Trinidad & Tobago holds rate, cautious optimism for '22

      Trinidad and Tobago's central bank once again left its key interest steady, saying a recovery of domestic business is a signal of "cautious optimism for 2022" if momentum is maintained while external price pressures were now impacting domestic inflation after a lag of several months.
    The Central Bank of Trinidad and Tobago (CBTT) left its repurchase rate at 3.50 percent, unchanged since March 2020 when it was cut by 1.50 percentage points to cushion economic activity as the COVID-19 pandemic swept the world.
     Prior to the rate cut last March, the repo rate had been maintained at 5.0 percent for almost two years, or since June 2018.

     After remaining low in the first months of this year, inflation in Trinidad and Tobago has been rising since April and CBTT said headline inflation rose to 3.9 percent in October from 2.4 percent in September and 2.2 percent in August and July.

     Food inflation jumped to 7.6 percent in October form 5.8 percent in September and the central bank said it was likely to rise further given the situation in global grain markets. 

     Core inflation, which excludes food, almost doubled to 2.9 percent from September, the bank said, adding stronger price pressure was seen for building materials.

     Last year inflation in Trinidad and Tobago averaged 0.6 percent and in November the International Monetary Fund estimated 1.5 percent inflation this year and 2.4 percent in 2022.

     The economy of the southernmost island country in the Caribbean was hit hard by the pandemic while the important energy production also declined significantly in 2020 and this year due to unanticipated maintenance of some energy facilities and the closure of several petrochemical plants.

      The dual-island nation's gross domestic product shrank 7.4 percent in 2020 and IMF estimates it will contract another 1 percent in 2021.

      However, CBTT said domestic business operations were now starting to recover following the gradual opening of the economy since the third quarter, a signal of cautious optimism for 2022 if momentum is maintained.

      Business credit grew 1.3 percent year-on-year in October, the first increase since August 2018, with lending to construction, finance and insurance sectors particularly buoyant alongside a 4.6 percent rise in mortgage lending.

     However, consumer lending contracted 2.3 percent despite a slight fall in interest rates, CBTT said.

     The IMF projects a strong economic recovery in 2022, with GDP expected to rise 5.7 percent, helped by continued policy support and the anticipated recovery in oil and gas production.

Dominican Rep. raises rate 2nd time to pre-Covid level

      The central bank of the Dominican Republic raised its interest rates for the second consecutive month to their level prior to the COVID-19 pandemic, saying the tightening aims to return inflation to its target, anchor inflation expectations and reduce the risk that an overheating economy raises "an overflow of inflationary pressures and a domestic macroeconomic imbalance."
      The Central Bank of the Dominican Republic (BCRD) raised its monetary policy rate by a further 100 basis points to 4.50 percent, with the rate now back to its level in February 2020 before the central bank cut rates in March and then in September last year by a total of 1.50 percentage points.

      With the economy of the Dominican Republic bouncing back faster than expected, BCRD last month entered the second phase of its process of normalizing monetary policy by raising the rate 50 basis points. 

      The first phase of monetary policy normalization began in August as funds granted to firms and households during the pandemic began to return to the central bank as they matured or were repaid.

      BCRD today also raised the interest rate on its permanent liquidity expansion facility and the rate on overnight deposits by 1 percentage point to 5.0 percent and 4.0 percent, respectively.

      Inflation in the Dominican Republic rose to 8.2 percent in November from 7.7 percent in October and BCRD forecast inflation would converge to its target of 4.0 percent, plus/minus 1 percentage point, during the second half of 2022, but at a slower rate than originally expected.

      The central bank said prices continue to be affected by more permanent supply shocks than expected, along with higher prices for oil and important raw materials used in local production, along with a rise in global freight costs due to container shortages and other supply chain distortions.

      Globally, the economic outlook remains positive, the central bank said, cautioning uncertainty around the pace of virus infections and disruptions to supply chains persist.

      The recovery of the domestic demand, however, has taken hold, BCRD said, adding the monthly indicator of economic activity rose 13.1 percent year-on-year in November, raising the accumulated expansion in the first 11 months to 12.5 percent, helped by a good performance of construction, local manufacturing, free zones, commerce along with the hospitality sector.

      In light of the faster-than-expected reactivation of economic activity, BCRD again raised its estimate of economic growth this year to around 12.0 percent. 

      In the second quarter of this year, the gross domestic product of the Dominican Republic expanded 25.4 percent from the same quarter last year, up from 3.1 percent in the first quarter.

      In November the central bank already raised its forecast to around 10.7 percent from a forecast of 10 percent in October.

      www.CentralBankNews.info

      

      

This week in monetary policy: Dominican Rep., Bulgaria and Trinidad and Tobago

     This week - the final week of 2021 from Dec. 27 through Jan. 1, 2022 - central banks from 3 countries or jurisdictions are scheduled to decide on monetary policy: Dominican Republic, Bulgaria and Trinidad and 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 52
DEC 27 - JAN 1, 2022
DOMINICAN REP.	30-Dec	3.50%		50	50	3.00%
BULGARIA	31-Dec	0.00%		0	0	0.00%	FM
TRINIDAD & TOBAGO	31-Dec	3.50%		0	0	3.50%

   

 www.CentralBankNews.info

2022 Global Central Bank Monetary Policy Calendar - Updates with Ukraine, Peru, Czech Republic, Botswana, Taiwan & Morocco.

       Herewith the second draft of the 2022 calendar of meetings by central bank committees or boards that decide monetary policy.

      This draft updates the first draft published on Dec. 8 with the 2022 schedules of the central banks of Ukraine, Peru, Czech Republic, Botswana, Taiwan and Morocco. It also includes the January policy meetings by the central banks of Uzbekistan and Paraguay.

      The following table shows the date for the scheduled monetary policy meetings for more than 70 of the world's central banks. In the event policy meetings take place over multiple days, the date listed below is for the final day when decisions are normally announced.
      Central Bank News will update this calendar in coming weeks as central banks gradually publish their meeting schedule for 2022.
      During the year, the calendar is regularly updates to reflect changes in meeting schedule or when monetary policy committees announce the date for their upcoming meetings. 
      Readers are encouraged the check on the latest version of the calendar by clicking here.

      You may replicate the calendar in part of full only if you link to Central Bank News.

Czech raises rate 5th time and ready to raise further

      The central bank for the Czech Republic raised its key interest rates for the fifth time and said it was "ready to continue increasing interest rates next year in order to maintain price stability" as the risks are "markedly inflationary overall and hence requiring faster monetary tightening compared with the current forecast."
      The Czech National Bank (CNB) raised it two-week repurchase rate by 1.0 percentage point to 3.75 percent and has now raised the rate 3.50 percentage points this year following rate hikes in June, August, September, November and today.
     Five of the bank's board members voted for the rate hike but two voted to keep the rate unchanged.
     CNB also raised its other interest rates by 1 percentage point, putting the discount rate and Lombard lending rate at 2.75 percent and 4.75 percent, respectively.

      Inflation in the Czech Republic has accelerated in the last five months and rose to 6.0 percent in November from 5.8 percent in October - well above the bank's forecast in November of 4.9 percent - and three times the bank's inflation target of 2.0 percent.

      CNB said faster growth in administered prices, higher fuel prices and a sharp acceleration in core inflation are all pulling in the same direction, while producer prices abroad could also rise faster than expected and a potential weakening of the Czech koruna also adds to inflationary risks.

     "The inflation expectations of firms and households have been faced with a marked overshooting of the 2% target for some time now, and the Czech National Bank does not intend to allow them to come more significantly unanchored from the target," CNB said.

     CNB expects inflation to rise further in coming months but then start to decelerate and approach the bank's target in late 2022 and early 2023, aided by a continued significant tightening of monetary conditions.

      Based on data since the bank's November forecast, CNB said its next economic forecast will contain a sizable increase in the inflation outlook, especially in the short run.

      It is not inflation that has topped CNB's expectations but also economic growth, with gross domestic in the third quarter up by 3.1 percent, over the November forecast of 2.1 percent.

     "In this situation, the Bank Board, after carefully considering all the aspects, decided to increase interest rates significantly further," the bank said.

Paraguay raises rate 5th time, growth outlook raised

     Paraguay's central bank raised its monetary policy rate for the fifth month in a row, saying the second-round effects of external shocks on inflation may become relevant and affect medium-term inflation expectations in light of the improved economic activity and a monetary policy stance that remains accommodative.
     The Central Bank of Paraguay  (BCP) raised its policy rate by another 1.25 percentage points to 5.25 percent and has now raised it 4.5 points this year following rate hikes from August through today.
     The policy rate is now back to its level between August 2017 until February 2019, when the central bank embarked on an easing cycle that continued until June 2020 when BCP paused after the rate was cut to 0.75 percent after 10 rate cuts, including three in the month of March last year.

     BCP said contagion of COVID-19 on a regional level remains moderate and domestic economic activity has been favorable in recent months, prompting it to raise its projection for economic growth this year.

      Last month the bank's governor, Jose Cantero, said Paraguay's gross domestic product this year could top the bank's forecast of 4.5 percent and BCP now projects growth this year of 5.0 percent.

      In the second quarter Paraguay's GDP grew 6.9 percent year-on-year, up from 0.5 percent in the first quarter.

      For 2022 BCP forecasts economic growth of 3.7 percent, with the pandemic and the climate representing the main risks to economic activity in coming months.

      High commodity prices and external demand for beef has pushed up food and fuel prices in Paraguay, leading to a steady acceleration in inflation since May, and the central bank estimates inflation of 7.1 percent this year, in excess of its target of 4.0 percent, plus/minus 2 percentage points.

       In November Paraguay's inflation rate eased to 7.4 percent from 7.6 percent in October due to a moderation in the cost of food and fuel and BCP expects inflation to ease in the medium term, given the normalization of monetary policy underway by monetary authorities worldwide.

      www.CentralBankNews.info

     

Seychelles holds rate as Omicron a threat to recovery

      The central bank for the Indian Ocean island of Seychelles kept its interest rates steady for the first quarter of 2022, along with an accommodative monetary policy stance, saying it needs to continue to support the economic recovery despite the short-term inflationary risks.

      The Central Bank of Seychelles (CBS) kept its monetary policy rate (MPR) at 2.0 percent, unchanged since June this year when it was lowered by 1 percentage point as the bank continued to ease its policy stance to cushion the republic's tourism-dependent economy from the impact of COVID-19 pandemic.
      Since September 2019 CBS has cut the rate four times and by a total of 3.50 percentage points, including a total cut of 2.0 percentage points in 2020. 

      In June this year CBS also lowered banks' minimum reserve requirement on domestic currency deposits by 300 basis points to 10 percent and maintained this ratio today.
      The bank's board said the tourism industry had gradually recovered due to an easing of global travel restrictions but visitor arrivals and earnings remain below pre-pandemic levels.
       However, it also said emergence of new variants and rising COVID-19 cases pose a threat to the ongoing recovery of the global economy and could lead to stricter travel restrictions.
     "The latest identified variant - Omicron - has already started to curtail travel, but its broader impact on growth and inflation, both globally and locally, is yet to be fully considered and highlighted in economic outlooks," CBS said.

      Prior to the emergence of Omicron, the economy of the Seychelles - made up of 115 islands off the east coast of Africa - had begun to recover from the hit to global tourism and in early November the International Monetary Fund (IMF) said "the post pandemic economic recovery is expected to be V-shaped and driven by tourism.

      The economy of Seychelles grew 14.3 percent in the second quarter of this year after contracting 12.9 percent in 2020 and the IMF forecast growth of around 6 percent this year, rising to 7.7 percent in 2022.

      Inflation in the Seychelles has eased in recent months to 9.37 percent in November from a year-high of 11.37 percent in May and CBS expects inflation to slowly ease as the global economy normalizes.

     The IMF forecast inflation this year of 10.0 percent, up from 1.2 percent in 2020, and then 3.7 percent in 2022.

Jamaica raises rate 3rd time, will consider more hikes

      Jamaica's central bank raised its rate for the third time this year and said it would "consider further increases in the Bank's policy rate and accompanying measures at subsequent policy meetings, subject to inflation expectations and other macroeconomic data evolving as projected."
      The Bank of Jamaica (BOJ) raised its policy interest - the interest rate offered to financial institutions to place funds overnight at BOJ - by another 50 basis points to 2.50 percent and has now raised it 2.0 percentage points following rate hikes in September, November and today.
       In addition to the rate hike, the central bank said it would also maintain other measures it had taken to contain the expansion of Jamaican dollar liquidity "and to ensure that further movements in the exchange rate do not threaten the inflation target."
      BOJ's monetary policy committee, which was unanimous in its decision, said inflation in November of 7.8 percent had breached the upper limit of its target range and "was likely to continue to successively breach the target range over the next 8 to 10 months."
     "The MPC's action was therefore necessary to limit the second-round effects of the commodity prices shocks and to guide inflation back within the target range over the next two years," it said.
      Although Jamaica's inflation rate in November decelerated from 8.5 percent in October, it remains above BOJ's target of 4.0 to 6.0 percent.
       The central bank said inflation expectations remain elevated and are continuing to rise, with the October survey showing inflation over the next 12 months of 8.2 percent, up from 7.4 percent in the previous two surveys.
     "This increase in expectations is in contrast to the Bank's objective of returning inflation to the target range by the second half of 2022," BOJ said.
     Conditional on a gradual tightening of monetary conditions, the MPC said inflation was projected to return to the target range by the September 2022 quarter, with risks skewed to the upside.
     Jamaica's economy bounced back in second quarter of this year and expanded an annual 14.2 percent after five quarters of contraction for the highest growth rate since at least 1997 and BOJ forecast growth in the 2021/22 financial year, which began April 1, in a range of 7.0 to 10.0 percent.

China lowers main interest rate weeks after RRR cut

     China's central bank eased its monetary policy stance for the second time this month by cutting its benchmark interest rate, the sixth time the rate was cut since it was introduced some 2-1/2 years ago.
     The People's Bank of China (PBOC) lowered its Loan Prime Rate (LPR) on 1-year loans by 5 basis points to 3.80 percent and has now lowered it 55 points since it was introduced as the bank's benchmark interest rate in August 2019.

      LPR on loans 5 years or longer, which impacts mortgages, was unchanged at 4.65 percent.

      Today's rate cut follows PBOC's 1/2 percentage point cut in the reserve requirement for most financial institutions on Dec. 6, which freed up 1.2 trillion yuan banks could use to support economic activity.

      It was PBOC's second cut in the reserve requirement this year, following a similar-sized cut in July.

      The last time PBOC lowered LPR was in April 2020 when it was cut for the second time that year in response to the outbreak of the COVID-19 pandemic.

     www.CentralBankNews.info

     

This week in monetary policy: China, Uganda, Honduras, Jamaica, Morocco, Paraguay, Thailand, Czech Rep. & Albania

     This week - December 20 through December 25 - central banks from 9 countries or jurisdictions are scheduled to decide on monetary policy: China, Uganda, Honduras, Jamaica, Morocco, Paraguay, Thailand, Czech Republic and Albania.

     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 51
DEC 20 - DEC 25, 2021
CHINA	20-Dec	3.85%	9:30	0	0	3.85%	EM
UGANDA	20-Dec	6.50%		0	-50	7.00%
HONDURAS	20-Dec	3.00%		0	0	3.00%
JAMAICA	20-Dec	2.00%		50	150	0.50%
MOROCCO	21-Dec	1.50%		0	0	1.50%	FM
PARAGUAY	21-Dec	4.00%		125	325	0.75%
THAILAND	22-Dec	0.50%		0	0	0.50%	EM
CZECH REPUBLIC	22-Dec	2.75%	14:30	125	250	0.25%	EM
ALBANIA	22-Dec	0.50%		0	0	0.50%

 
 
    www.CentralBankNews.info

 

Colombia wraps up week as 11th nation to raise rates

     Colombia's central bank raised its main interest rate for the third time this year, the 14th country this week to tighten monetary policy, as authorities worldwide roll back last year's extraordinary stimulus that was injected to help the global economy overcome the ravages of the COVID-19 pandemic.
      The Central Bank of Colombia (CBC) raised its benchmark interest rate by another 50 basis points to 3.0 percent and has now raised it 1.25 percentage points this year following rate hikes in September, October and Friday.

      Last week 11 central banks - Armenia, Pakistan, Hungary, Chile, Costa Rica, Norway, the UK, Mexico, Russia, Azerbaijan and Colombia - raised their main interest rates, boosting the number of global rate hikes this year to 119 by 40 different central banks.

      In addition to last year's 256 rate cuts by 93 central banks, monetary authorities also injected liquidity into banking systems to ensure financial systems didn't freeze up during the crises, and many embarked on quantitative easing by buying government and corporate bonds to keep rates low with the total number of steps taken to loosen monetary policy amounting to 417.

      Although the world's three largest central banks - the U.S. Federal Reserve, the Bank of Japan and the European Central Bank - this week left interest rates at rock-bottom levels, they still joined the trend toward tighter global conditions to curb inflation and will wrap up some of their crises-era asset purchase programs by March next year.

       Including these three tightening moves, the number of steps taken so far this year by central banks worldwide toward tightening their monetary policy stance, including rate hikes, amounts to 170.

     

     Unlike Colombia's rate hike in October, three of the bank's board members this week voted to raise the rate by an even sharper 75 basis points but the majority of four members voted for the 50 point rate rise.
     In its statement, the board said it decision was based on higher-than-expected inflation in November and rising inflation expectations, and significant economic growth in the fourth quarter of this year that is fueling a rise in the current account deficit.
     The board reiterated its commitment to ensuring inflation returns to its target of 3.0 percent.
     Colombia's inflation rate has risen in the last seven months and rose to 5.26 percent in November from 4.58 percent in October, leading CBC to raise its estimate of inflation this year to an average of 5.3 percent and the forecast for 2022 to 3.7 percent.
      Inflation expectations, even for the medium term, now top the bank's target of 3.0 percent, CBC said.
      "Leading indicators suggest that GDP continued on a significant growth trajectory in the fourth quarter, surpassing pre-pandemic levels," the central bank said, confirming its forecast for gross domestic product growth this year of 9.8 percent.
     Colombia's economy expanded 13.2 percent year-on-year in the third quarter quarter of this year, down from 17.6 percent in the second quarter but in November the bank had raised its forecast for growth this year to 9.8 percent from September's forecast of 8.6 percent.
      Rising domestic demand is fueling imports, with Colombia's imports rocketing an annual 64.9 percent in September, widening the trade deficit by US$2.2 billion in September, the largest gap since 1980.
      This is boosting the country's current account deficit, which rose to US$5.12 billion in the third quarter from $4.27 billion in the second quarter, and CBC raised its estimate for a deficit this year of 5.6 percent of GDP from October's estimate of 5.3 percent.

      Next year CBC expects the deficit to narrow to 4.9 percent in 2022 as global financial conditions tighten.

      After falling to a new record low of 4.17 to the U.S. dollar in March last year after the outbreak of the pandemic, Colombia's peso bounced back through the rest of 20202. 

      But starting in January this year, the peso began to loose strength and dropped to more than 4 peso to the U.S. dollar late last month and then hit 4.03 to the dollar yesterday prior to the rate hike. 

      Following the rate hike, the peso jumped 1.5 percent to 3.97 but remains 13.8 percent below its level at the start of this year.

Turkey cuts rate 4th time but to pause and assess in Q1

     Turkey's central bank lowered its main interest rate for the fourth month in a row but said it would now pause while it monitors the impact of recent policy decisions during the first quarter of next year when it will consider all aspects of its policy framework "to create a foundation for a sustainable price stability."
      The Central Bank of the Republic of Turkey (CBRT) cut its policy rate, the one-week repurchase auction rate, by another 100 basis points to 14.0 percent and has now cut it 5 percentage points following cuts starting in September though today.
      The easing of monetary policy - which began after the current governor Sahap Kavcioglu was installed in March by Turkish President Tayyip Erdogan - reversed a monetary tightening cycle that was begun under the previous governor to curb rising inflationary pressures.

     "The Committee decided to complete the use of the limited room implied by transitory effects of supply-side factors and other factors beyond monetary policy's control on price increases and reduced the policy rate by 100 basis points," the bank's monetary policy committee said.

      Today's rate cut was expected after CBRT in November said it would consider completing the use of the limited room to lower interest rates in light of the transitory impact on inflation and Erdogan's repeated call for lower interest rates as part of what he says is the country's "economic war of independence."

     In November the central bank also said it expected the transitory effects on inflation to persist through the first half of 2022 but omitted this reference today.

     However, CBRT reiterated it would "decisively" use all available instruments until data points to a permanent fall in inflation and the 5.0 percent inflation target is achieved.

     Turkey's inflation rate rose to 21.3 percent in November form 19.9 percent in October and 15 percent in January this year.

Costa Rica raises rate as it begins gradual tightening

      Costa Rica's central bank raised its main interest rate and said its board of directors had agreed to maintain a path of gradual rate rises to keep inflation within its tolerance range of 3.0 percent, plus/minus 1 percentage point.
     The Central Bank of Costa Rica (BCCR) raised its policy rate by 50 basis points to 1.25 percent, its first change in interest rates since June 2020 when it was lowered for the third time last year in response to the COVID-19 pandemic.

     "With this adjustment, the monetary policy stance of the Central Bank continues to be expansive, but is closer to a neutral position," the bank's board said on Dec. 15.

     Today's rate hike comes after the central bank in its monetary policy report last month raised its forecast for growth this year to 5.4 percent from July's projection of 3.9 percent, and the 2022 growth forecast to 4.5 percent from 3.7 percent as the economy returned to pre-pandemic output in the third quarter of this year.

      The board said today the monthly index of economic activity rose by an annualized quarterly rate of 6.4 percent in October and since June it has been above the pre-pandemic level seen in February 2020.

      The central bank also said the output gap was now close to being eliminated and headline inflation has been rising, hitting 3.35 percent in November.

      BCCR forecast headline inflation will remain above 3 percent by the end of this year and in the first half of 2022 but still within the tolerance range.

     Next year headline inflation is expected to moderate and remain below the target in the second half while core inflation will remain below or around the target.

      However, given that risks to those projections are tilted to the upside, the central bank said it considered it appropriate to initiate a process of gradual increases in the policy rate to bring it closer to a neutral stance in an orderly fashion.

     www.CentralBankNews.info

     

     

Norway raises rate 2nd time, hikes countercyclical buffer

     Norway's central bank lived up to its guidance and raised its benchmark interest rate for the second time this year and said it would most likely raise the rate again in March next year as it continues to unwind the expansionary monetary policy and move the rate back to a more normal level.
     However,  Norges Bank's monetary policy and financial stability committee also said there was "considerable uncertainty about the evolution of the pandemic and its effects on the economy" and if there is a need for more stringent and protracted containment measures the lower economic activity, further rate hikes may be postponed.
      On the other hand, if there are signs of persistently high inflation from higher-than-expected domestic wages and prices from capacity constraints and global price pressures, NB said "the policy rate may be raised more quickly."
       NBs' policy committee unanimously raised the policy rate by 25 basis points to 0.50 percent and has now raised it half a percentage point this year following a rate hike in September, the bank's first rate hike since September 2019, and today.
       In addition to the rate hike, NB also raised banks' countercyclical capital buffer by 1 percentage point to 2.0 percent as of Dec. 31, 2022, saying the profitability of banks is solid, credit losses are low, and businesses and households have ample access to credit.
      "Based on the Committee's current assessment of economic developments and the prospects for bank losses and lending capacity, the buffer rate will be raised to 2.5 percent in the first half of 2022, taking effect one year later," NB's Governor, Oeystein Olsen said.
      In response to the outbreak of the COVID-19 pandemic early last year, NB cut its rate three times and by a total of 1.50 percentage points to 0.0 percent, and also slashed the countercyclical capital buffer by 1.5 percentage points to 1.0 percent to counter any tightening of banks' lending standards, which would amplify an economic downturn.

Fed speeds up pace of tapering, sees 3 rate hikes '22

      The U.S. Federal Reserve left its key interest rate steady but tightened its monetary policy stance for the second month in a row by lowering the amount of monthly bond purchases amid rising inflation and an improving labour market, and pulled forward the day when the interest rate will be raised.
     The Federal Reserve's policy-making body, the Federal Open Market Committee (FOMC), left its target for the federal funds rate at 0.0-0.25 percent, unchanged since March last year when the rate was lowered twice in a single month by a total of 1.50 percentage points.

     As last month, the FOMC said economic activity and employment in the U.S. economy have continued to strengthen, but in an important shift - which had been telegraphed by Fed Chair Jerome Powell - the description of inflation as a "transitory" phenomenon was dropped from the statement.

      Instead, a unanimous FOMC said "supply and demand imbalances related to the pandemic and the reopening of the economy have continued to contribute to elevated levels of inflation."

      Echoing this change, the FOMC raised its forecast for inflation this year through 2023 and its forecast for how high and how fast it expects the federal funds rate to be raised.

      The latest projection for the fed funds rate sees the rate rising to 0.9 percent in 2022 - up from the September forecast of 0.3 percent - implying 3 rate hikes of 25 basis points each.

      In 2023 the Fed is expected to raise the rate another 3 times to 1.6 percent in 2023, up from the earlier forecast of 1.0 percent.

      In 2024 the feds funds rate is seen rising further to 2.1 percent from 1.8 percent, which is still below the estimated longer-run rate of 2.5 percent.

      The Fed's preferred measure of inflation, the personal consumption expenditure (PCE), is seen averaging 5.3 percent this year, up from the September forecast of 4.2 percent and October's 5.0 percent reading.

      PCE inflation is expected to ease next year and average 2.6 percent, up from the previous forecast of 2.2 percent and then fall to 2.3 percent in 2023 and 2.1 percent in 2024.

       Inflation has been accelerating across the world in recent months due to a combination of higher energy and commodity prices on the back of strengthening demand and economic activity as countries slowly recover from the devastating hit from COVID-19 pandemic.

      Central banks have responded to the rise in inflationary pressures and above-target inflation readings by unwinding last year's extraordinary stimulus and raising interest rates with smaller economies that are more susceptible to the impact of higher prices leading the charge.

      Mozambique, for example, was the first bank to raise interest rates in January due to rising inflation followed by Angola, which levied fees on bank's excess liquidity as it shifted to a more restrictive policy.

       Year-to-date 38 central banks worldwide - including 13 from emerging markets and 22 from frontier and other economies - have raised interest rates a total of 112 times and begun to unwind some of the other tools used last year to boost economic activity, such as bond purchases.

       Central banks in developed economies, for example Norway, New Zealand, Australia, Canada, Singapore and event the European Central Bank, have also pivoted from monetary stimulus to tightening.

        In November the Fed joined the global trend toward monetary tightening by cutting its monthly purchases of Treasury securities and mortgage-backed securities by $15 billion to $105 billion.

       Today, the Fed sped up its pace of monetary tightening by reducing monthly asset purchases by $30 billion ($20 billion of Treasuries and $10 billion of mortgage-backed securities) with the result its holdings of Treasury securities will increase $40 billion beginning in January and the holdings of mortgage-backed securities by $20 billion.

       With this pace, the Fed will wrap up its asset purchases - known as quantitative easing - by March instead of June, paving the way for rate hikes.

       Although the Fed said new variants of the coronavirus still pose a risk to the economic outlook, it raised its forecast for growth in 2022 to 4.0 percent from September's forecast of 3.8 percent. Growth this year is seen weaker than earlier projected, at 5.5 percent compared with 5.9 percent.

       In 2023 growth is seen slowing further to a more sustainable 2.2 percent, down from the previous forecast of 2.5 percent, and then stabilizing at 2.0 percent in 2024, slightly above the long-run average estimate of 1.8 percent.

Mauritius maintains rate, says inflation still acceptable

      The central bank of the Indian Ocean island of Mauritius left its key interest rate unchanged, saying the current monetary policy stance is "appropriate and supportive of economic recovery," and while it once again raised its forecast for inflation, it remains "within an acceptable range."
      The Bank of Mauritius (BoM) kept it key repo rate (KRR) at 1.85 percent, unchanged since April 2020   when it was lowered for the second month in a row to support economic activity during the collapse in global tourism after the outbreak of the COVID-19 pandemic.
      Last year's rate cuts, which totaled 1.75 percentage points, extended the central bank's decade-long easing of its monetary policy stance with interest rates lowered 9 times and by a total of 3.65 percentage points from December 2011 to April 2020.
      BoM last rate rise occurred in June 2011.

      After remaining around 1.0 percent in the first four months of the year, inflation in Mauritius began to pick up in May and rose to 6.4 percent in November from 5.8 percent in October.

     BoM projected headline inflation of about 4.0 percent, up from its October forecast of 3.8 percent and the August forecast of 3.5 percent.

     "On the domestic front, the full re-opening of borders and the on-going vaccination campaign, including deployment of booster doses, are improving confidence and strengthening economic recovery," the bank's monetary policy committee said, adding credit growth to households accelerated in the third quarter and the solvency and liquidity position of banks remain strong.

      However, BoM also said the onset of the Omicron variant of the coronavirus has brought some uncertainty to the tourism sector and lowered its outlook for economic growth this year to around 5.0 percent from the previous forecast of around 5.5 percent.

      Mauritius' gross domestic product grew an annual 18.8 percent in the second quarter of this year, the fastest pace of growth since 2011, after 5 consecutive quarters of contraction.

Chile raises rate 4th time and sees further increases

       Chile's central bank raised its key main interest rate for the fourth time and said it expects the rate will continue to be increased in the short term to above its neutral level to ensure inflation declines towards the bank's target of 3.0 percent.

      The Central Bank of Chile (CBC) raised its monetary policy interest rate (MPR) by 1.25 percentage points to 4.0 percent and has now raised it 3.50 percentage point this year following rate hikes in July, August, October and today.
      As in previous decisions, the bank's board was unanimous.

      Inflation in Chile rose for the 8th consecutive month to 6.7 percent in November from 6.0 percent in October - the highest rate since January 2009 - with CBC noting that volatile prices, especially of food and services, jumped 10.5 percent.

      Inflation expectations have also risen in recent months and although they point to an easing of inflation towards 2023, over the next two years they remain above the 3.0 percent target, CBC said, adding tomorrow's monetary policy report will include details of the inflation forecast and the outlook for MPR.

      As forecast in the bank's previous policy report from September, economic activity was dynamic in the third quarter as domestic demand grew more than expected, while investment in machinery and equipment also showed a high level while construction recovered from pre-pandemic levels.

      The monthly Imacec index of economic activity showed growth of 15 percent in October and CBC private expectations for growth this year have been raised to 11.9 percent from 11.0 percent.

     In the third quarter of this year Chile's gross domestic product grew 17.2 percent year-on-year, down from 18.1 percent in the second quarter.

     

     www.CentralBankNews.info

     

      

Hungary raises rate 7th time and sees further hikes

     Hungary's central bank raised its key interest rates for the 7th time and reiterated it will "continue the cycle of interest rate hikes until the outlook for inflation stabilizes around the central bank target in a sustainable manner and inflation risks become evenly balanced on the horizon of monetary policy."
     The National Bank of Hungary (NBH), or Magyar Nemzeti Bank in Hungarian, raised its base rate by another 30 basis points to 2.40 percent and has now raised it 1.80 percentage points this year following rate hikes every month since June. 

      "In order to avoid second-round inflationary effects and to property anchor expectations, the Monetary Council continues the tightening of monetary conditions," the central bank said.
      NBH also raised both its overnight collateralized loan rate and the one-week loan rate by 30 basis points to 4.40 percent to 2.0 percentage points above the base rate, while the overnight deposit rate was set at the base rate of 2.40 percent, an increase of 80 points.

      "In the persistently changed inflation environment, the Monetary Council intends to drive expectations appropriately by continuing the cycle of base rate hikes at a monthly frequency and in a predictable manner," the central bank said.

      With yields on bonds rising due to the increase in the central bank's rates and an expected decline in inflation, NBH expects real interest rates to rise in coming months and will continue to respond to any rise in short-term risks by setting the one-week deposit rate persistently above the base rate at weekly tenders.

      At last week's tender on Dec. 9 the one-week deposit rate was raised another 20 basis points to 3.3 percent, boosting the increase since mid-November to 150 points.

       In addition to raising interest rates to temper the rise in inflation and inflation expectations, NBH has also been phasing out other monetary tools used to support economic activity during the COVID-19 pandemic, such as the Funding for Growth Go! scheme and long-term collateralized lending facility, and lowering its weekly purchases of government securities.

     Today the bank's monetary council decided to close its Bond Funding for Growth Scheme and will not purchase any more corporate bonds, saying the banking sector now has ample liquidity and a strong capital position to it can satisfy the corporate sectors need for funding.

      NBH also decided to end its purchase of government securities but said it would continue to monitor the bond market and be ready to intervene with occasional purchases to maintain its stability.

     "Accordingly, the Bank will stop purchasing bonds," the bank said, adding it will hold government securities until they mature.

    Hungary's inflation rate rose to 7.4 percent in November from 6.5 percent in October and NBH projected an average rise in 2021 of 5.1 percent, well above the bank's target range of 2.0 to 4.0 percent, around a 3.0 percent midpoint.

     NBH, however, expects inflation to have peaked in November and to slowly fall from December before returning to the target range in the fourth quarter of 2022 and then reaching the 3 percent target in the first half of 2023.

     "Hungarian economic growth has continued, but its dynamics have slowed," NBH said, estimating growth this year of 6.3-6.5 percent and 4.0-5.0 percent in 2022.

Armenia raises rate 7th time to curb rising inflation

     Armenia's central bank raised its key interest rate for the 7th time, noting the significant increase in external inflation and inflation expectations, with the tightening expected to lead to a gradual decrease in inflation toward the bank's 4.0 percent target in the medium term.
     The board of the Central Bank of Armenia (CBA) raised its refinancing rate by another 50 basis points to 7.75 percent and has now raised it 3.50 percentage points since December 2020 when it began tightening its policy stance in response to rising inflationary pressure.
     This year CBA has raised its key rate 6 times and by a total of 2.50 percentage points following rate hikes in February, May, June, August, September and today.

      Last month the bank's board left the rate steady, saying the risks of inflation deviating from its forecast were balanced.

      Today, however, the central bank said there was a risk of inflation deviating upward from its projected trend due to the uncertain economic outlook, and in the event of this risk emerging "it is ready to respond adequately to ensure it reaches its goal of price stability."

     Inflation in the Central Asian country - sandwiched between Turkey, Iran, Azerbaijan and Georgia - rose to 9.6 percent in November from 9.1 percent in October while gross domestic product grew 2.7 percent year-on-year in the third quarter of this year, down from 13.3 percent in the second quarter.

     Last month the International Monetary Fund (IMF) forecast growth of 5.5 percent this year and 5.25 percent in 2022 while inflation is projected to ease.

     www.CentralBankNews.info

     

Pakistan raises rate 3rd time, expects to maintain rates

     Pakistan's central bank raised its monetary policy rate for the third time but said it now "expects monetary policy settings to remain broadly unchanged in the near-term" as its goal of "mildly positive interest rates on a forward-looking basis was now close to being achieved." 
     The State Bank of Pakistan's (SBP) monetary policy committee (MPC) raised its policy rate by 100 basis points to 9.75 percent and has now raised it 2.75 percentage points following rate hikes in September, November and today.
     SBP said the goal of today's rate hike was to "counter inflationary pressures and ensure that growth remains sustainable," adding economic data since the last policy decision had remained robust while inflation and the trade had risen further due to high global prices and domestic economic growth.
     "The MPC noted that recent data releases confirm that the emphasis of monetary policy on moderating inflation and the current account deficit remains appropriate," SBP said.
     Pakistan's inflation rate rose to 11.5 percent in November from 9.2 percent in October and SBP raised its forecast for inflation to average 9-11 percent in the current 2022 fiscal year, which began July 1, from the November forecast of 7-9 percent.
     However, SBP expects inflation to decline toward its medium-term target range of 5-7 percent in fiscal 2023 as global commodity prices retrench, administered price increases dissipate and the impact of demand-moderating policies materialize.
     The rise in global commodity prices has significantly boosted the cost of imports, widening Pakistan's trade deficit to US$5 billion and the current account deficit, which it now expects to reach around 4 percent of gross domestic product, higher than earlier projected.
     And while the twin deficits are likely to remain high in coming months, they are expected to gradually narrow in the second half of fiscal 2022 and the MPC expects the current account deficit to be fully financed from external flows.
    "As a result, foreign exchange reserves should remain at adequate levels through the rest of the fiscal year and resume their growth trajectory as global commodity prices ease and import demand moderates," SBP said, 
     Pakistan's economy grew 3.94 percent in the 2021 fiscal year, up from a contraction of 0.47 percent in the previous year and the central bank said high-frequency data showed economic growth remained robust while the outlook for agriculture remains robust and sales tax on services was robust.
      SPB forecast growth in this fiscal year would be close to the upper end of the forecast range of 4-5 percent and while the emergence of the new COVID-19 variant, Omicron poses some concern, it added there is limited information about its severity at this stage.
     "The MPC noted that Pakistan had successfully coped with multiple waves of the virus, which supported a positive outlook for the economy."

This week in monetary policy: Armenia, Pakistan, Hungary, Uganda, Chile, Mauritius, USA, Costa Rica, Philippines, Indonesia, Taiwan, Norway, Switzerland, Turkey, UK, ECB, Egypt, Mexico, Japan, Russia, Mongolia, Azerbaijan & Colombia

     This week - December 13 through December 18 - central banks from 23 countries or jurisdictions are scheduled to decide on monetary policy: Armenia, Pakistan, Hungary, Uganda, Chile, Mauritius, United States, Costa Rica, Philippines, Indonesia, Taiwan, Norway, Switzerland, Turkey, United Kingdom, euro area, Egypt, Mexico, Japan, Russia, Mongolia, Azerbaijan 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 50
DEC 13 - DEC 18, 2021
ARMENIA	14-Dec	7.25%		25	200	5.25%
PAKISTAN	14-Dec	8.75%		150	175	7.00%	EM
HUNGARY	14-Dec	2.10%		30	150	0.60%	EM
UGANDA	14-Dec	6.50%		0	-50	7.00%
CHILE	14-Dec	2.75%	18:00	125	225	0.50%	EM
MAURITIUS	15-Dec	1.85%		0	0	1.85%	FM
UNITED STATES	15-Dec	0.25%	14:00	0	0	0.25%	DM
COSTA RICA	15-Dec	0.75%		0	0	0.75%
PHILIPPINES	16-Dec	2.00%	15:00	0	0	2.00%	EM
INDONESIA	16-Dec	3.50%		0	0	3.75%	EM
TAIWAN	16-Dec	1.125%		0	0	1.125%	EM
NORWAY	16-Dec	0.25%	10:00	0	25	0.00%	DM
SWITZERLAND	16-Dec	-0.75%	9:30	0	0	-0.75%	DM
TURKEY	16-Dec	15.00%	14:00	-100	-200	17.00%	EM
UNITED KINGDOM	16-Dec	0.10%	12:00	0	0	0.10%	DM
EURO AREA	16-Dec	0.00%	13:45	0	0	0.00%	DM
EGYPT	16-Dec	8.25%		0	0	8.25%	EM
MEXICO	16-Dec	5.00%	13:00	25	75	4.25%	EM
JAPAN	17-Dec	-0.10%		0	0	-0.10%	DM
RUSSIA	17-Dec	7.50%	13:30	75	325	4.25%	EM
MONGOLIA	17-Dec	6.00%		0	0	6.00%
AZERBAIJAN	17-Dec	7.00%		50	75	6.25%
COLOMBIA	17-Dec	2.50%		50	75	1.75%	EM

 
 
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