Colombia joins Mexico in raising rate to curb inflation

      Colombia's central bank joined its South American brethren, along with a growing number of central banks worldwide, and raised its main interest rate to prevent accelerating inflation from becoming entrenched through rising inflation expectations and thus a longer-term threat to financial stability.
      The Central Bank of Colombia (CBC) raised its benchmark interest rate by 25 basis points to 2.0 percent - its first rate hike since July 2016 - shortly after the Bank of Mexico (Banxico) raised its rate for the third time this year by 25 points to 4.75 percent.
      Illustrating the quickening pace of central bank rate hikes, the central banks of Jamaica and the Czech Republic also raised their rates today, boosting the number of banks that have raised their rates in September alone to 16, up from 14 in August and 10 in July.

      Colombia now joins other Latin American banks of Brazil, Chile, Peru, Mexico and Uruguay in trying to curb rising inflationary pressures as demand bounces back while supply chains remained strained and commodity prices are soaring.

      Colombia becomes the 31st central bank to raise its rates so far this year, including 11 emerging market central banks, as they unwind some of last year's extraordinary monetary stimulus that was aimed at cushioning economic activity during the COVID-19 pandemic

      The board of Colombia's central bank was split in its decision, which was widely expected, with 4 members voting for the 25-point hike and the other 3 voting for a 50-point rate hike.
     "A recovery in economic activity that was interrupted by roadblocks and a third wave of COVID-19 in the second quarter was restored in the third quarter," CBC said, raising its forecast for economic growth this year to 8.6 percent from July's forecast of 6.5 percent.
      For 2022 CBC forecast growth of 3.9 percent in 2022.

      Inflation in Colombia has been rising in the last four months and rose to 4.4 percent in August - well above CBC's 3.0 percent target - and the bank's staff raised its inflation forecast for this year due to domestic and external supply shocks, along with a faster expected closing of the output gap.

      The staff now expect inflation of 4.5 percent by the end of this year, up from last month's forecast of 4.1 percent, and forecast 3.5 percent inflation by the end of 2022.

      At the Bank of Mexico, 4 board members voted for today's rate hike while one member voted to maintain the rate.

      Although Mexico's inflation rate has trended lower since April, at 5.59 percent in August it remains above the bank's 3.0 percent target, and Banxico said inflation expectations for both this year and 2022 had risen.

      Banxico raised its forecast for headline inflation in the third quarter to 5.8 percent from last month's forecast of 5.6 percent and fourth quarter inflation to 6.2 percent from 5.7 percent.

     But it also expects inflation to trend down next year, ending the year at 3.4 percent and to ease in 2023.

     "Although the shocks that have increased inflation are expected to be transitory, due to their variety, magnitude, and the extended horizon over which they have affected it, they may pose risks to the price formation process and to inflation expectations," the bank said.

Jamaica raises rate, as signaled, sees further hikes

      Jamaica's central bank lived up to its guidance from last month and raised its key interest rate and said it would continue to raising the rate to ensure it meets the inflation target in the medium term.
     The Bank of Jamaica (BOJ) raised its policy rate by 100 basis points to 1.50 percent in the first policy tightening since the current monetary policy framework and rate was introduced in July 2017.
     It is also BOJ's first change of its policy rate since the rate was lowered to the historic low of 0.50 percent in August 2019 as a decade-long monetary easing cycle came to an end as inflation sustainably settled within the bank's target range of 4.0 to 6.0 percent.

     But last month the bank's board warned it would consider tightening its monetary policy stance to curb rising inflationary expectations and today noted inflation breached the upper limit of its target range and the risk of inflation continuing to breach its upper limit over the next year has increased.

     Jamaica's inflation rate jumped to 6.1 percent in August from 5.3 percent in July.

     "The recent significant increases in international commodity prices and shipping costs have had a stronger than expected pass through to local prices," BOJ said, adding this had contributed to a further rise in inflation expectations, which were already elevated.

     Prices of agricultural commodities are also expected to rise due to the tropical storms of Grace and Ida in August, further fueling inflation expectations.

     BOJ forecast inflation will average 5.5 to 6.5 percent over the next two years and breach the upper limit of its target range over the next 12 months.

     However, conditional on a gradual tightening of monetary conditions, inflation was projected to remain at 5.0 percent over the medium term.

     With its economy tied to the global tourism industry, Jamaica's economy shrunk around 10 percent last year and in the first quarter of this year economic output was still 6.7 percent below the same 2020 quarter.

      But BOJ said the economy is expected to growth from the second quarter and onwards and return to pre-COVID-19 pandemic levels by the end of 2022.

      Economic growth in the current 2021/22 fiscal year, which began April 1, is still expected to fall within a range of 7.0 to 10.0 percent but BOJ added this is likely to be in the lower end of that range.

      In addition to the rate hike, BOJ said it would also continue implementing measures to contain an expansion in Jamaican dollar liquidity. Last month BOJ already began limiting an expansion of liquidity to moderate inflation expectations.

     "In order to limit the second-round effects of the above noted shocks, which could then cause inflation to breach the upper limit of the Bank's target over a protracted period, the MPC agreed to reduce its level of monetary policy accommodations, by increasing the policy rate by 100 bps to 1.50 per cent," BOJ said.

      As in August, BOJ said it would continue to ensure movements in the exchange rate didn't threaten its inflation target, adding it doesn't target any specific level.

Czechs raise rate 3rd time to anchor expectations

     The central bank for the Czech Republic raised its benchmark interest rate for the third time this year by a larger-than-expected amount, saying today's "forceful" rate hike aims to anchor inflation expectations, which have been above the bank's 2.0 percent target for some time.
     The Czech National Bank (CNB) raised its two-week repo rate by a further 75 basis points to 1.50 percent and has now raised it 1.25 percentage points following earlier hikes in June and August.
     The Lombard rate, the cost of short-term loans to banks, was also raised by the same amount to 2.50 percent while the CNB's discount rate was raised to 0.50 percent from 0.05 percent.

     "The forceful increase in interest rates aims to support the return of inflation towards the target," CNB said, adding it doesn't want inflation expectations to become more significantly unanchored.

     The main reason for the sharp rate hike was a rapid rise in inflation.

     Headline inflation in the Czech Republic jumped to 4.1 percent in August from 3.4 percent in July, producer prices rose an annual 9.3 percent in August - the most since April 1993 - from 7.8 percent in July and wages rose 8.2 percent year-on-year in the second quarter of this year.

     "The Bank Board assessed the risks and uncertainties of the summer forecast as being markedly inflationary and hence requiring a faster rise in interest rates compared with the current forecast," it said.

     The bank had expected only 3.1 percent inflation in August, or 1 percentage point below the outcome.

     Due to the persistent disruptions to supplies, high global demand for industrial products and rising prices of electricity and gas, the outlook for both producer prices and consumer prices has been raised.

     And while the CNB still expects inflation to return towards its 2.0 percent target next year, it said there were significant upside risks to this outlook, especially for the next few quarters as the latest date points to "unexpectedly strong inflation pressures from the domestic and foreign economy."

      As in August, the bank's board was split in its decision.

      Today, five members voted for the sharp rate hike while two voted to maintain the rate. 

      In August four board members voted for the 25-point hike, one voted for a 50-point hike and two voted to maintain the rate.

       "The pace of further tightening of monetary policy will be conditional on future developments and on the message of the autumn forecast," CBN added.

      The size of the rate hike took financial markets by surprise - the Czech koruna jumped - as it follows recent comments by several of the bank's board members about the possibility of a 50-basis-point hike in response to rising inflationary pressures from rising wages due to a persistent shortage of workers.

      But in the wake of the Aug. 5 rate hike, the CBN board on Aug. 26 boosted the countercyclical capital buffer to banks' domestic exposure for the second time, this time by another by 50 basis points to 1.50 percent, and said it was ready to raise it again if banks' exposure to risk continues to rise.

     The Czech koruna jumped 0.9 percent against the euro to 25.29 after the rate hike to be 3.7 percent higher than at the start of the year and the Czech stock market hit a 13-year high, extending its rally since October 2020.

Saudi Arabia extends deferred payment program again

     Saudi Arabia's central bank eased its policy stance for the second time this year by once again extending one of the support measures it launched last year to support businesses that were most severely affected by the COVID-19 pandemic.

      The Saudi Central Bank, renamed last year from the Saudi Arabian Monetary Authority (SAMA), extended its Deferred Payment Program to Dec. 1, 2021, from Oct. 1, saying this was "for the benefit of micro, small and medium enterprises (MSMEs) that continue to be affected by the COVID-19 precautionary measures."

     In June the Saudi Central Bank also extended the deferred payment program, which allows businesses to delay payments on loans, by 3 months to Sept. 30 from July 1.

     Since the program was launched in March, 2020, it has benefitted more than 107,000 contracts with a value of 174 billion riyals in deferred payments, the central bank said in its statement from Sept. 29.

     The number of contracts benefiting from the bank's Guaranteed Financing Program has exceeded 6,000 contracts, with total financing value of more than 11 billion riyals, it added.

     The economy of Saudi Arabia, the world's top oil exporter, shrank 4.1 percent last year but is recovering this year, helped by the rise in crude oil prices.

     In addition to renaming the central bank, the new law that was approved in November 2020, also gave the Saudi Central Bank responsibility for supporting economic growth in addition to its previous responsibilities of maintaining monetary stability, which includes keeping enough reserves to protect the riyal's peg to the U.S. dollar, and maintaining financial sector stability.

     Under the new law, the central bank reports directly to the King of Saudi Arabia.

     Despite the name change, the Saudi Central Bank will continue to use the acronym of SAMA due to its historic significance, local and global relevance, and banknote bearing the name of the Saudi Arabian Monetary Authority will remain in circulation and keep their status as legal tender.

     

     www.CentralBankNews.info

Iceland tightens further by raising capital buffer

      Iceland's central bank tightened its monetary policy stance further by raising banks' countercyclical capital buffer and capping the debt service-to-income ratios on consumer mortgages.
     The Financial Stability Committee (FSN), part of the Central Bank of Iceland (CBI), raised the countercyclical capital buffer on financial institutions' domestic exposure to 2.0 percent from zero, with the increase taking effect in 12 months.

      FSN also imposed a maximum debt service-to income ratio of 40 percent for first time home buyers and 35 percent for all other borrowers.

      CBI, which has already raised its key policy interest rate twice this year by 50 basis points, said the economic recovery, coupled with its accommodative monetary and macro prudential stance, had supported households and business while asset prices, including real estate prices, have risen markedly.

      "Uncertainly about financial institutions' position has receded, and loan quality has improved," FSN said, with the result they are now resilient enough to lend to households and businesses.

       In March last year CBI cut the countercyclical capital buffer to zero from 2.0 percent and today said that reduction was no longer needed.

     "The FSN is of the view that the combination of rapidly rising asset prices and increased household debt has already raised cyclical system risk to at least the pre-pandemic level," CBI added.

      The debt service-to-income ratio measures the percentage of a borrowers' disposable income that is used to make monthly mortgage payments and CBI said the purpose of the rules is to safeguard financial stability, shore up lenders' and borrowers' resilience against imbalances in the housing market, and limit the build-up of long-term systemic risk.

Thailand maintains rate and economic forecast

      Thailand's central bank left its key interest rate steady, saying targeted financial measures would be more effective than cutting an already-low policy rate and called on the government to expedite health measures to facilitate the recovery of economic activity and incomes.
      The Bank of Thailand's (BOT) monetary policy committee unanimously kept the policy rate at 0.50 percent, unchanged since the last cut in May 2020.

       Last month two members of the policy committee voted to lower the policy rate by 25 basis points, the first split decision since May 2020, with some analysts looking for a rate cut today.

      But since the August meeting, data showed Thailand's economy expanded by a higher-than-expected 0.4 percent in the second quarter from the first quarter for annual growth of 7.5 percent - the first expansion in six quarters and the strongest growth since fourth quarter of 2012.

      The government then raised the public debt ceiling this month to 70 percent of gross domestic product from 60 percent with the country's finance minister earlier today saying the government would borrow domestically for now and may then look abroad if the economy recovers.       

       In response to weakening global growth in 2019, BOT began lowering its rate in August 2019 and cut its rate twice that year by a total of 50 basis points. 
     As the COVID-19 pandemic swept the world in early 2020, BOT cut its rate another three times by 75 basis points from February through May with the rate now 1.25 percentage points below its level in August 2019.

      After climbing back from the first wave of the pandemic in mid-2020, Thailand's economy was hit hard by a second wave late last year and a third wave this year, forcing BOT to continuously reduce its forecast for economic growth after a 6.1 percent contraction in 2020, the sharpest fall in 22 years.

      Starting in June this year BOT slashed its 2021 growth outlook to 1.8 percent from 3.0 percent and then in August the forecast was cut to 0.7 percent while the finance ministry lowered its outlook to 1.3 percent from 2.3 percent expected in April.

      Today BOT said it expects the country's economy to expand close to its August forecast of 0.7 percent this year and 3.9 percent in 2022, noting "uncertainties surrounding the economic outlook remained high."

       Although Thailand's economy was affected by containment measures and a slowdown in exports in the third quarter, BOT said significant progress in vaccinations and earlier-than-expected relaxation of such measures would help restore private sector confidence and boost private consumption for the remainder of this year.

     "The economy is 2022 would recover mainly owing to domestic spending in tandem with improving confidence," BOT said, adding foreign tourists are expected to recover slowly while exports will continue to be affected by a shortage of shipping containers and semiconductors.

      Thailand's inflation rate has been decelerating in recent months and fell to 0.02 percent in August from 0.45 percent in July, with food prices down for the second month in a row.

Morocco postpones policy decision to Oct. 13

     Morocco's central bank postponed the release of its monetary policy decision until Oct. 13 from today due to health reasons, the bank said on its website.
     The Bank of Morocco, or Bank Al-Maghrib (BAM) has maintained its policy rate at 1.5 percent since June last year when it was cut for the second time in 2020 by a total of 75 basis points to provide support to the economy during the COVID-19 pandemic.

      Analysts expect BAM to maintain its rate this year as inflation has remained low, falling to 0.8 percent in August after hitting a 3-year high of 2.2 percent in July.

     

      www.CentralBankNews.info

     

Seychelles maintains rate, economy not yet recovered

      The Central Bank of Seychelles (CBS) kept its monetary policy rate (MPR) steady for the fourth quarter, saying the economy has not yet fully recovered from the effects of the COVID-19 pandemic despite a pick-up in economic activity.
      CBS left its policy rate at 2.0 percent after cutting it, and the overall interest corridor, by 100 basis points at its last board meeting on June 30, the bank's fourth rate cut since September 2019. 

      Since then, the rate has been lowered 3.50 percentage points.
      At its June meeting, the bank's board also said it had approved lowering the minimum reserve requirement to 10.0 percent from 13.00 percent if liquidity conditions warranted such an adjustment.
      In today's statement, following a board meeting on Sept. 27, CBS said the reserve requirement on rupee-denominated deposit liabilities had been lowered to 10 percent as of July 14 and will be maintained at this level in the fourth quarter.

      The bank's board said it was disappointed the general reduction in interest rates had not been fully transmitted by the banking sector  

     While the country's tourism sector had improved since entry requirements for visitors was relaxed on March 25, CBS said visitor arrivals and earnings remain far below pre-pandemic levels.

      The Republic of Seychelles is made up of 115 islands of the east coast of Africa and relies heavily on tourism, which has been devastated by the pandemic.

     "There are promising signs of a partial recovery, with some improvement in production statistics and overall domestic activity, although the effects of the pandemic are still being felt across various sectors of the economy, CBS said.

      In late July the board of the International Monetary Fund approved a 32-month extended arrangement for the Seychelles of US$105.6 million - 323 percent of the country's quota - allowing for the immediate disbursement of $34.26 million.

     The IMF forecast gross domestic product growth this year of 6.9 percent after a contraction of 12.9 percent last year, and growth of 7.7 percent in 2022.

     Inflation is seen averaging 10.0 percent this year, up from 1.2 percent last year, and 3.7 percent in 2022.

Angola postpones policy decision to Sept. 30

      Angola's central bank postponed the final decision and announcement of its monetary policy decision until Thursday, Sept. 30 from today, as was scheduled.
      The Bank of Angola (BOA), which raised its rate in July for the first time since November 2017, said on its website the 100th session of its monetary policy committee would conclude on Sept. 30 so final deliberations and communication to the public, including the usual press conference, would take place on that date.
     The central bank said the committee meeting was starting to update the bank's operational framework.
     BOA raised its policy interest rate by 450 basis points to 20.0 percent in July in response to faster-than-expected inflation, the bank's third tightening of its monetary policy stance this year. 
     The rate hike came as a surprise because the monetary policy committee brought forward its meeting scheduled for July 29 by four weeks to July 2 following the release of inflation data that showed higher-than-expected inflationary pressures.

     After stabilizing around 25 percent from November through May, Angola's inflation rate has picked up speed and rose to 26.09 percent in August from 25.76 percent in July.

      Following BOA's rate hike in July, Governor Jose de Lima Massano said in an interview maintaining the benchmark interest rate would help ensure greater stability in the economy. 
     However, he also said the bank would consider changing borrowing costs if there is a significant change in the trajectory of inflation.

     Massano also said Angola's economy was set to stagnate this year after 5 straight years of contraction and first return to growth in 2022. 

     He forecast growth of 2.36 percent in 2022 and growth of 3.0 to 4.0 percent from 2023.

      In June Angola's National Assembly amended the country's constitution to give the central bank more independence by changing the way the governor is appointed and the mandate of the bank to focus on price stability and financial stability.

     

     www.CentralBankNews.info

    

This week in monetary policy: Ghana, Angola, Honduras, Morocco, Kenya, Lesotho, Fiji, Thailand, Guatemala, Uruguay, Czech Rep., Bulgaria, Mexico, Trinidad & Tobago, Jamaica & Colombia

     This week - September 27 through October 2 - central banks from 16 countries or jurisdictions are scheduled to decide on monetary policy: Ghana, Angola, Honduras, Morocco, Kenya, Lesotho, Fiji, Thailand, Guatemala, Uruguay, Czech Republic, Bulgaria, Mexico, Trinidad and Tobago, Jamaica and Colombia.

     Following table includes the name of the country, the date of the next policy decision, the current policy rate, the local time a policy decision is announced, the result of the last policy decision, the change in the policy rate year to date, and the rate one year ago.
    The table is updated when the latest decisions are announced and can always be accessed by clicking on This Week.

WEEK 39
SEP 27- OCT 2, 2021
GHANA	27-Sep	13.50%		0	-100	14.50%
ANGOLA	27-Sep	20.00%		450	450	15.50%
HONDURAS	27-Sep	3.00%		0	0	3.75%
MOROCCO	28-Sep	1.50%		0	0	1.50%	FM
KENYA	28-Sep	7.00%		0	0	7.00%	FM
LESOTHO	28-Sep	3.50%		0	0	3.50%
FIJI	29-Sep	0.25%		0	0	0.25%
THAILAND	29-Sep	0.50%		0	0	0.50%	EM
GUATEMALA	29-Sep	1.75%		0	0	1.75%
URUGUAY	29-Sep	5.00%	15:00	50	50	5.00%
CZECH REPUBLIC	30-Sep	0.75%	14:30	25	50	0.25%	EM
BULGARIA	30-Sep	0.00%		0	0	0.00%	FM
MEXICO	30-Sep	4.50%	13:00	25	25	4.25%	EM
TRINIDAD & TOBAGO	30-Sep	3.50%		0	0	3.50%
JAMAICA	30-Sep	0.50%		0	0	0.50%
COLOMBIA	30-Sep	1.75%		0	0	1.75%	EM

 
    www.CentralBankNews.info

UAE starts gradual withdrawal of crises measures

      The central bank of the United Arab Emirates (UAE) said it is starting a "gradual and well-calibrated" withdrawal of extraordinary stimulus measures taken last year during the height of the COVID-19 pandemic to avoid restricting credit supply and economic growth.

     "Our assessment, confirmed by recent economic data, affirms the UAE economy's gradual recovery," Khaled Mohamed Balama, governor of the Central Bank of the UAE (CBUAE) said in a statement.

     "As we enter the next phase of the post-COVID recovery, there will be less need for extraordinary stimulus measures," he added on Sept. 23.

       Last year CBUAE, as other central banks, cut its main interest rates and undertook various measures to ensure the flow of liquidity to the banking system and to support economic activity.

       CBUAE grouped its different measures - such as financing for loan deferrals and zero-cost liquidity -under a Targeted Economic Support Scheme (TESS).

       In April the central bank extended key parts of TESS until mid-2022, including allowing banks to access a zero-cost liquidity facility up to June 30, 2022 to provide new loans and financing to those most affected by the pandemic.

       It also extended financing for loan deferrals until the end of 2021 but will phase out the outstanding financing by Dec. 31, 2021.

      Today CBUAE said 15 percent of banks' loan portfolios had benefitted from the loan deferral program and confirmed the program would be phased out by the end of this year.

       It also confirmed that in the short term it would maintain the temporarily lowered reserve requirements for banks and the level of loan-to-value ratio on mortgage loans for first-time home buyers.

       CBUAE previously decided regulatory measures that allow banks to maintain lower capital and liquidity buffers will expire by the end of this year but said today is was looking at extending these for a limited period to facilitate a smooth economic recovery.

      UAE groups seven emirates, including Abu Dhabi and Dubai, and its oil and natural gas reserves are the 6th and 7th largest in the world, respectively.

Turkey surprises with rate cut, lira hits new record lows

     Turkey's central bank lowered its policy rate for the first time in two years, surprising many but not all analysts, saying a revision of its monetary policy stance was needed as past monetary tightening was now dampening credit, domestic demand and commercial loans.
     The Central Bank of the Republic of Turkey (CBRT) cut its policy rate, or the one-week repo auction rate, by 1 percentage point to 18.0 percent in the first rate cut since September 2019.

      Despite recent comments by the bank's governor, Sahap Kavcioglu, the vast majority of analysts expected the central bank to maintain its rate today as Turkey's headline inflation is continuing to accelerate and the bank had pledged to keep rates above inflation.

      However, in a conference call with investors on Sept. 1, Kavcioglu omitted earlier pledges of keeping the policy rate above inflation and that tight monetary policy would be maintained decisively.

      A week later, Kavcioglu - who was appointed in March by Turkey's strong-willed president, Recep Tayyip Erdogan - then shifted the bank's policy focus to core inflation, which some analysts saw paving the way for lower interest rates as demanded by Erdogan.

     In retrospect, these hints by Kavcioglu - the bank's fourth governor since 2019 - turned out to foreshadow today's sharp change in policy. 

     Kavcioglu was appointed by Erdogan on March 21 this year after he fired Naci Agbal, who had raised the rate for the third time on March 18.

     Reflecting today's surprise policy decision, the Turkish lira once again fell to new record lows, ensuring continued upward pressure on import prices and thus inflation.

     The lira plunged 1.25 percent after the rate cut to 8.77 to the U.S. dollar to be down 15.3 percent this year and down 32 percent since the start of 2020.

      Explaining its decision to lower the policy rate, the bank's monetary policy committee said monetary tightening had a decelerating impact on credit and domestic demand, and a higher-than-expected contractionary effect on commercial loans.

     Turkey's headline inflation rate rose to 19.25 percent in August, up from 14.97 percent in January and 18.95 percent in July - almost four times the bank's 5.0 percent medium-term target.
      But core inflation, which strips out energy, food, alcohol and tobacco, eased to 16.7 percent from 17.21 percent in July and from a 2021-high of 17.77 percent in April.

      Formalizing the bank's abandonment of its earlier guidance, the policy committee today said it would use all available instruments until there are strong signs inflation is declining and the 5.0 percent inflation target is achieved.

      In its August statement the committee had said it would maintain a tight monetary policy stance decisively until there is a significant fall in inflation and the policy rate would be set above inflation.

      Despite the change to the guidance and surprise to financial markets, the committee said it would continue to "take its decisions in a transparent, predictable and data-driven framework."

Norway raises rate, as expected, sees December hike

     Norway's central bank raised its key interest rate for the first time in two years, as it had signaled in recent months, and said it would most likely raise the rate again in December as the economy was now normalizing and economic activity higher than before the COVID-19 pandemic struck.
     Norges Bank (NB) raised its policy rate by 25 basis points to 0.25 percent, the first rate hike since September 2019, and the first change in rates since May last year when the rate was slashed for the third time in three months to support economic activity during the pandemic.
     "A normalizing economy now suggest that it is appropriate to begin a gradual normalization of the policy rate," said Governor Oeystein Olsen, who last month said he would step down at the end of February 2022 after turning 70.
     Olsen became governor of NB in 2011 and is in his second six-year term.
     NB has been transparent in informing investors and financial markets of its intent to tighten monetary policy. 

     In March this year NB pulled forward the date for a rate hike to the second half of this year from the first half of next year, and in June the central bank then said it would most likely raise the rate in September as economic activity was bouncing back faster than expected.

     This forecast was confirmed last month.
     NB said the economic upswing was likely to continue through the autumn, with increasing economic activity and rising wages helping push up inflation towards the bank's 2.0 percent target.

     In its updated monetary policy report, NB raised its forecast for economic growth this year to 3.0 percent from June's forecast of 2.9 percent and the 2022 forecast to 3.8 percent from 3.6 percent.

     In the second quarter of this year Norway's gross domestic product jumped 6.1 percent year-on-year.

     Norway's inflation rate has hovered around 3 percent most of this year and rose to 3.4 percent in August and NB raised its forecast for inflation to average 3.2 percent this year from 2.8 percent.

     For 2022 inflation is seen averaging 1.5 percent, up from June's forecast of 1.1 percent.

     "Based on the Committee's current assessment of the outlook and balance of risks, the policy rate will most likely be raised further in December," Olsen said.

     The path of the policy rate in coming years was raised, with NB forecasting an average 0.1 percent this year and then 0.9 percent in 2022, up from the previous forecast of 0.8 percent.

      In 2023 NB expects the policy rate to average 1.4 percent in 2023, up from from 1.3 percent, and then 1.6 percent in 2024, also 0.1 percent higher than forecast in June.

     Commenting on the balance of risks, NB's monetary policy and financial stability committee said there was still a risk the pandemic would have a lasting impact on employment, which favors supporting economic growth, while capacity constraints may result in higher prices and wages.

     "Nevertheless, the Committee judges that the risk of inflation becoming too high is limited," NB said.

Brazil raises rate 5th time, sees similar hike in October

        Brazil's central bank raised its main interest rate for the fifth time this year and said it expects to raise the rate by the same amount at its next meeting as "the balance of risks indicate it appropriate to advance the process of monetary tightening further into the restrictive territory."
      The Central Bank of Brazil (BCB) raised its Selic rate by 1.0 percentage points for the second month in a row to 6.25 percent and has now raised the rate 4.25 percentage points this year following earlier rate hikes in March, May, June and August.
     BCP's monetary policy committee, or Copom, is next scheduled to meet on Oct. 26.

     www.CentralBankNews.info

Paraguay raises rate 2nd time to meet inflation target

     Paraguay's central bank raised its benchmark interest rate for the second consecutive month, saying it considers it appropriate to continue normalizing monetary policy to ensure it meets its inflation target in the medium term.
     Although the Central Bank of Paraguay (BCP) said the acceleration in inflation is mainly due to external factors, it added the risk of a misalignment of inflation expectations and second-round effects may become more relevant during an improving economy and a better outlook for public health.
     BCP raised its monetary policy rate by 50 basis points to 1.50 percent and has now raised it 75 points following an earlier hike in August, the central bank's first rate hike in 5-1/2 years.

     Inflation in the land-locked South American country accelerated for the fourth month to 5.6 percent in August from 5.2 percent in July and 2.6 percent in January, above BCP's target of 4.0 percent.

    "Inflation has picked up in recent months, above what was previously expected, which is largely explained by the impact of high international commodity prices and higher external demand for beef," BCP's monetary policy committee said on Sept. 21.

     Internationally, the growth prospects for Paraguay's main trading partners has continued to improve and domestic economic activity has continued to expand from last year, especially services, manufacturing and livestock, the bank said.

     A reduction in infections, progress in rolling our COVID-19 vaccinations and greater mobility may continue to lead to better consumer expectations and aid the recovery of those parts of the service sector that was most hard hit by the pandemic, BCP added.

     Paraguay's gross domestic product grew 0.6 percent year-on-year in the first quarter of this year, down from 1.0 percent growth in the fourth quarter of 2020.

    www.CentralBankNews.info

  

Hungary raises rate 4th time but slows tightening pace

     Hungary's central bank raised its key interest rates for the fourth time in a row but slowed the pace of monetary tightening slightly, saying the fourth wave of the COVID-19 pandemic has raised the risks to the economic recovery and inflation is seen easing by the start of next year.

     The National Bank of Hungary (NBH) raised its central bank rate by another 15 basis points to 1.65 percent and has now raised it by 1.05 percentage points this year following earlier hikes of 30 basis points each in the months of June, July and August.

     The central bank, or Magyar Nemzeti Bank (MNB) in Hungarian, also raised its other main rates that are linked to the base rate, by 15 basis points. 

     The overnight deposit rate is now 0.70 percent, the overnight collateralized lending rate 2.60 percent and the one-week collateralized lending rate at 2.60 percent.

     "The Monetary Council will continue the cycle of interest hikes until the outlook for inflation stabilizes around the central bank target in a sustainable manner and inflation risks become evenly balanced on the horizon of monetary policy," NBH said, reiterating its recent guidance.

     The last time NBH's key rate was at 1.65 percent was in May 2015 when the central bank was in the later stages of an monetary easing cycle that began in August 2012, when the rate was cut from 7.0 percent, and ended in May 2016 when the rate was cut to 0.90 percent.

     Between May 2016 and June 2020 the rate was kept steady before it was cut in two consecutive months to 0.60 percent during the height of the COVID-19 pandemic.

     But with the economy rebounding swiftly from restrictions during the pandemic and inflationary pressures rising, NBH turned hawkish in June this year to prevent inflation expectations from detaching from its target.

     In addition to raising its rate in June - the first rate hike in a decade - the central bank also began phasing out the monetary tools used to support economic activity during the COVID crises, such as the Funding for Growth Go! scheme and a long-term collateralized lending facility.

     In August the central bank began gradually withdrawing its purchases of government securities - known as quantitative easing - and lowered the weekly amount of purchases by 10 billion forint to 50 billion starting Aug. 23.

     Today the central bank decided to lower the weekly amount by another 10 billion forint to 40 billion starting Sept. 27 and reiterated it was not planning to sell any of the bonds on its balance sheet but hold them to maturity.

     While NBH continues to its foreign currency swaps to provide euro liquidity at the end of quarters, it said it would gradually phase out the swap facility used to provide forint liquidity.

      Hungary's economy continued its recovery in the third quarter of this year - after reaching pre-pandemic levels of output in the second quarter, but the central bank said a new wave of the pandemic had boosted the risks to the economy while the peak of inflation was in sight.

     "These warrant a continuation of the monthly interest rate tightening cycle with lower pace," NBH said, raising its forecast for economic growth this year to 6.5 to 7.0 percent from June's forecast of 6.2 percent.

     In the second quarter of this year Hungary's gross domestic product grew 17.9 percent from the same quarter last year after shrinking 2.1 percent in the first quarter.

     Next year NBH forecast growth of 5 to 6 percent in 2022, unchanged from its previous forecast.

     After rising sharply in April, inflation in Hungary eased from a high of 5.3 percent in June to 4.6 percent in July and 4.9 percent in August.

    "Some the inflation risks, indicated in June, materialized in the summer months; however, risks to the outlook remain on the upside," NBH said, warranting continued monetary tightening.

     The central bank said it expects inflation to rise further in the autumn and remain above 5 percent during the rest of the year but then begin to decline from the start of next year and return to the tolerance band of 2.0 to 4.0 percent in the second quarter.

     In the second half of next year, inflation is seen stabilizing around the central bank's midpoint target of 3.0 percent.

Pakistan raises rate as recovery tops expectations

     Pakistan's central bank raised it monetary policy rate for the first time in more than two years - the 10th emerging market central bank to raise rates this year - as the pace of the economic recovery has exceeded expectations and this could lead to a rise in inflation in coming months.

     The State Bank of Pakistan (SBP) raised its policy rate by 25 basis points to 7.25 percent, the first rate hike since July 2019 and the highest policy rate since June 2018.
     As other central banks, SBP last year lowered its interest rates in response to the COVID-19 pandemic and cut it 5 times and by a total of 6.25 percentage points from March to June. 

     Since then it kept the rate steady as economic activity slowly improved, with the recovery picking up speed during the summer despite a fourth wave of the pandemic.
     Although the rate hike surprised many analysts that expected SBP to keep the rate steady today, the central bank in late July already said it would be prudent to begin normalizing its monetary policy stance through a gradual degree in accommodation to ensure inflation doesn't become entrenched at a high level.

     "Looking ahead, in the absence of unforeseen circumstances, the MPC (the monetary policy committee) expects monetary policy to remain accommodative in the near term, with possible further gradual tapering of stimulus to achieve mildly positive real interest rates over time," SBP said. 

     The pace of further tapering of stimulus would depend on continued strength of demand and fiscal policy, among other factors, the bank added.   

     Prior to the pandemic, SBP had been in a monetary tightening cycle and raised its rate 7 times and by a total of 7.25 percentage points from May 2018 to July 2019, to ensure inflation remained within its target range.
      Despite the faster-than-expected economic recovery, inflation has been kept in check by declining food prices and headline inflation eased to 8.4 percent in both July and August from around 11 percent in both April and May.

    "While year-on-year inflation has declined since June, rising demand pressures together with higher imported inflation could begin to manifest in inflation readings later in the fiscal year," the bank said.

     With continued progress in vaccinations and signs the latest COVID wave remains contained, the central bank said the economic recovery appears less vulnerable to pandemic-related uncertainty so monetary policy should gradually pivot from catalyzing a economic recovery to sustaining it.

     Although inflation has been steady in the last two months, SBP said inflation expectations of both households and businesses had drifted up and wage growth was picking up, with the outlook for inflation largely dependent on demand, administered prices along with fuel, electricity and global commodity prices.

     In July SBP expected inflation to ease in the second half of this year and then coverage to its target range of 5 - 7 percent in the medium term.

     Pakistan's economy in fiscal 2022, which began on July 1, is expected to expanded toward the upper end of SBP's forecast range of 4 - 5 percent, notwithstanding some of the uncertainty with respect to a spillover from Afghanistan.

This week in monetary policy: Pakistan, Japan, Indonesia, Sweden, Hungary, Paraguay, China, USA, Brazil, Taiwan, Switzerland, UK, South Africa, Philippines, Norway, Turkey & Zimbabwe

      This week - September 20 through September 25 - central banks from 17 countries or jurisdictions are scheduled to decide on monetary policy: Pakistan, Japan, Indonesia, Sweden, Hungary, Paraguay, China, United States of America, Brazil, Taiwan, Switzerland, United Kingdom, South Africa, Philippines, Norway, Turkey and Zimbabwe.

      Following table includes the name of the country, the date of the next policy decision, the current policy rate, the local time a policy decision is announced, the result of the last policy decision, the change in the policy rate year to date, and the rate one year ago.
    The table is updated when the latest decisions are announced and can always be accessed by clicking on This Week.

WEEK 38
SEP 20 - SEP 25, 2021
PAKISTAN	20-Sep	7.00%		0	0	7.00%	EM
JAPAN	21-Sep	-0.10%		0	0	-0.10%	DM
INDONESIA	21-Sep	3.50%		0	-25	4.00%	EM
SWEDEN	21-Sep	0.00%	9:30	0	0	0.00%	DM
HUNGARY	21-Sep	1.50%		30	90	0.60%	EM
PARAGUAY	21-Sep	1.00%		25	25	0.75%
CHINA	22-Sep	3.85%	9:30	0	0	3.85%	EM
UNITED STATES	22-Sep	0.25%	14:00	0	0	0.25%	DM
BRAZIL	22-Sep	5.25%	18:30	100	325	2.00%	EM
TAIWAN	23-Sep	1.125%		0	0	1.125%	EM
SWITZERLAND	23-Sep	-0.75%	9:30	0	0	-0.75%	DM
UNITED KINGDOM	23-Sep	0.10%	12:00	0	0	0.10%	DM
SOUTH AFRICA	23-Sep	3.50%		0	0	3.50%	EM
PHILIPPINES	23-Sep	2.00%		0	0	2.25%	EM
NORWAY	23-Sep	0.00%	10:00	0	0	0.00%	DM
TURKEY	23-Sep	19.00%	14:00	0	200	10.25%	EM
ZIMBABWE	24-Sep	40.00%		0	500	35.00%