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Hungary maintains rate, lowers 3-month deposit limit

March 28, 2017 by CentralBankNews   Comments (0)

    Hungary's central bank left all its key interest rates unchanged, as widely expected, and set a limit of 500 billion forints, down from 750 billion, that banks can keep in its 3-month deposits at the end of the second quarter "to preserve the amount of liquidity crowded out over the past two quarters, and thereby maintain the loose monetary conditions achieved."
     The National Bank of Hungary (NBH), which has kept key rates on hold since May 2016, also confirmed its guidance that it would maintain loose monetary conditions "for an extended period" and is "ready to ease monetary conditions further using unconventional, targeted instruments" if inflation remains persistently below its 3.0 percent target.
     After cutting its key base rate by a total of 610 basis points from August 2012 to May 2016 to the current level of 0.90 percent, the NBH has eased its policy further by other means, including cutting the overnight lending rate, the required reserve ratio and by limiting the use of its 3-month deposit facility since July 2016 to encourage banks to buy government debt and offer cheaper loans.
     The limit on the stock of 3-month deposits that banks can hold, which the central bank now considers an integral part of its policy instruments, is set each quarter, with the decision about the third quarter stock to be taken in June.
     In December the bank's monetary council set a 750 billion forint upper limit by the end of the first quarter this year, down from a limit of 900 billion at the end of 2016.
     Another of the bank's tools to boost economic activity, the Funding for Growth Scheme, will close at the end of this month. The scheme was launched in June 2013 and helped facilitate financing for nearly 40,000 companies, helping boost borrowing to small and medium-sized enterprises (SMEs) by 12 percent in 2016.
     A transition to market-based lending has been helped by the NBH's Market-Based Lending Scheme under which credit institutions have committed to expanding lending by 170 billion forints this year, helping maintain a 5-10 percent growth in SME lending, the central bank said.
    As in the recent past, the central bank said there is still unused capacity in the country's economy but it expects this to be absorbed gradually as the economy grows while inflation is expected to reach its target from the first half of 2018.
     Hungary's economy grew by an annual rate of 1.6 percent in the fourth quarter last year and the central bank said retail sales and industrial production had picked up in January while construction output rose strongly following a sharp decline last year.
      Hungary's inflation rate rose to 2.9 percent in February from 2.3 percent in January but underlying inflation remained stable, with the NBH expecting a further rise in inflation before it decelerates as base effects fade.
    "In the baseline projection, inflation reaches the 3 percent level consistent with price stability in a sustainable manner from the first half of 2018," the central bank said.


    The National Bank of Hungary issued the following statement:

"At its meeting on 28 March 2017, the Monetary Council reviewed the latest economic and financial developments and decided on the following structure of central bank interest rates with effect from 29 March 2017:
Central bank interest rate
Previous interest rate (per cent)
Change (basis points)
New interest rate (per cent)
Central bank base rate
0.90
No change
0.90
Overnight deposit rate
-0.05
No change
-0.05
Overnight collateralised lending rate
0.90
No change
0.90
One-week collateralised lending rate
0.90
No change
0.90
In the Council’s assessment, Hungarian economic growth picks up over the forecast horizon. Some degree of unused capacity has remained in the economy following the temporary slowdown last year, but this is likely to be gradually absorbed as the economy grows. Inflation reaches the target sustainably from the first half of 2018.
The increase in inflation, mainly driven by base effects, continued in February 2017. However, the Bank’s measures of underlying inflation remained stable, in line with expectations. The price index is likely to rise temporarily further slightly over the next month, and then to fall below the target from the spring months as the base effects at the beginning of the year fade. Whole-economy wage growth is likely to pick up further, reflecting the dynamic expansion in employment, the tight labour market and the wage agreement at the end of last year. The upward effect of this on costs is likely to be offset by the reduction in employers’ social contributions and in the corporate income tax rate. To a smaller extent, this is expected to lead to higher core inflation and, to a greater extent, to a reduction in the trade surplus through an expansion in household consumption. In the baseline projection, inflation reaches the 3 per cent level consistent with price stability in a sustainable manner from the first half of 2018.
Hungarian economic growth continued in the fourth quarter of 2016. In January 2017, the volume of retail sales picked up and industrial production rose relative to the same period a year earlier. Construction output grew strongly in January following the sharp decline in the previous year; and output growth is expected to continue in the coming months. Labour demand remained strong. Employment continued to increase and the unemployment rate fell to a historic low. In parallel with strong wage growth, household consumption is likely to grow dynamically, which will be supported by the compensation of consumption deferred from previous years as well. Hungary’s current account surplus is expected to fall significantly over the forecast horizon, driven by rising domestic demand.
The Funding for Growth Scheme, which was launched in June 2013, will close at the end of March 2017. The programme achieved its goal, by facilitating financing for nearly 40,000 companies, it contributed greatly to the dynamic growth in SME borrowing which amounted to 12 per cent last year. The transition to lending under market conditions is assisted by the Bank’s Market-Based Lending Scheme. Under this programme, credit institutions have committed to expanding their lending by HUF 170 billion this year. As a result, growth of between 5–10 per cent in lending to SMEs is expected to be maintained. Economic growth this year will also be supported by the budget and the stimulating effects on investment of EU funding. The Monetary Council expects stable annual economic growth of between 3–4 per cent over the coming years, to which the Bank’s and the Government’s measures to stimulate economic growth contribute substantially.
The divergence of monetary policies across the world’s major central banks has continued since the Council’s latest interest rate-setting meeting. The US Fed continued its tightening cycle, in line with expectations, while the ECB, being the most relevant for Hungarian monetary policy, continues to maintain its loose monetary policy conditions. The majority of developed market equity indices and yields on long-term government securities rose. The amount of liquidity crowded out following the introduction of an upper limit on the stock of three-month deposits continued to have a marked influence on domestic money market rates. As a consequence, the three-month BUBOR remained at a historically low level and short-term yields in the government securities market fell slightly. Domestic long-term yields rose somewhat, in line with global trends.
Hungary’s strong external financing capacity and the decline in external debt are contributing to the sustained reduction in the vulnerability of the economy. Forward-looking domestic money market real interest rates have fallen substantially over recent years and are expected to remain in negative territory for a prolonged period. In the Council’s assessment, a watchful approach to monetary policy is still warranted due to uncertainty in the global financial environment.
In the Council’s assessment, the operation of the monetary policy toolkit, extended in July 2016, has been successful; the limit set on the three-month deposit stock and its potential future change are considered to be integral parts of instruments. The Bank continues to aim to maintain loose monetary conditions and provide a corresponding degree of support to the economy through money market rates. In the second quarter, banking sector liquidity is likely to decline more strongly than previously, due mainly to the maturity of swap contracts related to the conversion of household foreign currency loans into forints and the rollover of maturing foreign currency-denominated government bonds in forints. For this reason, at its meeting in March 2017 the Council set a HUF 500 billion upper limit on the stock of three-month central bank deposits as at the end of the second quarter of 2017, in order to preserve the amount of liquidity crowded out over the past two quarters, and thereby maintain the loose monetary conditions achieved. In addition, the Council extended the existing range of swap instruments providing forint liquidity with 6 and 12-month facilities. The Monetary Council intends to ensure that the limit imposed on the stock of three-month deposits exerts its expected effect efficiently. The limit is set quarterly. On the next occasion, a decision on its level as at end of the third quarter of 2017 will be made in June 2017.
In the Council’s assessment, some degree of unused capacity has remained in the economy following the temporary slowdown last year, but this is likely to be absorbed gradually as the economy grows. Over the forecast period, inflation reaches the target sustainably from the first half of 2018. If the assumptions underlying the Bank’s projections hold, maintaining the current level of the base rate and loose monetary conditions achieved through the change in monetary policy instruments for an extended period is consistent with the medium-term achievement of the inflation target and a corresponding degree of support to the economy. The Monetary Council monitors developments in monetary conditions and markets. If inflation remains persistently below the target, the Council will stand ready to ease monetary conditions further using unconventional, targeted instruments.
The abridged minutes of today’s Council meeting will be published at 2 p.m. on 12 April 2017."

Kyrgyzstan holds rate, sees inflation at target end-year

March 28, 2017 by CentralBankNews   Comments (0)

     The central bank of the Kyrgyz Republic left its benchmark discount rate steady at 5.0 percent, saying this should support economic growth as there are no external or internal risks to inflation.
     The National Bank of the Kyrgyz Republic (NBKR) confirmed its statement from February that it expects inflation to be close to its target of 5-7 percent by the end of this year.
     The central bank has maintained its rate since December last year when it last cut its rate as part of a 500-basis-point easing cycle that started in March 2016.
     The NBKR said this past easing had helped reduce short-term domestic rates, which are currently fluctuating within the bank's interest rate corridor.
     Inflation in Kyrgyzstan, south of Kazakhstan and east of China, rose to 1.3 percent in February from 0.5 percent in January and then further to 2.6 percent as of March 17 due to higher food prices and a hike in tobacco taxes.
     A gradual recovery of domestic consumption is stimulating economic activity, the NBKR said, adding the economy grew by 5.4 percent in the January-February period.
     Excluding output from the Kumtor gold mine, the growth rate was 3.6 percent, with positive trends seen in all key sectors of the economy.
    The domestic foreign exchange market remains stable, the central bank said, adding the exchange rate of the som had appreciated by 0.5 percent between the start of 2017 and March 25, with the central bank not intervening in the market during the month of March.

    www.CentralBankNews.info

     
  

General Market Commentary - Currency Markets and Funding Moves in Markets (Video)

March 27, 2017 by EconMatters   Comments (0)

By EconMatters


We provide a general market commentary in this video on today`s wild action from start of the overnight session to the move off the lows, and how the currency markets provided the necessary fuel for the rally off the bottom. Markets will finish the first quarter with window dressing gains to close out a solid first quarter for most fund managers.

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Kenya holds rate, concerned over impact of rate cap

March 27, 2017 by CentralBankNews   Comments (0)

    Kenya's central bank left its Central Bank Rate (CBRF) at 10 percent, as expected, saying "overall inflation is expected to remain outside the Government target range in the near term due to the elevated food prices, even as demand pressures remain subdued."
    The Central Bank of Kenya (CBK), which cut its rate by 150 basis points last year, also said it remains concerned about current uncertainties, including the impact of the government-imposed cap on lending and deposit rates by commercial banks on the effectiveness of monetary policy.
    A preliminary analysis, which included a survey of commercial bank officers, showed the rate cap, which went into effect last September, would lead to an increase in demand for credit but actual credit granted would remain constant due to the tighter credit standards.
    Also, a market perception survey from this month showed private sector respondents expect a decline of growth this year due to the current drought and a slowdown in private sector credit growth.
    While growth of private sector credit has stabilized at 4.0 percent, the share of loans to corporates has risen relative to business and personal loans and the average maturity of loans has shifted to short-term lending.
     Loan approvals have declined by 6 percent between December and February this year while lending to micro, small and medium enterprises has declined in value due to reduced lending by large and medium banks, the CBK said.
    It added that banks were still adjusting their business models to ensure they remain competitive in the new environment in which lending and deposit rates have been capped at 4 percentage points above the CBK's key rate.
    Kenya's inflation rate rose to 9.04 percent in February from 7.0 percent in January, almost entirely due to higher food prices, with food inflation up to 16.5 percent from 12.5 percent due to drought.
    In contrast to 2014 and 2015, Kenya's shilling has remained stable in 2016 and this year, supported by a narrower current account deficit and resilient inflows from horticulture, tourism and remittances.
    The shilling was trading at 102.8 to the U.S. dollar, steady from 102.2 at the start of the year, with the central bank's foreign exchange reserves up to US$7.762 billion from $6.963 billion at the end of January for import cover of 5.1 months.
    The rise in reserves was largely to due inflows from government loans, which together with the $1.5 billion arrangement with the International Monetary Fund provides an "adequate" buffer against short-term economic shocks, the CBK said.

        The Central Bank of Kenya issued the following statement by Patrick Njoroge, chairman of its monetary policy committee:

"The Monetary Policy Committee (MPC) met on March 27, 2017, to review the outcome of its policy decisions and recent economic developments. The meeting was held against a backdrop of a sharp increase in food prices due to the prevailing drought in some parts of the country, the continued depressed growth of private sector credit, and uncertainties in the global economy.
  •   Month-on-month overall inflation rose to 9.0 percent in February from 7.0 percent in January 2017, almost entirely due to increases in food prices. Inflation for all other categories in the CPI basket was below 5 percent. Food inflation rose to 16.5 percent in February from 12.5 percent in January, as a result of the drought conditions. The main food items driving inflation in February were tomatoes, kales (sukuma wiki), sugar, maize, oranges, cabbages, Irish potatoes, and milk. Food prices are expected to remain elevated in March and April due to the dry weather conditions, but ease with the long rains. The 3-month annualised non-food-non-fuel inflation remained relatively stable, suggesting that demand pressures were muted.
  •   The foreign exchange market has remained stable. This has been supported by a narrower current account deficit mainly due to lower imports of petroleum products, machinery and transport equipment. Additionally, inflows from horticulture, tourism, and diaspora remittances are resilient.
  •   The CBK’s foreign exchange reserves currently stand at USD7,762 million (5.1 months of import cover) compared to USD6,963 million (4.6 months of import cover) at the end of January 2017. The increase is largely due to inflows of planned external loans of the Government. These reserves, together with the Precautionary Arrangements with the International Monetary Fund (IMF), equivalent to USD1.5 billion, continue to provide an adequate buffer against short-term shocks.
  •   The banking sector remains resilient. Average commercial banks’ liquidity and capital adequacy ratios stood at 43.2 percent and 19.7 percent respectively in February 2017. However, the ratio of gross non-performing loans to gross loans increased to 9.7 percent in February 2017, largely due to tighter credit standards and slower credit growth.
    •   The Committee noted that the slowdown in credit growth largely reflected sector developments in trade, manufacturing, real estate, and private households, which account for 60 percent of total credit to the private sector. The contribution of these sectors to total credit growth declined gradually to 4.6 percentage points in February 2017, from 13.6 percentage points in July 2015. This was partly due to: a slowdown in exports by the manufacturing sector, delays in registration of land titles and building approvals, and, availability of alternative external financing for key private sector projects.
    •   The MPC reviewed preliminary analyses of the impact of the Banking (Amendment) Act 2016 that was implemented in September 2016. While the growth of private sector credit has stabilized at 4.0 percent, the share of loans to corporates has increased relative to business and personal loans. The average maturity of loans has also shifted to short term lending. The number of loan applications increased between September and December 2016, but has stabilized to February 2017. However, loan approvals declined by 6 percent between December 2016 and February 2017. Lending to Micro, Small, and Medium Enterprises (MSMEs) has declined in value terms, reflected in reduced lending by large and medium banks. A survey of commercial bank credit officers indicates that their expectations are that while demand for credit would increase with the interest rate caps, actual credit granted would remain constant as a result of tighter credit standards. While these are the early indications of the impact of the interest rate caps, banks are still adjusting their business models to ensure that they remain competitive in the new environment.
    •   The MPC Market Perception Survey conducted in March 2017 showed that private sector respondents expect a decline of growth in 2017, on account of the prevailing drought conditions and slowdown in private sector credit growth. However, the respondents expect the ongoing public investment in infrastructure to continue to be supportive growth.
    •   The outlook for global growth in 2017 remains uncertain largely due to the economic policies of the new U.S. administration, the Brexit outcome, and the pace of normalizing monetary policy in the advanced economies.
      The Committee concluded that overall inflation is expected to remain outside the Government target range in the near term due to the elevated food prices, even as demand pressures remain subdued. The Committee remains concerned about the prevailing uncertainties, including the impact of the interest rate caps on the effectiveness of monetary policy. The MPC therefore decided to retain the Central Bank Rate (CBR) at 10.0 percent. The Committee will continue to closely monitor developments in the domestic and global economies, and stands ready to take additional measures as necessary."

      www.CentralBankNews.info

Ghana cuts rate 200 bps on easing inflation pressures

March 27, 2017 by CentralBankNews   Comments (0)

    Ghana's central bank cut its Monetary Policy Rate (MPR) by 200 basis points to 23.50 percent, saying growth is likely to remain significantly below potential while "underlying inflation pressures have eased considerably and inflation is projected to trend down towards the medium term target."
    The Bank of Ghana (BOG) last cut its rate by 50 basis points in November 2016, the first easing since July 2011, but left it unchanged at the previous meeting of its Monetary Policy Committee in January when it noted the the positive trend toward declining inflation.
    The central bank was neutral in its guidance, merely saying that it would "take appropriate action necessary towards the attainment of the inflation target."
    Ghana's headline inflation rate decelerated for the fifth consecutive month in February to 13.2 percent from 17.2 percent in September 2016 while core inflation, which excludes energy and utility prices, also eased while inflation expectations by consumers, businesses and the financial sector also declined.
    "These trends imply dampening underlying inflation pressures," the BOG said, adding that its latest forecasts show a downward trend towards its medium-term inflation target of 8.0 percent plus/minus 2 percentage points.
    Despite an improvement in global commodity prices, Ghana's economy faces many challenges, with the fiscal deficit last year higher than targeted on expenditure overruns and revenue shortfalls.
    But the central bank said its latest economic activity index had registered an uptick driven by exports, port activities and private sector credit growth while consumer and business confidence reflects positive sentiment about prospects.
    Ghana's economy grew by an estimated 3.6 percent in 2016, according to the International Monetary Fund (IMF) in February, which added the decline in inflation had been slower than expected and called on the BOG to maintain "adequately tight monetary policy" to help contain possible further inflation pressures.
    The fiscal deficit in 2016 was 8.7 percent of Gross Domestic Product compared with a target of 5.0 percent but the 2017 budget projects a deficit of 6.5 percent, the BOG said.
    Ghana's cedi fell sharply in 2013 and 2014 while the speed of the decline slowed from mid-2015 and in the first months of this year. Since early March the cedi has appreciated, helped by a US$1 billion cedi bond and the central bank's first quarter auction of US$120 million.
     The cedi was trading at 4.33 to the U.S. dollar today, down 1.2 percent this year.

   
    The Bank of Ghana issued the following statement:

1. Ladies and Gentlemen, welcome to this MPC press briefing. We have concluded our 75th regular MPC meetings, and I present highlights of the deliberations and the Committee’s decision on the Monetary Policy Rate.
2. Headline inflation declined for the fifth consecutive month in February 2017. Inflation fell from 17.2 percent in September 2016 to 15.4 percent in December and further down to 13.2 percent in February 2017. The steady decline in consumer prices reflected in both food and non-food prices, driven mainly by the tight monetary policy stance and some base effects.
3. Core inflation (CPI inflation excluding energy and utility prices) similarly eased over the period. Inflation expectations across all sectors, that is, consumers, businesses and the financial sector broadly declined. These trends imply dampening of underlying inflation pressures. The Bank's latest forecasts indicate a continued downward trend towards the medium term inflation target of 8±2 percent in 2018. However, upside risks to the inflation outlook remain the impact of tighter global financial conditions and volatility in commodity prices.
4. Economic growth was generally modest in 2016. However, the Bank's latest update of the Composite Index of Economic Activity (CIEA) registered an uptick in year-on-year terms driven mainly by exports, port activities and private sector credit growth. In addition, the consumer and business confidence indices reflected positive sentiments about economic and industry prospects.
5. The fiscal outturn for 2016 showed a higher deficit than targeted. The overall provisional budget deficit was 8.7 percent of GDP against a target of 5.0 percent, financed mainly from domestic sources. The fiscal slippage was attributed to both expenditure overruns and revenue shortfalls. The 2017 budget has signalled a return to the path of fiscal consolidation with a projected deficit of 6.5 percent of GDP based on improved revenue mobilisation and controlled expenditures.
6. The global economy is projected to pick up moderately in 2017 driven largely by the expected fiscal stimulus in the US as well as recovery in the eurozone and emerging market economies. These projections may prompt a faster pace of monetary policy normalisation and in turn, further tightening of global financing conditions. In addition, there remains considerable uncertainty in the international commodities market. These developments could adversely impact Ghana's balance of payments, exchange rate and the inflation outlook.

7. The external sector performance continues to improve. Provisional estimates of the trade account through February 2017 recorded a surplus, largely due to higher export receipts and lower non-oil imports. For the same period, gross foreign assets increased to an equivalent of 3.7 months of import cover, up from 3.5 months in December 2016.

8. The foreign exchange market witnessed increased pressures in the year to early March, partly attributed to a strengthening US dollar, seasonal demand factors and speculative activities. However, the observed pressures have significantly eased in recent weeks on the back of renewed confidence in the economy and improved foreign exchange inflows. As at 24th March, 2017, the Ghana cedi had cumulatively depreciated by 3.5 percent against the US dollar, significantly recovering from 8.8 percent depreciation recorded by 8th March.

9. In concluding, the Committee noted that underlying inflation pressures have eased considerably and inflation is projected to trend down towards the medium term target. However, there are indications that growth is likely to remain significantly below potential, which alongside an improved inflation outlook provides some scope for monetary policy easing. In addition, recent developments in inflation imply an implicit tightening. Consequently, the MPC has decided to reduce the Monetary Policy Rate by 200 basis points to 23.5 percent. The Committee will continue to monitor developments and take appropriate action necessary towards the attainment of its inflation target.

Information Note

The next Monetary Policy Committee (MPC) meeting is scheduled for May 19, 2017. The meeting will conclude on May 22, 2017 with the announcement of the policy decision. "

    www.CentralBankNews.info

California Housing Market Setting Up For A Crash (Video)

March 26, 2017 by EconMatters   Comments (0)

By EconMatters


We discuss the fact that the cost of living in California is unsustainable and rising, an average middle class home is going for $600,000 in some areas of California, and this isn`t the highest areas in California, and House Flippers cannot lose right now regardless of how much they spend on renovations and going over budget, throw in corporations moving out of the state, and this is all setting up for a massive real estate collapse in the high cost of living state. California citizens are spending too much as a percentage of their annual salary on mortgages, all their other costs are higher as well, as a result there is very little margin of error for any downturn in the state`s economy.

This sets the market up for a sharp crash scenario which has cascading repercussions throughout California`s fiscally irresponsible government spending credit profile. California`s true financial health right now is being masked because their economy has performed above trend due to the recent technology boom of the last 8 years, if we look underneath the surface, things look pretty bad for many California municipalities being able to fund their massive spending programs which result in annual budget deficits. In short California is on the verge of a financial crisis, they just don`t know it right now, and the real estate market in California is going to correct substantially over the next five years.

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Every Investment Strategy Has A Tradeoff (Video)

March 25, 2017 by EconMatters   Comments (0)

By EconMatters


We discuss Technical Analysis, Viewer Questions, Warren Buffet, and delve into some of the natural Tradeoffs that all investors make these days in financial markets in this video. Every strategy has an Achilles` heel that you should be aware of as a Trader.

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Pakistan keeps rate, better demand to determine inflation

March 25, 2017 by CentralBankNews   Comments (0)

    Pakistan's central bank kept its monetary policy rate at 5.75 percent, as expected, saying improving domestic demand will define inflation in the coming 2018 fiscal year while expanding economic activity has translated into a significant rise in imports, pushing up the account account deficit.
     The State Bank of Pakistan (SBP), which has maintained its rate since cutting it by 25 basis points in May 2016, also said prudent monetary policy stance has kept market interest rates low and stable and interbank liquidity has been well managed so the weighted overnight repo rate has been close to the policy rate.
     Pakistan's inflation rate rose to 4.22 percent in February from 3.66 percent in January but SBP said inflation expectations remain well anchored due to the near-absence of supply side pressures while core inflation is reflecting rising real incomes from a pick up in domestic demand.
      Pakistan's current account deficit rose to US$5.5 billion during the period from July 2016 to February 2017 as imports rose while there was no sustained improvement in exports and a small decline in remittances. And while financial inflows were higher, they were not sufficient to finance the current account deficit.
    However, recent policy measures to boost exports and check non-essential imports should contain the current account deficit in coming months, the central bank said.
    Pakistan's current account deficit narrowed to 1.2 percent of Gross Domestic Product in the 2016 fiscal year, which ended June 2016, but widened to 2.2 percent in the first half of fiscal 2017.
    The overall position of Pakistan's external balance in fiscal 2018, which begins on July 1, will be determined by global oil prices, continued financial inflows and imports related to the China-Pakistan Economic Corridor (CPEC), the huge infrastructure project that links Pakistan's seaports with the far-western Chinese region of Xinjiang.
    Pakistan's GDP expanded by 4.71 percent in 2016 from 4.04 percent in 2015 while the rupee has been largely steady since early 2016 and was trading at 104.75 to the U.S. dollar compared with 104. 3 at the start of this year.

    The State Bank of Pakistan issued the following statement:

"The inflation expectations in the current fiscal year continue to remain well anchored. This has been largely due to the near-absence of any major supply side pressures. However, rising real incomes in a low interest rate environment since FY14 are indicating signs of pick up in domestic demand, which is broadly reflected in the core inflation measures. Going forward, improving consumer confidence, as depicted by IBA-SBP Consumer Confidence Survey of March 2017, indicates further increase in consumer demand. Hence, barring any major cost shocks, domestic demand will define the underlying trend of headline inflation in FY18.

The real economic activity continues to gather pace at the back of better agricultural output, increase in key Large-scale Manufacturing sectors, and a healthy uptick in the credit to private sector. This expansion is helped by a range of factors including low cost of inputs, upbeat economic sentiments, improved energy supplies, and CPEC related investments. As a result, GDP growth is expected to further improve in FY17.

Also, prudent monetary policy stance has translated well into low and stable market interest rates, which incentivized private sector to borrow from commercial banks to finance their businesses and investment activities. Accordingly, private sector credit increased by Rs 349 billion during Jul-Feb FY17 as compared to Rs 267 billion in the same period last year. Encouragingly, fixed investment category led the rise in private sector businesses loans by posting Rs 159 billion uptick during this period, compared to Rs 102 billion last year. Similarly, consumer financing continued the uptrend in the first eight months of the current fiscal year. Improved interbank liquidity conditions also spurred the growth in private sector credit. This was led by both net government retirement to commercial banks and a decent increase in bank deposits compared to the withdrawals seen last year. Furthermore, interbank liquidity was managed well with calibrated open market operations that kept the weighted average overnight repo rate close to the policy rate.

The expansion in economic activity has also translated into significant increase in imports, which along with lack of any sustained improvement in exports and a small decline in remittances has pushed the current account deficit to US$ 5.5 billion during Jul-Feb FY17. While net financial flows remained higher, these were not sufficient to finance the current account deficit.

However, accounting for positive impact of the recent policy measures to augment exports and check non-essential imports, the current account deficit may be contained in the coming months. Also, continuation of the financial inflows, CPEC related imports, and any major fluctuation in the global oil price will determine the overall position of the external sector in FY18.

Keeping these factors in perspective, the Monetary Policy Committee of SBP has decided to keep the policy rate unchanged at 5.75 percent."

    www.CentralBankNews.info

Creating The Poverty Effect (Video)

March 25, 2017 by EconMatters   Comments (0)

By EconMatters


We discuss viewer questions, summarize the market environment today, and discuss future catalysts for the market selloff, and conclude with an analysis of why Central Banks have adopted Financial Markets as their latest Monetary Policy Tool in trying to create A Wealth Effect. Japan is a nation of savers, and the US is a nation of spenders. This is why Japan style economics will play out differently here in the United States.

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