Israel's central bank left its key interest rate at 0.1 percent, as widely expected, and reiterated that it still expects to keep its monetary policy stance accommodative "for a considerable time" in light of the inflation environment, the global economy, the exchange rate of the shekel and the monetary policy of major central banks.
The Bank of Israel (BOI), which has maintained its rate since cutting it to the current level in March 2015, also confirmed its recent view that the risks of reaching its inflation target "remain high" but higher wages and global inflation are expected to help inflation return to the target of 1-3 percent.
Last week the BOI said in its monetary policy report for the second half of 2016 that its monetary policy committee (MPC) had stopped considering the use of unconventional monetary policy tools, such as negative interest rates or bond purchases, in light of unexpectedly strong economic growth, a strong labour market and rising inflation expectations.
BOI staff are forecasting an unchanged policy rate until the fourth quarter of this year when the rate would be increased by 15 basis points following another 25 point hike to 0.5 percent in 2018.
Israel's inflation rate turned positive in January for the first time since July 2014 as inflation rose to 0.1 percent from minus 0.2 percent due to higher food and housing prices.
Economic activity in Israel is also continuing to improve with Gross Domestic Product up by an annual 3.8 percent in the fourth quarter of 2016, up from 3.6 percent in the third quarter, though the BOI said growth was boosted by "an atypical" increase in vehicle imports.
Net of this increase, it assessed growth slightly above 3 percent, with exports growing strongly while private consumption had moderated "markedly."
Economists are forecasting growth of 3.2 to 3.5 percent this year from 4 percent last year.
The exchange rate of Israel's shekel has risen by 3 percent against the U.S. dollar since the previous MPC meeting on Jan. 22 through Feb. 24, the BOI said, adding that the "level of the effective exchange rate continues to weigh on the developments of goods exports."
The Bank of Israel issued the following statement with the main considerations underlying its decision:
Colombia's central bank cut its key interest rate by another 25 basis points to 7.25 percent and said inflation, economic activity and international developments would determine the pace of policy normalization.
It is the first policy easing by the Central Bank of Colombia this year but the second rate cut since December last year for total cuts of 50 basis points. In August 2016 the central bank paused in a tightening cycle after raising rates by 325 points to curb accelerating inflation.
The central bank said the rate cut reflected a weakening economy and the risks of excessive deceleration, uncertainty about how fast inflation would converge to the bank's 3.0 percent target and a real policy rate that is contractionary.
Four members of the central bank's board approved the rate cut while two members wanted to maintain the rate. Last month, when the central bank left its rate steady, four board members supported that decision.
Colombia's inflation rate decelerated for the sixth consecutive month in January to 5.47 percent from 5.75 percent in December while analysts' expectations to December 2017 rose and continue to remain above the 2-4 percent target range. But expectations as expressed in public bonds remained stable and between 3.7 percent and 4.8 percent for the next 2, 3 and 5 years.
Colombia's economy improved to growth of annual growth of 1.6 percent in the fourth quarter of last year for average 2016 growth of 2.0 percent, higher than the 1.8 percent that the central bank estimated in January.
But consumer confidence in January fell sharply and if this affects household spending, the growth forecast for this year may be lowered to 2.0 percent, within a range of 0.7 and 2.7 percent, the bank said. In January the central bank also forecast 2.0 percent growth this year.
The Central Bank of Colombia issued the following statement:
Brazil's central bank lowered its benchmark Selic rate by another 75 basis points to 12.25 percent and reiterated its guidance that further rate cuts and possible changes to the pace of easing will continue to depend on the forecast and expectations for inflation.
The Central Bank of Brazil has now cut its rate by 200 basis points since embarking on an easing cycle in October last year and by 150 points this year alone following January's larger-than-expected 75-point rate cut due to decelerating inflation and a slowing economy.
The central bank's monetary policy committee, known as Copom, was unanimous in its decision, which was without bias, and said it expected inflation to ease to around 4.2 percent this year and around 4.5 percent for 2017 based on cutting the key rate to 9.5 percent by the end of this year and 9.0 percent by the end of 2018.
Fresh economic data also show signals that are consistent with a stabilization of the economy and a gradual recovery of activity during this year while inflation is expected to continue to decelerate as inflation expectations for this year fell to around 4.4 percent.
Brazil's inflation rate fell further to 5.35 percent in January from 6.29 percent in December, well within the central bank's 2.5-6.5 percent tolerance range, and sharply lower than 2015's inflation rate of 10.67 percent and below 2014's 6.41 percent.
For 2017 and 2018 the tolerance range has been narrowed to 1.5 percentage points but around the same midpoint of 4.50 percent. In June the government is expected to reduce the midpoint target slightly with most economists looking at a new target for 2019 of 4.25 percent.
However, that would still remain above most other countries, including those in South America, where Chile and Colombia target 3 percent, like most emerging market economies, whereas Peru targets 2 percent, a level that is typically found in developed economies.
Brazil's economy shrank by an annual rate of 2.9 percent in the third quarter of last year, down from a 3.6 percent drop in the second quarter.
The Central Bank of Brazil issued the following statement:
Zambia's central bank cut its policy rate by 150 basis points, the reserve ratio by 250 points and the overnight lending facility rate by 400 points citing a sharp fall in inflation, continued appreciation of the kwacha's exchange rate and improving economic prospects.
It is the first cut in rates by the Bank of Zambia since since the current policy rate was introduced in March 2012 when the bank moved away from targeting money supply. It is also the first change in rates since November 2015 when the tightening cycle came to an end.
Today's rate cut brought the policy rate down to 14.00 percent from 15.50 percent, the overnight lending facility rate was narrowed to 600 basis points above the policy rate from 1,000 points, and the statutory reserve ratio was lowered to 15.50 percent from 18.0 percent.
"The Bank of Zambia will closely monitor domestic and external developments and stands ready to take appropriate monetary policy measures on price and financial system stability that support the diversification and growth of the economy," the central bank said.
Zambia's inflation rate fell to 7.0 percent in January from 7.5 percent in December and down from 22.9 percent in January 2016, reflecting dissipation of base effects, the rise in the Kwacha and a deceleration in both food and non-food inflation.
The central bank expects inflation to remain within its 2017 target range of 6-8 percent in the medium term, with risks favoring low and stable inflation from expected normal to above normal rainfall, fiscal consolidation and a projected improvement in global economic growth.
Zambia's is Africa's second-largest copper producer and its economy has suffered from the fall in global commodity prices, strained public finances, electricity shortages, subdued consumption and low investment.
But the central bank said economic growth prospects are now improving, with Gross Domestic Product seen rising by 3.9 percent and 4,6 percent this year and 2018, respectively. Growth is underpinned by an improving agricultural sector, due to better weather, increased energy supply and minerals production.
The government's 2017 budget was approved in December with the aim of reducing the budget deficit to 7.0 percent of GDP and the central bank said an effective implementation would present a good base for rebalancing fiscal and monetary policies.
The external sector is also expected to improve this year due to a recovery in export prices, a stable exchange rate and higher foreign reserves, which ended last year at US$2.4 billion, the equivalent of 3.3 months imports.
The central bank of Mauritius left its key repo rate at 4.0 percent, saying rising business confidence and public investment should support domestic output this year while an uptick in global commodity prices, especially energy, remain a key upside risk to inflation.
The Bank of Mauritius, which cut its rate by 40 basis points last year, added it was still working on achieving "the necessary conditions" before implementing a new monetary policy framework.
In its last statement from November, the central bank said it planned to implement the new framework early this year. It would be the first change in framework since December 2006.
The economy of Mauritius expanded by an annual rate of 4.0 percent in the third quarter of last year, up from 2.5 percent in the previous quarter, but the central bank "noted with concern" the recent adverse performance of exports but still maintained its forecast for 2017 growth of 3.8-4.0 percent.
Headline inflation eased to 1.8 percent in January from 2.3 percent in December but the central bank said underlying measures remain stable below 3 percent and bank staff project headline inflation of about 2.5 percent for 2017.
The Mauritian rupee, which fell sharply in 2014, has been firming this year and was trading at 35.3 to the U.S. dollar today, slightly up from 35.85 at the start of this year.
The Bank of Mauritius issued the following statement:
Kazakhstan's central bank lowered its base rate by another 100 basis points to 11.00 percent but said "the potential of further easing of monetary policy is limited" as the new level reflects the long-run balance between price stability and financial stability.
The National Bank of Kazakhstan has now cut its rate by 600 basis point since starting an easing cycle in May 2016 and today's cut follows last month's guidance that it would ease its policy today provided that the decline in inflation continues and confidence in the tenge currency remains.
"The decrease in inflationary expectations, the stability and the predictability of the situation on the domestic FX and money markets, the recovery of business activity, and also the favorable external economic conditions caused the easing of monetary conditions," the central bank said.
Kazakhstan's inflation rate decelerated to 7.9 percent in January from 8.5 percent in December, falling into the central bank's target range of 6-8 percent for the first time since September 2015.
The drop in inflation was in line with the central bank's forecast and higher commodity prices are not expected to have a significant impact on future inflation as they will be offset by moderate price trends in other consumer goods and services.
The latest surveys of inflation expectations also shows a declining trend to the lowest level since mid-2016, with expectations within the target range and at 6.6 percent for January, below actual inflation.
"In the absence of adverse shocks, inflation will persistently remain within the target band throughout the entire year of 2017, and also during the first half of 2018," the central bank said.
Last month the central bank forecast that inflation would end 2017 between 7.3 and 7.7 percent but it did not repeat this forecast today. The central bank's director of research and statistics has forecast 2018 inflation of 5-7 percent, 4-6 percent for 2020 and below 4 percent in 2020.
The exchange rate of Kazakhstan's tenge, which fell sharply in August 2015 following the central bank's move to a floating exchange rate regime, has been firming in recent months and was trading at 318.79 to the U.S. dollar today, up 4.6 percent this year.
The central bank's move to a floating exchange rate regime last year came in response to capital outflows and the conversion of many tenge bank deposits to foreign currency. Oil accounts for about 60 percent of Kazakhstan's exports and over 10 percent of its Gross Domestic Product.
The central bank said devaluation expectations, and the cost of hedging exchange rate risks, had continued to decrease and the share of foreign currency deposits have declined to 53 percent by the end of January.
Economic activity in Kazakhstan is also continuing, the bank said, saying Gross Domestic Product is estimated to grow above 2 percent this year.
In the first three quarters of 2016 Kazakhstan's GDP grew by an annual rate of 0.4 percent.
The National Bank of Kazakhstan issued the following statement:
"The National Bank of Kazakhstan has decided to reduce the base rate to 11% with a corridor of +/- 1%. In January 2017 the annual inflation rate has reached the target band of 6-8%. The decrease in inflationary expectations, the stability and the predictability of the situation on the domestic FX and money markets, the recovery of the business activity, and also the favorable external economic conditions caused the easing of the monetary conditions. The new level of the base rate reflects the long-run balance between the price stability and the financial stability; therefore, the potential of the further easing of the monetary policy is limited.
The decision on the base rate was made with the account of the following factors.
The annual inflation rate has slowed down in January 2017 to 7.9%, which completely matches the forecasts of the National Bank. The acceleration of the price growth in the specific commodity markets and in the paid services will not have a significant impact on the dynamics of the overall level of inflation and will be offset by the moderate price tendency in the markets of other consumer goods and services.
According to the survey taken in January on the inflationary expectations of the population, the observed tendency of improved expectations of respondents regarding the future level of inflation indicates the mitigation of their pro-inflation behavior. Quantitative assessment of the inflationary expectations shows that the expectations of the population are formed within the target band and fixed on the levels (6.6% in January) that are lower than the actual inflation Furthermore, the share of the respondents, who expect the high level of inflation, has decreased to the lowest value since the middle of the last year.
So, in case of the absence of the adverse shocks, the inflation will persistently remain within the target band throughout the entire year of 2017, and also during the first half of 2018.
Devaluation expectations not only of the population, but also of the professional market participants, have been decreasing, which is reflected in the survey outcome and the hedging cost of exchange rate risks.
The deposit market data show the ongoing process of de-dollarization of the bank deposits and the continuing tendency of depositors’ preferences towards national currency. According to the preliminary data, the share of the foreign currency deposits has decreased to 53% by the end of January 2017.
The signs of the economic recovery are getting more defined. Short-term economic indicator, which reflects the development of economy’s main sectors, is in the recovery zone and has reached 103.8% in January 2017. In 2017 the real GDP growth is estimated to be above the level of 2%.
In spite of the positive signals of the business activity recovery and the stability of the domestic money and FX markets, the possibility of the external and internal shocks occurrence, which have the potential risks for the further economic development and, primarily, for the inflation processes, still exists. Among those the following risks should be noted: external risks associated with high dependence on the quotations in the world commodity and financial markets, the speed of the economic recovery of the countries – trade partners; and also the revision of budget expenditures upwards. Next decisions on the base rate will depend on the further dynamics of the fundamental factors of the domestic demand and the stability of the financial sector.
The next decision on the base rate will be announced on April 10, 2017 at 17:00 Astana time."
Egypt's central bank left its key interest rates on hold for the third time in a row, as expected, and said inflation is expected to drop after the impact of temporary effects subside, helped by its preemptive monetary policy actions, absorption of liquidity and favorable base effects.
The Central Bank of Egypt (CBE) surprised financial markets in November last year by hiking its policy rates, including the benchmark overnight deposit rate, by 300 basis points as part of a liberalization of foreign exchange markets. This took last year's rate rises to a total of 550 points.
Egypt's headline inflation rate soared to 28.1 percent in January, the highest since December 1989, from 23.3 percent in December last year as government reform measures, including higher custom tariffs, changes to hydrocarbon subsidies and higher import prices, push up consumer prices.
It is the third month in a row of accelerating inflation and compares to a rate of 19.4 percent in October, before the Egyptian pound was allowed to float on foreign exchange markets.
Core inflation, which excludes fuel and food, rose to 30.86 percent from 25.86 percent in December.
"Developments in the external environment show that there has been some firming of international commodity prices, while low global inflation and subdued global growth, albeit recovering, maintain weak pressures on domestic prices," the CBE said.
The scrapping of the currency peg immediately hit Egypt's pound, but during the last month it has been firming as foreign investors purchase stocks and government bills.
A rising pound should help reduce the costs of imports and thus inflation which has soared in the wake of the pound's depreciation and government reform measures, such as reduced price subsidies.
The pound was trading at 16.1 to the U.S. dollar today, up 12.4 percent since the start of this year but still down 45 percent since last October, days before it was allowed to float from its peg of around 8.8 to the dollar on Nov. 3. Prior to full liberalization, the CBE in March 2016 devalued the pound by almost 14 percent, to 8.95 per dollar.
Egypt's economy has been suffering since the Arab Spring and popular uprising in 2011 that led to the overthrow of Hosni Mubarak and scared off foreign tourists and investors.
Economic output slowed to growth of 3.4 percent in the first quarter of the 2016/17 financial year, which began on July 1, after averaging 4.3 percent in 2014/15 and 2015/16.
Slower growth was mainly due to consumption while fixed investments were steady while higher private investment offset lower public investment.
The drag from a negative contribution of exports narrowed as exports recovered for the first positive contribution to Gross Domestic Product since the second quarter of 2014/15 while the negative contribution of imports lessened, CBE said.
In addition, unemployment continued to decline, falling to 12.4 percent in the second quarter of 2016/17 from a peak of 13.4 percent in the second quarter of 2013/14.
The Central Bank of Egypt issued the following statement:
Consistent with the inflation outlook, the targeted disinflation path, and 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 and monetary developments, and will not hesitate to adjust the key CBE rates to ensure price stability over the medium-term."
Indonesia's central bank left its benchmark BI 7-day Reverse Repo rate steady at 4.75 percent, as widely expected, but warned in no uncertain terms about the risks it faces from changes to United States policy, the impact of Brexit and events in Europe.
"Several global risks demand heightened vigilance," Bank Indonesia said, adding domestic risks include the impact on inflation from the government's increase of electricity rates, special fuel prices and vehicle registrations.
Bank Indonesia (BI) cut its BI-7 day RR rate twice last year by a total of 50 basis points following four cuts in its previous benchmark rate by a total of 100 points from January through June.
Despite the risks it faces, BI said the global economy had improved on the back of gains in the U.S. and China and rising commodity prices, and this momentum is expected to continue.
But the central bank said U.S. fiscal expansion along with an earlier-than-expected monetary tightening could push up the dollar and while a relaxation of U.S. financial regulations would boost domestic financial activities, it "may elevate risks in the global financial system stability."
In addition, a protectionism in the U.S., along with Brexit and European risks, could "reduce the world trade volume and increase global uncertainty."
However, BI's baseline forecast is for Indonesia's economy to expand by 5.0 to 5.4 percent this year - up from 5.02 percent in 2016 and 4.88 percent in 2015 - on strong private consumption, higher government spending and improved private and government investments. Exports are also expected to rise along with imports due to domestic demand.
Inflation in Indonesia is also under control despite what BI described as a "slight bump" in January as higher administered prices pushed up headline inflation to an annual rate of 3.49 percent from 3.02 percent.
The central bank said it would continue to strengthen its coordination with the government to control inflation in the face of risk from administered prices, a reform to energy subsidies and the risk of rising, volatile food prices.
"With these steps, Bank Indonesia predicts inflation within the target corridor for 2017, namely 4+/-1%," BI said.
After being hit by the election of Donald Trump as U.S. president in November, the rupiah has stabilized and firmed as foreign capital has flowed back into the country on a promising domestic outlook.
The rupiah was trading at 13,303 to the U.S. dollar, up 1.5 percent this year.
Bank Indonesia issued the following statement: