Seychelles cuts rate 4th time as rate corridor lowered

     The central bank of Seychelles, the archipelago in the Indian Ocean, shifted its interest rate corridor downwards to lower market interest rates and support the ailing economy, with the result the monetary policy rate was cut for the fourth time since September 2019.
     The Central Bank of Seychelles (CBS) lowered its key rate by another 100 basis points to 2.0 percent.

     The central bank has now cut its policy rate four times and by a total of 3.50 percentage points since September 2019, including two rate cuts last year by 2.0 percentage points.
     "In order to ensure interest rates in the market are aligned with prevailing macroeconomic fundamentals, the Board also approved a structural shift in the interest rate corridor," CBS said, adding it expects the realignment to lead to a general reduction in domestic market interest rates.

    The Standing Deposit Facility (SDF) rate was lowered by 50 basis points to 0.5 percent while the Standing Credit Facility (SCF) rate was lowered by 250 points to 3.50 percent.

     The central bank's minimum reserve requirement remains at 13.0 percent of banks' rupee reposits but the bank said its board on June 22 approved lowering this to 10.0 percent "should liquidity conditions warrant such an adjustment."

     The Republic of Seychelles is made up of 115 islands off the east coast of Africa and relies heavily on tourism, which has been devastated by the COVID-19 pandemic.

     "The effects of the COVID-19 pandemic ares still being felt across various sectors of the domestic economy and in general, economic activity remains weak," the central bank said.

     The rate cut comes the day after a joint report by UNCTAD (United Nations Conference on Trade and Development) and UNWTO (UN World Tourism Organization) said the pandemic will cost the global economy more than $4 trillion in 2020 and 2021, and the tourism crises is far from over.

     The report noted travel restrictions are still in place in many parts of the world and there might not be a return to pre-pandemic levels of international tourists until 2023.

     CBS said a relaxation of entry requirements for visitors in late March led to a rise in tourist arrivals and tourism earnings but the level remains below pre-pandemic levels and the labor market remains challenging, with skills mismatched.

     Credit to the private sector also declined in April from last year but CBS expects tourism to pick up gradually towards the end of this year though this is still subject to the uncertainties related to new virus variants and the effectiveness of vaccines.

     Headline inflation in Seychelles rose to 11.37 percent in May from 10.68 percent in April, the highest since October 2009.

This week in monetary policy: Colombia, Bulgaria, Jamaica and Sweden

     This week - June 28 through July 3 - central banks from 4 countries or jurisdictions are scheduled to decide on monetary policy: Colombia, Bulgaria, Jamaica and Sweden.

     Originally Uruguay's monetary policy committee was also scheduled to meet this week, on June 30, but this apparently has been pushed back to July 6 as a consequence of the June 25 announcement by the central bank there will be no public access to the central bank until July 4 due to the government's anti-virus measures.

     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 26
JUN 28- JUL 3, 2021
COLOMBIA	28-Jun	1.75%		0	0	2.50%	EM
BULGARIA	30-Jun	0.00%		0	0	0.00%	FM
JAMAICA	30-Jun	0.50%		0	0	0.50%
SWEDEN	1-Jul	0.00%	9:30	0	0	0.00%	DM

 
    www.CentralBankNews.info

Trinidad & Tobago holds rate, economy still needs help

      The Central Bank of Trinidad and Tobago (CBTT) left is benchmark repo rate at 3.50 percent, saying there is still a "need for continued monetary support towards a domestic economic recovery at this time."
      CBTT has kept its rate steady since March last year when it was cut by an "unprecedented" 150-basis points, along with a cut in banks' reserve requirement to boost economic activity during the height of the COVID-19 pandemic.

      The performance of Trinidad and Tobago's important energy sector was mixed in the first months of this year relative to last year, with higher prices for some key exports but lower output of some products.

     For the first four months, natural gas output was 20.6 percent down while crude oil production had risen marginally by 0.6 percent.

     Looking to the non-energy sector, the central bank said an initial improvement in construction and manufacturing at the start of the year was impeded due to strict national lockdowns in the second quarter and private sector credit remained sluggish, falling 3.2 percent in the 12-months to March.

Mexico joins other EM central banks and raises rate

      Mexico's central bank surprised economists by joining the growing number of emerging market central banks that are tightening monetary policy in the face accelerating inflation by raising its key interest rate, adding the next rate move would depend on the expected trajectory of inflation and inflation expectations.
     The Bank of Mexico (Banxico) raised its target for the overnight interbank interest rate by 25 basis points to 4.25 percent, returning the rate to the level it was from September last year until February this year when the rate was cut for the 12th time to boost economic activity and inflation.

      In March and May Banxico's board adopted a data-dependent approach to monetary policy as economic activity remained sluggish amid the COVID-19 pandemic, rendering the outlook for inflation uncertain.

      But with the number of vaccines increasing, demand is slowly recovering while global energy and commodity prices have soared, boosting inflation in Mexico to above Banxico's 3.0 percent target.

      Nevertheless, after Mexico's inflation rate eased in May to 5.89 percent from 6.08 percent in April, economists dialed back expectations for Mexico to follow other emerging market central banks, such as Brazil and Russia that have already raised rates three times this year.

      Illustrating the surprise to financial markets from Banxico's rate hike, Mexico's peso shot up almost 1 percent to 19.79 to the U.S. dollar to be 0.5 percent higher on the year.

      After an unprecedented loosening of monetary and fiscal policy last year to cushion economies from the COVID-19 pandemic, central banks are slowly tightening.

      Mexico becomes the 17th central bank to raise its interest rates this year and the 3rd emerging market central bank this week alone, following in the footsteps of the Czech Republic and Hungary.

      Banxico's governing board only narrowly approved the rate hike, with two of its five members voting to maintain the rate.

      Although Banxico still expects the shocks that have pushed up inflation - such as higher commodity prices, base effects, supply bottlenecks - to be of a "transitory nature," it realizes they may still pose a risk to prices due to the magnitude, variety and extended time frame of these shocks.

     "In this context, it was deemed necessary to strengthen the monetary policy stance in order to avoid adverse effects on inflation expectations, attain an orderly adjustment of relative prices, and enable the convergence of inflation to the 3% target," the bank said.

      Banxico added inflation in coming quarters was seen above forecasts in its last quarterly report and headline inflation was now first seen converging to its 3.0 percent target in the third quarter of 2022 instead of in the second quarter.

     "The Mexican economy recovered notably in March and moderately in April," the bank said, adding it is expected to continue recovering the rest of the year.

      Looking to the U.S., Banxico said the rise in U.S. inflation to 5 percent in May was "noteworthy," and while central banks in advanced economies have left their stimulus unchanged, "it is foreseen that these could be maintained for a shorter period."

     While the Federal Reserve's change in its outlook for interest rates last week triggered a rise in global bond yields and the U.S. dollar, markets have stabilized this week but Banxico said there are still risks that higher levels of inflation could hasten the withdrawal of monetary stimulus.

BOE maintains policy but sees inflation topping 3.0%

     The U.K. central bank once again left its main interest rates and target for asset purchases unchanged, but raised its forecast for economic growth and inflation in the current quarter and expects inflation to exceed 3.0 percent temporarily before dropping back toward its target.
     The Bank of England's (BOE) nine-member monetary policy committee voted unanimously to maintain its bank rate at a rock-bottom 0.10 percent but for the second time Chief Economist Andy Haldane, who leaves at the end of this month, voted to trim the asset purchase program by by 50 billion sterling from the 895 billion target for total asset purchases.

     The policy committee also reiterated "it does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2 percent inflation target sustainably."

     The BOE has kept its rate steady since March 2020, when it was cut twice by a total of 65 basis points, along with its target for asset purchases that was last raised in November last year.

      BOE acknowledged the global economy was recovering faster than expected and price pressures were rising, reflecting strong demand for goods, rising commodity prices, supply-side constraints and transportation bottlenecks.

      But as many central banks, such as the U.S. Federal Reserve and the European Central Bank (ECB), BOE believes the impact of the rise in commodity prices to be transitory and after the economy experiences a "temporary period of strong GDP growth and above-target CPI inflation," growth and inflation will fall back.

     However, it cautioned this forecast is surrounded by risks, saying "it is possible that near-term upward pressure on prices could prove somewhat larger than expected," echoing concern by some members of the Fed's policy-setting body.

     Reflecting the improving outlook for growth due to an easing of COVID-19 restrictions, the bank's staff revised upwards its forecast for economic growth in the United Kingdom in the second quarter to 5.5 percent from the May forecast of 4.25 percent.

      In May BOE forecast a 7.25 percent expansion in gross domestic product this year, up from a 9.75 percent contraction in 2020, with the pace easing to 5.75 percent in 2022.

     In August BOE will issue its next monetary policy report with economic outlooks.

     Inflation in the UK rose to 2.1 percent in May - above BOE's target and the May forecast of 1.8 percent - and the bank expects headline inflation to rise further above the target and exceed 3.0 percent for a "temporary period" due to higher energy and commodity prices.

     But as the "transitory effects" fade, BOE expects inflation to return to its 2.0 percent target in the medium term.

     In its May policy report, BOE forecast headline inflation would rise temporarily above its target towards the end of 2021 due to higher energy costs and projected inflation of 1.7 percent in the second quarter of this year, 2.3 percent in the second quarter of 2022 and 2.0 percent in the second quarter of 2023.

Czech Rep. becomes 2nd EU nation to raise rates

     The Czech Republic joined fellow European Union (EU) member Hungary by raising its benchmark interest rate and said monetary policy was now "probably" entering a phase of rising interest rates, which "can therefore be expected to continue rising in the second half of the year."

     The Czech National Bank (CNB) raised its two-week repo rate by 25 basis points to 0.50 percent along with the Lombard rate, which was raised to 1.25 percent. The discount rate was unchanged at 0.05 percent.

      The decision was largely expected and four of the bank's board members voted for the hike, one member voted to raise the rate 50 basis points while two voted to keep rates unchanged.

     "The Bank Board assessed the uncertainties and risks of the spring forecast as being slightly inflationary overall," CNB said, adding the more favorable than expected course of the pandemic will contribute to a faster economic recovery.

      Among the factors acting in an inflationary direction, CNB pointed to higher-than-expected growth in wages, higher industrial producer prices abroad, a higher outlook for administered prices and higher-than-expected oil prices      

      CNB's rate hike comes on the heels of Hungary's rate hike earlier this week as central banks, especially in emerging and developing economies, begin to roll back the extraordinary easing of monetary policy last year in response to the pandemic.

      So far this year, 16 central banks have raised their rates a total of 26 times - including Turkey, Brazil, Russia, Hungary and now the Czech Republic - as they seek to keep a lid on inflation that is accelerating in response to the bounce-back in demand after lockdowns and higher commodity prices, such as oil.

      Today's rate hike marks the CNB's second step toward normalizing its monetary policy stance, which was loosened sharply last year in response to the COVID-19 pandemic.  

     The first step came last month when CNB decided to raise the countercyclical capital buffer applied to banks, a move it described as a "logical step arising from the fading of the acute phase of the economic downturn."

      In addition to three rate cuts last year in quick succession - two in March and a third in May by a total of 200 basis points - the central bank had also slashed the capital buffer for banks twice to boost their ability to lend.

     Only a month before the pandemic swept through the world and CNB began easing its policy, the central bank had been on a tightening path to curb rising inflation.

      In February last year the central bank raised its rate for the 9th time since August 2017 - the rate was raised by a total of 2.20 percentage points - as it extended a tightening cycle to curb rising inflation.

     But the hit to economic activity from the shutdown of the global economy to prevent the spread of the pandemic quickly led to a fall in inflation. 

     After hitting 3.4 percent in July last year, inflation decelerated to 2.1 percent in February this year.

     But since then inflation has picked up speed and in early May the bank forecast a rise in interest rates from roughly the middle of this year and onwards as it raised its inflation forecast despite continued uncertainty over how the economy would recover from the pandemic.

      The first step toward tightening, then came in late May when CNB that CNB's raised the countercyclical capital buffer for banks in late May by 50 basis points to 1.0 percent as of July 1, 2022, saying this was a logical step as the country's economy had now come through the acute phase of the economic downturn. 

     CNB also reduced the frequency of 2-week liquidity-providing repo operations to once a week.

     In April, inflation jumped to 3.1 percent but then eased to 2.9 percent in May, within CNB's tolerance range of 2.0 percent, plus/minus 1 percentage points.

     In its latest forecast, CNB said inflation is expected to fluctuate around the upper boundary of its tolerance range in coming quarters and then return close to its target next year, helped by an unwinding of currently elevated growth in import prices and higher monetary conditions.

     At the end of May, the bank's governor, Jiri Rusnok, confirmed what financial markets were beginning to expect when he said the country's economy no longer needed support from loose monetary policy, boosting expectations that rates would be raised today.

     The Czech koruna, which fell last week as most other currencies in response to the jump in the U.S. dollar, continued its bounce after the rate hike and was trading at 21.3 to the dollar, unchanged on the year. Against the euro, the koruna rose after the rate hike but then gave back some of its gains.

     The koruna was trading at 25.4 to the euro, up 3.1 percent this year.

Mongolia holds rate, boosts Q3 long-term financing

     Mongolia's central bank kept its policy rate steady for the third time but once again increased the amount of longer-term financing available, saying growth of economic sectors is different, the outlook is uneven and uncertainty is not decreasing due to the domestic spread of the COVID-19 virus.
    The Bank of Mongolia (Mongolbank) left its policy rate steady at 6.0 percent, unchanged since November last year when it was lowered for the fourth time in response to the pandemic.
     In 2020 BM cut its policy rate by a total of 500 basis points from March through November and also lowered banks' reserve requirements, suspended debt-service-to-income ceilings on loans and provided longer-term financing to the banking sector.

     For the third quarter, the central bank said it would increase the amount of long-term financing by 250 billion tughrik, down from 350 billion provided in the second quarter but the same as in the first quarter.

    "The current monetary policy outlook is in line with the inflation target, and further policy adjustments will be made to meet the inflation target in line with economic activity and outlook," Mongolbank said.

     Mongolia's inflation rate rose to 6.2 percent in May from 5.6 percent in April, within the bank's target range of 6.0 percent, plus/minus 2 percentage points.

      Mongolbank said some of the inflation was driven by the economic recovery while most of it was attributed to underlying effects and temporary supply factors.

      "As a result of these factors, inflation will increase in the short term, but will stabilize around the target from 2022," the bank said.

     www.CentralBankNews.info

  

Hungary kicks off rate hike cycle to curb inflation

     Hungary's central bank raised its main interest rate for the first time in a decade, living up to its guidance from last month, and said it would "continue the cycle of interest rate hikes until the outlook for inflation stabilizes around the central bank target and inflation risks become evenly balanced."

     The National Bank of Hungary (NBH) raised its base rate by 30 basis points to 0.90 percent, the first change in its policy interest rate since July 2020 when the rate was cut for the second consecutive month as it loosened monetary conditions to support the economy during the COVID-19 pandemic.

     The central bank's other main interest rates, such as the overnight deposit rate and the lending rate were left unchanged at minus 0.05 percent and 1.85 percent, respectively. But NBH said an increase in the one-week deposit rate, which is set at weekly tenders, to the base rate's 0.90 percent was warranted.

    "The (monetary) council has launched a cycle of interest rate hikes to ensure price stability, to prevent inflation risks from having long-lasting effects and to anchor inflation expectations," NBH said, adding the exact need for further tightening would be assessed each month.

     In parallel with an increase in interest rates, the central bank is also phasing out some of the monetary tools used during the COVID crises and closing its Funding for Growth Go! scheme. The program was launched in April last year to support financing for small and medium-sized businesses and helped more than 38,000 firms.

      For the time being, NBH will continue its purchases of government securities, saying it considers this be a crucial part of its monetary policy instruments that has been successful in maintaining liquidity in the bond markets and helped improve the effectiveness of policy transmission. 

     It will be flexible in changing the quantity of its weekly bond purchases but added it will continue to use the program "by maintaining a lasting presence in the market."

     Similar to last week's announcement by the Bank of Japan, Hungary's central bank said it would be introducing instruments to support environmental sustainability, with details to follow later.

     Today's rate cut reverses a decade-long monetary easing cycle in Hungary and the central bank is also the 15th central bank to raise rates this year, following in the footsteps of such nations as Russia, Brazil, Turkey, Ukraine, and Iceland that are responding to rising inflationary pressures.

     The last time NBH raised its rate was in December 2011 when the rate was raised to 7.0 percent.

     Six months later, in August 2012, NBH embarked on a four-year easing cycle that ended in May 2016 after the rate had been cut by a total of 6.10 percentage points to 0.90 percent.
      Between May 2016 and June 2020, NBH kept the rate steady, but with economic activity grinding to a halt during the pandemic, NBH's first move was to ensure liquidity in the country's financial markets and then it began purchasing government securities in May 2020.
     The following month, in June, the base rate was then cut 15 basis points and in July a second cut of 15 points followed.

      Apart from a hike to the one-week deposit rate in September last year to prevent a rise in inflationary risks, Hungary's central bank has been focused on ensuring a economic recovery from the pandemic and taking a wait-and-see approach to the bounce back in inflation in recent months.

     But with a successful roll-out of vaccines and a lifting of COVID-restrictions, economic activity in Hungary has bounced back and last month the central bank changed tack, saying it was now ready to tighten monetary conditions to ensure price stability and curb inflationary risks.

     Hungary's inflation rate jumped to 5.1 percent in April from a low of 2.7 percent in January and remained at 5.1 percent in May, the highest since November 2012, and well above the bank's target of 3.0 percent, plus/minus 1 percentage point.

    "Upside risks to the outlook for inflation have generally increased, " the bank said, adding commodity prices have been rising along with freight costs and the rapid recovery in demand will give producers an opportunity to pass on higher costs to consumer prices.

     The central bank expects economic output to recover to pre-COVID levels in the third quarter of this year and while the recovery of industry will be followed by retail, a recovery of the services sector will take longer.

    But the high rate of investment is expected to continue and exports to improve "markedly" this year as external markets recover while household demand picks up.

     The central bank raised its forecast for economic growth this year to 6.2 percent, up from the March forecast of 4-6 percent, and forecast growth of 5.5 percent next year and 3.5 percent in 2023.

     "Global relation and persistent rises in commodity prices as well as potential second-round effects arising during the restart of the economy pose the greatest risks to the outlook for inflation," NBH said.

     The central bank raised its forecast for inflation to average 4.1 percent this year, up from its March forecast of a 3.8-3.9 percent range. After spiking in the second quarter, inflation is expected to ease to around 4 percent during the summer months and then rise again at the end of the year.

     In early 2022 inflation is then expected to decline into the bank's tolerance range and then stabilize around the target from mid-2022.

     Hungary's forint, which was hit by the U.S. dollar's rise after the subtle, but substantial, change in the outlook for the Fed's policy last week, rose immediately.

     The forint jumped 1.2 percent to 352.0 against the euro and is now up 3.6 percent this year. Against the U.S. dollar, the forint jumped 1.4 percent to be up 0.3 percent this year.

This week in monetary policy: China, Paraguay, Hungary, Morocco, Honduras, Thailand, Georgia, Czech Rep., Guatemala, Philippines, UK, Mexico, Zimbabwe & Trinidad and Tobago

    This week - June 20 through June 26 - central banks from 14 countries or jurisdictions are scheduled to decide on monetary policy: China, Paraguay, Hungary, Morocco, Honduras, Thailand, Georgia, Czech Republic, Guatemala, Philippines, United Kingdom, Mexico, Zimbabwe and Trinidad & Tobago.

     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 25
JUN 20- JUN 26, 2021
CHINA	20-Jun	3.85%	9:30	0	0	3.85%	EM
PARAGUAY	21-Jun	0.75%		0	0	0.75%
HUNGARY	22-Jun	0.60%		0	0	0.75%	EM
MOROCCO	22-Jun	1.50%		0	0	1.50%	FM
HONDURAS	22-Jun	3.00%		0	0	4.50%
THAILAND	23-Jun	0.50%		0	0	0.50%	EM
GEORGIA	23-Jun	9.50%		100	150	8.25%
CZECH REPUBLIC	23-Jun	0.25%	14:30	0	0	0.25%	EM
GUATEMALA	23-Jun	1.75%		0	0	1.75%
PHILIPPINES	24-Jun	2.00%		0	0	2.25%	EM
UNITED KINGDOM	24-Jun	0.10%	12:00	0	0	0.10%	DM
MEXICO	24-Jun	4.00%	13:00	0	-25	5.00%	EM
ZIMBABWE	25-Jun	40.00%		0	500	35.00%
TRINIDAD & TOBAGO	25-Jun	3.50%		0	0	3.50%

 
    www.CentralBankNews.info

Norway keeps rate, says rate likely to be hiked in Sept.

     Norway's central bank left its monetary policy rate steady, as expected, but said it would most likely raise the rate September - the first rate hike in two years - as economic activity has bounced back faster than expected after the negative impact of COVID-19 last year.
     Norges Bank (NB), which slashed its policy rate three times last year by a total of 1.50 percentage points to 0.0 percent, kept the rate at a rock-bottom level as there is still uncertainty about the pandemic and the overall outlook and balance of risk imply a continued expansionary monetary policy stance.

     "There is still uncertainty regarding the evolution of the pandemic, but economic activity now seems to be rebounding sharply and somewhat faster than projected earlier," NB said, with its governor, Oeystein Olsen, adding the policy rate "will most likely be raised in September."

      The bank's monetary policy committee is scheduled to meet on Aug. 19 and then on Sept. 23, when it updates its monetary policy report, which is issued four times a year.

     Encouraged by the recovery of economic activity, NB has been steadily pulling forward its first rate hike after the three rate cuts last year.

     In December last year, for example, the central bank pencilled in the first hike in the first half of 2022 but then in March the rate hike rate was pulled forward to the second half of 2021. 

     In April, when the bank's monetary and financial stability committee previously met, it also said the rate would most likely be raised in the latter half of 2021, and today narrowed down the date to September.

     After economic activity in Norway came to a halt in March and April last year when the pandemic swept the globe, activity picked up in following months until the recovery once again stalled in the autumn and in the first months of this year when infection rates rose again.

     But with infection rates declining and the pace of vaccinations picking up, Covid-restrictions are being lifted, with the reopening boosting economic activity as household consumption jumps, helped by accumulated savings, and investments also pick up, including in the oil-related industry.

     Although underlining inflation is below the bank's 2.0 percent target, NB said higher global inflation and inflation expectations are creating uncertainty about inflation ahead and continued low interest rates increase the risk of a build-up of financial imbalances, such as the marked rise in house prices.

     Norway's headline inflation rate has eased in the last three months to 2.7 percent in May from 3.3 percent in February with core inflation falling to 1.5 percent in May from a recent high of 3.7 percent in August last year.

     Helped by the rise in the krone's exchange rate since 2020 and prospects for moderate wage growth, NB expects inflation to remain below its target in coming years, forecasting headline inflation of 2.8 percent  this year, unchanged from March, then 1.1 percent in 2020, also unchanged, and 1.3 percent in 2023, down from 1.5 percent.

      After Norway's gross domestic product bounced back in the third quarter of 2020, with quarterly growth of 4.3 percent, the growth rate slipped to 0.8 percent in the fourth quarter and minus 0.6 percent in the first quarter of this year for an annual contraction of 1.4 percent.

      In 2020 mainland GDP shrank 3.1 percent but is forecast to grow 3.8 percent this year, unchanged from March, and then 3.6 percent in 2022, up from 3.4 percent, and 1.2 percent in 2023, unchanged.

     Although the policy rate is still seen averaging 0.1 percent this year, the rate is seen rising to 0.8 percent in 2022, up sharply from the March forecast of 0.3 percent, and implying 3 rate hikes of 25 basis points.

     In 2023 the rate is seen averaging 1.3 percent, implying another 2 hikes.

     Norway's krone has been strengthening steadily since November last year though it took a hit in recent days, as most other currencies, as the U.S. dollar rose after the U.S. Federal Reserve pulled forward its forecast for raising rates to 2023 from 2024.

     The krone was trading at 8.5 to the dollar today, down 2.2 percent since the start of June, but unchanged on the year.

Brazil raises rate 3rd time, sees same hike in August

     Brazil's central bank raised its key interest rate for the third time this year - as expected - and said it expects to continue normalizing its monetary policy stance with another rate hike of the same magnitude at its next policy meeting in August to ensure inflation slows to its target by 2022.
     The Central Bank of Brazil (BCB) raised its benchmark Selic rate by another 75 basis points to 4.25 percent and has now raised it by 2.25 percentage points since it began tightening its policy stance in March this year with a 75-point hike and followed this with a similar-sized hike in May.

      Although the bank's policy committee, Copom, said it expects to raise the Selic rate by another 75-points on Aug. 4, it warned that a deterioration in inflation expectations "may require a quicker reduction of the monetary stimulus," adding it's view would depend on economic activity, the balance of risks and how these affect inflation projections.

      Inflation in Brazil has been rising steadily since May last year and rose to a higher-than-expected 8.06 percent in May, the highest since September 2016, with drought and higher commodity prices adding to the upward pressure from improving demand.

     The central bank targets inflation of 3.75 percent this year, plus/minus 1.5 percentage points, and a midpoint target of 3.50 percent in 2022, within the same range.

     Copom noted inflation expectations for 2021 in the weekly FOCUS survey now stand at 5.8 percent, then 3.8 percent for 2022 and 3.25 percent for 2023. 

     Copom's own projections assume a Selic rate that ends this year at 6.25 percent and then 6.50 percent in 2022.

     Looking to Brazil's economy, the bank said recent indicators continue to be better than expected despite the intensity of the second wave of the COVID-19 pandemic and the risks to the recovery have lessened.

Fed holds policy but pulls forward rate hikes to 2023

     The U.S. central bank left its key interest rates steady along with its level of asset purchases but pulled forward its forecast for raising rates to 2023 from 2024, reflecting the economic recovery and better jobs market from a successful roll-out of vaccines to combat the COVID-19 virus and strong policy support.
      The Federal Reserve (Fed) left its target range for the federal funds rate at 0.0 to 0.25 percent, unchanged since two, rapid-fire rate cuts totaling 1.50 percentage points in March last year at the height of the pandemic.

      In its statement, the Fed's policy-making body, the Federal Open Market Committee (FOMC), unanimously acknowledged the improved growth prospects for the U.S. and raised its forecast for growth this year to 7.0 percent from the March forecast of 6.5 percent.

     Nevertheless, it added there are still risks to the outlook and those sectors of the economy most adversely affected by the pandemic remain weak even if they are improving.

     In 2022 the U.S. economy is seen expanding 3.3 percent, unchanged from the previous forecast, and in 2023 by 2.4 percent, up from 2.2 percent. The unemployment rate is seen steadily falling from 4.5 percent this year to 3.8 percent in 2022 and 3.5 percent in 2023.

     The Fed maintained its guidance for the fed funds rate to remain at the current level until the labour market reaches maximum employment and inflation is on track to reach 2 percent and moderately exceed that for some time.

      It also confirmed its commitment to continue to boost holdings of Treasuries and agency mortgage-backed securities by a total of $120 billion a month until further progress has been made on its goals, with no reference to when it may begin to discuss a tapering of its asset purchases.

     In his press conference, however, Fed Chair Jerome Powell said FOMC members were starting to turn their attention to scaling back bond purchasing, describing it as a "talking-about-talking-about meeting."

      The Fed acknowledged rising inflation by raising its forecast for its preferred gauge - the core personal consumption expenditures (PCE) - in its latest projection to 3.0 percent this year from the March forecast of 2.2 percent.

      Inflation in the U.S., and worldwide, has been rising in recent months as economies bounce back faster than expected from the pandemic, unleashing pent-up demand and pushing up a wide range of prices, especially food, metals and commodity prices.

     In April, core PCE in the U.S. rose to 3.1 percent, the highest annual rate since July 1992.

     Although the FOMC projects core PCE will ease to 2.1 percent in 2022 and remain at this level in 2023 - just over its 2.0 percent target - the forecast for the federal funds rate was raised sharply to 0.6 percent from the March forecast of 0.1 percent.

      The Fed's so-called dot plot, which shows the rate forecast for individual FOMC members and regional Fed presidents, showed 7 of 18 members now look to raise rates in 2022, up from 4 in March.

      But in 2023 a clear majority of 13 of the 18 FOMC members expect the rate to rise, up from only 7 in March, with the level of the fed funds rate in the dot plot indicating multiple rate hikes.

Uganda cuts rate to boost fragile growth as virus rises

    Uganda's central bank cut its benchmark interest rate for the fourth time in the current monetary easing cycle, saying the economic recovery still requires monetary policy support and inflation will likely remain below the target in the near term with little space for fiscal policy to respond to "fragile economic growth."
    The Bank of Uganda (BOU) cut its central bank rate (CBR) by 50 basis points to 6.50 percent and has now cut the rate by a total of 3.50 percentage points since October 2019 when it began easing its policy stance in response to decelerating inflation and slowing global economic growth.

     In response to the COVID-19 pandemic, the central bank cut its rate twice in 2020 - in April and June - and while the rate has been maintained for the last 12 months, BOU in February this year extended its credit relief measures and liquidity assistance to financial institutions as the economic recovery had lost momentum due to a surge in infection rates.

     In its previous statement from April, the bank's monetary policy committee said there were still enough uncertainties and risks to the economy to warrant keeping the accommodative policy stance and since then Uganda has experienced a rise in COVID-19 cases and a shortage of vaccines and oxygen.

     The World Health Organization (WHO) last week warned of a third wave of the pandemic across Africa, with eight countries, including Uganda, seeing more than a 30 percent jump in cases in a week.

     "The MPC (monetary policy committee) assessed that the risks to the economic growth outlook are still on the downside, there remains considerable excess capacity in the economy, sectoral unevenness of economic recovery, and a weak level of business investment," BOU said.

     Although economic developments have been broadly in line with the central bank's outlook in April - growth in the 2020/21 financial year is projected to be 3.3 percent, above initial projections of 3.1 percent and up from a 1.1 percent contraction last year - private sector investment is still contracting and domestic demand could still be dented by the emerging COVID-19 wave.

      But BOU still expects the economic recovery to strengthen as vaccines are rolled out amid improving global growth and left its forecast for gross domestic product growth in the 2021/22 fiscal year, which begins July 1, unchanged at 4.0-4.5 percent.

      As several other African countries, including Zambia, Uganda is facing pressure from an estimated 35 percent rise in public debt last year to about 50 percent of GDP due to from tax revenue shortfalls and the cost of measures to combat the virus.

      Earlier this month staff from the International Monetary Fund (IMF) reached agreement with the country's authorities on a $1 billion package to help tackle the financing needs in coming years.

      Inflation in Uganda has been decelerating this year and after reweighing the consumer price index basket inflation fell to 1.9 percent in May from 2.1 percent.

      BOU expects inflation to remain below its 5.0 percent target in the near term as excess capacity continues to put downward pressure on prices, but is forecast to stabilize around the target by the end of 2022.

      On April 1 Uganda's parliament reappointed the bank's governor, Emmanuel Tumusiime-Mutebile, for another five-year term. Having initially been appointed in 2001, Mutebile, 71, is one of the longest-serving central bank governors in the world.

     www.CentralBankNews.info

     

      

Armenia raises rate 4th time, will consider further hikes

     Armenia's central bank raised its key interest rate for the fourth time in seven months and said it would consider tightening monetary conditions further in the near future to neutralize the risk of accelerating inflation expectations in parallel with the increase in domestic demand.
     The Central Bank of Armenia (CBA) raised its refinancing rate by another 50 basis points to 6.50 percent and has now raised it 225 points following four rate hikes starting in December 2020.

      In response to the COVID-19 pandemic, CBA cut its rate four times between March and September last year by a total of 125 basis points and has now more than fully unwound those cuts.

     The key interest rate is now back to the level seen in November 2016 when CBA was in the midst of an easing campaign that began in August 2015 when the rate was lowered from 10.50 percent and concluded in February 2017 with a rate of 6.0 percent.

     Armenia's inflation rate eased to 5.9 percent in May from 6.2 percent in April but CBA said the 12-month normal inflation rate continued to accelerate to 7.4 percent at the end of May and it expects inflation to remain high before gradually falling and stabilizing around its 4.0 percent target.

      Armenia's consumer prices are being pushed upwards on two fronts; from external sources and on the domestic side.

      "Taking into account the inflationary effects expected from the external sector on the country's economy, the CBA board considers it expedient to increase the policy interest rate," the bank said, adding it still consider the risks of inflation deviating from its projected trend to be balanced given the still uncertain economic prospects.

     In the second quarter Armenia's main trading partners saw a faster-than-expected recovery of demand than expected due to the positive impact of vaccines and stimulus and this is resulting in a high inflation in global commodity markets due to limited supply.

     CBA expects inflation in its partner countries to exceed its previous estimates and thus have a significant inflationary impact on its own economy.

     At the same time, positive developments in industry and services is pointing to a faster-than-expected recovery of Armenia's economy, with demand recovering on the back of the rapid growth in global demand, increased remittances and high growth in consumption amid continued weak investment.

      The rise in consumption is helped by growing lending along with the spending of previously accumulated savings, reflecting the fact that inflationary expectations have risen, CBA said, adding it also expects inflationary effects from growing demand for production capacities.

     www.CentralBankNews.info

     

This week in monetary policy: Armenia, Uganda, Namibia, USA, Brazil, Costa Rica, Indonesia, Taiwan, Norway, Switzerland, Ukraine, Turkey, Botswana, Egypt, Japan, Azerbaijan & China

    This week - June 14 through June 20 - central banks from 17 countries or jurisdictions are scheduled to decide on monetary policy: Armenia, Uganda, Namibia, USA, Brazil, Costa Rica, Indonesia, Taiwan, Norway, Switzerland, Ukraine, Turkey, Botswana, Egypt, Japan, Azerbaijan and China.

     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 24
JUN 14- JUN 20, 2021
ARMENIA	15-Jun	6.00%		50	75	4.50%
UGANDA	16-Jun	7.00%		0	0	7.00%
NAMIBIA	16-Jun	3.75%		0	0	4.00%
UNITED STATES	16-Jun	0.25%	14:00	0	0	0.25%	DM
BRAZIL	16-Jun	3.50%	18:30	75	150	2.25%	EM
COSTA RICA	16-Jun	0.75%		0	0	0.75%
INDONESIA	17-Jun	3.50%	0:00	0	-25	4.25%	EM
TAIWAN	17-Jun	1.125%		0	0	1.125%	EM
NORWAY	17-Jun	0.00%	10.00	0	0	0.00%	DM
SWITZERLAND	17-Jun	-0.75%	9:30	0	0	-0.75%	DM
UKRAINE	17-Jun	7.50%	14:00	100	150	7.00%	FM
TURKEY	17-Jun	19.00%	14:00	0	200	8.25%	EM
BOTSWANA	17-Jun	3.75%		0	0	4.25%
EGYPT	17-Jun	8.25%		0	0	9.25%	EM
JAPAN	18-Jun	-0.10%		0	0	-0.10%	DM
AZERBAIJAN	18-Jun	6.25%		0	0	7.00%
CHINA	20-Jun	3.85%	9:30	0	0	3.85%	EM

 
    www.CentralBankNews.info