Colombia cuts rate 5th month in a row to boost activity

    Colombia's central bank cut its benchmark interest rate for the fifth time this year, saying the balance of risks suggest it is appropriate to provide an additional boost the economy and the impact of monetary policy will be greater if the conditions associated with the COVID-19 pandemic allow for a gradual reopening of different economic sectors.

     The Central Bank of Colombia cut its main interest rate by another 25 basis points to 2.25 percent and has now cut it by 200 points this year following earlier cuts in March, April, May and June. 

      The central bank's board noted that inflation in June had decelerated to 2.19 percent from 2.85 percent in May and inflation expectations are continuing to decline, with the rate below the central bank's target of 3.0 percent.

      Aggregate demand in the economy is weaker than expected, the bank said, adding spare capacity is high and the labor market is deteriorating within the context of global economic uncertainty.

     But financial market conditions have improved since the start of the pandemic, with the abundant liquidity in global and local markets reflected in lower sovereign risk premia and foreign exchange volatility.

     Colombia's economy shrank 2.4 percent in the first quarter of this year from the previous quarter and the government has forecast 5.5 percent contraction this year. Year-on-year the economy grew 1.1 percent in the first quarter.

     Today the bank said its technical team had lowered its estimate for the economy's contraction this year to between 6 and 10 percent from an earlier forecast of 2 to 7 percent contraction. Consumer price inflation will be between 1 and 2 percent.

     Colombia's peso fell sharply in March against the U.S. dollar, as most other currencies, and then bounced back from April until mid-July. 

      Since then, it has eased and fell further today to trade at 3,732.8 to the dollar today, down 12 percent this year.

     

     www.CentralBankNews.info

Azerbaijan cuts rate 15th time as inflation below target

     Azerbaijan's central bank  lowered its benchmark interest rate for the third time this year and for the 15th time in 2-1/2 years, saying this decision took into account that actual and projected inflation was below the midpoint of its target range, the continued improvement in the international situation, the stability in the foreign exchange market and the anti-inflationary effects of weaker demand from the COVID-19 pandemic.

     The Central Bank of the Republic of Azerbaijan (CBA) cut its discount rate by another 25 basis points to 6.75 percent and has now cut it by 75 points this year following earlier cuts in January and June.

     Since February 2018, when CBA embarked on a monetary easing cycle, the rate has been cut 15 times and by a total of 8.25 percentage points from 15.0 percent.

      The floor of its interest rate corridor is now 6.25 percent and the ceiling at 7.25 percent.

      "The next decisions on the parameters of the interest rate corridor will depend on the degree of deviation of actual inflation from the forecast, changes in the situation in global markets, as well as the recovery of domestic demand and economic activity," CBA said after a meeting of its board on July 30.

      Inflation in Azerbaijan rose to 3.0 percent in June from 2.9 percent in May but remains below the midpoint of CBA's target range of 4.0 percent, plus/minus 2 percentage points.

      Inflation expectations are also continuing to decline, the bank said and the latest forecast points to inflation in a range of 3.0 to 3.5 percent by the end of this year.

      Lower imports and an improved international situation, along with a recovery of oil prices, helped the country's external balance and the country's foreign exchange reserves have now risen 1.2 percent since the start of the year to $US5.71 billion while CBA's foreign exchange reserves have risen 3.3 percent this year.

      But necessary measures to restrict activity due to the pandemic had a negative impact on economic activity in June and July and the confidence of households has also declined, the bank said despite anti-crises measures by the government and the central bank.

     "Significant uncertainties remain in the global environment over the medium term over the duration and effects of the pandemic," CBA said.

      

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Lesotho cuts rate 5th time in 2020, sees 5.7% contraction

    The Central Bank of Lesotho (CBL) cut its key interest rate for the fifth time this year, saying this would help "ensure that the domestic cost of borrowing and lending remain aligned with the cost of funds elsewhere in the region."
     CBL cut its CBL rate by 25 basis points to 3.50 percent and has now cut it 300 points this year following earlier cuts in January, March, April and May.
     Since July 2019, when the central bank began its current easing cycle, the rate has been cut 350 basis points.
     "Domestically, growth has remained subdued," CBL said on July 28, confirming its forecast for the country's economy to contract 5.7 percent this year, with risks to the domestic outlook from the possible spread and infection control measures of COVID-19, exposure to international economic developments, domestic structural rigidities and policy uncertainty.
     But CBL also increased its target floor for Net International Reserves (NIR) to $550 million from $530 million, the level it was lowered to in May, saying the NIR target remains consistent with maintaining the exchange rate peg between the loti and the South African rand.
     The Kingdom of Lesotho is surrounded by South Africa and its economy relies on remittances from its workers in South Africa. Along with Namibia and Eswatini (former Swaziland), Lesotho is part of the rand monetary area that uses South Africa's rand as a common currency.
     Lesotho introduced its loti currency in 1980 and it trades on par with the rand.
     The South African Reserve Bank (SARB) has also cut its policy rate five times this year and by 300 basis points, with the most recent cut on July 23.
     Lesotho was the last country to register confirmed cases of COVID-19 on the African continent but the number of infections are now rising and threatening to put pressure on the healthcare system.
      "Indications are that the worst of the pandemic is still ahead," CBL said, adding there are fears the pandemic will likely come in waves over time as being seen in Europe and the U.S.
      Economic growth in sub-Saharan Africa is forecast by the International Monetary Fund (IMF) to fall by 3.2 percent this year and while CBL has loosened its monetary policy stance, it has also emphasized the importance of preserving adequate reserves to guarantee the peg to the rand as it is of "paramount importance" given the fixed exchange rate is a key to macroeconomic stability, CBL said.
      Lesotho's economic performance in the second quarter was generally weak, CBL said, adding its measure of economic activity showed output declined by 1.2 percent in May compared with a 1.3 percent expansion in April.
      For the full year, CBL confirmed its forecast from May for an economic contraction of 5.7 percent this year compared with estimated growth of 2.6 percent in 2019, with the decline led by the textiles and clothing industry, construction and mining.
      In the medium-term, the central bank projects the economy will average growth of 5.1 percent in 2021 and 2022, with the recovery conditional on COVID-19 containment but led by a strong rebound in mining and construction, and a broad-based recovery helped by the domestic policy response.
      Lesotho's inflation rate rose to 4.9 percent in June from 4.0 percent in May and is expected to average 4.2 percent this year before rising to 4.7 percent in 2021 and 5.2 percent in 2022, CBL said.
      The country's balance of payments position improved in the first quarter due to a decline in the trade deficit and gross international reserves rose to 4.7 months of import cover from 4.3 percent in the previous quarter.

Tajikistan cuts rate 2nd time as inflation decelerates

     Tajikistan's central bank lowered its key interest rate for the second time this year, citing a stabilization of global and domestic inflation expectations, and to support economic activity during the negative impact of the coronavirus pandemic.
     The National Bank of Tajikistan (NBT) cut its refinancing rate by another 100 basis points to 10.75 percent and has now cut it by 200 points this year following a similar-sized cut in April.
     But the refinancing rate is only 150 basis points below the start of this year as NBT in January raised its rate by 50 points due to rising inflationary pressures. 
     The central bank said inflation in Tajikistan - which borders China, Kyrgyzstan, Afghanistan and Uzbekistan - was 8.4 percent in June, down 0.3 percentage points from June 2019 after rising earlier this year due to a rise in the prices of basic food items as the outbreak of the virus caused a supply shortage of some items amid a low level of domestic competition and limited international trade.
     NBT targets inflation of 7.0 percent, plus/minus 2 percentage points and inflation eased to 10.0 percent in May from 10.6 percent in April.
     To help meet the needs for some imports, such as flour, wheat, sugar, oil, fuel, medicine and fertilizers, the NBT approved the use of 104.3 million somoni from the international reserves.
     This move helped ease some of the pressures on the exchange rate, the central bank said, along with the price level and since May prices and the exchange rate have been relatively stable.
     The exchange rate of the somoni, which replaced the Tajikistani ruble in 2000, has been depreciating since 2014 and on March 30 the central bank made what it said was a one-time correction in the official exchange rate to the U.S. dollar of up to 5 percent to ease market pressure.
    Today the somoni was trading at 10.2 to the dollar, 4.9 percent below its level at the start of 2020.
    Tajikistan's economy grew 3.5 percent in the first half of this year, boosted by a 9.2 percent rise in industrial production and an 8.2 percent rise in agricultural output, 4.0 percentage points below the same period last year due to the negative impact of the pandemic, which mainly hit services, construction and retail trade, NBT said.
     It added monetary stimulus worldwide and low inflation will lead to higher demand and a resumption of global growth in coming years. 
      Inflationary risks in Tajikistan, however, are likely to ease due to a relatively good harvest, lower demand from a decline in remittances, slower exports and slower economic growth, stable inflation in major trading partners, lower interest rates and a relatively stable foreign exchange market due to a decline in imports.
    NBT, which is moving toward inflation targeting, began lowering its key interest rate in January 2018 from 16.0 percent but then had to reverse course after a second rate cut and raise the rate in February 2019. 
     But in May last year it returned to the easing path and continued with another rate cut in November 2019 before it had to reverse course in January this year, shortly after the International Monetary Fund said tighter monetary policy might be needed to mitigate possible second-round effects from a rise in inflation.
     NBT is one of only six central banks to have raised rates this year in stark contrast to the 92 banks that have cut rates this year in response to the collapse of economic activity in March from measures worldwide to contain the spread of the COVID-19 pandemic.
     In May the IMF's executive board approved a disbursement of US$189.5 million to help Tajikistan meet urgent balance of payment and fiscal financing needs and help prevent severe economic and human disruption from the pandemic.

      The IMF forecast a 2.0 percent contraction in Tajikistan's economy while the budget  deficit could rise to 7.7 percent of gross domestic product.

     www.CentralBankNews.info

Ghana holds rate on 'monetary restraint' after stimulus

     Ghana's central bank left its policy rate steady, saying "some monetary restraint" is needed as the budget deficit and inflation has risen following the extraordinary fiscal and monetary stimulus measures that were taken to boost economic activity during the COVID-19 pandemic
     The Bank of Ghana (BOG) kept its rate at 14.50 percent after cutting it by 150 basis points in March along with the primary reserve requirement.
      "The most recent data on the Ghanaian economy shows that the pandemic has impacted adversely, resulting in a significant growth downturn and higher inflation," BOG said.

     Since November 2016 BOG has been slowly lowering its key interest rate from 26.0 percent as inflation has been decelerating after topping 19 percent in the first few months of 2016 and the falling to below 8 percent in the first months of this year.

      But in recent months food prices have risen, pushing up inflation to 11.2 percent in June and 11.3 percent in May.
     "The sharp rise in inflation in the second quarter has somehow disrupted the disinflation process with a potential of prolonging the time horizon for reaching steady state of inflation," BOG said, adding inflation expectations have trended upward.
      But BOG said underlying inflationary pressure remain stable and it expects inflation to return to its medium-term target band by the second quarter of 2021 as long as corrective fiscal measures will be taken in the near term.
      BOG targets inflation at a midpoint of 8.0 percent, with a range of plus/minus 2 percentage points.
      Fiscal stimulus and lower government revenue in the first half of the year has boosted the budget deficit to an estimated 6.3 percent of gross domestic product, more than twice the target of 3.0 percent.
     The mid-year budget review has raised the deficit target to 11.4 percent of GDP by the end of this year from an earlier target of 4.7 percent, reflecting an additional 6.7 percent of GDP attributable to both direct and indirect COVID-19 impact, as the estimate of revenue and grants have been revised downwards and expenditures and arrears clearance have been revised higher.
     The primary fiscal balance is projected at 4.6 percent of GDP from an initial target of a surplus of 0.7 percent, with the fiscal deficit path leading to a rise in the stock of public debt to 67 percent of GDP at the end of June from 62.4 percent in December 2019.
     Although the government's stimulus measures were the right direction to boost economic activity, BOG said the 2021 budget should focus on measures to return to the path of fiscal consolidation to help return to macroeconomic stability.
     "The Committee was of the view that the current extraordinary circumstances, with a widened budget deficit and a residual financing gap, would require some monetary restrained to preserve the anchors of macroeconomic stability," BOG said.
     Ghana's economy grew by an annual 4.9 percent in the first quarter of this year, down from 6.7 percent in the same period last year and 7.9 percent in the previous quarter as non-oil growth slowed to 4.9 percent from 6.0 percent.
      In May BOG forecast economic growth this year of between 2.0 and 5.0 percent.

     www.CentralBankNews.info
   
 

This week in monetary policy: Tajikistan, Ghana, Armenia, Lesotho, Angola, Bangladesh, Kenya, USA, Fiji, Azerbaijan, Malawi, Bulgaria, Moldova & Colombia

    This week - July 27 through August 1 - central banks from 14 countries or jurisdictions are scheduled to decide on monetary policy: Tajikistan, Ghana, Armenia, Lesotho, Angola, Bangladesh, Kenya, USA, Fiji, Azerbaijan, Malawi, Bulgaria, Moldova and Colombia.
    Pakistan's central bank, which normally holds a monetary policy meeting in July, said on July 24 it did not consider it necessary to hold its regular meeting this month given the number of policy meetings in recent months and the actions taken.
    The State Bank of Pakistan (SBP) said its next monetary policy meeting would be held in September but it "stands ready to take whatever further actions may become necessary in response to any adverse impact on the economy because of the pandemic and any other factor."
    SBP has cut its key interest rate five times this year by 6.25 percentage points, with the most recent cut on June 25 when it lowered the rate by 100 basis points to 7.0 percent.

    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 27 - AUG 1, 2020:
TAJIKISTAN	27-Jul	11.75%	-100	-50	13.25%
GHANA	27-Jul	14.50%	0	-150	16.00%	FM
ARMENIA	28-Jul	4.50%	-50	-100	5.75%
LESOTHO	28-Jul	3.75%	-50	-275	6.50%
ANGOLA	28-Jul	15.50%	0	0	15.50%
BANGLADESH	29-Jul	5.75%	-25	-25	6.00%	FM
KENYA	29-Jul	7.00%	0	-150	9.00%	FM
UNITED STATES	29-Jul	0.25%	0	-150	2.25%	DM
FIJI	30-Jul	0.25%	0	-25	0.50%
AZERBAIJAN	30-Jul	7.00%	-25	-50	8.25%
MALAWI	30-Jul	13.50%	0	0	13.50%
BULGARIA	31-Jul	0.00%	0	0	0.00%	FM
MOLDOVA	31-Jul	3.25%	0	-225	7.50%
COLOMBIA	31-Jul	2.50%	-25	-175	4.25%	EM

    www.CentralBankNews.info

Eastern Caribbean holds rate, sees deeper contraction

     The central bank for eight islands in the Eastern Caribbean left its benchmark interest rate steady as it raised its forecast for the region's economy to shrink as much as 20 percent this year due to the massive disruption to tourism and economic activity from the COVID-19 pandemic.
     The Eastern Caribbean Central Bank (ECCB), the monetary authority for eight nations, kept its discount rate at 2.0 percent after slashing it by 450 basis points at a special meeting of the bank's monetary council in April.
     It was ECCB's first cut in its discount rate since 2003 and it also raised the amount of short-term credit allocated to its member states by $138.1 million in light of what it said were "far-reaching health, economic, fiscal and financial implications of the COVID-19 pandemic."
     "The economic decline is largely due to the decline in tourism," the council said in a statement following a meeting on July 24, adding the recovery of its dominant sector is expected to be protracted with performance unlikely to revers to pre-pandemic levels before 2023.
     It forecast the ECCU economy would contract between 10.0 and 20.0 percent this year before starting to recover in 2021 and expand just over 5 percent.
     This forecast is sharply lower than in April when the council forecasts a contraction of between 4.9 and 6.6 percent this year and pre-COVID expected growth of 3.3 percent.
     "The pandemic has resulted in a drastic reduction in jobs and incomes, lower government revenues and elevated unemployment," ECCB said, adding the key risks to a recovery include a delay in the global rebound; permanent job losses and business closures; natural disasters; and increasing credit and liquidity risks in the financial sector.
     ECCB was set up in 1983 to maintain the stability of the Eastern Caribbean Currency (ECCU) and the banking system in its members: Anguilla, Antigua and Barbuda, the Commonwealth of Dominica, Grenada, Montserrat, St. Kitts and Nevis, Saint Lucia, and St. Vincent and the Grenadines.
     Members of ECCU use the East Caribbean Dollar as their common currency, and it has been pegged to the U.S. dollar at 2.70 since 1976. EC$ has existed since 1965.
      Despite the significant pressure on the members' economies, ECCB said the banking sector remains stable though commercial banks and credit unions are likely to experience a significant increase in default risk, market risk and liquidity risk.
     At their meeting, the ECCB's council agreed the pandemic offers an opportunity to unite around a program of action to make the region's economies more competitive, productive and resilient.
     This includes enacting modern insolvency and bankruptcy legislation, determine an optimal regulatory framework for the financial system, fast-tracking digital transformation, launching EC digital currency and enacting modern payment systems.

Russia cuts rate 9th time and will consider further cuts

     Russia's central bank cut its key interest rate for the fourth time this year and for the ninth time in the current easing cycle, and said it will "consider the necessity" of further rate cuts in coming policy meetings if the economy develops as it expects.
     The Bank of Russia cut its key rate by 25 basis points and has now cut it 200 points this year following earlier cuts in February, April and June.
     Since June 2019, when the central bank began to unwind two rate hikes in the second half of 2018, the rate has been cut nine tines by a total of. 350 points.
     "Disinflationary factors continue to exert considerable influence on inflation," the central bank said, adding the recovery of Russia's and the global economies will be gradual and there is a risk that inflation in 2021 might deviate from its 4.0 percent target.
     Today's rate cut was expected by most analysts following a statement by its governor, Elvira Nabiullina, on July 13 that she felt there was room for a further rate cut and then by Deputy Governor Alexi Zabotkin who a few days later told Reuters the central bank would consider cutting its rate though it had already used much of its room to ease policy.
     The central bank said future policy decisions would reflect actual and expected inflation relative to the bank's target along with economic developments, domestic and external conditions, and the reaction of financial markets.
     In an update to its forecast, the Bank of Russia sees inflation averaging 3.1 to 3.3 percent this year, slightly down from its April forecast of 3.1 to 3.9 percent and below 2019's 4.5 percent.
     In February Russia's inflation rate hit a 2020-low of 2.3 percent and although it is now rising, inflation this year and next year will continue to reflect the steep drop in demand in the second quarter from measures to curb the spread of the COVID-19 virus.
     In June Russia's inflation rate rose to 3.2 percent and the bank estimates it rose further to 3.3 percent this month. The central bank expects inflation to slowly rise to between 3.7 and 4.2 percent by December.
     Next year inflation will continue to rise an average between 3.3 to 4.0 percent and then settle at the banks's 4.0 percent target in 2022.
     Russia's economy is recovering as quarantine restrictions are being lifted but the revival is still moderate and uneven across industries and regions, the bank said.
     The central bank forecast that gross domestic product would shrink 4.5 to 5.5 percent this year, as compared with its April forecast of contraction of 4 to 6 percent and 2019 growth of 1.3 percent.
     In  2021 the economy is seen expanding by 3.5 to 4.5 percent and then 2.5 to 3.5 percent in 2022, supported by fiscal stimulus, easier monetary policy and regulatory measures.
     As most other oil-linked currencies, Russia's ruble tumbled in the first few months of the year as oil fell and the virus spread, but since hitting the record low area of over 80 to the U.S. dollar on March 19, the ruble has recovered some of its losses.
     Today the ruble was trading at 71.8 to the dollar, down after the rate cut and 13.7 percent below the level at the beginning of the year.
      Reflecting the recent decline in global interest rates and the risk premium on Russian assets, Nabiullina said in the press conference the neutral key rate had been lowered to 1-2 percent from 2-3 percent so the nominal neutral interest rate had declined to 5-6 percent, taking into account the annual inflation target of close to 4.0 percent.
   

Ukraine maintains rate, sees steady rate until end-year

      Ukraine's central bank left its main interest rate steady after cutting it nine times, living up to its guidance from last month, and said it expects to "keep the policy rate at the current low level at least until the end of the current year."
     The National Bank of Ukraine (NBU) kept its key policy rate at 6.0 percent after cutting it four times this year by a total of 7.50 percentage points and nine times and by 12 percentage points since April 2019.
      The bank's board, chaired by its new governor Kyrylo Shevchenko, said the decision to maintain the key rate would help curb inflation as the economy gradually recovers while leaving room for the cost of credit to decline to single digits.
     "By keeping the key policy rate at 6%, the NBU leaves enough room for monetary stimulus in order to provide the economy with additional impetus for growth if consumer and investment demand recover more slowly than expected," the bank said.
     NBU said its recent rate cuts had not yet been fully transmitted to the economy as banks were still continuing to lower loan and deposit rates, and in order to anchor interest rates in single digits financial markets must be confident economic policy is consistent and there is a reasonable balance between curbing inflation and monetary stimulus.
      "Next year, the NBU will take decisions on the key policy rate taking into account whether or not inflationary risks materialize, how social standards change, and at what pace the economy is recovering," the central bank said.
     It was the first policy decision by the bank's board under Shevchenko who last week took over from Yakiv Smoliy who resigned at the start of this month due to what he said was systematic political pressure, hitting financial markets and sparking concern at the International Monetary Fund (IMF).
     Ukraine's hryvnia fell after Smoliy's shock resignation on July 1 and continued to depreciate until today's policy decision, which sparked a rise in the exchange rate.
     The hryvnia was trading at 27.75 to the U.S. dollar today, up 0.3 percent on the day but down 4.0 percent since the departure of Smoliy. Since the start of the year, the hryvnia is down 15 percent.
      In its June policy decision, when the rate was cut 200 basis points, the central bank said the cycle of rapid monetary easing had come to an end and future decisions would depend on the prospects for inflation.
     Ukraine's inflation rate rose to 2.4 percent in June from 1.7 percent in May and continued to rise in July, the bank said, adding inflationary expectations had also worsened.
     NBU expects inflation to continue to rise gradually to 4.7 percent by the end of this year due to higher energy prices, monetary and fiscal stimulus, and then return to its target range of 5.0 percent, plus/minus 1 percentage point this year in 2021 and 2022.
     Ukraine's economy is recovering from quarantines imposed to curb the spread of the COVID-19 virus but NBU still raised its forecast for the economy to contract by 6.0 percent this year from an earlier forecast of 5.0 percent.
      Ukraine's economy shrank 0.7 percent in the first quarter from the previous quarter but NBU said the low point in growth was in the second quarter and the pace of the recovery will be restrained.
      "Considering the high level of uncertainty over the spread of the coronavirus, both the public and businesses are likely to remain cautious about their consumer and investment decisions," the bank said, adding the slow exit from the crises from other countries will also limit the chances of a more rapid economic recovery.
      In 2021 and 2022 Ukraine's economy will then expand, helped by the monetary, fiscal stimulus and foreign demand, resuming growth at a level of around 4.0 percent.
      NBU said its forecast are based on continued cooperation with the IMF and its support is important for Ukraine to overcome the effects of the pandemic, repay government debt in "due time and in full," maintain access to international capital markets and ensure international investors retain their interest in Ukrainian assets.

Hungary cuts rate 2nd time, more easing via loans, QE

     Hungary's central bank cut its policy rate for the second month in a row but signaled it is unlikely to cut rates further and any further stimulus will be provided through its other tools, such as low-cost funds to small and medium-sized companies and the purchase of corporate bonds.
     The National Bank of Hungary (NBH) cut its base rate by another 15 basis points to 0.60 percent and has now cut it by 30 points this year following a similar-sized cut in June.
     "In the Monetary Councils's assessment, the 0.60 percent base rate supports price stability, the preservation of financial stability and the recovery of economic growth in a sustainable manner, the central bank said, adding in a rapidly changing economic environment, "it is key to maintain short-term yields at a safe distance from a range close to zero."
     The cut was widely expected by analysts and reflects Deputy Governor Barnabas Virag's statement on June 26 the central bank may cut its base rate by another 15 points but that is as far as it will go as it wants to keep a "safe distance" from the zero percent area.
      NBH said today that in the "event of a persistent deterioration in the outlook for growth, it would deliver additional economic stimulus using its targeted instruments, i.e. the Funding for Growth Scheme Go! and the Bond Funding for Growth Scheme, providing the most direct support to investment."
      The central bank has expanded both of these stimulus instruments this year and it said the impact of its rate cut in June had mainly affected the shorter segment of the yield curve and it wanted to ensure that longer-term bond yields also declined.
     It would therefore reallocate some of its lending instruments "to improve monetary policy transmission" and purchase limited amounts of 15-year government securities to support an extension of the maturity structure of government debt.
     As in June, the central bank said Hungary's economic activity this year is likely to be more subdued than earlier expected while the outlook for inflation has shifted downwards.
     The effects of the Covid-19 pandemic are likely to be the strongest in the second quarter and a recovery of economic growth is expected from the third quarter, helped by an expansion in corporate lending, higher public investment and a moratorium on installment payments of loans.
     But the export-related industries are first expected to pick up towards the end of this year due to the slower recovery of the external environment.
     Hungary's gross domestic product shrunk 0.4 percent in the first quarter from the previous quarter and NBH confirmed its forecast for growth this year of 0.3 to 2.0 percent, down from 2019's 4.9 percent, and then 3.8 to 5.1 percent in 2021 and 3.5 to 3.7 percent in 2022.
     After rising at the start of the year, Hungary's inflation rate decelerated sharply but then rose to 2.9 percent in June from 2.2 percent in May
     The central bank also confirmed its forecast for inflation, excluding indirect tax effects, will fall below 3 percent and average 3.3 to 3.5 percent this year and 2.6 to 2.7 percent in 2021.

     The central bank's rate cut in June, which surprised financial markets, pushed down the exchange rate of Hungary's forint, which was bouncing back against the euro after being hit hard in March. 

     But this month the forint has gained further strength and rose further in the wake of the rate cut and European Union leaders agreement on a 750 billion euro recovery package, including 390 billion euros of grants to some of the EU's weakest economies.
     The forint was trading at 351.1 to the euro today, up some 4 percent from this years low of 366 in early April but still 5.7 percent below its level at the beginning of this year.

Kazakhstan cuts rate 2nd time on easing inflation risks

      Kazakhstan's central bank lowered its key interest rate for the second time this year, saying the risks of inflation are now weakening and a second COVID-19 lockdown will curb inflation amid a faster-than-expected decline in economic activity in the first half of the year.
     The National Bank of Kazakhstan (NBK) cut its base rate by 50 basis points to 9.0 percent, a surprise to most analysts that had expected the rate to be maintained, and NBK has now cut it by 300 points this year following a cut in April.
     But since the start of 2020, NBK has only cut lowered the rate by net 25 basis points and the base rate is now back to the level seen in August last year following an emergency rate hike in March.
     Although Kazakhstan's headline inflation rate rose to 7.0 percent in June, the highest since December 2017 and up from 6.7 percent in May, the central bank said this was expected and mainly due to higher food prices while core inflation was growing slower than general inflation
      The re-imposition of quarantine measures earlier this month will have the effect of suppressing consumer demand and income, holding back non-food inflation, and while inflationary expectations are stable inflation is expected to rise to 8.0 to 8.5 percent by the end of this year.
      But inflation will then gradually decline to the upper boundary of the central bank's target corridor of 4.0-6.0 percent in 2021 from quarantine measures and the decline in economic activity this year.
      "The risks of dollarization growth have significantly decreased, which has expanded the potential for lowering rates," NBK said, adding its recent efforts to protect tenge assets had helped lower the level of U.S. dollar deposits to 40.0 percent from 43.1 percent in the last six months.
     In contrast to the general easing of global monetary policy in the second half of last year, NBK raised its rate by 25 basis points in September 2019 as inflationary pressures were beginning to rise from robust consumer demand.
      In March this year, just as the Covid-19 pandemic was beginning to spread worldwide, NBK then raised its base rate by 275 basis points at an emergency policy meeting on March 10 to protect the value of the tenge, which was falling sharply after oil prices plunged in the wake of a price war between Russian and Saudi Arabia.
      Oil accounts from around three-quarter of Kazakhstan's exports and one-third of its economic output.
      The tenge plunged 15 percent during March but then began to rebound in early April as oil prices bottomed and continued to climb until early June. Since then the tenge has eased and was trading at 381.8 to the U.S. dollar today, down 8.1 percent since the start of this year.
      Kazakhstan's economy contracted by an annual 1.8 percent in the first half of this year, above the central bank's forecast of a 1.5 percent contraction, but mining and manufacturing is now expanding along with construction and agriculture, NBK said.
      But the business activity index remains in the negative zone and the slowdown is more likely to be felt in the services and industry sectors, with lower consumer and investment activity putting pressure on aggregate demand despite higher fiscal spending.
     "The situation in the external sector remains uncertain," NBK said, noting the risks of another outbreak of the pandemic remains high and weak external demand may limit the growth of the global economy despite the recovery of China's economy.
      Other factors of uncertainty include social unrest, a possible deterioration in economic relations between the U.S. and China, continued lower inflation in developed countries, high unemployment and increased debt in some countries.
     But the situation on the world oil market is seen relatively positive and oil demand is expected to rise in the second half of this year and in 2021, helping reduce the oil reserves that were accumulated since the start of this year, the central bank added.
   
    www.CentralBankNews.info

   
   

This week in monetary policy: China, Kazakhstan, Nigeria, Hungary, Uzbekistan, Ukraine, Turkey, South Africa, Paraguay, Russia, Angola and Eastern Caribbean

    This week - July 20 through July 25 - central banks from 12 countries or jurisdictions are scheduled to decide on monetary policy: China, Kazakhstan, Nigeria, Hungary, Uzbekistan, Ukraine, Turkey, South Africa, Paraguay, Russia, Angola and Eastern Caribbean.

   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 20 - JUL 25 2020:
CHINA	20-Jul	3.85%	0	-30	4.35%	EM
KAZAKHSTAN	20-Jul	9.50%	0	25	9.00%
NIGERIA	20-Jul	12.50%	-100	-100	13.50%
HUNGARY	21-Jul	0.75%	-15	-15	0.90%	EM
UZBEKISTAN	23-Jul	15.00%	0	-100	16.00%
UKRAINE	23-Jul	6.00%	-200	-750	17.00%	FM
TURKEY	23-Jul	8.25%	0	-375	19.75%	EM
SOUTH AFRICA	23-Jul	3.75%	-50	-275	6.50%	EM
PARAGUAY	23-Jul	0.75%	-50	-325	4.50%
RUSSIA	24-Jul	4.50%	-100	-175	7.25%	EM
ANGOLA	24-Jul	15.50%	0	0	15.50%
E. CARIBBEAN	24-Jul	2.00%	-450	-450	6.50%

    www.CentralBankNews.info

North Macedonia maintains rate after 3 cuts in 2020

     The central bank of North Macedonia left its policy rate steady, saying the three rate cuts earlier this year along with the reduction in the amount of central bank bonds offered had contributed to an increase in the banking system's liquidity and helped support the flow of credit in the country.
     The National Bank of the Republic of North Macedonia maintained its policy rate at 1.50 percent after cutting it three times this year by a total of 75 basis points following cuts in January, March and May.
     "Based on the already completed easing of monetary policy, in this meeting it was decided that the interest rate on central bank bonds remains at the current level, according to current economic and financial conditions," the bank's monetary operations policy committee said in a statement issued on July 16 following a July 14 meeting.
      Since 1995 the central bank's intermediary policy objective is to maintain the exchange rate of the denar to maintain price stability, with the policy rate equalling the rate on central bank bills.
      The national bank said liquidity of 15 billion dinars issued in April and May was appropriate so this week's auction of central bank bonds would be unchanged from June's auction at 10 billion denars.
     High-frequency economic data for North Macedonia, which changed its name from Macedonia in 2019, continued to show negative effects of the Covid-19 crises in April and May after growth slowed to 0.2 percent year-on-year in the first quarter of this year, down from 3.4 percent in the previous quarter, the central bank said.
     Inflation rose to 1.7 percent in June after consumer prices fell in the previous two months and the central bank said its forecast of zero percent inflation this year remains surrounded by uncertainty due to the different directions of import prices and the volatility of prices of primary products.
     The country's foreign exchange reserves remain at a safe level and slightly better than expected in the second quarter and there has been a steady rise in the liquidity of foreign exchange at banks, helped by the National Bank's sales.
     Since the start of July through July 13, the net demand for foreign currency has only been 3 million euros, the bank added.
      Last month the bank's governor, Angelovska Bezhoska, assured the country there would be no devaluation of the denar as the bank had a high level of reserves - at more than 3 billion euros at the start of the coronavirus crises - and other instruments to protect the exchange rate.
     "If we managed to keep the denar stability in 2008 and 2009 with a significantly lower level of foreign reserves, now with this level of foreign reserves, there should be absolutely no dilemma that the denar stability will be guaranteed," she said in a statement available on the bank's website.
     The denar was trading at 61.6 to the euro today, unchanged this year.

     www.CentralBankNews.info

Indonesia cuts rate 4th time in 2020 amid falling inflation

    Indonesia's central bank cut its benchmark interest rate for the fourth time this year amid low inflation and a stable exchange rate, saying domestic demand is showing signs of upward momentum and the pace of economic recovery should accelerate, helped by fiscal stimulus.
     Bank Indonesia (BI) lowered its 7-day reverse repo rate by another 25 basis points to 4.0 percent and has now cut it 100 basis points this year following earlier cuts in February, March and June.
     Since July 2019, when BI began easing in response to slower global growth, the key rate has been cut 8 times and by 200 basis points.
     In addition to lowering the 7-day reverse repo rate, BI also lowered its deposit facility rate by 25 basis points to 3.25 percent and the lending facility rate by the same amount to 4.75 percent.
      In contrast to its policy statement from June, BI did not say it had room to lower rates further.
     "The decision is consistent with low projected inflation and maintained external stability, as well as follow-up actions to drive the national economic recovery during the COVID-19 pandemic," BI said, adding it was focusing on what it said was a "synergised expansive monetary policy response with accelerated fiscal stimuli from the government."
      Unlike most central banks that have embarked on asset purchases, or quantitative easing, to stimulate economic growth, BI is purchasing Indonesian government bonds directly from the government and not in the secondary markets.
      Central banks typically shy away from buying government debt directly, a process known as monetizing government debt, to avoid eroding its independence, undermining its currency and thus boosting inflation.
      Although the exchange rate of the rupiah has been declining since early June, BI said the exchange rate was "under control and consistent with the currency's fundamental value."
      The rupiah was trading at 14,633 to the U.S. dollar today, down 4.8 percent this year.
      "Moving forward, Bank Indonesia perceives potential rupiah appreciation as the currency is still fundamentally undervalued, supported by low and controlled inflation, a narrow current account deficit, competitive yields on domestic financial assets for investment and a lower risk premium," BI said.
      Earlier this month BI agreed to buy a total of 574.59 trillion rupiah of government bonds to help finance the 2020 fiscal deficit and reiterated today that it was "firmly committed" to funding the state revenue and expenditure budget in 2020.
      BI said it was purchasing government bonds, known as SBN, in the primary markets and via private placements to finance the budgets for healthcare, social protection, sectoral government ministries and agencies as well as local governments.
      Indonesia's economy is expected to shrink for the third consecutive quarter in the second quarter of this of this year, with the lowest level of activity in May, BI said, pointing to the impact of large-scale social restrictions to break the domestic chain of COVID-19 transmissions.
     Indonesia's gross domestic product contracted by 2.41 percent in the first quarter from the previous quarter following a 1.74 percent quarterly contraction in the fourth quarter of 2019.
     Year-on-year, the economy slowed to growth of 2.97 percent in the first quarter and in June BI projected 2020 growth of between 0.9 percent and 1.9 percent. Indonesia's finance minister has estimated the economy could have contracted by an annual 5.1 percent in the second quarter.
     But BI said data in June showed early signs of an economic recovery as social restrictions are being lifted but cautioned the economy has now returned to pre-pandemic levels of growth.
      BI pointed to retail sales, the purchasing managers index, consumer expectations and other domestic indicators of domestic demand while the export of several commodities, such as iron and steel, has improved, boosted by demand from China for infrastructure projects.
     The economic recovery is expected to accelerate as the government's fiscal stimulus is absorbed, loans and corporates are restructured, economic activities become more digital and health protocols are implemented.
      Indonesia's inflation rate remains low, as in most countries, with the inflation rate declining to 1.96 percent in June from 2.19 percent in May, below BI's target of 3.0 percent, plus/minus 1 percentage point.