Brazil cuts rate 3rd time, sees more cuts on low inflation

     Brazil's central bank lowered its benchmark Selic interest rate for the third time this year and said a strengthening of the current benign outlook for inflation should allow for another rate cut of the same magnitude.
     The Central Bank of Brazil (BCB) cut its Selic rate by 50 basis points to 5.0 percent and has now cut it by 150 points this year following similar-sized cuts in July, September and today.
     The additional monetary stimulus in major economies amid the global economic slowdown and below-target inflation has generated a favorable outlook for emerging markets, the central bank said, cautioning the outlook still remains uncertain and the risks of a more pronounced slowdown persist.
     After battling inflation that topped 10 percent in 2016, Brazil's inflation rate has fallen steadily to 2.9 percent in September from 3.4 percent in August, below the bank's 2019 target of 4.25 percent, plus/minus 1.5 percentage points.
     The central bank said inflation is at a comfortable level, including those measures that are most sensitive to the business cycle and monetary policy.
     BCB's latest Focus survey of inflation expectations are 3.3 percent for this year, 3.6 percent for next year, 3.75 percent for 2021 and 3.5 percent for 2022.
     The inflation projections used by Copom, the central bank's monetary policy committee, based on the Focus survey, stand around 3.4 percent for 2019, 3.6 percent for 2020 and 3.5 percent for 2021 based the assumption the Selic ends this year at 4.50 percent, remains at that level in 2020 and then rises to 6.38 percent by the end of 2021.
     Although Copom expects to lower its Selic rate further, it said it would be cautious in this stage of the business cycle when considering adding further stimulus and the next steps in its policy stance still depend on economic activity, the balance of risks and on inflation and inflation expectations.
     Nevertheless, Copom said economic conditions still call for stimulative monetary policy, emphasizing the necessity of continuing with economic reforms to allow for a sustainable economic recovery and the reduction of the structural interest rate.

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Saudi Arabia, Kuwait, Bahrain, UAE, Qatar, Jordan, Hong Kong, Macao cut rates 25 bps

    The eight central banks of Saudi Arabia, Bahrain, Kuwait, Qatar, the United Arab Emirates, Jordan, Hong Kong and Macao lowered their benchmark interest rates by 25 basis points, tracking their U.S. Federal Reserve's similar-sized cut in its federal funds rate.
     The Saudi Arabian Monetary Authority (SAMA) cut its repurchase rate and the reverse repo rate by 25 basis points to 2.25 percent and 1.75 percent, respectively.
     It is the third cut by SAMA this year, mirroring the Fed's three rate cuts in July, September and today.
    The Central Bank of Bahrain (CBB) cut its key policy rate, the one-week deposit facility rate, to 2.25 percent, the overnight deposit rate to 2.0 percent, the one-month deposit rate to 2.60 percent and the lending rate to 4.0 percent.
     It is CBB's second rate cut this year, with the rate being cut in July and today, but not in September.
     Saudi Arabia, Bahrain, UAE, Qatar and Jordan peg their currencies to the U.S. dollar while Kuwait's dinar is linked to a basket of currencies, including the dollar.
     The Central Bank of Kuwait (CBK) lowered its discount rate by 25 basis points to 2.75 percent, its first change in rates since a hike in March 2018. It is the first rate cut since October 2012.
     CBK said the decision fulfills the dual objective of promoting non-inflationary economic growth and ensuring the attractiveness of the national currency.
     "A healthy margin in favor of the KWD against the USD allowed for a discount rate cut that maintains the attractiveness of the national currency," Governor Mohammad Y. Al-Hashel said, adding the lower lending cost should drive credit take-off, motivate demand and support non-oil growth.
    The Qatar Central Bank cut its three main rates by 25 basis points, lowering the benchmark lending rate (QCBLR) to 4.25 percent, the deposit rate (QCBDR) to 2.0 percent and the repurchase rate to 2.0 percent, "taking into account the evolving domestic and international macroeconomic developments."
    The Central Bank of Jordan (CBJ) also cut interest rates on its monetary policy instruments by 25 basis points, saying this was "in response to the recent trends in the interest rates in the regional and international markets, and the positive outcomes witness by the Jordanian balance of payments, particularly national exports, tourism receipts and the continues flow of workers's remittances, which contributed positively to foreign reserves."
    The CBJ's main rate now stands at 4.0 percent, the re-discount rate at 5.0 percent, the overnight deposit window rate at 3.25 percent and the rate on repurchase agreements at 4.75 percent.
    CBJ added the rate cut was also aimed at catalyzing growth of credit and promote domestic spending, both consumption and investment, which should have a positive effect on economic growth.
    CBJ left its rate on its refinancing program that targets small and medium sized projects at 1.75 percent for projects in Amman and for 1.0 percent for projects in other areas.
     This program has provided funds for 1,125 projects at a total investment of 760 million Jordanian dinars, helping create some 11,200 new jobs, CBJ said.
     The Central Bank of United Arab Emirates (CBUAE) also said it would lower the rate on its certificates of deposits and the repurchase rate on short-term borrowing liquidity by 25 basis points in line with the Fed's decision.
     CBUAE's deposit rate is its main instrument for transmitting monetary policy to the banking system and the rate now stands at 2.50 percent.
     The rate cuts by central banks in the Mideast were later followed by the Hong Kong Monetary Authority (HKMA) and the Monetary Authority of Macao (AMCM), both of which lowered their benchmark rates by 25 basis points to 2.0 percent, respectively.
    The Hong Kong dollar is pegged to the U.S. dollar and Macao's pataca is linked to the Hong Kong Dollar.

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US Fed cuts rate 3rd time due to 'global developments'

    The Federal Reserve, the U.S. central bank, lowered its benchmark federal funds rate for the third time this year and again said this was due to "the implications of global developments for the economic outlook as well as muted inflation pressures."
    The Federal Open Market Committee (FOMC), the Fed's policy-making body, cut the fed funds rate by another 25 basis points to 1.50 - 1.75 percent and has now cut it by 75 basis points this year following cuts in July, September and today.
    The FOMC largely reiterated its view from September that the labor market remains strong, economic activity has been rising at a moderate rate, and while household spending has been rising at strong pace, business investment and exports "remain weak."
    "This action supports the Committee's view that sustained expansion of economic activity, strong labor market conditions and inflation near the Committee's symmetric 2 percent objectives are the most likely outcomes, but uncertainties about this outlook remain," the FOMC said, reiterating its statement from September and July.
     On both occasions when the Fed cut its rate this year it attributed this to the impact of weak global growth on the U.S. economy along with muted inflation.
     The only major difference between the FOMC's statement today and that in September, July and June is about the future, with the Fed now clearly leaning toward taking a pause in further easing.
      Today's statement omits any mention of the Fed acting "as appropriate to sustain the expansion" as it contemplates the future path of the fed funds rate - the phrase it has used in recent months - and merely says it will "monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range."
     In his press conference, Fed Chair Jerome Powell said the rate was cut "to help keep the U.S. economy strong in the face of some notable developments and to provide insurance against ongoing risks," adding the current stance of policy is likely to be appropriate as long as new economic data is broadly consistent with the outlook for moderate growth, a strong labor market and inflation rising toward the 2 percent target.
     "That's our outlook. Could be better. Could be worse," Powell said.
     Powell added monetary policy, which he says was still accommodative, works with a lag so the impact on growth and inflation from the rate cuts will first show up over time.
     "Of course, if developments emerge that cause a material reassessment of our outlook, we would respond accordingly," Powell said, adding "policy is not on a preset course."
      Illustrating the split within the FOMC, 8 of its 10 members voted in favor of the rate cut while two members, Esther George and Eric Rosengren voted to maintain the rate, as in September.
     The U.S. economy has been slowing in the last two quarters, with real growth in the third quarter today estimated at 2.0 percent year-on-year, down from 2.3 percent in the second quarter and 2.7 percent in the first quarter.
     Although overall growth was better than expected, helped by a 2 percent rise in government spending, data showed consumer spending easing to 2.9 percent growth from 4.6 percent in the second quarter and non-residential fixed investment falling 3.0 percent, reflecting the widespread decline in global investments amid uncertainty over trade.
     But the jobs market in the U.S. is still healthy, with data today showing private businesses hiring 125,000 workers in October from September's revised 93,000. In September the U.S. unemployment rate fell to 3.5 percent from 3.7 percent in the previous three months.
    As in most of the world, inflation is stable and below central bank targets, with U.S. headline inflation steady at 1.7 percent in September and August, below the Fed's 2.0 percent target.

Canada holds rate but lowers 2020, 2021 growth forecast

    Canada's central bank left its benchmark target for the overnight rate at 1.75 percent but said the country's economy was not immune to the weaker global economy and lowered its forecast for economic growth next year and 2021.
    "The Governing Council is mindful that the resilience of Canada's economy will be increasingly tested as trade conflicts and uncertainty persist," said the Bank of Canada (BOC), adding it would keep a close eye on the extent to which the global slowdown spreads beyond manufacturing and investment, especially consumer spending and housing activity, as well as fiscal policy.
     The BOC, which has kept its rate steady since October 2018, raised its forecast for economic growth this year to average 1.5 percent from July's forecast of 1.3 percent and 2018's 1.9 percent.
      But the fallout from slower global growth and global trade conflicts is dampening exports and business investment so growth is expected to slow in the second half of this year.
      Business investment and exports are likely to contract before expanding again in 2020 and 2021 while government spending is helping support domestic demand and services sector activity is robust.
     With export growth slowing to 0.3 percent growth in 2020 from 0.6 percent this year and lower government spending seen in 2021, overall economic growth of 1.7 percent is forecast for 2020, down from the July forecast of 1.9 percent, and 2021 growth is seen at 1.8 percent, down from 2.0 percent.
     In July the BOC also lowered its forecast for 2020 growth and raised its 2019 forecast.
     Canada's gross domestic product grew 1.6 percent in the second quarter of this year, up from 1.4 percent in the first quarter while inflation was steady at 1.9 percent in September and August.
     Inflation is seen remaining stable around BOC's 2.0 percent target, averaging 2.0 percent this year, up from July's forecast of 1.8 percent, then 1.8 percent in 2020 and 2.0 percent in 2021.
     The Canadian dollar weakened slightly in the wake of BOC's statement to 1.315 to the U.S. dollar from 1.31 but remains 3.4 percent higher than at the start of the year.
     After holding its rate steady at 0.50 percent for two years, BOC in July 2017 began tightening its monetary policy stance and raised its rate five times before pausing in October 2018 as the global economic momentum began to wane.

Malawi holds rate as inflation still seen decelerating

    Malawi's central bank left its policy rate steady at 13.50 percent and confirmed it expects inflation to average 9.0 percent this year, pushed up by higher maize prices, but this is considered temporary and not a risk to achieving the inflation objective of 5 percent by 2021.
     The Reserve Bank of Malawi (RBM), which slashed its policy rate in half from November 2016 to May this year on falling inflation, also confirmed its forecast from July for economic growth of 5 percent this year, up from 4 percent in 2018, as the economy "displayed notable resilience despite the adverse effects of Cyclone Idai and the weak performance of tobacco products in 2019.
    RBM has cut its policy rate by 13.50 percentage points since November 2016, with the most recent cut in May this year, as inflation declined from almost 25 percent in December 2015 after two years of drought boosted food prices. Since then, better weather has led to improved food production and helped stabilize the kwacha, which fell sharply from 2021 to March 2016.
    Today the kwacha trades around 731 to the U.S. dollar, largely unchanged this year.
    Malawi's inflation rate eased to 9.2 percent in September from 9.5 percent in August for a rise to 9.3 percent in the third quarter from 9.0 percent in the second quarter due to food inflation, which rose to 14.2 percent from 13.5 percent in the second quarter.
    Non-food inflation, however, fell to an average of 5.4 percent in the third quarter from 5.5 percent in the second, largely due to a stable exchange rate, RBM said.
    The forecast for a gradual decline in inflation toward 5 percent is contingent on favorable weather as well as prudent fiscal management, the central bank said, adding higher food prices may slightly push up inflation in the fourth quarter so it is marginally higher than projected.
    While this is considered temporary, the central bank said a gradual disinflation process is still necessary due to second round effects of higher inflation, hence the decision to maintain the rate.

Armenia holds rate, keeps easy stance on low inflation

    Armenia's central bank kept its benchmark refinancing rate at 5.50 percent but said it would maintain a stimulative monetary position as inflation is expected to remain below the target in coming months before gradually returning to it in the medium term.
     The Central Bank of Armenia (CBA), which has lowered its rate twice this year, added the decision to maintain the rate today reflected the lack of inflationary pressures from abroad, the expected impact of fiscal policy and the gradual recovery in inflation.
     CBA cut its rate by a total of 50 basis points this year following cuts in September and January.
     Headline inflation in Armenia fell slightly to 0.5 percent in September from 0.6 percent in August while core inflation eased to 1.3 percent in August from 1.5 percent in July.
     CBA targets inflation of 4.0 percent, plus/minus 1.5 percentage points.
      In September CBA attributed the low inflation rate in recent months to a seasonal decline in agricultural prices that reflects international commodity prices.
     CBA said today it was ready to respond adequately to ensure price stability in light of the downward risk to inflation, mainly due to external developments and fiscal policy.
     Economic activity in the third quarter remained at a high level, with private consumption driving domestic demand, supported by monetary stimulus and injection of liquidity, CBA said. Although stimulus from fiscal policy had expanded in the third quarter, its impact on domestic demand is still seen as contained.
    In the second quarter of this year Armenia's gross domestic product grew 6.5 percent year-on-year, down from 7.2 percent in the first quarter.
     Armenia's dram firmed steadily from March through August but since then it has moved sideways and was trading at 475.6 to the U.S. dollar today, up 1.7 percent this year.

    www.CentralBankNews.info

   

Tunisia maintains rate as inflation stabilizes

    Tunisia's central bank maintained its key interest rates, noting the stabilization of inflation following the easing of some prices of foods and services amid slow economic growth.
    The Central Bank of Tunisia (BCT) has kept its rate steady since a 100-basis-point rate hike in February as part of a 350-point tightening cycle that began in April 2017.
     Tunisia's headline inflation rate has been decelerating since late 2018 and was steady at 6.7 percent in September and August while core inflation, which excludes food and subsidized goods, fell to 6.9 percent from 7.0 percent in August, the central bank said.
     In its statement, the bank's board underlined the slow pace of economic growth and said this would not exceed 1.4 percent for 2019, mainly due to weak exports, business-oriented sectors, and mining.
     Tunisia's gross domestic product ticked up to an annual rate of 1.2 percent in the second quarter of this year, up from 1.1 percent in the first quarter but down from 2.9 percent in the second quarter of 2018 and 2.7 percent in the first quarter of last year.
     Last month the governor of BCT, Marouane El-Abassi, said he expects inflation to drop to 6.9 percent by the end of the year and then gradually declined to 6.5 percent in 2020 and 5.9 percent in 2021.
    Tunisia's inflation rate has been pushed up by automatic adjustments of wages to energy costs and increases in public sector wages, both of which the International Monetary Fund (IMF) has criticized.

    www.CentralBankNews.info

   

Kazakhstan maintains rate as inflation seen in target

     Kazakhstan's central bank left its base rate steady at 9.25 percent and reiterated its forecast for inflation to end this year around 5.7 to 5.8 percent and then settle within its target corridor of 4.0 to 6.0 percent until the end of 2020.
     The National Bank of the Republic of Kazakhstan (NBK) also reiterated its guidance from last month that future policy decisions would be based on how inflation evolves in comparison with its target.
     NBK raised its rate by 25 basis points in September, unwinding a rate cut in April and returning the rate to its level seen from October 2018 to March 2019.
     Kazakhstan's inflation rate eased to 5.3 percent in September from 5.5 percent in August while core inflation, which excludes the prices of fruits and vegetables, regulated services and energy, eased to 7.7 percent from 7.9 percent.
     The growth in food prices accelerated in September to 9.1 percent, mainly due to higher domestic prices pulled up by higher world market prices, and meat and meat product prices were up 13.5 percent year-on-year.
     But inflationary expectations did not change significantly, the NBK said, and over the next 12 months inflation is seen at 5.4 percent.
     Business activity is also continuing to growth, with short-term economic indicators up 4.7 percent in the first 9 months of the year and investments up 9.7 percent.
     The tenge has firmed in recent days and was trading at 388.6 to the U.S. dollar today but is still down 3.3 percent since the start of this year.

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This week in monetary policy: Kazakhstan, Armenia, Malawi, Moldova, Canada, USA, Brazil, Fiji, Japan, Botswana, Mozambique, Bulgaria, Dominican Rep. & Colombia

    This week - October 27 through November 2 - central banks from 14 countries or jurisdictions are scheduled to decide on monetary policy: Kazakhstan, Armenia, Malawi, Moldova, Canada, United States, Brazil, Fiji, Japan, Botswana, Mozambique, Bulgaria, Dominican Republic and Colombia.
    In addition to these banks, the central banks that fully or partly peg their currencies to the U.S. dollar also set monetary policy after the Federal Reserve, including Saudi Arabia, Kuwait, the UAE, Bahrain, Qatar, Jordan, Hong Kong and Macao.
    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, and the rate one year ago.

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

WEEK 44
OCT 27 - NOV 2, 2019:
KAZAKHSTAN	28-Oct	9.25%	-25	0	9.25%	FM
ARMENIA	29-Oct	5.50%	-25	-50	6.00%
MALAWI	30-Oct	13.50%	0	-250	16.00%
MOLDOVA	30-Oct	7.50%	0	100	6.50%
CANADA	30-Oct	1.75%	0	0	1.75%	DM
UNITED STATES	30-Oct	2.00%	-25	-50	2.25%	DM
BRAZIL	30-Oct	5.50%	-50	-100	6.50%	EM
FIJI	31-Oct	0.50%	0	0	0.50%
JAPAN	31-Oct	-0.10%	0	0	-0.10%	DM
BOTSWANA	31-Oct	4.75%	-25	-25	5.00%
MOZAMBIQUE	31-Oct	12.75%	-50	-150	15.00%
BULGARIA	31-Oct	0.00%	0	0	0.00%	FM
COLOMBIA	31-Oct	4.25%	0	0	4.25%	EM
DOMINICAN REP.	31-Oct	4.50%	0	-100	5.50%

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Azerbaijan cuts rate 11th time as inflation seen rising

     Azerbaijan's central bank cut its benchmark discount rate for the 11th time since February last year and said further decisions on the interest rate would depend on the impact of internal risks on inflation and external factors, with the aim of reaching the targeted inflation.
     The Central Bank of the Republic of Azerbaijan (CBA) reduced its discount rate by another 25 basis points to 7.75 percent and has now cut it by 7.25 percentage points since February 2018.
     It is the 7th rate cut this year and the rate has been lowered by 200 basis points.
     Azerbaijan's economy is recovering from a banking crises and a prolonged downturn, but a stable exchange rate, lower food prices, anchored inflation expectations and an improving fiscal position prices has kept inflation subdued, allowing the central bank to ease its policy.
     Inflation was steady at 2.6 percent in September and August and CBA expects inflation to be close to the center of its target range of 4.0 percent, plus/minus 2 percentage points by the end of 2019.
     The economy is expanding due to higher natural gas production and domestic demand, with growth in the first 9 months of the year of 2.5 percent, including 3.5 percent in the non-oil sector.
     Last year Azerbaijan's economy grew 1.4 percent, bouncing back from a contraction in the previous two years, and the International Monetary Fund has forecast growth this year of 2.7 percent and 2.1 percent in 2020.

    www.CentralBankNews.info

Russia cuts rate 50 bps and will consider further cuts

     Russia's central bank lowered its key interest rate for the fourth time this year due to a faster-than-expected decline in inflation and said it would consider further rate cuts in coming months if inflation continues to fall.
     The Bank of Russia cut its key interest rate by 50 basis points to 6.50 percent and has now cut it by a total of 125 points this year following cuts in June, July, September and today.
     "The Russian economy's growth rate still remains subdued," the central bank said, adding there are still risks of a substantial global slowdown, inflation expectations are declining and disinflationary risks exceed pro-inflationary risks.
     The central bank normally cuts its rate in 25 basis points increments, but last week Governor Elvira Nabiullina said slowing economic growth and faster-than-expected drop in inflation would allow the central bank to "act more decisively" in comparison with past rate cuts that were moderate.
     Russia's inflation rate decelerated for the 6th consecutive month to 4.0 percent in September and is estimated to have declined further toward 3.8 percent as of October 21, the central bank said, cutting its forecast for inflation to average 3.2 to 3.7 percent this year from an earlier forecast of 4.0 to 4.5 percent.
     Inflation is expected to decline to slightly below 3.0 percent in the first quarter of 2020 as a rise in Value-Added-Tax drops out of the comparison and average between 3.5 and 4.0 percent next year, settling around the bank's 4.0 percent target further on.
    "If the situation develops in line with the baseline forecast, the Bank of Russia will consider the necessity of further key rate reduction at one of the upcoming Board of Directors' meetings," the bank said.
     Economic growth in Russia remains subdued with annual growth of 0.9 percent in the second quarter of this year and the central bank is maintaining its forecast for 2019 growth of 0.8 to 1.3 percent.
    The forecast for coming years was also unchanged, with growth seen gradually rising to between 2.0 and 3.0 percent in 2022 based on the expectation that structural reforms will be carried out.
     "However, the global economic slowdown expected over the forecast horizon will continue to exert a constraining impact on growth of the Russian economy," the bank said.
     The ruble, which has strengthened this year and thus helped slow inflation, rose a further 0.3 percent to 63.8 per U.S. dollar to be 9 percent higher than at the start of this year.

Sweden confirms Dec. hike but delays next hike to 2022

    Sweden's central bank maintained its benchmark interest rate and while it confirmed it still expects to raise the rate in December, it said the outlook for economic growth and inflation in coming years is "very uncertain" and pushed back any further rate hikes to 2022.
     As widely expected, Sveriges Riksbank left its benchmark repo rate steady at minus 0.25 percent and confirmed it "will most probably" raise the rate in December to zero percent, only the second time it will have tightened its policy since July 2011.
     In December 2018 the Riksbank raised its rate for the first time in 7-1/2 years on solid economic growth and rising inflation, but then pushed back another rate hike to late this year as global economic growth weakened, curbing inflationary pressures.
     Although economic growth in Sweden is now slowing, inflation remains close to the Riksbank's 2.0 percent target and is forecast to remain steady at 1.8 percent this year and 1.9 percent next year, setting up the conditions for the rate hike in December.
     Economic activity is now slowing faster than expected, but expansionary monetary policy in many countries is expected to support growth and the Riksbank doesn't expect a recession and inflation is expected to tick up by 2022.
     "However, the development of economic activity and inflation abroad and in Sweden in the coming years is very uncertain, and it is therefor difficult to say, at present, when it will be appropriate to raise the repo rate next time," the Riksbank said, adding it expects interest rates to be unchanged "for a prolonged period after the expected rise in December."
     Underscoring this uncertainty, the Riksbank said improved economic prospects would justify a higher interest rate but if the economy were to develop less favourably, it "could cut the repo rate or make monetary policy more expansionary in some other way."
     The Riksbank confirmed its decision from April that it is purchasing government bonds worth 45 billion Swedish crown from July this year to December 2020.
     In an update to its forecasts, the Riksbank sees the repo rate averaging 0.0 percent in 2020 and 2021, down from 0.2 percent forecast in September, and then rising to 0.1 percent in 2022.
     Economic growth is expected to slow to only 1.3 percent this year, down from its earlier forecast of 1.5 percent, and 2.3 percent in 2018.

Ukraine cuts rate 4th time, sees easing through 2021

    Ukraine's central bank cut its key policy rate by another 100 basis points to 15.50 percent and said it expects to continue to lower the rate toward 8.0 percent by the end of 2021, provided inflation continues to decline toward its target of 5.0 percent.
     The National Bank of Ukraine (NUB) has now cut its rate by a total of 250 basis points this year following cuts in April, July, September and today.
     The largest rate cuts are expected to take place next year as inflation returns toward the target range and inflation expectations improve but NBU said the path toward a 8.0 percent rate could also be slower if risks to inflation emerge, or rates could be cut faster if inflation falls faster.
     "These cuts will greatly depend on whether or not key internal reforms are sped up," NBU said, pointing to reforms in a memorandum of understanding between the government and the central bank, along with judicial reforms that establish the rule of law in the country.
     Inflation in September dropped to 7.5 percent from 8.8 percent in August is continuing to slow in October, NBU said.
     The central bank is still expecting inflation to fall to 6.3 percent by the end of 2019, meeting the target range in early 2020 and the target at the end of 2020.
     NBU is in the first stages of implementing inflation targeting, which is characterized by disinflation toward its optimal target, and its 2019 policy guidelines set out a quarterly trajectory for inflation to reach 5.25 percent, plus/minus 2 percentage points by September, and then 5.0 percent, plus/minus 1 percentage point starting in December.
     Despite the slowing global economy, demand in Ukraine has been improving along with consumer sentiment and higher agricultural production, with growth accelerating to 4.6 percent in the second quarter, up from 2.5 percent in the first quarter.
     NBU expects the economy to continue to expand and forecast growth will average 3.5 percent this year and in 2020, and 4.0 percent in 2021.

Turkey cuts rate 3rd time, inflation to determine future

    Turkey's central bank lowered its policy rate by a larger-than-expected 250 basis points and said the extent of future monetary tightness would be determined by the trend of underlying inflation to ensure inflation continues to decline.
     The Central Bank of the Republic of Turkey (CBRT) cut its benchmark one-week repo rate to 14.0 percent and has now cut it by a total of 1,000 basis points this year following cuts in July, September and today.
     While a moderate recovery of economic activity in Turkey is continuing, investment remains weak, weaker global growth is tempering external demand and exports are expected to contribute less to economic growth.
     The outlook for inflation is continuing to improve and inflation by the end of the year is likely to be "notably below" the forecast from the July inflation report, CBRT added.

Indonesia cuts rate 4th time to boost domestic growth

    Indonesia's central bank lowered its benchmark interest rates for the fourth consecutive month to boost bank lending "as a pre-emptive measure to stimulate domestic economic growth momentum against a backdrop of global economic moderation."
     Bank Indonesia (BI) cut its benchmark 7-day reverse repo rate by another 25 basis points to 5.00 percent and has now cut it by 100 points following cuts in July, August, September and today.
     BI also cut its deposit rate (DF) by a similar 25 basis points to 4.25 percent and the lending rate (LF) to 5.75 percent.
     In addition to providing easier lending rates, BI said its policy was supported by a strategy to maintain adequate liquidity to facilitate the transmission of an accommodative monetary policy while a deepening of payment systems and financial markets will also help foster economic growth.
     "Going forward, Bank Indonesia will monitor domestic and global economic developments in using its room to implement and accommodative policy mix in order to maintain controlled inflation and external stability as well as to support economic growth momentum," BI said.
      Despite the positive outcome from recent trade talks between the U.S. and China, BI said global economic growth was continuing to moderate and flatter economic growth in the U.S. was due to retreating economic confidence triggered by declining exports. This is stifling non-residential investment and household consumption, also including in Europe, Japan, China and Japan.
     BI lowered its 2019 forecast for Indonesia's economic growth slightly to "the lower end" of a 5.0 to 5.4 percent range from last month's forecast of "below the midpoint" of 5.0 to 5.4 percent.
     For 2020 BI confirmed its forecast for growth towards the midpoint of a 5.1 to 5.5 percent range.
     Indonesia's inflation rate remains under control and BI confirmed its forecast for inflation this year to be below the midpoint of its target range of 3.5 percent, plus/minus 1 percentage point.
      For 2020 inflation is seen within its new target range of 3.0 percent, plus/minus 1 percentage point.

Chile cuts rate 3rd time as protests affect economy

     Chile's central bank cut its monetary policy rate for the third time and said it assumes "a further monetary boost is needed" to ensure inflation converges towards its target as recent events, which include violent protests against price hikes and a state of emergency, will affect economic activity.
     The Central Bank of Chile's board unanimously cut its monetary policy rate by a further 25 basis points to 1.75 percent and has now lowered it by 125 points following cuts in June and September.
     The cut in June followed a 25-point rate hike in January so the net reduction in the policy rate this year is 100 points.
     "The complex developments that have occurred in the country in recent days will have an impact on the evolution of the economy," the central bank said, adding activity in the short run will be affected by the partial breakdown of the country and damaged infrastructure.
      The central bank said its December Report would include an analysis of the impact of the recent events, the outlook for inflation and the response of monetary policy.
      Today's rate cut follows the central bank's warning in September that further easing might be required to boost inflation amid disappointing economic activity and the escalating trade conflict between the U.S. and China.
      Chile, the world's largest copper producer, has been hit by falling demand and a slump in prices for copper since June last year.
     Several cities in Chile, including the capital of Santiago, have been hit by days of riots, which have led to thousands of arrests and 15 deaths in response to a hike in public transportation costs.
     The violence led President Sebastian Pinera to declare a state of emergency, placing the military in charge of security. But Pinera has also acknowledged government failures and announced economic reforms intended to restore calm.
      The protests have hit financial markets hard, with the peso falling 2.2 percent to 726.6 to the U.S. dollar in recent days to be down 4.5 percent this year, Chile's main stock index has fallen 3.6 percent since last Friday, and JP Morgan has lowered the country to underweight from neutral.
     Looking abroad, the central bank said the external scenario was largely in line with it had expected in September "and continues to be marked by major tension spots, a deterioration of manufacturing, investment and global trade."
     In June the central bank cut its forecast for 2019 growth to 2.75 - 3.5 percent from the March forecast of 3.0 - 4.0 percent, and 2018's growth of 4.0 percent.

Angola holds rate, raises RRR as it lets kwanza float

     Angola's central bank left its benchmark interest rate, the BNA rate, unchanged at 15.50 percent interest but raised the reserve requirement and established a new interest rate for a 7-day facility as it implemented a floating exchange rate regime for the kwanza in which its value is set according to demand and supply.
     At an extraordinary meeting of the National Bank of Angola's (BNA) monetary policy committee to evaluate the ongoing reform of the exchange rate regime that began in January 2018, a 10 percent interest rate was set for a 7-day maturity facility, the zero percent rate was kept for the overnight liquidity-absorbing facility, the reserve requirement for kwanza liabilities was raised to 22 percent from 17 percent, and a 2.0 percent margin on the reference exchange rate by commercial banks trading in foreign currency was removed.
     In addition, BNA said it had decided to relax the limits on various payment instruments used to finance goods imports.
     BNA said it wants to implement the new market-determined exchange rate regime quickly, describing the current conditions as "the best possible" following the start of the macroeconomic stabilization program.
     The free float of the kwanza is the latest major reform move by the BNA since Governor Jose Massano took over in October 2017 as part of Angolan President Joao Laurenco's efforts to clean up the country's image as a corrupt state.
    Massano's reforms include replacing the fixed exchange rate regime with auctions to set a reference rate in January 2018, adopting the monetary base as an operational variable to better control liquidity, lowering and changing the basis for banks' mandatory reserves, and unifying the rate on the marginal lending facility with that of the bank's basis interest rate.
    The kwanza has declined steadily since the fixed regime was ended in January 2018 and was trading at 455.17 to the U.S. dollar today, down 32.2 percent this year and down 63.5 percent since the previous peg of 166 to the dollar.
     As part of its efforts to improve the country's financial sector, the BNA revoked the banking licenses of two banks in January after they failed to raise their capital to meet new minimum levels and Massano has said more banks may have their licenses revoked when the results of asset quality assessments are released later this month.
     Angola, Africa's second largest oil producer, currently has 26 banks and any commercial bank that needs to raise its capital will have until June 2020 if the assessment determines shortages.
     Angola's economy still hasn't recovered fully after the plunge in crude oil prices in 2014, with economic output last year still below that of 2014.
     In the second quarter of this year gross domestic product contracted by an annual 0.1 percent, down from a 0.3 percent fall in the first quarter of this year.
     Angola's inflation rate fell to 16.08 percent in September, its lowest since January 2016, and in September Massano told Bloomberg inflation was expected to fall below 10 percent by 2022, proving scope for interest rates to be lowered.
     BNA has cut its key rate twice this year, in January and May, by a total of 100 basis points.

    www.CentralBankNews.info

   

Georgia raises rate 3rd time in 2 months, lari rises

     Georgia's central bank raised its monetary policy rate for the third time in two months and reiterated that it would continue to tighten its policy until the pressure on the lari's exchange rate is eliminated and ease the upward pressure on inflation.
     The National Bank of Georgia (NBG) raised its rate by 100 basis points to 8.50 percent and has now raised it 200 basis points following earlier hikes on Sept. 4 and Sept. 25.
     The three rate hikes more than reverse two 25-basis point rate cuts in January and March, and the lari responded positively to the central bank's move, rising 0.2 percent to 2.960 per U.S. dollar. However, the lari still remains 9.5 percent below the start of this year.
     "The nominal effective exchange rate of the GEL remains at an impaired level and is pushing up inflation," the central bank said, adding further policy decisions will depend on how quickly inflationary pressures from the exchange rate will be eliminated.
     Georgia's inflation rate has accelerated in the last three months, rising to 6.4 percent in September from 4.9 percent in August, boosted by higher taxes on cigarettes and the lower lari.
     The central bank targets inflation of 3.0 percent and said demand is only partly offsetting the upward pressure on inflation from the fall in the lari as preliminary data indicate an acceleration in economic growth.
     Georgia's gross domestic product eased to annual growth of 4.5 percent in the second quarter from 4.9 percent in the first quarter and NBG said early data show the improvement in the current account balance had continued in the third quarter.
     In the second quarter Georgia's current account deficit narrowed to US$139.6 million from $232.3 in the first quarter and NBG said maintaining this positive trend, along with tighter monetary policy, will help strengthen the exchange rate and thus change the inflationary trend
     Last month the International Monetary Fund (IMF) welcomed Georgian authorities commitment to prudent macroeconomic policies and structural reform, including NBG's rate hike.
     The IMF also noted a significant adjustment in the current account in the first half of this year, with higher exports and remittances, along with falling imports,  helping narrow the deficit.
     The IMF maintained its forecast for Georgia's economy to growth 4.6 percent this year and inflation to ease to 5.4 percent by the end of the year and then converge toward the 3.0 percent target in 2020 as monetary conditions tighten.
     The current account deficit is projected by the IMF to narrow by almost 2 percentage points of GDP to 6.0 percent of GDP this year.
   
     www.CentralBankNews.info

China maintains LPR at 4.20% and 5-yr rate at 4.85%

    China's central bank left its new benchmark interest rate, the Loan Prime Rate (LPR), steady at 4.20 percent from September and the 5-year rate unchanged at 4.85 percent.
     In August the People's Bank of China (PBOC) reformed its method for setting LPR to improve the transmission of its monetary policy and lower the cost of financing, making LPR the pricing benchmark for all types of loans by commercial lenders instead of its lending rate.

    LPR, which is linked to PBOC's medium-term lending facility (MLF), is the average of prices submitted by 18 banks, and currently comprises two varieties, a 1 year and a 5 year. 
     LPR is published on the 20th of each month, and if this falls on a weekend or holiday, LPR is published the following day.

     On Aug. 20 LPR was published for the first time since the reform and set at 4.25 percent, 6 basis points below the 4.31 percent it had been since it was first introduced in October 2013, and 10 points below the lending rate of 4.35 percent. The 5-year LPR was set at 4.85 percent.

    On Sept. 19 LPR was published for the second time at 4.20 percent for a decline of 5 basis points.

    Earlier today Yi Gang, PBOC governor, said in Washington DC that China would continue to pursue a prudent monetary policy and recent policy measures, such as three cuts to the reserve requirements for banks and the market-based reform on interest rates, had achieved desired results.

     This includes stable growth of money supply and credit and low market interest rates, and the transmission mechanism for monetary policy will be improved further to reduce firms' funding cost and promote high-quality economic growth.

    www.CentralBankNews.info

This week in monetary policy: China, Paraguay, Hungary, Georgia, Angola, Namibia, Chile, Indonesia, Sweden, Norway, Turkey, Ukraine, ECB, Azerbaijan & Russia

    This week - October 20 through October 26 - central banks from 15 countries or jurisdictions are scheduled to decide on monetary policy: China, Paraguay, Hungary, Georgia, Angola, Namibia, Chile, Indonesia, Sweden, Norway, Turkey, Ukraine, euro area, Azerbaijan and Russia.

    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, and the rate one year ago.

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

WEEK 43
OCT 20 - OCT  26, 2019:
CHINA (LPR)	21-Oct	4.20%	-5	-11	4.31%	EM
PARAGUAY	21-Oct	4.00%	-25	-125	5.25%
HUNGARY	22-Oct	0.90%	0	0	0.90%	EM
GEORGIA	23-Oct	7.50%	50	50	7.00%
ANGOLA 1)	23-Oct	15.50%	0	-100	16.50%
NAMIBIA	23-Oct	6.50%	-25	-25	6.75%
CHILE	23-Oct	2.00%	-50	-75	2.75%	EM
INDONESIA	24-Oct	5.25%	-25	-75	5.75%	EM
SWEDEN	24-Oct	-0.25%	0	0	-0.50%	DM
NORWAY	24-Oct	1.50%	25	75	0.75%	DM
TURKEY	24-Oct	16.50%	-325	-750	24.00%	EM
UKRAINE	24-Oct	16.50%	-50	-150	18.00%	FM
EURO AREA	24-Oct	0.00%	0	0	0.00%	DM
AZERBAIJAN	25-Oct	8.00%	-25	-175	9.75%
RUSSIA	25-Oct	7.00%	-25	-75	7.50%	EM
1) extraordinary MPC sesssion

    www.CentralBankNews.info