Chile raises rate more than expected to curb inflation

     Chile's central bank raised its benchmark interest rate for the second month in a row and by more than expected to prevent a persistent rise in inflation so it exceeds the bank's target in two years.

     The Central Bank of Chile's board raised its monetary policy interest rate by 75 basis points to 1.5 percent, higher than the 25 points expected by most economists, as the board said it had decided in a unanimous decision to "intensify the withdrawal of monetary stimulus."

     The central bank has now raised its policy rate by a total of 100 points this year following a 25-point hike in July, the bank's first rate hike in 2-1/2 years. 

     Last year Chile's central bank cut its policy interest rate twice during the month of March by a total of 1.25 percentage points and is now rapidly rolling back this easing in the face of booming consumption that has been unleashed by fiscal stimulus and early pension withdrawals.

     The bank's board said the monetary policy report, which will be published tomorrow, will reveal further details about the bank's forecast and risks along with the implications this has for the policy rate.

     Chile's inflation rate has been rising in the last five months and rose to 4.5 percent in July - well above the central bank's midpoint target of 3.0 percent - and the bank said short-term inflation expectations have risen and the survey of financial market participants showed inflation expectations in 2 years of up to 3.5 percent.

      In addition to a boom in consumption - retail sales in soared by an annual 66 percent in June and 72 percent in May - the central bank said investment had also surprised to the upside and the rise in wages is consisted with a growing shortage of manpower.

      The high growth in economic activity and the strong expansion in consumption practically closed the output gap in the second quarter and will turn positive in the future, raising the pressure on prices, the bank said, adding this implies a rise in inflation.

     Chile's gross domestic product surged 18.1 percent in the second quarter from the same quarter last year, the highest growth rate on record and stronger than forecast by the bank in its June policy report.

     The central bank has forecast growth this year of 8.5 - 9.5 percent.

     "The composition of spending showed an extraordinary dynamism in private consumption, which exceeded expectations and shows that injections of household liquidity is having a greater impact on consumption than expected," the central bank said, adding data from the beginning of the third quarter confirms the continuation of this trend.

    www.CentralBankNews.info

     

Zimbabwe holds rate 3rd time to combat inflation

     Zimbabwe's central bank left its policy rate steady for the third time this year, saying there is still a need to maintain the current monetary policy stance that "has proven to be effective in combating inflation and fostering monetary stability in the economy."
     The Reserve Bank of Zimbabwe (RBZ) kept its policy rate for overnight accommodation at 40.0 percent, unchanged since February when it was raised by 500 basis points to tighten liquidity and control speculative borrowing.

     In a statement released today following a meeting by the central bank's monetary policy committee on Aug. 27, the bank said the committee noted with satisfaction the strong economic growth that is strengthened by the favorable global economic outlook and the US$961 million SDR allocation from the International Monetary Fund (IMF) on Aug. 23.

     The Committee pointed to what it said was an "impressive performance" of foreign currency receipts, which rose 32 percent to US$5.09 billion as of Aug. 7 from the same period last year.

     "The significant increase in foreign currency receipts is critical for sustaining the foreign exchange market and fostering exchange rate stability," RBZ said.

     Inflation in Zimbabwe has been decelerating since mid-2020 and fell to 50.24 percent in August from 837.5 percent in July last year.

     In addition to maintaining its policy rate to sustain the current downward trajectory in inflation and support exchange rate stability, the central bank said it would also maintain the reserve monetary target at 20.0 percent to achieve a lower level of monetary expansion by year end.

This week in monetary policy: Kyrgyzstan, Bulgaria, Chile, Zambia and Moldova

     This week - August 30 through September 4 - central banks from five countries or jurisdictions are scheduled to decide on monetary policy: Kyrgyz Republic, Bulgaria, Chile, Zambia and Moldova.

     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 35
AUG 30 - SEP 4, 2021
KYRGYZSTAN	30-Aug	7.50%		100	250	5.00%
BULGARIA	31-Aug	0.00%		0	0	0.00%	FM
CHILE	31-Aug	0.75%	18:00	25	25	0.50%	EM
ZAMBIA	1-Sep	8.50%	10:00	0	50	8.00%
MOLDOVA	3-Sep	3.65%		100	100	2.75%

 
    www.CentralBankNews.info

South Korea raises rate and says will tighten further

      South Korea's central bank raised its key interest rate for the first time in almost three years and said it "will gradually adjust the degree of monetary policy accommodation as the Korean economy is expected to continue its sound growth and inflation to run above 2% for some time, despite ongoing uncertainties over the virus."
     The Bank of Korea (BOK) raised its base rate by 25 basis points to 0.75 percent, the first rate hike since November 2018, but the level remains at historic lows, encouraging households to take on debt and triggering concern among authorities over financial imbalances.

     Today's rate hike, which was expected by about half of economists' recently surveyed, begins to unwind last year's two rate cuts of 75 basis points in response to the COVID-19 pandemic.

     Prior to the global outbreak of the virus, BOK was already in a monetary easing cycle that began in June 2019 in response to slowing global growth with the rate cut twice that year by 50 basis points.

     The rate is now 1 percentage point below the level in May 2019 when the last easing cycle began.

     In its statement, the bank's board said the decision to tighten is policy stance again would depend on how the pandemic evolves along with the pace of economic growth, inflation, the risk of a buildup in financial imbalances and policy changes in major countries.

    "The Korean economy has continued its sound recovery," BOK said, adding that while private consumption has slowed somewhat due to the resurgence of the virus, exports have sustained their buoyancy and investment in facilities has been robust.

     South Korea's economy grew an annual 5.9 percent in the second quarter of this year, up from 1.9 percent in the first quarter for the fastest growth in a decade, boosted by private consumption, government spending and exports.

     The government last month also passed its second-largest supplementary budget of 34.9 trillion won to support economic activity during the latest wave of the pandemic. The budget includes a 250,000 won cash handout to cover most people in the country.

     South Korea's inflation rate has remained above BOK's 2.0 percent target since April and rose to a faster-than-expected 2.6 percent in July from 2.4 percent.

     Following last month's board meeting, BOK Governor Lee Ju-yeol made it clear a rate increase would be debated at today's board meeting as a way to deal with financial imbalances.

     Lee also said there was no need to delay a rate hike if the economy continues to recover.

     "Going forward, the economy is likely to continue its recovery as private consumption is forecast to improve gradually, affected by the expansion of vaccinations and the execution of a supplementary budget, while exports and investment are expected to sustain their buoyancy," the bank said today.

     BOK confirmed its forecast from May the economy would grow around 4.0 percent this year but raised its outlook for headline inflation to rise to a "lower-2% level this year" from the May forecast of 1.8 percent.

Iceland raises rate 2nd time on better growth outlook

     Iceland's central bank raised its key interest rates for the second time this year as the outlook for economic growth this year is now better than expected while inflation will ease slightly slower than projected in May.
    The Central Bank of Iceland (CBI) raised all its main interest rates by another 25 basis points, including the benchmark 7-day deposit rate that was raised to 1.25 percent and is now up 50 points this year following the first hike in 2-1/2 years in May.

     "The economic outlook has improved since the Bank's last forecast," CBI said, raising its forecast for economic growth this year to 4.0 percent in its latest monetary bulletin from the previous forecast of 3.1 percent, mainly due to a rapid rise in tourists to the North Atlantic island.

      The stronger outlook for growth comes despite the increased spread of the delta variant of COVID-19, which is expected to dent growth in the third quarter and lower-than-expected economic activity in the first quarter.

      Growth in the second quarter, however, was robust, CBI said, reflecting declining infection rates, relaxation of public health measures and rising tourist number.

      While the outlook for growth this year was raised, Iceland's economy is seen expanding 3.9 percent in 2022, down from the previous forecast of 5.2 percent, and then 2.2 percent in 2023. In 2020 the economy shrunk 6.6 percent.

     "At the same time, a strong recovery of domestic demand and persistent supply-side disruptions caused by the pandemic have pushed commodity prices and shipping costs sharply upwards," the bank said.

     Inflation in Iceland has topped 4.0 percent every month this year - it was 4.3 percent in both June and July - and the central bank now expects inflation to average 4.2 percent this year, slightly up from its earlier forecast of 4.1 percent and well above last year's 2.8 percent.

      In 2022, however, inflation is seen easing to 2.8 percent and then 2.6 percent in 2023, only slightly above's the bank's target of 2.5 percent.

     "The MPC (monetary policy committee) will apply the tools at its disposal to ensure that inflation eases back to the target within an acceptable time frame," CBI said.

Paraguay raises rate to control inflation expectations

     Paraguay's central bank followed the trend in Latin America, and in many other developing nations,  and raised its key interest rate to ensure rising inflation doesn't end up boosting inflation expectations.
     The Central Bank of Paraguay (BCP) raised its monetary policy rate for the first time in 5-1/2 years, saying its monetary policy committee considers it appropriate to begin the gradual process of normalizing monetary policy to ensure it meets its inflation target.

       BCP raised its monetary policy rate by 25 basis points to 1.0 percent, the first rate hike since January 2016. 

     However, the committee also noted that it monetary policy stance still remains "highly expansionary" and will continue to support the country's economic recovery despite the rate hike.

     Following the rate hike in January 2016, BCP embarked on a monetary easing cycle only five months later, cutting its rate 13 times from May 2016 until June 2020 and by a total of 5.25 percentage points. 

     This includes 5 cuts in 2020, including 3 cuts in the month of March.

     In recent months, however, BCP made it clear it was getting ready to begin normalizing its monetary policy stance and in its previous policy statement on July 22 it said it was continuing to monitor inflation and inflation expectations to begin a gradual process of normalizing monetary policy in the immediate future.

     Paraguay becomes the 25th central bank to raise its key rate so far this year in response to rising inflationary pressures, following in the foot steps of other Latin American central banks such as Brazil, Mexico, Chile, Uruguay and Peru.

      BCP said the growth prospects of its main trading partners had continued to improve and domestic economic activity was also showing good progress though the services sector was still lagging.

     The immunization of the country's population is leading to improving consumer confidence but the increased in the delta variant of COVID-19 has increased the risks to economic expansion.

      Higher commodity prices internationally has boosted Paraguay's inflation rate in recent months and in light of the improved economic performance, the rise in inflation - even if it is largely due to external factors - could eventually generate second-round effects and impact inflation expectations, BCP said.

     Inflation in Paraguay rose to 5.2 percent in July, the highest since January 2016, above the central bank's target of 4.0 percent.

 

     www.CentralBankNews.info

     

 

This week in monetary policy: Israel, Paraguay, Poland, Hungary, Iceland, Guatemala, South Korea & Gambia

     This week - August 23 through August 28 - central banks from 8 countries or jurisdictions are scheduled to decide on monetary policy: Israel, Paraguay, Poland, Hungary, Iceland, Guatemala, South Korea and Gambia.

      The week wraps up with the annual economic symposium hosted by the Federal Reserve Bank of Kansas City in Jackson Hole, in the U.S. state of Wyoming. 

     Due to COVID-19, the symposium will held virtually with remarks by Fed Reserve Chair Jerome Powell live-streamed at 10 EST on Friday, Aug. 27.

     The theme of this year's symposium is macroeconomic policy in an uneven economy.

     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 34
AUG 23 - AUG 28, 2021
ISRAEL	23-Aug	0.10%	16:00	0	0	0.10%	DM
PARAGUAY	23-Aug	0.75%		0	0	0.75%
POLAND	24-Aug	0.10%				0.10%	EM
HUNGARY	24-Aug	1.20%		30	60	0.60%	EM
ICELAND	25-Aug	1.00%		25	25	1.00%	EM
GUATEMALA	25-Aug	1.75%		0	0	1.75%
SOUTH KOREA	26-Aug	0.50%		0	0	0.50%	EM
GAMBIA	26-Aug	10.00%		0	0	10.00%

 

    www.CentralBankNews.info

Jamaica holds rate but signals hike in September

     Jamaica's central bank left its key interest rate steady but said it will consider tightening its monetary policy stance next month and will launch measures to rein in inflation expectations and contain the expansion of liquidity in the financial system.
     The Bank of Jamaica (BOJ) left its policy interest rate at 0.50 percent, unchanged since it was cut to the current level in August 2019 as a decade-long easing cycle ended.
     Beginning in August 2011 Jamaica's central bank began cutting its rate from 6.75 percent as inflation eased from double digits to eventually settle in the central bank's 4.0 to 6.0 percent target range. 

     During this decade the rate was cut 19 times and by a total of 6.25 percentage points.

     With its main interest rate already low, the BOJ was one of only a handful of central banks not to have slashed interest rates last year in response to the COVID-19 pandemic, partly because inflation remained stubbornly high compared with most other countries.

      The inflation rate remained volatile through the pandemic and rose to 5.3 percent in July from 4.3 percent in June and the bank now expects inflation to average 5.5-6.5 percent over the next two years before declining to 5.0 percent.

     "The decision were based on the MPC's assessment that, while inflation is likely to breach the upper bound of the Bank's target range over the next year (starting from as early as the September 2021 quarter), inflation will gradually decelerate thereafter as the transitory effects of the pandemic fade," the bank said.

      The Jamaican dollar has also been on a steady decline since last year, keeping up the pressure on import prices, and was trading at 154.3 to the U.S. dollar today, down 7.5 percent this year.

     The BOJ said it would seek to ensure that changes in the exchange rate of the Jamaican dollar did not threaten its inflation target even if it doesn't target a specific level of the exchange rate.

     "The Bank also decided to consider commencing a tightening of monetary policy at the next meeting of the Bank's Monetary Policy Committee (the Committee/MPC) in September 2021 and to immediately implement other measures aimed at moderating inflation expectations, including the containment of Jamaican dollar liquidity expansion," BOJ said., adding the MPC's decision was unanimous.

     The MPC's next scheduled meeting is on Sept. 30.

     With the pandemic hitting the global tourism industry hard, Jamaica's economy has suffered and contracted around 10 percent last year.

      In the first quarter of this year, the economy still shrank 6.7 percent year-on-year but for the 2021/22 financial year, BOJ forecast an expansion of 7.0-10.0 percent, with growth then easing to 2.0-4.0 percent in 2022/23.

      By the end of 2022, the economy is expected to return to pre-pandemic levels.

Sri Lanka raises rates, SRR to avoid higher inflation

      Sri Lanka's central bank became the 24th central bank to tighten its monetary policy stance this year as it raised both its key interest rates and reserve requirement, saying this aims to address imbalances in the external sector of the economy and "preempt the buildup of any excessive inflationary pressures over the medium term, amidst improved growth prospects."

     The Central Bank of Sri Lanka (CBSL) raised its Standing Deposit Facility Rate (SDFR) by 50 basis points to 5.0 percent and the Standing Lending Facility Rate (SLFR) by the same amount to 6.0 percent.

     As the bank's Bank Rate is linked with the lending rate, it automatically rises to 9.0 percent.
     The central bank also raised its Statutory Reserve Ratio (SRR) on banks' rupee deposits by 200 basis points to 4.0 percent with effect from the reserve maintenance period beginning Sept. 1, saying this will help induce a faster response of the market to its rate hike.

     "The Sri Lankan economy is on a recovery path despite the pandemic related disruptions," CBSL said, adding its monetary board had decided it was time to rollback some of the extraordinary support provided through fiscal and monetary measures last year.

     Last year CBSL cut its key interest rates 5 times by a total of 250 basis points from January through July to support economic activity that was hard hit by the outbreak of the COVID-19 pandemic.

     Today's rate hike is the first by the central bank since November 2018, with the deposit rate now 3 percentage points below the level when it began easing in May 2019.

     The central bank did not give any specific guidance as to its next policy decision, saying it would continue to monitor developments and take appropriate measures to ensure the economy reverts to its potential while inflation is within the target range.    

      After remaining moderate at the start of this year, Sri Lanka's inflation rate has accelerated and economic growth in the first quarter exceeded expectations with purchasing managers' indices for July showing continued strength.

     Sri Lanka's inflation rate has picked up speed since May and rose to 5.7 percent in July and the central bank expects inflation to hover around the upper bound of its 4.0 to 6.0 percent target range in the near term.

     With global and domestic demand expected to improve, and energy and commodity prices putting upward pressure on inflation, CBSL said it was taking "preemptive policy measures to ensure the maintenance of inflation in mid-single digit levels over the medium term."

      Although many countries are experiencing inflationary pressures due to a supply-demand mismatch as economies recover from the pandemic, some central banks, such as Sri Lanka's, fear the transitory pressures could become more persistent and have begun tightening their policy.

      Sri Lanka's central bank is the 8th central bank to have raised its rate this month alone, boosting the central banks that have raised rates this year to 24. These banks have raised rates 45 times.

     Sri Lanka's economy expanded by 4.3 percent year-on-year in the fist quarter of this year, the fastest growth rate since the fourth quarter of 2016, and CBSL said the economy was poised to record higher growth in the second quarter due to the comparison with last year.

     Although economic activity could be weakened in the second half due to a re-emergence of the virus, the central bank said vaccines are being rolled out and it expects the economy to expand over 5 percent this year and momentum to be sustained in the medium term.

N. Zealand surprises with steady rate, lockdown starts

      New Zealand's central bank unexpectedly left its policy interest rate steady due the heightened uncertainty from the imposition of a countrywide lockdown to curb the spread of COVID-19, but said it would continue to assess inflation and employment "with a view to continue to reduce the level of monetary stimulus over time so as to best meet their policy remit."
      The Reserve Bank of New Zealand's (RBNZ) monetary policy committee left its Official Cash Rate at 0.25 percent, unchanged since March last year.

      The central bank's decision immediately hit the exchange rate of the New Zealand dollar, known as the kiwi, which fell 0.5 percent to 1.449 to the U.S. dollar from earlier today and is now 4.3 percent down since the start of this year.

      The kiwi had already come under pressure following the government's decision to impose the new 3-day lockdown today but is likely to surprise most investors who had expected the RBNZ to become the first advanced economy central bank to raise rates to curb inflation.

       Despite today's decision to maintain the rate, RBNZ still looks to be on track to continue tightening its policy stance, sharply pulling forward its forecast for a rate hike to December this year from the May forecast of September 2022.

      In an update to its monetary policy statement, RBNZ projects a series of rate hikes starting later this year, with OCR seen averaging 0.6 percent in December this year, rising to 0.9 percent in March 2022, 1.2 percent in June 2022, 1.4 percent in September and 1.6 percent in December 2022.

       In March 2023 RBNZ sees OCR averaging 1.8 percent, then 1.9 percent in June 2023. 2.0 percent in September 2023 and 2.1 percent in March 2024.

      New Zealand's inflation rate jumped to 3.3 percent in the second quarter of this year, up from 1.4 and 1.5 percent in the previous four quarters, for the biggest increase in nearly 10 years, mainly due to a rise in the cost of new housing, petrol and rent.

      The RBNZ already began reducing its monetary stimulus last month by halting further asset purchases as of July 23 and since this decision on July 13, data has not only revealed the jump in second quarter inflation but also a decline in unemployment to 4.0 percent from 4.6 percent, the lowest since December 2019, and continued acceleration in wage growth.

      The latest lockdown came after the discovery of a the first community case of COVID-19 since February, illustrating Prime Minister Jacinda Ardern's decisive strategy of "go hard, go early" for tackling the virus, a strategy that has paid dividends as this has allowed New Zealand to return to pre-pandemic normalcy despite the absence of tourists.

      RBNZ acknowledged the country has recovered faster than most other countries from the pandemic, with employment at or above its maximum sustainable level while persistent health risks promote global supply chain disruptions and prolong inflationary pressures.

    "However, the need to reinstate COVID-19 containment measures in some regions highlights the serious health and economic risks posed by the virus," RBNZ said, adding this is a "stark example of how unpredictable and disruptive the virus is proving to be."

      The central bank also acknowledged capacity pressures in the economy, particularly the labor market, along with house prices that are above their sustainable level, and expects consumer price inflation to exceed its target range before returning to the midpoint around the middle of next year.

     "The Committee agreed they are confident of meeting their inflation and employment remits with less need for the existing level of monetary stimulus," the bank said, adding it was alert to the impact the virus could have on confidence.

      Consumer price inflation is forecast to rise to an annual average of 4.1 percent in September and December this year before easing to 3.7 percent in March next year, 2.9 percent in June 2022 and then stabilize at 2.2 percent in following quarters before declining to 2.1 percent in September 2023 and then 2.0 percent in June 2024.

      Last year the RBNZ cut its policy rate by 75 basis points to the current level and embarked on asset purchases to keep interest rates low and support economic activity.

     Initially the central bank began buying up to NZ$30 billion of government bonds and then raised this in the following months to $100 billion.

This week in monetary policy: Rwanda, New Zealand, Namibia, Sri Lanka, Indonesia, Norway, Botswana, Jamaica and China

     This week - August 16 through August 21 - central banks from 9 countries or jurisdictions are scheduled to decide on monetary policy: Rwanda, New Zealand, Namibia, Sri Lanka, Indonesia, Norway, Botswana, Jamaica 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 33
AUG 16 - AUG 21, 2021
RWANDA	17-Aug	4.50%		0	0	4.50%
NEW ZEALAND	18-Aug	0.25%	14:00	0	0	0.25%	DM
NAMIBIA	18-Aug	3.75%		0	0	3.75%
SRI LANKA	19-Aug	4.40%	7:30	0	0	4.50%	FM
INDONESIA	19-Aug	3.50%		0	-25	4.00%	EM
NORWAY	19-Aug	0.00%	10:00	0	0	0.00%	DM
BOTSWANA	19-Aug	3.75%		0	0	4.25%
JAMAICA	19-Aug	0.50%		0	0	0.50%
CHINA	20-Aug	3.85%	9:30	0	0	3.85%	EM

 

    www.CentralBankNews.info

Peru raises rate 1st time in 5-1/2 yrs but policy still easy

     Peru's central bank raised its key interest rate for the first time in 5-1/2 years, noting inflation and inflation expectations exceeded its target range, but added its monetary policy stance remains expansionary and the real policy interest rate is a historic lows.

     The Central Reserve Bank of Peru (BCRP) raised its reference interest rate 25 basis points to 0.50 percent, the first change in interest rates since April last year and the first rate hike since February 2016.

     The rate hike comes only days after the bank's respected president, Julio Velarde, agreed to remain in his post for another 5-year term, easing some of the uncertainty in financial markets over the direction of economic  and monetary policy under the country's new presidency of Pedro Castillo.

      Velarde has led Peru's central bank since 2006 and provided a sense of stability to investors through the Global Financial Crises and the COVID-19 pandemic, with inflation largely steady and interventions in foreign exchange markets limited to reducing volatility.

      The bank's board said it considers it appropriate to maintain an expansive policy stance as long as the pandemic continues to have a negative impact on inflation. 

      Last year the central bank cut the rate twice by a total of 200 basis points to support the economy during the pandemic but began to prepare financial markets for a monetary tightening in June when it dropped its pledge to keep the rate at a rock-bottom 0.25 percent for a prolonged period.

      Today the board said it would be attentive to new information about inflation expectations and the evolution of economic activity and if necessary modify its monetary policy.

      Inflation in Peru has picked up speed in the last two months and rose to 3.81 percent in July from 3.25 percent in June, the highest since March 2017, and well above BCRP's target range of 2.0 percent, plus/minus 1 percentage point.

      The central bank said inflation was temporarily above its target range due to the rise in international prices of food, fuels as well as the impact of the exchange rate and inflation excluding food and energy was 2.14 percent in July.

      But inflation expectations 12-month ahead rose to 3.0 percent in July from 2.6 percent in June.

      BCRP still expects inflation to return to its target range in the next 12 months and then remain in that range for the rest of 2022 as transitory factors reverse and economic activity remains below its potential.

      Peru's economy expanded an annual 3.8 percent in the first quarter of this year, the first expansion since the fourth quarter of 2019, with the recovery picking up speed in recent months after the economy shrunk 11 percent in 2020.

      The exchange rate of Peru's sol has been declining steadily since March last year and remains close to all-time lows.

      Today the sol was trading at 4.09 to the U.S. dollar, down 11.5 percent since the start of the year, but up 0.5 percent this week.

     www.CentralBankNews.info

Uruguay becomes 22nd central bank to raise rates

     Uruguay's central bank raised its key interest rate to ensure inflation expectations are in line with its target range and said future changes in the monetary policy stance would depend on how inflation expectations react to this change move along with the country's economy and the population's health.

      The Central Bank of Uruguay raised its monetary policy rate by 50 basis points to 5.0 percent, the first change in its rate since September last year when it adopted a policy rate and abandoned targeting money supply to control inflation that has plagued the country for decades.

      Uruguay becomes the 22nd central bank that has raised its key interest rates this year in response to growing inflationary pressures and the fourth central bank in Latin America after Brazil, Chile and Mexico.

      The rate hike follows months of warnings by the central bank about the need to raise rates to control inflation once the economy begins to recover from the COVID-19 pandemic, which led to a 5.9 percent contraction in the country's gross domestic product last year.

      At its previous meeting on July 6, for example, the bank's monetary policy committee (Copom) said it was still waiting for more signs on a recovery of economic activity but once this starts, interest rates will be raised gradually to affect inflation expectations.

      Today, Copom said the health situation in Uruguay had improved "substantially," and economic activity is showing signs of recovery, with progress in various sectors and unemployment is falling.

      "Within this framework, the Committee understands it is necessary for monetary policy to begin to leave its most expansive phase in order to follow a gradual path of adjustment of the interest rate and, therefore, to increase the monetary policy rate to 5%," the central bank said.

      As long as there are no setbacks in the health situation, the priority of monetary policy will be to drive inflation expectations to the center of the target range of 3.0 to 6.0 percent, the bank added.

     Inflation in Uruguay has been declining steadily in recent months to 7.3 percent in June and July from over 9 percent in February but remains above the central bank's target range.

      In its second quarter monetary policy report from last month, the central bank forecast inflation would average over 7 percent this year due to higher fuel costs and commodities but then return to its target in the second quarter of 2022.

      After last year's economic contraction, the central bank expects the economy to expand 3.5 percent on average the year,  with growth slowing somewhat in 2022.

      In the first quarter of this year Uruguay's GDP shrank 2.8 percent year-on-year, the sixth consecutive quarter of contraction on an annual basis.

     www.CentralBankNews.info

This week in monetary policy: Uruguay, Philippines, Serbia, Turkey, Mexico and Peru

    This week - August 9 through August 14 - central banks from 6 countries or jurisdictions are scheduled to decide on monetary policy: Uruguay, Philippines, Serbia, Turkey, Mexico and Peru.

     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 32
AUG 9 - AUG 14, 2021
URUGUAY	11-Aug	4.50%	15:00	0	0	N/A
PHILIPPINES	12-Aug	2.00%		0	0	2.25%	EM
SERBIA	12-Aug	1.00%	12:00	0	0	1.25%	FM
TURKEY	12-Aug	19.00%	14:00	0	200	8.25%	EM
MEXICO	12-Aug	4.25%	13:00	25	0	4.50%	EM
PERU	12-Aug	0.25%		0	0	0.25%	EM

 
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