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This week in monetary policy: Israel, Kyrgyzstan, Morocco, Sri Lanka, Angola, Taiwan, Czech Rep., Moldova, Mexico, Romania, Bulgaria, Colombia, Trinidad & Tobago and Dominican Rep.

September 25, 2016 by CentralBankNews   Comments (0)

    This week (September 25 through October 1) central banks from 14 countries or jurisdictions are scheduled to decide on monetary policy: Israel, Kyrgyz Republic, Morocco, Sri Lanka, Angola, Taiwan, Czech Republic, Moldova, Mexico, Romania, 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.

SEP 25 - OCT 1, 2016:
COUNTRY       DATE           RATE      LATEST        YTD     1 YR AGO    MSCI
ISRAEL 26-Sep 0.10% 0 0 0.10%       DM
KYRGYZSTAN 26-Sep 6.00% 0 -400 10.00%
MOROCCO 27-Sep 2.25% 0 -25 2.50%       FM
SRI LANKA 28-Sep 7.00% 0 100 6.00%       FM
ANGOLA 28-Sep 16.00% 200 500 10.50%
TAIWAN 29-Sep 1.38% -12.5 -25 1.75%       EM
CZECH REPUBLIC 29-Sep 0.05% 0 0 0.05%       EM
MOLDOVA 29-Sep 10.00% -300 -950 19.50%
MEXICO 29-Sep 4.25% 0 100 3.00%       EM
ROMANIA 30-Sep 1.75% 0 0 1.75%       FM
BULGARIA 30-Sep 0.00% 0 -1 0.01%       FM
COLOMBIA 30-Sep 7.75% 0 200 4.75%       EM
TRINIDAD & TOBAGO 30-Sep 4.75% 0 0 4.50%
DOMINICAN REP. 30-Sep 5.00% 0 0 5.00%

The Setup is the Holy Grail of Trading (Video)

September 24, 2016 by EconMatters   Comments (0)

By EconMatters

We discuss the Setup in Trading, basic components, and provide a real market example of a common VIX Setup that occurred this past month in financial markets. The Setup is a major tool rooted in Modern Market Theory and Mastery provides a solid edge for Traders.

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Pakistan retains rate, sees rising domestic demand

September 24, 2016 by CentralBankNews   Comments (0)

    Pakistan's central bank left its policy rate at 5.75 percent, saying an expected increase in domestic demand would largely determine inflation in the remaining months of fiscal 2017, which began July 1, with oil prices remaining the major risk factor
    The State Bank of Pakistan (SBP), which cut its rate by 25 basis points in May, added that the country's economy had "fared well" due to a supportive economic environment, with record-high foreign exchange reserves supporting a stable exchange rate.
    However, the SBB added that the current account was at risk of widening further due to declining exports and rising imports.
    Pakistan's inflation rate declined to 3.56 percent in August from 4.12 percent in July, but up from 1.8 percent in August last year. In the first two months of the current fiscal year inflation was double the rate seen 12 months ago.
    In fiscal 2016, which ended June 30, Pakistan's average consumer price inflation rate declined to a 47-year low of 2.9 percent while Gross Domestic Growth touched an 8-year high of 4.7 percent.
    The economy is expected to expand further this year on improving industrial activity, with lower prices of inputs, low interest rates and better energy supplies seen boosting manufacturing.

    The State Bank of Pakistan issued the following statement:

"The year-on-year CPI inflation rose to 3.6 percent in August 2016 from 1.8 percent in August 2015, while the average inflation during the first two months of the current fiscal year was more than double the same period last year. Similarly, the core inflation (measured as both non-food non-energy and 20 percent trimmed mean) during this period was also higher than the last year.

The expected pick up in domestic demand is largely going to determine the inflation path in the remaining months of FY17. This is also reflected in the IBA-SBP Consumer Confidence Survey of September 2016 which shows improvements in current and expected economic conditions and a major rise in consumer confidence. Uncertain global oil price continues to remain a major determining risk.

While year-on-year increase in monetary aggregates (M2) was 13.9 percent on 09 September, 2016 compared to 13.5 percent on 11 September 2015, it recorded seasonal contraction of 1.1 percent in 01 Jul- 09 September FY17 as against a 1.3 percent contraction in the comparable period of FY16. Liquidity conditions in the money market remained broadly comfortable mainly due to retirement of government borrowing to the scheduled banks. Resultantly, volatility in the interbank market was low as the overnight money market repo rate mostly remained close to the policy rate. Thus, the ongoing stability in the market interest rates, with weighted average lending rates already at 12 year low in July 2016, is going to be instrumental during the start of the upcoming credit cycle for working capital and also for fixed investment.

While the global growth outlook for 2016 is subdued, trend in international oil prices remains uncertain. Similarly, anticipations of the impact of interest rate hike by the US-Fed, slowdown in the Chinese economy, and aftermath of Brexit on international financial and commodity markets is building up on this prevalent uncertainty.

Pakistan has fared well so far owing to supporting macroeconomic environment and the record-high foreign exchange reserves have supported stability in the foreign exchange market. However, the current account deficit is at the risk of widening further owing to declining exports and rising imports. As CPEC related projects are gathering momentum, the economy is projected to further expand at the back of improving industrial activity, especially construction and power generation, and rising demand for allied services. Relatively lower import prices of inputs, low interest rates, and better energy supplies are expected to boost manufacturing sector. Improved security situation would help in attracting foreign investment thus adding on to the sustainability of growth.

Based on above macroeconomic considerations and after detailed deliberations, the Monetary Policy Committee has decided to maintain the policy rate at 5.75 percent."



September 23, 2016 by duke100   Comments (0)

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Egypt leaves rate steady, says rise in inflation transitory

September 22, 2016 by CentralBankNews   Comments (0)

    Egypt's central bank left its key policy rates unchanged, attributing the rise in inflation and future upside inflation risks to "transitory cost-push factors" while the demand side poses a risk to the outlook for inflation.
   The Central Bank of Egypt (CBE), which has raised its rate by 250 basis points this year, left the benchmark overnight deposit rate at 11.75 percent, the overnight lending rate at 12.75 percent, and the rates on its main operation and the discount rate at 12.25 percent.
   Egypt's headline inflation rate accelerated to 15.47 percent in August - its highest level since December 2008 -  from 14.0 percent in the previous two months as Egypt's government implements reforms, including a cut to energy subsidies and the imposition of value-added-tax (VAT), that will help trim the budget deficit but push up prices.
    In addition, the prices of fresh vegetables rose and there was a seasonal rise in the cost of meat in connection with Eid-Al-Adha while the pass-through from past exchange rate movements to domestic prices was limited.
   In August the International Monetary Fund (IMF) agreed in principle to grant Egypt a $12 billion, 3-year loan to support the government's reform program and help its foreign currency shortage.
    The extended fund facility is subject to final approval by the IMF executive committee and on Sunday the country's deputy finance minister was quoted as saying it was making good progress that would help release the first tranche of the loan.
    The funds would help bolster Egypt's international reserves of US$16.6 billion, still about half of the levels seen before the uprising in 20111 that ousted Hosni Mubarak from power. Egypt is also planning to sell between $3 billion and $5 billion in international bonds and is in talks with China for a $4 billion loan to help finance sewage and renewable energy projects.
    The central bank added that the country's economy expanded by 4.3 percent in the first nine months of the 2015/16 financial year, down from 4.8 percent in the same period a year ago, with growth driven by domestic demand from consumption while investment was weak.

    The Central Bank of Egypt issued the following statement:

"In its meeting held on September 22, 2016, the Monetary Policy Committee (MPC) decided to keep the overnight deposit rate, overnight lending rate, and the rate of the Central Bank of Egypt's (CBE) main operation unchanged at 11.75 percent, 12.75 percent, and 12.25 percent, respectively. The discount rate was also kept unchanged at 12.25 percent.

Headline year-on-year inflation rose to 15.47 percent in August 2016 from 14.0 percent in July 2016 as the month-on-month rate increased to 1.93 percent in August from 0.74 percent in July. In the meantime, core inflation rose to 13.25 percent in August 2016 from 12.31 percent in July 2016 as the month-on-month rate increased to 0.61 percent in August from 0.25 percent in July.

Monthly headline inflation in August 2016 came mainly due to higher prices of regulated items, primarily electricity, in addition to increases in prices of fresh vegetables and seasonal increases in prices of red meat associated with Eid-Al-Adha. The pass-through from previous exchange rate movements to domestic prices as measured by the consumer price index remained limited.
Real GDP growth registered 4.3 percent during the first nine months of 2015/16, down from 4.8 percent during the respective period of the previous year. Growth was driven by domestic demand, while net external demand contributed negatively. Domestic demand came largely due to consumption expenditure, while the contribution of investment expenditure was weak. By sector, real GDP growth was driven mainly by services, despite the contraction of tourism. General government, trade and the agricultural sectors contributed positively as well. These positive contributions were partly offset by the adverse impact stemming from the industrial sector, which was mainly driven by weaknesses in the mining sector, as the contribution of the manufacturing sector was negligible.

The current level of inflation and future upside risks are largely explained by transitory cost- push factors, while demand-side factors continue to pose downside risks to the inflation outlook. Given the balance of risks, the MPC judges that the key CBE rates are currently appropriate. 

The MPC reiterates its price stability mandate and will continue to closely monitor all economic developments, particularly fiscal policy and its effect on the inflation outlook, and will not hesitate to adjust the key CBE rates to ensure price stability over the medium-term."


Oil Market Analysis 9-22-2016 (Video)

September 22, 2016 by EconMatters   Comments (0)

By EconMatters

We Look at the Fundamentals and Technicals of the Oil Market in this video. Football season and Back to School are important drivers for gasoline demand in the Fall.

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South Africa holds rate, may be ending tightening cycle

September 22, 2016 by CentralBankNews   Comments (0)

    South Africa's central bank left its benchmark repurchase rate steady at 7.0 percent, as expected, citing an improvement in its inflation forecast and a weak outlook for the economy.
    Although the South African Reserve Bank (SARB) - which has raised its rate by 200 basis points since January 2014, including 75 basis points this year - said it was still concerned about inflation but added that it "may be close to the end of the tightening cycle" if forecasts come true.


    The South African Reserve Bank issued the following statement by Lesetja Kganyago, governor:

"Headline consumer price inflation declined to within the target range of 3 to 6 per cent in August, in line with the Reserve Bank’s expectations. Nevertheless, higher inflation outcomes are forecast in the near-term before a sustained return to within the target range during 2017. While domestic economic growth prospects appear more favourable following the positive surprise in the second quarter of this year, the outlook remains constrained against a backdrop of weak domestic fixed investment and low levels of business and consumer confidence.
Risks from the global environment persist, although the volatility in global financial markets in the wake of the Brexit decision has subsided. Prospects for a resumption of US monetary policy tightening remain a key risk to the pattern of global capital flows and to emerging market exchange rates in general, with continued uncertainty regarding the timing and pace of future moves.
The year-on-year inflation rate as measured by the consumer price index (CPI) for all urban areas measured 6,0 per cent and 5,9 per cent in July and August respectively, down from 6,3 per cent in June. Food price inflation in August accelerated to a recent high of 11,6 per cent, with the category of food and non-alcoholic beverages contributing 1,7 percentage points to the overall inflation outcome. Goods price inflation measured 6,1 per cent in August, down from 6,5 per cent in July, while services price inflation was unchanged at 5,7 per cent. The Bank’s measure of core inflation, which excludes food, fuel and electricity was also unchanged at 5,7 per cent.
Producer price inflation for final manufactured goods increased in June and July to 6,8 per cent and 7,4 per cent respectively, following a decline to 6,5 per cent in May. This acceleration was mainly due to the impact of the drought on manufactured food price inflation, which measured 12,6 per cent in July. This was its highest level since January 2009. Producer price inflation for agricultural products also remained elevated at around 20 per cent.

The latest inflation forecast of the Bank has improved over the first four quarters of the forecast horizon, and remains more or less unchanged for the rest of the period. Inflation is expected to peak at 6,7 per cent in the fourth quarter of this year, compared with 7,1 per cent previously, with an earlier sustained return to within the target range now forecast to occur during the second quarter of 2017. Inflation is expected to average 6,4 per cent in 2016 and 5,8 per cent in 2017, compared with 6,6 per cent and 6,0 per cent previously. The forecast for 2018 is unchanged at an average of 5,5 per cent. The downward revisions are due in part to a lower starting point, lower administered price inflation assumptions (including petrol, electricity and rates and taxes inflation), as well as a less depreciated exchange rate assumption.

Compared with the previous forecast, core inflation is expected to average 0,1 percentage point less, at 5,7 per cent and 5,6 per cent in 2016 and 2017, and is unchanged at 5,3 per cent in 2018. Core inflation is expected to remain within the target range over the forecast period, with a peak of 5,9 per cent in the final quarter of this year.
Inflation expectations as reflected in the survey conducted by the Bureau for Economic Research have remained relatively unchanged, but with some changes between the different groups of respondents. Average inflation expectations declined by 0,2 per cent to 6,0 per cent for 2017, and remained unchanged at 5,9 per cent for 2018. While expectations of both analysts and business people declined, those of trade union officials remained unchanged for 2017 but increased for 2018. The long- term 5-year-ahead inflation expectations are unchanged at 5,9 per cent and remain uncomfortably close to the upper end of the target range.
Inflation expectations of analysts, as reflected in the Reuters Econometer survey have also shown successive declines during the past few months, with the median expectation for inflation to return to within the target range during the second quarter of 2017. Longer-term expectations of market participants implicit in the break-even inflation rates (the yield differential between conventional bonds and inflation-linked bonds) declined further since the previous meeting of the MPC, although they remain above the upper end of the inflation target range.

The global growth outlook remains subdued, amid slowing growth in the advanced economies and a general downward revision to forecasts. Although prospects for the US economy remain relatively favourable, outcomes have not been consistently positive, as evidenced by the recent weak consumer expenditure and manufacturing sector data. Nevertheless, labour market conditions have improved and the investment slowdown appears to have bottomed.

Although the short term impacts of Brexit on the UK economy have not been as negative as initially feared, growth forecasts have been revised down as concerns remain regarding the longer term investment outlook. The euro area recovery remains steady but subdued. The Japanese economy remains caught in a deflation and low growth bind, following a weak second quarter.
The recent firmer trend in commodity prices has improved growth prospects for commodity-producing emerging markets in particular, along with more favourable capital inflows. It is unclear how long these positive developments will continue. Indications are that the negative growth cycles in both Russia and Brazil have turned, and both countries are expected to record positive, but weak rates of growth in the near term. The Chinese economy appears to have stabilised following concerns about a slowdown earlier in the year, but concerns regarding the financial sector persist.

Given the broadly benign global inflation environment, apart from in some emerging markets, monetary policies have generally remained accommodative, with further loosening or a loosening bias in a number of the advanced economies. A notable exception is the United States where the bias remains for a resumption of interest rate normalisation, but the timing remains uncertain. Following the decision of the Fed to keep rates unchanged yesterday, the market expectation is for the next move to be in December. The data-dependent nature of future decisions means that these prospects are likely to change with new data releases, imparting a degree of volatility to financial markets and to global capital flows. The US policy rate trajectory is still expected to be moderate.

The rand exchange rate has been affected by these global events, but has also been impacted by domestic fundamentals and political developments. Since the previous meeting of the MPC, the rand traded in a range of R14,73 and R13,28 against the US dollar and has appreciated by 6,3 per cent against the US dollar, by 4,3 per cent against the euro, and by 5,2 per cent on a trade-weighted basis.
The rand initially appreciated markedly in line with other emerging market currencies as the chances of US Fed tightening receded in August following disappointing labour market data. At that stage the rand recorded its strongest level since October 2015. This trend was reversed following increased domestic risk perceptions, which were also reflected in rising domestic government bond yields. More recently, the rand has been positively impacted by the stronger GDP growth outcome, and a significant narrowing of the current account deficit, following a sizeable trade account surplus in the second quarter. Although this may reflect in part a delayed adjustment to the depreciated rand exchange rate, the trade surplus is not expected to be sustained at similar levels in the coming months.

The marked appreciation of the rand during the past few days appears to be driven by expectations of unchanged US monetary policy, as well as to speculation regarding possible purchases of rand related to a major M&A transaction. The rand, however, remains vulnerable to future changes in the US monetary policy stance, domestic political developments as well as to a risk of a possible ratings downgrade later in the year. Nevertheless, the upside risk to inflation from the exchange rate appears to have moderated somewhat.

The domestic economy remains weak despite the positive growth surprise in the second quarter of 2016, when an annualised growth rate of 3,3 per cent was recorded. This was driven by a rebound in the primary sector, and a surge in real exports. Mainly as a result of the higher starting point, the Bank’s forecast for economic growth for 2016 has been revised upward from zero per cent to 0,4 per cent. The forecasts for the next two years have been increased marginally by 0,1 percentage points, to 1,2 per cent and 1,6 per cent respectively. Estimates of potential output growth are unchanged, implying a persistence of below-potential growth. The trend in the Bank’s composite leading indicator of economic activity remains indicative of subdued growth.
While the second quarter growth performance was more favourable, data for July suggest that this improvement is unlikely to be sustained in the third quarter. Both the mining and manufacturing sectors recorded negative month-to-month growth rates in July, and the Barclays PMI declined sharply in August following five consecutive months above the neutral 50-point mark. Stresses are also evident in the construction sector with a further sharp decline in building plans passed during July.

A key constraint to the growth outlook remains the sluggish state of domestic gross fixed capital formation, which contributed negatively to GDP growth during the first two quarters of this year. In the second quarter of 2016, domestic fixed investment contracted in both the private and public sectors (including government and public corporations). Private sector fixed investment has recorded negative or zero growth for six consecutive quarters, reflecting low levels of business confidence. The RMB/BER business confidence index remains below the neutral level, despite an improvement in the third quarter.

This adverse investment climate and rising costs have contributed to the further deterioration in employment prospects in the mining and manufacturing sectors in particular. The official unemployment rate increased to 26,6 per cent in the second quarter, from 25,0 per cent a year earlier. The increase in employment that was recorded in the second quarter was almost entirely attributable to temporary employment opportunities related to the municipal elections.
Consumption expenditure by households remains weak, despite a return to positive growth following the first quarter contraction. The annualised growth of 1,0 per cent suggests that consumers remain under pressure. Durable goods consumption continued to contract in the second quarter and is consistent with the further decline in the FNB/BER consumer confidence index. In July, retail trade sales declined further, in contrast to positive wholesale trade sales. Domestic new vehicle sales continued their negative trend in July and August, while exports of motor vehicles have remained robust.
The outlook for consumption expenditure growth is expected to remain constrained, given the unfavourable employment outlook, the absence of significant positive wealth effects, and the slow pace of growth of real disposable income of households. Average wage growth and wage settlement rates have declined slightly, but there are risks of increases in excess of inflation and productivity gains.

Credit extension to households continues to contract in real terms, likely driven by both the supply and demand side considerations. However, there has been a moderate increase in mortgage credit extension. As before, growth in credit extension to the corporate sector has been more resilient, but below its recent peaks.

Food prices remain a significant driver of inflation given the persistent drought, although long-range weather forecasts suggest improved rainfall prospects in the coming months. Food price inflation is still expected to reach a peak in the fourth quarter of this year, at around 12,3 per cent, slightly lower than in the previous forecast. Spot and futures prices of wheat and maize have declined in recent weeks, but meat prices are expected to rise further as farmers restock their herds. Global food price inflation has increased, mainly due to an acceleration in the price of sugar.
International oil prices have fluctuated between US$40-US$50 per barrel for the past six months, amid uncertainty relating to a possible supply freeze by OPEC. The assumption for Brent crude oil in the Bank’s forecasting model is unchanged, and assumes a moderate increase over the forecast period. After two consecutive months of price declines totalling R1,17 per litre, the domestic petrol price is expected to increase in October, due to adverse movements in the both the exchange rate and international product prices.

The Monetary Policy Committee has noted improvements in the expected inflation trajectory during the course of the year. Apart from the tighter stance of monetary policy, this has also been driven by lower starting points, as inflation surprised at times on the downside, and changed assumptions underlying the forecast. The expected peak in headline inflation is notably lower, and an earlier return to within the target range is also expected. Most of the changes have been for the current and coming year, whereas the changes in the forecast for 2018 have been marginal. Changes to the core inflation forecast have been less pronounced, but it is no longer expected to breach the upper end of the target range. Despite these improvements, the longer-term inflation trajectory remains uncomfortably close to the upper end of the target range, with high wage settlement rates and inflation expectations contributing to this persistence.

The MPC assesses the risks to the inflation forecast to be more or less balanced at this stage. The current level of the rand is stronger than that implicit in the forecast, and, in conjunction with continued low levels of pass-through from the rand to inflation, the risks are assessed to have moderated somewhat. However, some of the positive factors impacting on the rand may be temporary, and the rand remains vulnerable to both domestic and external shocks.
The other major risk to the inflation outlook relates to food prices. The forecast still expects food prices to peak in the final quarter of this year. The future trajectory of these prices will be highly dependent on the normalisation of rainfall in the coming months. Favourable weather patterns could see food price inflation falling faster than that implicit in the forecast.

Despite the improved growth performance in the second quarter, the growth outlook remains constrained as reflected in the more or less unchanged outlook for the next two years. The MPC assesses the risk to the growth forecast to be broadly balanced, and growth prospects remain dependent on global conditions, implementation of structural reforms, as well as changes in business and consumer confidence.

Given improvements in the inflation forecast, the weak domestic economic outlook and the assessment of the balance of risks, the MPC has unanimously decided to keep the repurchase rate unchanged at 7,0 per cent per annum.
The MPC remains concerned about the overall inflation trajectory which remains in the upper end of the inflation target range.

The MPC is of the view that should current forecasts transpire, we may be close to the end of the tightening cycle. The committee is aware that a number of the favourable factors that have contributed to the improved outlook can change very quickly resulting in a reassessment of this view. The bar for monetary accommodation, by contrast, remains high, as the MPC would need to see a more significant and sustained decline of the inflation trajectory to within the inflation target range."



Turkey again cuts overnight rate 25 bps, retains key rate

September 22, 2016 by CentralBankNews   Comments (0)

    Turkey's central bank once again lowered its overnight funding rate and late lending rates by 25 basis points while it retained its benchmark one-week repo rate as it took another "measured and cautious step toward simplification" of its monetary policy framework.
    The Central Bank of the Republic of Turkey (CRT) also re-affirmed its guidance that future monetary policy decisions will depend on the outlook for inflation, and that a "cautious" policy stance will be maintained in light of inflation expectations, pricing behavior and "other factors" - viewed as a reference to the lira's exchange rate.
    As expected, the CBRT cut the overnight funding rate to 8.25 percent from 8.50 percent and has now cut it by 250 basis points since March. The borrowing rate remained at 7.25 percent. The late liquidity lending rate was also cut by 25 points to 9.75 percent and the borrowing rate stayed at zero.
    The benchmark one-week repo rate was left at 7.50 percent, unchanged since February 2015.
    Turkey's inflation headline inflation rate eased to 8.05 percent in August from 8.79 percent in July and the central bank said slower demand and falling food prices should push down inflation.
    However, a recent change in fuel taxes and other costs will limit any improvement in inflation and "thus necessitate the maintenance of a cautious monetary policy stance," the CBRT said.
    In its quarterly inflation report from July, the CBRT expects inflation to stabilize around its 5.0 percent target as of 2018 after easing to an average of 7.5 percent this year and 6.0 percent in 2017.
    Inflation is seen fluctuating between 6.6 percent and 8.4 percent in the rest of this year.
     The latest economic data showed a declaration in economic activity, with lower tourism revenues having a negative impact although demand from Europe still supports exports.
    "With the supportive measures and incentives provided recently, domestic demand is expected to recover starting from the final quarter," the CBRT said.
    The number of tourists arriving in Turkey in July fell by 36.7 percent to 3.47 million from a year ago due to the failed coup attempt, terrorist attacks and tensions between Russia and Turkey.


    The Central Bank of the Republic of Turkey issued the following statement:
"The Monetary Policy Committee (the Committee) has decided to set the short term interest rates as follows:
a) Overnight Interest Rates: Marginal Funding Rate has been reduced from 8.5 percent to 8.25 percent, and borrowing rate has been kept at 7.25 percent,
b) One-week repo rate has been kept at 7.5 percent,
c) Late Liquidity Window Interest Rates (between 4:00 p.m. – 5:00 p.m.): Borrowing rate has been kept at 0 percent, and lending rate has been reduced from 10 percent to 9.75 percent.
Recently released data and indicators regarding the third quarter display a deceleration in the economic activity. The Committee assesses that current financial conditions are tight. While developments in tourism revenues will have a negative impact in the short run, the lagged effects of the developments in the terms of trade and the moderate course of consumer loans will continue to contribute to the improvement in the current account balance. Demand from the European Union economies continues to support exports. With the supportive measures and incentives provided recently, domestic demand is expected to recover starting from the final quarter. The Committee assesses that the implementation of the structural reforms would contribute to the potential growth significantly.
The slowdown in aggregate demand contributes to the gradual fall in core inflation. With the help from falling food prices, headline inflation is expected to display a decline in the short term. Yet, the recent tax adjustment in fuel prices and other cost factors limit the improvement in inflation and thus necessitate the maintenance of a cautious monetary policy stance.
In light of these assessments, and considering its contribution to the effectiveness of monetary policy, the Committee decided to take a measured and cautious step towards simplification.
Future monetary policy decisions will be conditional on the inflation outlook. Taking into account inflation expectations, pricing behavior and the course of other factors affecting inflation, the cautious monetary policy stance will be maintained.
It should be emphasized that any new data or information may lead the Committee to revise its stance.
The summary of the Monetary Policy Committee Meeting will be released within five working days."

Indonesia cuts rate 25 bps to boost domestic demand

September 22, 2016 by CentralBankNews   Comments (0)

   Indonesia's central bank cut its new benchmark 7-day reverse repo rate by 25 basis points to 5.00 percent, as expected, to provide a further boost to domestic demand and economic growth at a time of low inflation, a current account deficit that is under control and a "relatively stable" exchange rate.
    Bank Indonesia (BI), which in August adopted the 7-day RR rate as its benchmark rate instead of the BI rate to improve the transmission of its monetary policy, also lowered the rate on its deposit facility by 25 points to 4.25 percent and the lending rate by 25 points to 5.75 percent.
     The BI has now cut its key policy rates five times this year by a total of 125 basis points. Earlier this month the BI's governor, Agus Martowardojo, said the central bank was ready to ease its policy subject to the latest economic data.
     Indonesia's inflation rate fell to 2.79 percent in August, the lowest rate since December 2009, from 3.21 percent in July, and the central bank said it now expects inflation to approach the lower limit of its target range this year.
   In August the BI forecast that inflation would end this year within the target corridor of 4.0 percent, plus/minus 1 percentage point.
    Indonesia's economy in the third quarter is not as strong as the central bank previously expected as non-construction investment is not showing "significant improvements' and fiscal stimulus is expected to remain limited, in line with the government's change for the second half of this year.
   The BI in August lowered its growth forecast for this year to 4.9 - 5.3 percent from a previous 5.0 - 5.4 percent as the government cut its budget by 133 trillion rupiah.



Norway holds rate, raises policy rate, inflation forecasts

September 22, 2016 by CentralBankNews   Comments (0)

    Norway's central bank left its key policy rate at 0.50 percent, as expected, but raised its forecast for inflation and the policy rate due to a stronger-than-expected effect of inflation from a weaker krone, which may then translate into higher wages next year.
    Norges Bank (NB), which cut its rate by 25 basis points in March, said inflation had been "unexpectedly high" in recent months while there are also signs that economic growth was picking up at a slightly faster pace than projected in June while house price inflation has accelerated above expectations.
    “Our current assessment of the outlook suggests that the key policy rate will most likely remain at today’s level in the period ahead,” NB Governor Oeystein Olsen said, adding that the bank's forecast still implies a slightly higher probability of a rate cut in the year ahead.
    In its latest monetary policy report, the central bank raised its inflation forecast for 2016 to 3.6 percent from 3.3 percent forecast in June, the 2017 forecast to 2.6 percent from 2.2 percent, the 2018 forecast to 2.1 percent from 1.9 percent and the 2019 forecast to 1.8 percent from 1.7 percent.
    Norway's inflation rate eased to 4.0 percent in August from 4.4 percent in July, mainly due to lower airfares.
    NB raised its forecast for the key policy rate to average 0.6 percent this year, up from 0.5 percent, and the 2017 forecast to 0.4 percent from 0.3 percent. For 2018 the central bank also forecasts a key policy rate of 0.4 percent, rising to 0.7 percent in 2019.
    The forecast for economic growth this year was raised to 0.9 percent from 0.8 percent, rising to 1.8 percent in 2017, up from 1.6 percent. For 2018 Gross Domestic Product was seen rising by an unchanged 2.1 percent while the forecast for 2019 was trimmed to 2.1 percent from 2.3 percent.
    Norway's GDP grew by an annual rate of 2.5 percent in the second quarter of this year, up from 0.6 percent in the first quarter.

    Norges Bank issued the following statement:

"The growth prospects for imports among Norway’s trading partners have weakened somewhat since June, and expected policy rates abroad have declined slightly. Oil prices are at about the same level as before summer, while the krone has appreciated somewhat. The Norwegian money market premium has increased and been higher than expected.
Inflation in Norway has been unexpectedly high in recent months. At the same time, there are signs that growth in the Norwegian economy is picking up at a slightly faster pace than projected in June. House price inflation has accelerated and been higher than projected. Low interest rates may contribute to a persistently high rate of increase in house prices and increase the vulnerability of the financial system. On the other hand, growth in the Norwegian economy is moderate, and capacity utilisation is below a normal level. As a result of low cost growth and a somewhat stronger krone, inflation is likely to recede further ahead.
“Our current assessment of the outlook suggests that the key policy rate will most likely remain at today’s level in the period ahead,” says Governor Øystein Olsen.
The analyses in this Report suggest that the key policy rate will remain close to ½ percent in the next few years. At the same time, the key policy rate forecast implies a slightly higher probability of a decrease than an increase in the key policy rate in the year ahead."