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Kenya leaves rate on hold, inflation seen in target range

July 25, 2016 by CentralBankNews   Comments (0)

    Kenya's central bank left its Central Bank Rate (CBR) steady at 10.50 percent, as forecast, saying inflation is expected to remain within the target range in the short term although the recent increase in fuel tax is expected to exert temporary upward pressure on consumer prices despite moderate demand pressure.
    The Central Bank of Kenya (CBK), which cut its rate by 100 basis points in May in response to easing inflation, added that it was keeping the policy rate steady today to help anchor inflation expectations.
    Kenya's inflation rate rose to 5.8 percent in June from 5.0 percent in May but remained within the government's target range of 2.5 percent to 7.5 percent.
    The 3-month annualised non-food-non-fuel inflation rate eased to 3.3 percent in June from 5.2 percent in May, "indicating that there were no significant demand pressures in the economy," the CBK said.

    The Central Bank of Kenya issued the following statement:
"The Monetary Policy Committee (MPC) met on July 25, 2016, to review recent economic developments, the outcome of its previous policy decisions, and the outlook for the domestic and global economies. The Committee noted the following:

  •   Month-on-month overall inflation increased to 5.8 percent in June 2016, from 5.0 percent in May, but remained within the Government target range. The CPI category food and non-alcoholic beverages accounted for 3.8 percentage points of the month- on-month inflation in June from 2.8 percentage points in May. This increase was largely due to prices of some food items such as tomatoes, Irish potatoes, and cabbages. On the other hand, month-on-month non-food-non-fuel (NFNF) inflation declined to 5.0 percent in June from 5.4 percent in May. The 3-month annualised NFNF inflation fell to 3.3 percent in June from 5.2 percent in May, indicating that there were no significant demand pressures in the economy.

  •   The foreign exchange market has remained stable, reflecting a narrower current account deficit due to a lower import bill, improved tea and horticulture exports, and stronger diaspora remittances. The stability was also supported by the CBK’s closer monitoring of the market before and after the U.K. vote to leave the European Union (Brexit).

  •   The CBK’s foreign exchange reserves currently stand at USD7,794.1 million (5.1 months of import cover) up from USD7,682.0 million at the end of May 2016. These reserves, together with the Precautionary Arrangements with the International Monetary Fund (IMF) continue to provide adequate buffers against short-term shocks.

  •   The banking sector continues to stabilise with improving liquidity conditions, and stable non-performing loans in May and June. The ratio of gross non-performing loans to gross loans fell marginally from 8.5 percent in May to 8.4 percent in June 2016. The CBK will continue to closely monitor credit and liquidity risks.

  •   The FY 2016/17 Budget Statement contained increased budget allocations towards infrastructure investment, security, and irrigation projects, which should continue to improve the business environment and lower food prices in the medium term. The Budget Statement provided additional measures to address the high cost of credit, including use of movable assets as collateral, setting up of an electronic collateral registry, and the ongoing digitisation of land registries. However, measures to cap interest rates would lead to inefficiencies in the credit market, promote informal lending channels, and undermine the effectiveness of monetary policy transmission.

    •   The performance of the economy remains strong, posting a growth of 5.9 percent in the first quarter of 2016, compared with 5.0 percent in a similar period of 2015. Positive growth rates were registered across all sectors of the economy. Improved security and confidence in the economy continued to support the recovery in tourism. The MPC Market Perception Survey conducted in July 2016, shows the private sector remains optimistic for a higher growth in 2016 supported by macroeconomic stability, infrastructure investment, strong agriculture performance, and tourism recovery.

    •   Uncertainties in the global economy have increased with Brexit, which sparked global financial market volatility and a sharp depreciation of the Sterling Pound. Major central banks announced contingency measures to support confidence in the market including their readiness to provide liquidity and intervene to stabilise the financial markets. Forecasts for global growth in 2016 and 2017 have been revised downwards. Financial vulnerabilities remain of concern due to increased economic and political uncertainty in the EU.

      The Committee concluded that although demand pressures on inflation remain moderate, the effects of the recent increase in fuel tax were expected to exert temporary upward pressure on consumer prices. Nevertheless, overall inflation was expected to remain within the Government target range in the short term. The MPC therefore decided to retain the CBR at 10.5 percent in order to anchor inflation expectations, and to maintain market stability. The CBK will continue to monitor developments in the domestic and international economies, and will use the instruments at its disposal to maintain overall price and financial sector stability.

      The Committee also reviewed the Kenya Banks’ Reference Rate (KBRR). In line with the framework, the CBK has revised the KBRR to 8.90 percent from 9.87 percent, effective from July 25, 2016."


Israel maintains rate, risks to inflation, growth still high

July 25, 2016 by CentralBankNews   Comments (0)

    Israel's central bank left its key policy rate at 0.10 percent, as expected, saying the "risks to achieving the inflation target and to growth remain high," building on last month's statement when it said that the risks to growth and inflation had increased due to the uncertainty created by Britain's decision to leave the European Union (EU).
    The Bank of Israel (BOI), which cut its rate by 15 basis points in 2015, also repeated that it "will use the tools available to it and will examine the need to use various tools" to reach its inflation objective of 1-3 percent, encourage growth and employment, and a stable financial system.
    Israel's inflation rate was steady at minus 0.8 percent in June from May, as forecast, but excluding energy and lower administered prices, the inflation rate was 0.6 percent.
    "The inflation environment continues to increase moderately," the BOI said, noting that short-term expectations remain stable but remain below the lower bound of the target range.
    Israel's shekel has firmed this month and on July 4 dealers reportedly said that the BOI had bought U.S. dollars as the shekel firmed.
    "The level of the effective exchange rate continues to weigh on the growth of exports and of the tradable sector," the BOI said.
    The shekel was trading at 3.84 to the dollar today, up 1.3 percent since the start of the year. In terms of the effective exchange rate, the BOI said the shekel was up 1.7 percent from June 26 through July 22, a rate of appreciation that is similar to that of the past 12 months.

    The Bank of Israel issued the following statement with the main considerations behind its policy decision:

"The decision to keep the interest rate for August 2016 unchanged at 0.1 percent is consistent with the Bank of Israel's monetary policy, which is intended to return the inflation rate to within the price stability target range of 1–3 percent a year, and to support growth while maintaining financial stability. The Monetary Committee continues to assess that in view of the inflation environment, and of developments in growth in Israel and in the global economy, in the exchange rate, as well as in monetary policies of major central banks, monetary policy will remain accommodative for a considerable time.

The following are the main considerations underlying the decision:
·     The inflation environment continues to increase moderately. The Consumer Price Index increased in the past three months, and short-term inflation expectations remained stable this month after increasing in previous months, but they are still below the lower bound of the inflation target range. Medium and long-term expectations remain anchored within the target range.
·     Indicators of activity are in line with the assessment that the economy continues to grow at the rate that characterized recent years, led by private consumption and by industries focused on domestic activity. The slowdown in manufacturing is concentrated at high-technology industries, and a trend of increase in services exports is becoming apparent. The picture conveyed by labor market data continues to be positive, and there are signs that the economy is nearing full employment.
·     In the weeks since the referendum in the UK, most financial markets stabilized. However, the uncertainty regarding the ramifications of the Brexit process is expected to remain high, and due to the Brexit decision, the IMF reduced its global growth forecast. In Europe, weakness is becoming apparent and risks to the economy are increasing, while in the US, indicators of activity, primarily labor market data, were strong. The monetary policy of major central banks is expected to remain very accommodative.
·     From the monetary policy discussion on June 26, 2016, through July 22, 2016, the shekel strengthened by 1.2 percent against the dollar. In terms of the effective exchange rate, the shekel appreciated by 1.7 percent, similar to the rate of appreciation over the past 12 months. The level of the effective exchange rate continues to weigh on the growth of exports and of the tradable sector.
·     The rate of increase in home prices remains elevated, and both the level of transactions and the volume of mortgages remain high. The stock of homes for sale continues to increase.
The Monetary Committee is of the opinion that the risks to achieving the inflation target and to growth remain high. The Bank of Israel will continue to monitor developments in the Israeli and global economies and in financial markets. The Bank will use the tools available to it and will examine the need to use various tools to achieve its objectives of price stability, the encouragement of employment and growth, and support for the stability of the financial system, and in this regard will continue to keep a close watch on developments in the asset markets, including the housing market.
The minutes of the monetary discussions prior to the interest rate decision for August 2016 will be published on August 8, 2016. 
The decision regarding the interest rate for September 2016 will be published at 16:00 on Monday, August 29, 2016."

This week in monetary policy: Israel, Kenya, Bangladesh, Hungary, Nigeria, Georgia, USA, Ukraine, Moldova, Egypt, Fiji, Japan, Russia, Angola, Colombia and Trinidad & Tobago

July 24, 2016 by CentralBankNews   Comments (0)

    This week (July 25 through July 30) central banks from 16 countries or jurisdictions are scheduled to decide on monetary policy: Israel, Kenya, Bangladesh, Hungary, Nigeria, Georgia, the United States, Ukraine, Moldova, Egypt, Fiji, Japan, Russia, Angola, Colombia and Trinidad and Tobago.
    Following table includes the name of the country, the date of the next policy decision, the current policy rate, the result of the last policy decision, the change in the policy rate year to date, the rate one year ago, and the country’s MSCI classification.
    The table is updated when the latest decisions are announced and can always accessed by clicking on This Week.

JUL 25 - JUL 30, 2016:
COUNTRY       DATE           RATE      LATEST        YTD     1 YR AGO    MSCI
ISRAEL 25-Jul 0.10% 0 0 0.10%       DM
KENYA 25-Jul 10.50% -100 -100 11.50%       FM
BANGLADESH 26-Jul 6.75% -50 -50 7.25%       FM
HUNGARY 26-Jul 0.90% 0 -45 1.35%       EM
NIGERIA 26-Jul 12.00% 0 100 13.00%       FM
GEORGIA 27-Jul 7.00% -50 -100 5.50%
UNITED STATES 27-Jul 0.50% 0 0 0.25%       DM
UKRAINE 28-Jul 16.50% -150 -550 30.00%       FM
MOLDOVA 28-Jul 10.00% -300 -950 17.50%
EGYPT 28-Jul 11.75% 100 250 8.75%       EM
FIJI 28-Jul 0.50% 0 0 0.50%
JAPAN 29-Jul -0.10% 0 -20 0.10%       DM
RUSSIA 29-Jul 10.50% -50 -50 11.00%       EM
ANGOLA 29-Jul 16.00% 200 500 10.25%
COLOMBIA 29-Jul 7.50% 25 175 4.50%       EM
TRINIDAD & TOBAGO 29-Jul 4.75% 0 0 4.25%

Mozambique raises rate 300 bps to alter inflation,FX trend

July 21, 2016 by CentralBankNews   Comments (0)

   Mozambique's central bank tightened its monetary policy stance further in an effort to change the current trend of rising inflation and a falling exchange rate from the suspension of foreign aid, lower availability of foreign exchange due to lower exports, the impact of floods and droughts on food supply, military tensions in some regions and the downgrade of the country's credit rating.
    The Bank of Mozambique raised its benchmark standing lending facility rate by another 300 basis points to 17.25 percent and the deposit facility rate by the same amount to 10.25 percent.
    The reserve requirement for metical liabilities was raised by 250 basis points to 13.0 percent with effect from Aug. 22.
    The Bank of Mozambique, which has now raised its rate by 750 basis points this year, added that it would intervene in interbank markets to ensure the monetary base reaches the target of 82.051 billion meticais in July, up from 77.1 billion in June that was 1.6 billion above the bank's target for that month and 36.0 percent higher than a year ago.
    The meeting by the central bank's monetary policy committee was postponed from July 18 until today for unspecified "technical reasons" according to local press reports.
    Mozambique's inflation rate accelerated further to a 2016-high of 19.72 percent in June from 18.27 percent in May as the exchange rate of the metical has continued to fall.
    The metical was already weakening from the fall in global commodity prices from late 2014 but was hit hard by the suspension of foreign aid following the discovery
    The metical was trading at 66.5 to the U.S. dollar today, down 28 percent since the start of the year, and 50 percent since the start of 2015, with the central bank governor, Ernesto Gove, last month saying the decline in international reserves was undermining its ability to stability the foreign exchange market.
    Mozambique's trade deficit narrowed by 34 percent to US$871 million in the first quarter of the year, reflecting a 22.7 percent fall in imports due to the depreciation of the metical and slower domestic demand, particularly from large investment projects. Exports, however, also continued to fall - down by 19.3 percent, due to lower commodity prices and reduced revenue from tourism and transport services, the central bank said.
    Net International Reserves (NIR) in June rose by US$ 221 million to $1.920 billion due to deposits of $207 million held by credit institutions at the central bank to establish mandatory foreign currency reserves.


South Africa holds rate, ready to act on inflation threats

July 21, 2016 by CentralBankNews   Comments (0)

    South Africa's central bank left its benchmark repurchase rate steady at 7.0 percent, as expected, but said it remains concerned about the trajectory of inflation and it "remains ready to act appropriately to any significant change in the inflation outlook."
    The South African Reserve Bank (SARB), which has raised its rate by 200 basis points since January 2014, including 75 points this year, added a weak domestic economy, along with a rise in the rand's exchange rate and a marginal improvement in inflation, had provided it with room to delay a further tightening of policy "for now."
    However, SARB Governor Lesetja Kganyago added that the bank's monetary policy committee, which was unanimous in its decision, was aware that such favorable factors could reverse quickly and the impact of a higher rand on the outlook for inflation would depend on whether the exchange rate was sustained at this stronger level.
   South Africa's headline inflation rate rose to 6.3 percent in June from 6.1 percent in May but the bank lowered its outlook for 2016 inflation to average 6.6 percent from a previous 6.7 percent.
   "Nevertheless, inflation is still expected to accelerate further this year and is only expected to return to within the target range of 3-6 percent during the third quarter of 2017," Kganyago said, adding that inflation is expected to lead at 7.1 percent in the fourth quarter of this year, down from a previous forecast of 7.3 percent due to lower administered prices for petrol.
    For 2017 inflation is expected to average 6.0 percent, down from 6.2 percent, and then 5.5 percent in 2018, up from 5.4 percent.
    After depreciating steadily since 2011, the rand has been firming since mid-January and has reversed losses following the U.K. referendum on the European Union. The rand was trading at 14.2 to the U.S. dollar today, up on the SARB's policy decision, to have appreciated 9.3 percent this year, stronger than the central bank had expected.
    "Despite this recent strength, the rand remains vulnerable to possible "risk-off" global scenarios; changes in US monetary policy expectations; and domestic concerns including the possibility of ratings downgrades later in the year," Kganyago said.
    He added that the outlook for economic growth "remains extremely challenging." Although the 0.2 percent annual contraction in first quarter growth is expected to be the low point in the cycle, the recovery is expected to be weak.
    SARB revised down its growth forecast for 2016 to zero percent from a previous 0.6 percent. For 2017 growth is forecast of 1.1 percent, down from 1.3 percent, and for 2018 growth is seen at 1.5 percent, down from 1.7 percent.
    "The outlook is clouded by uncertainty surrounding the longer term market and global growth implications of Brexit," Kganyago added.

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

"The UK vote to leave the European Union has dominated the global landscape in the past month. The outlook for the global economy has become more uncertain as the potential consequences of these developments are being assessed. The lack of clarity regarding the process going forward has had significant implications for global growth and interest rates as the prospects for further near-term monetary policy tightening by the US Fed recede. While there have been spillovers to the South African financial markets, particularly the exchange rate, the direct short-term impact on South African growth and trade is likely to be fairly limited. Domestic growth has surprised further on the downside, and the outlook remains constrained. At the same time domestic inflation outcomes have surprised marginally on the downside, but an extended breach of the target is still expected.

The year-on-year inflation rate as measured by the consumer price index (CPI) for all urban areas moderated to 6,1 per cent in May, before rising to 6,3 per cent in June. Food price inflation measured 11,0 per cent in June, below the recent peak of 11,3 per cent in April, and was marginally negative on a month-on-month basis. Goods price inflation measured 6,7 per cent, up from 6,6 per cent in May, while services increased by 5,8 per cent, up from 5,7 per cent in May. The Bank’s measure of core inflation, which excludes food, fuel and electricity measured 5,6 per cent, up from 5,5 per cent previously.

Producer price inflation for final manufactured goods continued its downward trend, declining from 7,0 per cent in April to 6,5 per cent in May mainly due to a further moderation in price inflation of food, beverages and tobacco products. This was below the consensus forecast of 6,9 per cent. The impact of the drought is still evident in the increase in prices of agricultural products, particularly cereals and other crops as well as live animals and animal products.

The latest inflation forecast of the Bank shows a marginal improvement compared with the previous forecast. Nevertheless, inflation is still expected to accelerate further this year and is only expected to return to within the target range of 3-6 per cent during the third quarter of 2017. Inflation is now expected to average 6,6 per cent in 2016 and 6,0 per cent in 2017, compared with 6,7 per cent and 6,2 per cent previously. In 2018 inflation is expected to average 5,5 per cent, marginally up from the previous forecast. The expected peak, at 7,1 per cent in the fourth quarter of 2016, is down from 7,3 per cent. The downward revisions are due in part to lower administered price inflation (mainly petrol), despite a small upward adjustment in the international oil price assumption.

The forecast for core inflation is lower than the previous forecast in the near term, mainly due to the lower starting point, but higher in the outer period. Core inflation is expected to moderate from an average of 5,8 per cent in 2016 to 5,3 per cent by 2018. Whereas previously core inflation was expected to breach the upper end of the target range in the third quarter of 2016 for four consecutive quarters, a one-quarter breach, at 6,1 per cent, is now expected in the fourth quarter of this year.

Inflation expectations as reflected in the survey conducted by the Bureau for Economic Research have remained relatively anchored at the upper end of the inflation target range. In the second quarter, average expectations for 2016 were 6,3 per cent, up from 6,2 per cent. Average expectations for 2017 were unchanged at 6,2 per cent and were marginally down to 5,9 per cent for 2018. Expectations of business people were more or less unchanged compared to the previous quarter. Both analysts and trade union officials revised up their near-term forecasts, while forecasts for 2018 were revised lower. Average 5-year inflation expectations declined from 6,1 per cent to 5,9 per cent in the second quarter, with downward revisions by all groups.

The median expectations of market analysts, as reflected in the Reuters Econometer survey conducted in July, show a moderate decline since May. Inflation expectations declined from 6,7 per cent and 6,4 per cent in 2016 and 2017, to 6,6 per cent and 6,1 per cent. The yield differential between inflation linked bonds and conventional government bonds (break-even inflation expectations) declined across all maturities but remain elevated.

The global economic outlook has been influenced by the outcome of the UK referendum. The financial markets displayed a high degree of volatility in the immediate aftermath of the outcome, but have stabilised to some extent since then. Nevertheless the longer term real impacts are expected to be negative for global growth, particularly for the UK and Europe, as investment decisions are put on hold during the transition period. A high degree of uncertainty is expected to persist for some time as the magnitude of this slowdown is still unclear and dependent on the nature and speed of the UK disengagement. Since the referendum, global growth forecasts have generally been revised down.

The outlook for emerging markets has remained relatively subdued, with further downside risks in Turkey following the recent coup attempt and terrorist attacks. Recent outcomes in China indicate some improvement in the growth prospects in response to government stimulus packages, and this has underpinned a stabilisation and moderate upward trend in commodity prices. The IMF growth forecasts released earlier this week have revised sub-Saharan African growth downwards. The region has been negatively impacted by lower commodity prices and severe drought in some parts.

Inflation in the advanced economies remains low and still generally below target. The Brexit vote has also modified expectations regarding monetary policy in these economies. Although the Bank of England kept policy rates on hold at its most recent meeting, expectations are for a reduction in the policy rate in the near future, with the prospect of a resumption of quantitative easing. Markets are now expecting the US policy rate to remain unchanged for some time. At the same time, the highly accommodative monetary policy stances of the ECB and Bank of Japan are expected to persist, with the possibility of additional stimulus.

These developments have reinforced the global search for yield, as yield curves flattened across major advanced economy markets. The number of government bonds trading with negative yields increased further. This has provided additional impetus to renewed capital flows to emerging markets observed since earlier this year. While these flows are expected to persist, they remain sensitive to changes in expectations regarding US monetary policy and general global risk perceptions.

The recent volatility experienced by the rand exchange rate has been driven mainly by external factors and changes in global risk perceptions. Although the rand depreciated sharply in the immediate aftermath of the referendum, it has reversed these losses, and more so against the British pound. Since the previous meeting of the MPC, the rand has traded in a range of R15,80 and R14,22 against the US dollar, and has appreciated by 11,0 per cent against the US dollar, by 12,9 per cent against the euro and by 23,0 per cent against sterling. On a trade-weighted basis, the rand has appreciated by 12,2 per cent.
The rand has been supported by the global search for yield. There was a sharp increase in non-resident inflows to the domestic bond and equity markets in June and July. Since the beginning of June, net purchases by non-residents of R107,3 billion have been recorded. The rand also responded positively to the improvement in commodity prices, and the unexpectedly large trade surplus recorded in May which followed a small surplus in April. Despite this recent strength, the rand remains vulnerable to possible “risk-off” global scenarios; changes in US monetary policy expectations; and domestic concerns including the possibility of ratings downgrades later in the year.

The domestic economic growth outlook remains extremely challenging, following the contraction in GDP in the first quarter of this year. Although this is anticipated to have been the low point of the cycle, the recovery is expected to be weak. The Bank’s latest forecast is for zero per cent growth in 2016, compared with 0,6 per cent previously. Growth rates of 1,1 per cent and 1,5 per cent are forecast for the next two years, down from 1,3 per cent and 1,7 per cent previously. The Bank’s estimate of potential output has been revised down marginally to 1,4 per cent in 2016, rising to 1,7 per cent in 2018. This growth outlook is corroborated by the persistent negative trend in the Bank’s leading indicator of economic activity. Business confidence remains low with the RMB/BER business confidence indicator falling to its lowest level since 2009 in the second quarter of this year.

Recent economic data suggest that positive growth was recorded in the second quarter, with the mining and manufacturing sectors expected to add positively to growth. The more positive trend in manufacturing is consistent with the Barclays PMI which has been above the neutral 50 level since March. The BER manufacturing confidence index also improved, but still remains at low levels. The real value of building plans passed is indicative of some improvement in the sector, particularly with respect to residential construction. However, this is not reflected in the FNB/BER building confidence index which declined further in the second quarter.

Underlying the negative performance of the economy during the first quarter was the sharp contraction in growth in gross fixed capital formation for the second consecutive quarter, by both the private sector and general government. These trends have contributed to the persistence of high rates of unemployment in the economy. Although formal non-agricultural employment increased in the first quarter of 2016, this was largely due to temporary employment opportunities created by the Independent Electoral Commission. By contrast, private sector employment contracted during the first quarter.

Growth in consumption expenditure by households also contracted in the first quarter, with a sharp slowdown in expenditure on durable goods in particular. The FNB/BER consumer confidence index declined in the second quarter to low levels, following a moderate improvement in the previous quarter. The BER retail confidence index also declined sharply in the second quarter. While new vehicle sales remained weak, vehicle exports recorded strong growth in the second quarter.

Despite the surprise increase in retail and wholesale trade sales in May, consumption expenditure by households is expected to remain subdued given the low consumer confidence, high debt levels, rising costs of debt servicing, and slow employment growth. Consumption expenditure has been further constrained by the absence of significant wealth effects owing to the weak performance of asset markets, particularly the housing market. Credit extension to households also remains weak, with negative real rates of growth. Average wage growth has remained relatively stable, but there are risks of increases in excess of inflation and productivity gains.

There are as yet no clear signs of a recovery in the agricultural sector, and food price inflation is expected to remain elevated for some time. The Bank expects food price inflation to peak at 12,6 per cent during the final quarter of this year. There are some encouraging signs of moderation in some food categories at both the producer and consumer price levels, and futures prices of grains have declined markedly. Should food prices stabilise or decline in the coming months, there is the potential for significant downside base effects next year. Exchange rate developments will also be critical in this respect, as will global food prices, which have reversed their recent negative trend.

Despite supply disruptions and curtailments by a number of producers, the price of Brent crude oil has mostly traded within a band of US$45 and US$50 since the previous meeting of the MPC. The Bank’s model assumes a very moderate upward trend in oil prices over the forecast period, but there may be a degree of downside risk in the short term, with some upside risk in the outer period as global demand recovers. The domestic petrol price increased by a cumulative 60 cents per litre in the past two months, due to both the exchange rate and international prices. However, the recent appreciation of the rand coupled with a lower average oil price has resulted in a substantial over-recovery in the petrol price, and a sizeable reduction in retail prices is expected in August.

The Monetary Policy Committee remains concerned about the weak economic growth outlook and the medium term inflation trajectory which remains outside the target range of 3 to 6 per cent until the second half of next year. Nevertheless there have been some improvements in the near term inflation prospects following successive downside surprises. This is also the case for core inflation, where the expected breach of the upper end of the target range is now less protracted. While the risks to the inflation forecast are assessed to remain on the upside, these risks have moderated somewhat.

Global uncertainties appear to have delayed monetary policy tightening in advanced economies. The impact of the more appreciated rand exchange rate on the inflation outlook will depend to a large extent on whether the exchange rate is sustained at these stronger levels. Current exchange rate levels are stronger than those implicit in the forecast, providing some buffer to the projections. The rand remains sensitive to both domestic and external developments, and the recent trends can be quickly reversed.

The outlook is clouded by the uncertainty surrounding the longer term market and global growth implications of Brexit. The implications for the rand and domestic growth, and ultimately inflation, could vary quite significantly depending on which scenario plays out.
A weaker global growth scenario could also imply that there may be a degree of downside risk to the international oil price assumption, which was adjusted upward. A combination of a stronger exchange rate and subdued international oil prices would have a favourable impact on domestic petrol prices in the coming months. However, the committee assesses the longer term risk to this assumption to be on the upside, as global growth and oil demand are expected to recover.

Food prices remain an upside risk in the near term. There could however be a sharp decline in agricultural prices next year should favourable weather patterns transpire as forecast. The absence of demand pressures and weak consumption expenditure growth may also contribute to downside risks.

While the committee remains concerned about the overall inflation trajectory, the assessment of the balance of risks to the inflation outlook and the weak domestic economy has provided some room to delay further tightening of the monetary policy stance for now. Accordingly the MPC has unanimously decided to keep the repurchase rate unchanged at 7,0 per cent per annum.

The MPC is aware that some of the favourable factors that contributed to this decision could reverse quickly, and remains ready to react appropriately to any significant change in the inflation outlook. "


ECB maintains policy but will act if Brexit threatens goal

July 21, 2016 by CentralBankNews   Comments (0)

    The European Central Bank (ECB) left its key policy rates and monthly asset purchases unchanged, as widely expected, but underlined that it would "act by using all the instruments available within its mandate" if uncertainties surrounding Britain's exit from the European Union (EU) threaten the pass-through of its accommodative monetary policy to the real economy.
    The ECB, which in March cut its benchmark refinancing rate to zero percent and boosted its monthly asset purchases by 20 billion euros to 80 billion, added that euro area financial markets had "weathered the spike in uncertainty and volatility with encouraging resilience" following the UK vote to leave the EU due to the readiness of central banks to provide liquidity if needed.
    ECB President Mario Draghi said the highly supportive financing conditions were still helping support credit creation and the ECB's baseline scenario of an ongoing economic recovery and an increase in inflation.
    Over coming months, armed with more information and new staff forecasts, Draghi said the ECB governing council would be in a better position to assess the risks to inflation and growth.
    Draghi admitted that the risks to euro area growth remain tilted to the downside due to the outcome of the UK referendum and other geopolitical uncertainties, subdued growth in emerging markets, balance sheet adjustments in a number of sectors and sluggish implementation of structural reforms.
    In addition to maintaining key interest rates, Draghi confirmed the ECB's guidance that it intends to keep rates "at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases." He also confirmed that the current asset purchase program was intended to run until the end of March 2017, or beyond if necessary.
    The gross domestic product of the 19 countries in the euro area expanded by an annual 1.7 percent in the first quarter of this year, unchanged from the fourth quarter of 2015, supported by domestic demand, and recent data point to "ongoing growth in the second quarter of 2016, though at a lower rate than in the first quarter," Draghi said.
    In June the ECB revised upwards its 2016 growth forecast to 1.6 percent from the previous forecast of 1.4 percent but kept the 2017 forecast unchanged at 1.7 percent. For 2018 growth is seen unchanged at 1.7 percent, slightly below the March forecast of 1.8 percent.
    Euro area inflation improved to 0.1 percent in June, up from minus 0.1 percent in May, due to higher energy and services prices, but Draghi still expects inflation to remain very low in coming months before picking up in late 2016 and following years.
    The ECB staff forecasts 2016 average inflation of 0.2 percent before rising to 1.3 percent and 1.6 percent in the following two years. This is still well-below the ECB target for inflation to be below, but close to 2 percent.

    The European Central Bank issued the following statement by its president, Mario Draghi:

"Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by the Commission Vice-President, Mr Dombrovskis.
Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. We continue to expect them to remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases. Regarding non-standard monetary policy measures, we confirm that the monthly asset purchases of €80 billion are intended to run until the end of March 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim.
Today we discussed developments since our last monetary policy meeting in early June. Following the UK referendum on EU membership, our assessment is that euro area financial markets have weathered the spike in uncertainty and volatility with encouraging resilience. The announced readiness of central banks to provide liquidity, if needed, and our accommodative monetary policy measures, as well as a robust regulatory and supervisory framework, have all helped to keep market stress contained. Financing conditions remain highly supportive, which contributes to a strengthening in credit creation. They continue to support our baseline scenario of an ongoing economic recovery and an increase in inflation rates.
At the same time, given prevailing uncertainties, the Governing Council will continue to monitor economic and financial market developments very closely and to safeguard the pass-through of its accommodative monetary policy to the real economy. Over the coming months, when we have more information, including new staff projections, we will be in a better position to reassess the underlying macroeconomic conditions, the most likely paths of inflation and growth, and the distribution of risks around those paths. If warranted to achieve its objective, the Governing Council will act by using all the instruments available within its mandate.
Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP increased by 0.6%, quarter on quarter, in the first quarter of 2016, after 0.4% in the last quarter of 2015. Growth continues to be supported by domestic demand, while export growth has remained modest. Incoming data point to ongoing growth in the second quarter of 2016, though at a lower rate than in the first quarter. Looking ahead, we continue to expect the economic recovery to proceed at a moderate pace. Domestic demand remains supported by the pass-through of our monetary policy measures to the real economy. Favourable financing conditions and improvements in corporate profitability continue to promote a recovery in investment. Sustained employment gains, which are also benefiting from past structural reforms, and still relatively low oil prices provide additional support for households’ real disposable income and thus for private consumption. In addition, the fiscal stance in the euro area is expected to be mildly expansionary in 2016 and to turn broadly neutral in 2017 and 2018. 
At the same time, headwinds to the economic recovery in the euro area include the outcome of the UK referendum and other geopolitical uncertainties, subdued growth prospects in emerging markets, the necessary balance sheet adjustments in a number of sectors and a sluggish pace of implementation of structural reforms. Against this background, the risks to the euro area growth outlook remain tilted to the downside.
According to Eurostat, euro area annual HICP inflation in June 2016 was 0.1%, up from -0.1% in May, mainly reflecting higher energy and services price inflation. Looking ahead, on the basis of current futures prices for oil, inflation rates are likely to remain very low in the next few months before starting to pick up later in 2016, in large part owing to base effects in the annual rate of change of energy prices. Supported by our monetary policy measures and the expected economic recovery, inflation rates should increase further in 2017 and 2018.
Turning to the monetary analysis, broad money (M3) continued to increase at a robust pace in May 2016, with its annual rate of growth standing at 4.9%, after 4.6% in April. As in previous months, annual growth in M3 was mainly supported by its most liquid components, with the narrow monetary aggregate M1 expanding at an annual rate of 9.1% in May, after 9.7% in April.
Loan dynamics followed the path of gradual recovery observed since the beginning of 2014. The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) increased to 1.4% in May 2016, compared with 1.2% in April. Developments in loans to enterprises continue to reflect the lagged relationship with the business cycle, credit risk and the ongoing adjustment of financial and non-financial sector balance sheets. The annual growth rate of loans to households (adjusted for loan sales and securitisation) remained broadly stable at 1.6% in May, after 1.5% in April. 
The euro area bank lending survey for the second quarter of 2016 indicates further improvements in loan supply conditions for loans to enterprises and households and a continued increase in loan demand across all loan categories. Furthermore, banks continued to report that the targeted longer-term refinancing operations had contributed to more favourable terms and conditions on loans. 
The monetary policy measures in place since June 2014 have significantly improved borrowing conditions for firms and households, as well as credit flows across the euro area. The comprehensive package of new monetary policy measures adopted in March this year underpins the ongoing upturn in loan growth, thereby supporting the recovery of the real economy. In the light of the prevailing uncertainties, it is essential that the bank lending channel continues to function well.
To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed the need to preserve an appropriate degree of monetary accommodation in order to secure a return of inflation rates towards levels that are below, but close to, 2% without undue delay.
Monetary policy is focused on maintaining price stability over the medium term and its accommodative stance supports economic activity. As emphasised repeatedly by the Governing Council, and as again strongly echoed in both European and international policy discussions, in order to reap the full benefits from our monetary policy measures, other policy areas must contribute much more decisively, both at the national and at the European level. The implementation of structural reformsneeds to be substantially stepped up to reduce structural unemployment and boost potential output growth in the euro area. Structural reforms are necessary in all euro area countries, although specific reform needs differ across the individual economies. The focus should be on actions to raise productivity and improve the business environment, including the provision of an adequate public infrastructure, which are vital to increase investment and boost job creation. The enhancement of current investment initiatives, including the extension of the Juncker plan, progress on the capital markets union and reforms that will improve the resolution of non-performing loans will also contribute positively to this objective. In an environment of accommodative monetary policy, the swift and effective implementation of structural reforms, in line with the 2016 country-specific recommendations recently approved by the European Council, will not only lead to higher sustainable economic growth in the euro area but will also make the euro area more resilient to global shocks. Fiscal policies should also support the economic recovery, while remaining in compliance with the fiscal rules of the European Union. Full and consistent implementation of the Stability and Growth Pact over time and across countries is crucial to maintain confidence in the fiscal framework. At the same time, all countries should strive for a more growth-friendly composition of fiscal policies."

Indonesia holds rate, assured past cuts will boost growth

July 21, 2016 by CentralBankNews   Comments (0)

   Indonesia's central bank maintained its monetary policy stance, saying it "is assured that looser monetary and macroprudential policies will bolster economic growth momentum."  
    Bank Indonesia (BI) has cut its current and future benchmark interest rates four times this year, most recently in June, by a total of 100 basis points, but most economists had expected the central bank to cut rates another time today to boost economic growth further.
    But BI said it believed that the macroeconomy was stable, reflected by low and stable inflation that is within its target corridor, that the current account deficit was healthier and the exchange rate of the rupiah was relatively stable.
   Although economic growth "remained limited" in the second quarter, BI said it expected growth to continue to gain momentum on the back of its looser policy, coupled with fiscal stimulus in the form of the government's tax amnesty bill and other measures.
   Household consumption is seen improving, based on recent retail sales data and stronger car sales, while investment growth showed significant signs of improvement. Exports remain weak although several commodities showed early signs of recovery, BI said.
    The BI confirmed its 2016 growth forecast of 5.0 to 5.4 percent, up from 4.8 percent in 2015. In the first quarter of this year, Indonesia's economy grew by an annual 4.92 percent, down from 5.04 percent in the previous quarter.
    But BI also acknowledged that the global economy is expected to slow from uncertainty linked to Britain's exit from the European Union (EU), while China and India were also expected to grow slower. The impact of Brexit on the United States is expected to delay a further rate increase until the end of this year.
    Indonesia's currency, the rupiah, has risen in response to an easing of uncertainty around the U.S. fed funds rate, the limited effect on financial markets from Brexit and positive sentiment around the government's tax amnesty bill that is estimated to bring in 165 trillion rupiah to the state.
    The rupiah was trading at 13,111.7 to the U.S. dollar today, up 5.2 percent this year, with the BI also saying it had risen as non-resident capital inflows surged after a slight correction in response to Britain's vote to leave the EU.
    Indonesia's headline inflation rate rose slightly to 3.45 percent in June from 3.33 percent in May, but this is the lowest rate during Ramadan for the past four years and within the BI's target of 4.0 percent, plus/minus 1 percentage point.
    Core inflation also remained under control in line with limited domestic demand, appreciation of the rupiah and anchored inflation expectations, BI said. Core inflation in June rose to 3.49 percent from 3.41 percent.

    Bank Indonesia issued the following statement:

"The BI Board of Governors agreed on 20-21th July to hold the BI Rate at 6.50%, while maintaining the Deposit Facility and Lending Facility rates at 4.50% and 7.00% respectively.
 Bank Indonesia also maintained the BI 7-Day (Reverse) Repo Rate at 5.25% in line with the planned reformulation of the policy rate as announced on 15th April 2016. Therefore, the term structure of monetary operations is currently as follows:
Bank Indonesia believes that the macroeconomic stability remains stable, as reflected by low and stable inflation within the target corridor of 4±1%, a healthier current account deficit and relatively stable exchange rate. Monetary policy transmission through interest rate has continued to improve. Preparations for policy rate reformulation, which will come to effect on 19 August 2016, are underway. Moving forward, Bank Indonesia is assured that looser monetary and macroprudential policies will bolster economic growth momentum.
Bank Indonesia supports the implementation of the 2016 Tax Amnesty Law. The policy is expected to boost government’s fiscal capacity to finance development programs as well as potentially enhance national economic liquidity, which will then be utilized domestically for productive economic activities. Bank Indonesia will continue to conduct financial market deepening by introducing new investment and hedging products in the financial market, strenghten monetary management strategies, and encourage the real sector to make optimal use of repatriation funds. Bank Indonesia will also continue to coordinate with the government to ensure that the implementation of the Tax Amnesty Law, including the repatriation funds, can be beneficial to the national economy. 
The global economy is predicted to expand more slowly in line with growing uncertainty after Britain’s exit from the European Union (Brexit). There is a risk that the global economic recovery will fall below the previous projection due to the majority leave vote at the recent Brexit referendum, which could undermine economic growth in advanced countries as well as several developing countries with strong trade ties to the UK and European Union. In addition to the UK and Europe, the economies of China and India, with a dominant export share in the region, are also projected to decrease. On the other hand, despite indications of economic gains in the United States, the impact of the Brexit on USD appreciation is expected to delay a further Federal Funds Rate (FFR) hike until the end of 2016. On commodity markets, the oil price rebounded as the US lowered production and supply disruptions occur in several countries. Looking ahead, the oil price is projected at a relatively low level in line with stubbornly weak demand. Conversely, the prices of several export commodities from Indonesia recorded gains, specifically coal and crude palm oil (CPO). 
On the domestic front, national economic growth gained traction but remained limited in the second quarter of 2016. Household consumption was observed to improve, indicated by positive retail sales data during the approach to Eid-ul-Fitr and stronger car sales. Furthermore, investment growth, particularly non-construction investment, showed significant signs of improvement against a backdrop of government capital spending and procurement. In terms of the external sector, exports remained weak despite several commodities showing early signs of recovery. Moreover, economic growth in the upcoming periods is predicted to continue gaining momentum on the back of loose monetary and macroprudential policy, coupled with fiscal stimuli in the form of the tax amnesty bill along with a government inclined to spend. Consequently, Bank Indonesia projects economic growth for 2016 in the 5.0-5.4% range. 
Indonesia’s trade surplus increased in June 2016 on gains in the non-oil and gas trade balance. Therefore, the trade surplus on June 2016 stood at USD0.90 billion, up from USD0.37 billion the month earlier. The increase stemmed from exports of non-oil and gas manufacturing products, such as electrical machinery/equipment, mechanical machinery/equipment and not knitted apparel and clothing. In general, Indonesia’s trade surplus was recorded at USD1.94 billion in Q2/2016, exceeding that posted in the previous period and supporting the projected current account deficit in the second quarter. On the other hand, non-resident capital flows to financial markets in Indonesia totalled USD7.3 billion as of June 2016, surpassing the total for the year in 2015 (USD5.1 billion). Consequently, the level of official reserve assets at the end of June 2016 stood at USD109.8 billion, equivalent to 8.4 months of imports or 8.1 months of imports and servicing public external debt, which is well above the international adequacy standards of three months. 
The rupiah strengthened in June 2016 as uncertainty surrounding the proposed FFR hike eased, the limited effect of Brexit and positive sentiment increased on the tax amnesty bill. Point-to-point, the rupiah appreciated by an average of 3.4% (mtm) to a level of Rp13,213 per USD in June 2016. The impact of the Brexit on the rupiah was limited compared to other currencies and only temporary. The rupiah quickly rebounded on the positive perceptions held by investors concerning the domestic economic outlook in line with the ratification of the Tax Amnesty Act, improved macroeconomic stability and the expected delay to the FFR hike by the Federal Reserve. The rupiah also appreciated as non-resident capital inflows surged after a slight correction due to the Brexit. Bank Indonesia will continue, however, to maintain exchange rate stability in line with rupiah’s fundamental value. 
Headline inflation during the holy fasting month of Ramadan remained relatively under control, supporting the 2016 inflation to stay within the target corridor of 4±1%. Inflation in June 2016 was recorded at 0.66% (mtm) or 3.45% (yoy), which is the lowest rate during Ramadan for the past four years due to the various policies instituted by the Government, coupled with close coordination between the Government and Bank Indonesia. All components contributed to inflation, particularly volatile foods (VF) and administered prices (AP). Volatile foods were affected by rising prices of food stuffs on growing demand during Ramadan. Meanwhile, administered prices (AP) climbed on higher airfares, intercity transportation fares and adjustments to electricity rates as the global oil price began to rebound. On the other hand, core inflation was controlled at 0.33% (mtm) or 3.49% (yoy) in line with limited domestic demand, rupiah appreciation and anchored inflation expectations. 
The financial system was stable and the banking sector remain resilient. In May 2016, the Capital Adequacy Ratio (CAR) stood at 22.2%, while non-performing loans (NPL) were recorded at 3.1% (gross) or 1.5% (net). The loose monetary policy stance signalled by Bank Indonesia was transmitted to the economy through the interest rate channel, reflecting the banks’ proclivity to lower lending and deposit rates. In contrast, monetary policy transmission through the credit channel was not optimal, with limited credit growth reported despite moderate gains in May 2016. Credit growth in May 2016 was recorded at 8.3% (yoy), accelerating from 8.0% (yoy) the month earlier. On the other hand, deposit growth stood at 6.5% (yoy), up from 6.2% (yoy) the previous month. Bank Indonesia believes that the loose monetary and macroprudential policy, combined with implementation of the Tax Amnesty Act, to stimulate credit growth and foster sustainable economic growth."

Paraguay cuts rate by 25 bps while inflation rises in June

July 21, 2016 by CentralBankNews   Comments (0)

    Paraguay's central bank cut its monetary policy rate by another 25 basis points to adopt a more expansive policy stance to ensure that inflation converges to its 4.5 percent inflation.
    The Central Bank of Paraguay has now cut its rate by 50 basis points following a cut in May. This cut came after a 25 point hike in January and cuts totaling 100 points in 2015 on rising inflation.
    Although data for economic activity show clear signs of recovery, the central bank said there is still room for further improvement in some sectors and there is a moderate dynamic in credit.
    It added that on the international level, the pressures and risks to domestic inflation have eased due a postponement of rate changes by the U.S. Federal Reserve.
    Paraguay's inflation rate accelerated to 4.7 percent in June from 3.5 percent in May, but is down from a 2016-high of 5.2 percent in January when higher food prices pushed up inflation.
    In May the International Monetary Fund forecast that inflation is expected to ease to 4.5 percent during the year and remain at that level in 2017. The central bank targets inflation of 4.5 percent, plus/minus 2 percentage points.
   The exchange rate of Paraguay's guarani started depreciating in September 2014 and lost 20 percent against the U.S. dollar in 2015 before hitting a low of 5,967 to the dollar in late January. 
    But since the central bank's rate hike on Jan. 20, the guarani has bounced back and was trading at 5,546.2 today, up 4.2 percent since the start of this year.
    In June the IMF said in its latest annual assessment that Paraguay's economy is expected to remain resilient this year and in 2017 though it will be tested if commodity prices remain weak and the economy of Brazil - its largest trading partner - remains in recession.
     The IMF expects economic growth in Paraguay of around 3 percent this year, similar to 2015, and 3.25 percent in 2017, led by agriculture and construction. The soy harvest, the country's major export crop, is expected to very good this year.

Brazil holds rate as Copom looks for further disinflation

July 21, 2016 by CentralBankNews   Comments (0)

    Brazil's central bank left its benchmark Selic rate steady at 14.25 percent, saying higher-than-expected inflation may persist due to food prices, uncertainty regarding the implementation of economic adjustments and a prolonged period of above-target, high inflation that can delay the process of disinflation.
    In the first meeting of the Central Bank of Brazil's policy committee chaired by Ilan Goldfjan, the statement by Copom flushed out some of the issues that resulted in a unanimous policy decision. Under its past president, Alexandre Tombing, the central bank typically issued very brief statements.
    While concern over inflation triggered the decision to maintain the rate, Copom added his could be countered by the possibility of a quicker implementation of economic changes that improve confidence and lower inflation expectations and the possibility that spare capacity in the economy leads to more rapid disinflation that expected.
    Brazil's inflation rate eased to 8.84 percent in June from 9.32 percent in May.
    Although Copom said its projections for inflation remained relatively stable, they were lower than in the last inflation report and inflation was projected around 4.5 percent in 2017.
    However, the central bank added that financial markets project inflation next year of around 5.3 percent, above the bank's midpoint target of 4.5 percent. This year the central bank has a target range of 2 percentage points around that target but this narrows to 1.5 points in 2017.
    The central bank added that recent data show a stabilization of economic activity in the short term, but the economy continues to operate with a "high level of idleness," with the external environment challenging and the dynamics of the global economic recovery fragile and uncertain.
    Brazil's economy contracted by an annual rate of 5.4 percent in the first quarter of this year, its eight consecutive quarter of shrinkage.


Mauritius cuts rate 40 bps, citing Brexit and US election

July 20, 2016 by CentralBankNews   Comments (0)

    The central bank of Mauritius cut its benchmark repo rate by 40 basis points to 4.00 percent to support the economy, saying "the downside risks to the domestic growth outlook outweighed the risks to the inflation outlook."
    It is the first cut in rates by the Bank of Mauritius since a 25 point cut in November last year.
    "Taking into account the uncertainty created by Brexit and potential for the US November elections to increase market volatility, the MPC deemed it important to support investment activity in the  country and raise the growth potential of the economy," the central bank said.

    The Bank of Mauritius issued the following statement:

"The Monetary Policy Committee (MPC) of the Bank of Mauritius has unanimously decided to cut the Key Repo Rate (KRR) by 40 basis points to 4.00 per cent per annum at its meeting today.
Downside risks to the global economic outlook have increased in the wake of the UK’s referendum in favour of Brexit.  In its latest World Economic Outlook update released on 19 July 2016, the IMF revised down global growth further to 3.1 per cent for 2016 amidst increased uncertainty. Financial markets are expected to remain volatile. Interest rates in advanced economies are expected to remain at low levels.  Against a backdrop of subdued global demand and commodity prices, global inflation risks are also expected to remain low in the near to medium term. 
Growth in the domestic economy increased to 3.7 per cent in 2016Q1, driven by key services sectors.  However, the economy continues to suffer from weak private investment and relatively sluggish export performance.  Bank staff lowered their projection for real GDP growth to 3.6 per cent for 2016.  Latest global developments, especially in the aftermath of Brexit, point to heightened downside risks to domestic growth.  For 2017, growth is expected to improve to 3.8 per cent. 
Since the last MPC meeting, domestic inflation has remained low against the backdrop of moderate international commodity prices, weak global economic activity and muted domestic demand.  Headline inflation retreated from 1.3 per cent in January 2016 to 0.9 per cent in June 2016, while year-on-year inflation rose from 0.4 per cent to 1.1 per cent over the same period.  The various core inflation indicators also remained at relatively low levels.  Headline inflation is projected at around 1.5 per cent for 2016 and around 3.0 per cent in 2017, slightly lower than what was anticipated at the February 2016 MPC meeting.  
The MPC took note of the significant amount of open market operations undertaken by the Bank to reduce the level of excess liquidity in the money market and viewed that this would help in the monetary policy transmission mechanism. 
The MPC weighed the risks to the growth and inflation outlook and considered that the downside risks to the domestic growth outlook outweighed the risks to the inflation outlook.  Taking into account the uncertainty created by Brexit and potential for the US November elections to increase market volatility, the MPC deemed it important to support investment activity in the country and raise the growth potential of the economy.  A cut in the Key Repo Rate is warranted at this juncture to support the economy.  
The MPC will issue the Minutes of its meeting at 13:00 hours on Wednesday 3 August 2016."