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Tunisia raises rate 50 bps as dinar falls sharply

April 27, 2017 by CentralBankNews   Comments (0)

    Tunisia's central bank raised its key interest rate by 50 basis points to 4.75 percent at an extraordinary board meeting to help ease rising inflationary pressures following a sharp fall in the dinar's exchange rate and said it was closely following those pressures so it could "undertake the appropriate actions on time."
     It was the first change in rates by the Central Bank of Tunisia (CBT) since October 2015, when the rate was lowered by 50 basis points. The bank's board met on April 25.
     The central bank also raised the minimum savings rate that banks can offer by 50 points to 4.0 percent to boost the incentive to save and thus liquidity in the financial system. Tunisia's banks are in need of liquidity given a weak level of savings in the country, the central bank said.
     The rate hike comes a week after Tunisia's finance minister said the central bank would reduce interventions in the foreign exchange market so the value of the dinar gradually declines in an effort to boost exports and lower imports, and thus reduce the trade deficit.
     But last week's sharp fall in the dinar appears to have surprised the central bank, which said economic data "in no way justify the fluctuations recorded on the exchange market," and talks between the IMF and the government "were globally positive and encouraging."
     The central bank added it did not have an exchange rate target in mind, nor was it floating the dinar but would carry out "well-calibrated interventions" to smooth our sharp fluctuations in the exchange rate while seeking to "contain the trade deficit slippage," ensure financing of imports and preserve foreign currency reserves.
     The International Monetary Fund (IMF) last week released some US$319 million as part of an overall fund facility for Tunisia of some $638.5 million that is aimed at boosting economic growth and jobs at a time of high fiscal and external deficits.
     The government and IMF are also working to increase social spending and strengthening the country's social safety net to "protect the vulnerable in these challenging times," the IMF said.
     The IMF also said on April 17 that tighter monetary policy would help counteract inflationary pressures, give further flexibility to the exchange rate and narrow the trade deficit.
      On April 18 the finance minister told local radio that the central bank would reduce its interventions in the foreign exchange market while still preventing a sharp slide in the dinar and avoiding what he described as Egypt's "brutal devaluation" of its pound last year of over 30 percent.
      On April 20 and 21 the dinar fell by almost 9 percent to 2.52 to the U.S. dollar but it has rebounded this week and was trading at 2.46 today, down 6.5 percent since the start of this year.
      Tunisia's inflation rate rose to 4.8 percent in March from 4.6 percent in the two previous months while Gross Domestic Product in the fourth quarter of last year rose by an annual 1.1. percent, down from 1.2 percent in the third quarter.
      It its statement, the IMF said growth was expected to double this year to 2.3 percent "but will remain too low to significantly reduce unemployment, especially in the interior regions and among the youth."
     The official unemployment rate was 15.5 percent in the last quarter of 2016.

     The Central Bank of Tunisia issued the following statement:

 "The Executive Board of the Central Bank of Tunisia held on 25 April 2017 an exceptional meeting to examine the recent trends on the exchange market which recorded, over the last week, increasing pressure in line with operators’ increasing demand for foreign currency, yielding thus a sharp depreciation of the dinar, notably against the dollar and the euro.

When examining the above-mentioned trends, the Board affirmed that the objective data as well as the available economic and financial indicators can in no way justify the fluctuations recorded on the exchange market and the sharp depreciation of the dinar against the main foreign currencies, especially that the discussions that were recently held between the Tunisian Authorities and the IMF mission in the framework of the extended credit facility review, were globally positive and encouraging.
Moreover, the Board underlined that the adopted monetary and exchange policy do neither target devaluation of the national currency, nor a target exchange rate and not even a floating of the national currency, but proceeds rather through ordered, well-calibrated interventions to smooth out the sharp variations of the exchange rate while seeing to boost the exchange rate role to contain the trade deficit slippage on the one hand, and ensure financing of the necessary imports and preserve an appropriate level of foreign currency reserves on the other hand.
As for trend in prices, the Board noted that inflationary pressures post an upward trend compared to the previous months. It should be mentioned that preliminary available data indicate risks of an ongoing pressure on the short term.
When examining the bank liquidity situation, the Board pointed out that banks’ needs remain at high levels  given a weak level of national savings, and discussed as a result the means likely to boost savings in order to reduce pressure on the economy’s liquidity.
In the light of what was stated previously, and in considering the pressure recorded recently on the exchange market, following exaggerated speculative position-taking or unfounded worries, yielding liquidity shortage, the Board pointed out that the Central Bank continues to adopt the required flexibility in its monetary and exchange policy conducting in a way to ensure the market liquidity.
Meanwhile, the Board insists on the efficiency of these policies to curb the current deficit slippage and calls for rationalizing the use of foreign currency resources and refraining from all unwarranted practices which are detrimental to sound functioning of the foreign exchange market and likely to threaten its stability; which might affect more globally the macroeconomic balances.
The Board wants also to reassure both the operators and the public with respect to the pursuit of a regular functioning of the foreign exchange market and the ongoing monitoring of the Bank to ensure smooth running of transactions while maintaining the foreign currency reserves at comfortable levels.
After deliberations, and to reduce inflationary pressure risks on the one hand, and boost savings and boost liquidity on the other, the Board decided to raise the key interest rate of the Central Bank of Tunisia by 50 basis points, bringing it to 4.75%, and to increase the minimum savings remuneration rate by 50 basis points, to bring it to 4%. Hence, the Central Bank will continue to closely follow up trends in the economic situation, and particularly the inflationary pressures in order to undertake the appropriate actions on time."

Turkey holds key rate, raises lending rate to curb inflation

April 26, 2017 by CentralBankNews   Comments (0)

    Turkey's central bank left its benchmark one-week repurchase rate steady at 8.0 percent but raised its late liquidity lending rate by a further 25 basis points to 12.0 percent and held out the prospect of further rate hikes to prevent a deterioration in the inflation outlook.
     While the Central Bank of the Republic of Turkey (CBRT) has maintained its key rate since hiking it by 50 basis points in November last year, it has been tightening its policy stance by other means, such as raising other policy rates, the rate it pays on local lenders' U.S dollar reserves and required reserve ratios in a bid to boost the value of the lira and thus slow down inflation.
     But inflation jumped to 11.29 percent in March, the highest since October 2008, and the second consecutive month of double-digit inflation, well in excess of the bank's target of about 5 percent.
     The CBRT's cautious rate hike today comes a week after Turkish President Tayyip Erdogan, an ardent critic of high interest rates, won a referendum that grants him wider powers.
     The CBRT said food prices had led to a rapid rise in inflation and while the recent rise in risk appetite by investors may contain some of the pressure on costs, the current level of inflation risks leading to even further cost rises.
     Data showed prices of clothing and foot wear rose by 1.99 percent in March from February, followed by a 1.93 percent rise in the cost of food and non-alcoholic beverages.
     Looking ahead, the central bank said it's tight monetary policy stance would continue until there is a "significant improvement in the inflation outlook" and "additional monetary tightening will be possible if needed."
     After falling sharply in the last two months of 2016, Turkey's lira has staged a slight rebound since hitting a historic low of 3.87 to the U.S. dollar in late January, helped by the central bank's various tightening measures.
    Today the lira was trading at 3.59 to the dollar, down 1.7 percent since the start of this year.

     The Central Bank of the Republic of Turkey issued the following statement:

Participating Committee Members

Murat Çetinkaya (Governor), Erkan Kilimci, Emrah Şener, Murat Uysal, Abdullah Yavaş.
The Monetary Policy Committee (the Committee) has decided to set the short term interest rates at the following levels:
a) Overnight Interest Rates: Marginal Funding Rate has been kept at 9.25 percent and borrowing rate has been kept at 7.25 percent.
b) One-week repo rate has been kept at 8 percent,
c) Late Liquidity Window Interest Rates (between 4:00 p.m. – 5:00 p.m.): Borrowing rate has been kept at 0 percent, while lending rate has been increased from 11.75 percent to 12.25 percent.
Recently released data indicate a gradual recovery in the economic activity. Domestic demand conditions display a moderate improvement and demand from the European Union economies continues to contribute positively to exports. With the supportive measures and incentives provided recently, the economic activity is expected to gain further pace in the forthcoming period. The Committee assesses that the implementation of the structural reforms would contribute to the potential growth significantly.
Cost push pressures and the volatility in food prices in recent months have led to a sharp increase in inflation. Although the recent improvement in the risk appetite contains some of the upside pressures from cost factors, current elevated levels of inflation pose risks on the pricing behavior. Accordingly, the Committee decided to strengthen the monetary tightening in order to contain the deterioration in the inflation outlook.
The Central Bank will continue to use all available instruments in pursuit of the price stability objective. Tight stance in monetary policy will be maintained until inflation outlook displays a significant improvement. Inflation expectations, pricing behavior and other factors affecting inflation will be closely monitored and, if needed, further monetary tightening will be delivered.
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 maintains rate, growth to accelerate in Q2

April 20, 2017 by CentralBankNews   Comments (0)

    Indonesia's central bank left its benchmark 7-day reverse repo (RR) rate steady at 4.75 percent, as expected, saying economic growth in the first quarter of this year was likely to be below expectations due to slower growth in retail and automotive sales.
     However, growth is expected to accelerate in the second quarter, supported by stronger investment and exports while consumption would be stable. Rising commodity prices and stronger external demand would help drive exports and investment, Bank Indonesia (BI) said.
    Last month BI forecast economic growth this year of 5.0 to 5.4 percent, up from 5.02 percent in 2016 and 4.88 percent in 2015 on stronger private consumption, rising exports, higher government spending and improve private and government investment.
     Economic activity in Indonesia slowed in the fourth quarter of last year as consumer spending eased along with government spending while exports and investments rose. On a quarterly basis, Gross Domestic Product shrank by 1.77 percent from the third quarter while on an annual basis GDP rose by 4.94 percent, down from 5.01 percent in the third quarter.
    BI cut its 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.

    As in its March statement, BI said global economic growth is expected to continue to improve although it was keeping a close eye on a number of risks, such as inflationary pressure in developed countries, which could trigger tighter monetary policy,  higher U.S. interest rates and asset sales that could boost the U.S. dollar and thus the cost borrowing, geopolitical risks in Europe "related to the strengthening of the wave of populism," U.K. talks about leaving the EU, and Greek debt talks.

   Indonesia's inflation rate eased to a lower-than-expected 3.61 percent in March from 3.83 percent in February due to higher supply of food while administered prices declined due to lower airfares that helped reduce the impact of higher electricity rates.
    Indonesia's rupiah has been firm this year and was trading at 13,327 to the U.S. dollar today, up 1.3 percent since the start of this year.
     BI said appreciation of the rupiah was supported by macroeconomic stability and investors' positive view of the country's economic outlook coupled with easing global risks. This lead to an influx of non-resident capital to Indonesian stocks and government debt.

    Bank Indonesia issued the following statement:

"The BI Board of Governors agreed on 18th and 20th April 2017 to hold the BI 7-day (Reverse) Repo Rate (BI-7 day RR Rate) at 4.75%, while maintaining the Deposit Facility (DF) and Lending Facility (LF) rates at 4.00% and 5.50% respectively, effective 21st April 2017. The decision is consistent with Bank Indonesia’s efforts to maintain macroeconomic and financial system stability by driving the domestic economic recovery process. Bank Indonesia continues to monitor various global and domestic risks. Globally, there are indications of a more promising economic outlook for advanced countries but several risks continue to demand vigilance, especially the current discourse on the Federal Reserve reducing its overall balance sheet along with geopolitical factors. At home, Bank Indonesia will monitor the impact of adjustments to administered prices (AP) on inflation as well as ongoing consolidation in the corporate and banking sector, which has undermined the impact of economic stimuli. Therefore, Bank Indonesia will constantly strive to strenghten its monetary, macroprudential and payment system policy mix to maintain macroeconomic and financial system stability. Furthermore, Bank Indonesia will continue coordinating with the Government to control inflationary pressures within the target corridor and accelerate structural reforms to support sustainable economic growth.
The global economic outlook is expected to keep improving, albeit several risks that needs to be monitored.The gains are supported by the ongoing strengthening of US economy and accompanied by improvements of Europe and China economies. US growth is becoming increasingly solid on the back of consumption with positive labour market conditions and improved investment, primarily in the energy sector as the oil price continues to rise. Furthermore, economies in Europe could potentially improve on consumption and export gains. Moreover, China’s economy is expected to remain robust, supported by consumption and investment, particularly infrastructure investment. While international commodity prices, including oil, are predicted to remain high, global inflation is predicted to remain under control. Moving forward, several global risks will continue to demand vigilance, including the Federal Reserve’s plan to reduce its overall balance sheet and the impact on global financial markets, the FFR hike plans, and recent geopolitical conditions in several regions. 
Economic growth momentum in Indonesia is expected to remain well in the first quarter of 2017, albeit below previous expectations. The main sources of the growth are stronger investment, solid consumption and positive export performance. First-quarter investment increased on building and non-building investment. Non-building investment improved on the back of commodity price hike, as reflected in the increase of heavy machineries sales for mining and farming. The hike in commodity prices also promoted export growth. Meanwhile, household consumption growth can potentially moderate slightly in the first quarter of 2017, indicated by slower growth of retail and automotive sales, as an effect of ongoing consolidation in the corporate sector. Economic growth is predicted to accelerate in the second quarter of 2017, supported by stronger investment and export performance, while consumption should remain relatively stable. Meanwhile, rising commodity prices and stronger demand due to the global economic recovery are expected to drive exports and investment. Looking forward, the role of fiscal stimuli, in terms of catalysing economic growth, should be maintained.
Indonesia’s trade balance recorded another USD1.23 billion surplus in March 2017, primarily supported by a non-oil and gas trade surplus. Indonesia’s trade balance surplus reached USD3.93 billion in the first quarter of 2017, more than twice of last year’s surplus of USD1.66 billion over the same period. Meanwhile, foreign capital inflows to financial markets in Indonesia reached USD5.33 billion in the first quarter of 2017. Consequently, the position of reserve assets at the end of March 2017 stood at USD121.8 billion, equivalent to 8.9 months of imports or 8.6 months of imports and servicing government external debt, which is well above the international standard of three months. 
The rupiah continued to appreciate in March 2017, supported by macroeconomic stability and the positive perception of investors towards Indonesia’s promising economic outlook, coupled with easing global risks. Throughout the first quarter of 2017, the rupiah appreciated 1.09% (ytd) to close at Rp13,326/USD. Rupiah appreciation was driven by an influx of non-resident capital due to attractive domestic investment assets as well as sounder global factors. Foreign capital inflows were primarily drawn to stocks and government debt securities (SUN). Moving forward, Bank Indonesia will continue to stabilise rupiah exchange rates in line with the currency’s fundamental value, while maintaining market mechanisms.
The Consumer Price Index (CPI) recorded deflation in March 2017 as the supply of foodstuffs increased. CPI deflation was recorded at 0.02% (mtm), contrasting inflation of 0.23% (mtm) the month earlier. The main contributors to CPI deflation were volatile foods (VF) after the harvests of several food crops boosted supply. Furthermore, controlled prices were also supported by low core inflation, decelerating from 0.37% (mtm) last month to 0.10% (mtm) in the reporting period. Administered prices (AP) declined due to lower airfares, which reduced the impact of hikes to electricity rates. Moving forward, to maintain inflation within the target range of 4±1%, policy coordination between the Government and Bank Indonesia in inflation control requires constant strengthening, primarily in the face of adjustments to administered prices (AP) as part of the Government’s ongoing energy reforms, coupled with the expected seasonal spike of inflationary pressures during the approach to the holy fasting month. 
Maintained banking industry resilience and stable financial markets continued to support solid financial system stability. In February 2017, the Capital Adequacy Ratio (CAR) of the banking industry was recorded at 23.0% and the liquidity ratio at 22.2%, while non-performing loans (NPL) stood at 3.2% (gross) or 1.4% (net). The transmission of easing monetary and macroprudential policy continued, albeit restrained by banks’ prudence in managing credit risks. Based on the types of credit, the banks lowered interest rates on working capital loans most significantly (113 bps, yoy), followed by investment loans (83 bps, yoy) and consumer loans (37 bps, yoy). Credit growth in February 2017 was recorded at 8.6% (yoy), up from 8.3% (yoy) the month earlier but curbed by corporate and banking consolidation. On the other hand, deposit growth stood at 9.2% (yoy) in February 2017, down from 10.0% (yoy) in January. On the other hand, nonbank economic financing through the capital market in the form of initial public offerings (IPO) and rights issues, corporate bonds and medium-term notes (MTN) continue to increase. Consistent with expectations of stronger economic growth and the ongoing impact of existing monetary and macroprudential policy easing, credit and deposit growth in 2017 are expected to accelerate to 10-12% and 9-11% respectively.  "

Ukraine cuts rate 100 bps as inflation seen on target

April 13, 2017 by CentralBankNews   Comments (0)

    Ukraine's central bank cut its monetary policy rate by a further 100 basis points to 13.0 percent as it lowered its outlook for economic growth but forecast that it would reach its inflation targets over the next three years.
    The National Bank of Ukraine (NBU) has now cut its rate by 1,700 basis points since starting on its easing cycle in August 2015, including cuts of 800 points in 2016.
     But it is the first rate cut since October last year as the central bank sought to counter a rise in inflation due to a weakening of the hryvnia's exchange rate, higher global commodity prices and an increase in minimum wages.
     But the hryvnia has been stable this year and even firmed this week despite news this week that NBU Governor Valaria Gontareva would resign on May 10.
     Gontareva joined the central bank in June 2014 when the country's economy was reeling under Russia's annexation of Crimea, military conflict in eastern Ukraine, a plunging exchange rate and accelerating inflation.
      But her stewardship of the central bank, which she reformed and streamlined, was critical in helping stabilize the economy by pulling down inflation from a peak of 60.9 percent in April 2015, shoring up confidence in the hryvnia and cleaning up the banking sector, which was dominated by oligarch-owned banks.
      Gontareva's resignation came a week after the International Monetary Fund (IMF) released a US$1 billion loan payment to Ukraine, funds that had been delayed since March over the lack of government reforms. The release of this tranche brings total funds disbursed to Ukraine so far to about $8.4 billion as part of a $17.5 billion bailout package.
     Although Ukraine's headline inflation rose to 15.1 percent in March from 14.2 percent in February, this was mainly due to a 49.5 percent jump in housing and government-regulated utility tariffs, with the rise lower than the central bank projected in January when it forecast a rise to 16.4 percent.
     "The situation in the FX market has helped weaken pressure on prices," the NBU said, adding an appreciation of the hryvnia since mid-January was underpinned by solid export revenues.

     The NBU maintained its forecast that inflation will decline to 9.1 percent this year although it will remain volatile and in double-digits in the second and third quarters due to the impact of higher administered prices before dropping to single digits in the fourth quarter.
      Next year inflation is forecast to ease to 6.0 percent in and then to 5.0 percent in 2019, which means inflation will meet the bank's 2017 target of 8.0 percent, plus/minus 2 percentage points, the 2018 target of 6.0 percent, plus/minus 2 points, and the 2019 target of 5.0 percent, plus/minus 1 point.
    After plunging in 2014 and 2015, Ukraine's hryvnia has been firming since mid-January and was trading at 26.9 to the U.S. dollar today, largely unchanged since the beginning of this year.
     But it is still down almost 11 percent since the start of 2016. From the start of 2014 to end-2015, the hryvnia depreciated by 66 percent. In March 2014 unmarked Russian troops invaded Ukraine's Crimean peninsula and later that year conflict broke out in eastern Ukraine.
     The NBU also confirmed a recent downward revision in its forecast for 2017 growth to 1.9 percent from a previous forecast of 2.8 percent due to a trade blockade by the country's government on the rebel-held eastern regions. The blockade will result in a loss of output from industries in that area, including metals and mining, coke and electricity.
     Next year Ukraine's economy is seen growing by 3.2 percent, up from its January forecast of 3.9 percent, and by 4.0 percent in 2019 as consumer and investment demand recovers. Last year Ukraine's economy grew by an estimated 1.8 percent.
     The National Bank of Ukraine issued the following statement:

"The Board of the National Bank of Ukraine has decided to cut the key policy rate to 13%, effective 14 April 2017. The resumed cycle of the monetary policy easing is in accord with the pursuit of inflation targets set for 2017-2019 and will help propel the economic growth in Ukraine.
In March 2017, headline inflation was recorded at 15.1% yoy. Price growth has accelerated primarily due to base effects and higher production costs.
Actual acceleration of headline inflation was as expected, although at a lower trajectory than projected in the NBU’s Inflation Report in January 2017. The NBU then projected inflation in March to accelerate to 16.4%.
The fundamental factors that determine inflation have remained under control. Prudent fiscal and monetary policies against a backdrop of improved inflation expectations restrained acceleration of core inflation (in March 2017, 6.3% in annual terms).
Demand-pull pressure on prices has remained moderate, as evidenced by the anemic growth in retail goods turnover in the first months of the year. The revival of economic activity and the improvement in business outlook of enterprises contributed favorably to the recovery of labor demand. However, unemployment remains at a high level due to labor market mismatches.
The situation in the FX market has helped weaken pressure on prices. The external price environment for Ukrainian exporters has become more favorable since early 2017 due to recovery in prices for steel, iron ore, and grains, with an export potential being further bolstered by record high grain and oil crop yields. Appreciation of the hryvnia since mid-January was underpinned by solid export revenues.
Inflation is projected to decrease to target levels in 2017 – 2019
The NBU forecasts that inflation in 2017 – 2019 will meet the announced targets (8% ± 2 pp for 2017, 6% ± 2 pp in 2018 and 5% ± 1 pp in 2019). The NBU inflation forecast for 2017 remains at a level of 9.1% and 6.0% in 2018. Headline inflation is projected to decrease to 5.0% in 2019.
Throughout Q2 and Q3 of 2017 inflation in annual terms is forecasted to remain in the double-digit range and volatile. It is attributed to the base effects, namely the administered price dynamics in 2016. Inflation will only return to a one-digit range in Q4 2017.
No significant deviations of core inflation from the current level (6.5%) are projected by the end of the year. Recovery of consumer demand and second-round effects from the higher food price inflation will be the inflation driving factors.
Prices for unprocessed foods will rise at a faster pace in the following months driven by a number of factors. First, global food prices are projected to move on an upward trajectory. Second, opening of the new markets will result in a lower supply of certain types of domestically produced foods in Ukraine.
In addition to supply factors, there is also an effect of demand factors. Consumer demand is expected to recover gradually due to a fast-growing nominal household income.
The halt on transferring cargo across the line of contact in the eastern Ukraine will have no significant impact on the headline inflation.
In 2017 – 2019, prudent monetary and fiscal policies supporting controlled rise in consumer demand and moderate FX rate volatility will be the key drivers of the disinflation process. Growing investments in agriculture will improve its performance that is still lagging behind leading countries. This will curb the food price inflation in the mid-term.
The NBU has revised its 2017 – 2018 GDP growth projections.
Economic growth is projected to slow to 1.9% in 2017. This downward revision resulted from expectations that the hold on trade in eastern Ukraine and the loss of the production facilities located in the rebel-controlled areas will decrease the output of some industries. These are the metallurgical and mining industries, coke production, and the electrical industry. This negative influence will be partly offset by a more favorable external environment.
Real GDP growth is forecasted to increase to 3.2% in 2018 and 4.0% in 2019. The economy will be driven by reasonably high growth in consumer and investment demand. This demand will stimulate growth in imports of goods and services. However, it will be partly offset by a gradual increase in the country’s export potential in 2018 and 2019.
The balance of payments projections have been revised in response to the blocade on trade and a revision of the terms of trade
The projections for a 2017 current account deficit have been increased from USD 3.5 billion to USD 4.3 billion or 4.4% of GDP. The trade blocadeis expected to decrease the export potential of the metallurgical industry, while increasing the need for imported raw materials. However, this will be partly offset by a rise in global commodity prices.
The 2018-2019 current account deficit, although remaining unchanged in nominal terms (USD 4.3 billion), will gradually narrow to 4.1% of GDP in 2018 and 3.7% of GDP in 2019. This will be attributed to a rise in the economy's export potential, due to investment picking up.
The 2017-2019 current account deficit will be counterbalanced by net financial account inflows. In particular, in 2017, debt inflows to the private sector will resume, while households’ demand for foreign currency cash will continue to fall. In 2018, an improved business climate and faster economic growth are projected to increase debt inflows and foreign direct investment in the private sector.
Surplus of the overall balance of payments, together with the planned tranches received under the IMF EFF and other related financing programs, will enable the NBU to accumulate further the international reserves. At the same time, replenishment of reserves through FX purchases in the interbank market will be less intensive than expected earlier due to the negative effects of the blocade with certain areas of Donetsk and Luhanskoblasts on the external trades.
Therefore, the international reserves are estimated as USD 21.1 billion as of the end of 2017 and USD 26.2 billion as of the end of 2018.
The major risk for the above scenario can be a failure by the private sector and the Government to efficiently minimize losses from the seized transfer of cargo across the contact line in the ATO area. Apart from that, we still face a high risk of escalation of the military conflict in eastern Ukraine.
A negative impact may be experienced due to departure from the prudent fiscal policy, including raising social standards even more strikingly than the inflation targets justify it. The furtherance of structural reforms necessary to preserve the macrofinancial stability, especially of those specified as Ukraine’s commitments under the EFF program with the IMF, is also important.
Overall, according to the NBU Board, the inflation forecast and the balance between risks is appropriate for for further monetary policy easing. 
Therefore, the NBU Board has decided to cut the key policy rate to 13%.
Further monetary policy easing depends on mitigation of risks to price stability on the forecast horizon.
The decision to cut the key policy rate to 13% is approved by NBU Board Decision On the Key Policy Rate No. 232-рш, dated 13 April 2017. 
А new detailed macroeconomic forecast will be published in the Inflation Report on 20 April 2017.
The next meeting of the NBU Board on monetary policy issues will be held on 25 May 2017 as scheduled."

Brazil cuts rate 100 bps, sees rate at 8.50% end-2017

April 13, 2017 by CentralBankNews   Comments (0)

    Brazil's central bank cut its benchmark Selic rate by 100 basis points to 11.25 percent and said the higher pace of monetary easing was appropriate in light of forecasts that point to a policy rate of 8.5 percent by the end of 2017 with the rate remaining at that level until the end of 2018.
    The Central Bank of Brazil has now cut its rate by 300 basis points since embarking on an easing cycle in October 2016 and by 250 basis points this year alone.
     In October and November last year the central bank cut the rate by 25 basis points each time and then accelerated the pace of easing to 75 points in both January and February this year.
    Copom, the central bank's monetary committee, was unanimous in today's decision to cut the Selic rate by one percentage point and said the future pace of monetary easing would depend on the degree of front loading of rate cuts, economic activity, inflation forecasts and expectations, and the economy's structural interest rate.
     Today's one percentage point rate cut had been expected by many following a decline in March inflation to the lowest rate since 2010 at 4.57 percent, down from 4.76 percent in February.
     Copom said convergence of inflation to its target of 4.5 percent was compatible with its current easing process and economic activity was stabilizing and should gradually recover this year.
    "The disinflation process is more widespread," the central bank said, adding that lower food prices amounted to a favourable supply shock and inflation expectations for 2017 were now around 4.1 percent and 4.5 percent for 2018, and slightly below that level of 2019.
     The central bank's inflation forecast for 2017 and 2018 were now around 4.1 percent and 4.5 percent based on the assumption the policy rate ends 2017 at 8.5 percent and stays at that level.
    The central bank targets inflation of 4.5 percent with a range of plus/minus 1.5 percentage point, a level that is likely to be lowered in June when it is being revised by the government. However, inflation has also overshot the bank's target in the last seven years.
    Brazil's Gross Domestic Product contracted by an annual rate of 2.5 percent in the fourth quarter of last year, the 11th consecutive quarter of shrinking output.
    But Brazil's real has been firming since January last year, following five years of depreciation, and was trading at 3.13 to the U.S. dollar today, up 4.2 percent this year.


     The Central Bank of Brazil issued the following statement:

"The Copom unanimously decided to reduce the Selic rate by one percentage point, to 11.25 percent per year, without bias.

The following observations provide an update of the Copom's baseline scenario:
The set of indicators of economic activity released since the last Copom meeting remains consistent with stabilization of the economy in the short run. Available evidence suggests a gradual recovery of economic activity during the course of 2017;
The global outlook remains quite uncertain. Nevertheless, developments have so far mitigated the effects on the Brazilian economy of possible changes in economic policy in some large economies, notably in the United States. There is uncertainty regarding the sustainability of global economic growth and the stability of current commodity price levels;
Inflation developments remain favorable. The disinflation process is more widespread, and disinflation of IPCA components that are most sensitive to the business cycle and monetary policy has consolidated. Food price disinflation constitutes a favorable supply shock;
Inflation expectations for 2017 collected by the Focus survey are around 4.1%. Expectations for 2018 remain around 4.5%, and expectations for 2019 and longer horizons are slightly below that level; and
The Copom's inflation forecasts for 2017 and 2018 in the scenario with interest rate and exchange rate paths extracted from the Focus survey are around 4.1% and 4.5%, respectively. This scenario assumes a path for the policy interest rate that ends 2017 at 8.5% and remains at that level until the end of 2018.
The Committee emphasizes that its baseline scenario involves risks in both directions: (i) the highly uncertain global outlook might make disinflation more difficult; (ii) the approval and implementation of reforms – notably those of fiscal nature – and of adjustments in the Brazilian economy are important for the sustainability of disinflation and for the reduction of its structural interest rate; (iii) the favorable food-price shock might produce second-round effects and, thus, contribute to additional reductions of inflation expectations and inflation in other economic sectors; and (iv) the recovery of economic activity might be more (or less) gradual and delayed than currently anticipated.
Taking into account the baseline scenario, the balance of risks, and a wide array of available information, the Copom unanimously decided to reduce the Selic rate by one percentage point, to 11.25 percent per year, without bias. This moderate intensification of the pace of monetary easing, relative to the pace set in the January and February Copom meetings, is, at this time, appropriate. The Committee judges that convergence of inflation to the 4.5% target over the relevant horizon for the conduct of monetary policy, which includes 2017 and, with a gradually increasing weight, 2018, is compatible with the ongoing monetary easing process.
The Copom judges that the extension of the monetary easing cycle will depend not only on estimates of the structural interest rate of the Brazilian economy, which the Committee will continue to reassess over time, but also on the evolution of economic activity, on the other aforementioned risk factors, and on inflation forecasts and expectations.
The Copom emphasizes that the pace of monetary easing will depend on the estimated extension of the cycle and on the degree of frontloading. In turn, the latter will depend on the evolution of economic activity, on the other aforementioned risk factors, and on inflation forecasts and expectations. The Committee considers the current pace of easing to be appropriate; however, the current economic context calls for monitoring the developments of the determinants of the degree of frontloading of the cycle.
The following members of the Committee voted for this decision: Ilan Goldfajn (Governor), Anthero de Moraes Meirelles, Carlos Viana de Carvalho, Isaac Sidney Menezes Ferreira, Luiz Edson Feltrim, Otávio Ribeiro Damaso, Reinaldo Le Grazie, Sidnei Corrêa Marques, and Tiago Couto Berriel."

Uganda cuts rate another 50 bps to boost credit, growth

April 12, 2017 by CentralBankNews   Comments (0)

     Uganda's central bank cut its Central Bank Rate (CBR) by another 50 basis points to 11.0 percent, saying there was scope to continue easing its monetary policy stance "given that core inflation is forecast to remain around the medium-term target of 5 percent and in line with efforts to support private sector credit and economic growth momentum."
     The Bank of Uganda (BOU) has now cut its rate by 100 basis points this year, following a similar reduction in February, and by 600 points since embarking on an easing cycle in April 2016.
    Uganda's headline inflation rate eased to 6.4 percent in March from 6.7 percent in February as core inflation declined to 4.8 percent from 5.7 percent.
    "The stability of the shilling exchange rate and subdued domestic demand have contributed to the dampening of inflationary pressures," the BOU said.
     On the other hand, food inflation has continued to rise to 20.7 percent in March from 18.8 percent in February due to drought that has affected food production.
     But the central bank's forecast indicates that the near-term outlook for inflation has improved due to the stable shilling, with the revised forecast calling for core inflation of around 5 percent in a year.
    But Uganda's economic growth has slowed in the first two quarters of the current 2016/17 financial year, which began July 1, 2016, and the BOU said its projected growth for 2016/17 of 4.5 percent "is unlikely to be achieved."
     In February the BOU cut its growth forecast to 4.5 percent from July's forecast of 5 percent but saw growth in 2017/18 of 5.5 percent.
    Uganda's Gross Domestic Product grew by only 0.8 percent in the fourth quarter of calendar 2016, up from a contraction of 0.1 percent in the third quarter, mainly due to the impact of adverse weather on agriculture output which fell by about 2 percent every quarter for four consecutive quarters.
    Uganda's shilling, which fell sharply in the last quarter of 2016, has been more stable this year, though depreciating slightly.
     The shilling was trading at 3,616.6 to the U.S. dollar today, down 0.4 percent this year.
     The BOU maintained its band of plus/minus 3 percentage points around the CBR rate and the margin on the rediscount rate at 4 percentage points so the rediscount rate was cut to 15 percent and the bank rate to 16 percent, respectively.


Namibia holds rate as growth remains low, inflation high

April 12, 2017 by CentralBankNews   Comments (0)

    Namibia's central bank maintained its benchmark repurchase rate at 7.0 percent, saying this rate "remains appropriate to support growth, while maintaining the one-to-one link between the Namibian Dollar and the South African rand."
     The Bank of Namibia, which has kept its rate steady since raising it by 25 basis points 12 months ago, added domestic growth slowed in 2016 from 2015 and early indications show this weakness has continued in the first two months of this year due to "bleak performance in the mining sector, particularly diamond production."
      Manufacturing output and wholesale and retail trade, which had been resilient in the past, also fell while private and government construction works contracted. In contrast, cargo volumes in transport and value addition in communications had risen, the central bank said.
     Namibia's Gross Domestic Product shrank by 1.7 percent in the fourth quarter from the third for an annual decline of 3.1 percent after falling by 0.8 percent in the third quarter.
    For the full 2016 year, GDP grew by only 0.2 percent after 6.1 percent growth in 2015.
    Inflation decelerated in February to 7.8 percent from 8.2 percent in January but was up from 2016's average of 6.7 percent.
    Annual growth in private sector credit slowed to an average of 8.8 percent in the first two months of this year from a peak of 13.7 percent in January 2016 while the stock of international reserves fell to 22.3 billion Namibian dollars as of March 31 from N$22.9 billion on Jan. 31.
    Last month the central bank tightened its regulations for the purchase of second and further properties to lower the exposure of bans in response to a sharp rise in property prices in the capital of Windhoek and the tourist town of Swakopmund as demand outstrips supply.
     According to the central bank, the real estate sector in Namibia constitutes more than half of the total value of loans and advances.