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Angola cuts rate 50 bps, inflation seen declining further

July 28, 2014 by CentralBankNews   Comments (0)

    Angola's central bank cut its basic interest rate, the BNA rate, by 50 basis points to 8.75 percent to stimulate further credit to the economy as it expects the downward trend in inflation to continue.
    It is the first rate cut by the National Bank of Angola (BNA) since November 2013 and the central bank also reduced the rate on its standing lending facility by 25 basis points to 9.75 percent while the rate for absorbing liquidity was maintained at 1.75 percent.
    In May the BNA raised the liquidity absorption rate for the second time this year for a total increase of 50 basis points while it cut the lending facility rate by 25 points.
    Angola's inflation rate eased to 6.89 percent in June, continuing its decline since October 2010  when it topped 16 percent. Since August 2012 inflation has been below 10 percent, a long-standing aim of the central bank.
    Earlier this month the International Monetary Fund (IMF) forecast that Angola's inflation rate would rise to 7.5 percent by the end of the year due to the one-off effects on new tariffs on imports before continuing the downtrend through 2015 and beyond.
    The growth of Angola's economy is expected to ease to 3.9 percent this year as the expansion in agriculture slows from last year and due to a temporary drop in oil production in the first half.

    For 2015 growth is forecast by the IMF to accelerate to 5.9 percent as oil production recovers and non-oil economic activity remains robust.
    Angola's government has targeted economic growth this year of 5 to 7 percent after 7.4 percent growth last year, up from 5.2 percent in 2012.
    Credit to the economy rose to 3.153 billion kwanza in June, an annual increase of 14.56 percent while commercial banks acquired currency worth US$ 3.869 billion, including $2.680 at the BNA, an increase of 58 percent from the previous month, the central bank said.
    In the first six months of the year, total sales in the foreign exchange market rose 36 percent to $16.54 billion and the average exchange rate of the kwanza in June was 97.82 per dollar, an appreciation of 0.08 percent from May.



An International Monetary Fund (IMF) mission led by Ricardo Velloso, visited Luanda from July 1–14, 2014, to conduct discussions for the 2014 Article IV consultation.[1]
The mission met with Finance Minister Armando Manuel, Economy Minister Abrahão Gourgel, Commerce Minister Rosa Pacavira, Agriculture Minister Pedro Canga, Social Integration Minister João Baptista Kussumua, Construction Minister Waldemar Pires Alexandre, Petroleum Minister Botelho Vasconcelos, Central Bank Governor José Massano, as well as other senior officials of the executive branch. The mission also met with members of the Economic and Finance Commission of the National Assembly, and representatives from the financial sector, the non-financial private sector, and the state-owned oil company Sonangol, religious and non-governmental organizations, and the diplomatic community. At the conclusion of the mission, Mr. Velloso, the IMF Mission Chief for Angola, issued the following statement:
“The IMF staff mission held productive discussions with the Angolan authorities focusing on recent economic developments and the outlook for the economy in the near and medium term, as well as on the policies and structural reforms to maintain macroeconomic and financial stability, diversify the economy, promote inclusive growth, and alleviate poverty.
“Real Gross Domestic Product (GDP) growth in 2014 is projected to moderate to 3.9 percent as the expansion in agricultural output slows—from last year’s estimated high growth—and because of a temporary drop in oil production during the first half of the year. 

For 2015, real GDP growth is projected to accelerate to 5.9 percent as non-oil real GDP growth remains robust and oil production recovers. 

Annual inflation has continued to trend down faster than expected and fell below 7 percent in May-June 2014. Inflation by the end of 2014 is projected to rise to 7½ percent because of the one-off effect on prices of the new import tariff schedule, before continuing to trend down through 2015 and beyond.

 Central bank gross international reserves stood at the end of May 2014 at a comfortable US$ 31.2 billion.
“The fiscal expansion being implemented under the 2014 budget is taking place at a time of softening oil revenue that has led to a significant deterioration in the overall fiscal balance. A more cautious fiscal stance seems warranted to limit rising gross financing needs and save part of the oil wealth for future generations. Accommodating the authorities’ ambitious capital expenditure program will require a stronger domestic revenue effort, restraining the growth of current spending, and improving public investment efficiency.
“Maintaining fiscal and monetary policy buffers to protect against a downturn in oil revenue remains critical. In this context it will be important to develop an oil stabilization fund, with clear deposit and withdrawal rules, and improve coordination in the management of Angola’s public financial assets and liabilities.
“The authorities’ emphasis on addressing the country’s infrastructure deficit is well placed, but this should be completed by accelerating structural reforms to strengthen the business environment and facilitate growth. While the recent increase in import tariffs is expected to boost domestic production, it will be important to review periodically and withdraw this increased protection before vested interests become entrenched.
“Continued successful de-dollarization will depend on appropriate macroeconomic policies and market incentives. Key elements will be the expected further decline in inflation and increased use of the local market for government bonds to further develop kwanza denominated debt instruments.
“Angola has been strengthening financial sector governance, and it will be important to continue ongoing efforts to further strengthen bank supervision.
“The collection and dissemination of economic data and information is essential to business development and needs to be given high priority. Providing Instituto Nacional de Estatística (INE) with adequate resources and autonomy to carry out its mandate will be important.
“The IMF staff team thanks the Angolan authorities for their cooperation and for the arrangements made to facilitate the mission’s work in Luanda.”

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Israel cuts rate 25 bps on low inflation, high FX rate, Gaza

July 28, 2014 by CentralBankNews   Comments (0)

    Israel's central bank cut its benchmark interest rate by 25 basis points to 0.50 percent due to inflation falling below its target, further strength in the shekel's exchange rate and to counter an expected hit to economic activity from nearly three weeks of fighting in Gaza.

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This week in monetary policy: Israel, Angola, United States, Albania, Fiji, Philippines, Czech Republic and Colombia

July 28, 2014 by CentralBankNews   Comments (0)

    This week (July 28 - August 1) eight central banks will decide on monetary policy, including the countries of Israel, Angola, United States, Albania, Fiji, the Philippines, the Czech Republic and Colombia.
    Following table includes name of the country, its MSCI classification, the date the policy decision will be announced, the current policy rate, and the rate one year ago.

ISRAEL DM 28-Jul 0.75% 1.25%
ANGOLA 28-Jul 9.25% 10.00%
UNITED STATES DM 30-Jul 0.25% 0.25%
ALBANIA 30-Jul 2.50% 3.50%
FIJI  31-Jul 0.50% 0.50%
PHILIPPINES EM 31-Jul 3.50% 3.50%
CZECH REPUBLIC EM 31-Jul 0.05% 0.05%
COLOMBIA EM 31-Jul 4.00% 3.25%

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Monetary Policy Week in Review – Jul 21-25, 2014: Central banks continue to prepare for shift in Fed policy

July 28, 2014 by CentralBankNews   Comments (0)

    Central banks are continuing to position themselves to weather the fallout from the coming shift in U.S. monetary policy, with Hungary, Nigeria and Russia’s last week citing the need to maintain tight policy in light of the risks they will face from higher U.S. interest rates.
   The strong reaction of global financial markets to news last summer that the Fed was likely to start wrapping up five years of quantitative easing – an episode now known as “taper tantrum” – is still seared in the memory of policymakers who are eager to avoid a repeat.
    With the Fed’s third round of asset purchases set to conclude in November and the first rate rise expected in mid-2015, emerging market central banks want to ensure that they can offer attractive rates of return that reflect their inflation rates and the risk of exchange rate depreciation.
    Russia’s central bank, which last week surprised markets by raising its rate by 50 basis points, pointed to the growing likelihood of an acceleration in inflation from what it described as “negative trends,” including “adjustments in the monetary policy of foreign central banks and the potential impact of those factors on the national currency exchange rate.”
    Nigeria’s central bank, which maintained rates as expected, referred to “pressure points” that include the implications of the Fed’s tapering of quantitative easing on capital inflows and reserves.
    Hungary’s central bank, which said a two-year cycle of rate cuts had now come to an end, cited the need for “a cautious approach” to policy due to the uncertainty about the future global financial environment.
    New Zealand’s central bank also called for a pause after four consecutive rate rises to assess the impact of its tighter policy on the economy. But this move was widely expected due to the continued strength of its currency despite lower commodity prices.

    Meanwhile, policymakers are continuing to digest and discuss the implications of last month’s annual report by the Bank for International Settlements (BIS), which called attention to the growing risks from the build-up of debt, not only in advanced economies but also in emerging markets.
    The latest occasion was on Thursday, when Olivier Blanchard, economic counsellor and head of research at the International Monetary Fund (IMF), said he was less worried about the consequence of excessive risk taking in a low-yield environment than the BIS.
    Speaking to the press in connection with the update to the World Economic Outlook, Blanchard agreed that valuations in some financial markets were fairly optimistic but argued that because the leverage of some “principal actors” was not high, the impact of a fall in stock prices “would not be catastrophic in the sense of leading to bankruptcies of financial actors.”
    Naturally, that sounds comforting. The only problem is that economic history never repeats itself.  
    While leverage by major banks and investors worsened the 2007-2009 financial crises, the financial industry has changed since then and major flows of capital across borders are now in the form of portfolio flows rather than banking sector flows.
   “It does not follow that future bouts of market disruptions must follow the same mechanism as in the past,” the new economic adviser to the BIS, Hyun Song Shin, told central bankers at the BIS annual meeting on June 29 in Basel, Switzerland.
    Long-term investors may now respond to the same forces that leveraged players reacted to in the past.
    There is a higher proportion of investors with short-term time horizons in emerging market debt instruments that can amplify any shocks when global conditions deteriorate, said Shin, who has coined this “the second phase of global liquidity.”

    Through the first 30 weeks of the year, the 90 central banks followed by Central Bank News have raised their policy rates 30 times, or 10.6 percent of all decisions, up from 9.3 percent of decisions by the end of the first half and 8.7 percent at the end of the first quarter.
    Meanwhile, central banks have cut rates 37 times this year, or 13.1 percent of all decisions, up from 12.1 percent at the end of June and 11.9 percent at the end of the first quarter.
    Central banks are thus continuing to push down policy rates to support economic activity but the trend toward higher rates is unmistakable.
    Boosted by this week’s two rate rises, the global monetary policy rate (GMPR), the average nominal rate of the 90 central banks, rose to 5.55 percent from 5.53 percent at the end of June and 5.53 percent at the end of the first quarter and 5.41 percent end-2013.




COUNTRY MSCI      NEW RATE            OLD RATE         1 YEAR AGO
NIGERIA FM 12.00% 12.00% 12.00%
HUNGARY EM 2.10% 2.30% 4.00%
NEW ZEALAND DM 3.50% 3.25% 2.50%
RUSSIA EM 8.00% 7.50% 8.25%
TRINIDAD AND TOBAGO 2.75% 2.75% 2.75%
BANGLADESH FM 7.75% 7.75% 7.75%
    This week (Week 31) eight central banks will decide on monetary policy, comprising the countries of Israel, Angola, United States, Albania, Fiji, the Philippines, the Czech Republic and Colombia.

ISRAEL DM 28-Jul 0.75% 1.25%
ANGOLA 28-Jul 9.25% 10.00%
UNITED STATES DM 30-Jul 0.25% 0.25%
ALBANIA 30-Jul 2.50% 3.50%
FIJI  31-Jul 0.50% 0.50%
PHILIPPINES EM 31-Jul 3.50% 3.50%
CZECH REPUBLIC EM 31-Jul 0.05% 0.05%
COLOMBIA EM 31-Jul 4.00% 3.25%


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Trinidad holds rate, to manage inflation expectations

July 25, 2014 by CentralBankNews   Comments (0)

    Trinidad and Tobago's central bank maintained its benchmark repo rate at 2.75 percent to support the economy, but said it was "giving greater considerations to managing inflationary expectations in calibrating its monetary policy instruments" as the pace of economic activity strengthens.
    The Central Bank of Trinidad and Tobago, which has kept its rate steady since September 2012, said core inflation was relatively stable in the first half of the year, but "rising consumer demand, higher government spending and second round effects from the recent increase in cement prices could help accelerate inflationary pressure later in the year."
    Trinidad's headline inflation rate slowed to 3.0 percent in June from 3.08 percent in May while core inflation was 2.5 percent and food inflation eased for the third consecutive month to 3.5 percent.
    Trinidad's corporate sector is cautiously optimistic in its outlook, with the central banks survey in the second quarter showing almost 80 percent of firms expecting to raise production in the next six months and more firms were confident that the local economy would improve over the next 12 months compared with the previous survey.

    A recovery in business lending and steady growth in consumer loans are supporting the positive business sentiment, with private sector credit up by more than 6.5 percent in May, the fastest rate since February 2009. Business lending grew for the fourth consecutive months, also by around 6.5 percent in May, while consumer lending grew by around 7.5 percent in May.



 The Central Bank has made its most recent intervention into the domestic foreign exchange market, pumping US$100 million into the system yesterday. 
In a release yesterday, the bank said this latest intervention was timed to offset anticipated lower inflows into the foreign exchange market in the coming weeks as a result of expected lower conversions by energy companies and to alleviate demand pressures ahead of the busy travel season. 
In June 2014 there was an excess of US$90 million in the banking system as the supply of foreign exchange exceeded demand. Supply was strong, as energy companies converted US$483 million to meet their quarterly tax obligations; Central Bank had also injected US$80 million into the system. 
In June, the highly liquid foreign exchange market resulted in the selling rate by banks to consumers falling almost ten cents, from $6.45 to US$1, to $6.35 to US$1—the lowest level in four years. For the first six months of 2014, the Central Bank sold $US690 million to the financial system, or equivalent to one-fifth of the total supply of foreign exchange to the market. With yesterday’s intervention, the total sales of foreign exchange by the Central Bank to the banking system amounts to US$790 million for the year to date.
The bank continues to monitor conditions in the domestic foreign exchange market, and will take further action, if necessary, the release said.

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Central Bank News Link List - July 25, 2014 - Brazil central bank reduces bank reserve requirements

July 25, 2014 by CentralBankNews   Comments (0)

Here's today's Central Bank News' link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don't miss any important news.

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Russia raises rate 50 bps and will raise more if needed

July 25, 2014 by CentralBankNews   Comments (0)

    Russia's central bank raised its key interest rate by 50 basis points to 8.0 percent to reduce inflation and pledged it would raise rates further if inflation expectations remain heightened and inflation threatens to exceed its target in coming years.
    The Bank of Russia, which adopted an inflation-targeting regime on Feb. 1, has now raised its rate three times this year by a total of 250 basis points following rate rises in March and April.
    Russia's headline inflation rate accelerated further in June to 7.8 percent, the fifth month in a row of rising prices, with inflationary risks continuing to build due to "the aggrevation of geopolitical tension and its potential impact on the ruble exchange rates dynamics, as well as potential changes in tax and tariff policy," the central bank said, adding:
    "The build-up of these risks will lead to inflation expectations remaining heightened and creates threats of inflation exceeding the target in the coming years. The adopted decision is aimed at slowing the consumer price growth to the 4.0% target level in the medium term. If high inflation risks persist, the Bank of Russia will continue raising the key rate."

    Economists had expected the central bank to maintain its rates today.
    However, at its meeting in June when it maintained rates, the bank warned it would raise rates if its inflation target was threatened by a further decline in the ruble's exchange rate, higher food prices, administered prices or inflation expectations.
    The central bank targets inflation of 5.0 percent this year, 4.5 percent in 2015 and 4.0 percent in 2016. It averaged 6.8 percent in 2013.
    In addition to its key rate, the Bank of Russia also raised other main rates, including the 1-day repo rate that was increased to 9.0 percent from 8.50 percent, effective July 28, along with the 3-month liquidity provision rate that was raised to 8.25 percent from 7.75 percent. Liquidity absorption rates were also raised, with the 1-day rate up to 7.0 percent from 6.50 percent.
    After tumbling in the first few months in response to the growing tensions with Ukraine and a general shift of global capital away from emerging markets, the ruble started to gain strength after the central bank's 150 basis point rate rise on March 3 in response to a plunge in Russia's stock market and a sharp fall in the ruble.
    Another 50 point rate hike in April supported the ruble further, but since late June the ruble has again been depreciating and was trading around 35 to the U.S. dollar today, down from 33.7 on June 29. Since the beginning of the year, the ruble has lost 6 percent.
    In the week through July 18, Russia's international reserves fell $4.2 billion to $472.5 billion.
    "The main reason for inflation acceleration was the effect of the observed ruble depreciation on prices of a wide range of goods and services," the central bank said about June inflation.
    Although inflation slowed to an estimated 7.5 percent as of July 21 from June's 7.8 percent due to a decreasing impact of the January-March decline in the ruble along with lower food prices from the new harvest, the central bank said the deceleration in inflation was slower than expected and inflation expectations have remained elevated.
    Assuming there are no further negative shocks, the central bank expects inflation to decline in the second half of the year to between 6.0 and 6.5 percent by the end of 2014 and then fall further toward the bank's 4.0 percent target in the medium term.
    "At the same time, there is an increased probability of negative trends which may result in inflation acceleration," the central bank said, adding:
    "These shocks include aggregation of geopolitical tension, adjustments in the monetary policy of foreign central banks and the potential impact of those factors on national currency exchange rate dynamics, tax and tariff policy changes under discussion."
    Russia's economy contracted in the first quarter of this year with Gross Domestic Product shrinking by 0.3 percent from the previous quarter but the central bank said it recovered moderately in the second quarter with GDP growth of close to zero.
    The government has forecast a 0.5 percent economic expansion this year after 1.3 percent in 2013, with international sanctions due to Russia's conflict with Ukraine and the tighter monetary conditions impacting lending growth and economic activity, including consumer demand.
    Low economic growth is mainly due to structural factors, with sluggish growth in labor productivity and a shortage of labour affecting growth in the long term, the bank said.
    "Along with structural factors, external political uncertainty has a negative impact on economic activity. Investment demand remains weak amid low business confidence, limited access to long-term financing both international and domestic markets, and declining profits in the real sector," the bank said.


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Central Bank News Link List - July 24, 2014 - IMF cuts global growth outlook, warns of stagnation risk

July 24, 2014 by CentralBankNews   Comments (0)

Here's today's Central Bank News' link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don't miss any important news.

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New Zealand raises rate for 4th time but will now pause

July 23, 2014 by CentralBankNews   Comments (0)

    New Zealand's central bank raised its policy rate for the fourth time in a row but signaled that it would keep rates on hold for a while, saying it was "prudent that there now be a period of assessment before interest rates adjust further towards a more-neutral level."

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