Lesotho raises rate 2nd time but cuts growth outlook

       Lesotho's central bank raised its main interest rate for the second time, saying this is to "ensure that the domestic costs of funds remains aligned with the rest of the region."
      The Central Bank of Lesotho (CBL) raised its CBL rate by another 25 basis points to 4.0 percent and has now raised it 50 points following the first rate hike in 3 years in November 2021 and today.
     CLB also revised upwards its target floor for Net International Reserves to US$$790 million from $760 million to maintain the exchange rate peg of Lesotho's loti with the South African rand.
     CBL's rate hike comes after the South African Reserve Bank (SARB) also raised its rate by 25 basis points on Jan. 27, SARB's second rate hike after a first hike in November last year.
     CBL's objective of price stability is achieved by ensuring the peg between the loti and the rand, known as an exchange rate targeting monetary policy framework.  CBL maintains enough foreign currency reserves to guarantee every loti issued.

      The monetary tightening comes as CBL revised downwards its forecast for domestic economic growth by an average of 0.2 percent points for the medium term, saying "risks to the domestic economic outlook included an unpredictable path of COVID-19 pandemic and uncertain fiscal outlook."

Kazakhstan raises rate 4th time to lower inflation

     Kazakhstan's central bank raised its benchmark interest rate for the fourth time, saying it was continuing to tighten its monetary policy stance to reduce inflation expectations and bring inflation back into its target range of 4.0 to 6.0 percent by the end of 2022.
     The National Bank of the Republic of Kazakhstan (NBK) raised its base rate by a further 50 basis points to 10.25 percent and has now raised it 1.25 percentage points following rate hikes in July, September, October and today.

     After raising its rate sharply in March 2020 to curb inflation, NBK had to change course the following month due to the COVID-19 pandemic and cut its rate in April and July by a total of 3 percentage points.
     At its previous meeting in early December 2021, the bank's monetary policy committee maintained the rate due to a slowdown in inflation and uncertainty about the impact of the Omicron variant of COVID-19.

      However, NBK also said it would continue to tighten its policy stance "more decisively" if the decline in inflation and inflation expectations did not stabilize.
     "The internal situation, despite the presences of disinflationary precesses in recent months, is characterized by the presence of significant pro-inflationary risks both on the demand and supply side," NBK said, adding inflation continues to be elevated in most countries around the world.
     Kazakhstan's inflation rate eased for the second month to 8.4 percent in December from a 2021-high of 8.9 percent in September and October, helped by the government's anti-inflationary measures, which helped food inflation decelerate.
     However, the cost of other non-food items rose, with gasoline prices up 19.6 percent and diesel fuel up 46.5 percent.
     "The trajectory of core inflation points to the instability of the slowdown in inflationary processes," NBK said, adding most respondents in its survey still expect the current rise in prices to continue or accelerate in the next 12 months.
     To help lower inflation, the central bank said it had already withdrawn from programs that support the economy and confirmed it still expects inflation to decelerate to around 6.0 to 6.5 percent by end-2022.
     However, the central bank there may be an increase in inflationary pressures in the first quarter of this year due to the comparison with a relatively low base in the first half of 2021 and "in connection with the tragic events in Kazakhstan in early January this year."
      Protests and rioting broke out in the capital of Almaty in early January over fuel prices that only ended after the president declared a nationwide state of emergency and ordered security forces to shoot to kill without warning. The official death toll hit 225.

     www.CentralBankNews.info

     

Paraguay raises rate 6th time but says outlook weaker

      Paraguay's central bank raised its monetary policy rate for the sixth consecutive month - becoming the 10th central bank to raise rates this year - but slowed the pace of monetary tightening sharply, citing a weaker economic outlook due to drought and the latest wave of the COVID-19 pandemic.
      The Central Bank of Paraguay (BCP) raised its monetary policy rate by 25 basis points to 5.50 percent and has now raised it a total of 4.75 percentage points in the last six meetings of its monetary policy.

      It was only the second time since August, 2021, when BCP began the current monetary tightening cycle, the rate was raised by 25 basis points and the policy rate is now back to its level in the 12 months from July 2016.

      Pointing to the downside risks from the recent rise in COVID-19 cases due to the Omicron variant, a unanimous policy committee said it "considered its appropriate to continue with the process of normalization of monetary policy, but with a moderation of the pace of adjustment."
      In August last year, when BCP began rolling back its five rate cuts in 2020, which totaled 3.25 percentage points, the rate was raised by 25 basis points.
     However, BCP quickly accelerated the pace of monetary tightening.
     In September 2021 the rate was raised 50 basis points and then in the following three months (October, November and December), the rate was raised 125 basis points each month.

     At its last policy decision in December, BCP said the spread of COVID-19 in the region was moderate but today it said there was now a rise in infections linked to the Omicron variant and this amounted to a downside risks to the prospects for economic growth this year in the region.

     And while the cases of COVID-19 have risen worldwide, BCP said the waves of the contagion and the death rate from the Omicron variant was lower that in previous waves and data for December confirmed an improvement in global output based on higher manufacturing but slower services output.

     BCP has forecast economic growth of 5.0 percent for 2021 and 3.7 percent for 2022.

     The monthly indicator of economic activity (IMAEP) grew 4.8 percent in November but the central bank said downside risks to economic activity, such as adverse weather and a deterioration of the health situation, had materialized in recent weeks.

     However, with the length of the latest waves of the virus expected to be of shorter and the level of vaccinations improving, BCP said the impact of Omicron could have less impact on economic activity, especially in the services sector.

     As far as the balance of risks, BCP pointed to the rise in oil prices and the impact of the U.S. Federal Reserve's "imminent" normalization of its benchmark interest rate, which could push up inflation.

     Countering this upward pressure, the central bank pointed to the weaker outlook for the domestic economy due to drought and pandemic.

     Inflation in land-locked Paraguay has decelerated since hitting 7.6 percent in October and dropped to 6.8 percent in December.

    www.CentralBankNews.info

Norway maintains rate but still eyes March hike

     Norway's central bank left its policy rate steady, as expected, but said it would "most likely" raise the rate in March as the upswing the country's economy had continued and underlying inflation had risen more than expected and was now close to the bank's inflation target.
     Norges Bank (NB) left its policy rate at 0.5 percent after raising it twice in the second half of 2021 (September and December) by a total of 50 basis points.
     "Based on the Committee's current assessment of the outlook and balance or risks, the policy rate will most likely be raised in March," said NB Governor Oeystein Olsen in a statement.
     In response to the COVID-19 pandemic, NB cut its rate three times and by a total of 1.5 percentage points to 0.0 percent and also slashed banks' countercyclical capital buffer by 1.5 percentage points to counter any tightening of banks' lending standards, which would amplify the economic downturn.
     But helped by the bounce-back in crude oil prices and the global economy, Norway's economy recovered swiftly in the second and third quarters of 2021, and headline inflation has topped the bank's 2.0 percent  target all year.

      In December last year, when NB raised its rate for the second time, it also raised the countercyclical capital buffer as of Dec. 31, 2022 and said it would most likely raise the rate again in March this year.
     Norway's headline inflation rate rose to a 2021-high of 5.3 percent in December, 2021, from 5.1 percent in November while the core inflation rate, which strips out tax changes and energy, rose to 1.8 percent from 1.3 percent.
    Norway's economy grew 5.1 percent year-on-year in the third quarter of 2021, down from 6.2 percent in the second quarter and while NB said higher COVID-19 infection rates had help back activity, unemployment appeared to be lower than it had forecast and relaxation of containment measures will likely contribute to a continued economic upswing.
     "Monetary policy is expansionary," the bank's monetary policy and financial stability committee said, adding:
    "In the Committee's assessment, the objective of stabilizing inflation around the target somewhat further out suggests that the policy rate should be raised towards a more normal level."

     NB publishes its monetary policy report four times a year - in March, June, September and December - and normally makes changes to its policy stance at the same time.

Sri Lanka raises rate 2nd time to ease demand

     Sri Lanka's central bank raised its key interest rates for the second time in six months and took further measures to boost foreign exchange reserves, saying these measures "will curtail the possible build-up of underlying demand pressures in the economy, which would also help ease pressures in the external sector, thus promoting greater macroeconomic stability."
     The Central Bank of Sri Lanka (CBSL) raised its Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) by 50 basis points each to 5.50 percent and 6.50 percent, respectively.
     The rates have now been raised by 1 percentage point since CBSL began tightening its policy stance in August 2021 when it began to roll back the five rate cuts in 2020 - which totaled 2.50 percentage points - in response to the impact of the COVID-19 pandemic which hit its economy and tourism sector hard.

     Sri Lanka's inflation rate has risen steadily this year and although CBSL said it expects the supply-driven price pressures to be transitory, it also said "the possible build-up of demand driven inflationary pressures may compel the adoption of proactive monetary policy measures, which will also help in managing inflation expectations."

     Sri Lanka's inflation rate accelerated in the last three months to 12.1 percent in December from 9.9 percent in November and 3.0 percent in January.

     Sri Lanka's tourism sector was already under strain from the Easter Sunday bombings in 2019, which killed 267 people, and the central bank has estimated the country lost about US$9 billion in tourism revenues from the pandemic.

     The rise in oil prices delivered another blow to the country's dwindling foreign exchange reserves and Sri Lanka has undertaken a series of initiatives to restructure loans and rebuild currency reserves.

     Today, CBSL took several other measures, including mandating all registered tourist businesses to accept foreign exchange only for services to visitors from abroad and extending the timeline for additional incentive payments for remittances of U.S. dollars until April 30 from January 31.

     "In keeping with this policy stance, the Central Bank expects a corresponding increase in interest rates, particularly in deposit rates, thereby encouraging savings, while discouraging excessive consumption, which also fuels imports," the central bank said.

      Sri Lanka's economy shrank by 1.5 percent year-on-year in the third quarter of last year, down from growth of 12.3 percent in the second quarter but CBSL said economic activity toward the end of last year appears to have gathered momentum, helped by vaccinations, and forecast 2021 growth of around 4.0 percent, up from a contraction of 3.6 percent in 2020.

     Last week Ajith Nivard Cabraal, the bank's governor, forecast growth of around 5.5 percent in 2022.

Congo cuts rate 4th time as inflation seen easing

      The central bank of the Democratic Republic of Congo cut its benchmark interest rate for the fourth time in 10 months, saying this should strengthen the financing of the country's economy in Congolese francs and thus support the de-dollarization of the economy amid a greater control of inflation.
      The Central Bank of Congo (BCC) cut its key interest rate by 1 percentage point to 7.50 percent and has now cut it 11 percentage points after embarking on an easing cycle in March 2021 and following this up with rate cuts in April and June.

      Including the latest rate cut, BCC has now completely unwound an 11 percentage point rate hike in August 2020 that was aimed at anchoring inflation expectations after the Congolese franc plunged, pushing up import prices and inflation, due to the collapse in global demand for raw materials and metals during the crises-phase of the COVID-19 pandemic.

      Congo is Africa's largest copper producer and the world's leading miner of cobalt, used in batteries.

      The latest rate cut was decided at meeting of the bank's monetary policy committee (CPM) on Dec. 30, 2021 and announced on the bank's website in a statement dated Jan. 2, 2022.

      In addition to the rate cut, CPM said banks' mandatory reserves should be in local currency from now.

      "2021 was marked by a stability in the macroeconomic framework," BCC said, adding this was a reflection a good coordination of monetary and budgetary policies.

       Based on the latest estimates, BCC estimated economic growth in 2021 of 5.7 percent, up from 2020's 1.7 percent, and forecast growth this year of 6.1 percent.

       BCC estimated inflation in Congo in 2021 of 5.1 percent in 2021, saying this reflected the relatively stable exchange rate, and inflation of around 5.0 percent in 2022.

       The Congolese franc fell sharply in May 2020 in response to the pandemic, and continued its sharp fall until BCC's rate hike in August, which came the month after the current governor, Malunga Kabuki Mbuyi, was appointed as the country's first female governor.

      After the sharp rate hike, the franc stabilized but ended the year down some 14 percent against the U.S. dollar.

       In 2021 the franc mainly moved sideways against the dollar, but below the 2,000 level, to end the year 0.9 percent below its level at the start of the year.

      So far this year the franc has strengthened marginally and was trading at 1,991.4 to the U.S. dollar today, up from 1,993.1 at the start of the year.

     "The CPM stressed that the outlook for 2022 is good for the Congolese economy," BCC said, adding the forecast for growth and inflation was based on the "rigorous implementation of sound economic policies" begun in 2021, particularly a respect of the stability pact between the central bank and the finance ministry, the "meticulous: execution of structural reforms, and alignment of monetary and budgetary policies.

     www.CentralBankNews.info

     

     

South Sudan cuts rate, RRR to boost economic growth

      South Sudan's central bank lowered its policy rate and its reserve requirements to achieve 1.0 percent economic growth in the current fiscal year, maintain inflation in single digits, boost lending to the private sector and increase international reserves.
      In a statement by its new governor, Moses Makur Deng, the Bank of South Sudan (BOSS) cut its central bank rate by 300 basis points to 12 percent for 2022 and the minimum reserve requirement ratio (RRR) on local currency deposits by 500 points to 15.0 percent. 

     The reserve ratio on foreign currency deposits was lowered to 20.0 percent, according to a statement on the bank's website with highlights from a press conference on Jan. 11.

     "Lower interest rates encourage economic activity and thus growth," said Deng, who was sworn in on Jan. 5, 2022 as governor and chairman of the bank's board of directors, replacing  Dier Tong Ngor.

      Deng, previously the central bank's director general for bank supervision, research and statistics, was instructed by the country's president, Gen. Salva Kiri Mayardit, to work hard with his counterparts, the ministry of finance and other institutions to improve the country's economy and to work for price stability, according to the BOSS website.

      In response to the COVID-19 pandemic, BOSS lowered its central bank rate by 200 basis points in April 2020 and then another 300 points in July to 10.0 percent. BOSS also lowered the reserve requirement by a total of 10 percentage points.

      But in November 2020, at an extraordinary monetary meeting, BOSS took several measures to tighten its monetary policy to counter the drop in the exchange rate of the thinly-traded South Sudanese pound.

     This included raising the interest rate by 500 basis points to 15.0 percent - unwinding the two rate cuts in April and July - doubling the reserve requirement and cash reserve ratio to 20 percent, laying out plans to introduce bills to manage liquidity and boosting its role as a supervisor.

      The economy of South Sudan, which gained independence from Sudan in 2011, was hit hard by the fall in oil prices and the pandemic in 2020, with the economy shrinking 3.6 percent and both fiscal and balance of payments deficits widening.

      In the past, monetization of fiscal deficits resulted in high inflation and exchange rate depreciation but starting in October 2020 authorities stopped monetary financing of the deficit and this has helped stabilize the exchange rate along with FX auctions.

      In March last year the International Monetary Fund's (IMF) executive board approved a payment of US$172.2 million to South Sudan, half of its quota, the second financial assistance by the IMF since South Sudan joined in 2012.

     Deng said BOSS had managed to unify the multiple exchange rates and stabilize the South Sudanese pound at 432 per U.S. dollar as of Dec. 31, 2021 and headline inflation had declined significantly to 13.2 percent in December last year from 58 percent in December 2020.

     "The Bank of South Sudan is also determined to bring down further to a single digit by the end of 2022," Deng said, targeting annual inflation of 8.0 percent with a margin of plus/minus 1 percentage point.

     Other objectives include 1.0 percent gross domestic product growth in fiscal 2021/22, which began July 1, commercial bank lending to the private sector of 40 percent of total deposits and building international reserves of about 4.0 months of import cover.

      BOSS's operational policy target was to maintain nominal growth of broad money at around 9.0 percent, plus/minus 1 percent, and will use minimum reserve requirements, open market operations, the central bank rate and foreign exchange operations to achieve the operational target.

      As part of open market operations, which helps regulate money supply and credit conditions through the sale and purchase of eligible securities, Deng said BOSS on Feb. 1 would introduce Term Deposit Facilities (TDF) to acquire deposits through transfers with commercial banks at an agreed auction price. 

      

     www.CentralBankNews.info

Romania raises rate 3rd time, Q4 economy at standstill

     Romania's central bank raised its main interest rate for the third time as it normalizes its monetary policy stance amid a worsening outlook for near-term inflation, but also also said economic activity in the fourth quarter of 2021 had come to a "standstill" due to the fourth wave of the COVID-19 pandemic, supply bottlenecks and the energy crises.
     The National Bank of Romania (NBR) raised its monetary policy rate by a further 25 basis point to 2.0 percent and has now raised the rate a total of 75 basis points following rate hikes in October and November last year, and today.
      In response to the pandemic, the central bank in 2020 cut the rate four times and by a total of 1.25 percentage points and the rate is now back to its level in March 2020 after the first rate cut.
     NBR also widened the interest rate corridor to plus/minus 1 percentage point around the policy rate from 75 basis points, raising the Lombard lending rate to 3.0 percent from 2.50 percent while the deposit rate will be maintained at 1.0 percent.

    "These decisions are circumscribed to the process of gradual normalization of the monetary policy conduct that the NBR is carrying out, amid high uncertainties," the bank's board said, adding it was also maintaining firm control of liquidity in the money markets.

     Romania's inflation rate eased to 7.80 percent in November from 7.94 percent in October but NBR said inflation is expected to rise gradually in coming months despite measures to cap electricity and gas prices for households due to higher-than-expected impact of supply-side shocks, higher-than-expected increases in natural gas and electricity prices, and processed food prices.

     NBR said this is likely to amplify and prolong the deviation of inflation from the upper bound of its target although there are still significant uncertainties over how the price caps will feature in the calculation of prices along with the outlook for commodity prices and global supply bottlenecks.

     The central bank targets inflation of 2.5 percent, plus/minus 1 percentage point.

     Romania's economy slowed to 0.4 percent quarterly growth in the third quarter from 1.5 percent in the second quarter - a move that was "contrary to expectations," according to NBR - and recent data point to a standstill in economic activity in the fourth quarter, which entails lower growth than forecast in November.

     In November NBR raised its forecast for inflation in 2021 to 7.5 percent from the August forecast of 5.6 percent, with inflation gradually easing in 2022 to 5.9 percent by the fourth quarter and then 3.3 percent buy the third quarter of 2023.

Forty-one central banks raise rates 124 times in 2021

      The final week of 2021 ended with another central bank raising its interest rate, boosting the number of rate hikes to 124 - a sharp contrast to 2020s 13 rate hikes and 256 rate cuts - as central banks in 41 countries tightened monetary policy to ensure inflationary pressures, ignited by an economic recovery amidst bottlenecks in global supply chains, remain under control.

      The central bank of the Dominican Republic in the Caribbean took the honor as the final monetary authority to raise its rate in 2021, illustrating how universal the trend toward monetary tightening was.

      During 2021 central banks took 557 monetary policy decisions, with only 12 percent of all decisions that ended in a change to interest rates leading to a rate cut. (17 rate cuts)

      In contrast, 89 percent of all rate changes resulted in rate increases as central banks from Mozambique in Southern Africa to Norway and Iceland in Northern Europe began to unwind the monetary stimulus unleashed in 2020 during the initial waves of the COVID-19 pandemic.

      One of the distinguishing features of central banks' response to the pandemic was the use of a vast array of monetary tools - including asset purchases, reserve requirements or low cost loans in addition to rate cuts - to prevent financial and banking systems from freezing up.

      But with economies worldwide bouncing back, central banks are now gradually normalizing their monetary policy stance by rolling back these easing measures. But the process is slow and fraught as financial markets have become accustomed to easy monetary conditions.

      The global monetary policy rate, or the average interest rate of 104 central banks, ended the year at 5.51 percent, up 1.3 percentage point from end-2020, but remains below 5.69 percent at the end of 2019 and 6.42 percent at the end of 2018.

       Below is an overview of monetary policy changes, month-by month, in 2021 followed by changes to monetary policy as carried out by central banks in developed markets, emerging markets, frontier markets, and other markets:

MONETARY POLICY CHANGES BY MONTH:

      DECEMBER:

      EASING: China cuts reserve requirement, main interest rate and offers low-cost green loans, Taiwan rolls over special credit facility for banks by 6 months,Turkey cuts rate, ECB to increase monthly asset purchases in Q2 and Q3, 2022, Japan extends special Covid-19 financing 6 months, UAE extends several economic support measures and Saudi Arabia extends deferred payment program.

      TIGHTENING: Moldova, Georgia, Poland, Brazil, Ukraine, Poland, Pakistan, Armenia, Hungary, Chile, Costa Rica, Norway, United Kingdom, Mexico, Azerbaijan, Russia, Colombia, Jamaica, Paraguay, Czech Republic, Sierra Leone and Dominican Republic raise rates. 

      USA to reduce asset purchases by $30 billion a month, ECB to end pandemic asset purchases in March 2022 and Japan to end additional purchases of CP and corporate bonds end March, 2022, as scheduled.

      NOVEMBER:

      EASING: Turkey cuts rate.

      TIGHTENING: Australia discontinues yield target on 3-year government bond, the US begins to reduce monthly asset purchases by $15 billion, Hungary ceases using FX swaps to provide forint liquidity and to use new discount bills to help sterilize liquidity, and makes interest rate corridor asymmetric by raising overnight deposit, lending and one-week lending rates.

      The following 18 banks raise rates: Poland, Czech Republic, Romania, Mexico, Uruguay, Peru, Jamaica, Hungary, Iceland, South Africa, Pakistan, Ghana, Paraguay, Lesotho, New Zealand, Zambia, Dominican Republic, South Korea and Kyrgyzstan raise rates. 

      OCTOBER:

      EASING: Uganda lets credit relief measures expire but continues with interventions for those sectors that remain under lockdown and liquidity assistance maintained, and Turkey cuts rate.

      TIGHTENING: Romania, Moldova, Uruguay, New Zealand, Iceland, Poland, Peru, Chile, Hungary, Paraguay, Russia, Tajikistan, Kazakhstan, Brazil, Zimbabwe, Azerbaijan and Colombia raise rates. Serbia raises rate on reverse repo auctions and cancels repo auctions, Kuwait starts unwinding crises measures, Singapore raises slope of S$ policy band and Canada ends quantitative easing.

      SEPTEMBER:

      EASING: Australia extends weekly bond purchases of $4B by 3 months, Mozambique lowers reserve requirement, Saudi Arabia extends deferred payment program, and Turkey and Denmark cut rates.

      TIGHTENING: Moldova, Ukraine, Peru, Russia, Kazakhstan, Armenia, Azerbaijan, Pakistan, Hungary, Paraguay, Brazil, Norway, Czech Republic, Mexico, Jamaica and Colombia raise rates, ECB reduces asset purchases in Q4 moderately, UAE starts gradual and well-calibrated withdrawal of extraordinary stimulus measures, Iceland raises countercyclical capital buffer and caps debt service-to-income ratios and Dominican Republic starts normalization of monetary policy.

      AUGUST:

      EASING: Liberia

      TIGHTENING: Armenia, Georgia, Brazil, Czech Republic, Uruguay, Mexico, Peru, Sri Lanka, Paraguay, Hungary, Iceland, South Korea and Chile raise rates. Czech Republic also raises countercyclical capital buffer.

      JULY:

      EASING: China cuts required reserve ratio for all banks, Fiji increases size of disaster and rehabilitations containment facility and Seychelles cuts minimum reserve requirement.

      TIGHTENING: Angola, Chile, Belarus, Ukraine, Russia, Kazakhstan, Kyrgyzstan, Hungary, Tajikistan and Moldova raise rates, Israel ends business loan program, Australia trims weekly bond purchases from September, New Zealand ends asset purchases, and Canada trims weekly bond purchases.

      JUNE:

      EASING: ECB to purchase assets under PEPP at significantly higher pace in Q3 that in first months of year, Japan extends COVID-19 special financing program 6 months until end-March, 2022, Uganda, Democratic Republic of Congo and Seychelles cut rates, Saudi Arabia extends Covid-19 financing support program for micro, small and medium enterprises and Fiji lowers interest rate on disaster and rehabilitation containment facility.

      TIGHTENING: Russia, Armenia and Brazil raise rates, Ukraine phases out Covid-19 crises measures, Hungary raises rate and closes crises lending program Funding for Growth Go!, and Czech Republic and Mexico raise rates.

      MAY:

      EASING: India provides liquidity to health sector, including vaccine and oxygen producers, and launches a second round of government bond purchases in Q2 FY22 and Ghana cuts rate.

      TIGHTENING: Armenia, Brazil and Iceland raise rates, Kyrgyzstan reduces excess liquidity in banking system to limit inflationary pressures, Czech Republic raises countercyclical capital buffer, and US Fed winds down corporate bond portfolio.

      

      APRIL:

      EASING: Congo and UAE extends pandemic loan program, and Moldova cuts reserve requirements (twice)

      TIGHTENING: Belarus, Ukraine, Russia, Kyrgyzstan, Georgia and Tajikistan raise rates and Canada reduces asset purchases.

      MARCH:

      EASING: United States extends Paycheck Protection Program 3 months, Moldova cuts reserve requirement, Brazil extends temporary cut in reserve requirement, ECB to purchase assets under PEPP at significantly higher pace in Q2, Congo and North Macedonia cuts rates and Mongolia adds further longer-term refinancing.

      TIGHTENING: Ukraine raises key rate, Belarus suspends permanent liquidity facility to strengthen control of monetary base and money supply to limit inflation, Georgia raises key rate, United States to cease regular purchases of agency commercial mortgage-backed securities, Brazil raises rate, Turkey raises rate, Russia raises rate and Angola raises rate on liquidity absorption facility.

      FEBRUARY:

      EASING: Australia boosts purchases of government bonds $100 billion, Mexico cuts its key interest rate, Uganda extends credit relief and liquidity measures and Indonesia cuts its rate.

      TIGHTENING: Armenia raises policy rate, Tajikistan raises policy rate and reserve requirements that were cut temporarily last year from April 1 to Dec. 31, 2020, Zambia raises rate, Zimbabwe raises rate, Kyrgyz Republic raises rate and Turkey raises reserve requirement.

      JANUARY:

      EASING: Romania cut its key rate, Israel announced how much foreign exchange it would purchase in 2021 to deal with the rise in the shekel and thus support the economy while Costa Rica increased the size of its special medium-term lending facility.

      TIGHTENING: Mozambique raised its key interest rate due to rising inflation while Angola's central bank began to levy a fee on banks' excess liquidity as it begins to implement a more restrictive monetary policy.

                                                              ------

      MONETARY POLICY RATE CHANGES BY MARKETS:

      

     DEVELOPED MARKETS: Central banks in developed markets decided on monetary policy 84 times in 2021, with 4 banks raising rates 6 times: Denmark raised its rate in a technical adjustment while Norway (twice), New Zealand (twice) and United Kingdom raised rates to tighten policy stance. Australia discontinued its bond yield target.

      One bank, Denmark, also cuts its rate to defend the peg with the euro.

      The other 77 decisions have ended with unchanged rates. 

     EMERGING MARKETS: Central banks in emerging markets decided on monetary policy 181 times in 2021, with 53 decisions by 13 central banks ending in rate hikes: Turkey (four times) Brazil (seven), Russia (seven), Hungary (seven), Czech Republic (five), Mexico (five), Chile (four), Peru (five), South Korea (twice), Pakistan (three), Colombia (three), Poland (three) and South Africa.

     Seven decisions ended in rate cuts (Mexico, Indonesia, Turkey (four) and China), and 121 decisions ended in unchanged rates.

      FRONTIER MARKETS: Central banks in frontier markets decided on monetary policy 77 times in 2021, with 2 banks cutting rates (Romania and Ghana) and 5 banks raising rates 12 times: Ukraine (five times), Kazakhstan (three), Sri Lanka, Romania (twice) and Ghana.

      The other 63 decisions resulted in unchanged rates.

      

      OTHER MARKETS: Central banks in other markets decided on monetary policy 213 times in 2021, with 19 banks raising rates a total of 53 times: Mozambique, Angola, Armenia (six times),Tajikistan (four), Zambia (twice), Zimbabwe (twice), Kyrgyzstan (four), Belarus (twice), Georgia (four), Iceland (four), Moldova (four), Uruguay (three), Paraguay (five), Azerbaijan (three), Jamaica (three), Lesotho, Dominican Republic (twice), Costa Rica and Sierra Leone.

     Rates have been cut 7 times by 5 banks: Congo (three times), North Macedonia, Uganda, Seychelles, and Liberia.

     The other 153 decisions resulted in unchanged rates.

     

     www.CentralBankNews.info

       

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

      

      

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.

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.

Australia holds rate, to decide QE program in February

     Australia's central bank left its key interest rate unchanged, as expected, and said the economic recovery would not be derailed by the Omicron strain of COVID-19 and the future of its bond purchase program would be discussed at the next board meeting in February.
     The Reserve Bank of Australia (RBA) left its cash rate target at 0.10 percent, unchanged since November 2020 when it was lowered for the third time last year to support economic activity during the first wave of the pandemic.
     RBA will also continue its current pace of purchases of government securities at A$4 billion a week until at least the middle of February when its stock will total $350 billion of bonds issued by both the central government, states and territories.
     In his statement, RBA Governor Philip Lowe said the decision by the board would be guided by three factors: the actions of other central banks, how the Australian bond market is functioning and most importantly, the actual and expected progress towards the goals of full employment and inflation.

     The board is next scheduled to meet on Feb. 1, 2022.
     In addition to the three rate cuts last year, RBA also began buying bonds - known as quantitative easing (QE) - and targeting a yield on the benchmark government bonds to anchor short-term interest rates.
    But last month the RBA dropped its policy of targeting the yield due to the improvement in the economy and progress toward reaching the inflation target, and is now continuing along the path toward normalizing its monetary policy.
    "The Australian economy is recovering from the setback caused by the Delta outbreak," Lowe said, confirming his expectation that economic activity will return to the pre-Delta path in the first half of next year.
     "Household consumption is rebounding strongly and the outlook for business investment has improved," Lowe said, adding:
     "The emergence of the Omicron strain is a new source of uncertainty, but is not expected to derail the recovery."
     Lowe also said inflation has risen but remains low in underlying terms and confirmed the forecast for underlying inflation to reach 2.5 percent over 2023.
     Lowe also confirmed the RBA's guidance that it will not increase the cash rate until actual inflation is sustainably within the bank's 2.0 to 3.0 percent range, adding this "is likely to take some time and the Board is prepared to be patient."

Zambia raises rate 2nd time to steer inflation lower

     Zambia's central bank raised it key interest rate for the second time, saying this would "help steer inflation to single digits in 2022 and to within the 6-8 percent target range by mid-2023..."
     The Bank of Zambia (BOZ) raised its monetary policy rate by 50 basis points to 9.0 percent and has now raised it by 1 percentage point this year following a similar-sized rate hike in February.
     Zambia's inflation rate eased for the third month in a row to 21.1 percent in October from a 2021-high of 24.6 percent in July for an average 23.7 percent in the third quarter, largely due to a rise in food inflation to 30.8 percent due to supply constraints for meat and poultry products, the bank said.
     "Although inflation is projected to decelerate sharply over the forecast horizon, it will still be above the upper bound of the 6-8 percent range," BOZ said, adding upside risks to the outlook include a possible rise in fuel pump prices and electricity to restore fiscal sustainability as well as a predicted fourth wave of COVID-19, which could disrupt supply chains and trigger price increases.
     BOZ forecast average 2021 inflation of 22.6 percent, then 15.0 percent in 2022 and 9.3 percent in the first three quarters of 2023.
     The recovery of Zambia's economy is continuing though the third wave of the pandemic led to subdued economic activity, the bank said.
     BOZ forecast 3.3 percent growth in 2021 and then accelerate to 3.5 percent in 2022 and 3.7 percent in 2023.
     "The new waves of COVID-19, amidst the low vaccination rate, are a key downside risk to the growth outlook," the central bank said.

New Zealand raises rate 2nd time, sees more hikes

      New Zealand's central bank raised it key interest rate for the second month in a row and said it would likely need to continue to raise the rate to above the neutral rate as the near-term risks to inflation were skewed to the upside and this carries the risk that higher inflation becomes embedded.
     The Reserve Bank of New Zealand (RBNZ) raised its official cash rate (OCR) by another 25 basis points to 0.75 percent and has now raised the rate by a total of 50 points following the earlier rate hike in October, which was the first rate hike since July 2014.
     Although New Zealand's economy contracted sharply during the nationwide lockdown in August to limit the spread of the COVID-19 virus, the central bank said the country's economy was in a strong position, supported by resilient household spending, strong construction activity, fiscal policy and demand for the important dairy and meat products.
       Public health restrictions will ease as New Zealand transitions into a new phase to control the spread of the Delta variant - the COVID-19 Protection Framework - but this will still result in a economic slowdown in the second half of this year as household spending and business investment is dampened.
    "With the easing of restrictions, it is anticipated that the COVID-19 virus will become more widespread geographically, albeit manageable for health authorities and less harmful for those vaccinated," the bank said.
     Despite the lockdowns, capacity pressures in New Zealand's economy have continued to tighten, RBNZ said, as employment is now considered to be above its maximum sustainable level and this is reflected in stronger wage growth, boosting domestic inflation.
      At the same time, continued bottlenecks globally and locally and higher oil prices have added to inflationary pressures and RBNZ expects headline inflation to exceed 5 percent in the near term before returning to the 2 percent midpoint of the bank's target range of 1.0 to 3.0 percent over two years.
     New Zealand's inflation rate jumped to 4.9 percent in the third quarter of this year from 3.3 percent in the previous quarter while the economy grew 17.4 percent year-on-year in the second quarter - the fastest pace of growth since records began in 1988 - from 2.9 percent in the first quarter.

     In addition to a 75-basis point rate cut in March last year at the onset of the pandemic, RBNZ also stimulated economic activity by other means, such as asset purchases.

     Initially RBNZ began buying up to NZ$30 billion of government bonds but then also bought local agency bonds and by August 2020 the target under the Large Scale Asset Purchase (LSAP) program was then raised to $100 billion.

      With the economy recovering, the central bank in July decided to conclude its asset purchase program, prior to the October rate hike, and the bank's monetary policy committee today the impact of LSAP on monetary stimulus had declined though the current amount of bond holdings are still providing "a small amount of ongoing stimulus."

     "The Committee expects to gradually manage LSAP bond holdings down, in a way that maintains the smooth functioning of financial markets," RBNZ said, adding it would provide further details on how bond holdings will be reduced early next year.

     Commercial banks also still have access to medium-term funding under RBNZ's Funding for Lending Program (FLP) until the end of 2022 and the monetary policy committee said it had agreed that changing the terms of this program would not be consistent with its risk appetite.

     "As the OCR is increased, the cost to banks of borrowing through FLP will rise, helping to remove monetary stimulus," RBNZ said.

     During its meeting, the monetary policy committee discussed how fast interest rates need to be raised over the next 12 to 18 months to meet its goals.

     "The Committee expected that the OCR would need to be progressively increased and, conditional on the economy evolving as expected, the OCR would likely need to be raised above its neutral rate," the bank said.

     One factor favoring a more rapid removal of monetary stimulus was the current level of inflation and capacity pressures, and the risk that higher near-term inflation becomes embedded in price setting behavior.

     On the other end, there is uncertainty over the resilience of consumer spending and business investment as the country adapts to life with COVID-19 in the community, while monetary conditions are already beginning to tighten and high levels of household debt could increase sensitivity to higher interest rates.

     "Weighing these factors, the Committee assessed risks to their price stability and maximum sustainable employment objectives as being broadly balanced over the medium term," RBNZ said.

Lesotho raises rate 1st time in 3 yrs, growth vulnerable

      Lesotho's central bank raised its benchmark interest rate for the first time in three years to ensure the domestic cost of funds remains aligned with the rest of the region, but said the economic recovery remains vulnerable to further waves of the COVID-19 pandemic and the emergence of new variants.
     The Central Bank of Lesotho (CBL) raised its CBL rate by 25 basis points to 3.75 percent, the bank's first rate hike since November 2018 when the rate was raised to 6.75 percent before it embarked on an easing cycle in July 2019 that led to six rate cuts, including five cuts in 2020.

     CBL's rate hike mirrors that of the Reserve Bank of South Africa (SARB), which last week also raised its rate by 25 basis points, the bank's first rate hike since November 2018.

     CBL's monetary policy committee, which released its policy decision a day earlier than previously scheduled, also maintained its target floor for Net International Reserves (NIR) at US$760 million, saying this was consistent with maintaining the exchange rate peg between the loti and South Africa's rand.

     The Kingdom of Lesotho is surrounded by South Africa and its economy relies on remittances from its workers in South Africa. Along with Namibia and Eswatini (former Swaziland), Lesotho is part of the rand monetary area that uses the rand as a common currency.

      CBL's objective of price stability is achieved by ensuring the peg between the loti and the rand - known as an exchange rate targeting monetary policy framework - by maintaining net international reserves at a level that is sufficient to guarantee that for every loti issued there is a basket of foreign currency reserves.

      In addition to uncertainty around the pandemic, CBL said the economic recovery was vulnerable to upside risks to inflation from supply chain disruptions and a possible tightening of financial conditions.

      Lesotho's inflation rate rose slightly to 5.4 percent in September from 5.2 percent in August but is below 6.9 percent seen in May.

      Lesotho's economy grew an annual 12.7 percent in the second quarter of this year, the fastest pace of growth since comparable data in 2007, after four consecutive quarters of shrinkage.

      CBL said its composite indicator of economic activity (CIEA) slowed by 1.1 percent in the third quarter compared with a 3.7 percent rise in the second quarter, mainly due to negative growth in manufacturing that was moderated by an improvement in demand.

      "Possible spikes in infection rates could bode negatively for growth and general economic recovery in the short to medium term," CBL said on Nov. 22.

S. Africa raises rate 1st time in 3 yrs, more hikes seen

    South Africa's central bank raised its interest rate for the first time in three years and signaled it is likely to raise the rate further, saying "it believes a gradual rise in the repo rate will be sufficient to keep inflation expectations well anchored and moderate the future path of interest rates."

     The Reserve Bank of South Africa (SARB) raised its rate by 25 basis points to 3.75 percent, the bank's first rate hike since November 2018.

     Three members of the bank's monetary policy committee voted for the rate hike while two members preferred to maintain the rate.

     Since July 2019 SARB has been in a monetary easing cycle and cut the rate six times by a total of 3.25 percentage points, including five rate cuts last year in response to the COVID-19 pandemic.

     South Africa's headline inflation rate was steady at 5.0 percent in October and September but SARB raised its forecast for inflation this year to 4.5 percent from a previous 4.4 percent, the 2022 forecast to 4.3 percent from 4.2 percent and the 2023 forecast to 4.6 percent from 4.5 percent.

     "Given the expected trajectory for headline inflation and upside risks, the Committee believes a gradual rise in the repo rate will be sufficient to keep inflation expectations well anchored and moderate the future path of interest rates," SARB said, adding the current level of policy accommodation remains high.

     SARB targets inflation between 3.0 and 6.0 percent.

     The implied policy rate from SARB's quarterly projection, which remains a broad policy guide, shows an increase of 25 basis points in the fourth quarter of this year and further increases in each quarter of 2022, 2023 and 2024.

     Although SARB lowered its estimate of economic growth this year to 5.2 percent from 5.3 percent due to the hit to economic activity from social unrest in Jully, it said growth still reflects a "healthy bounce back from the economic effects of the pandemic."

      SARB raised its forecast for the contraction in third quarter economic growth to a 2.5 percent shrinkage from a 1.2 percent fall but raised its forecast for fourth quarter growth to 2.6 percent from an earlier 1.6 percent.

     The forecast for growth in 2022 was unchanged from the previous forecast in September of 1.7 percent and 1.8 percent in 2023.

     "Overall, and after revisions, the risks to the medium-term domestic growth outlook are assessed to be to the downside," SARB said.

Thailand holds rate but says economy in recovery phase

     Thailand's central bank once again left its key interest rate steady, as widely expected, but said the country's economy had now bottomed out in the third quarter and now "entered the recovery phase following the relaxation of containment measures and the re-opening of the country."
    The Bank of Thailand kept its policy rate at 0.50 percent, unchanged since the last cut in May 2020. 
     In response to slowing global growth in 2019, BOT began cutting its rate in August 2019 and then continued to cut last year due to the COVID-19 pandemic, with the rate cut a total of 5 times since 2019 and by a total of 1.25 percentage points.
     After an initial recovery from the first wave of the pandemic by the middle of last year, Thailand's economy was hit hard by a second and third wave this year, leading BOT to continuously lower its growth forecasts following the 6.1 percent contraction in 2020, the sharpest fall in 22 years.
    But the Thai economy is now showing signs of recovery and the bank's monetary policy committee voted unanimously for the second time to maintain the rate after two of its members in August had voted to cut it to support the economic recovery.
    In October Thailand's manufacturing sector expanded for the first time since April at the steepest pace in 2-1/2 years and confidence remained strong, according to the IHS Markit PMI, which rose to 50.9 from 48.9 in September.
     Although BOT said the rollout of vaccines had reduced the downside risks to the economy, BOT is conscious of the repeated set-backs earlier this year from the pandemic and described the recovery as "fragile" and subject to uncertainties while headline inflation will rise due to higher energy prices.
     It said the economy would expand close to its forecast of economic growth this year and in 2022 on the back of an rise in domestic spending following the relaxation of containment measures, which is partially offsetting the adverse impact of higher global energy prices.
      In its September monetary policy report, BOT lowered its forecast for economic growth this year to 0.7 percent from June's forecast of 1.8 percent but maintained the 2022 forecast of 3.9 percent. 
     Despite the hit to its important tourism sector from this year's pandemic waves, Thailand's gross domestic product unexpectedly grew an annual 0.4 percent in the second quarter of this year from 0.2 percent in the first quarter, helped by government stimulus and rising exports.
     Thailand's inflation rate has been rising in the last 2 months to 2.38 percent in October from 1.68 percent in September and BOT expects it to continue to rise temporarily due to higher energy prices and supply-side factors.
    However, it still expects inflation to remain within its target of 1.0 to 3.0 percent - with upside risks from elevated energy prices and supply constraints - as upward pressure from demand is subdued.

    BOT expects 1.0 percent headline inflation this year, after a 0.8 percent fall last year, and 1.4 percent inflation in 2022.

Poland raises rate 2nd time and inflation forecast

     Poland's central bank raised its interest rates for the second time, saying this is to reduce the risk inflation will remain elevated "amidst expected further economic recovery and favorable labour market conditions."
     The National Bank of Poland (NBP) raised its reference rate by 75 basis points to 1.25 percent and has now raised it 1.15 percentage points this year following a 40-points hike in October, the bank's first rate hike in almost 9-1/2 years.

     Although the rate hike was widely expected following a jump in October inflation and the government's open concern over inflation, the size of the hike was larger than expected.

     NBP also raised its other interest rates, with the Lombard rate now at 1.75 percent, the deposit rate at 0.75 percent, the discount rate at 1.30 percent and the discount rate at 1.35 percent.

     "In Poland, economic activity continues to recover," NBP said, raising its forecast for inflation through 2023 as it continued its steady rise this year to 6.8 percent in October, the highest rate since May 2001.

     The central bank targets inflation of 2.5 percent.

     High inflation is mainly due to external factors beyond its control, the central bank said, adding the recovery in the economy, including demand from rising household income, is also pushing up prices.

     In an update to its forecast, the central bank said there is a 50 percent probability inflation will average between 4.8 and 4.9 percent this year, up from July's projection of 3.8 to 4.4 percent.

     Inflation is seen remaining high next year, averaging 5.1 - 6.5 percent, up from the previous forecast of 2.5 - 4.1 percent, and then easing to 2.7 - 4.6 percent in 2023 from an earlier forecast of 2.4 - 4.3 percent.

     Poland's economy has been recovering rapidly from the COVID-19 pandemic, with gross domestic product in the second quarter expanding an annual 11.1 percent after a contraction in the first quarter.

     NBP forecast growth this year of 4.9 - 5.8 percent, up from July's forecast of 4.1 - 5.8 percent, 3.8 -5.9 percent in 2022, down from the previous forecast of 4.2 - 6.5 percent, and growth in 2023 of 3.8 - 6.1 percent compared with the previous forecast of 4.1 - 6.5 percent.