Moldova holds rate, cuts reserve requirement 3rd time

      Moldova's central bank left its benchmark interest rates steady - unchanged since November last year - but lowered the reserve requirement for the third time in less than two months, saying this was aimed at mitigating and counteracting the negative effects of the COVID-19 pandemic on the country's economy and strengthening its position in supporting a recovery.
     The National Bank of Moldova (NBM) left its base rate at 2.65 percent and the interest rate on overnight loans and deposits at 5.15 percent and 0.15 percent, respectively.
     Last year the central bank cut its key rate five times and by a total of 285 basis points from March through November. 
     But at its regular meeting in early March this year the bank's executive committee cut the reserve requirement on bank's domestic currency and non-convertible deposits by 200 basis points to 30 percent to help boost inflation - which hit 0.2 percent in January - and relaunch economic activity by maintaining adequate liquidity, lower the cost of funds for banks and ensure lending activity continues to rise.
      The easing was also aimed at mitigating the risks associated with a negative fiscal momentum during what the bank said was "intensifying political uncertainty."
      At an extraordinary committee meeting on April 5, the reserve requirement on leu deposits was then cut by another 200 basis points to 28 percent as liquidity, after initially rising, declined to 3.4 billion leu in early April from 7.1 billion in mid-March, mainly due to tax payments.

     NBM said the cut would help avoid any crowding for funds out as demand from the finance ministry was rising.
     At its regular meeting today, the executive committee then lowered the reserve requirement for the third time since March 5 by another 200 basis points to 26.0 percent. The requirement for convertible currency deposits remains at 30 percent. 

     In the last two months Moldova's inflation rate has begun to pick up and rose to 1.5 percent in March but remains far below the central bank's target of 5.0 percent, plus/minus 1.5 percentage points.

    The bank's latest inflation report will be published on May 7.

     In the February report, NBM lowered its forecast for inflation to 1.8 percent from 2.5 percent but expected inflation to return to the target corridor in the first quarter of 2022, helped by a recovery of aggregate demand, which, however, will still remain negative throughout the forecast period.

     The economy of the landlocked, Eastern European country that borders Romania and Ukraine shrank an annual 3.3 percent in the fourth quarter of last year, up from a fall of 9.7 percent in the third quarter and a 14 percent fall in the second quarter.

     www.CentralBankNews.info

  

Georgia hikes rate 2nd time, inflation pressure intense

     Georgia's central bank raised its key interest rate for the second month due to above-target inflation and "intensified" inflationary pressures - the third monetary authority in Central Asia to raise its rate this week - and said further monetary tightening would depend on inflation expectations.
     The National Bank of Georgia (NBG) raised its refinancing rate by 100 basis points to 9.50 percent and has now raised it 150 points this year following last month's 50-point hike.

      In an effort to lower the high level of dollarization - estimated at over 60 percent in 2019 in Georgia compared with less than 20 percent of average in other developing countries - the central bank will begin to levy reserve requirements on a sliding scale that is based on each individual bank's dollar deposits.

      This year's two hikes by NBG takes the rate back to its level in October 2019 when the bank was in the midst of monetary tightening cycle that began in September 2019 when the rate was raised twice that month to ward off pressure on the lari's exchange rate.

     But the arrival of the COVID-19 pandemic forced NBG - like other central banks - to change course and the rate was cut three times in 2020 (April, June and August) by a total of 100 basis points.
     With the global economy recovering and commodity prices worldwide accelerating, inflationary pressures are rising and central banks are now beginning to unwind some of the extraordinary monetary stimulus unleashed last year and normalize their policy stance.
      Georgia is among 13 central banks worldwide, mainly in smaller and more inflation-sensitive nations, to have raised their key interest rates so far this year. 

     But three larger emerging market countries (Turkey, Brazil and Russia) have also raised rates and Canada last week became the first developed economy to begin rolling back some of its stimulus by trimming asset purchases.

      Today's rate hike comes as a surprise as NBG in March said there was "no apparent need of additional policy tightening over the course of the year" despite raising its inflation forecast.

     But circumstances had changed since that meeting, the bank said, raising its inflation forecast again.

    NBG now expects inflation to average around 6.5 percent this year, up from the March forecast of 4.0 to 4.5 percent and the February forecast of 4.0 percent.

     As last month, NBG still expects inflation to gradually approach its 3.0 percent target.

     "A possible further tightening of monetary policy will depend on inflation expectations and the dynamics of factors affecting it," NBG said.

     Inflation in Georgia jumped to 7.2 percent in March from 3.6 percent in February, mainly due to the scheduled end of subsidies of utility fees. The central bank noted the subsidiary will also have a base effect and upward impact on inflation in December this year and in January-February 2022.

     But upward pressure on inflation is also coming from three other sources.

     Commodity prices, including oil and food, are putting upward pressure on inflation and production costs remain high after due to the closure of many facilities during the pandemic.

     Thirdly, the exchange rate of Georgia's lari has continued to weaken since June last year, with the high dollarization in the country adding further fuel to the fire. 

     With the prospects for tourism still uncertain, there is less foreign exchange coming in and the central bank said domestic demand is recovering - supported by fiscal spending - and this is boosting imports.

     "Based on the aforementioned factors, it is clear that the pressure on inflation coming from high dollarization and the exchange rate is still strong," NBG said.

     As other currencies, Georgia's lari plunged in March last year but then after rebounding to early June, it has steadily weakened. Although it rose slightly today, it was trading at 3.45 to the U.S. dollar, down 5.2 percent this year and down 17 percent since the start of 2020.

     In addition to limiting the effect of monetary policy, dollarization can also impact financial stability and NBG said from July it would set minimum reserve requirements for banks' foreign currency deposits on an individual basis.

      If dollarization exceeds 40 percent of deposits with a maturity of up to one year, the reserve requirement will be lowered to 10 percent from 25 percent. But if dollarization is 70 percent or more, it will remain 25 percent. Between those two levels, the requirement will decline as the amount of dollars is lowered.

     For foreign currency deposits with maturity of 1 to 2 years, the reserve requirement will be lowered to 10 percent from 15 percent.

     "This change will help to intensify competition in the GEL deposit market, gradually increase the demand for GEL and ease the pressure in the foreign exchange market," the bank said.

Kyrgyzstan raises rate 2nd time, new hikes not ruled out

      The central bank of Kyrgyzstan raised its key interest rate for the second time this year and didn't exclude further rate hikes, saying rising global commodity prices are pushing up inflation and while there are signs of a recovery of the domestic economy, demand remains weak.
     The National Bank of the Kyrgyz Republic (NBKR), one of only a handful of central banks to have raised its rate last year in the face of the COVID-19 pandemic, raised its discount rate by another 100 basis points to 6.50 percent and has now raised it 150 points this year following a hike in February.

    "The continuing rise in prices on world commodity markets determines the upward dynamics of inflation in the Kyrgyz Republic in the near future," the bank said, adding in the event of any risks, it doesn't exclude the possibility of making additional changes to its monetary policy stance.

     In March 2016 NBKR shifted into a monetary easing cycle but this came to an end in February last year when the central bank raised the rate to dampen inflationary pressures.

     Inflation in the former Soviet republic eased to 8.6 percent as of April 16, the bank said, from 10.23 percent in March, with the main upward pressure by external factors, such as accelerated growth in the prices on world food markets and limited supply in producer countries.

     But NBKR said a possible rise in a number of administered prices will contribute to inflation on top of the rise in food prices, leading to higher inflation by the end of the year.

     NBKR intends to move to inflation-targeting in the medium term and last month the International Monetary Fund (IMF) said it will be important to strengthen the bank's autonomy, governance structure, recapitalization rules, the money markets along with the resolution framework to ensure a smooth transition.

     After contracting by 8.6 percent last year due to a drop in tourism, non-gold exports and slower economic activity, Kyrgyzstan's economy is showing signs of recovery, NBKR said.

     However, domestic remains weak - real wages fell by 5.3 percent in the first two months of the year - while remittances rose 6.4 percent to US$254.1 million during the same period, helping boost domestic consumption, the bank added.

     On March 31 IMF said it expects Kyrgyzstan's economy to expand 3.8 percent this year and 6.4 percent in 2022, underpinned by a recovery in the global and domestic economy, higher gold production, an increase in remittances from oil-exporting neighbors and a rebound in tourism, transportation and related services.

     The IMF expects growth to gradually converge to its potential of 4 percent in the medium term while inflation will remain elevated in coming months but then ease to around 7.4 percent by the end of this year and return to the bank's target range of 5-7 percent thereafter.

     Kyrgyzstan's som has been trading near lows of just below 85 to the U.S. dollar most of this year, the same level it hit April last year, and NBKR said the revitalization of the country's economy along with continued volatile commodity prices had led to an increase in demand for foreign currency in the domestic foreign exchange markets.

     The central bank noted it participates in the foreign exchange market to smooth out sharp fluctuations and while the IMF said FX interventions are used to smooth excessive volatility, the exchange rate should remain market driven going forward.

     "However, the exchange rate alone cannot address the underlying structural weakness of the balance of payments, which require deep structural reforms to improve the competitiveness of the economy," the IMF said.

      In 2020 Kyrgyzstan's budget deficit widened to 3.3 percent of gross domestic product and the IMF expects the deficit to widen further this year to 4.2 percent of GDP while the overall level of public debt rose to 68 percent of GDP, with authorities faced with the challenge of lowering debt while creating fiscal space for development.

     IMF recommends lowering public debt to below 60 percent by 2025.

    The som was trading at 84.8 to the U.S. dollar today, down 2.4 percent since the start of this year and down 18 percent since the start of 2020.

     www.CentralBankNews.info

This week in monetary policy: Kyrgyzstan, Kazakhstan, Japan, Sweden, Hungary, Tajikistan, Georgia, USA, Guatemala, Botswana, Egypt, Azerbaijan, Moldova, Malawi, Bulgaria, Zimbabwe & Colombia

    This week - April 26 through May 1 - central banks from 17 countries or jurisdictions are scheduled to decide on monetary policy: Kyrgyz Republic, Kazakhstan, Japan, Sweden, Hungary, Tajikistan, Georgia, United States, Guatemala, Botswana, Egypt, Azerbaijan, Moldova, Malawi, Bulgaria, Zimbabwe 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 be accessed by clicking on This Week.

WEEK 17
APR 26 - MAY 1, 2021:
KYRGYZSTAN	26-Apr	5.50%		50	50	5.00%
KAZAKHSTAN	26-Apr	9.00%	15:00	0	0	9.50%	FM
JAPAN	27-Apr	-0.10%		0	0	-0.10%	DM
SWEDEN	27-Apr	0.00%	9:30	0	0	0.00%	DM
HUNGARY	27-Apr	0.60%		0	0	0.90%	EM
TAJIKISTAN	27-Apr	11.00%		25	25	11.75%
GEORGIA	28-Apr	8.50%		50	50	8.50%
UNITED STATES	28-Apr	0.25%	14:00	0	0	0.25%	DM
GUATEMALA	28-Apr	1.75%		0	0	2.00%
BOTSWANA	29-Apr	3.75%		0	0	4.25%
EGYPT	29-Apr	8.25%		0	0	9.25%	EM
AZERBAIJAN	30-Apr	6.25%		0	0	7.25%
MOLDOVA	30-Apr	2.65%		0	0	3.25%
MALAWI	30-Apr	12.00%		0	0	13.50%
BULGARIA	30-Apr	0.00%		0	0	0.00%	FM
ZIMBABWE	30-Apr	40.00%		0	500	15.00%
COLOMBIA	30-Apr	1.75%		0	0	3.25%	EM

 
    www.CentralBankNews.info

Russia raises rate 2nd time, will consider more hikes

      Russia's central bank raised its key interest rate for the second month in a row, as widely expected, and said it would consider further rate hikes in upcoming policy meetings as inflation and inflation expectations remain high and the economic recovery is continuing at a steady pace.
     The Bank of Russia raised its key interest rate by 50 basis points to 5.0 percent - in the upper end of what analysts had expected - and has now raised it 75 points this year following the hike in March, the bank's first rate hike since December 2018.

     In its medium-term economic forecast, the central bank sees the key rate averaging 5.0 to 5.8 percent this year following today's hike, with the rate rising to 5.3 to 6.3 percent in 2022.

      Russia, along with Brazil and Turkey, are among the 13 central banks that have raised their main interest rates so far this year as authorities gradually unwind the massive fiscal and monetary stimulus unleashed last year in response to the COVID-19 pandemic.

     This week Canada's central bank became the first major developed market central bank to trim its stimulus by reducing asset purchases and the Russian central bank once again warned of possible volatility in global financial markets as central banks in advanced economies may begin to normalize their "unprecedentedly accommodative policies" earlier than expected as the global economy recovers.

     "The recovery of demand is becoming increasingly steady and in certain sectors exceed their output expansion capacity," the central bank said, adding the balance of risks has shifted to pro-inflationary and "the rapid recovery of demand and elevated inflationary pressure call for an earlier return to neutral monetary policy."

     Today's rate was widely anticipated after the central bank in March, when it began the move back to a more neutral policy stance and said it was open to further rate hikes as the pace of economic recovery was faster than expected.

     Financial markets and investors appear to approve of the central bank's tightening and this week Russian President Vladimir Putin praised the central bank for maintaining financial stability and restraining inflation while Deputy Finance Minister Vladimir Kolychev told Reuters on April 20 that monetary and fiscal policy needs to be normalized faster than thought as high inflation suggests the economy has not only recovered but the scale of past stimulus might have been more than needed.

      Russia's inflation rate has been accelerating the last 10 months and rose to 5.79 percent in March, the highest since November 2016, and well above the central bank's 4.0 percent target.

     As of April 19, the central bank said inflation was estimated to have slowed to 5.5 percent but this was largely due to a low comparison base.

     "The impact of proinflationary factors may be more prolonged and pronounced amid an outrunning growth of consumer demand compared to the capacity of output expansion," the bank said, forecasting inflation will average 5.4 to 5.8 percent this year, up from 3.4 percent in 2020 and its February forecast of 4.4 to 4.8 percent.

      By the middle of 2022 inflation is seen hitting the target to average 4.0 to 4.2 percent.

      Despite a hit from new U.S. sanctions, Russia's ruble has strengthened this month and rose further today after the rate hike.

     The ruble was trading at 74.84 to the U.S. dollar today, up 0.6 percent this month, but is still down 0.6 percent this year and 17.13 percent lower than at the start of 2020. 

      In 2020 the ruble lost almost 17 percent, hit by the plunge in oil prices and the hit to economic activity from the pandemic while Russian stocks, which plunged almost 30 percent from mid-January 2020 to mid-March, have been hitting record highs in the last month, buoyed by the rebound in oil prices.

     Russia's economy is continuing its recovery from 2022, when gross domestic product shrank 3.0 percent, and at the end of the first quarter the bank said retail turnover had approached its pre-pandemic level and it expects the economy to return to the pre-crises level in the second half of this year.

     The bank forecasts GDP this year will expand 3.0 to 4.0 percent and then 2.5 to 3.5 percent next year, unchanged from the February forecast.

Uzbekistan maintains rate to ensure inflation slows

    Uzbekistan's central bank kept its base rate steady at 14.0 percent, unchanged since September last year, saying this was to support the economic recovery and maintain the slowing dynamics of inflation and inflation expectations against the backdrop of the risk of rising global food prices.
     The Central Bank of the Republic of Uzbekistan (CBU) lowered its base rate twice last year (April and September) by a total of 200 basis points to support economic activity during the COVID-19 pandemic and since then inflation has trended lower, from over 14 percent mid-2020 to 10.9 percent in March.

     However, CBU noted food prices in March rose an annual 13.8 percent, and carries a 5.8 percentage point impact on the headline rate, while the cost of non-food products and services rose 8.8 percent and 8.4 percent, respectively, while core inflation was 11.6 percent, showing a persistence of inflationary risks.
     And while 12-month inflationary expectations have trended lower and are now 15.5 percent for the general population and 15.9 percent by businesses, CBU said they remain higher than actual inflation.
     CBU maintained its forecast for inflation to end this year between 9.0 and 10.0 percent.
     At the start of 2020, the central bank began transitioning to an inflation targeting regime, with the aim of lowering inflation to 10 percent in 2021 and then 5 percent in 2023.

     Economic activity in the former Soviet republic continued to recover in February and March after declining in January, with gross domestic product in the first quarter expanding an annual 3.0 percent, as industrial output rose 3.8 percent, agriculture by 3.1 percent, services by 5.8 percent and construction by 0.5 percent and retail turnover by 2.8 percent, the bank said.

     The improvement in the global economy is also boosting exports from Uzbekistan, with exports, excluding gold and gas, up 25 percent from last year with exports of textiles up 38 percent, chemical products up 21 percent and non-ferrous metals up 58 percent.

     CBU forecast real GDP growth this year of 4.5 to 5.5 percent, adding based on the first quarter, growth will be close to the upper limit of this forecast. In 2020 Uzbekistan's economy grew 1.6 percent.

    www.CentralBankNews.info

     

     

Canada keeps rate but trims QE as outlook improves

     Canada's central bank left it key interest rate steady for the 9th time but will scale back its asset purchases, as signaled last month, as it becomes the first developed market central bank to roll back the extraordinary level of monetary stimulus in response to the global economic recovery from the COVID-19 pandemic.

     The Bank of Canada (BOC) kept its target for the overnight rate at 0.25 percent, unchanged since March 27, 2020 when it was cut for the third time that month to what the bank considers the effective lower bound.

     It also left the bank rate at 0.50 percent and the deposit rate at 0.25 percent.

     "The outlook has improved for both the global and Canadian economies," BOC said, adding economic activity has proved more resilient than expected in the face of the pandemic and the rollout of vaccines.

     In addition to trimming its weekly purchases of government bonds to $3 billion from $4 billion, BOC raised its forecast for economic growth and inflation, and pulled forward its date for when it may raise its interest rate.

     "We remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved," BOC said, reiterating its previous guidance, but then adding:

     "Based on the Bank's latest projection, this is now expected to happen some time in the second half of 2022," a change from the January projection that saw this happening in 2023.

     BOC was very aggressive in easing its monetary policy stance last year in response to the pandemic.

     The bank not only slashed its key interest rate three times in the month of March by a total of 150 basis points to what it saw as the effective lower bound of 0.25 percent, but also embarked on asset purchases of both commercial paper and government bonds to ensure financial markets continued to operate.

     Initially, BOC began buying C$5 billion of government securities a week and then in the following month of April last year the bank expanded the program to include up to $50 billion of bonds from the country's provinces and up to $10 billion in corporate bonds.

     In October last year BOC's weekly bond purchases were trimmed to $4 billion as part of a shift toward buying more longer-term bonds that have a more direct impact on borrowing rates.
    The result of last year's asset purchases and repurchase operations was BOC's balance sheet ballooned four times its pre-pandemic size to about $575 billion in February.

     But in a key speech last month by BOC Deputy Governor Toni Gravelle about the bank's move to discontinue some of its crises programs - foreshadowing today's move - he said some of the shorter-term debt bought by the bank had already matured and by the end of April the balance sheet will have shrunk to about $475 billion.

     Although Canada has weathered the economic storm from the pandemic better than expected, the bank said a number of regions were experiencing a third wave of infections and lockdowns, injecting a new dimension of uncertainty, and the recovery remains highly dependent on the virus and vaccinations.

    "Even as economic prospects improve, the Governing Council judges that there is still considerable excess capacity, and the recovery continues to require extraordinary monetary policy support," BOC said.

    Decisions about further changes to the bank's purchases of assets - known as quantitative easing (QE) - will be guided by how the recovery proceeds and the bank said it would continue with QE to keep interest rates low across the yield curve and to provide "the appropriate degree of monetary stimulus to support the recovery and achieve the inflation objective."

     After shrinking in the first and second quarters of 2020, Canada's economy has bounced back, with gross domestic product growing 8.9 percent in the third quarter from the second quarter and then 2.3 percent in the fourth quarter of last year for an annual contraction of 3.2 percent, up from 5.3 percent in the third quarter and 12.7 percent in the second quarter of 2020.

      Growth in the first quarter of this year appears "considerably stronger" than the bank forecast in January and it now expects slack in the economy to be absorbed and inflation to sustainably return to its target of 2.0 percent, within a control range of 1-3 percent, in the second half of 2022.

     BOC raised its forecast for growth this year to 6.5 percent, up from January's forecast of 4 percent and a 2.5 percent contraction in 2020. 

     For 2022 the economy is seen expanding around 3.75 percent, down from its earlier forecast of 5 percent, and then 3.25 percent in 2023, up from 2.5 percent.

     Earlier today there was further proof of Canada's recovery from the pandemic, with Statistics Canada saying the annual inflation rate rose to 2.2 percent from 1.1 percent in February, continuing the steady rise since June 2020 when consumer prices rose after deflation set in during April and May.

    Over the next few months, inflation is expected to rise temporarily to the top of the bank's control range, mainly due to base effects, but then return to 2 percent in the second half of next year.

     Inflation is forecast to rise to 2.2 percent in the fourth quarter of this year, up from January's forecast of 1.5 percent but down from 2.9 percent in the second quarter, and then ease to 2.0 percent a year later before rising to 2.4 percent in the fourth quarter of 2023, up from 2.1 percent.
     Canada's labor market has been strengthening faster than expected, with the economy in March adding three times the number of jobs as expected, pushing down the unemployment rate to 7.5 percent that month from 8.2 percent in February and down from a pandemic high of 13.7 percent in May 2020.

     BOC also revised upward its estimate of the country's potential output due to the country's greater resilience to the pandemic and accelerated digitalization though it remains 1 percent below pre-pandemic estimates.

     Global potential output is forecast to recovery to 3.0 percent in 2022 and 2023, up from 2.7 percent this yea and 2.3 percent in 2020 as the impact of the pandemic fades, and Canada's potential output is forecast to rebound to 1.6 percent in 2022 from an earlier forecast of 1.5 percent - including the temporary effects of the pandemic - and 2.0 percent in 2023.

     The yield on Canada's benchmark 10-year government bond has also recovered steadily since hitting a low of around 0.40 percent in August last year to trade around 1.5 percent in the last month.

     The Canadian dollar reacted strongly to the BOC's move, jumping some 1.3 percent to 1.248 to the U.S. dollar, continuing its steady rise since almost hitting records low of 1.45 against the U.S. dollar in March last year to be up over 2 percent this year.

This week in monetary policy: Israel, China, Indonesia, Canada, Costa Rica, Uzbekistan, ECB, Paraguay & Russia

     This week - April 19 through April 24 - central banks from 9 countries or jurisdictions are scheduled to decide on monetary policy: Israel, China, Indonesia, Canada, Costa Rica, Uzbekistan, European Central Bank, Paraguay and Russia.

     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 be accessed by clicking on This Week.

WEEK 16
APR 19 - APR 24, 2021:
ISRAEL	19-Apr	0.10%	16:00	0	0	0.10%	DM
CHINA	20-Apr	3.85%	9:30	0	0	3.85%	EM
INDONESIA	20-Apr	3.50%		0	-25	4.50%	EM
CANADA	21-Apr	0.25%	10:00	0	0	0.25%	DM
COSTA RICA	21-Apr	0.75%		0	0	1.25%
UZBEKISTAN	22-Apr	14.00%	14:30	0	0	15.00%
EURO AREA	22-Apr	0.00%	13:45	0	0	0.00%	DM
PARAGUAY	22-Apr	0.75%		0	0	1.25%
RUSSIA	23-Apr	4.50%	13:30	25	25	5.50%	EM

 
    www.CentralBankNews.info

Congo cuts rate 2nd time, inflation slows, franc stable

     The central bank of the Democratic Republic of Congo lowered its monetary policy rate for the second consecutive month, saying it was easing funding conditions in light of a slowdown in inflation, a stable foreign exchange market and favorable prospects for the short term that don't point to any major shocks.

     The Central Bank of Congo (BCC) cut its policy rate by another 500 basis points to 10.5 percent, according to a statement from the bank's monetary policy committee published on twitter by an advisor to the bank's governor.

      BCC has now cut its key interest rate by 800 basis points this year following a 300 point cut on March 12.

     The two rate cuts partly reverse a sharp 1,100 basis point rate hike in August last year aimed at re-anchoring inflation expectations after the Congolese franc plunged, pushing up import prices and inflation, due to falling global demand for metals and raw materials amid the COVID-19 pandemic.

     Prior to the August hike, which came at an unscheduled meeting of the bank's policy committee, the rate had been cut by 150 basis points in March to 7.50 percent to cushion the country's economy from the impact of the pandemic.

     In early March last year the franc began to weaken and then fell sharply - some 12 percent against the U.S. dollar - from early May to early August. 

     Since then the franc has stabilized but still bounced off lows around 2,000 to the dollar last month and was trading at 1,972 to the U.S. dollar today, down 14 percent this year.

     The central bank said the foreign exchange market was stable with the franc depreciating 0.1 percent in the last month. 

     After jumping to 31.42 percent in July 2020 from 7.54 percent at the start of 2020, inflation in Congo has fallen rapidly to 6.23 percent in January this year from 22.02 percent in November last year.

     Despite the hit to global economic activity from the pandemic, Congo's economy expanded by 1.7 percent last year, BCC said, due to a rebound in the demand for its main exports, copper and cobalt.

      Surveys of business leaders show rising confidence about the economy in the short run and the International Monetary Fund forecasts 3.8 percent growth this year and inflation of 10.9 percent.

     www.CentralBankNews.info

Ukraine raises rate 2nd time to bring inflation to target

      Ukraine's central bank lived up to its guidance and raised its rate for the second consecutive month and while it expects to keep its rate steady for the rest of the year, it also warned that it is ready to raise the rate further if inflationary pressures and expectations worsen.
     The National Bank of Ukraine (NBU) raised its key policy rate by another 100 basis points to 7.50 percent and has now raised it by 150 points this year as it seeks to gradually slow inflation in the second half of this year and return it to its target in the first half of 2022.
     Today's rate hike comes after the central bank in March raised its rate for the first time since September 2018 and said it was ready to raise the rate further to curb inflationary pressures and bring inflation back to target.

     The rate hikes extends the central bank's unwinding of a 2-year easing cycle that began in April 2019 until June 2020 during which the rate was lowered 9 times and by a total of 12 percentage points as it brought inflation - which had risen to over 16 percent in September 2017 - under control.
     But after inflation settled around 2 percent from February 2020 to September, it began accelerating in October last year and rose faster than NBU had expected to 8.5 percent in March this year, well in excess of the bank's target of 5.0 percent, plus/minus 1 percentage point.
     The bank's board said its current forecast envisages the policy rate will remain at 7.50 percent until the end of this year and this should be enough to bring inflation back to its target in the first half of 2022.
     "However, if underlying inflationary pressures rise more noticeably that currently expected, and if inflation expectations worsen, there could be the need for further monetary policy tightening," the bank said, adding it is ready to raise the policy rate to a level that brings inflation back to its target in the first half of next year.

      The steep rise in inflation is mainly due to a rise in global prices for food and energy, the comparison with last year's low prices during the COVID-19 crises, along with a rise in consumer demand that has been fueled by higher wages.

     "Inflation expectations remain high on the back of the rapid growth in the prices of goods consumed every day," NBU said, revising upward its forecast for inflation to average 8 percent this year from 7 percent.

     Inflation is expected to peak in the third quarter of this year and gradually reverse as the effect of a low comparison base wanes, new harvest supplies hit the market and interest rates rise.

     "Inflation will start to decelerate in the autumn, return to its target range in H1 2022 and subsequently remain there," the central bank said.

     After shrinking in the second quarter of last year, Ukraine's economy bounced back in the third quarter but after almost reaching pre-COVID levels in the fourth quarter, it slowed after the imposition of new quarantine measures and is expected to contract on an annual basis in the first quarter of 2021.

      As a result, the central bank lowered its forecast for 2021 growth to 3.8 percent from an earlier 4.2 percent, with the economy expected to return to growth in the second quarter and then grow at a pace of around 4.0 percent in 2022 and 2023.

      A detailed economic forecast will be published by NBU on April 22.

Turkey holds rate but softens hawkish policy stance

      Turkey's central bank maintained its key interest rate and "tight monetary policy stance," as widely expected, but dropped its earlier commitment of maintaining this stance for an extended period and that it could even raise rates further, signaling a clear softening of its hawkish tone.
      Instead of its previous pledge of keeping a tight policy stance "decisively" and for an extended period, the Central Bank of the Republic of Turkey (CBRT) today said it would use "decisively" all instruments in pursuit of price stability and the policy rate would be set above inflation to maintain a disinflationary effect until there is a permanent fall in inflation and the medium-term inflation target is reached.
     The shift in tone comes after a highly anticipated first monetary policy meeting under its new governor - the bank's fifth in the last decade - and the verdict by the foreign exchange market was swift.
     The Turkish lira immediately fell just over 1 percent to 8.133 to the U.S. dollar, before recovering some of its loss to 8.09 but continuing the slide since March 21 when current governor Sahap Kavcioglu took over after his predecessor, Naci Agbal was fired by Turkey's strong-will president, Tayyip Erdogan.   

     Agbal was the third governor to be let go by Erdogan since Murat Cetinkaya was fired in 2019 and Murat Uysal was fired in 2020, repeatedly unsettling investors who increasingly doubt the central bank's commitment to fight inflation under the leadership of Erdogan.

    Turkey's inflation rate has been volatile in the last few years, mainly due to the impact of the lira's exchange rate.

     After plunging from over 100 percent in January 1998 to below 8 percent in 2005, inflation in Turkey was relatively contained below 10 percent for more than a decade when the lira's decline was relatively steady.

    But in early 2018 the lira's decline picked up speed and then plunged in July and August that year, a move Cetinkaya responded to by raising interest rates sharply, helping reverse some of the lira's losses, while inflation spiked to 25.24 percent in October 2018.

     Inflation remained close to 20 percent for the next six months but the impact of the high interest rates and a relatively steady lira helped push down inflation to 8.55 percent in October 2019.

     But the arrival of COVID-19 last year undermined the lira's stability and it lost almost 20 percent of its value in 2020 though its fortunes appeared to have changed in November last year with the arrival of Agbal at the central bank who quickly raised rates, helping boost the lira and the confidence of investors.

     But this peace was shattered in March when Erdogan fired Agbal after his third rate hike - the bank's fourth since September 2020 - and since this change of governor the lira has lost over 10 percent to trade at 8.09 to the dollar today, down 8.8 percent since the start of 2021 and down 26 percent since the start of 2020.

     Inflation, meanwhile, has continued to rise for the last five months to 16.19 percent in March, more than 3 times the central bank's medium-term target of 5.0 percent.

      CBRT left its one-week repo rate at 19.0 percent.

Belarus raises rate 1st time in 6 years as inflation rises

      The central bank of Belarus raised its benchmark interest rate for the first time in more than 6 years to limit what is said was "pro-inflationary risks" and strengthen its control over money supply as it seeks to pull back rising inflationary expectations.
     The National Bank of the Republic of Belarus (NBRB) raised its refinancing rate by 75 basis points to 8.50 percent, its first rate hike since January 2015 that comes after the bank's board last month tightened its control over liquidity and the expansion of its monetary base to limit inflation.
     In addition to the refi rate, the central bank also raised the overnight loan rate to 9.5 percent and the overnight deposit rate to 7.50 percent.

     Today's rate hike punctuates a monetary easing cycle under way since April 2016, which comprised 19 cuts to the refi rate by a total of 17.25 percentage points, including three cuts last year by 1.25 percentage points.
     Belarus has a history of rampant inflation which hit an annual 110 percent in January 2012 when the central bank's refi rate was 45 percent. From that level, inflation declined and in February 2012 the central bank began lowering its refi rate and cut it more than in half by August 2014.
     After an uptick in inflation in 2015, NBRB reversed course and raised its rate but then returned to the easing path in April 2016 as inflation continued its steady decline.

      But since August 2020 inflation in Belarus has accelerated, pushed up by the one-two punch of a fall in the Belarus ruble in March following the global COVID-19 crises and then political unrest following a contested presidential election in August 2020.

     "At the end of 2020, inflationary processes accelerated, which was due to the transfer of the depreciation of the Belarusian ruble to prices, as well as supply shocks in the markets of certain food products," NBRB said.

     After tumbling 18 percent against the U.S. dollar in February through late March last year, the ruble bounced back, like most other currencies.
      But after widespread protests broke out following the re-election of Alexander Lukashenko, who has ruled the former Soviet republic since 1994, the ruble again fell and has remained weak since then as demand for fresh elections continue and neither the United States nor the European Union have recognized Lukashenko as the country's legitimate leader.
      Today the ruble was trading at 2.61 to the U.S. dollar, down 0.8 percent this year and while it is up 2.7 percent since a record low of 2.68 in early September 2020, it is still almost 20 percent below its level at the start of 2020.

     While today's rate hike was hardly unexpected following last month's initial move to limit inflation, the timing of the board's decision was a surprise as the bank last month also canceled scheduled board meetings in favor of taking decisions when necessary.

      Although inflation in Belarus eased to 8.5 percent in March from 8.7 percent in February, it remains well above the central bank's target of 5.0 percent and the bank said surveys show inflation expectations have risen against the backdrop of rising inflation and its prolonged deviation from its target.

      In addition to the rise in food prices worldwide and higher prices for imported non-food products, domestic prices are also under upward pressure from changes to taxes.

      Easy monetary policy worldwide is also expected to boost inflation worldwide and the central bank said inflation in its main trading partner of Russia is first expected to return to its target in the first half of 2022.

      "Taken together, these factors form the preconditions for maintaining high inflationary expectations of economic agents for a long time, which increases the risk of continued high inflation in the future," the central bank said.

      Although weak domestic demand should lower the rise in consumer prices starting in the second quarter of this year, NBRB first expects inflation to decline by the end of this year to around 7 percent in December and then continue to ease to close to its 5.0 percent target from the second quarter of 2022.

UPDATE-This week in monetary policy: Serbia, New Zealand, Singapore, Uganda, Namibia, South Korea, Turkey and Ukraine

     (Following item updated with Monetary Authority of Singapore)    

    This week - April 12 through April 17 - central banks from 8 countries or jurisdictions are scheduled to decide on monetary policy: Serbia, New Zealand, Singapore, Uganda, Namibia, South Korea, Turkey and Ukraine.

     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 be accessed by clicking on This Week.

WEEK 15
APR 12- APR 17, 2021:
SERBIA	13-Apr	1.00%	12:00	0	0	1.50%	FM
NEW ZEALAND	14-Apr	0.25%	14:00	0	0	0.25%	DM
SINGAPORE	14-Apr	N/A	8:00	0	0	N/A	DM
UGANDA	14-Apr	7.00%		0	0	8.00%
NAMIBIA	14-Apr	3.75%		0	0	4.25%
SOUTH KOREA	15-Apr	0.50%		0	0	0.75%	EM
TURKEY	15-Apr	19.00%	14:00	200	200	8.75%	EM
UKRAINE	15-Apr	6.50%	14:00	50	50	8.00%	FM

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