Canada holds rate, trims QE and to focus on long bonds

     Canada's central bank left its benchmark interest rate steady but will reduce its purchases of bonds and focus on buying more longer-term bonds so the net effect is there is no reduction in the level of monetary stimulus, which it confirmed will continue until the economic recovery is well underway.

     The Bank of Canada (BOC) left its target for the overnight rate at the effective lower bound of 0.25 percent, unchanged since it was slashed three times in March by a total of 150 basis points to what it considers the "effective lower bound."

      Along with the rate cuts, BOC in March also began buying C$5 billion of government securities a week in the secondary market across a wide range of maturities.

      Today the bank's council said it would gradually reduce these purchases to $4 billion a week and recalibrate its quantitative easing (QE) program toward longer-term bonds that have a more direct influence on the borrowing rates that a most important for households and businesses.

     "The Governing Council judges that, with these combined adjustments, the QE program is providing at least as much monetary stimulus as before," BOC said, reiterating its guidance that it will keep the policy rate at the effective lower bound until the 2.0 percent inflation target is reached.

     The decision comes against a backdrop of an upward revision of the bank's growth forecast for this year to a contraction of 5.7 percent compared with an earlier forecast of a 7.8 percent decline due to a stronger-than-expected rebound in the summer.

      But growth in the fourth quarter is expected to slow markedly due to rising COVID-19 cases as the economy's transition to what BOC said was a "more moderate recuperation phase," with growth continuing to rely heavily on policy support.

     BOC lowered its 2021 growth forecast to 4.2 percent from 5.1 percent but maintained the 2022 forecast for growth of 3.7 percent. But in light of the long-lasting effects of the pandemic, the estimate for Canada's potential growth rate was revised down.

     Canada's inflation rate rose to 0.5 percent in September from 0.1 percent in the previous two months but is expected to remain below the bank's target range of 1.0 to 3.0 percent until early 2021, mainly due to lower energy prices.

      BOC forecast headline inflation of an unchanged 0.6 percent this year, 1.0 percent in 2021 and 1.7 percent in 2022, below 2019's 1.9 percent.

Kuwait holds key rate, cuts other rates to curb dinar rise

     Kuwait's central bank, which pegs its dinar currency to a weighted basket of currencies, left its benchmark discount rate steady but lowered the interest rate on other monetary policy instruments in response to a decline in U.S. interest rates which it said was putting upward pressure on the dinar.

     The Central Bank of Kuwait (CBK) kept its benchmark discount rate at 1.50 percent, unchanged since March 16 when it lowered its for the second time that month for a total cut of 125 basis points this year.

     But CBK cut its policy instruments that cover the entire interest rate yield curve up to 10-year terms, including its repo rate, term deposit rates, direct intervention rates and those on public debt by 0.125 percent, it said on Oct. 27.

     "This came amid continued decrease in interest rates on federal funds of the US Federal Reserve inching closer to zero-levels, which widened the margin tipping the scale on the side of the interest on the Kuwait Dinar as opposed to interest on the US greenback, thus bolstering the attractiveness of the Kuwaiti currency," CBK said.

     It added the move was part of its special measures to tackle the impact of COVID-19 on economic and banking conditions, including its earlier cuts to the discount rate.

     Between 1975 and 2002 Kuwait's dinar was pegged to a weighted basket of the currencies of its major trading partners but from 2003 to 2007 it dropped that and pegged it directly to the U.S. dollar.

     But after the dollar's decline starting in 2002, Kuwait in May 2007 reverted to its earlier exchange rate policy of pegging the dinar to an undisclosed weighted basket of currencies to protect the dinar's purchasing power and curb growing inflationary pressures.

     After falling in in late March to a low 0.315, the dinar has steadily firmed against the U.S. dollar to 0.305 on Oct. 21.

     In response to CBK's move, the dinar eased to 0.306 to the dollar today, down almost 1 percent this year but up 3 percent since the low on March 26.

Georgia holds rate due to rising uncertainty and risks

     Georgia's central bank left its benchmark interest rate steady for the second month in a row, citing uncertainties associated with an acceleration of the spread of COVID-19 and a rise in geopolitical risks, but added the pace and gradual exit from the tight monetary policy stance still depends on inflationary expectations and economic activity.
     The National Bank of Georgia (NBG) left its refinancing rate at 8.0 percent, unchanged since August when it cut it for the third time this year following earlier cuts in April and June for a total easing of 100 basis points.

     But between September and December 2019, NBG raised the rate four times and by a total fo 250 basis points to curb inflationary pressures from a decline in the lari's exchange rate.

     "Preliminary indicators still point to weak aggregate demand," the central bank said, adding economic activity in August was estimated to have contracted by an annual 5.3 percent, with an improvement due to a recovery in domestic demand, supported by fiscal stimulus, credit activity and remittances.

     In August the central bank forecast a 5.0 percent economic contraction this year, an estimated shared by the International Monetary Fund in September when it also said it was essential for the central bank to maintain exchange rate flexibility to manage the economic shock.

     But against the backdrop of a more widespread spread of the virus, the global economic recovery in 2021 is expected to be slower than previously expected and this will impact external demand. Domestic demand will be the main driver of growth next year.

     Georgia's gross domestic product contracted by 12.3 percent year-on-year in the second quarter and preliminary data show that revenue from international travelers had plunged by an annual 95 percent in September while the export of goods had risen for the first time since January to grow 8.6 percent.

     Georgia's inflation rate has been decelerating for the last five months and fell to 3.8 percent in September and NBG said it expects this declining trend to continue with inflation remaining close to its 3.0 percent target in 2021.

     Like most currencies, Georgia's lari tumbled in March, forcing NBG to intervene six times in the foreign exchange market. But after rebounding in April and May, the depreciation of the lari has continued and today it was trading at 3.22 to the U.S. dollar, up 8 percent from a record low of 3.48 at the end of March but still down 11 percent since the start of this year.

Armenia maintains rate amid Azerbaijan conflict, virus

      Armenia's central bank left its benchmark interest rate steady after cutting it four times earlier this year, saying the recent rise in coronavirus cases worldwide and the resulting uncertainty will cause a "certain" delay in the global economic recovery despite the positive economic developments seen in the third quarter of this year.

      The Central Bank of Armenia (CBA) kept its refinancing rate at 4.25 percent after cutting it by a total of 125 basis points this year after cuts in March, April, June and September.

      "Taking into account the above actual and expected macroeconomic developments, including a certain increase in the risk premium, the Central Bank Council considers it expedient to leave the refinancing rate unchanged," CBA said.

      In addition to an acceleration of a the spread of COVID-19 in the first half of October, CBA said the eruption of a military conflict with Azerbaijan last month over the disputed territory of Nagorno-Karabakh

"formed a negative environment in terms of both supply and demand developments."

      The outbreak of hostilities on Sept. 27 has led to a more volatile exchange rate for Armenia's dram but inflation eased to 1.4 percent in September from 1.8 percent in August and the central bank said it expects inflation to gradually rise and consolidate near its 4.0 percent target at the end of the forecast horizon.

      Armenia's gross domestic product shrank by an annual 13.7 percent in the second quarter of this year after growth of 3.9 percent in the first quarter and CBA said economic activity had declined by 7.5 percent in September from the same month last year.

      "Despite the ongoing fiscal stimulus, domestic demand was weaker than expected in the third quarter, driven mainly by a deeper declined in private consumption," CBA said, adding uncertainty over the prospects for economic growth is expected to rise, delaying a recovery of activity and demand.

     "In this situation, the Government envisages a significant expansionary fiscal policy," CBA said.

     www.CentralBankNews.info

   

Kazakhstan holds rate, geopolitical risks limit cuts

      Kazakhstan's central bank kept its base rate steady but said growing geopolitical risks and "the persistence of uncertainty and the increased likelihood of external risks materializing limit the potential for lowering the base rate."
      The National Bank of the Republic of Kazakhstan (NBK) left its base rate at 9.0 percent, unchanged since July when it lowered it for the second time this year after a cut in April.
      Although NBK cut the rate by a total of 300 basis points in April and July, the net change for the year only amounts to 25 basis points as it raised the rate by 275 basis points in March in an emergency move to protect the exchange rate of the tenge that came under pressure from a collapse in the prices of oil, the country's main export.

      The central bank said its next policy decision in December would be based on updated forecasts of inflation and economic growth that will allow it to "assess the potential space for rate cuts given the achievement of the inflation target in 2021."

      Kazakhstan's tenge reacted negatively to the bank's decision, although this was largely expected, falling almost 0.5 percent to 430 to the U.S. dollar to be down 11.4 percent this year.

      The tenge has been very volatile this year and plunged 15 percent from March 3 to March 25. But helped by the March 10 rate hike and a rebound in oil prices, the tenge rebounded in May before resuming a steady decline from early June to October. 

      Kazakhstan's headline inflation rate stabilized at 7.0 percent in September and August and NBK said disinflationary factors were continuing to prevail due to subdued demand, declining real incomes and a slow recovery in business activity.

     Inflationary expectations have also declined, the bank added.

     Kazakhstan's economy shrank an annual 1.8 percent in the second quarter of this year, after growth of 2.7 percent in the first quarter and at the end of the third quarter gross domestic product had contracted by 2.8 percent although the economic recovery is continuing and the business climate index had turned positive in September after six months in the negative zone.

     Last month NBK forecast the economy would shrink between 2.0 and 2.3 percent in 2020 while inflation will reach the upper limit of its target band of 4.0 to 6.0 percent by the end of 2021.

This week in monetary policy: Kazakhstan, Armenia, Georgia, Canada, Brazil, Japan, Fiji, Tajikistan, euro area, Azerbaijan, Malawi, Moldova, Bulgaria & Colombia

   This week - October 26 through October 31 - central banks from 14 countries or jurisdictions are scheduled to decide on monetary policy: Kazakhstan, Armenia, Georgia, Canada, Brazil, Japan, Fiji, Tajikistan, euro area, Azerbaijan, Malawi, Moldova, Bulgaria and Colombia..

     Following table includes the name of the country, the date of the next policy decision, the current policy rate, the local time a policy decision is announced, 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 44
OCT 26 - OCT 31, 2020:
KAZAKHSTAN	26-Oct	9.00%	15:00	0	-25	9.25%	FM
ARMENIA	27-Oct	4.25%		-25	-125	5.50%
GEORGIA	28-Oct	8.00%		0	-100	8.50%
CANADA	28-Oct	0.25%	10:00	0	-150	1.75%	DM
BRAZIL	28-Oct	2.00%	18:00	0	-250	5.00%	EM
JAPAN	29-Oct	-0.10%		0	0	-0.10%	DM
FIJI	29-Oct	0.25%		0	-25	0.50%
TAJIKISTAN	29-Oct	10.75%		-100	-150	13.25%
EURO AREA	29-Oct	0.00%	13:45	0	0	0.00%	DM
AZERBAIJAN	30-Oct	6.50%		-25	-100	7.75%
MALAWI	30-Oct	13.50%		0	0	13.50%
MOLDOVA	30-Oct	2.75%		-25	-275	7.50%
BULGARIA	30-Oct	0.00%		0	0	0.00%	FM
COLOMBIA	30-Oct	1.75%		-25	-250	4.25%	EM

 

    www.CentralBankNews.info                    

East Caribbean holds rate, sees economy shrinking 16%

     The central bank for eight islands in the Eastern Caribbean again left its benchmark interest rate steady and forecast the region's economy would shrink 16.2 percent this year, cautioning a recovery depends on the continued resilience of health systems, containment of the COVID-19 virus, availability and access to vaccines, and fiscal and financial support.

     The Eastern Caribbean Central Bank (ECCB), the monetary authority for eight nations, left its benchmark 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.

     The rate cut in April was the ECCB's first rate cut since 2003.

     At the council's previous meeting in July it also left the rate steady and forecast the region's economy would contract between 10 and 20 percent this year.

     "The COVID-19 pandemic has had an extremely damaging impact on the ECCB member countries through disruptions in the Travel and Tourism sector and Foreign Direct Investment," the council said following a meeting conducted via videoconference.

     The economic contraction is projected to be uneven across the eight islands, ranging from 5.5 percent to 30.0 percent, with countries that rely heavily on tourism and have limited fiscal space likely to have slower recoveries.

     In 2021 the ECCB forecast an economic rebound for the region, with growth of 5.1 percent, similar to its forecast in July.

     The ECCB added monetary and credit conditions in the ECCU have deteriorated during the first nine months of the year but the financial system had remained stable despite an elevated level of non-performing loans that is likely to rise following the expiration of the loan moratorium under the deferral program.

     As of Aug. 31, licensed financial institutions reported moratoria on 26,194 loans with an outstanding balance of $5.2 billion, or 39.3 percent of total loans.
    ECCB was set up in 1983 to maintain the stability of the Eastern Caribbean Currency (ECCU) and the banking system in its members: Anguilla, Antigua and Barbuda, the Commonwealth of Dominica, Grenada, Montserrat, St. Kitts and Nevis, Saint Lucia, and St. Vincent and the Grenadines.
    Members of ECCU use the East Caribbean Dollar as their common currency, and it has been pegged to the U.S. dollar at 2.70 since 1976. EC$ has existed since 1965.

Israel maintains rate but boosts asset purchases

     Israel's central bank left its main interest rate steady but boosted its purchases of government bonds and said it would continue to implement an accommodative monetary policy after a second lockdown last month to prevent the spread of COVID-19 led to a sharp decline in economic activity.

     The Bank of Israel (BOI) kept its main interest rate at 0.10 percent, unchanged since April when it cut it for the first time in five years in response to the economic hit from the coronavirus.

     Prior to the April rate cut, BOI on March 23 launched a program to purchase 50 billion shekels of government bonds in the secondary markets to lower the cost of credit and boost economic activity.

     "In view of the crises continuing to impact Israel and the world, the Committee decided to increase the government-bond purchase program by NIS 35 billion and thus continue to support financing ability in the economy, in view of the strengthening of the coronavirus crises and its economic effects," BOI said, adding the bond purchases will allow it to lower the cost of credit for companies and households as a complementary tool to its short term interest rate policy.

    "The Monetary Committee will continue to operate the tools at its disposal to the extent necessary in order to implement the extent of monetary accommodation required, and to ensure the continued orderly activity of financial markets in Israel," BOI said, adding it will expand the use of its existing tools, including the interest rate tool and operate additional ones to the extent it assesses the crises is lengthening and moderate the negative economic impact.

     BOI also decided to extend credits to banks at a negative 0.1 percent against loans they give to small businesses at an interest rate not exceeding the prime rate plus 1.3 percent.

     After recovering following the first lockdown in the Spring, Israel's economy took a hit after a second lockdown was imposed on Sept. 18 after the country saw a surge in infections.

     Prior to the second lockdown, unemployment had stabilized around 11 to 12 percent but it then jumped to 19 percent in the second half of September as the number of unemployment rose by about 300,000, the central bank said.

     BOI's research staff has forecast two possible scenarios. Under the first, in which control over the pandemic is achieved, the economy is expected to contract by 5 percent this year and then expand by 6.5 percent in 2021.

     But in a more serious scenario, BOI sees growth contracting by 6.5 percent in 2020 and expand by just 1 percent in 2021, with debt also rising more.

     Israel's gross domestic product shrank by an annual 7.9 percent in the second quarter of this year after expanding by 0.5 percent in the first quarter. On a quarterly basis, GDP shrank 8.1 percent in the second quarter and shrinking 1.8 percent in the first quarter, meeting the technical definition of recession.

     Israel is also experiencing deflation, with consumer prices falling by 0.7 percent in September, the 6th consecutive month of deflation.

     Although the shekel is skirting with 10-year highs against the U.S. dollar, the BOI is more concerned with its trade-weighted level and against the euro - most of Israel's trade is with the euro area - the shekel has lost ground this year.

     After tumbling in March, the shekel has risen steadily against the dollar and was trading at 3.38 after today's decision, up 2.4 percent since the start of this year.

     But against the euro, the shekel was trading at 4.0 today, down 3 percent this year.

Turkey holds key rate but widens rate corridor, lira hit

     Turkey's central bank once again surprised financial markets by keeping its main interest rate steady but continued its recent policy of tightening monetary conditions through a variety of other tools by raising the upper bound of its interest rate corridor.

     The Central Bank of the Republic of Turkey (CBRT) kept its one-week repo rate steady at 10.25 percent but widened the margin between the late liquidity window lending rate and overnight lending to 300 basis points by raising the late liquidity rate by 150 points to 14.75 percent.

      Today's decision by the bank's monetary policy committee follows last month's surprise 200 basis point hike in the one-week repo rate, the first outright rate hike in two years, and a series of back-door measures to tighten policy in response to accelerating inflation and a steady drop in the lira.

     "As a result of fast economic recovery with strong credit momentum, and financial market developments, inflation followed a higher-than-envisaged path," CBRT said, adding financial conditions had tightened following its earlier steps to contain inflation expectations and risks to the outlook.

     "Accordingly, the Committee has decided to keep the policy rate unchanged, while enhancing flexibility in liquidity management and continuing with liquidity measures until inflation outlook displays a significant improvement," the bank added.

     After falling steadily since early August, Turkey's lira rose at the start of this week, likely in anticipation of another rate hike. But in response to today's decision, the lira nose-dived 2 percent to a new record low of 7.96 to the U.S. dollar and is now down 25.3 percent this year.

     Turkey's inflation rate has been steady the last three months at 11.75 percent in September, 11.77 percent in August and 11.76 percent in July, only slightly below a 2020-high of 12.62 percent in June.

     According to Reuters, 17 economists polled had expected CBRT to raise its rate between 100 and 300 basis points to ensure a positive real interest rate.

      Although CBRT said "the recovery in economic activity continues," it also noted the expected moderation in imports had begun due to a phasing out of policies to support the economy from the impact of COVID-19 while exports were recovering - helped by the level of the exchange rate and relatively low commodity prices - helping support the current account.

      Turkey's gross domestic product shrank by a quarterly 11 percent in the second quarter after the first quarter fell 0.1 percent. On a year-on-year basis, GDP contracted 9.9 percent in the second quarter after it rose 4.4 percent in the first quarter.

      "While global economic activity has shown signs of partial recovery in the third quarter following the normalization steps taken by several countries, uncertainties on global economic recovery persist," the central bank said, adding advanced and emerging economies are continuing to maintain expansive monetary and fiscal policies.

Mozambique holds rate as inflation seen rising in 2021

     Mozambique's central bank left its key interest rate steady for the second time, saying this decision was justified by a deterioration of the risks and uncertainties in the context of an expected rise in prices in 2021 against the backdrop of repressed economic activity.

     The Bank of Mozambique (BOM) kept its monetary policy rate (MIMO) at 10.25 percent, as in August, after lowering it twice this year (in April and June) by a total of 250 basis points. 

     Since April 2017, when BOM began cutting its rate, MIMO has been cut 13 times and by a total of 11.50 percentage points.

     Mozambique's inflation rate rose to 2.98 percent in September from 2.75 percent in August and BOM said it expects higher domestic prices next year as the government's price containment measures expire along with supply shocks.

     Nevertheless, BOM said inflation is still expected to remain in single digits due to weak demand as the economy is still expected to shrink this year and only recover slowly in 2021.

     Mozambique's gross domestic product shrank by an annual 3.25 percent in the second quarter of this year following growth of 1.68 percent in the first quarter.

     Since the previous meeting of BOM's monetary policy committee CPMO, it said risks and uncertainties had risen, pointing to the threat of a second wave of COVID-19 and the U.S. presidential election.

     Despite last year's peace agreement between the country's government and the main opposition group, which ended sporadic violence that dragged on since a civil war ended in 1992, Mozambique is still experiencing fighting with Islamist insurgents close to the northern border with Tanzania.

     The fighting threatens the development of Mozambique's huge offshore natural gas fields in the northern province of Cabo Delgado that were discovered in 2010 and are expected to deliver liquified natural gas in 2024, helping transform the impoverished country's economy.

     Earlier this month BOM proposed investing more than half of the country's estimated lifetime revenue of $96 billion from the LNG field in a sovereign wealth fund that would be controlled by the government but managed by the central bank.

    www.CentralBankNews.info

This week in monetary policy: China, Hungary, Uzbekistan, Namibia, Mozambique, Sri Lanka, Ukraine, Turkey, Uganda, Israel, Paraguay, Russia & Eastern Caribbean

    This week - October 19 through October 24 - central banks from 13 countries or jurisdictions are scheduled to decide on monetary policy: China, Hungary, Uzbekistan, Namibia, Mozambique, Sri Lanka, Ukraine, Turkey, Uganda, Israel, Paraguay, Russia and East Caribbean.

     Following table includes the name of the country, the date of the next policy decision, the current policy rate, the local time a policy decision is announced, 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 43 OCT 19 - OCT 24, 2020: CHINA 20-Oct 3.85% 0 -30 4.20%          EM HUNGARY 20-Oct 0.60% 0 -30 0.90%          EM UZBEKISTAN 21-Oct 14.00% -100 -200 16.00% NAMIBIA 21-Oct 3.75% -25 -275 6.50% MOZAMBIQUE 21-Oct 10.25% 16:00 0 -250 12.75% SRI LANKA 22-Oct 4.50% 7:30 0 -250 7.00%          FM UKRAINE 22-Oct 6.00% 0 -750 15.50%          FM TURKEY 22-Oct 10.25% 14:00 200 -175 14.00%          EM UGANDA 22-Oct 7.00% 0 -200 9.00% ISRAEL 22-Oct 0.10% 16:00 0 -15 0.25%          DM PARAGUAY 22-Oct 0.75% 0 -325 4.00% RUSSIA 23-Oct 4.25% 13:30 0 -200 6.50%          EM EAST CARIBBEAN 23-Oct 2.00% 0 -450 6.50%

 

    www.CentralBankNews.info                    

Argentina cuts Leliq 2nd week and raises overnight repo

     Argentina's central bank lowered its benchmark Leliq interest rate for the second consecutive week and raised the overnight repo rate, continuing what it says is a harmonization of its monetary policy interest rates to maintain a positive real return on savings in pesos.

     The Central Bank of the Argentine Republic (BCRA) lowered the interest rate on Leliq notes by another 100 basis points to 36.0 percent it said in a statement from Oct. 15 and has now lowered it by 200 points this month following a similar cut on Oct. 8.

     Since December 2019, when BCRA began lowering the Leliq rate it has been cut by 27 percentage points from 63.0 percent, including 19 percentage points this year.

     The bank's overnight repo rate was raised another 300 basis points to 30 percent and this rate has now been raised by 11 percentage points this month following hikes on Oct. 1, Oct. 8 and Oct. 15.

      BCRA also said it was offering 7-day repos with a interest rate of 33.0 percent and "to complete the transmission of the harmonization of rates," it would also increase the minimum guaranteed rate of fixed terms with an annual yield of 34 percent for deposits of under US$1 million and at 32 percent for other deposits.

      The central bank's change in rates is likely to further encourage banks to shift their purchases toward Treasury bonds instead of Leliq notes.

      In September Argentina emerged from its 9th sovereign default since 1816 following an agreement with international creditors over the restructuring of $65 billion of debt.

      Argentina's peso was trading around 77.47 to the U.S. dollar today. down 22.7 percent this year.

     www.CentralBankNews.info

UPDATE-This week in monetary policy: Indonesia, South Korea, Singapore, Belarus and Chile

    (Following item is updated without Sri Lanka as the Central Bank of Sri Lanka on Oct. 14 announced it was rescheduling its monetary policy announcement that was scheduled for Oct. 16 to Thursday, Oct. 22, local time 07:30. The bank did not give any reason for the delay.)

   This week - October 12 through October 17 - central banks from 5 countries or jurisdictions are scheduled to decide on monetary policy: Indonesia, South Korea, Singapore, Belarus 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 42
OCT 12 - OCT 17, 2020:
INDONESIA	13-Oct	4.00%		0	-100	5.00%	EM
SOUTH KOREA	14-Oct	0.50%		0	-75	1.25%	EM
SINGAPORE	14-Oct	N/A	08:00	N/A	N/A	N/A	DM
BELARUS	14-Oct	7.75%		0	-125	9.50%
CHILE	15-Oct	0.50%		0	-125	1.75%	EM

 

    www.CentralBankNews.info                    

Belarus holds rate as inflation rises from falling ruble

      The central bank of the country of Belarus, which continues to see widespread protests over a contested presidential election on Aug. 9, left its benchmark interest rate steady, saying inflation is still expected to decline toward its target despite a recent acceleration due to a weakening of the exchange rate.

     The National Bank of the Republic of Belarus (NBRB) kept its refinancing rate at 7.75 percent, unchanged since June when it was cut following a request by the country's president, Alexander Lukashenko, who has ruled the country since 1994.

     NBRB has cut its refi rate three times this year by a total of 125 basis points and 19 times since April 2016 by a total of 17.25 percentage points.

     On Aug. 12, when the board last met, it decided to meet today, ahead of a previously scheduled meeting on Nov. 11, which also will be held.

     On Monday European Union (EU) foreign ministers agreed to sanction Lukashenko and other senior officials amid worsening police violence against protesters who say the August election, in which Lukashenko said he won with 80 percent of the vote, was rigged.

     Tens of thousands of Belarusians have demonstrated every weekend since August to demand new elections and on Sunday 713 people were detained by police, which now is allowed to use military-style weapons. 

     Exiled Belarusian opposition leader Sviatlana Tsikhanouskya, who protesters say won the election, has set a deadline of Oct. 25 for Lukashenko to leave office or face nationwide strikes that would paralyze the country.

     The EU cited a complete lack of will by Lukashenko to engage in any discussions over holding new elections leaves it will little choice other than to proceed with sanctions.

     Following the election, the Belarusian ruble has continued to weaken though it has recovered in the last month after hitting a record low of 2.68 to the U.S. dollar on Sept. 3. Today it was trading at 2.58 to the dollar, down 18.6 percent this year.

     In January the central bank and government adopted a strategy to improve trust in the Belarusian ruble, which was introduced in July 2016, and reduce reliance on foreign currencies in domestic transactions.

     More than 90 percent of government debt is denominated in foreign currency and the strategy includes full transitioning to inflation targeting by 2021.

     In September the central bank said its reserves had declined by 15.7 percent that month to US$7.5 billion and it paid down $351.7 million in external debt. Belarus has some $3.6 billion of U.S. dollar bonds outstanding and some $8 billion in loans from Russia.

    Inflation in Belarus rose to a higher-than-expected 6.1 percent in September from 5.6 percent in August, with NBRB saying this was due to higher prices for imported goods due to a weakening of the ruble in August against a background of higher demand for foreign currency.

     Inflation by the end of this year is estimated to be around 6 percent, with the weakening of the ruble pushing up inflation in the short term, the central bank said.

     In the medium term NBRB said prolonged disinflationary factors are expected to dominate and push inflation back to its targeted trajectory near 5 percent.

    In the first quarter of this year Belarus' gross domestic product shrank 0.20 percent year-on-year.

    www.CentralBankNews.info