China cuts RRR 2nd time to free up 1.2T yuan

     China's central bank lowered its reserve requirement for most financial institutions for the second time this year, as expected, saying this should "support the development of the real economy and steadily bring down overall financing costs."
     The People's Bank of China (PBOC) cut the required reserve ratio (RRR) for financial institutions by another 50 basis points as of Dec. 15 and has now cut it by 1 percentage point this year following a similar cut in July.
     PBOC said the move should release 1.2 trillion yuan of liquidity, slightly more than the cut in July that released 1 trillion, and this would allow financial institutions to increase their support to the economy, especially small, medium and micro enterprises.

     It added the RRR cut will lower the cost of capital for financial institutions by around 15 billion yuan a year.

     PBOC operates three different reserve ratios depending on the type of financial institutions said today's cut doesn't apply to those institutions that already employ a 5.0 percent ratio, mainly small rural banks.
      The weighted average RRR for financial institutions will be 8.4 percent after the cut, down from 8.9 percent previously, and prior to the cut the RRR for large financial institutions was 10.5 percent.
     PBOC said it would continue to implement "a sound monetary policy," and would "keep liquidity adequate at a reasonable level, and keep the growth of money supply and the aggregate financing to the real economy (AFRE) basically in line with the nominal GDP growth.
     PBOC often uses the reserve ratio to stimulate economic activity and in 2020 the bank's first move to ease policy at the onset of the COVID-19 pandemic was to cut the ratio for large financial institutions in January after which large amounts of liquidity was injected. 

     In February and April, 2020, the  benchmark interest rate, Loan Prime Rate, was then cut.

     Today's move by PBOC comes after Premier Li Keqiang on Friday said the amount of cash banks have to keep in reserve would be cut at an appropriate time.

      At the same meeting with International Monetary Fund Managing Director Kristalina Georgieva, Li also said China would increase its support for the real economy, especially for small and medium-sized companies.

     www.CentralBankNews.info

China cuts RRR for all banks 50 bps, frees up 1T yuan

     China's central bank lowered its reserve requirement for most financial institutions by half a percentage point, freeing up about 1 trillion yuan in liquidity banks can use to lend and support economic activity.

     The People's Bank of China (PBOC) said the cut in the required reserve ratio (RRR) would lower the cost of capital for financial institutions by about 13 billion yuan, adding this will help bridge a liquidity gap during a peak period when medium-term loans mature and taxes are paid in mid-to-late July.

     "The orientation of prudent monetary policy has not changed," a spokesman said in a statement on PBOC's website, adding the RRR cut is a routine operation as monetary policy returns to normal after last year's response to the COVID-19 pandemic.

      PBOC operates three different reserve ratios depending on the type of financial institution and said today's cut was comprehensive and only excluded financial institutions that already had a 5.0 percent deposit reserve ratio, which is already the lowest.

     "The purpose of this RRR cut is to optimize the capital structure of financial institutions, improve financial service capabilities, and better support the real economy," the PBOC spokesman said.

      The last time PBOC cut the reserve ratio for large banks, which includes state-owned banks such as the Industrial & Commercial Bank of China, was in May 2020, when it was lowered to 11.0 percent.

      That move on May 26, 2020 was PBOC's second cut in RRR for large banks following an earlier cut in January that year as it began loosening its monetary policy stance in the early days of the pandemic.

      Since the first cut in RRR for large financial institutions on Jan. 2, 2020, the rate has been lowered by a total of 250 basis points and now stands at 10.50 percent.

     The weighted average RRR for all financial institutions is 8.9 percent.

      Following the cut in the reserve ratio for large banks in January, PBOC in February last year injected large amounts of liquidity into the banking system to prevent a financial crises and followed this up with a cut in its benchmark lending rate, the Loan Prime Rate, on Feb. 20 and then another cut on April 20.

      PBOC's move comes the day after China's State Council, the equivalent of the cabinet, said it wanted financial institutions to reduce fees, make profits and benefit enterprises and people. It also hinted PBOC could boost lending to businesses by lowering the amount of funds banks hold in reserve.

     China's economy has been slowing in recent months and inflation in June declined to 1.1 percent from an 8-month high of 1.3 percent in May as food costs fell.

     www.CentralBankNews.info

      

Mongolia cuts rate 4th time in 2020 as curfew imposed

     Mongolia's central bank slashed its policy rate for the fourth time this year and cut its reserve requirement at an extraordinary meeting of its monetary policy committee, saying this was to reduce the impact on the economy and the financial sector during the COVID-19 pandemic and ease the financial difficulties faced by its citizens, businesses and financial institutions.
     The Central Bank of Mongolia (Mongolbank) cut its policy rate by another 200 basis points to 6.0 percent and has now cut it by 500 points this year following earlier cuts in March, April and September.
     The central bank also cut its reserve requirement on banks' domestic deposits by another 250 basis points to 6.0 percent and has now lowered it by 450 points this year following an earlier cut in March.
     In addition, Mongolbank said in a statement it would extend the period for restructuring consumer loans that are in arrears until July 1, 2021 and adopted a package of long-term refinancing instruments to support small and medium-sized enterprises and non-mining exports.

     The extraordinary meeting of the bank's MPC comes after the government announced a full curfew in Mongolia's capital Ulaanbaatar earlier this month after a truck drive tested positive for the virus, according to media reports.

     Mongolia's inflation rate rose to 2.4 percent in October from 1.7 percent in September and the central bank said it expects inflation to rise slightly in coming months due to the comparison with last year but it will still not exceed its target level.

     The bank's target for 2021 is to stabilize inflation around 6.0 percent, plus/minus 2 percentage points, down from the 2020 target of 8.0 percent, plus/minus 2 percentage points.

     Mongolia's economy contracted by 9.7 percent in the first half of this year but the rate of contraction slowed to 3.1 percent in the third quarter, the bank said.

     Mongolbank added it would continue to take appropriate measures to support the liquidity of households and business, and prevent credit disruptions in the banking system.

      Local press later said the central bank had downgraded its economic forecast for the economy to contract by 5.4 percent this year from an earlier forecast of a 2-4 percent contraction.

        www.CentralBankNews.info

China cuts reserve ratio for large banks another 150 bps

     China's central bank, the People's Bank of China (PBOC), has lowered its reserve requirement for all large financial institutions by another 150 basis points to 11.00 percent, its second cut this year following a 50-point cut in January.
     China's large financial institutions include its four big banks: the Industrial & Commercial Bank of China, the China Construction Bank, the Agricultural Bank of China and the Bank of China.
     PBOC's cut in the reserve requirement on May 25 comes after China last week for the first time since 2002 dropped a annual target for economic growth, with Premier Li Keqiang saying the target was mainly scrapped because of the uncertainties from the global epidemic and trade, and the country's development is facing some unpredictable factors, according to news reports.
     Last year China targeted 6 to 6.5 percent annual economic growth, down from about 6.5 percent the previous year, reflecting the steady decline in growth since 14.2 percent in 2007.
    The cut to the reserve ratio came the same day Yi Gang, governor of PBOC said in a newspaper interview the country would continue to strengthen its economic policy and its efforts to lower interest rates.
     China has cut is benchmark interest rate, the Loan Prime Rate (LPR), twice this year by a total of 30 basis points and it currently stands at 3.85 percent.
     China's gross domestic product shrank 9.8 percent in the first quarter from the previous quarter and by 6.8 percent compared with the same quarter in 2019.
     In the interview Yi also said PBOC's measures since the outbreak of the coronavirus had amounted to 5.9 trillion yuan comprising cuts to reserve ratios and other lending facilities.
     In March China's state council, which is chaired by Premier Li, called on further reductions in the reserve requirement for both small and medium-sized banks, with PBOC on March 13 then lowering the reserve ratio by 50 to 100 basis points for banks that met inclusive financing targets.
     Since 2018 PBOC has cut its three different reserve ratios 12 times, releasing some 8 trillion yuan in long-term funds, of which 1.75 trillion yuan were released this year following three cuts this year, PBOC said in a statement.
     This includes the last cut to the reserve ratio of large financial institutions on Jan. 2, 2020, which freed up 800 billion yuan in funds, and the last cut to the reserve ratio of small banks that took place in two stages, each of 50 basis points, on April 15 and then May 15, freeing up 400 billion yuan.
     PBOC operates three different reserve ratios: one for large banks, which includes the state-owned banks; one for mid-sized banks, which include join-stock banks, and one for small banks, such as 4,000 rural banks, rural cooperative banks, credit cooperatives and village and town banks.
     As of May 15, the average reserve ratio of financial institutions was 9.4 percent, a decrease of 5.2 percentage points since the start of 2018
     PBOC today also announced its first liquidity injection since late March via a 7-day reverse repo operation of 10 billion yuan at an unchanged 2.20 percent, saying this was "in order to keep the liquidity adequate at a reasonable level in the banking system."

     www.CentralBankNews.info

Colombia injects 9 billion pesos by cutting reserve ratio

     Colombia's central bank injected some 9 billion pesos of permanent liquidity into the economy by lowering its reserve requirement on various banking products to stimulate lending.
     The Central Bank of Colombia (CBC), which cut its rate last month for the first time in almost two years, said its board of directors at an extraordinary meeting also authorized the purchase of treasury bonds, known as TES, in the secondary market for up to 2 billion pesos for the remainder of April.
     On March 27, when CBC cut its benchmark rate by 50 basis points to 3.75 percent, the board decided to buy up to 2 billion of treasury bonds during the rest of March.
     The board also authorized the central bank to intervene in the TES forward market to cover against the risk of any "strong" impairment of TES market participants, helping stabilize the market.
     CBC added it would announce any such intervention in a timely manner.
     The reserve requirement on banks' checking and savings accounts will be cut 300 basis points to 8.0 percent while the requirement on fixed term savings of less than 18 months will be cut by 100 points to 3.5 percent.
   
      www.CentralBankNews.info

Israel cuts reserve requirement to ensure flow of credit

      Israel's central bank, one of the few central banks to have kept interest rates steady this year, lowered its capital requirement for regulatory purposes by 1 percentage point "to ensure the banks' ability to continue offering credit" during the coronavirus crises.
      The Bank of Israel (BOI), which has kept its key rate steady since raising it in November 2018, said its banking supervision department lowered the requirement for large banks to maintain a minimum Common Equity Tier 1 (CET1) ratio of 9 percent from 10 percent and to 8 percent from 9 percent for midsized and small banks.
      Israel's banks entered the coronavirus crises in a strong position, BOI said, adding they have large capital surpluses, strong liquidity ratios and high-quality credit portfolios.

     "Since the outbreak of the crises, demand for credit has increased sharply, and the risk level in credit provision has increased in parallel in view of the impact to the to the financial state of businesses and households," BOI said, adding it expects to use the capital that has been released to increase credit to businesses and households.

      Given their central role in societies, banks have always been required to hold certain amounts of capital to absorb unexpected losses. Years ago, capital meant gold or silver but today it comprises a many forms of stock or equity invested by its owners and shareholders, government and private securities and loans that generate interest.
      The requirements and methods of measuring capital has changed over the decades, with the most recent changes following the global financial crises. Banking regulators worldwide, grouped under the Basel Committee, tightened the requirements significantly to ensure banks would remain financially sound even during an economic or financial crises.
      CET1 is the most basic form of liquid assets that a bank can hold, such cash and stock.
      Another measure of reserve requirements is based on deposits at a bank. BOI has for many years set a 6 percent reserve requirement against demand deposits but the bank's statement did not say whether this ratio was changed.
       BOI said its decision to lower the capital requirement was in line with similar decisions in other countries and would be valid for six months and would be extended if necessary.
       In response to the crises, central banks worldwide have been slashing both reserve requirements and countercyclical capital buffers.
      The buffer was created after the global financial crises to ensure banks raise their capital during economic booms as a countercyclical measure so they can draw it down during a crises.
       BOI said the today's reduction of the capital requirement was based on the 2 percent capital buffer of each bank's total risk assets, an excess demand that went beyond the Basel standards to protect the country's banking system and the economy from unforeseen developments.
       BOI also instructed boards at banks to "re-examine their dividend and share buyback policies," in light of the material change in economic conditions, freeing up additional sources that can be used to provide credit and absorb losses, if necessary.
      This is similar to a move by the Czech National Bank (CNB).
      On March 16, when CNB cut its rate for the first of two times this month, it also cut the countercyclical capital buffer for its banks and said it expected banks to "refrain from a any dividend payouts or any other steps that might jeopardize individual bank's resilience."
       BOI's monetary policy committee is scheduled to meet on April 6. At its last meeting on Feb. 24, it maintained is key interest rate at 0.25 percent and confirmed its guidance that it expected to maintain the rate at this level for "a prolonged period."
       On March 15 the policy committee decided to carry out open market operations, offer repo transactions to financial institutions and purchase government bonds of various types and maturities "in necessary quantities" to ensure smooth functioning of the bond market.
      On March 23 BOI then said it would purchase 50 billion shekel of government bonds in the secondary market to ease the volatility in bond yields from a lack of liquidity and lower the cost of longer-term credit for firms and households as a complement to its low interest rate policy.

     www.CentralBankNews.info

   

Philippines cuts banks' reserve requirement 200 bps

     The Central Bank of the Philippines, which has cut its key interest rate twice this year, lowered its reserve requirement ratios on universal and commercial banks by 200 basis points to 12.0 percent, saying this is to "ensure sufficient domestic liquidity in support of economic activity amidst the global pandemic due to the Coronavirus Disease (COVID-19.)
     In a statement, Bangko Sentral ng Pilipinas (BSP) said a special meeting of its monetary board had authorized Governor Benjamin Diokno to lower the reserve requirements by up to a maximum 400 basis points in 2020.
     The board authorized Diokno to to determine the timing and extent of the reserve requirement reductions by taking into account the impact of the virus on liquidity in domestic markets, giving him flexibility to promptly address any strains in the market.
     Following this decision, Diokno announced the 200 basis point cut as of March 30 to "calm markets and to encourage banks to continue lending to both retail and corporate sectors."
     Potential cuts to reserve requirements for other institutions will be explored, the statement added.
     Last year BSP lowered its reserve requirements 500 basis points to 14 percent, most recently in October, and Diokno has said he aims to lower the rate to a single digit by 2023.
     BSP has been easing its monetary policy stance since May 2019 and has lowered its overnight reverse repurchase (RRP) rate rate 5 times since then by a total of 150 basis points to 3.25 percent.
     The most recent cut took place on March 19 when BSP also temporarily relaxed its regulations for compliance reporting by banks, the calculation of penalties on required reserves and single borrower limits to mitigate the risk of financial sector volatility and ensure adequate liquidity and credit.
     On March 19 BSP lowered its forecast for inflation in 2020 to 2.2 percent from February's 3.0 percent and the 2021 forecast to to 2.4 percent from 2.9 percent, due to the fall in oil prices, lower inflation in recent months and the adverse effects of the virus on global and domestic economic activity.
      It also said the balance of risks to the inflation outlook now leans to the downside and uncertainty over the "potentially protracted pandemic poses significant downside risks to aggregate demand."
      On March 23 Diokno was quoted as telling reporters that BSP will buy 300 billion pesos of debt from the Treasury under a 3-month repurchase agreement, renewable for another 3 months, with the government using the funds to contain the impact of the virus.

US Fed slashes rate another 100 bps, to buy assets

     The U.S. Federal Reserve slashed its rate by another 100 basis points to effectively zero and launched a new round of quantitative easing (QE) worth $700 billion to counter the risk to the economy from the outbreak of the coronavirus and said it expects to maintain the rate at this level "until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.
     In its second unscheduled policy decision in less than two weeks, the Fed cut the target range for its benchmark federal funds rate to 0.0 to 0.25 percent and has now cut it five times by a total of 2.25 percentage points in the last eight months.
      In addition to its surprise rate cut, the Fed - in coordination with five other central banks; the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank - cut the price of standing U.S. dollar liquidity swap arrangements by 25 basis points to "enhance the provision of liquidity.
      The Fed's policy rate is now back to the level it was from December 2008 to December 2015 when it slowly began raising rates until it was forced to reverse course early last year and then cut its rate three times from July 2019 until October due to slowing global growth.
      But the outbreak of the coronavirus, or Covid-19, is dealing a heavy blow to the global economy and on March 3 the Fed cut its rate by 50 basis points in its first emergency rate since Oct. 8, 2008.
      Although the Fed said the U.S. economy recently was on a strong footing, it said global financial conditions have been "significantly affected," and the energy sector has come under stress while inflation is running below 2 percent and inflation expectations have declined.
     "This action will help support economic activity, strong labor market conditions, and inflation returning to the Committee's symmetric 2 percent objective," the Federal Open Market Committee (FOMC), the Fed's policy-making body said.
     It said it was prepared to use its full range of tools to support the flow of credit to households and business, and launched a new round of asset purchases to support the "smooth functioning" of markets for Treasury securities and agency mortgage-backed securities.
      Over the coming months the Fed will increase its holdings of Treasuries by at least $500 billion and its holdings of agency mortgage-backed securities by at least $200 billion. It will also reinvest all principal payments from its current holdings of agency debt and agency mortgage-backed securities.
      It noted the New York Fed's open market desk has recently expanded its overnight and term repo operations and the FOMC is "prepared to adjust its plans as appropriate."
      Nine FOMC members agreed on the policy moves while Loretta Mester preferred to only cut the fed funds rate by 50 basis points. She supported the actions to promote the smooth functioning of financial markets and the flow of credit to households and businesses.
      To provide easier access to funds from financial institutions, the Fed cut the primary credit rate by 150 basis points to 0.25 percent and said it was encouraging banks to turn to the discount window to help meet demands for credit from households and businesses.
      The discount window helps banks manage their liquidity risks and avoid any actions that may have negative consequences for their customers, such as withdrawing credit "during times of stress."
      To widen the role of the discount window, the Fed said financial institutions could borrow funds for up to 90 days, repayable and renewable by the borrower on a daily basis.
      The Fed also said it was encoring banks to use their capital and liquidity buffers when lending to households and businesses affected by the coronavirus.
      Since the global financial crises, banks have built up capital and liquidity in excess of regulatory minimums and buffers, and the largest firms now have $1.3 trillion in common equity and $2.9 trillion in high quality liquid assets.
     "The Federal Reserve supports firms that chose to use their capital and liquidity buffers to lend and undertake supportive actions in a safe and sound manner," the Fed said.
      As a final move to bolster the financial system, the Fed slashed its reserve requirement ratio to 0.0 percent, reflecting that fact that reserve requirements no longer play a significant role in the implementation of monetary policy following the shift to an "ample reserves" regime in January 2019.

Indonesia cuts FX requirement to boost liquidity

     Indonesia's central bank, one of nine central banks that have cut interest rates in response to the threat to economic growth from the spread of the coronavirus, undertook several measures to "maintain monetary and financial market stability as well as mitigate the COVID-19 risks:"
     Bank Indonesia (BI), which cut its benchmark interest rate on Feb. 20 by 25 basis points to 4.75 percent, said it would "intensify" its intervention policy to ensure the rupiah's exchange rate moved in line with its fundamentals, lower the reserve requirement for foreign exchange deposits, lower the rupiah reserve requirement by 50 basis points for banks financing export-import activities and expand the range of transactions available to foreign investors to provide alternative hedging instruments against their rupiah holdings.
     The reserve requirement for commercial banks' foreign exchange deposits will be lowered by 400 basis points to 4.0 percent as of March 16, boosting liquidity in the banking system by around US$3.2 billion and also ease any foreign exchange market pressures, BI said.
     The 50 basis point cut in rupiah reserve requirement for banks financing export-imports would take effect on April 1 for nine months before a further review.
     In November last year BI lowered the reserve requirement for banks' rupiah deposits by 50 basis points to 5.50 percent.
     Indonesia's rupiah has plunged since Feb. 19 but bounced back a bit today following BI's move.
     The rupiah was trading at 14,281 to the U.S. dollar today, down 2.5 percent this year.

China frees up 800 billion yuan by cutting RRR 50 bps

    China's central bank lived up to expectations and lowered its reserve requirement ratio for large banks by another 50 basis points, freeing up 800 billion yuan in funds in a move the bank described as "a countercyclical adjustment" that increases the source of funds for financial institutions to directly support the real economy.
     The People's Bank of China (PBOC) cut the ratio for large financial institutions to 12.50 percent, it's seventh cut in that ratio since April 2018 when it lowered it for the first time since 2016 from 17.0 percent.
      Today's cut in the reserve requirement, which takes effect Jan. 6, comes after Premier Li Keqiang on Dec. 23 said the government was studying further cuts in reserve requirements, among other measures, to lower borrowing costs for small businesses, cementing expectations that PBOC will continue its easing cycle in 2020.
      PBOC said on its website the cut in the ratio would lower banks' overall cost of funds by around 15 billion yuan annually, and small and medium-sized banks along with rural institutions would receive over 120 billion yuan of long-term funds to help local businesses.
      PBOC added the cut "is by no means an indiscriminate stimulus measure" but helps offset changes in the run-up to the Spring Festival, or Long Lunar holidays, later this month when demand for cash typically rises.
      It added such countercyclical adjustments of monetary policy are "appropriate and sound," and the monetary policy stance remains unchanged.
      The cut in the reserve requirement comes days after the PBOC told financial institutions to use the Loan Prime Rate (LPR), which is already used to price 90 percent of new loans, to price all new loans beginning this month and convert existing loans to LPR from March to August.
       Last August PBOC reformed its system for setting LPR and designated it as the new benchmark rate for all loans. Initially LPR was set at 4.25 percent, 10 percent below the old benchmark lending rate at 4.35 percent, and 6 points below the LPR that had been unchanged since October 2013.
      Under the new mechanism, which is based on the rate that 18 institutions offer their best customers, LPR is published on the 20th of ever month and the 1-year LPR was then lowered by 5 basis points in September and then another 5 points in November to its current rate of 4.15 percent.

    www.CentralBankNews.info

   

Mongolia maintains rate but raises FX reserve ratio

    Mongolia's central bank kept its policy rate at 11.0 percent but raised the mandatory foreign currency reserves ratio by 300 basis points to 15.0 percent to maintain the relative yield of the tughrik and reduce the fluctuations in its exchange rate.
     The Bank of Mongolia (BOM), which has kept the rate steady since raising it by 100 basis points at an unscheduled monetary policy meeting in November 2018 to bolster the tughrik, said it had discussed lowering the interest rate in light of slowing economic growth but decided not to change the rate at this point given uncertainty over the government budget and the external environment.
     The tughrik has been depreciating since April 2018 and fell 8 percent last year amid growing external deficits, a fiscal deficit, and the impact of China's decision to limit coal imports.
     This year the depreciating has slowed as inflation has stabilized and begun to decline while global interest rates have dropped.
     Today the tughrik was trading at 2737 to the U.S. dollar,  down 3.7 percent this year.
     Mongolia's inflation rate fell to 5.2 percent in November, the lowest since August 2017, from 7.6 percent in October, and below BOM's current target of 8.0 percent.
      Mongolia's economy was hit hard in 2016 when foreign investment collapsed after a fall in the prices of its major exports of coal and copper.
     The following year the International Monetary Fund (IMF) and Mongolia agreed on a 3-year, $425 million loan as part of a total financing package worth $5.5 billion that was supported by Japan, South Korea, the World Bank and the Asia Development Bank.
     This helped Mongolia's economy recover last year, with the fiscal balance turning into a surplus and international reserves rising.
     "Notwithstanding this progress, Mongolia remains vulnerable to external shocks given its high debt levels and the economy's dependence on mineral exports," IMF said in September, adding the country's economic outlook remains strong despite headwinds.
     Mongolia's economic growth rate declined to 6.3 percent in the first nine months of the year from 7.3 percent in the first half and BOM said growth is expected to slow due to the uncertain environment and slowing growth in investments.
      But budget expenditures and rising salaries from continuing large investment projects should support domestic demand next year and export prices remain at a relatively favorable level, BOM said.
     IMF forecast in September 2019 growth would remain above 6.5 percent and then moderate to around 5-6 percent in the medium term.
     Earlier this month Mongolia's parliament, known as the State Great Khural, approved the 2020 monetary policy guidelines, with BOM tasked with stabilizing consumer price inflation at 20 percent in 2020 and around 6 percent in the medium term.
     At some point in the future stable inflation will become BOM's monetary policy target, the parliament also decided.
   
     www.CentralBankNews.info

Malaysia cuts reserve ratio to ensure enough liquidity

    Malaysia's central bank lowered its minimum reserve requirement for commercial banks by 50 basis points to 3.0 percent, underscoring this is to ensure sufficient liquidity in the domestic financial system and not "a signal on the stance of monetary policy."
     Bank Negara Malaysia (BNM), which earlier this week left its benchmark interest rate steady at 3.0 percent, added in a statement on Nov. 8 the cut in the Statutory Reserve Requirement (SRR) would take effect on Nov. 16.
     It said SRR is an instrument to management liquidity and the cut will support the functioning of the domestic financial markets and facilitate liquidity management by banks.
     It is BNM's first change in SRR since Feb. 1, 2016 when it was lowered 50 basis points to 3.50 percent.
     During 2011 SRR was raised three times (April, May and July) to 4.0 percent from 1.0 percent, the level it was cut to during the Global Financial Crises. Since July 2011 SRR was then maintained at 4.0 percent until February 2016.
     "The Overnight Policy Rate (OPR) is the sole indicator used to signal the stance of monetary policy" and announced after a meeting of the monetary policy committee.

     www.CentralBankNews.info

Turkey raises FX reserve requirement 3rd time in 2019

     Turkey's central bank raised the reserve requirement for banks' deposits in foreign exchange for the third time this year "to support financial stability" in a move it said will withdraw around US$2.1 billion of foreign exchange liquidity from the market.
     The Central Bank of the Republic of Turkey (CBRT) raised its reserve requirement ratio by 100 basis points for all maturities and for participation funds and has now raised the ratio by a total of 400 points this year following increases on May 9 and May 27.
     In addition, CBRT said it was lowering the remuneration rate for all US dollar-denominated required reserves, reserve options and free reserves held at the central bank by 100 basis points to 1.0 percent.
     The exchange rate of Turkey's lira firmed further today and was trading at 5.54 to the U.S. dollar, continuing its steady rise since May 10. But compared with the start of this year the lira is still down 4.7 percent and down 31.6 percent since the start of 2018.
     In August last year the lira tumbled, boosting inflation and triggering a sharp 625 point rate hike by CBRT in September. The central bank only began to unwind its tight policy stance on July 25 following the sacking of the previous central bank governor by President Recep Tayyip Erdogan.
     In his first press conference after the benchmark repo rate was cut by 425 basis points to 19.75 percent, CBRT Governor Murat Uysal on July 31 said the firing of his predecessor Murat Cetinkaya was done in line with existing legislation and the central bank was independent in its decisions on how to achieve the inflation objective, which is set together with the government.
     According to press reports, Uysal signaled further rate cuts by saying data was showing a lot of room for manoeuvre in monetary policy.
     Uysal lowered the central bank's year-end inflation forecast to 13.9 percent from a previous 14.6 percent and expects inflation to decline to 8.2 percent by the end of 2020 before reaching the target of 5.0 percent by the end of 2021.
     Turkey's inflation rate has been decelerating since October last year though it rose to 16.65 percent in July from 15.72 percent in June.

     www.CentralBankNews.info

   

Jamaica cuts rate 11th time, reserve ratio 2nd time in '19

     Jamaica's central bank lowered its policy rate for the the 11th time and its cash reserve requirement for the second time this year, saying the series of cuts to the reserve requirement was possible "given the entrenchment of macroeconomic stability in Jamaica."
    The Bank of Jamaica (BOJ) announced the 50 basis point cut in its policy rate to 0.75 percent on its Twitter page, saying the new rate would take effect on May 20 and a press release will follow.
    BOJ was scheduled to release its second quarterly monetary policy report and an interest rate decision on Friday, May 17.
     BOJ has now cut its policy rate 11 times and by a total of 300 basis points since July 1, 2017 when it adopted the overnight deposit rate as its new policy rate as part of a major overhaul of its monetary policy framework, which this year even included reggae music videos, radio jingles and television adds to spread the word about inflation targeting.
     It is BOJ's third rate cut this year following cuts in February and March, with the rate cut 100 points this year.
     In a separate press release from May 15, BOJ announced the 200-basis-point cut to the reserve requirement to 7.0 percent, saying this would "increase liquidity in the financial system by $12.3 billion and thereby support the expansion of credit to businesses and households at a lower rate and on better terms."
     In February, when BOJ also cut its rate and reserve requirement, it said the cut to the requirement - or the amount of money deposit-taking institutions are required to hold at the central bank against liabilities - was the first in a series over the next 12 month.
     "The timing and scope for the next reduction will be determined on the basis of market conditions," BOJ said today, confirming its statement from February.
     The new reserve requirement will take effect on June 3, reducing the overall liquidity asset requirement to 21.0 percent.
      In April Fitch Ratings said it was expecting BOJ to lower its policy rate by an additional 25 basis points at its May meeting as inflation remains below its target and over the longer term rising energy and food costs would cause inflation to pick up, leading policy makers to raise rates in 2020.
      As a result of reforms to BOJ which have "seemingly caused inflation expectations to be firmly anchored", Fitch said it had lowered its long-term average inflation forecast for Jamaica to 5.50 percent from 6.0 percent for the years from 2021 to 2028.
     After decades of high inflation, fiscal deficits and growing debt, Jamaica and the International Monetary Fund (IMF) in 2013 agreed on a reform program that has helped bring down inflation from over 26 percent in mid-2008 to 4.0 percent in April this year.
     At the same time unemployment has fallen steadily from over 16 percent in 2013 to 8 percent in February this year while fiscal deficits over the last 20 years are now being replaced with surpluses, helping bring down the ballooning debts.
    In April the IMF concluded its Fifth review under the stand-by arrangement with Jamaica, saying all criteria were met, including tabling the new Bank of Jamaica Act that makes inflation-targeting a cornerstone of monetary policy, and an ongoing commitment to strengthen domestic institutions is needed as Jamaica prepares to exit from the IMF's financial arrangements later this year.
     "Unemployment is near all-time lows, business confidence is high, and the economy is estimated to have expanded by 1.8 percent in 2018, buoyed by mining, construction and agriculture," IMF said on April 22, adding international reserves were now comfortable under a more flexible exchange rate.
     IMF projected Jamaica's public debt would fall below 100 percent of gross domestic product for the first time since 2000/2001 to 98.7 percent in fiscal 2018/19 while the government was reducing the primary surplus by 1/2 percent to 6.5 percent of GDP for the fiscal 2019/20 budget without compromising the medium-term anchor to provide resources for security, infrastructure, school meals and transportation.
     IMF also said further monetary easing was needed to restore inflation to the midpoint of BOJ's target of 4-6 percent.
    "The BOJ's recent reduction in the reserve requirement on Jamaican dollar deposits will help make policy accommodative but further rate cuts are likely to be needed," IMF said, adding BOJ should also continue to reduce its footprint in the foreign exhange market by limiting sales to disorderly market conditions.

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China cuts reserve ratio 1 pct point, frees up 800 bln yuan

      The People's Bank of China (PBOC) became the first central bank in 2019 to change its monetary policy stance, lowering its reserve requirement ratio for large financial institutions by a total of one percentage point, resulting in the release of a net 800 billion yuan in funds can be used to boost loans to private companies.
      The cut in the amount of funds that banks must hold at China's central bank will take place in two steps, with the first cut of 0.5 percentage points as of Jan. 15 and the second of 0.5 points as of Jan. 25, coinciding with the Spring Festival, also known as Chinese New Year of the Lunar New Year, when liquidity conditions tend to tighten.
      The lower reserve requirement will release a total of about 1.5 trillion yuan of funds but the PBOC will not renew a Medium Term Lending Facility (MLF) that expires in the first quarter of this year, resulting in a net release of 800 billion yuan.
      In its statement, PBOC said China's economy was continuing to develop in a healthy manner and it would continue to implement a "prudent" monetary policy, with a "moderate" degree of tightness.
      A spokesman added the cut in the reserve ratio did not signify a "flood" of funds and the orientation of a stable monetary policy had not changed.
      PBOC's has now cut its reserve requirement for large banks four times since 2017.
      In 2018 the reserve ratio was cut by a total of 250 basis points, with the ratio cut by 100 points in April - the first cut since February 2016 - then by 50 points in June and by 100 points in October.

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Romania holds rate, cuts RR on FX liabilities 200 bps

     Romania's central bank left its monetary policy rate at 1.75 percent but lowered the minimum reserve rate on banks' foreign currency liabilities by 200 basis points to 8.0 percent to help counter a contraction in foreign currency credit in the banking system.
     The cut in the foreign currency reserve requirement also continues the harmonisation of Romania's reserve requirements with that of the European Central Bank (EBC) and brings this rate to the same rate that is applied to domestic leu liabilities of 8 percent.
     The National Bank of Romania (NBR), which has kept its monetary policy rate at the current level since May 2015, added the cut in the reserve requirement was done as its foreign reserves were above an adequate level and the composition of the reserves had improved.
    Romania's foreign reserves rose to 35.960 billion euros at the end of April, up from 34.695 billion at the of March.
     In today's meeting, the central bank's board approved of its latest inflation report - which will be released on May 15 - that forecasts a slightly lower path of inflation although it will continue to pick up through the forecast interval.
     The NBR has forecast that inflation will hit 1.7 percent by the end of this year, with wage increases and stronger consumption pushing up the rate to 3.4 percent by end-2018. The NBR targets inflation at a midpoint of 2.5 percent within a range of 1.5 to 3.5 percent. 
     Romania's headline inflation rate was unchanged at 0.2 percent in March and February, up from 0.1 percent in January as the country's pulled out of deflation that had gripped it since June 2015 when prices fell in response to a cut in the Value-Added-Tax rate.
     The central bank said economic growth had accelerated at a faster-than-expected pace in the fourth quarter of last year on rising exports.
     Last year Romania's economy grew by 4.8 percent, up from 3.9 percent in 2015, with activity driven by private consumption that hit a 9-year high of 7.3 percent amid an easing of fiscal and income policies and improved employment. In the fourth quarter Gross Domestic Product grew 1.4 percent from the third quarter, up from third quarter growth of 0.5 percent.
     On the negative side, the contribution of fixed capital formation to output was negative.
     The leu has been depreciating steadily against the euro in recent years and was trading at 4.55 to the euro today, practically unchanged since 4.54 at the start of the year.

Turkey hikes key rate 50 bps on inflation risk from lira

    Turkey's central bank raised its benchmark one-week repo rate by 50 basis points to 8.0 percent, saying the depreciation of the lira due to heightened global uncertainty and volatility posed an upside risks to inflation and it "decided to implement monetary tightening contain the adverse impact of these developments on expectations and the pricing behavior.
    The Central Bank of the Republic of Turkey (CBRT) also raised its overnight lending rate by 25 basis points to 8.50 percent while the borrowing rate was maintained at 7.25 percent. The lending rate in the central bank's late liquidity window was also raised 25 points to 10.0 percent.
    At the same time, the CBRT lowered the reserve requirement for foreign exchange liabilities by 50 basis points for all maturities, freeing up an approximate US$1.5 billion of liquidity to the financial system.
    It is the CBRT's first change to its base rate since February 2015 and the first rate hike since a 550 point emergency rate hike in January 2014 after the lira tumbled as investors started to move funds out many emerging market currencies, especially those coined the "Fragile Five:" Turkey, India, Indonesia, South Africa and Brazil.
    Many emerging market currencies have witnessed a sell-off since the election of Donald Trump in the U.S. In addition, the lira has been hit as investors are unnerved by the government's purges of state employees and others in the wage of a failed coup and doubts the CBRT would be able to act independently in the face of pressure from politicians to keep rates low.
    Prior to the election of Trump on Nov. 8, the CBRT had been slowly lowering the overnight funding rate by 250 basis points since March as inflation had been decelerating amidst the bank's effort to simplify its rate structure.
    Despite the central bank's rate hike, the lira dropped further today and was trading at 3.43 to the U.S. dollar, down 7.9 percent since the day prior to the U.S. Presidential election and down 14.7 percent since the start of this year.
    Turkey's headline inflation rate eased to 7.16 percent in October from 7.28 percent in September and the CBRT said economic activity in the third quarter had decelerated but it expects activity to recover from the final quarter due to the government's supportive measures and incentives.
    As in recent months, the CBRT said it was closely monitoring inflation and expectations and its cautious monetary policy stance would be maintained while future decisions would be conditional on the outlook for inflation.

Russia raises reserve ratio on FX by another 75 bps

    The Bank of Russia has raised its required reserve ratio on ruble and foreign currency liabilities of financial institutions by 75 basis points to help "absorb the part of liquidity inflow resulting from the Reserve Fund spending to finance the budget deficit and discourage growth of foreign currency denominated liabilities in the liability structure of credit institutions."
    The hike in reserve requirements follows a June 10 increase by Russia's central bank in the reserve requirement on bank's foreign currency liabilities by 100 basis points, a move that was also taken to discourage banks from lending to Russians in foreign currencies.
    At that point, the reserve ratio on ruble lending was left at 4.25 percent but the central bank said on June 10 that it was ready to take measures to mop up liquidity in light of a shift to surplus in the banking sector.
    As of Aug. 1, the reserve ratio on banks' liabilities in foreign currency will be raised to 7.00 percent from 6.25 percent that was scheduled to go into effect on July 1, while the ratio on lending in rubles, other than to individuals, will rise to 5.0 percent from 4.25 percent.

People's Bank of China Cuts RRR 50 basis points

The People's Bank of China (PBOC) announced a 50 basis point cut in the required reserve ratios (RRR) for deposit taking financial institutions, effective 18 May 2012.  The new required reserve ratios will average 20.00% for large banks, and 18.00% for small banks.  The move is expected to add as much as 400 billion yuan of liquidity to the financial system.  The move marks a continued shift in the policy bias to loosening, with the PBOC previously being content to use open market operations to adjust liquidity, in contrast to the higher profile RRR.

National Bank of Ukraine Cuts Discount Rate 25bps to 7.5%

The National Bank of Ukraine cut its discount rate by 25 basis points to 7.50% from 7.75% previously. The bank also cut the rate for transactions backed by treasury bills and the rate for non-collateral transactions by the same margin to 8.50% and 10.50% respectively.  The bank also eased reserve requirements in order to boost lending to the real sector of the economy.  Ukraine reported inflation of 3% in February and 3.7% in January this year.  The Ukrainian economy grew 4.6% on an annual basis in the December quarter (6.6% in Q3, 3.8% in Q2).  Ukraine's currency, the Ukrainian hryvnia (UAH), last traded around 8.03 against the US dollar.

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