Central Bank News: September 2017

Tuesday, September 26, 2017

Armenia maintains rate, sees stable rate for some time

Armenia's central bank left its benchmark refinancing rate at 6.0 percent for the fourth time in a row, saying it expects the current scenario to remain for some time, with the rate at this level continuing to improve aggregate demand and helping stabilizing inflation around its target.
The Central Bank of Armenia (CBA) has maintained its rate since February after slashing the rate 12 times by a total of 450 basis points beginning in August 2015.
Armenia's inflation rate was steady in August from July 0.9 percent, with CBA see little inflationary impact from the external sector.
The CBA targets inflation of 2.50 - 5.50 percent around a 4.0 percent midpoint.
The bank's country's council added economic growth in the first half of the year of an annual 6.0 percent topped expectations by 1 percentage point and activity in the third quarter remains high, driven by growth in industry and service sectors, compensating for a decline in agriculture and construction.
It added domestic demand is recovering faster than expected, evidenced by high growth in lending, import growth and normal inflation.

www.CentralBankNews.info

Saturday, September 23, 2017

This week in monetary policy: Ghana, Kyrgyzstan, Sri Lanka, Nigeria, Morocco, Argentina, Thailand, Czech Rep., Moldova, New Zealand, Fiji, Egypt, Mexico, Bulgaria, Colombia, Trinidad & Tobago and Dominican Rep.

This week (September 24 through September 30) central banks from 17 countries or jurisdictions are scheduled to decide on monetary policy: Ghana, Kyrgyz Republic, Sri Lanka, Nigeria, Morocco, Argentina, Thailand, Czech Republic, Moldova, New Zealand, Fiji, Egypt, Mexico, Bulgaria, Colombia, Trinidad and Tobago, and the Dominican Republic.

Following table includes the name of the country, the date of the next policy decision, the current policy rate, the result of the last policy decision, the change in the policy rate year to date, the rate one year ago, and the country’s MSCI classification.

The table is updated when the latest decisions are announced and can always accessed by clicking on This Week.

WEEK 39
SEP 24 - SEP 30, 2017:
COUNTRY	DATE	RATE	LATEST	YTD	1 YR AGO	MSCI
GHANA	25-Sep	21.00%	-150	-450	26.00%	FM
KYRGYZSTAN	25-Sep	5.00%	0	0	6.00%
SRI LANKA	26-Sep	7.00%	0	25	7.25%	FM
NIGERIA	26-Sep	14.00%	0	0	14.00%	FM
MOROCCO	26-Sep	2.25%	0	0	2.25%	FM
ARGENTINA	26-Sep	26.25%	0	150	26.75%	FM
THAILAND	27-Sep	1.50%	0	0	1.50%	EM
CZECH REPUBLIC	27-Sep	0.25%	20	20	0.05%	EM
MOLDOVA	28-Sep	7.50%	-50	-150	9.50%
NEW ZEALAND	28-Sep	1.75%	0	0	2.00%	DM
FIJI	28-Sep	0.50%	0	0	0.50%
EGYPT	28-Sep	18.75%	0	400	11.75	EM
MEXICO	28-Sep	7.00%	0	125	4.75%	EM
BULGARIA	29-Sep	0.00%	0	0	0.00%	FM
COLOMBIA	29-Sep	5.25%	-25	-225	7.75%	EM
TRINIDAD & TOBAGO	29-Sep	4.75%	0	0	4.75%
DOMINICAN REP.	29-Sep	5.25%	0	-25	5.00%

www.CentralBankNews.info

Friday, September 22, 2017

Indonesia cuts rate 25 bps, signals further cuts unlikely

Indonesia's central bank cut its benchmark 7-day reverse repurchase rate (RR) by a further 25 basis points to 4.25 percent, but signaled it is unlikely to lower the rate any more by saying it considers the rate now to be neutral and in line with its forecast for inflation and the economy.
Bank Indonesia (BI) said the rate cut should help support bank's efforts to channel funds to borrowers and the ongoing domestic economic recovery, and was consistent with its forecast that inflation this year, 2018 and 2019 would remain below the midpoint of its target range and the current account deficit to be within safe limits.
The risk from the U.S. Federal Reserve's plan for its key federal funds rate and the normalization of its balance sheet were also taken into account in the decision, BI added.
It is the second month in a row Indonesia's central has cut its rate and it has now cut it by 50 basis points this year. In addition to the 7-day repo rate, BI also cut the deposit rate by 25 points to 3.50 percent and the lending facility rate by 25 points to 5.0 percent.
From January through June last year BI lowered its previous benchmark rate four times by a total of 100 basis points and then cut the current RR rate by a total of 50 basis points in August and October 2016.
"Our monetary stance is neutral," BI Governor Agus Martowardojo said, adding the rate was cut because data showed the country could benefit.
Indonesia's economy bounced back in the second quarter of this year as Gross Domestic Product jumped 4.0 percent after shrinking in the first and fourth quarter of 2016. On an annual basis, GDP was up 5.01 percent in the second quarter, the same as in the first quarter.
BI said it expects Indonesia's economy to improve in the third quarter as household consumption rises and construction investment keeps growing in line with government spending.
BI also confirmed its forecast for the economy to expand between 5.0 and 5.4 percent this year, up from 5.02 percent last year. Next year BI expects growth of 5.1-5.5 percent.
Indonesia's inflation eased to 3.82 percent in August from 3.88 percent in July and the central bank expects inflation to hover between 3 and 5 percent this year.

Paraguay holds rate, no need for stimulus for the moment

Paraguay's central bank kept its monetary policy rate at 5.25 percent, saying economic activity is still moderating but this does not warrant additional monetary stimulus, for the moment.
Last month the Central Bank of Paraguay (BCP) cut its rate by 25 basis points, its first cut since July 2016, citing slowing economic activity. Since April 2016 it has cut the rate by 75 points.
The BCP's open markets operation committee (CEOMA) said today's decision was unanimous and various measures show inflation converging to the target while inflation expectations remain anchored to the medium-term target.
Paraguay's headline inflation was steady at 4.0 percent in August and July while core inflation declined to 5.2 percent in July from 5.3 percent in June.
For 2017 BCP is targeting inflation of 4.0 percent, plus/minus 2 percentage points, down from 4.5 percent in 2016. The central bank's September FSC survey showed that agents expect inflation to end at 4.0 percent this year and in 2018. Paraguay's economy contracted by 2.4 percent in the second quarter from the first quarter for annual growth of only 0.9 percent, sharply down from 6.6 percent in the first quarter, pulled down by falls in construction, utilities, industry and mining, and commerce.
In April the central bank raised its 2017 growth forecast to 4.2 percent from a previous forecast of 3.7 percent. The economy grew by 4.0 percent last year.
The September FSC survey showed median expectations of economic growth at 4.0 percent this year and in 2018.
After falling sharply in 2014 and 2015, Paraguay's guarani has been relatively stable since 2016 and was trading around 5,678 to the U.S. dollar today, up 2.6 percent this year.

www.CentralBankNews.info

South Africa maintains rate but 3 members wanted a cut

South Africa's central bank left its benchmark repurchase rate at 6.75 percent, citing "heightened uncertainties in the economy" as capital investments continue to contract due to low business confidence and political uncertainty.
The South African Reserve Bank (SARB), which surprised investors by cutting its rate by 25 basis points in July, said three members of its 6-member monetary policy committee wanted to cut the rate by another 25 points while the other three wanted to retain the rate and ultimately held sway.
In an update to its economic forecast, SARB raised its 2017 growth forecast marginally to 0.6 percent from 0.5 percent and narrowed the output gap to minus 1.7 percent from minus 1.9 percent.
For 2018 and 2019 the central bank maintained its growth forecasts of 1.2 percent and 1.5 percent, respectively. In 2016 the economy grew by only 0.3 percent.
Despite positive growth in the second quarter after two consecutive quarters of contraction, SARB Governor Lesetja Kganyago said a fall in fixed capital formation showed underlying weakness in the economy and of particular concern was a 6.9 percent drop in private sector fixed investment.
"This subdued outlook is expected to persist against a backdrop of continued political and policy uncertainty," Kganyago said, adding weak investment doesn't bode well for employment, with the unemployment rate steady at 27.7 percent in the second quarter.
The public sector, which used to be the main source of employment growth, is now also likely to shed jobs as fiscal constraints intensify.
Although SARB expects inflation to remain within its 3-6 percent target range in coming years, Kganyago said a number of risks to this outlook had increased and "the MPC assesses the risks to the inflation outlook to be somewhat on the upside."
The exchange rate of South Africa's rand remains a key upside to the inflation outlook along with political risks, which he said were "now more imminent" along with the risk of further ratings downgrades, given the increased fiscal challenges and political uncertainty.
A further upside risk to inflation stems from possible large increases in electricity tariffs, with a tariff increase of 20 percent boosting the inflation forecast by 0.2-0.3 percentage points.
The central bank is also concerned that inflation expectations of business people and trade unions remain above or close to 6 percent for the next two years.
"Lower inflation expectations among key price setters is an important element in reducing inflation in the future, thus enabling lower nominal interest rates," Kganyago said.
South Africa's inflation rate rose to 4.8 percent in August from 4.6 percent and SARB retained its forecast for inflation to average 5.3 percent this year, down from 6.3 percent last year. For 2018 it raised its forecast slightly to 5.0 percent from 4.9 percent and to 5.3 percent in 2019 from 5.2 percent.
SARB currently targets inflation in range of 3-6 percent but Kganyago said last month this 18-year old target should probably be lowered to bring it into line with other emerging markets.
He suggested that a target of 3-4 percent would be more in line with that of South Africa's trading partners, adding that Brazil had recently lowered its target to 4.0 percent and India last year adopted a 4 percent target.
After hitting a record low of almost 16.9 to the U.S. dollar in January last year, the rand has risen, supported by demand for high-yielding emerging market bonds amid easy global monetary policy.
But the rand remains very sensitive to political developments, weak prospects for economic growth and is down 2.8 percent against the U.S. dollar since the July when SARB cut its rate.
Today the rand was trading around 13.3 to the dollar, up 3 percent this year.

Taiwan maintains rate but raises growth outlook

Taiwan's central bank kept its benchmark discount rate at 1.375 percent and while it raised its forecast for economic growth it added the country's output remains below potential and uncertainties still weigh on the global economic outlook and thus external demand.
The Central Bank of the Republic of China (Taiwan) (CBC), which has maintained its rate since June 2016 following four consecutive cuts of a total of 50 basis points, added real interest rates had now risen above zero but both current inflation and inflation expectations remain anchored.
Since the middle of this year, Taiwan's exports have been rising on the back of a firming global economy and the CBC expects exports to continue to benefit from this next year while the government rolls out an infrastructure program that will boost domestic demand and spending.
For this year the CBC expects the economy to grow by 2.15 percent, with growth in the second half up by 1.93 percent, below 2.39 percent in the first half.
In its policy decision from June, the CBC cited the government's 2017 growth forecast of 2.05 percent, with growth in the second half of 1.76 percent.
For 2018 the CBC sees growth rising to 2.20 percent, with higher wages for public sector employees seen encouraging higher private wages, boosting overall consumption and growth.
Although the global economy has strengthened in recent months, the CBC pointed to the risks stemming from the U.S. Federal Reserve's plan to normalize its balance sheet, the European Central Bank's review of its asset purchases, U.S. economic and trade policies, the rise in trade protectionism and geopolitical tensions.
"In sum, uncertainties over the global economic outlook still weigh on external demand; domestic demand is mild, and economic growth, though projected to pick up at a moderate pace in the second half of this year and next year, would still run below potential," the CBC said.
Taiwan's inflation rate rose slightly to 0.96 percent in August from 0.77 percent in July and averaged 0.72 percent year-on-year in the first 8 months of the year. Core inflation, which excludes vegetables, fruit and energy, was 0.97 percent in the same period.
For this year the CBC forecast 0.80 percent headline inflation and 1.04 percent core inflation, rising to 1.12 percent and 1.13 percent, respectively, in 2018.
The exchange rate of Taiwan's dollar has been firming since early 2016 despite a setback in the second half of last year. Today TWD was trading at 30.2 to the U.S. dollar, up 7.3 percent this year.

Norway holds rate but pulls forward date for rate hike

Norway's central bank left its key policy rate steady at 0.50 percent, as expected, but pulled forward the date for raising its rate on improving economic growth and rising inflation.
However, Norges Bank (NB) also cautioned there was still a need for expansionary monetary policy as interest rates abroad remain low and capacity utilization in the country's economy is below normal, suggesting inflation will remain below the bank's 2.5 percent target in coming years.
"Uncertainty surrounding the effects of monetary policy suggests a cautious approach to interest rate setting, also when it becomes appropriate to increase the key policy rate," NB said, adding changes in the outlook implied a somewhat earlier increase in the key rate than earlier projected.
In its third of four policy reports for 2017, the central bank forecast the key policy rate would be unchanged at the current level this year and in 2018 but then rise to 0.7 percent in 2019, up from 0.1 percent projected in June, and 1.2 percent in 2020, up from 0.2 percent previously forecast.
Although the output gap - the difference between actual and potential Gross Domestic Product - is forecast to remain negative until 2020, the mainland economy is picking up speed and is now forecast to expand by 2.0 percent this year, up from the June forecast of zero percent growth.
In the second quarter of this year Norway's GDP grew by only 0.2 percent year-on-year, down from 2.5 percent in the first quarter
For 2018 and 2019 the economy is seen continuing to expand by 2.0 percent, up from 0.1 percent previously forecast, and then by 2.1 percent in 2010, up from minus 0.1 percent.
Headline inflation in Norway has been declining since October 2016 and fell to only 1.3 percent in August, the lowest rate since February 2013, partly reflecting the rise in the krona's exchange rate.
Although the central bank raised its inflation forecast to 1.9 percent this year from a previous 0,1 percent, it is forecast to remain below the bank's target and average 1.3 percent next year, 1.5 percent in 2019 and 1.7 percent in 2020.
Wages, however, were seen growing faster than previously expected, and forecast to rise 2.4 percent this year, then 2.8 percent next year, 3.3 percent in 2019 and 3.7 percent in 2020.
Norway's krona, which tends to follow crude oil prices, has been strengthening since June and was trading at 7.82 to the U.S. dollar today, up 10.6 percent this year. However, it still remains more than 20 percent below the level seen in early 2014 before crude oil prices tanked.

U.S. Fed holds rate, to shrink balance sheet in October

The U.S. central bank maintained its benchmark federal funds rate at 1 - 1.25 percent, as expected, but will begin shrinking its massive $4.47 trillion balance sheet in October as it takes another small step toward tighter monetary policy.
The Federal Reserve, which has raised its rate twice this year by a total of 50 basis points, also maintained its forecast for raising the fed funds rate by another 25 points this year and raised its forecast for economic growth this year.
After slashing interest rates to essentially zero and purchasing government bonds and housing-related debt in the wake of the global financial crises, the Fed in December 2015 began raising its rate and will now turn its attention to normalizing its balance sheet that ballooned from less than $900 billion pre-2008 as it sought to hold down long-term interest rates to stimulate economic growth.
The Fed's decision to begin whittling down its holdings of securities in October was largely expected, illustrating the Fed's policy of making sure it doesn't surprise financial markets.
Back in June the Fed first laid out its principles and plans for gradually decreasing the reinvestments of principal payments from its securities. At that point it said the process would begin "this year" and then followed up in July when it said it would begin "relatively soon," giving financial markets plenty of time to digest the implications for the critical Treasury market.
At first the Fed will roll over principal payments from Treasuries that exceed $6 billion and reinvest payments from agency debt and mortgage-backed securities that exceed $4 billion.
This cap on how much the Fed reinvests will then rise in three-month intervals over the next 12 months until it reaches $30 billion a month for Treasuries and $20 billion for housing securities.
The gradual tightening of the Fed's monetary policy comes as the U.S. economy continues to improve, with the Fed describing economic activity as "rising moderately" as household spending expands and business investment picks up, resulting in "solid" job gains.
The impact of recent hurricanes - Harvey, Irma and Maria - is expected to affect economic activity in the near term but based on past experience the Fed doesn't expect any lasting damage.
Inflation may be boosted temporarily from higher gasoline prices but apart from that, the Fed still expects inflation to remain below 2 percent in the near term before stabilizes around this level - its target level - in the medium term.
As in July, the Fed said near-term risks to its economic outlook were roughly balanced and it was monitoring inflation closely.
The Fed's policy-making arm, the Federal Open Market Committee (FOMC) was once again unanimous in its decision.
In an update to its economic projections, the Fed expects its key interest rate to rise to 1.4 percent this year, implying one more rate hike, and then rise to 2.1 percent in 2018, implying three hikes.
In 2019 the fed funds rate is seen rising to 2.7 percent, down from 2.9 percent forecast in June as the longer-run rate was lowered to 2.8 percent from 3.0 percent. In 2020 the rate is seen at 2.9 percent.
The U.S. economy is seen expanding by 2.4 percent this year, up from the June forecast of 2.2 percent but then easing to 2.1 percent next year, unchanged from June. In 2019 the economy is seen expanding by 2.0 percent up from 1.9 percent and then by 1.8 percent in 2020, which is also the longer-run growth rate.
The Fed's preferred inflation gauge, personal consumption expenditure, is seen averaging 1.6 percent this year, unchanged from June, and then 1.9 percent next year, down from 2.0 percent,. In 2019 and 2010 inflation is seen at 2.0 percent.
The U.S. headline inflation rate rose to 1.9 percent in August from 1.7 percent in July while the annual growth rate in the second quarter rose to 2.2 percent from 2.0 percent in the first quarter.

Mongolia holds rate to stabilize inflation around target

Mongolia's central bank retained its policy rate at 12.0 percent "to stabilize inflation around the target rate and thereby facilitate the stability of the macroeconomic environment in the medium to long run."
The Bank of Mongolia (BM) cut its rate by 200 basis points in June, its first cut this year and the second cut following 100 point cut in December 2016 as the bank unwinds a 450-point rate hike in August 2016 to stabilize the exchange rate of the tugrik and preserve international reserves.
Mongolia's inflation rate rose to 5.0 percent in August from 3.4 percent in July, in line with its target of keeping inflation below 8 percent for 2017 to 2019.
Economic growth in Mongolia in the first half of the year topped forecasts, with growth at an annual rate of 5.3 percent, the BM said in a statement issued on September 19 and based on a meeting by the monetary policy committee on September 15.
"Furthermore, economic growth is expected to accelerate and inflation is expected to stabilize around the medium term target rate of 8 percent," the BM said, adding the economy is currently stimulated by improved external demand, relatively high prices of major export commodities and increased investment in the mining sector.
While the bank noted the positive sentiment in financial markets and the economy, it added that "further prospects are highly conditional on export prices and volume."
The exchange rate of the tugrik has been depreciating since July as it reverses a rise in the first 7 months of the year. The turgrik was trading around 2,465 to the U.S. dollar today, up 0.6 percent since the start of this year.
In May the IMF approved a 3-year, $434 million loan to Mongolia as part of a total financing package worth $5.5 billion that was supported by Japan, Korea, China, the World Bank and the Asian Development Bank, the fourth-largest package in IMF history.
The package supports the government's economic recovery program that is aimed at building foreign exchange reserves, putting debt on a sustainable path, strengthening the banking sector and securing sustainable growth.
With minerals, such as copper and coal, accounting for 90 percent of Mongolia's exports, the country was hit hard by the sharp drop in commodity prices and a slowdown in export markets.
Mongolia's Gross Domestic Product grew by an annual rate of 4.2 percent in the first quarter of this year, up from 1 percent in the fourth quarter of last year and a contraction of 1.6 percent in the third quarter of 2016.

Hungary slashes overnight deposit rate, deposit limit

Hungary's central bank left its base rate steady at 0.90 percent but lowered its overnight deposit rate and slashed the amount of funds banks can park at the central bank to counter tighter monetary conditions as it once again pushed back the date for meeting its inflation target.
The National Bank of Hungary (NBH), which has kept its key rate on hold since May 2016, cut the overnight central bank deposit rate by 10 basis points to minus 0.15 percent and lowered the upper limit on the stock of 3-month central bank deposits to 75 billion forint from the end of 2017 from 300 billion at the end of of the third quarter of 2017.
After cutting its base rate by a total of 610 basis points from August 2012 to the current level in May 2016, the NBH has been easing policy by other means, including cutting the overnight lending rate, the required reserve ratio and by limiting the use of its 3-month deposit facility since July 2016 to encourage banks to buy government debt and offer cheaper loans.
The limit on the stock of 3-month deposits that banks can hold, which the central bank now considers an integral part of its policy instruments, is set each quarter.
"In the council's assessment the limitation of the stock of three-month deposits has fulfilled its role and the HUF 75 billion year-end limit on the stock will not be reduced further," the NBH said.
The central bank said the additional liquidity provided by its limit on deposits had helped push down the 3-month Budapest Interbank Offered Rate (BUBOR) to new historic lows while yields on 3- and 5-year government securities were also at historic lows.
"The repeated delay in the date of meeting the inflation target also warrants monetary easing," the NBH said, adding it was also increasing the stock of swap instruments to provide a loosing of monetary conditions up to the longest possible section of the yield curve as soon as possible.
In the future, the central bank said the importance of the stock and maturity structure of swap instruments in providing forint liquidity would increase.
Hungary's economy is slowly picking up speed and while the central bank maintained its growth forecast in its September inflation report, it lowered the inflation forecast.
Economic growth this year is forecast to rise to 3.6 percent, then 3.7 percent in 2018 and 3.2 percent in 2019, the same as forecast in June. This compares with growth of 2.0 percent in 2016.
Hungary's economy grew by an annual 3.2 percent in the second quarter of this year, down from 4.2 percent in the first quarter.
But the central bank's aim of raising inflation to its medium-term target of 3.0 percent was once again pushed back by six months to the middle of 2019 from early 2019. In the June inflation report, the central bank also pushed back the date for achieving its inflation target by half a year.
While the NBH maintained its forecast for inflation to average 2.4 percent this year, up from 0.4 percent in 2016, it lowered the 2018 forecast to 2.5 percent from a previous forecast of 2.8 percent and the 2019 forecast to 2.9 percent from 3.0 percent.
In August Hungary's inflation rate rose to 2.6 percent from 2.1 percent in July but the central bank expects inflation to decline by the end of this year to the bottom of its tolerance band of 1 percentage points above and below the 3.0 percent target.

Azerbaijan holds rate, expects no change to stance

Azerbaijan's central bank kept its benchmark refinancing rate at 15.0 percent and said an analysis of short and medium-term risks to inflation implied there was no need for any significant correction to its monetary policy.
The Central Bank of the Republic of Azerbaijan (CBA), which has maintained its rate since raising it in September 2016, also said the current account showed a surplus of 2.5 percent of Gross Domestic Product in the first half of this year due to higher oil prices and this was helping maintain a balance in the foreign exchange market.
  The economy of Azerbaijan, which relies on oil and gas for 95 percent of its exports and 75 percent of government revenue, was hit hard by the fall of crude oil prices in 2014 and its currency, the manat, came under heavy pressure as residents switched into U.S. dollars.
Initially the CBA abandoned the manat's peg to the dollar in favor of a dollar-euro basket and then in early 2015 it devalued the manat by one-third.  In December 2015 the CBA then shifted to a flexible exchange rate regime and since then the manat has been more stable.
Today the manat was trading around 1.69 to the U.S. dollar, up 6.5 percent this year, and the central bank said the decline of the dollar this year was helping reduce inflation expectations and the stable exchange rate is helping further reduce the economy's dollarization, with the current level of interest rates also helping stimulate savings.
Azerbaijan's inflation rate was steady at 14.0 percent in August from July and there were no significant changes to inflation expectations, with various products and prices still sensitive to changes in government-regulated prices, the CBA said.
Helped by a trade surplus of US$1.9 billion in the January-August period, Azerbaijan's strategic currency reserves rose by 11.5 percent, the CBA said, adding its expects the balance of payments to remain in a surplus by the end of the year.
In the country's non-oil sector, economic output was up 2.2 percent in the first 8 months of the year, with tourism up 2.6 percent, non-oil industry up 4.6 percent, trade up 1.8 percent, and communications and information up 4.9 percent.
The CBA is currently using a flexible exchange rate regime but plans to adopt a floating exchange rage regime along with an inflation targeting regime, with the monetary base a reliable guide to its monetary policy stance.

www.CentralBankNews.info

Sunday, September 17, 2017

This week in monetary policy: Azerbaijan, Kenya, Hungary, Mongolia, USA, Japan, Philippines, Norway, South Africa, Paraguay, Indonesia and Ghana

This week (September 17 through September 23) central banks from 12 countries or jurisdictions are scheduled to decide on monetary policy: Azerbaijan, Kenya, Hungary, Mongolia, United States, Japan, Philippines, Norway, South Africa, Paraguay, Indonesia and Ghana.