Paraguay's central bank cut its monetary policy rate by 25 basis points to 5.75 percent, saying the balance of risks in the domestic and external economy had changed, allowing it to adopt a more expansive monetary policy in a timely manner.
The Central Bank of Paraguay raised its rate by 25 points in January after cutting it by 100 basis points in 2015. But since the rate hike, inflation has decelerated.
In April inflation eased to 4.5 percent from 4.7 percent in March and a 2016-high of 5.2 percent in January.
The rise in inflation in the first months of this year was largely due to volatile food prices and the International Monetary Fund said earlier this month the country's inflation rate was expected to decline to 4.5 percent during this year and remain at that level next year.
The central bank targets inflation of 4.5 percent, plus/minus 2 percentage points.
The central bank said the decline in inflation was expected and while overall economic activity was expanding moderately, certain sectors had slowed.
Paraguay's economy grew by an estimated 3 percent last year, among the strongest in Latin America, but has been losing momentum. In the fourth quarter of last year, the economy grew by only 1.1 percent year-on-year, down from 2.3 percent in the third quarter.
Despite risks to growth, including a further slowdown in Brazil and a fall in commodity prices, the IMF expects Paraguay's economy to remain resilient, with growth this year projected at 2.9 percent and 3.25 percent in 2017.
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 5,609 to the dollar today for an appreciation of 3 percent this year.
Nigeria's central bank left its benchmark Monetary Policy Rate (MPR) unchanged at 12.0 percent, saying his was the "least risky option" at a time of stagflation when policy options are very limited.
The Central Bank of Nigeria (CNB), which switched into a tightening mode in March this year when it raised its rate by 100 basis points, added that this decision needed "time to crystalize" although the balance of risks remain tilted against economic growth.
A scarcity of foreign exchange has been hampering Nigerian businesses for months and while the central bank said there was no easy fix because the lack of supply boils down to low foreign exchange earnings - linked to the low oil price and low investments - it acknowledged that it was time to start reforming the foreign exchange market.
The bank's monetary policy committee voted unanimously to "adopt greater flexibility in exchange rate policy to restore the automatic adjustment properties of the exchange rate" and gave the bank's management the mandate to work out the method for achieving this flexibility and decide when a new framework would begin.
Speculation has been rife in financial markets in recent months that the CBN would either devalue the naira or seek to create some stability in the foreign exchange market to narrow the gab between the official exchange rate, the interbank market and the black market, where the dollar currently sells for over 300 naira compared the official peg of 197.
"In the Committee's opinion, the key issue remains how to increase the supply of foreign exchange to the economy," the central bank said, adding that a dynamic foreign exchange framework could still not replace the imperative to the economy to increase its stock of foreign exchange through enhanced export earnings, which means the investment climate must be improved.
Nigeria's naira tumbled in the second half of 2014 in response to the fall in global crude oil prices and only started to stabilize in March 2015 following the imposition of foreign currency controls to preserve foreign reserves.
Since March the central bank has adjusted its exchange rate peg several times and in the interbank market the naira was trading at a daily average of 197 between March 25 and May 13, the CBN said.
"The Committee, therefore, remains committed to its mandate of maintaining a stable naira exchange rate," the bank said.
Given its dependence on imports, the shortage of foreign exchange has helped fuel inflation, the central bank acknowledged, adding that headline inflation jumped to 13.72 percent in April from 12.77 percent in March while core inflation rose for the third month in a row to 13.35 percent.
In addition to the shortage of foreign exchange, the CBN attributed rising inflationary pressures to an energy crises that led to a shortage of petroleum products, exchange rate pass-through from imported goods, a high cost of electricity, high transport costs, a drop in food output, high cost of inputs and low industrial output.
Nigeria's economy contracted by 13.7 percent in the first quarter of this year from the fourth quarter of last year due energy shortages, scarce foreign exchange and depressed consumer demand, which means that businesses would not investment or even procure raw materials.
On an annual basis, the economy shrank by 0.36 percent, down from growth of 2.11 percent in the previous quarter, for the first negative growth rate in many years, and 4.32 percentage point below the growth rate seen in the first quarter of 2015.
Earlier this month Nigeria's government raised gasoline prices by 67 percent in an effort to reduce fuel subsidies and fuel shortage, and attract more suppliers and investment. Although Nigeria is Africa's largest crude oil producer, and the fifth highest exporter worldwide, it relies on imports to meet some 70 percent of its domestic needs.
The Central Bank of Nigeria (CBN) issued the following statement:
The Bank of England (BoE) also retained its monthly assets purchase programme, financed through the issuance of reserves at ₤375 billion (US$543.75 billion). At the end of its April 13, 2016 meeting, BoE retained its policy rate at 0.5 per cent, with a commitment to raise inflation to its 2.0 per cent long run path.
Disruptions to oil supply in Canada, Nigeria and Kuwait and, demand spikes following expectations of a US interest rate hike and buildup of crude oil inventories, contributed to mild oil price recovery in April 2016. Inflation remains largely suppressed in the advanced countries but tepid consumption spending and vulnerabilities in the financial markets continue to hamper financial intermediation and growth. Consequently, the monetary policy stance in most advanced economies remained largely accommodative and most likely to be maintained throughout 2016. On the contrary, monetary policy in the EMDEs could continue to diverge substantially, reflecting the diversity of shocks confronting them.
2.47 percentage points in output from the 2.11 per cent reported in the last quarter of 2015, and 4.32 percentage point lower than the 3.96 per cent recorded in the corresponding period of 2015. Aggregate output contracted in almost all sectors of the economy, with the non-oil sector declining by about 0.18 per cent in Q1 2016, compared with 3.14 per cent expansion in the preceding quarter. Only agriculture and trade grew by 0.68 per cent and 0.40 per cent, respectively, while Industry, Construction and Services recorded negative growth of -0.93, -0.26 and -0.08 percentage point, respectively.
The Committee noted a further increase in year-on-year headline inflation to 12.77 per cent and 13.72 percent in March and April 2016, respectively, from 11.38 per cent in February 2016. The increase in headline inflation in April reflected increases in both food and core components of inflation. Core inflation rose sharply for the third time in a row to 13.35 per cent in April from 12.17 per cent in March, 11.00 per cent in February and 8.80 per cent in January having stayed at 8.70 per cent for three consecutive months through December, 2015. Food inflation also rose to 13.19 per cent from 12.74 per cent in March, 11.35 per cent in February, 10.64 per cent in January and 10.59 per cent in December, 2015. The rising inflationary pressure continued to be traced to legacy factors including energy crisis reflected in incessant scarcity of refined petroleum products, exchange rate pass through from imported goods, high cost of electricity, high transport cost, reduction in food output, high cost of inputs and low industrial output.
The Committee is aware that a dynamic foreign exchange management framework that guarantees flexibility could not replace the imperative for the economy to increase its stock of foreign exchange through enhanced export earnings. Consequently, such a structure must evolve to provide basis for radically improved investment climate to attract new investments. The Committee recognizes the exchange rate as a very important macroeconomic variable, which must be earned by increased productive activity and exports, noting with satisfaction that the Bank had made very significant and satisfactory progress with the reforms framework.
spiked in April 2016, far above the upper limit of the policy reference band.
Inflation has continued to be driven mainly by supply side factors such as fuel scarcity, increase in tariff and deterioration in electricity supply, increase in the price of petrol, higher input costs as a result of scarcity of foreign exchange, persistent security challenges and exchange rate pass- through to domestic prices of import. While the Committee believed that the recent deregulation of the downstream sector of the petroleum sector was in the right direction and would lead to increased supply, the pass-through effect of prices to other products has to be factored in policy considerations. Mindful of the limitations of monetary policy in influencing structural imbalances in the economy, the Committee stressed the need for policy coordination with the fiscal authorities in order to effectively address the identified pressure points.
The Committee expressed concern over sustained pressure in the foreign exchange market and the necessity of implementing reforms to engender greater flexibility of rate and transparency in the operation of the inter-bank foreign exchange market. Accordingly, the Committee noted that it was time to introduce greater flexibility in the management of the foreign exchange market. The Committee reaffirmed commitment towards maintenance of price stability and reiterated the need to reappraise the coordination mechanism between monetary and fiscal policy and initiate reforms, for the purpose of more efficient policy synchronization and management.
This isn`t the first time Goldman Sachs has tried to hide behind the notion of a "Chinese Wall" in a defense against an apparent conflict of interests. It is theoretically possible that this analyst operated in a complete vacuum at Goldman Sachs, but how likely is this fact given how interconnected Investment Banking activities are these days?
We would have to believe that Goldman Sachs analyst Patrick Archambault is basically the most clueless, blind, deaf and mute employee who has no networking connections whatsoever at Goldman Sachs. Basically, persona non grata around the ole water cooler. Frankly, if he didn`t in fact know about this deal, he probably should be let go from the firm on that basis alone, how could he not be that clued in to the goings on within the firm? I mean seriously I bet secretaries at Goldman Sachs knew about this deal just by accident.
Hungary's central bank cut its base rate by another 15 basis points to 0.90 percent but said it would maintain this rate "for an extended period" as it had now reached a level that "ensures the medium-term achievement of the inflation target and a corresponding degree of support to the economy."
The National Bank of Hungary (MNB) has now cut its policy rate by 45 basis points this year following similar-size cuts in March and April.
The rate cut was largely expected by economists and follows the central bank's statement in April about a "further slight reduction."
Since July 2012, when it embarked on an easing cycle, the MNB has cut its key rate by 610 basis points, only interrupted by a pause between July 2014 and March 2015.
The central bank said inflationary pressures in Hungary will remain moderate for an extended period as there is still a degree of unused capacity and inflation is first expected to approach the bank's 3.0 percent inflation target in the first half of 2018, as forecast in its March inflation report.
However, the MNB added that recent wage data suggest that the risk of "excessively low level of inflation expectations has diminished" and the government's draft budget is expected to help close the output gap.
The government, headed by Prime Minister Viktor Orban, is preparing to cut the Value-Added-Tax rate for some food, internet and restaurant services in 2017.
Although Hungary's economy shrank by more than expected in the first quarter of this year, the central bank said this was largely due to one-off effects, such as a slower drawdown of funding from the European Union and temporary factory shutdowns.
In contrast, retail sales continued to rise in March, the unemployment rate has fallen and economic growth is expected to "pick up notably in the second half of the year."
In the first quarter of this year Hungary's Gross Domestic Product shrank by 0.8 percent from the fourth quarter of 2015 and on an annual basis it grew by only 0.9 percent compared with 3.2 percent in the fourth quarter of last year.
Hungary's headline inflation rate rose to 0.2 percent in April from minus 0.2 percent in March and is forecasts to remain below the central bank's target in the next two years before approaching it in the first half of 2018.
The National Bank of Hungary issued the following statement:
"At its meeting on 24 May 2016, the Monetary Council reviewed the latest economic and financial developments and voted on the following structure of central bank interest rates with effect from 25 May 2016:
|Central bank interest rate||Previous interest rate (per cent)||Change (basis points)||New interest rate (per cent)|
|Central bank base rate||1,05||-15||0,90|
|Overnight collateralised lending rate||1,30||-15||1,15|
|Overnight deposit rate||-0,05||No change||-0,05|
Turkey's central bank cut the upper band of its interest rate corridor for the third consecutive month in "a measured step toward simplification" of its rate structure but again left its benchmark repo rate steady at 7.50 percent as the "improvement in the underlying core inflation trend remains limited, necessitating the maintenance of a tight liquidity stance.
The Central Bank of the Republic of Turkey (CBRT) cut the overnight marginal funding rate by another 50 basis points to 9.50 percent and the lending rate at its late liquidity window by 50 basis points to 11.0 percent.
Since March the overnight funding rate has been cut by 125 basis points in response to what the CBRT described as a "marked decline" in inflation due to lower unprocessed food prices. The benchmark repo rate has been steady at 7.50 percent since February 2015.
The central bank reiterated its recent guidance that "future monetary policy decisions will be conditional on the inflation outlook" and in light of inflation expectations, prices and other factors, a tight monetary policy stance will be maintained.
Turkey's headline inflation rate eased to 6.57 percent in April from 7.46 percent in March while core inflation eased to 9.3 percent, down from 9.5 percent as both numbers remain well above the bank's target of 5.0 percent.
In its latest inflation report, the CBRT maintained its outlook for inflation to reach 7.5 percent by the end of this year and 6 percent by the end of 2017, reaching 5 percent in 2018.
In contrast to its statement in April, when the central bank said global volatility had declined, the central bank today said "global volatility has increased to some extent," and the tight monetary policy stance, cautious macroeconomic policies helped increase the economy's resilience to shocks.
The Central Bank of the Republic of Turkey released the following statement:
Participating Committee Members
Israel's central bank left its key policy rate steady at 0.10 percent, as expected, and said its policy stance will remain "accommodative for a considerable time," a guidance that has been reinforced by "the intensifying decline in exports in recent months," along with developments in global economic growth and inflation, domestic economic activity, the exchange rate and the monetary policy of major central banks.
But the Bank of Israel (BOI) has clearly become more concerned over economic growth, noting the "worrying contraction in exports" and an increased risk to growth. Last month the BOI merely said the risks to growth "remain high."
In April Israel's exports declined by an annual 11 percent to US$3.596 billion, the lowest since August 2009, while exports excluding diamonds and startup contracted by 12.9 percent. In addition, services exports have not grown in 1-1/2 years, the BOI said.
Israel's Gross Domestic Product grew by an annual 1.7 percent in the first quarter of this year, down from 2.1 percent in the fourth quarter of last year, with private consumption continuing to lead growth with an increase of 4 percent.
Israel remains mired in deflation, with consumer prices down by an annual 0.9 percent in April compared with March's fall of 0.7 percent and the BOI repeated its view from last month that risks to achieving its inflation target "remain high."
The BOI repeated its recent phrase that it will "examine the need to use various tools to achieve its objectives of price stability," employment, growth and a stable financial system.
Interest rate markets have remained unchanged, the BOI said, adding they don't show any change in BOI rates in the next year and private forecasters project that the policy rate will remain at its current level in coming months.
In March the BOI, which has maintained its key rate since cutting it by 15 basis points in February last year, said it expected inflation to turn around in the next few months and said it saw no need to follow other central banks and pursue various forms of extraordinary policy measures.
The BOI's March forecast saw inflation averaging 0.2 percent by the fourth quarter of this year, then 0.8 percent by the first quarter of 2017 and 1.4 percent by end-2017, finally moving into the central bank's inflation target of 1-3 percent by the middle of 2017.
Economic growth was forecast to expand 2.8 percent this year, up from 2015's 2.5 percent, and then by 3.0 percent in 2017.
After depreciating sharply between August 2014 and March 2015, Israel's shekel has firmed but since the last BOI policy meeting on April 20, the shekel has weekend by 3 percent against the U.S. dollar. Over the preceding 12 moths, the shekel is up by 3.3 percent in terms of the nominal effective exchange rate.
The shekel was quoted at 3.87 to the dollar today, largely unchanged since the start of the year.
The Bank of Israel issued the following statement with its main considerations behind its decision:
Kenya's central bank cut its Central Bank Rate (CBR) by 100 basis points to 10.50 percent, saying inflation is expected to decline and remain within the target range in the short term, which means "there was policy space for an easing of monetary policy while continuing to anchor inflation expectations."
The Central Bank of Kenya (CBK), which raised its policy rate by 300 basis points in 2015 in response to a fall in the shilling's exchange rate and a rise in inflation, added that inflation data showed there were "no significant demand pressures in the economy" and the foreign exchange market had remained stable, supported by a narrower current account deficit.
Earlier this month Patrick Njoroge was quoted as saying the central bank had room to start easing its policy as inflation was falling back within the target range of 2.5 percent to 7.5 percent.
Kenya's consumer price inflation rate eased to 5.27 percent in April from 6.45 percent in March, with the 3-month annualized non-food-nonfuel inflation rate down to 4.6 percent in April from 6.8 percent in March.
Since November last year, the shilling's exchange rate has remained relatively stable, with the central bank attributing this to a narrowing of the current account deficit on improved earnings from tea and horticulture exports, strong diaspora remittances and a lower bill for oil imports.
The shilling was quoted at 100.9 to the U.S. dollar today, up 1.4 percent since the start of the year.
Kenya's current account deficit was estimated at 6.8 percent of Gross Domestic Product in 2015, down 3 percentage points from 2014, and is expected to narrow further this year, the CBK said.
Foreign exchange reserves at the central bank amounted to US$7.688 billion, up from $7.377 billion at the end of March.
In March the International Monetary Fund approved a $1.5 billion precautionary arrangement and the CBK said this arrangement, together with its reserves, "will continue to provide adequate buffers against short-term shocks."
The Central Bank of Kenya issued the following statement:
The Monetary Policy Committee (MPC) met on May 23, 2016, to review recent economic developments, and the outlook for the domestic and global economies. The Committee noted the following:
Month-on-month overall inflation fell to 5.3 percent in April 2016, from 6.5 percent in March, and was within the Government’s target range. This decline was largely due to reduction in the prices of food items and fuel.
Month-on-month non-food-nonfuel (NFNF) inflation also declined to 5.8 percent in April from 6.0 percent in March. The CPI category alcoholic beverages, tobacco and narcotics contributed 1.1 percentage points to NFNF inflation in April, reflecting the revised excise tax introduced in December 2015. Significantly, the 3-month annualised NFNF inflation fell from 6.8 percent in March to 4.6 percent in April, indicating that there were no significant demand pressures in the economy.
The foreign exchange market has remained stable, supported by a narrower current account deficit due to lower oil imports, improved earnings from tea and horticulture exports, and strong diaspora remittances. The current account deficit was estimated at 6.8 percent of GDP in 2015, a reduction of 3 percentage points from 2014, and is expected to narrow further in 2016.
Foreign exchange reserves of the Central Bank of Kenya (CBK) currently stand at USD7,688.3 million (equivalent to 5.0 months of import cover) up from USD7,377.2 million (equivalent to 4.7 months of import cover) at the end of March 2016. These reserves, together with the Precautionary Arrangements with the International Monetary Fund (IMF) will continue to provide adequate buffers against short-term shocks.
The coordination between monetary and fiscal policies continues to support macroeconomic stability. The National Government budget deficit is expected to narrow in FY2015/16 thereby easing pressure on interest rates.
The banking sector is resilient and has begun to stabilise following the successful and quick reopening of Chase Bank, which has enhanced confidence in the sector. Furthermore, the CBK’s enforcement of existing regulations particularly with respect to the classification of loans, has strengthened and increased transparency of the banking sector.
The ratio of gross non-performing loans to gross loans was 8.2 percent in April 2016, partly reflecting better reporting standards. The CBK will continue to monitor credit and liquidity risks, which remain concerns.
The performance of the economy remains strong, posting a growth of 5.6 percent in 2015, from 5.3 percent in 2014. The MPC Market Perception Survey conducted in May 2016, shows that the private sector remains optimistic supported by macroeconomic stability, stronger agriculture performance, public infrastructure investment, and tourism recovery.
The outlook for global economy has deteriorated in recent months due to weaker growth prospects in advanced and emerging market economies. Uncertainties in the global financial markets have increased due to risks posed by, among other factors, slower growth in China, the timing of the U.S. Fed’s next increase in interest rates, and the outcome of the referendum on U.K. membership of the European Union (Brexit). However, the growth outlook for Kenya’s main trading partners in the region remains strong, suggesting better prospects for exports performance.
The Committee noted that overall inflation is expected to decline and remain within the Government target range in the short-term. Therefore, it concluded that there was policy space for an easing of monetary policy while continuing to anchor inflation expectations. The MPC therefore decided to lower the CBR by 100 basis points to 10.5 percent. The CBK will continue to monitor developments in the economy, and will use instruments at its disposal to maintain overall price and financial sector stability."
The US sure is concerned about further BOJ intervention, the real question is why now? What is really going on behind the scenes? We delve into some of the possibilities that we think are at play here behind the scenes at the Federal Reserve and the U.S. Treasury.
Pakistan's central bank cut its policy rate by 25 basis points to 5.75 percent, saying inflation is expected to remain low in the current fiscal 2016 year and below the target of 6 percent despite a rising trend in the last seven months.
The State Bank of Pakistan (SBP), which last year cut its rate by 300 basis points, added in a statement from May 21 that inflation in fiscal 2017, which begins July 1, would reach a "higher plateau" as demand was picking up, higher global oil prices will be passed on to consumer prices and higher taxes, electricity and gas tariffs, if realized, would put upward pressure on inflation.
Pakistan's inflation rate rose to 4.17 percent in April from 3.94 percent in March and 1.61 percent in January with core inflation also following a rising trend, "indicating a buildup of underlying inflationary tendencies."
Core inflation eased to 4.4 percent in April from 4.7 percent in March but was up from a recent low of 3.4 percent in October last year.
In April the SBP forecast average inflation in FY16 of 3-4 percent.
Economic growth in Pakistan in the current fiscal year is set to exceed the FY15 growth of 4.2 percent but below the target of 5.5 percent, the SBP said, adding the current account deficit was likely to shrink to the previous year's level of around 1 percent of Gross Domestic Product and foreign exchange reserves were projected to continue to rise.
The State Bank of Pakistan issued the following statement:
|MAY 23 - MAY 28, 2016:|
|COUNTRY||DATE||RATE||LATEST||YTD||1 YR AGO||MSCI|
|TRINIDAD & TOBAGO||27-May||4.75%||0||100||3.75%|