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Azerbaijan holds rate as inflation risks not yet eliminated

August 1, 2017 by CentralBankNews   Comments (0)

     Azerbaijan's central bank left its benchmark refinancing rate at 15.0 percent, saying "inflation expectations have continued to decline, but inflation and related risks have not been completely eliminated."
      The Central Bank of the Republic of Azerbaijan (CBA), which has kept its rate at the current level since raising it in September 2016, added that macroeconomic stability in the country is deepening and business activity is improving while the exchange rate of the manat remains stable.
      Azerbaijan, which relies on oil and gas for 95 percent of its exports and 75 percent of government revenue, was hit hard by the fall of crude oil prices in 2014.
       As a result, the exchange rate of the manat came under heavy pressure as local depositors switched into U.S. dollars, forcing the CBA to first abandon its dollar peg in favor of a dollar-euro basket before devaluing the manat by one-third in early 2015. In December 2015 the CBA then shifted to a floating exchange rate regime and since then the manat has been more stable.
      Today the manat was trading at 1.69 to the U.S. dollar, up 6.5 percent this year, but inflation remains high, with the average rate in the first six months of this year at 13.9 percent, up from 13.8 percent in the first five months.
      Although inflation expectations have declined and monthly inflation saw a seasonal decline, the central bank said inflation and inflation risks had not been completely eliminated.
      But the tendency of inflation in the rest of this year is toward a decline, the central bank added.
      The country's economy is continuing to recover, the CBA said, noting that growth in the non-oil sector was 1.7 percent in the first half of the year while the commercial sector grew 3.7 percent and surveys show that consumer confidence has risen in the last quarter.
      Azerbaijan's Gross Domestic Product contracted by an annual 1.3 percent in the first half of this year, the sixth consecutive quarter of decline.


Australia holds rate, growth to take hit from higher AUD

August 1, 2017 by CentralBankNews   Comments (0)

    Australia's central bank kept its benchmark cash rate at 1.50 percent, as widely expected, but cautioned the recent rise in the Australian dollar "would be expected to result in a slower pick-up in economic activity and inflation than currently forecast."
     Today's statement by the Reserve Bank of Australia (RBA) on the effect of an appreciating Australian dollar - known as the Aussie - goes beyond the central bank's recent references in which it said a higher exchange rate would "complicate" the adjustment from booming mining investment.
      The Aussie has been rising sharply in the last three months after trading largely sideways since early 2016, with last month's rate rise by Canada's central bank fueling speculation the RBA would also be shifting toward a tighter policy stance.
      However, RBA officials, including Governor Philip Lowe, have dampened such speculation in recent weeks by saying they are comfortable with the current low interest rates and today's monetary policy statement bolsters this view.
     "The higher exchange rate is expected to contribute to subdued price pressures in the economy," Lowe said today, adding this was weighing on the outlook for output and employment though the low level of interest rates is continuing to support the country's economy.
      In response to the RBA's statement, the Aussie fell to 1.25 to the U.S. dollar from 1.24 but was still up 11 percent since the start of this year. However, it still remains well below par to the U.S dollar that was seen from 2011 to early 2013.
      While the RBA,  which has maintained its rate since cutting it in August 2016, said its economic forecasts were largely unchanged and the economy is still expected to grow at a rate of around 3 percent in coming years, consumption remains a source of uncertainty.
      High levels of household debt along with slow growth in real wages are likely to constrain consumer spending and while unemployment is expected to decline the RBA expects that growth in wages will remain low and continue so for a while.
      Inflation in Australia, like in other advanced economies, remains below 2 percent and is only expected to rise gradually as the economy strengthens.
      Headline inflation eased to a lower-than-expected 1.9 percent in the second quarter of this year from 2.1 percent in the first quarter while core inflation was unchanged at 1.8 percent.

     The Reserve Bank of Australia issued the following statement:

"At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.

Conditions in the global economy are continuing to improve. Labour markets have tightened further and above-trend growth is expected in a number of advanced economies, although uncertainties remain. Growth in the Chinese economy has picked up a little and is being supported by increased spending on infrastructure and property construction, with the high level of debt continuing to present a medium-term risk. Commodity prices have generally risen recently, although Australia's terms of trade are still expected to decline over the period ahead.
Wage growth remains subdued in most countries, as does core inflation. Headline inflation rates have declined recently, largely reflecting the earlier decline in oil prices. In the United States, the Federal Reserve expects to increase interest rates further and there is no longer an expectation of additional monetary easing in other major economies. Financial markets have been functioning effectively and volatility remains low.
The Bank's forecasts for the Australian economy are largely unchanged. Over the next couple of years, the central forecast is for the economy to grow at an annual rate of around 3 per cent. The transition to lower levels of mining investment following the mining investment boom is almost complete, with some large LNG projects now close to completion. Business conditions have improved and capacity utilisation has increased. Some pick-up in non-mining business investment is expected. The current high level of residential construction is forecast to be maintained for some time, before gradually easing. One source of uncertainty for the domestic economy is the outlook for consumption. Retail sales have picked up recently, but slow growth in real wages and high levels of household debt are likely to constrain growth in spending.
Employment growth has been stronger over recent months, and has increased in all states. The various forward-looking indicators point to continued growth in employment over the period ahead. The unemployment rate is expected to decline a little over the next couple of years. Against this, however, wage growth remains low and this is likely to continue for a while yet.
The recent inflation data were broadly as the Bank expected. Both CPI inflation and measures of underlying inflation are running at a little under 2 per cent. Inflation is expected to pick up gradually as the economy strengthens. Higher prices for electricity and tobacco are expected to boost CPI inflation. A factor working in the other direction is increased competition from new entrants in the retail industry.
The Australian dollar has appreciated recently, partly reflecting a lower US dollar. The higher exchange rate is expected to contribute to subdued price pressures in the economy. It is also weighing on the outlook for output and employment. An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.
Conditions in the housing market vary considerably around the country. Housing prices have been rising briskly in some markets, although there are some signs that these conditions are starting to ease. In some other markets, prices are declining. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. Rent increases remain low in most cities. Investors in residential property are facing higher interest rates. There has also been some tightening of credit conditions following recent supervisory measures to address the risks associated with high and rising levels of household indebtedness. Growth in housing debt has been outpacing the slow growth in household incomes.
The low level of interest rates is continuing to support the Australian economy. Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time."

Dominican Rep. cuts rate 50 bps as inflation below target

July 31, 2017 by CentralBankNews   Comments (0)

     The Central Bank of the Dominican Republic (BCRD) cut its monetary policy rate by 50 basis points to 5.25 percent as underlying inflation is forecast to approach the lower limit of the bank's target range while headline inflation is already below the lower limit.
     It is BCRD's first change in rates since a 25 basis point rate hike on April 2 when inflation was accelerating.
     But since then, the international environment has changed, the central bank said, pointing to a moderation in oil prices and a more gradual process of normalization of U.S. monetary policy, with the Federal Reserve now expected to maintain an accommodative policy stance the rest of the year.
     In addition, the International Monetary Fund (IMF) downgraded U.S. growth for 2017 and 2018, arguing there would be no fiscal stimulus in the short term.
      Headline inflation in the Dominican Republic declined to 2.55 percent in June from 3.11 percent in May and below the central bank's target range of 4.0 percent, plus/minus 1 percentage point.
      Underlying inflation in June was 2.18 percent, the BCRD added.
      Preliminary data for the second quarter show that economic growth is "significantly below its potential," the central bank said, affected by a sharp slowdown in private investment and a significant reduction in public spending.
      Total loans to the private sector are also growing slower due to lower demand for credit.
       The central bank said it had also reduced its legal reserve ratio by 2.2 percentage point to help stimulate economic activity through credit and help economic growth and inflation.
      Gross Domestic Product in the Dominican Republic grew by an annual rate of 5.2 percent in the first quarter of this year, down from 5.9 percent in the previous quarter.



Trinidad & Tobago holds rate as economy still sluggish

July 29, 2017 by CentralBankNews   Comments (0)

    The Central bank of Trinidad and Tobago (DBTT) kept its benchmark repo rate at 4.75 percent, unchanged since December 2015, but expressed concern over a further narrowing of the differential between short-term domestic debt and that of the U.S. amid a recent scaling back of financial markets' expectations for further Federal Reserve rate hikes this year.
     The central bank added inflation and credit growth in Trinidad and Tobago was very low, with both energy and non-energy data pointing to "continued sluggishness in the domestic economy."
     The economy of the twin-island close to Venezuela has been shrinking for the last two years as oil and gas exports have slumped. In the third quarter of 2016 its Gross Domestic Product fell by 10.8 percent year-on-year, shrinking for the eight consecutive quarter.
     Economic activity in the first quarter of 2017 remained subdued, the central bank said, with output from the oil and natural gas sector not yet recovering strongly.
     However, exploratory activity is up, with higher rig days and depth drilling being reported, leading to expectations of higher output.
     Inflation in the twin-island state has been contained since early 2016, with the annual rate falling to 1.7 percent in May from 1.8 percent in April
      Trinidad's dollar (TTD) fell sharply last year and was also caught up in the overall drop in emerging market currencies following the election of Donald Trump as U.S. president. 
      This year TTD has continued to decline, though at a much slower pace, and was trading at 6.76 to the U.S. dollar today, down 1 percent this year.
     The yield differential between TT and U.S. 10 three-month Treasury securities narrowed further to only 14 basis points by mid-July as a firmer U.S. economy and Fed rate hikes pushed up bond yields.
      The current yield differential compares with a differential of 94 basis points in June 2016, 67 points in January 2017, 43 points in March and 29 points in mid-May.
     In February the government issued an oversubscribed TTD1 billion US$1billion, 8-year, 4.10% bond, its second bond for fiscal 2016/17. The first TTD1billion bond was issued in December last year.

    The Central Bank of Trinidad and Tobago issued the following statement:

"At its meeting in July 2017, the Monetary Policy Committee (MPC) carefully reviewed international economic and financial developments and the evolution of the domestic economy thus far in 2017.

In July the International Monetary Fund (IMF) maintained its forecast for global economic growth of 3.5 per cent for 2017 as prospects generally remained solid in advanced and emerging economies. Expectations for growth have been lowered in the US but were revised upward in Japan, the Euro area and China. In the US, the firming economy and two increases in the Fed’s funds rate have led to rising bond yields in 2017, and consequently, narrowing differentials between the TT and US 91-day Treasury securities. By mid-July this differential measured 14 basis points, compared to 67 basis points at the end of January 2017. However, financial markets have now toned down their expectations of further hikes in the Fed’s funds rate in 2017.

Economic activity in Trinidad and Tobago remained subdued in the first quarter of 2017. Energy sector output has not yet begun to recover strongly, in particular oil and natural gas production. However, exploratory activity was up, with higher rig days and depth drilled being reported, and this is expected to boost energy sector going forward. Available indicators on sales, production and sectoral credit point to continued weakness in construction and distribution into the second quarter. 

Inflationary pressures have been well contained with the overall inflation rate measuring 1.7 per cent (year-on-year) in May 2017; both food and core inflation remained in the single digits at 1.8 and 1.7 per cent, respectively. Liquidity in the banking system is still comfortable, as commercial banks excess reserves averaged around $3.1 billion over May to July 2017, but there is evidence of some tightening in the context of rising Government domestic financing. Credit expansion is muted: in May 2017 credit to businesses granted by the consolidated financial system rose marginally by 0.3 per cent while loans to consumers eased to 4.5 per cent and lending for real estate mortgages was stable at 4.4 per cent.

In its deliberations, the MPC noted with concern the narrowing of the differential between the Trinidad and Tobago and US Treasury three-month rates, while also considering the reduced market expectations for further increases in the Fed’s funds rate in 2017. At the same time, inflation and credit growth were very low, while both energy and non-energy statistics pointed to continued sluggishness in the domestic economy. In light of these factors, the MPC decided to maintain the repo rate at 4.75 per cent. The Bank will continue to carefully monitor and analyze international and domestic developments in its deliberations.

The next Monetary Policy Announcement is scheduled for September 29, 2017. 


Russia maintains rate but still sees room for cuts in H2

July 28, 2017 by CentralBankNews   Comments (0)

    Russia's central bank kept its key interest rate unchanged at 9.0 percent, as expected by many economists, but reiterated that it still sees room for cutting the rate in the second half of the year with the decision based on the risks to inflation.
    But in contrast to its monetary policy statement from last month, the Bank of Russia expressed concern about the recent rise in inflation, saying the risks to inflation persist and the past decline in inflation expectations had come to a halt in response to higher fruit and vegetable prices.
   "For inflation to become anchored close to the 4% target, a sustainable decline in inflation expectations is required," the central bank said.
     Russia's central bank most recently cut its rate in June and at that point said inflation was now close to its 4.0 percent target and inflation expectations had kept declining.
    But inflation picked up speed to 4.4 percent in June from 4.1 percent in May and the central bank again said it would conduct a "moderately tight monetary policy" for a long time to anchor inflation close to its target.
     The Bank of Russia has cut its rate three times this year by a total of 100 basis points following cuts of 100 points in 2016 and 600 points in 2015 as it  it gradually lowers the rate from 17 percent that was hit in December 2014.
     While inflation rose more than expected in June, the central bank said the trend toward lower inflation was still in place and there were no risks to inflation from recovering consumer demand. The cost of fruit and vegetable should come down in coming months as the harvest comes in. 
      Although Russia's ruble weakened in June and July, the central bank said this had no "meaningful" implications for inflation and inflation expectations given its "substantial strengthening"  earlier in the year.
      In addition to the risk to inflation from fruit and vegetable prices, the central bank pointed to volatility in commodity and financial markets, including the exchange rate "amid elevated geopolitical risks" that may have negative implications for the exchange rate and thus inflation.
      The U.S. Senate on Thursday approved new sanctions against Russia for meddling in the U.S. presidential election, forcing President Donald Trump to decide whether to toughen his stance against Russia or veto the bill in a move that would be seen as politically damaging.
      After rising steadily since January 2016, the ruble has been weakening since early June but was still up 3 percent this year and trading at 59.5 to the U.S. dollar today. 
      After recession in 2015 and 2016 due to Western sanctions over Ukraine and the fall in crude oil prices, Russia's economy has been rebounding this year, with the central bank forecasting growth of 1.3 to 1.8 percent.
      Industrial production is gaining momentum, the central bank said, adding that freight turnover was growing, construction had now recovered and household consumption was up along with higher investment and production.
      But growth is also nearing the country's potential, the central bank cautioned, saying shortages of labor was already visible in some sectors and further economic growth over 1.5 to 2.0 percent a year is only attainable if structural reforms are carried out.


     The Bank of Russia issued the following statement:

"On 28 July 2017, the Bank of Russia Board of Directors decided to keep the key rate at 9.00% per annum. The Board notes that inflation remains close to the target level, while economic recovery is continuing. At the same time, short-term and mid-term inflation risks persist. The decline of inflation expectations has come to a halt, consistent with predictions, in response to price movements in a number of products and services. In order to maintain inflation close to the 4% target, the Bank of Russia will continue to conduct moderately tight monetary policy.
The Bank of Russia sees room for cutting the key rate in the second half of 2017. While making its decision hereinafter, the Bank of Russia will assess inflation risks, the inflation dynamics and economic developments against the forecast.
In making its key rate decision, the Bank of Russia was guided by the following assumptions. 
Inflation dynamics. Inflation remains close to the target. June saw a slight short-term rise in inflation to 4.4%, which came as a result of price movements in fruit and vegetables under the influence of bad weather conditions. At the same time, the trend towards sustainably low inflation remains in place. Growth rates of food product prices, but for fruit and vegetables, continued to slow, so did prices in the non-food product market and core inflation. Price growth rates continue to show consistency both across regions and in the consumer basket. This is reflected in the growing proportion of products and services posting price growth rates around 4%. In this environment, recovering consumer demand alongside the decline of its disinflationary effect brings no material risks. In the months ahead, as new harvest comes in, prices for fruit and vegetables are set to show a seasonal downward trend. 
Consistent with expectations, the seasonal rise in prices on individual food products brought about a temporary halt in the decline of household and corporate inflation expectations. Their performance could also have been impacted by the traditional rise in regulated prices and tariffs.
The weakening of the ruble in June and July had no meaningful implications for annual inflation and inflation expectations, given its substantial strengthening observed since early this year. For inflation to become anchored close to the 4% target, sustainable decline in inflation expectations in required.
Monetary conditions. Monetary conditions are crucial in the efforts to bring about sustainably low inflation. They are adjusting to the key rate reduction. Interest rates on loans have declined but their level supports moderate demand for borrowing. Banks continue to adhere to a conservative policy by mitigating price and non-price lending conditions, primarily for reliable borrowers. The slowdown in the growth of household deposits mainly comes as a result of the declining paces of money supply growth, triggered by fiscal operations, rather than as a result of declining deposit rates. The Bank of Russia will continue to set such monetary conditions which will support the propensity to save and warrant balanced growth in consumption, thereby curbing inflation risks.
Economic activity. The economic activity is rebounding. Positive trends in industrial production are gaining momentum, freight turnover is growing, and construction has turned to recovery. Growth in household consumption expenditures went up along with the increase in investment and production. A moderate increase in consumer spending is not adding inflationary pressure as the supply of goods and services expands. Annual GDP is to grow by 1.3-1.8%.
At the same time, economic growth is nearing its potential level. It is constrained, among other things, by the situation in the labour market where shortages of labour force are already visible in some segments. Further GDP growth above 1.5-2% a year is attainable if structural reforms are put in place.
Inflation risks. Short-term inflation risks persist as regards harvest prospects and their impact on food prices and inflation expectations. Furthermore, volatility in global commodity and financial markets, as well as exchange rate dynamics amid elevated geopolitical risks may have negative implications for exchange rate and inflation expectations. 
The sources of medium-term risks remain unchanged. First, they are connected with further movements of oil prices which are lower than expected in the light of the agreements achieved. Legislative consolidation and implementation of the budget rule will mitigate these risks. Second, growth in the productivity of labour may lag considerably behind the wage growth as structural shortage of labour force aggravates. Third, inflationary pressure may stem from changes in households’ behaviour as their propensity to save can become considerably lower. Fourth, inflation expectations remain sensitive to changing prices of individual groups of goods and services and exchange rate movements. Fifth, the likely tax manoeuvre may result in a temporary acceleration of inflation.
These factors call for moderately tight monetary conditions to remain in place for a long time for inflation to become anchored close to target.
While making its decision hereinafter, the Bank of Russia will assess inflation risks, the inflation dynamics and economic developments against the forecast.
The Bank of Russia Board of Directors will hold its next rate review meeting on 15 September 2017. The Board’s decision press release is to be published at 13:30 Moscow time."

Colombia cuts rate 7th time but inflation now in target

July 28, 2017 by CentralBankNews   Comments (0)

    Colombia's central bank cut its benchmark rate for the seventh time to counter economic weakness and the risk of a further economic slowdown from continued low oil prices.
     The Central Bank of Colombia cut its key intervention rate by another 25 basis points to 5.50 percent, as expected, and has now cut it by 200 basis points this year and by 225 basis points since beginning on an easing cycle in December 2016.
      One member of the bank's board of directors voted to keep the rate steady while the other six members voted in favor of the rate cut. As in previous months, the central bank said the current real interest rate was contractionary.
      While the central bank has been trying to boost economic activity and reduce excess capacity in the economy by lowering rates, Colombia's inflation rate in June finally dropped into the central bank's target range for the first time since January 2015.
      Headline inflation eased to 3.99 percent from 4.37 percent in May, within the central bank's target range of 2 -4 percent. Analysts' inflation expectations for December 2017 and 2018 also fell further to 4.28 percent and 3.52 percent, respectively.
      In May the International Monetary Fund forecast end-2017 inflation of 4.1 percent compared with  end-2016 inflation of 5.75 percent.
      The fall in inflation has been helped by a slowdown in food prices and a relative stable exchange rate but the central bank cautioned that the decline in food prices may reverse in the second half of the year so inflation is forecast to increase slightly in the period.
      Colombia's peso was trading around 3,012 to the U.S. dollar today, down 0.3 percent this year.
      Colombia's economy shrank by 0.2 percent in the first quarter of this year from the previous quarter and the central bank said recent data suggested that output in the second quarter would be similar to the first quarter although domestic demand was "somewhat better" than three months ago.
      On an annual basis, Colombia's Gross Domestic Product rose 1.1 percent in the first quarter of this year, down from 1.6 percent in the previous quarter.
      The IMF has forecast 2.3 percent GDP growth this year, up from 2.0 percent in 2016.

     The Central Bank of Colombia issued the following statement:

"The Board of Directors of Banco de la República at today’s meeting decided to reduce the benchmark interest rate by 25 bp to 5.5%. For this decision, the Board mainly took into account the following aspects:
    • In June, annual consumer inflation stood at 3.99%, and the average of core inflation indicators posted at 5.09%. These figures are lower than those registered a month ago. Analysts’ inflation expectations to December 2017 and 2018 lowered, reaching 4.28% and 3.52%, respectively. Those embedded in public debt bonds recorded modest changes, and are slightly above 3.0% for 2018.
    • The effects of the strong transitory supply shocks that deviated inflation from its target continue to fade. This is suggested by the slowdown in the food CPI and the behavior of the prices which are more sensitive to the exchange rate. The average of core inflation indicators declined more slowly as a consequence of the indexation of prices and the effect of the transitory increase in indirect taxes.
    • The contribution of food CPI to the decline in annual inflation may reverse during the second half of this year. For this reason, forecasts indicate that annual inflation could increase slightly in that period.
    • Forecasts for the price of oil and the terms of trade for the rest of 2017 lowered, but continue to reflect increases versus the averages recorded in 2016. External demand remains weak, and its growth is expected to be somewhat higher than the figure registered a year ago. In the last month, country risk spreads were relatively stable, and the peso depreciated vis-à-vis the US dollar.
    • Recent figures of economic activity for the second quarter suggest that output would have grown at a low rate, similar to the one recorded in the first quarter. The dynamics of domestic demand would have been weak, although somewhat better than three months ago. Net exports would have been similar to those of the first quarter of 2017.
Based on this information, the Board considered the following factors for its decision:
    • The increasing weakness in economic activity and the risk of a slowdown beyond what is compatible with the deterioration in the dynamics of income due to the fall in oil prices. Recent indicators confirm an excess capacity of the economy, although its magnitude is highly uncertain.
    • Uncertainty about the pace of convergence of inflation to its 3.0% target. Indexation mechanisms and the persistence of inflation continue to be reflected on core inflation indicators, which exceed the inflation target (3.0%).
    • The current level of the real policy interest rate ex-ante is contractionary.
With this, the Board of Directors decided to reduce the benchmark interest rate by 25 bp. The decision to reduce the benchmark interest rate was approved by six (6) members of the Board. The remaining member voted not to modify the benchmark interest rate."

Fiji maintains rate and accommodative policy stance

July 27, 2017 by CentralBankNews   Comments (0)

     Fiji's central bank kept its Overnight Policy Rate (OPR) at 0.50 percent, unchanged since October 2011, and said a continuation of the accommodative monetary policy stance reflects no "significant impending risks" to the bank's dual mandates of inflation and foreign reserves.
     Fiji's inflation rate fell to 2.0 percent in June from 2.5 percent in May and the Reserve Bank of Fiji (RBF) left its year-end projection at 3.0 percent.
     As part of the government's 2017/18 budget, there will be an increase in duties on alcohol, cigarettes and tobacco that is likely to push up prices in coming months but the central bank said this would largely be offset by lower prices of a few other categories.
     Fiji's foreign reserves rose to a record of $2.307 billion as of July 20 from $2.283 billion in June and are expected to rise further to $2.314 billion on July 28, the equivalent of 5.7 months of imports.
     "Looking ahead, foreign reserves are expected to remain adequate until the end of the year," the central bank's acting governor, Ariff Ali, said in a statement.
      The central bank also confirmed its 3.8 percent forecast for economic growth this year as strong performances by its tourism, electricity,  construction and sugar sectors are compensating for weak outcomes in mining and timber.
       In addition, the expansionary fiscal stance and incentives in the national budget "should augur well for growth in the near and medium terms," Ali added.
       Fiji's economy was hit hard last year by Tropical Cyclone Winston - the worst ever cyclone in the Southern Hemisphere - with growth slowing to 2.0 percent from 3.6 percent in 2015.


"The Reserve Bank of Fiji (RBF) Board met on 27 July 2017 and agreed to keep monetary policy unchanged by maintaining the Overnight Policy Rate at 0.5 percent.
The Acting Governor and Chairman of the Board, Mr Ariff Ali stated that, “the continuation of central bank’s accommodative stance reflects that the dual mandates of the Bank remain intact with no significant impending risks in the medium term.”
While certain policy measures announced in the National Budget, such as the duty increases on alcohol, cigarettes and tobacco and higher disposable incomes would likely push up prices in the coming months, this is expected to be largely offset by lower prices noted in a few major categories over the recent months. Annual inflation fell further to 2.0 percent in June, from 2.5 percent in May and from the high of 5.3 percent in June last year, led by lower food & non-alcoholic drinks and clothing & footwear prices. As a result, the year-end projection remains at 3.0 percent.
Foreign reserves rose in June 2017 to $2,283 million, sufficient to cover 5.7 months of retained imports of goods & non-factor services (MORI). On 20 July, foreign reserves reached another all- time high of $2,307 million and are expected to rise to a new high of $2,314 million (5.7 MORI) on 28 July. Looking ahead, foreign reserves are expected to remain adequate until the end of the year.
On the domestic economy, Mr Ali stated that, “despite the recent weak outcomes in the mining and timber industries, the upbeat performances in sectors such as tourism, electricity and construction, coupled with the turnaround noted in cane and sugar production, confirm the positive 3.8 percent growth outlook for 2017.Various partial indicators for consumption and investment point towards firm aggregate demand in the year to date. In addition, the expansionary fiscal stance and incentives announced in the 2017-18 National Budget should augur well for growth in the near and medium terms.
Internationally, the IMF has kept its global growth projection for 2017 and 2018 at 3.5 percent and 3.6 percent, respectively. Nonetheless, medium term risks to this growth outlook remain on the downside.
The Acting Governor concluded that the RBF will continue to monitor developments and risks to the global and domestic economic outlook and align monetary policy accordingly."


Turkey keeps rate, confirms it will keep tight stance

July 27, 2017 by CentralBankNews   Comments (0)

      Turkey's central bank kept its key short-term interest rates at their current level and confirmed its recent guidance that it will maintain will a tight monetary stance, and if necessary, tighten further if there is a risk of higher inflation.
     While the Central Bank of the Republic of Turkey (CBRT) has maintained its key one-week repurchase rate since hiking it by 50 basis points in November 2016, it has been tightening its policy stance by other means, such as raising other key 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 slow down inflation.
     In April, for example, the CBRT raised its late liquidity lending rate for the third time this year. The rate, which is used by the central bank to provide a large portion of the funds that banks need, has been raised by 225 basis points so far this year.
      The benchmark one-week repo rate is currently at 8.0 percent.
      In today's policy statement, the CBRT reiterated its view from last month that economic activity was continuing to recover on improving domestic demand and exports were developing in a positive manner due to exports to the European Union.
     And while food prices and other improvements to cost factors should help lower inflation, the current rate of inflation still poses a risk to prices so the tight monetary policy stance will be kept.
      Turkey's inflation rate eased to 10.9 percent in June from 11.72 percent in May.
      In its latest quarterly inflation report from April the central bank raised its 2017 inflation forecast to 8.50 percent from 8.0 percent forecast in January. 
     By the end of 2018, inflation is seen falling to 6.4 percent, up from 6.8 percent previously seen, before stabilizing around the central bank's 5.0 percent target in the medium term.
      The central bank's third inflation report will be published Aug. 1.
      After falling sharply in the last two months of 2016, Turkey's lira has been firming in recent months after 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 3.53 to the dollar, unchanged since the start of this year.

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

"The Monetary Policy Committee (the Committee) has decided to keep the short term interest rates constant at the following levels:

a) Overnight Interest Rates: Marginal Funding Rate at 9.25 percent and borrowing rate at 7.25 percent,
b) One-week repo rate at 8 percent,
c) Late Liquidity Window Interest Rates (between 4:00 p.m. – 5:00 p.m.): Borrowing rate at 0 percent, and lending rate at 12.25 percent.
Recently released data indicate an ongoing recovery in the economic activity. Domestic demand conditions have improved and demand from the European Union economies continues to contribute positively to exports. The economic activity is expected to maintain its strength due to the supportive measures and incentives provided recently. The Committee assesses that the implementation of the structural reforms would contribute to the potential growth significantly.
Although recent improvements in cost factors and expected partial correction in food prices will contribute to disinflation, current elevated levels of inflation pose risks on the pricing behavior. Accordingly, the Committee decided to maintain the tight stance of monetary policy.
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."

Brazil cuts rate 100 bps again, lowers inflation forecast

July 27, 2017 by CentralBankNews   Comments (0)

     Brazil's central bank cut its benchmark Selic rate by 100 basis points for the third time in a row and said a continuation of this pace of monetary easing in September would depend on how economic activity evolves, the balance of risks as well as inflation and inflation forecasts.
     The Central Bank of Brazil has now cut its rate by 500 basis points since beginning its easing campaign in October 2016 and by 450 basis points this year.
      Copom, the central bank's monetary committee, was unanimous in its decision and lowered its assumption for the Selic policy rate to end this year at 8.0 percent from the May forecast of 8.50 percent. As in May, Copom expects the Selic rate to remain at that level until the end of 2018.
    "Inflation developments remain favorable," the central bank said, adding disinflation is widespread and so far the short-run effects of uncertainty surrounding government reforms was neither inflationary, nor disinflationary.
     Today's one percentage point cut in the Selic rate comes after the central bank at its previous meeting in May said a smaller cut was likely appropriate in July.
      But Copom said economic conditions were continuing to allow for the same pace of easing as in May and April despite an increase in uncertainty as far as economic reforms.
      Copom's 2017 inflation forecast based on its weekly Focus survey dropped to 3.6 percent from May's forecast of 4.0 percent. For 2018 Copom forecast inflation of 4.3 percent as inflation expectations dropped to 3.3 percent this year and 4.2 percent next year.
     Brazil's inflation rate dropped to 3.0 percent in June from 3.6 percent in May for the lowest rate since April 2007 and at the lower boundary of its inflation target of 4.5 percent, plus/minus 1.5 percentage points.
     Brazil's real has been trending firmer this year after depreciating steadily the previous six years.
     The real was trading at 3.14 to the U.S. dollar today, up 3.8 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 9.25 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 Brazilian economy in the short run and gradual recovery. The recent increase in uncertainty regarding the evolution of reforms and adjustments in the economy had a negative impact on confidence indices. However, available information suggests that the impact of this drop in confidence on economic activity has been limited so far;
The global outlook has been favorable, as global economic activity remains on a gradual recovery path, without pressuring financial conditions in developed economies. This has contributed to support risk appetite towards emerging economies. In addition, changes in economic policy in some central economies have become less likely;
Inflation developments remain favorable. Disinflation is widespread and includes IPCA components that are most sensitive to the business cycle and monetary policy. So far, the short-run effects of higher uncertainty regarding the evolution of reforms and adjustments in the economy have been neither inflationary nor disinflationary;
Inflation expectations collected by the Focus survey for 2017 and 2018 fell to around 3.3% and 4,2%, respectively. Expectations for 2019 are around 4.25%, and expectations for 2020 are around 4.00%; and
The Copom's inflation projections for 2017 and 2018 in the scenario with interest rate and exchange rate paths extracted from the Focus survey retreated to around 3.6% and 4.3%, respectively. This scenario assumes a path for the policy interest rate that ends 2017 at 8.0% and remains at that level until the end of 2018.
Taking into account the baseline scenario, the balance of risks, and the wide array of available information, the Copom unanimously decided to reduce the Selic rate by one percentage point, to 9.25 percent per year, without bias. The Committee judges that convergence of inflation to the 4.5% target over the relevant horizon for the conduct of monetary policy, which includes 2018, is compatible with the monetary easing process.
The Copom emphasizes that the extension of the monetary easing cycle will depend on cyclical factors and on estimates of the structural interest rate of the Brazilian economy. The Committee judges that the evolution of reforms and adjustments in the economy (especially those that pertain to fiscal and credit policies) is important for the reduction of estimates of the structural interest rate. The Committee will continue to reassess these estimates over time.
The Copom emphasizes that, despite the increase in uncertainty regarding the evolution of reforms and adjustments in the economy, the continuation of economic conditions so far has allowed the same pace of monetary easing at this meeting. Regarding the next Copom meeting, maintenance of this pace will depend on the continuation of conditions described in the Committee's baseline scenario and on estimates of the extension of the monetary easing cycle. The pace of easing will continue to depend on the evolution of economic activity, the balance of risks, possible reassessments of the extension of the cycle, and on inflation forecasts and expectations.
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."