This week in monetary policy: Japan, Armenia, Bangladesh, Moldova, USA, Bulgaria, Brazil, Dominican Rep., Czech Rep. & UK

    This week - July 29 through August 3 - central banks from 10 countries or jurisdictions are scheduled to decide on monetary policy: Japan, Armenia, Bangladesh, Moldova, United States, Bulgaria, Brazil, Dominican Republic, Czech Republic and United Kingdom.

    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 31
JUL 29 - AUG 3, 2019:
JAPAN	30-Jul	-0.10%	0	0	-0.10%	DM
ARMENIA	30-Jul	5.75%	0	-25	6.00%
BANGLADESH	31-Jul	6.00%	0	0	6.00%	FM
MOLDOVA	31-Jul	7.00%	50	50	6.50%
UNITED STATES	31-Jul	2.50%	0	0	2.00%	DM
BULGARIA	31-Jul	0.00%	0	0	0.00%	FM
BRAZIL	31-Jul	6.50%	0	0	6.50%	EM
DOMINICAN REP.	31-Jul	5.00%	-50	-50	5.50%
CZECH REPUBLIC	1-Aug	2.00%	0	25	1.25%	EM
UNITED KINGDOM	1-Aug	0.75%	0	0	0.75%	DM

    www.CentralBankNews.info

Azerbaijan cuts rate 9th time, more easing if CPI in target

     Azerbaijan's central bank lowered its benchmark interest rate for the 9th time since last February and said the trend toward a neutral monetary policy would continue as long as inflation is expected to remain within the bank's target.
     The Central Bank of the Republic of Azerbaijan (CBA) cut its discount rate by another 25 basis points to 8.25 percent and has now cut it by a total of 675 points since February 2018.
     It is CBA's fifth rate cut this year, with the rate cut 150 basis points, as inflation continues to rise toward the bank's target of 4.0 percent, plus/minus 2 percentage points.
      Azerbaijan's inflation rate rose to 2.5 percent in June, continuing to accelerate from 1.7 percent in January on higher food prices, and CBA said inflation is expected to reach the upper part of its target range by the end of the year due to expanding domestic demand.
      Azerbaijan's inflation rate has come down faster than expected since mid-2017 when it hit 14 percent, triggering CBA's flurry of rate cuts and the inflation target for 2019 was also lowered to 4.0 percent from an earlier 6-8 percent.

     CBA said monetary policy decisions during the remainder of the year will be based on the forecast for inflation, the balance of internal and external risks, especially how fiscal stimulus affects prices.

     Helped by the rise in oil prices earlier this year Azerbaijan's trade surplus has widened, boosting its currency reserves to US$49.1 billion, and both oil and non-oil exports are higher.

      Last month the International Monetary Fund forecast Azerbaijan's economic growth would rise to 2.7 percent this year from 1.4 percent last year, with measures, such as higher wages, pensions and social assistance, providing economic stimulus and protecting the most vulnerable in society.

     The Southern Gas Corridor natural gas pipeline, a European initiative to reduce its reliance on Russian gas, will become operational this year, boosting Azerbaijan's output and the fiscal surplus that is seen rising to 5.8 percent of gross domestic product.

     Azerbaijan's current account surplus is also seen exceeding 10 percent of GDP in the near term, IMF said, calling on continued fiscal consolidation to save oil income for future generations.

     Azerbaijan's economy grew 3.0 percent in the first quarter of this year, up from 1.4 percent in the previous quarter.

     www.CentralBankNews.info

     

Russia cuts rate 25 bps and says further easing possible

     Russia's central bank lowered its key interest rate by 25 basis points to 7.25 percent, as widely expected, and repeated its guidance from last month that further rate cuts are possible in as the bank moves toward a neutral monetary policy stance in the first half of 2020.
     It is Bank of Russia's second rate cut this year following a similar cut rate in June, with the central bank saying inflation is continuing to slow while economic growth is lower than expected.
     "Weak economic activity, along with temporary factors, limits inflation risks over the short-term horizon," the central bank said, confirming it expects inflation to return to its target of 4.0 percent in early 2020.
     Earlier this month Elvira Nabiullina, central bank governor, told Reuters the bank would like to complete its easing cycle by mid-2020 by trimming the rate in small steps after saying in June that one of two rate cuts were possible by the end of this year.
      Nabiullina estimates monetary policy will be neutral when the rate reaches a range of 6.0 to 7.0 percent.
     Russia's central bank embarked on an easing cycle in January 2015 as it slowly rolled back a sharp 750 basis point rate hike in December 2014 to protect the ruble, which plunged in the wake of a conflict with Ukraine.
     Between January 2015 and April 2018 the key interest rate was cut by a total of 9.75 percentage points as inflation began to ease and the ruble slowly firmed but the easing cycle came to a sharp halt when fresh sanctions by the United States over Russia's meddling in the U.S. 2016 presidential election triggered a 10 percent plunge in the ruble and a 9 percent fall in Moscow stock market.
     In September and December, 2018 Russia's central bank then raised its rate twice by a total of 50 basis points in proactive moves to curb inflation from a combination of higher import prices from the lower ruble and a rise in value-added-taxes to 20 percent on Jan. 1, 2019.
     After steadily rising in the second half of last year, inflation in Russia peaked in March this year at 5.3 percent and eased further to 4.7 percent in June and was close to 4.6 percent as of July 22 as inflation continues to follow the bank's expected path.
     Core inflation also declined in June for the first time since March 2018 to 4.6 percent as consumer demand constrains inflation along with the rise in the ruble this year and lower vegetable prices.
     While inflation expectations among businesses have declined, the central bank said households' inflation expectations had not changed materially since April and remain elevated. However, it expects a continued decline in inflation to pave the way for lower expectations.
     "Disinflationary risks exceed pro-inflationary risks over the short-term horizon," the central bank said, pointing to weak domestic and external demand.
     Growth in Russia's economy has been slower due to weak investment and a drop in exports and a rise in industrial output in the second quarter may not be steady, the bank said.
     In the first half of the year fiscal policy also constrained economic activity but the central bank expects government spending to rise in the second half, adding "the risk of a slowdown in global economic growth still looms," in the event of a further tightening of trade restrictions.
     Russia's gross domestic product slowed to annual growth of 0.5 percent in the first quarter of this year from 2.7 percent in the fourth quarter of last year.
     The ruble has been steadily appreciating since September last year and was trading at 63.15 to the U.S. dollar today, up 10.3 percent this year and up 26 percent since record lows around 80 to the dollar in February 2016.

ECB ready to adjust all easing tools, including rates, QE

     The European Central Bank (ECB) left its key interest rates steady but said it "stands ready to adjust all of its instruments," including cutting interest rates and launching a new round of asset purchases, to ensure inflation rises toward its target.
     The ECB, the central bank for the 19 European countries that use the euro currency, said its governing council had asked staff to examine ways to reinforce its forward guidance on policy rates, along with measures that could mitigate the impact of further easing on commercial banks, such as a tiered system of reserve renumeration, along with options of the size and composition of potential new net purchases.
     "The Governing Council also underlined the need for a highly accommodative stance of monetary policy for a prolonged period of time, as inflation rates, both realized and projected, have been persistently below levels that are in line with its aim," the ECB said.
     The ECB, which last month delayed any rate hike for the second time in only three months, said it was "determined" to act if inflation continues to fall short of its aim and now expects key interest rates "to remain at their present or lower levels through the first half of 2020, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to its aim over the medium term."
      In its June guidance the ECB merely said it expected interest rates to remain at their "present levels" at least through the first half of next year, today adding the word "lower."
      The ECB's benchmark interest rate, the refinancing rate, has been steady at 0.0 percent since March 2016 and in June last year the ECB was confident an economic slowdown was temporary and began to prepare investors for higher interest rates by the second half of this year.
      At that point the ECB also wrapped up its asset purchases, which began in March 2015 and reached some 2.6 trillion euros in December 2018.
      But by March this year it became clear the economic slowdown was dragging on and the ECB began pushing back the time frame for any rate hike and launched a new series of long-term lending programs (TLTRO-III) to ensure easy financing in an effort to boost economic growth and inflation.
     Today the ECB confirmed it will continue to reinvest and payments from securities purchases under its earlier asset purchase program, know as quantitative easing, for an extended period past the date when it starts to raise interest rate.
     "Incoming information since the last Governing Council meeting in June indicates that while further employment gains and increasing wages continue to underpin the resilience of the economy, softening global growth dynamics and weak international trade are still weighing on the euro area outlook," Draghi said, the manufacturing sector is especially affected by uncertainties and the rising threat of protectionism.
     The euro area economy expanded by only 1.2 percent year-on-year in the first quarter of this year, the same as in the previous quarter, and Draghi said the latest data point to somewhat slow growth in the second and third quarters of this year, with risks tilted to the downside.
     In its quarterly forecast from June the ECB raised its 2019 growth forecast slightly to 1.2 percent from 1.1 percent in March but lowered the 2020 and 2021 forecast to 1.4 percent from 1.6 percent and 1.5 percent, respectively.
     Inflation ticked up to 1.3 percent in June from 1.2 percent in May but Draghi expects inflation to decline over coming months due to futures prices for oil, and inflation expectations have declined while underlying inflation remains muted.
     In June the ECB raised its 2019 inflation forecast slightly to 1.3 percent from a previous forecast of 1.2 percent but lowered the 2020 forecast to 1.4 percent from 1.5 percent, still well-below the ECB's target of "below, but close to 2 percent."
     In a separate statement, the ECB council supported the European Union's council's appointment of Christine Lagarde, managing director of the International Monetary Fund (IMF) since July 2011, as its next president when Draghi's 8-year term expires on Oct. 31.

Turkey cuts rate 425 bps but to maintain cautious stance

     Turkey's central bank lowered its benchmark one-week repo auction rate by a larger-than-expected 4.25 percentage points to 19.75 percent due to an improved outlook for inflation but said it still needs to maintain a "cautious monetary stance" to ensure inflation continues to decline.

      It is the first rate cut by the Central Bank of Republic of Turkey (CBRT) under Murat Uysal, the former deputy governor who was appointed as governor on July 6 after Murat Cetinkaya was fired for failing to follow Turkish President Recep Tayyip Erdogan's instructions to lower rates.

     Cetinkaya's dismissed by president decree sparked fresh concern over the independence of the central bank as it was the first time a central bank governor had been dismissed since a 1980 military coup. Cetinkaya still had 10 months remaining on this 4-year term, which began in 2016.

     Erdogan has long put pressure on the central bank to cut rates and according to press reports the tipping point for him came after June 12, when CBRT maintained its key rate at 24.0 percent for the ninth consecutive month, disregarding Erdogan's instructions to cut the rate by 300 basis points.

     Under Cetinkaya the central bank raised rates by a total of 16 percentage points in 2018, including a shock 625 point hike in September, to curb inflation after the lira's sharp plunge in August to a record low of 6.96 to the U.S. dollar.

    Since then the Turkish lira has risen and inflation has declined, and ironically, Cetinkaya's dismissal came as analysts were already expecting him to begin cutting rates this month by around 250 basis points.

     In April the central bank had begun to shift toward easier policy by dropping an earlier reference to tightening its policy if needed and it forecast inflation would fluctuate between 12.1 percent and 17.1 percent and end 2019 at 14.6 percent.

    After a quick rise and then decline after today's rate cut, the Turkish lira settled slightly firmer at 5.7 to the U.S. dollar, continuing the appreciation seen since May 9 after hitting a 2019-low of 6.16.

      However, since the start of this year the lira has still depreciated 7.4 percent and by 33 percent since the start of 2018. In 2018 the lira fell 28 percent against the U.S. dollar.

     Turkey's inflation rate fell to 15.72 percent in June, continuing a steady decline since a 15-year high of 25.24 percent in October 2018 but is still way above the central bank's medium-term target of 5 percent.

     In today's statement the central bank said the outlook for inflation has continued to improve, citing domestic demand and tight monetary conditions supporting disinflation, supported by a decline in unprocessed food and energy prices.

     "In lights of these developments, recent forecast revisions suggest that inflation is likely to materialize slightly below the projections of the April Inflation Report by the end of the year," CBRT said.

     The central bank's 5-member monetary policy committee said maintaining disinflation was the key to reducing sovereign risk, achieving lower long-term rates and a stronger economic recovery and this requires continued "cautious monetary stance."

    It added the extent of monetary tightness would be determined the underlying trend of inflation.

     In the wake of Cetinkaya's firing, ratings agency Fitch has downgraded Turkey's sovereign rating to "BB-," saying his removal highlights a deterioration in institutional independence, economic policy coherence and credibility.

     The move also risks damaging weak domestic confidence, evidenced by rising dollarization, jeopardizes the inflow of foreign capital needed to meet Turkey's external financing requirement and worsening economic outcomes.

     Turkey's economy has shrunk in the last two years on an annual basis, with gross domestic product in the first quarter of this year down 2.6 percent after a 3.0 percent fall in the previous quarter.

      On a quarterly basis, Turkey bounced back in the first quarter with GDP expanding 1.3 percent after shrinking 2.4 percent in the fourth quarter of 2018, 1.5 percent in the the third quarter and 0.1 percent in the second quarter.

     "Recently released data indicate a moderate recovery in the economic activity," the central bank said, noting goods and services exports were on an uptrend despite the weaker global outlook, and exports are expected to continue to contribute to the gradual economic recovery.

Argentina freezes Leliq rate at 58% until July inflation

    Argentina's central bank fixed the rate of its benchmark Leliq notes at 58.0 percent until July inflation is announced on Aug. 15 to "guarantee the contractionary nature of the monetary policy."
     The Central Bank of the Argentine Republic (BCRA), which on July 1 lowered the minimum interest rate on Leliq notes to 58.0 percent from 62.50 percent that was set on April 1, added in a statement from July 22 that it may revise the Leliq minimum rate when July inflation numbers are known to reflect inflation, inflation expectations, internal and external and financial conditions, and other macroeconomic data.
     Argentina's inflation data are published by the National Institute of Statistics and Censuses (INDEC) and the national consumer price index inflation for July is scheduled for Aug. 15.
     This follows primaries in the run-up to general elections in October, when Prime Minister Mauricio Macri is up for election.
     In June Argentina's annual inflation rate declined for the first time this year to 55.8 percent from 57.3 percent in May while monthly inflation slowed for the third straight month to 2.7 percent.
     From October 20178 until April this year BCRA employed a monetary policy framework in which the interest rate on Leliq notes was set through auctions, and thus fluctuated daily, while it targeted the monetary base in order to push down inflation.
     The weighted average rate on Leliq notes, which the central bank uses as its monetary policy rate, rose as high as 74 percent on May 2 but since then it has declined and remained below 70 percent since June 6 and below 60 percent since July 5. On July 22 the rate was 58.78 percent.
     The decision to lower the minimum Leliq rate to 58 percent on July 1 was to ensure that its monetary policy did not relax during July, when demand normally rises from the collection of bonuses and expenses in connection with the winter holiday.
     Today BCRA's monetary policy committee COPOM said the goal for the monetary base during the July-August period was unchanged at $1.343 billion and it would be using a bi-monthly average to determine if the monetary base target was met to avoid any excessive contraction in July.

    www.CentralBankNews.info

   

Paraguay cuts rate 3rd time, data determines next move

     Paraguay's central bank lowered its policy rate for the third time this year, saying there is a space to give the economy a monetary boost as inflation is still expected to converge toward the bank's 4.0 percent target.
     The Central Bank of Paraguay (BCP) cut its key rate by another 25 basis points to 4.50 percent and has now lowered it by a total of 75 points this year following earlier cuts in February and March.    
     In April, May and June the rate was kept steady and BCP said the next monetary policy decision would depend on the evolution of both domestic and external macroeconomic data.
     "The economy remains weak, both on the activity and demand side," the central bank said, adding some progress around reforms has been seen on the regional level, which has also helped strengthen the exchange rates of those countries.
      However, there is a still uncertainty on the international level from the trade conflict between the U.S. and China although the economies of the main advanced economics and emerging economies are still growing at moderate rates, helped by more lax monetary policy.
     Inflation in Paraguay has remained below the target for several months and inflationary pressures remain limited, which could affect the convergence of inflation to the target, BCP said.
     Paraguay's inflation rate eased to 2.8 percent in June from 3.8 percent in May, below 2018's average rate of 3.6 percent and the 4.0 percent target, while the economy shrank 0.9 percent in the first quarter of 2019 from the fourth quarter of 2018 for an annual drop of 2.0 percent.
     In May the International Monetary Fund forecast growth this year of 3.5 percent, down from 3.7 percent in 2018, with risks tilted to the downside, mainly from weaker-than-expected growth in Argentina and Brazil, weather-related shocks and delays in public investment.

    www.CentralBankNews.info

   

This week in monetary policy: Paraguay, Hungary, Nigeria, Georgia, Kenya, Fiji, Turkey, Tajikistan, ECB, Russia, Azerbaijan, Angola, Colombia & Eastern Caribbean

    This week - July 22 through July 27 - central banks from 14 countries or jurisdictions are scheduled to decide on monetary policy: Paraguay, Hungary, Nigeria, Georgia, Kenya, Fiji, Turkey, Tajikistan, euro area, Russia, Azerbaijan, Angola, Colombia and the Eastern Caribbean.

     The central banks of Ghana and Uzbekistan had been scheduled to release their policy decisions today, July 22, but announced the decisions to maintain rates last week.

    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 30
JUL 22 - JUL 27, 2019:
GHANA 1)	19-Jul	16.00%	0	-100	17.00%	FM
UZBEKISTAN 1)	20-Jul	16.00%	0	0	14.00%
PARAGUAY	22-Jul	4.75%	0	-50	5.25%
HUNGARY	23-Jul	0.90%	0	0	0.90%	EM
NIGERIA	23-Jul	13.50%	0	-50	14.00%	FM
GEORGIA	24-Jul	6.50%	0	-50	7.00%
KENYA	24-Jul	9.00%	0	0	9.00%	FM
FIJI	25-Jul	0.50%	0	0	0.50%
TURKEY	25-Jul	24.00%	0	0	17.75%	EM
TAJIKISTAN	25-Jul	13.25%	-150	-75	14.00%
EURO AREA	25-Jul	0.00%	0	0	0.00%	DM
RUSSIA	26-Jul	7.50%	-25	-25	7.25%	EM
AZERBAIJAN	26-Jul	8.50%	-25	-125	10.00%
ANGOLA	26-Jul	15.50%	-25	-100	16.50%
COLOMBIA	26-Jul	4.25%	0	0	4.25%	EM
EASTERN CARIBBEAN	26-Jul	6.50%	0	0	6.50%
1) RESCHEDULED

    www.CentralBankNews.info

Chile maintains rate, but may ease again if trends persist

     Chile's central bank left its monetary policy rate steady at 2.50 percent but said it may be necessary to "extend the current monetary stimulus" if the current trend of low inflation continues, with the magnitude of any easing to be assessed in the next quarterly monetary policy report.
      The Central Bank of Chile, which surprised economists by cutting its rate by 50 basis points in June, said information since its last policy report reflected "increased risks associated with the timely convergence of inflation to the target," in particular inflation for services, and the "risks surrounding the future evolution of activity and demand, in a context of high external uncertainty."
      At today's board meeting a majority of its members voted to maintain the rate but board member Pablo Garcia voted to lower the rate by 25 basis points.
     The central bank publishes a monetary policy report every quarter and in the June report the forecasts for economic growth, investment and domestic demand for this year were lowered.
     Economic growth this year was seen between 2.75 percent and 3.5 percent, down from a range of 3.0 percent to 4.0 percent in the March report, and 2018's 4.0 percent.
      In the first quarter of this year Chile's gross domestic product stagnated from the previous quarter and on an annual basis GDP growth eased to 1.6 percent from 3.6 percent in the fourth quarter of last year.
      Data for the second quarter point to "less than expected dynamism," the central bank said, due to a poor performance by the mining sector and additional downside risks may be expected in coming months.
     Exports had also contracted more than expected due to weakness in its trading partners, with growth expectations in the EES survey being lowered for this year and next year.
      Chile's inflation rate was steady at 2.3 percent in June and May, below the bank's 3.0 percent target, and inflation expectations for the end of this year and in 12 months have declined.
      Chile's peso has risen slightly this year and was trading at 683 to the U.S. dollar today, up 1.6 percent since the start of the year.

South Africa cuts rate 25 bps, data determines next move

    South Africa's central bank lowered its benchmark repurchase rate by 25 basis points to 6.50 percent amid an economic slowdown and said future policy decision will continue to be highly dependent and sensitive to risks to the outlook while it seeks to anchor inflation expectations near the midpoint of its target "in this persistently uncertain environment."
     It is the first rate cut by the South African Reserve Bank (SARB) since March 2018 and follows a rate hike in November 2018.
     While SARB Governor Lesetja Kganyago said the risks to growth and inflation were balanced in the near term, he is clearly concerned about the possible negative impact of any escalation of trade tensions and the absence of structural reforms - that are beyond the scope of monetary policy - that are limiting investment prospects.
     The rate cut was widely expected by investors and economists after the economy shrank by 3.2 percent quarter-on-quarter in the first quarter, inflation is steady and inflation expectations have declined, and the exchange rate of the rand has risen.
    SARB's quarterly projection model shows one cut to the repo rate by the end of the fourth quarter.
    South Africa's inflation rate has remained around the midpoint of its target range of 3.0 to 6.0 percent with the latest forecast lowered slightly to an average 4.4 percent for this year, down from 4.5 percent seen in April.
     For 2020 and 2021 the inflation forecast is unchanged at 5.1 percent and 4.6 percent, respectively, with inflation seen peaking at 5.4 percent in the first quarter of 2020.
     In May South Africa's headline inflation rate rose to 4.5 percent from 4.4 percent in April.
     "The MPC welcomes the continued downward trend in recent inflation outcomes and the moderation in inflation expectations of about one percentage point since 2016," said Kganyago, who this month was appointed for a second 5-year term after a bruising row within the governing African National Congress party (ANC) over SARB's mandate and role in the economy.
     After shrinking in the first quarter, mainly due to electricity shortages and labour strikes, SARB expects a rebound in the second quarter though low business confidence remains a concern.
     SARB lowered its outlook for growth this year to an average 0.6 percent from May's forecast of 1.0 percent, with the outlook for 2020 and 2021 unchanged at 1.8 percent and 2.0 percent, respectively.
     Since the monetary policy committee's last meeting in May, South Africa's rand has risen 3.3 percent against the U.S. dollar but on improved sentiment towards riskier assets, SARB still considers it slightly undervalued, with domestic growth and fiscal risks high on investors' list of concerns.
     The rand rose in response to SARB's rate cut to trade at 13.89 to the U.S. dollar, up 3.9 percent this year.

Ukraine cuts rate 50 bps as it returns to easing path

    Ukraine's central bank lowered its key policy rate by 50 basis points to 17.0 percent as it continues its cycle of easier monetary policy toward a rate of 8.0 percent as inflation gradually declines amid prudent fiscal policy, slower wage growth, relatively low energy prices and an ample supply of both domestic and foreign food products.
     In April the National Bank of Ukraine (NBU) took the first step onto a monetary easing path by cutting the rate 50 basis points after raising it six times by a total of 550 points between October 2017 and September 2018 to curb inflation from strong wage growth and consumer demand.
     But in June NBU paused after inflation topped its forecast two months in a row on a temporary spike in food prices. However, the central bank was still hoping to return to the easing cycle as underlying risk to inflation were falling.
      Although inflation dropped to 9.0 percent in June from 9.6 percent in May, consumer demand, production costs and higher administered prices are keeping it high and the central bank said this could slow the process of lowering the key rate to 8.0 percent.
      However, NBU still expects inflation to decline toward 6.3 percent by the end of 2019 and then return to its target range in early 2020, hitting the 5.0 percent target by end-2020.
     "The NBU's baseline scenario envisages the key policy rate to decrease further, to 8% over the coming years, provide that inflation steadily declines to the 5% target," NBU said, adding higher demand for domestic bonds and thus a higher exchange rate of the hryvnia would allow it to lower the policy rate faster than forecast.
     The central bank's rate hikes last year helped boost the hryvnia and lower inflation expectations and continued tight monetary policy will remain the main driver in lowering inflation as it limits pressure from consumer demand.
     Since early September 2018 the hryvnia has strengthened and today it was trading at 25.96 to the U.S. dollar, up 6 percent this year and up 9.4 percent since Sep. 4 last year when the trend changed.
     On the back of strong consumer demand, expectations of a good grain harvest, NBU raised its forecast for economic growth this year to 3.0 percent from April's forecast of 2.5 percent and the 2020 forecast to 3.2 percent from 2.9 percent.
     However, weak global activity and a decrease in gas transit to European countries from 2020 will still dampen economic growth and widen the current account deficit, NBU added.
     Ukraine's gross domestic product grew 2.5 percent in the first quarter of this year, down from 3.5 percent in the previous quarter.

Indonesia cuts rate 25 bps, sees space for further cuts

     Indonesia's central bank lowered its interest rates 25 basis points to encourage bank lending and boost the economy and signaled it is ready to lower rates further as there is "adequate space for accommodative monetary policy in line with low inflation expectations and the need to further stimulate economic growth."
     Bank Indonesia's (BI) cut its key BI 7-day reverse repo rate to 5.75 percent, its deposit rate to 5.0 percent and its lending facility rate to 6.50 percent, as widely expected.
     "This policy is consistent with low inflation expectations and the need to build economic growth momentum amidst a backdrop of easing global financial market uncertainty and controlled external stability," BI said.
     BI raised its rates six times last year by a total of 1.75 percentage points during the U.S. Federal Reserve's four rate hikes to bolster the exchange rate of the rupiah against a rising U.S. dollar.
     But the Fed's shift toward easier policy this year has stimulated investors' interest in emerging market assets and boosted the rupiah, giving BI space to lower its own rates without fear of capital outflows and financial instability.
     Today's rate cut follows BI's 50 basis points cut to its rupiah reserve requirements in June.
     "Ongoing trade tensions continue to pressure world trade volume and undermine global economic growth," BI said, adding slower global growth has amplified downside pressure on commodity prices, including oil, with easier monetary policy by central banks lowering financial market uncertainty and driving capital flows to developing economies.
     The rupiah has been one of the main beneficiaries of this shift in capital and has been rising against the U.S. dollar since November last year.
      Today the rupiah rose further to 13,960 to the dollar, up 4.3 percent this year and up 9 percent since Oct 31, 2018, boosted by an upgrade of its sovereign rating.
     BI said it expects the inflow of foreign capital to further strengthen the rupiah.
     Indonesia's economy slowed in the first quarter as exports declined and BI said further stimulation of domestic demand, including investments, was "required in order to mitigate the adverse impact of global economic moderation."
     Indonesia's gross domestic product grew 5.07 percent in the first quarter of this year, down from 5.18 percent in the fourth quarter of last year, but BI confirmed it still expects growth this year below the midpoint of 5.0-5.4 percent.
     In addition to the rate cut, BI said it would institute a policy mix in cooperation with the government and other authorities to boost exports and tourism and attract foreign direct investment.
     Indonesia's current account deficit, one of the reasons behind last year's rate hikes, is expected widen in the short run as exports decline but further ahead it is expected to narrow this year to 2.5-3.0 percent of GDP from almost 3.0 percent in 2018 as foreign capital is attracted.
      Indonesia's inflation rate eased slightly to 3.28 percent in June from 3.32 percent in May and BI reiterated it still expects inflation this year to be below the midpoint of its target corridor of 3.5 percent, plus/minus 1 percentage points.

South Korea cuts rate 25 bps, to keep easy policy stance

     South Korea's central bank cut its benchmark base rate by 25 basis points to 1.50 percent and said it will maintain an accommodative monetary policy stance as economic growth is expected to be moderate and inflationary pressures will remain low in response to a slowing global economy from trade disputes between the U.S. and China.
     It is Bank of Korea's (BOK) first rate cut since June 2016 and reverses the 25-point rate hike in November 2018, which was partly due to concern over rising household debt but also to give the central bank some more room to deal with any future economic downturns.
     The rate cut comes after recent data showed a large drop in South Korean exports as the global economy cools, and BOK lowered its forecast for 2019 economic growth to around 2.2 percent from April's forecast of 2.5 percent, which had been cut from an earlier 2.6 percent.
    South Korea's won fell 0.3 percent immediately after the rate cut to 1,182.6 per U.S. dollar, pushing this year's depreciation to 5.5 percent, before settling slightly higher at 1,178.5.
     "The Board (of BOK) judges that the pace of domestic economic growth has slowed as construction investment has continued undergoing an adjustment and the slowdowns in exports and facilities investment have deepened, although consumption has continued to grow moderately," BOK said.
     South Korea's gross domestic product slowed to annual growth of only 1.7 percent in the first quarter of this year, down from 2.9 percent in the fourth quarter of last year, with exports in the second quarter down 8.4 percent after a 8.5 percent fall in the first quarter.
     BOK expects the decline in construction investment to continue as exports and facilities investment also recover later than it had expected while consumption will continue to grow.
     South Korea's inflation rate has remained well below its 2.0 percent target - it was steady at 0.7 percent in May and June - and BOK expects inflation to remain below the path it predicted in April.
     BOK forecast headline inflation would fluctuate below 1.0 percent for some time and then run at the low to mid-1.0 percent level in 2020.

Pakistan raises rate 100 bps but tightening likely finished

    Pakistan's central bank raised its policy rate for the fourth time this year and the 9th time since January 2018 but said it was finished raising rates in response to the fall in the rupee over the last 1-1/2 years and from now on interest rates would be set in response to the outlook for inflation.
    The State Bank of Pakistan (SBP) raised its policy rate by a further 100 basis points to 13.25 percent and has now raised it by 325 points this year following hikes in January, March and May.
     Since January last year, when SBP began raising its rates, the central bank's monetary policy committee (MPC) has raised the main interest rate by a total of 7.50 percentage points to curtail inflation from the fall in the exchange rate of the rupee, which pushed up import prices.
     "With this decision on interest rates, the MPC is of the view that the adjustment related to interest rates and the exchange rate from previously accumulated imbalances has taken place," SBP said.
     The Pakistani rupee was trading at 159.3 to the U.S. dollar today, down 33.9 percent since December 2017, down 13.5 percent since the start of this year and down 7 percent since the previous policy meeting on May 20 when the key rate was raised 150 basis points.
     The MPC said today's rate hike took into account upside inflationary pressures from exchange rate depreciation since May 20, the likely rise in near-term inflation from higher utility prices and other budgetary measures for fiscal 2020 taken in the wake of the agreement with the International Monetary Fund (IMF), and downside pressures on inflation from softer demand.
     "Going forward the MPC will be ready to take action depending on economic developments and data outruns," with unanticipated increases in the inflation outlook possibly leading to "further modest tightening," SBP said, adding:
     In contrast, greater-than-expected softening in domestic demand and thus a lower inflation outlook would provide "grounds for easier monetary conditions."
     The central bank raised its forecast for average inflation in the 2020 fiscal year, which began July 1, to 11 - 12 percent, slightly lower than IMF's forecast of 13.0 percent, but up from an average of 7.3 percent in 2018/19 when prices were boosted by the lagged impact of the lower rupee, government borrowings from the central bank, higher fuel and food prices.
      In June Pakistan's inflation rate eased to 8.9 percent from a 2019-high of 9.41 percent in March and 9.11 percent in May.
     In fiscal 2021 SBP expects inflation to fall "considerably" as one-off effects diminish.
     Following a staff-level agreement with the IMF in May on a 39-month, US$6.0 billion support package, the IMF board on July 3 approved the deal, making $1 billion immediately available and unlocking another $38 billion from Pakistan's international partners to support its economic reform.
     "A flexible, market-determined exchange rate and an adequately tight monetary policy will be key to correcting imbalances, rebuilding reserves, and keeping inflation low," IMF said.
      Strengthening the central bank's autonomy and eliminating its financing of the budget deficit will help its lower inflation and improve financial stability, IMF added.
     Last month Reza Baqir, who took over as SBP governor on May 4, described the exchange rate policy as a "market based exchange system" that follows supply and demand but the central bank would then intervene in the case of volatility.
     Under earlier governments, Pakistan had followed a "strong rupee" policy and effectively fixed the rupee against the U.S. dollar at a rate that was too high with the result the central bank burned through its reserves to defend the rupee.
     As of July 12, SBP's foreign exchange reserves had risen to US$8.0 billion, partly due to the IMF's first tranche, and are expected to rise further as international creditors release funds, including those related to the Saudi oil facility, and improved current account.
     Pakistan's economic growth has been slowing this year and SPB forecast 2019/19 gross domestic product growth of 3.3 percent, well below the government's target of 6.2 percent.
     Growth in the current fiscal year should improve to around 3.5 percent as the slowdown turns around in light of improved market sentiment, a rebound in agriculture and government incentives.

This week in monetary policy: Kazakhstan, Pakistan, South Korea, Indonesia, Ukraine, South Africa & Chile

     This week - July 15 through July 20 - central banks from 7 countries or jurisdictions are scheduled to decide on monetary policy: Kazakhstan, Pakistan, South Korea, Indonesia, Ukraine, South Africa and Chile.

    Following table includes the name of the country, the date of the next policy decision, the current policy rate, the result of the last policy decision, the change in the policy rate year to date, 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 29
JUL 15 - JUL 20, 2019:
KAZAKHSTAN	15-Jul	9.00%	0	-25	9.00%	FM
PAKISTAN	16-Jul	12.25%	150	225	7.50%	EM
SOUTH KOREA	18-Jul	1.75%	0	0	1.50%	EM
INDONESIA	18-Jul	6.00%	0	0	5.25%	EM
UKRAINE	18-Jul	17.50%	0	-50	17.50%	FM
SOUTH AFRICA	18-Jul	6.75%	0	0	6.50%	EM
CHILE	18-Jul	2.50%	-50	-50	2.50%	EM

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