | 21-Jun | 11.00% | 0 | 0 | 11.00% |
| PARAGUAY | 21-Jun | 4.75% | 0 | -50 | 5.25% |
Thursday, June 13, 2019
Swiss keep expansionary policy, launch new policy rate
Switzerland's central bank is sticking with its expansionary monetary policy and will remain active in foreign exchange markets as necessary as "the risk of renewed upward pressure on the Swiss franc is high, given the many hotspots around the world."
The Swiss National Bank (SNB) left its interest rate on banks' sight deposits at minus 0.75 percent but also introduced the SNB policy rate, a new benchmark rate that replaces its target range for 3-month Swiss Franc Libor and will be used by SNB to communicate its future policy decisions.
The target for 3-month Libor has been between minus 1.25 percent and minus 0.25 percent since January 2015 when the SNB stunned financial markets by scrapping an upper limit on the Swiss franc's exchange rate to the euro.
Libor, or the London Interbank Offered Rate, is a rate published daily in London based on the interest rates reported by leading banks.
But in 2012 the rate - a global benchmark - became tainted after it was discovered that banks were manipulating it by falsely inflating or deflating their rates so they could profit from trades or give the impression they were more creditworthy than the were.
"The reason for introducing the SNB policy rate is that the future of the Libor is not guaranteed," SNB said, as the UK's Financial Conduct Authority will only ensure that Libor is maintained through to the end of 2021.
Given that SNB's inflation forecast for the next three years is based on the assumption of unchanged interest rates, the central bank is switching to the policy rate now to ensure the forecast is based on the same interest rate over the entire horizon.
As an alternative to Libor, the Swiss financial market is beginning to use 10-year old SARON, the Swiss Average Rate Overnight, which is based on trades and binding quotes for overnight transactions, a broader and more liquid market than the unsecured money market on which Libor is based.
The SNB raised its forecast for inflation slightly from March due to higher prices for imported goods and now sees inflation of 0.6 percent in 2019, up from 0.3 percent, and 0.7 percent in 2020, up from 0.6 percent.
For 2021 SNB expects an inflation rate of 1.1 percent, down from 1.2 percent.
"The situation on the foreign exchange market continues to be fragile," SNB said, with SNB governing board member Andrea Maechler, noting the escalation of the U.S-China trade dispute and concerns about Italy's budget situation had put fresh upward pressure on the franc's exchange rate, underscoring its role as a safe-haven during uncertain times.
"The negative interest rate and the SNB's willingness to intervene in the foreign exchange market as necessary therefore remain essential," Maechler said.
Despite mixed signs from the global economy and the risk that a sharp slowdown would quickly spread to Switzerland, SNB said economic indicators were currently favorable and it expects the economy to growth around 1.5 percent this year, the same as it forecast in March.
The Swiss National Bank (SNB) left its interest rate on banks' sight deposits at minus 0.75 percent but also introduced the SNB policy rate, a new benchmark rate that replaces its target range for 3-month Swiss Franc Libor and will be used by SNB to communicate its future policy decisions.
The target for 3-month Libor has been between minus 1.25 percent and minus 0.25 percent since January 2015 when the SNB stunned financial markets by scrapping an upper limit on the Swiss franc's exchange rate to the euro.
Libor, or the London Interbank Offered Rate, is a rate published daily in London based on the interest rates reported by leading banks.
But in 2012 the rate - a global benchmark - became tainted after it was discovered that banks were manipulating it by falsely inflating or deflating their rates so they could profit from trades or give the impression they were more creditworthy than the were.
"The reason for introducing the SNB policy rate is that the future of the Libor is not guaranteed," SNB said, as the UK's Financial Conduct Authority will only ensure that Libor is maintained through to the end of 2021.
Given that SNB's inflation forecast for the next three years is based on the assumption of unchanged interest rates, the central bank is switching to the policy rate now to ensure the forecast is based on the same interest rate over the entire horizon.
As an alternative to Libor, the Swiss financial market is beginning to use 10-year old SARON, the Swiss Average Rate Overnight, which is based on trades and binding quotes for overnight transactions, a broader and more liquid market than the unsecured money market on which Libor is based.
The SNB raised its forecast for inflation slightly from March due to higher prices for imported goods and now sees inflation of 0.6 percent in 2019, up from 0.3 percent, and 0.7 percent in 2020, up from 0.6 percent.
For 2021 SNB expects an inflation rate of 1.1 percent, down from 1.2 percent.
"The situation on the foreign exchange market continues to be fragile," SNB said, with SNB governing board member Andrea Maechler, noting the escalation of the U.S-China trade dispute and concerns about Italy's budget situation had put fresh upward pressure on the franc's exchange rate, underscoring its role as a safe-haven during uncertain times.
"The negative interest rate and the SNB's willingness to intervene in the foreign exchange market as necessary therefore remain essential," Maechler said.
Despite mixed signs from the global economy and the risk that a sharp slowdown would quickly spread to Switzerland, SNB said economic indicators were currently favorable and it expects the economy to growth around 1.5 percent this year, the same as it forecast in March.
Sunday, June 9, 2019
UPDATE-This week in monetary policy: Armenia, Georgia, Turkey, Namibia, Switzerland, Peru & Russia
(UPDATE - Following item has been updated with Turkey)
This week - June 9 through June 15 - central banks from 7 countries or jurisdictions are scheduled to decide on monetary policy: Armenia, Georgia, Turkey, Namibia, Switzerland, Peru and Russia.
This week - June 9 through June 15 - central banks from 7 countries or jurisdictions are scheduled to decide on monetary policy: Armenia, Georgia, Turkey, Namibia, Switzerland, Peru and Russia.
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 24 | |||||
| JUN 9 - JUN 15, 2019: | |||||
| COUNTRY | DATE | RATE | LATEST | YTD | 1 YR AGO |
| ARMENIA | 11-Jun | 5.75% | 0 | -25 | 6.00% |
| GEORGIA | 12-Jun | 6.50% | -25 | -50 | 7.25% |
| TURKEY | 12-Jun | 24.00% | 0 | 0 | 17.75% |
| NAMIBIA | 12-Jun | 6.75% | 0 | 0 | 6.75% |
| SWITZERLAND | 13-Jun | -0.75% | 0 | 0 | -0.75% |
| PERU | 13-Jun | 2.75% | 0 | 0 | 2.75% |
| RUSSIA | 14-Jun | 7.75% | 0 | 0 | 7.25% |
Saturday, June 8, 2019
Chile cuts rate 50 bps in surprise on wider output gap
Chile's central bank surprised financial markets and investors by cutting its monetary policy rate by 50 basis points to 2.50 percent in response to lower-than-expected growth in the first quarter of this year and a wider-than-expected output gap from the impact of "massive immigration of recent years on trend and potential growth."
The unanimous rate cut on June 7 by the Central Bank of Chile's (CBC) board surprised many economists because in its previous monetary policy decision from May 9 the central bank did not signal it was considering cutting its rate and CBC is known as transparent and predictable.
In May CBC began a gradual shift away from its earlier tightening stance by saying it would keep its monetary stimulus in place for an extended time as inflation was sluggish and preliminary data showed first quarter growth was less than expected.
This shift in May followed rate hikes by a total of 50 basis points in October 2018 and then in January this year when the central bank said it was gradually tightening its policy stance.
Friday's rate cut reverses these two rate hikes, bringing the rate back to its level from May 2017 to September 2018.
However, minutes from the board's meeting in May, released on May 27, showed the board had in fact discussed cutting the rate in a preventative and corrective action.
The board was beginning to realize its monetary policy stance in the past had been less expansive than thought because the output gap was in fact bigger than expected due to positive impact of recent immigration on potential growth.
Chile took in about 700,000 migrants between 2015 and 2017, many from Venezuela and Haiti. Venezuelans now comprise the largest foreign community in Chile, outnumbering Peruvians who were the largest community only two years ago.
While some economists had taken note of the board's discussion in May, most thought this meant the central bank would keep its rate on hold for now or maybe cut it later this year after its lowered its growth forecast or the estimate for a neutral interest rate in its June monetary policy report.
But in its policy statement, the board said the June report, which will be released on Monday, June 10, quantifies the effects of recent immigration on growth, boosting the estimate of potential growth by 25 basis points to 3.25 percent - 4.75 percent for the period 2019 to 2028 and to around 3.4 percent for 2019 to 2021.
"This, combined with the lower growth of the first quarter, results in a widening of the activity gap," which means the neutral monetary policy rate has been revised down by 25 basis points, partly reflecting the drop in neutral rates around the world.
The June monetary policy report suggest growth this year will be between 2.75 and 3.50 percent, below the previous forecast of 3.0 to 4.0 percent.
For 2020 and 2021 growth is forecast between 3.0 and 4.0 percent, reflecting a recovery of growth in the second half of this year and higher potential growth.
"The board estimates that, in light of the updating of the structural parameters, the economy has not recovered enough to close the activity gap and boost inflation," CBC said, adding"
"Accordingly, the board has deemed it necessary to recalibrate the monetary impulse," with the new level of its policy rate enough to ensure inflation converges to the target.
Going forward, CBC said changes to the policy rate will depend on how inflation moves toward its 3.0 percent target, with this depending on the labour market absorbs the inflow of migrants, the level of investment and external developments.
Chile's gross domestic product slowed to lower-than-expected annual growth of 1.6 percent in the first quarter of this year from 3.6 percent in the fourth quarter of 2018, with the CBC pointing to slower growth of machinery and equipment investment, exports as a consequence of a deterioration in the external markets and a build-up of inventory that failed to reverse as it had expected.
Headline inflation rose to 2.3 percent in May, but mainly due to higher electricity rates, with core inflation of 1.9 percent and inflation expectations for end-2019 and in 12 months below 3.0 percent.
CBC's policy decision was released after financial markets closed on Friday, with Chile's peso so far showing little change in response to the rate cut.
The peso was trading at 692.8 to the U.S. dollar on June 9, steady from levels seen in the second half of last week but up 2.4 percent from last Monday. Compared with the start of 2019, the peso was steady.
The unanimous rate cut on June 7 by the Central Bank of Chile's (CBC) board surprised many economists because in its previous monetary policy decision from May 9 the central bank did not signal it was considering cutting its rate and CBC is known as transparent and predictable.
In May CBC began a gradual shift away from its earlier tightening stance by saying it would keep its monetary stimulus in place for an extended time as inflation was sluggish and preliminary data showed first quarter growth was less than expected.
This shift in May followed rate hikes by a total of 50 basis points in October 2018 and then in January this year when the central bank said it was gradually tightening its policy stance.
Friday's rate cut reverses these two rate hikes, bringing the rate back to its level from May 2017 to September 2018.
However, minutes from the board's meeting in May, released on May 27, showed the board had in fact discussed cutting the rate in a preventative and corrective action.
The board was beginning to realize its monetary policy stance in the past had been less expansive than thought because the output gap was in fact bigger than expected due to positive impact of recent immigration on potential growth.
Chile took in about 700,000 migrants between 2015 and 2017, many from Venezuela and Haiti. Venezuelans now comprise the largest foreign community in Chile, outnumbering Peruvians who were the largest community only two years ago.
While some economists had taken note of the board's discussion in May, most thought this meant the central bank would keep its rate on hold for now or maybe cut it later this year after its lowered its growth forecast or the estimate for a neutral interest rate in its June monetary policy report.
But in its policy statement, the board said the June report, which will be released on Monday, June 10, quantifies the effects of recent immigration on growth, boosting the estimate of potential growth by 25 basis points to 3.25 percent - 4.75 percent for the period 2019 to 2028 and to around 3.4 percent for 2019 to 2021.
"This, combined with the lower growth of the first quarter, results in a widening of the activity gap," which means the neutral monetary policy rate has been revised down by 25 basis points, partly reflecting the drop in neutral rates around the world.
The June monetary policy report suggest growth this year will be between 2.75 and 3.50 percent, below the previous forecast of 3.0 to 4.0 percent.
For 2020 and 2021 growth is forecast between 3.0 and 4.0 percent, reflecting a recovery of growth in the second half of this year and higher potential growth.
"The board estimates that, in light of the updating of the structural parameters, the economy has not recovered enough to close the activity gap and boost inflation," CBC said, adding"
"Accordingly, the board has deemed it necessary to recalibrate the monetary impulse," with the new level of its policy rate enough to ensure inflation converges to the target.
Going forward, CBC said changes to the policy rate will depend on how inflation moves toward its 3.0 percent target, with this depending on the labour market absorbs the inflow of migrants, the level of investment and external developments.
Chile's gross domestic product slowed to lower-than-expected annual growth of 1.6 percent in the first quarter of this year from 3.6 percent in the fourth quarter of 2018, with the CBC pointing to slower growth of machinery and equipment investment, exports as a consequence of a deterioration in the external markets and a build-up of inventory that failed to reverse as it had expected.
Headline inflation rose to 2.3 percent in May, but mainly due to higher electricity rates, with core inflation of 1.9 percent and inflation expectations for end-2019 and in 12 months below 3.0 percent.
CBC's policy decision was released after financial markets closed on Friday, with Chile's peso so far showing little change in response to the rate cut.
The peso was trading at 692.8 to the U.S. dollar on June 9, steady from levels seen in the second half of last week but up 2.4 percent from last Monday. Compared with the start of 2019, the peso was steady.
Friday, June 7, 2019
Azerbaijan cuts rate 8th time but inflation seen in target
Azerbaijan's central bank cut its benchmark discount rate for the 8th time since February last year, saying the cut takes into account that inflation is below its target, inflation expectations are stable, the external environment is favorable and the latest economic outlook.
The Central Bank of the Republic of Azerbaijan (CBA) cut its discount rate by a further 25 basis points to 8.50 percent and has now lowered its by a total of 650 points since February 2018.
It is CBA's fourth cut this year, with the rate being cut by a total of 125 points this year.
CBA said further decisions about the interest rate will be based on the forecast for inflation, inflation expectations, the external environment and financial markets' response to this.
Azerbaijan's inflation rate rose to 2.4 percent in April from 2.1 percent in March, but CBA said this was below its target of 3.1 percent.
CBA forecast inflation by the end of 2019 will remain within its target range of 4.0 percent, plus/minus 2 percentage points.
While inflation expectations are stable, CBA said agricultural prices will have a declining effect on food inflation of the next few months given seasonal changes.
www.CentralBankNews.info
The Central Bank of the Republic of Azerbaijan (CBA) cut its discount rate by a further 25 basis points to 8.50 percent and has now lowered its by a total of 650 points since February 2018.
It is CBA's fourth cut this year, with the rate being cut by a total of 125 points this year.
CBA said further decisions about the interest rate will be based on the forecast for inflation, inflation expectations, the external environment and financial markets' response to this.
Azerbaijan's inflation rate rose to 2.4 percent in April from 2.1 percent in March, but CBA said this was below its target of 3.1 percent.
CBA forecast inflation by the end of 2019 will remain within its target range of 4.0 percent, plus/minus 2 percentage points.
While inflation expectations are stable, CBA said agricultural prices will have a declining effect on food inflation of the next few months given seasonal changes.
www.CentralBankNews.info
Thursday, June 6, 2019
UPDATE-ECB pushes back any rate hike to H2 2020 at the earliest
(An earlier story today about the ECB's decision has been updated with comments from ECB President Mario Draghi's press conference and ECB staff forecasts):
The European Central Bank (ECB) kept its key interest steady but again pushed back any rate hike by another six months to the second half of 2020, at the earliest, as inflation remains far below its target and economic growth sluggish from global headwinds, and prolonged uncertainty.
The governing council of the ECB, the central bank for the 19 member states of the European Union (EU) that use the euro currency, also decided that interest rates on its new series of loans aimed at boosting economic activity - targeted longer-term refinancing operations (TLTRO III) - would be set a 10 basis points above the average rate applied in its main refinancing operations.
"The Governing Council now expects the key ECB interest rates to remain at their present levels at least through the first half of 2020, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to 2% over the medium term," the ECB said in a statement.
The ECB also confirmed it would continue reinvesting payments from maturing securities that were bought under its asset purchase program, known as quantitative easing, "for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favorable liquidity conditions and an ample degree of monetary accommodation."
It is the second time in three months the ECB has delayed any rate hike, illustrating the speed with which the euro area economy is being dragged down by the slowing global economy.
"Despite the somewhat better than expected data for the first quarter, the most recent information indicates that global headwinds continue to weigh on the euro area outlook," ECB President Mario Draghi said, adding:
"The prolonged presence of uncertainties, related to geopolitical factors, the rising threat of protectionism and vulnerabilities in emerging markets, is leaving its mark on economic sentiment."
After slashing its benchmark refinancing rate to its current level of 0.0 percent and the deposit rate to minus 0.40 percent in March 2016 following the launch of asset purchases in March 2015, the euro area economy slowly improved through 2017 before decelerating during 2018.
But the ECB remained confident the slowdown was temporary and decided in June 2018 interest rates could begin to rise in the second half of 2019. It also wrapped up its asset purchases, which have reached some 2.6 trillion, in December last year.
By March this year it became clear the slowdown was dragging on, and the ECB pushed back the time frame for any rate hike to 2020, at the earliest, and loosened its policy stance once again by launching a new series of long-term lending programs.
While Draghi confirmed the ECB's guidance that it "stands ready to adjust all instrument"s to ensure inflation rises in a sustainable manner, he was more pointed today, saying the council was "determined to act in case of adverse contingencies."
Draghi said the ECB general council had become more "granular" in discussions of possible responses to the prolonged and growing risks facing the euro area economy, with several members raising the possibility of further cuts to the ECB's deposit rate while others raised the possibility of restarting the asset purchase program or further extensions in the forward guidance along with pursuing the price stability objective in a more symmetric fashion.
With the ECB's benchmark refinancing rate already at zero percent, Draghi said fiscal policy also would have to play a fundamental role in the event of a contingency, but made it clear that he still believes the ECB has room to ease further.
"The policy space is there and the exchanges we had today is that if adverse contingencies were to materialize, the Governing Council stands ready to act and use - as I've said many times - all the instruments that are in the toolbox," Draghi told journalists.
In the first quarter of 2019 growth of the euro area's gross domestic product was unchanged from the fourth quarter of 2018 at 1.2 percent year-on-year, down from 2.5 percent in the first quarter of 2018.
In an update to its growth forecasts, ECB staff revised upwards its 2019 forecast by 0.1 percentage points to 1.2 percent, but lowered the 2020 forecast by 0.2 points to 1.4 percent and by 0.1 points the 2021 forecast to 1.4 percent.
Due to global uncertainty, the risks to the growth forecast remains tilted to the downside.
Inflation remains well below the ECB's target, plunging to a lower-than-expected 1.2 percent in May, while the ECB's preferred measure of underlying inflation, which excludes food and energy, fell to 1.0 percent from 1.4 percent.
After fluctuating around 2 percent from 2000 to late 2007, inflation in the euro area accelerated towards 4 percent in early 2000 and triggered a rate hike in July 2008.
However, only 3 months later the ECB, along with other central banks such as the Federal Reserve, the Bank of England, the Bank of Canada, the Riksbank and the Swiss National Bank slashed rates in an unprecedented coordinated effort to inject life back into frozen credit markets and prevent a global depression.
In response, inflation slowly climbed back toward the ECB's target of below, but close to 2 percent, finally topping its target in late 2018.
But an economic slowdown and a fall in oil prices in the fourth quarter of last year quickly put an end to any price pressures and inflation tumbled to 1.4 percent in January, rose slightly to 1.5 percent in February, then eased to 1.4 percent in March before rising to 1.7 percent in April.
ECB staff raised their forecast for 2019 inflation by 0.1 percentage points to 1.3 percent but lowered the 2020 forecast by the same amount to 1.4 percent. In 2021 inflation is seen at 1.6 percent.
The European Central Bank (ECB) kept its key interest steady but again pushed back any rate hike by another six months to the second half of 2020, at the earliest, as inflation remains far below its target and economic growth sluggish from global headwinds, and prolonged uncertainty.
The governing council of the ECB, the central bank for the 19 member states of the European Union (EU) that use the euro currency, also decided that interest rates on its new series of loans aimed at boosting economic activity - targeted longer-term refinancing operations (TLTRO III) - would be set a 10 basis points above the average rate applied in its main refinancing operations.
"The Governing Council now expects the key ECB interest rates to remain at their present levels at least through the first half of 2020, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to 2% over the medium term," the ECB said in a statement.
The ECB also confirmed it would continue reinvesting payments from maturing securities that were bought under its asset purchase program, known as quantitative easing, "for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favorable liquidity conditions and an ample degree of monetary accommodation."
It is the second time in three months the ECB has delayed any rate hike, illustrating the speed with which the euro area economy is being dragged down by the slowing global economy.
"Despite the somewhat better than expected data for the first quarter, the most recent information indicates that global headwinds continue to weigh on the euro area outlook," ECB President Mario Draghi said, adding:
"The prolonged presence of uncertainties, related to geopolitical factors, the rising threat of protectionism and vulnerabilities in emerging markets, is leaving its mark on economic sentiment."
After slashing its benchmark refinancing rate to its current level of 0.0 percent and the deposit rate to minus 0.40 percent in March 2016 following the launch of asset purchases in March 2015, the euro area economy slowly improved through 2017 before decelerating during 2018.
But the ECB remained confident the slowdown was temporary and decided in June 2018 interest rates could begin to rise in the second half of 2019. It also wrapped up its asset purchases, which have reached some 2.6 trillion, in December last year.
By March this year it became clear the slowdown was dragging on, and the ECB pushed back the time frame for any rate hike to 2020, at the earliest, and loosened its policy stance once again by launching a new series of long-term lending programs.
While Draghi confirmed the ECB's guidance that it "stands ready to adjust all instrument"s to ensure inflation rises in a sustainable manner, he was more pointed today, saying the council was "determined to act in case of adverse contingencies."
Draghi said the ECB general council had become more "granular" in discussions of possible responses to the prolonged and growing risks facing the euro area economy, with several members raising the possibility of further cuts to the ECB's deposit rate while others raised the possibility of restarting the asset purchase program or further extensions in the forward guidance along with pursuing the price stability objective in a more symmetric fashion.
With the ECB's benchmark refinancing rate already at zero percent, Draghi said fiscal policy also would have to play a fundamental role in the event of a contingency, but made it clear that he still believes the ECB has room to ease further.
"The policy space is there and the exchanges we had today is that if adverse contingencies were to materialize, the Governing Council stands ready to act and use - as I've said many times - all the instruments that are in the toolbox," Draghi told journalists.
In the first quarter of 2019 growth of the euro area's gross domestic product was unchanged from the fourth quarter of 2018 at 1.2 percent year-on-year, down from 2.5 percent in the first quarter of 2018.
In an update to its growth forecasts, ECB staff revised upwards its 2019 forecast by 0.1 percentage points to 1.2 percent, but lowered the 2020 forecast by 0.2 points to 1.4 percent and by 0.1 points the 2021 forecast to 1.4 percent.
Due to global uncertainty, the risks to the growth forecast remains tilted to the downside.
Inflation remains well below the ECB's target, plunging to a lower-than-expected 1.2 percent in May, while the ECB's preferred measure of underlying inflation, which excludes food and energy, fell to 1.0 percent from 1.4 percent.
After fluctuating around 2 percent from 2000 to late 2007, inflation in the euro area accelerated towards 4 percent in early 2000 and triggered a rate hike in July 2008.
However, only 3 months later the ECB, along with other central banks such as the Federal Reserve, the Bank of England, the Bank of Canada, the Riksbank and the Swiss National Bank slashed rates in an unprecedented coordinated effort to inject life back into frozen credit markets and prevent a global depression.
In response, inflation slowly climbed back toward the ECB's target of below, but close to 2 percent, finally topping its target in late 2018.
But an economic slowdown and a fall in oil prices in the fourth quarter of last year quickly put an end to any price pressures and inflation tumbled to 1.4 percent in January, rose slightly to 1.5 percent in February, then eased to 1.4 percent in March before rising to 1.7 percent in April.
ECB staff raised their forecast for 2019 inflation by 0.1 percentage points to 1.3 percent but lowered the 2020 forecast by the same amount to 1.4 percent. In 2021 inflation is seen at 1.6 percent.
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