Thursday, May 13, 2021

Serbia keeps rate 5th time, sees 6% 2021 GDP growth

     Serbia's central bank left its key interest rate steady for the fifth time and said the rising trend of global commodities called for "cautious monetary policy conduct" while past fiscal and monetary measures will continue to maintain favorable financial conditions amid stronger-than-expected first quarter growth.
      The National Bank of Serbia (NBS) kept its key policy rate at 1.0 percent, unchanged since it was cut in December as the central bank wrapped up last year's four cuts that totaled 125 basis points.
     Last year's easing measures extended the bank's easing cycle since November 2013 during which the rate was cut 28 times and by a total of 10.25 percentage points.
     In addition to the rate cuts, Serbia's government was aggressive in its response to the COVID-19 pandemic, passing fiscal packages worth some 8.5 percent of gross domestic product last year. It has proposed a third package worth around 4.3 percent of GDP this year to support economic recovery.
     The result of the stimulus was the contraction in Serbia's economy last year was limited to around 1 percent, one of the smallest in Europe, and economic activity already returned to pre-COVID levels in the first quarter of this year when GDP grew 1.2 percent year-on-year, boosted by exports.
     With vaccinations under way and the service sector expected to recover, NBS forecast growth this year of 6 percent based on the results of the first quarter, above the bank's initial projections and the International Monetary Fund's April estimate of 5 percent.
     Serbia's headline inflation rate jumped to 2.8 percent in May from 1.8 percent in April and NBS said it expects a "somewhat" higher rate in May as well but said this rise is temporary and reflects the low 2020 base and the pandemic-related collapse in global oil prices.
     NBS targets inflation of 3.0 percent, plus/minus 1.5 percentage points.
     A core inflation rate of 1.8 percent signals the absence to any major demand-side inflationary pressures, the bank said, adding it expects a stable movement around the current level in the period ahead.
      "The Executive Board emphasizes the importance of cautious monetary policy conduct, mainly in view of uncertainty in the global commodity market - the rising trend in prices of oil, primary agricultural commodities and food, which has been in place for quite a while," NBS said.
      The May inflation report will be published on May 19.

Sunday, May 9, 2021

This week in monetary policy: Romania, Philippines, Serbia, Mexico, Chile and Uruguay

    This week - May 10 through May 15 - central banks from 6 countries or jurisdictions are scheduled to decide on monetary policy: Romania, Philippines, Serbia, Mexico, Chile and Uruguay.
     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.

MAY 10 - MAY 15, 2021:
ROMANIA12-May1.25%0-251.75%         FM
PHILIPPINES13-May2.00%002.75%         EM
SERBIA13-May1.00%12:00001.50%         FM
MEXICO13-May4.00%13:000-255.50%         EM
CHILE13-May0.50%18:00000.50%         EM
URUGUAY14-May4.50%15:0000         N/A

Thursday, May 6, 2021

BOE maintains policy stance but boosts growth outlook

      The Bank of England (BOE) maintained its easy monetary policy stance by holding steady its key interest rate and target for bond purchases and while it raised its forecast for economic growth sharply, it underscored this outlook remains uncertain and hinges on the evolution of the COVID-19 pandemic.
     As in previous months, BOE said it "does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably."
      The bank's monetary policy committee (MPC) once again kept its bank rate at a rock-bottom 0.1 percent, unchanged since it was cut in March 2020 at the height of the pandemic.
      The MPC also voted to maintain its stock of corporate bond purchases of 20 billion pounds and to continue buying UK government bonds with a target of 875 billion.
      BOE originally began purchasing assets to keep down long-term interest rates in March 2009, in the depth of the global financial crises, and since then the total target has ballooned from 200 billion.
      The last boost to asset purchases came in November 2020 when the UK entered a second lockdown to control the pandemic and the target was raised by 150 billion pounds, the third increase in 2020.
      In a separate market note, BOE said the pace of the purchases under the existing 150 billion pound program, which began in January and will be completed by the end of this year, could now be slowed, but pointed out his operational decision should not be interpreted as a change in the stance of monetary policy.
     "The outlook for the economy, and particularly the relative movement in demand and supply, remains uncertain," BOE said, adding it continues to depend on how the pandemic evolves and measures taken to protect public health, and how households, businesses and financial markets respond to developments.
     But as seen in other countries, recent measures to contain the pandemic have had less of a dramatic impact on economic activity as in the early phase of the pandemic, and BOE said an estimated fall of around 1.5 percent in the country's gross domestic product in the first quarter was not as a bad as it had assumed in February.
     The United Kingdom has seen a sharp fall in COVID cases and vaccinations have proceeded, leading to a lifting on restrictions on economic activity.
     BOE said it expects growth in the second quarter to rise sharply though still be some 5 percent below the level seen in fourth quarter of 2019.
     "GDP is expected to recover strongly to pre-Covid levels over the remained of this year in the absence of most restrictions on domestic economic activity," BOE said, adding demand would be boosted as health risks and uncertainty falls, fiscal and monetary stimulus and by households running down around 10 percent of their additional accumulated savings over the next three years.
     "After 2021, the pace of GDP growth is expected to slow as the boost from some of those factors wanes," it added.
     The UK economy is now forecast to expand 7.25 percent in 2021, up from the February forecast of 5.0 percent and a 9.75 percent contraction in 2020, with inflation rising to 2.5 percent from 0.5 percent last year and an earlier forecast of 2.0 percent
      The pace of growth will ease to 5.75 percent in 2022, down from an earlier forecast of 7.25 percent, and then to 1.25 percent by 2023. Inflation in those two years will return to the bank's 2.0 percent target.

Wednesday, May 5, 2021

Brazil raises rate 2nd time and sees another hike in June

     Brazil's central bank raised its benchmark interest rate for the second time this year, as widely expected, and said it expects to raise its rate by the same amount at its next policy meeting as it continues to partially normalize its monetary policy stance.
     The Central Bank of Brazil (BCB) raised its Selic rate by another 75 basis points to 3.50 percent and has now raised it by 150 points this year following a similar-sized hike in March.
     "For the next meeting, the Committee foresees the continuation of the partial normalization process with another adjustment of the same magnitude in the degree of monetary stimulus," the bank's policy committee Copom said after a unanimous decision.
     The next meeting by Copom is scheduled for June 16.
     Despite a recent slowing in economic activity during a second wave of COVID-19, BCB said recent data had been better than expected and while uncertainty over economic growth remains larger than usual, growth should gradually return to normal.
     Today's rate hike was well-telegraphed, both by the bank's president, Roberto Campos Neto, and by Copom.
     In March BCB raised its Selic rate by 75 basis points in the first rate hike since July 2015 as it began what it said was a "partial normalization process" to reduce the extraordinary degree of stimulus. Copom said it would continue this normalization today and raise the rate by the same amount. 
     Bank officials have said the reference to "partial" normalization means the Selic rate will be raised aggressively early in the tightening cycle
     Last month Campos Neto reinforced Copom's message, saying the rate would be raised another 75 basis points at today's meeting unless something extraordinary happens.
     The two rate hikes follow a monetary easing cycle that included 21 rate cuts between October 2016 and September 2020, including 5 cuts in response to the pandemic.
     The first gentle shift toward tightening came in December last year when Copom altered its guidance and since then Brazil's inflation rate has continued to accelerate and is now above the bank's upper limit of its target range of 2.25 - 5.25 percent around a 3.75 percent midpoint.
     In March Brazil's inflation rate rose for the 10th month in a row to 6.1 percent from 5.2 percent in April - the highest since December 2016 - spurring economists in the bank's latest FOCUS survey to raise their 2021 inflation forecast to 5.0 percent from 4.9 percent.
     The survey also showed economists raised their forecast for Selic to end the year at 5.50 percent from 5.0 percent.
     For 2022 economists raised their inflation forecast to 3.6 percent from 3.5 percent.
     As seen across the world, rising food and commodity prices, including oil, is putting upward pressure on inflation, with a decline in the exchange rate of Brazil's real since 2019 adding further pressure.
     Although the real has firmed in the last two months, it has not recaptured pre-pandemic highs.
     The real was trading at 5.37 to the U.S. dollar today, up almost 10 percent since early March but still down 3.4 percent since the start of this year and 25 percent lower than the start of 2020.
     The rise in price pressures rise comes amid a slowdown in economic activity from a rise in COVID cases since March. Although daily cases have eased since late March, they remain higher than in the first wave last summer and deaths recently surpassed 410,000 for the 3rd highest total in the world following the U.S. and India.
      In April the IHS Markit Composite PMI eased to 44.5 in April from 45.1 in March, the fourth straight contraction, with business sentiment also the weakest since June 2020.
     BCB has been clear it is trying to strike a balance between curbing inflation while still ensuring the economic recovery continues.
     Brazil's gross domestic product shrank 4.1 percent last year, the steepest drop since records began in 1996 and the central bank has forecast 3.6 percent growth this year.

Tuesday, May 4, 2021

Armenia hikes rate 3rd time to cool inflation pressure

      Armenia's central bank raised its main interest rate for the third time in 6 months, saying it is necessary to gradually neutralize monetary stimulus due to inflationary pressures expected from other countries and from the domestic economy, which is recovering faster than expected.
     The Central Bank of Armenia (CBA) raised its refinancing rate by another 50 basis points to 6.0 percent and has now raised it 175 points following hikes in December 2020 and in February.
     "The board agrees that in the near future monetary policy will be consistent in neutralizing the risk of accelerating inflation expectations without harming the recovery of domestic demand as much as possible," the bank said, signaling it may raise rates further if needed.
      CBA said it is ready to respond to the risk that inflation deviates from the expected medium-term trend to ensure it achieves its objective of price stability.
     The central bank began tightening its policy stance in December last year when it raised the rate by 100 basis points as it began unwinding 4 rate hikes in early 2020 in response to the COVID-19 pandemic.
     The refinancing rate is now back to the level it was between February 2017 and January 2019 before CBA embarked on an easing cycle that continued until September 2020 when the rate was cut to a historic low of 4.25 percent.
      Central banks in Central Asia have been among the most aggressive in tightening their monetary policy this year to ward off rising inflationary pressures and keep inflation expectations in check, mainly due to the relative high impact of rising global food and commodity prices on consumer prices.
     Of the 13 different central banks that have raised rates this year, four of these are in Central Asia - Tajikistan, Kyrgyzstan, Georgia and Armenia - and all four have raised their rates twice, accounting for 42 percent of the 19 rate hikes worldwide so far this year.
     Inflation in Armenia, which had a military confrontation with neighboring Azerbaijan over the Nagorno-Karabakh region in October last year, rose for the fifth month to 5.8 percent in March to the highest level since April 2015, well above the bank's 4.0 percent target.
     CBA said the recovery of economic activity and demand, both globally and in its main trading partners, is leading to higher-than-expected inflation and it continues to expect an inflationary impact from the external sector to its economy.
     "The development of economic activity in the first quarter of 2021 indicate more positive economic trends that previously forecast by the central bank," CBA said, adding aggregate demand will recover faster than expected, helped by remittances and lending, though it will still remain weak.
     As a result, inflationary effects are beginning to emerge in Armenia's economy.
     Under the conditions of neutralizing the risk of accelerating inflation expectations without harming the recovery of domestic demand, CBA expects inflation to gradually decline after some acceleration in the short run before stabilizing around the 4.0 percent target. 
     Armenia's dram has been relatively stable this year after depreciating 8.3 percent last year against the U.S. dollar and was trading at 522.5 to the dollar today, down 0.5 percent this year.


Sunday, May 2, 2021

This week in monetary policy: Honduras, Australia, Armenia, Thailand, Poland, Albania, Brazil, Malaysia, Norway, UK, Turkey & Czech Rep.

     This week - May 3 through May 8 - central banks from 12 countries or jurisdictions are scheduled to decide on monetary policy: Honduras, Australia, Armenia, Thailand, Poland, Albania, Brazil, Malaysia, Norway, United Kingdom, Turkey and Czech Republic.
     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.

MAY 3 - MAY 8, 2021:
AUSTRALIA4-May0.10%14:30000.25%         DM
THAILAND5-May0.50%000.50%         EM
POLAND5-May0.10%000.10%         EM
BRAZIL5-May2.75%18:3075753.00%         EM
MALAYSIA6-May1.75%002.00%         EM
NORWAY6-May0.00%10:00000.00%         DM
UNITED KINGDOM6-May0.10%12:00000.10%         DM
TURKEY6-May19.00%14:0002008.25%         EM
CZECH REPUBLIC6-May0.25%14:30000.25%         EM

Friday, April 30, 2021

Moldova holds rate, cuts reserve requirement 3rd time

      Moldova's central bank left its benchmark interest rates steady - unchanged since November last year - but lowered the reserve requirement for the third time in less than two months, saying this was aimed at mitigating and counteracting the negative effects of the COVID-19 pandemic on the country's economy and strengthening its position in supporting a recovery.
     The National Bank of Moldova (NBM) left its base rate at 2.65 percent and the interest rate on overnight loans and deposits at 5.15 percent and 0.15 percent, respectively.
     Last year the central bank cut its key rate five times and by a total of 285 basis points from March through November. 
     But at its regular meeting in early March this year the bank's executive committee cut the reserve requirement on bank's domestic currency and non-convertible deposits by 200 basis points to 30 percent to help boost inflation - which hit 0.2 percent in January - and relaunch economic activity by maintaining adequate liquidity, lower the cost of funds for banks and ensure lending activity continues to rise.
      The easing was also aimed at mitigating the risks associated with a negative fiscal momentum during what the bank said was "intensifying political uncertainty."
      At an extraordinary committee meeting on April 5, the reserve requirement on leu deposits was then cut by another 200 basis points to 28 percent as liquidity, after initially rising, declined to 3.4 billion leu in early April from 7.1 billion in mid-March, mainly due to tax payments.
     NBM said the cut would help avoid any crowding for funds out as demand from the finance ministry was rising.
     At its regular meeting today, the executive committee then lowered the reserve requirement for the third time since March 5 by another 200 basis points to 26.0 percent. The requirement for convertible currency deposits remains at 30 percent. 
     In the last two months Moldova's inflation rate has begun to pick up and rose to 1.5 percent in March but remains far below the central bank's target of 5.0 percent, plus/minus 1.5 percentage points.
    The bank's latest inflation report will be published on May 7.
     In the February report, NBM lowered its forecast for inflation to 1.8 percent from 2.5 percent but expected inflation to return to the target corridor in the first quarter of 2022, helped by a recovery of aggregate demand, which, however, will still remain negative throughout the forecast period.
     The economy of the landlocked, Eastern European country that borders Romania and Ukraine shrank an annual 3.3 percent in the fourth quarter of last year, up from a fall of 9.7 percent in the third quarter and a 14 percent fall in the second quarter.


Wednesday, April 28, 2021

Georgia hikes rate 2nd time, inflation pressure intense

     Georgia's central bank raised its key interest rate for the second month due to above-target inflation and "intensified" inflationary pressures - the third monetary authority in Central Asia to raise its rate this week - and said further monetary tightening would depend on inflation expectations.
     The National Bank of Georgia (NBG) raised its refinancing rate by 100 basis points to 9.50 percent and has now raised it 150 points this year following last month's 50-point hike.
      In an effort to lower the high level of dollarization - estimated at over 60 percent in 2019 in Georgia compared with less than 20 percent of average in other developing countries - the central bank will begin to levy reserve requirements on a sliding scale that is based on each individual bank's dollar deposits.
      This year's two hikes by NBG takes the rate back to its level in October 2019 when the bank was in the midst of monetary tightening cycle that began in September 2019 when the rate was raised twice that month to ward off pressure on the lari's exchange rate.
     But the arrival of the COVID-19 pandemic forced NBG - like other central banks - to change course and the rate was cut three times in 2020 (April, June and August) by a total of 100 basis points.
     With the global economy recovering and commodity prices worldwide accelerating, inflationary pressures are rising and central banks are now beginning to unwind some of the extraordinary monetary stimulus unleashed last year and normalize their policy stance.
      Georgia is among 13 central banks worldwide, mainly in smaller and more inflation-sensitive nations, to have raised their key interest rates so far this year. 
     But three larger emerging market countries (Turkey, Brazil and Russia) have also raised rates and Canada last week became the first developed economy to begin rolling back some of its stimulus by trimming asset purchases.
      Today's rate hike comes as a surprise as NBG in March said there was "no apparent need of additional policy tightening over the course of the year" despite raising its inflation forecast.
     But circumstances had changed since that meeting, the bank said, raising its inflation forecast again.
    NBG now expects inflation to average around 6.5 percent this year, up from the March forecast of 4.0 to 4.5 percent and the February forecast of 4.0 percent.
     As last month, NBG still expects inflation to gradually approach its 3.0 percent target.
     "A possible further tightening of monetary policy will depend on inflation expectations and the dynamics of factors affecting it," NBG said.
     Inflation in Georgia jumped to 7.2 percent in March from 3.6 percent in February, mainly due to the scheduled end of subsidies of utility fees. The central bank noted the subsidiary will also have a base effect and upward impact on inflation in December this year and in January-February 2022.
     But upward pressure on inflation is also coming from three other sources.
     Commodity prices, including oil and food, are putting upward pressure on inflation and production costs remain high after due to the closure of many facilities during the pandemic.
     Thirdly, the exchange rate of Georgia's lari has continued to weaken since June last year, with the high dollarization in the country adding further fuel to the fire. 
     With the prospects for tourism still uncertain, there is less foreign exchange coming in and the central bank said domestic demand is recovering - supported by fiscal spending - and this is boosting imports.
     "Based on the aforementioned factors, it is clear that the pressure on inflation coming from high dollarization and the exchange rate is still strong," NBG said.
     As other currencies, Georgia's lari plunged in March last year but then after rebounding to early June, it has steadily weakened. Although it rose slightly today, it was trading at 3.45 to the U.S. dollar, down 5.2 percent this year and down 17 percent since the start of 2020.
     In addition to limiting the effect of monetary policy, dollarization can also impact financial stability and NBG said from July it would set minimum reserve requirements for banks' foreign currency deposits on an individual basis.
      If dollarization exceeds 40 percent of deposits with a maturity of up to one year, the reserve requirement will be lowered to 10 percent from 25 percent. But if dollarization is 70 percent or more, it will remain 25 percent. Between those two levels, the requirement will decline as the amount of dollars is lowered.
     For foreign currency deposits with maturity of 1 to 2 years, the reserve requirement will be lowered to 10 percent from 15 percent.
     "This change will help to intensify competition in the GEL deposit market, gradually increase the demand for GEL and ease the pressure in the foreign exchange market," the bank said.

Tuesday, April 27, 2021

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

      The central bank of Kyrgyzstan raised its key interest rate for the second time this year and didn't exclude further rate hikes, saying rising global commodity prices are pushing up inflation and while there are signs of a recovery of the domestic economy, demand remains weak.
     The National Bank of the Kyrgyz Republic (NBKR), one of only a handful of central banks to have raised its rate last year in the face of the COVID-19 pandemic, raised its discount rate by another 100 basis points to 6.50 percent and has now raised it 150 points this year following a hike in February.
    "The continuing rise in prices on world commodity markets determines the upward dynamics of inflation in the Kyrgyz Republic in the near future," the bank said, adding in the event of any risks, it doesn't exclude the possibility of making additional changes to its monetary policy stance.
     In March 2016 NBKR shifted into a monetary easing cycle but this came to an end in February last year when the central bank raised the rate to dampen inflationary pressures.
     Inflation in the former Soviet republic eased to 8.6 percent as of April 16, the bank said, from 10.23 percent in March, with the main upward pressure by external factors, such as accelerated growth in the prices on world food markets and limited supply in producer countries.
     But NBKR said a possible rise in a number of administered prices will contribute to inflation on top of the rise in food prices, leading to higher inflation by the end of the year.
     NBKR intends to move to inflation-targeting in the medium term and last month the International Monetary Fund (IMF) said it will be important to strengthen the bank's autonomy, governance structure, recapitalization rules, the money markets along with the resolution framework to ensure a smooth transition.
     After contracting by 8.6 percent last year due to a drop in tourism, non-gold exports and slower economic activity, Kyrgyzstan's economy is showing signs of recovery, NBKR said.
     However, domestic remains weak - real wages fell by 5.3 percent in the first two months of the year - while remittances rose 6.4 percent to US$254.1 million during the same period, helping boost domestic consumption, the bank added.
     On March 31 IMF said it expects Kyrgyzstan's economy to expand 3.8 percent this year and 6.4 percent in 2022, underpinned by a recovery in the global and domestic economy, higher gold production, an increase in remittances from oil-exporting neighbors and a rebound in tourism, transportation and related services.
     The IMF expects growth to gradually converge to its potential of 4 percent in the medium term while inflation will remain elevated in coming months but then ease to around 7.4 percent by the end of this year and return to the bank's target range of 5-7 percent thereafter.
     Kyrgyzstan's som has been trading near lows of just below 85 to the U.S. dollar most of this year, the same level it hit April last year, and NBKR said the revitalization of the country's economy along with continued volatile commodity prices had led to an increase in demand for foreign currency in the domestic foreign exchange markets.
     The central bank noted it participates in the foreign exchange market to smooth out sharp fluctuations and while the IMF said FX interventions are used to smooth excessive volatility, the exchange rate should remain market driven going forward.
     "However, the exchange rate alone cannot address the underlying structural weakness of the balance of payments, which require deep structural reforms to improve the competitiveness of the economy," the IMF said.
      In 2020 Kyrgyzstan's budget deficit widened to 3.3 percent of gross domestic product and the IMF expects the deficit to widen further this year to 4.2 percent of GDP while the overall level of public debt rose to 68 percent of GDP, with authorities faced with the challenge of lowering debt while creating fiscal space for development.
     IMF recommends lowering public debt to below 60 percent by 2025.
    The som was trading at 84.8 to the U.S. dollar today, down 2.4 percent since the start of this year and down 18 percent since the start of 2020.

Sunday, April 25, 2021

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

    This week - April 26 through May 1 - central banks from 17 countries or jurisdictions are scheduled to decide on monetary policy: Kyrgyz Republic, Kazakhstan, Japan, Sweden, Hungary, Tajikistan, Georgia, United States, Guatemala, Botswana, Egypt, Azerbaijan, Moldova, Malawi, Bulgaria, Zimbabwe and Colombia.
     Following table includes the name of the country, the date of the next policy decision, the current policy rate, the local time a policy decision is announced, the result of the last policy decision, the change in the policy rate year to date, and the rate one year ago.
    The table is updated when the latest decisions are announced and can always be accessed by clicking on This Week.

APR 26 - MAY 1, 2021:
KAZAKHSTAN26-Apr9.00%15:00009.50%         FM
JAPAN27-Apr-0.10%00-0.10%         DM
SWEDEN27-Apr0.00%9:30000.00%         DM
HUNGARY27-Apr0.60%000.90%         EM
UNITED STATES28-Apr0.25%14:00000.25%         DM
EGYPT29-Apr8.25%009.25%         EM
BULGARIA30-Apr0.00%000.00%         FM
COLOMBIA30-Apr1.75%003.25%         EM