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Moldova holds rate, still sees inflation above range

March 26, 2015 by CentralBankNews   Comments (0)

    Moldova's central bank maintained its base rate at 13.5 percent, confirming that it still expects the depreciation of the leu currency to increase inflationary pressures, causing inflation to temporarily breach its upper target range of 5.0 percent, plus/minus 1.5 percentage points.
   The National Bank of Moldova, which raised its rate by 500 basis points at an extraordinary board meeting on Feb. 17, added that its policy stance was still affected by weak economic activity in the euro area along with the recession in its main trading partner of Russia, which leads to the risk of lower foreign income that may influence the exchange rate and thus inflation.
   "The escalation of geopolitical tension in the region could result in additional inflationary pressures," the central bank said.
    The leu currency tumbled by 16.5 percent against the U.S. dollar in 2014 and continued to fall until the middle of March. Since then it has appreciated, trading at 4.07 to the dollar today, down 9 percent since the start of the year.
   The annual inflation rate of Moldova - a former Soviet state located between Romania to the west and Ukraine to the north, south and east - jumped to 6.5 percent in February from 4.7 percent in January and December, mainly due to higher food prices. The core inflation rate rose by 3.2 percentage points to 10.2 percent in February, the bank said.
    Moldova's Gross Domestic Product expanded by 4.6 percent in 2014, sharply down from 8.9 percent in 2013 due to a modest contribution from agriculture and the deterioration of economic activity in Russia and the imposition of its embargo.
    The depreciation of the leu helped support growth last year along with the export facilities offered by the European Union that helped offset some of the restrictions imposed by Russia, the bank said.

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Mexico maintains rate as risks to growth deteriorate

March 26, 2015 by CentralBankNews   Comments (0)

    Mexico's central bank maintained its benchmark overnight rate at 3.0 percent, as expected, saying the balance of risks to inflation and global economic growth have remained unchanged since January while the balance of risks to the country's economic growth had deteriorated.
    The Bank of Mexico, which cut its rate by 50 basis points in June 2014, said expectations for inflation in 2015 had declined although the effect of the peso's depreciation has been as expected without generating second-order effects. Medium and long-term inflation expectations remain anchored around the central bank's 3.0 percent target.
    Headline inflation in the first half of March eased slightly to 2.97 percent from February's 3.0 percent and the central bank reiterated from its most recently quarterly report that inflation will remain close to 3.0 percent in coming months and end the year slightly below that level. By 2016 headline inflation is also expected to remain close to 3 percent.
     Economic activity in Mexico has been "somewhat weak," the central bank said, noting a slowdown in exports due to slower growth in U.S. manufacturing at the beginning of the year along with slower oil production which has impacted industrial production.

    The Bank of Mexico issued the following statement (translation by Google):

"The Governing Board of the Bank of Mexico has decided to maintain the 3.0 percent target for the overnight interbank interest rate to one day.
The world economy has continued to show weak performance, although recently the decline in international oil prices could mean a net support for global growth, mainly for advanced economies. In the United States the dynamism of the economy slowed in the first months of the year, reflecting in part from temporary factors, but also because of the widespread appreciation of the dollar. The labor market continues to recover, although not yet observed wage pressures. Inflation remains at a level well below the goal of the Federal Reserve, but the expectations are that gradually return to a gradual upward trend toward said target. This institution has reiterated that future monetary policy actions depend on the evolution of economic activity, labor market and inflation. In its last meeting, the market perception is that the initial upward in the federal funds rate movement may be delayed with respect to the provisions so far. In the euro area at the beginning of March, the European Central Bank deepened its accommodative monetary stance, to start mass purchase securities, including government. While the margin has improved the performance of economic activity and inflation in that area, the possibility of deflation has not disappeared. In emerging economies, in an environment of high volatility, growth prospects have been revised downwards and prevails the risk that the recent slowdown intensified by the possibility that conditions in the financial markets become more stringent. In sum, the balance of risks for the growth of the world economy and for inflation remain unchanged from the previous meeting.

The expectation tightening of monetary policy in the United States sometime this year, combined with the current looser stance in the euro area and Japan, resulted in an increase in volatility in international financial markets in recent weeks. This manifested itself in additional depreciation of most currencies against the US dollar, including the Mexican peso. This latter phenomenon, under the vigilance of the authorities, has been reflected in increases in interest rates in Mexico to all terms. While these adjustments eased after the most recent announcement of monetary policy of the Federal Reserve can not be excluded a further increase in international volatility and that this has effects on the peso, especially given the uncertainty about the start of the normalization monetary stance in the United States. Therefore, it is of great importance that a sound macroeconomic framework is maintained in our country, both fiscally and monetarily.

Economic activity in Mexico has had a somewhat weak performance. Exports registered a slowdown at the beginning of the year, mainly due to a moderation in the pace of growth of manufacturing activity in the United States. Additionally, continues with a reduction in oil production platform, which has contributed to slower growth in industrial production. For its part, investment continues to present a moderate recovery, while some of the most relevant indicators related to consumption continue to show little effect. In this environment, conditions prevail slack in the labor market and the economy in general, so that no generalized price pressures from aggregate demand are anticipated. Given the above, it is considered that the balance of risks to growth has deteriorated.

The evolution of inflation during 2015 was favorable, reaching 3 percent in February and 2.97 percent in the first half of March. This is because increases in the prices of goods and services in the core component have been lower than in previous years and declines in the prices of some items of non-core component. So far, the effect of the depreciation of the domestic currency price has been as planned, reflected mainly in the prices of tradable goods, without having generated second-order effects. In line with this, inflation expectations for the end of 2015 have declined, while those for horizons of medium and long term remain anchored.

As noted in the most recent quarterly report, it is expected that annual headline inflation will remain close to 3 percent in the coming months and will close the year slightly below that level. Regarding core inflation is expected to continue below 3 percent throughout the year. By 2016, it is estimated that both overall and core inflation remain at levels close to 3 percent. Naturally, this forecast is subject to risks. On the upside, you can not rule out the possibility that the value of the national currency recorded episodes of additional depreciation and other supply shocks arising. On the downside, there is the possibility that economic activity in the country has a lower growth and further declines in the prices of telecommunication services and / or energy. In short, it is estimated that the balance of risks for inflation remains unchanged from the previous monetary policy decision.

Considering the above, the Governing Board has decided to maintain 3 percent target rate for overnight interbank interest under that estimates the current monetary stance is conducive to strengthen the convergence of inflation to the permanent target of 3 percent.
Currently, cyclical economic conditions show weakness, actual inflation is below target and inflation expectations are anchored. On the other hand, being highly integrated into the overall Mexican economy, particularly the United States, monetary policy actions in Nicaragua could have an impact on the exchange rate, inflation expectations and therefore on the dynamics of prices in Mexico. Therefore, the Board of Governors will remain attentive to the evolution of all the determinants of inflation and expectations for a medium- and long-term, but particularly on the monetary stance between Mexico and the United States, and the performance of the type exchange. He also will monitor the evolution of the degree of slack in the economy. All this in order to be able to take the necessary steps to ensure convergence of inflation target of 3 percent in 2015 and consolidate measures."

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South Africa holds rate, but inflation outlook deteriorates

March 26, 2015 by CentralBankNews   Comments (0)

     South Africa's central bank maintained its benchmark repurchase rate at 5.75 percent, as expected, but said a deteriorating outlook for inflation meant the current scope for pausing before returning to the path of tightening monetary policy had narrowed.
    The South African Reserve Bank (SARB), which raised its rate by 75 basis points in 2014 to curb inflationary pressures, said the respite to the outlook for inflation from lower international oil prices "appears to have been short-livid," but the policy rate had been maintained today given the uncertainties related to the normalization of U.S. monetary policy and the weak state of the economy.
    "The timing of future interest rate increases will be dependent, as before, on a range of domestic and external factors," Lesetja Kganyago, SARB governor said, adding that he would not hesitate to act to maintain the integrity of the inflation target.
    SARB raised its inflation forecast for 2015 to 4.8 percent from a previous 3.8 percent, with a temporary breach of the 3-6 percent target seen in the first quarter of 2016 due to base effects.
    In the first quarter of 2016 inflation is seen hitting 6.7 percent, but then averaging 5.9 percent for the year, up from the previous forecast of 5.4 percent.
    "The rand exchange rate continues to be the main upside risk to the inflation outlook," Kganyago said, noting the extent to which higher U.S. interest rates are priced into the current exchange rate remains uncertain.
    Since the previous meeting by the central bank's policy committee in November last year, the rand has depreciated about 2 percent against the dollar, but since mid-March the rand has firmed. Today it was trading at 11.9 to the dollar, down 2.8 percent since the start of the year.
    South Africa's consumer price inflation rate eased to 3.9 percent in February from 4.4 percent in January.

   The South African Reserve Bank issued the following statement:

"Issued by Lesetja Kganyago, Governor of the South African Reserve Bank

Since the previous meeting of the Monetary Policy Committee the near-term inflation outlook has deteriorated with the partial reversal of the recent petrol price declines, emerging upside pressures on food and possible further electricity tariff increases. The rand exchange rate has depreciated further, adding to upside inflation risks, against the backdrop of the expected, but uncertain, tightening of US monetary policy. The domestic economy, however, remains weak amid electricity supply constraints, and relatively subdued domestic demand.
The year-on-year inflation rate as measured by the consumer price index (CPI) for all urban areas measured 4,4 per cent and 3,9 per cent in January and February respectively. The lower trend in inflation was mainly due to lower petrol prices, but recent oil price and exchange rate developments suggest that this is likely to be the low point for the medium term inflation trajectory. The February outcome was marginally above market consensus and the Bank’s forecast of 3,8 per cent, partly as a result of higher than expected health insurance price inflation of 9,6 per cent.
Petrol prices declined by 26,6 per cent in February, while food price inflation measured 6,5 per cent in February, down from 6,6 per cent in January. By contrast, core inflation, which excludes food, petrol and electricity, remained near the upper end of the inflation target range, having measured 5,8 per cent in both January and February.
The favourable impact of the lower oil price was also evident in the headline producer price inflation for final manufactured goods, which measured 3,5 per cent and 2,6 per cent in January and February respectively compared with 6,5 per cent and 5,8 per cent in the preceding two months. The downward trend is also expected to reverse in the face of adverse fuel and food price developments.

According to the Bank’s latest forecasts, inflation is now expected to average 4,8 per cent in 2015, compared with the previous forecast of 3,8 per cent. A first quarter average of 4,2 per cent is now projected as the low point, compared with 3,5 per cent previously. The strong base effects in the first quarter of 2016 are expected to result in a temporary one-quarter breach of the inflation target during that quarter, at 6,7 per cent, with the average for the year expected to measure 5,9 per cent compared with 5,4 per cent previously. Inflation is expected to average 5,5 per cent in the final quarter of the year, compared with the previous forecast of 5,3 per cent.

The forecast for core inflation is more or less unchanged at 5,5 per cent and 5,2 per cent in 2015 and 2016 respectively, the latter up marginally from 5,1 per cent. The peak is still expected at 5,8 per cent in the first quarter of 2015. The deterioration in the headline forecast is due to an expected acceleration in food price inflation, and the impact of the higher fuel and Road Accident Fund levies on the petrol price, due to be implemented in April. This is in addition to the current under-recovery on the petrol price. The international oil price assumption remains unchanged from the previous meeting, with a moderate increase over the next two years. The electricity price assumption is also unchanged, with increases of 11,6 per cent assumed from July 2015 and July 2016. However, there is a high possibility of significant further electricity tariff increases.

Inflation expectations, as reflected in the Bureau for Economic Research (BER) survey conducted in the first quarter of 2015, improved for all respondents for 2015, but returned to levels around the upper end of the target range in the next two years. On average, expectations for 2015 declined from 5,8 per cent to 5,4 per cent, with a one percentage point decline in the expectations of analysts to 4,4 per cent, and a 0,2 percentage point decline in expectations of business people and trade union officials to 6,0 per cent and 5,7 per cent respectively. However, expectations for 2016 and 2017 are higher, with expectations of the categories of respondents ranging between 5,6 per cent and 6,2 per cent in 2016, and between 5,3 per cent and 6,3 per cent in 2017.

The global economic outlook remains uncertain, with a moderate slowdown in the US and China, and an improvement in the outlook and performance of the euro area and Japan. The US grew at a rate of 2,2 per cent in the fourth quarter of 2014, down from 5,0 per cent in the previous quarter, as the stronger dollar impacted negatively on export growth and investment. Nevertheless, the longer term growth outlook remains positive. By contrast, the weaker euro and accommodative ECB monetary policy have contributed to improved growth prospects in the region, particularly in the core countries. In the fourth quarter of 2014, euro area growth surprised on the upside at 1,3 per cent and ECB forecasts for 2015 have been revised upwards by 0,5 percentage points to 1,5 per cent. The Japanese economy emerged from two quarters of negative growth, recording a growth rate of 1,5 per cent in the fourth quarter.

The larger emerging markets continued to be a drag on global growth. China’s economic prospects remain relatively subdued with most domestic demand indicators weakening since the beginning of the year. Consensus forecasts are for both Russia and Brazil to record negative growth rates in 2015. The outlook for the Indian economy, by contrast, is more positive.

Global financial markets continue to be dominated by changing expectations of the timing and speed of normalisation of US monetary policy. Favourable labour market data in the past weeks in the US resulted in a strong appreciation of the US dollar against most currencies, as expectations of the start of policy tightening were brought forward. However, these expectations were tempered following the March FOMC meeting where the growth and inflation forecasts were downgraded. Uncertainty persists regarding the timing of the first interest rate increase. The FOMC has not only re-emphasised the gradual nature of the expected path of interest rates, but the members’ individual expectations of the interest rate path were also revised down significantly. In response to this guidance, the dollar weakened somewhat against most currencies.

While the US prepares to tighten monetary policy, the global trend has generally been towards policy easing or maintaining an accommodative bias. Both Japan and the euro area have continued with their quantitative easing while a number of countries have eased their policy further, amid benign inflation pressures and concerns about deflation in some countries.
The volatile global trends were reflected in the high degree of volatility in the rand/dollar exchange rate. Since the previous MPC meeting, the rand depreciated by about two per cent against the US dollar, but traded in a wide band of around R11,27 and R12,52 against the dollar, with a marked recovery after the recent FOMC meeting. Over the same period, the rand was more or less unchanged against the euro. On a trade-weighted basis, the rand depreciated by 0,7 per cent. Although the rand movement reflected US dollar strength to a large degree, the rand was also negatively impacted by domestic factors including the weak January trade data, and issues relating to Eskom and the domestic growth outlook.

The rand is expected to remain volatile while uncertainty regarding the outlook for US monetary policy persists. The commencement of US interest rate increases, when it happens, is expected to put the currency under pressure. The rand is also expected to remain sensitive to developments on the current account of the balance of payments. The marked narrowing of the trade account in the fourth quarter, reflective of higher export volumes and lower import volumes, contributed to the narrowing of the deficit to 5,1 per cent of GDP in that quarter, and to 5,4 per cent for the year. At this stage it is unclear whether or not this represents the beginning of a sustained compression of the current account, after a long period of real exchange rate depreciation. While lower international oil prices are expected to continue to impact favourably on the import bill, as oil imports account for just under 20 per cent of merchandise imports, the wide trade deficit in January, should it persist, suggests that the adjustment may remain slow.

Although the current account deficit to date has been relatively comfortably financed, the global capital flow environment is increasingly challenging, particularly against the backdrop of expected increases in US interest rates. During the fourth quarter of 2014, the deficit was financed primarily through flows into the banking sector. Year to date, net sales of bonds and equities by non-residents as reported by the exchanges, suggest that net portfolio flows on the financial account of the balance of payments in the first quarter may be negative for the second consecutive quarter.

The outlook for the domestic economy remains overshadowed by the electricity supply constraint, which appears to have had an adverse effect on recent economic activity. This constraint is likely to persist for some time, and has resulted in a downward revision of short-term potential output to between 2,0 and 2,5 per cent. Nevertheless, some improvement on the 2014 growth rate of 1,5 per cent is expected in 2015, in the absence of protracted work stoppages. The Bank’s growth forecast for 2015 is unchanged at 2,2 per cent, and marginally lower at 2,3 per cent for 2016. The Bank’s leading indicator of economic activity, which had followed a moderately declining trend in 2014, also suggests a continuation of the sluggish growth outlook.

Underlying this outlook is the continued weakness in growth of gross fixed capital formation, which contracted by 0,4 per cent during 2014, with private sector fixed investment contracting by 3,4 per cent, despite some recovery in the final quarter of the year. The main contribution to fixed capital formation came from general government, which accounts for a relatively small proportion of the total. With business confidence subdued, and amid binding electricity supply constraints, the prospects for a meaningful acceleration remain weak.
Initial high frequency data for 2015 are also a cause for concern, should the trends persist. Both real mining and manufacturing output contracted on a month-on-month basis in January; the Kagiso PMI declined sharply to below the neutral 50 level in February; the RMB/BER business confidence index declined to below the neutral 50 level in the first quarter of 2015 to 49 points, with the decline most marked in the manufacturing sector; and the building sector also shows signs of slowing, with both buildings completed and new plans passed declining, along with lower confidence in the sector, particularly with respect to residential construction.

Against this backdrop, employment growth has stagnated and likely to remain low: according to the Quarterly Employment Statistics of Statistics South Africa, formal sector non-agricultural employment contracted by 0,2 per cent over four quarters in the final quarter of 2014, with growth in public sector employment more than offset by job-shedding in the private sector.

Growth in final consumption expenditure by households increased marginally to an annualised quarterly rate of 1,6 per cent in the fourth quarter of 2014, and measured 1,4 per cent over the year. Both retail trade and wholesale trade sales declined on a month-to-month basis in January, and the outlook remains uncertain as the potential boost to consumption from lower petrol prices has been partially reversed. However, confidence of retailers, particularly of durable goods, remains relatively high. High debt levels, low employment growth and continued tight credit conditions are likely to constrain consumption expenditure growth in the absence of strong increases in real disposable incomes or strong positive wealth effects.

Fiscal policy is set to continue on its consolidation path. As outlined in the recent Budget Review, the projected deficit for both 2014/15 and 2015/16 is estimated at 3,9 per cent of GDP, despite lower GDP growth forecasts, and is expected to narrow to 2,5 per cent of GDP by 2017/18. This is envisaged to be achieved through a combination of lower expenditure compared with the 2014 budget estimate and higher tax revenues. This is expected to exert a moderate constraining effect on household consumption expenditure growth.

Trends in bank credit extension to the private sector have remained relatively unchanged, with highly divergent patterns in loans granted to the corporate and household sectors. While growth over twelve months in total loans and advances to the private sector measured 8,3 per cent in January, credit extended to corporates increased by 14,3 per cent while that to households increased by 3,5 per cent. Growth across all the main categories of credit extension to households has remained subdued in recent months, despite a slight increase in unsecured lending off a low base. Both mortgage credit extension and instalment credit and leasing finance reflected slow growth in housing and motor vehicle sales. Commercial mortgages, by contrast, experienced buoyant growth.

The recent higher trend in wage settlements has the potential to put further upside pressure on inflation. Nominal remuneration per worker over four quarters increased by 7,7 per cent in the fourth quarter of 2014, and, after accounting for changes in labour productivity, resulted in a unit labour cost increase of 6,2 per cent, up from 5,7 per cent in the previous quarter. The Andrew Levy Employment Publications survey shows that during 2014, the average wage settlement rate in collective bargaining agreements amounted to 8,1 per cent, compared with 7,9 per cent in 2013. The public sector wage settlement is still not agreed, and the outcome is expected to have an important bearing on the general trend of wage settlements in the economy in 2015.

The recent downward trend in consumer food price inflation is forecast to be reversed in the coming months, following the severe drought in some of the maize producing areas of the country. With drastically reduced maize crop estimates, South Africa is expected to become a net importer of maize during the year, and spot prices have moved closer to import parity. The spot price of white maize, for example, has increased by around 30 per cent since the beginning of the year, reinforced by a depreciating currency and despite moderating global prices. Meat prices have also remained elevated.

International oil prices have been relatively volatile but at vastly lower levels than those prevailing for much of 2014. Having reached a low of around US$45 per barrel in January, Brent crude oil prices increased to around US$62 per barrel at the end of February, before declining to current levels of around US$57 per barrel. The partial recovery in the international oil price, in conjunction with the recent depreciation of the rand against the US dollar, and the impending fuel and RAF levies, will have reversed a large part of the favourable impact on domestic petrol prices, which had declined by about R4 per litre between August 2014 and February 2015.

The respite to the headline inflation outlook from lower international oil prices appears to have been short-lived. However, the expected breach of the target range in 2016 is likely to be temporary and the main drivers of the deterioration of the inflation forecast are exogenous. While the MPC will look through these developments, the Committee remains concerned about the possible impact on inflation expectations which remain at the upper end of the target range over the longer term.

The rand exchange rate continues to be the main upside risk to the inflation outlook, and remains highly vulnerable to the timing and pace of US monetary policy normalisation. The extent to which US rate increases are priced into the exchange rate remains uncertain. While the weaker euro has provided some offset, and therefore a more moderate depreciation of the trade-weighted exchange rate, this effect is partial. Furthermore, the rand will also remain sensitive to domestic developments, including the slow pace of contraction in the deficit on the current account of the balance of payments.

Wage and salary increases in excess of inflation and productivity growth also pose an upside risk to inflation. The Committee assesses the risk to the inflation outlook to be on the upside, with the possibility of further electricity tariff increases accentuating this risk.

At the same time, the growth outlook remains constrained by electricity supply concerns and low business confidence, and the risks to the growth forecast are assessed to be moderately on the downside. Demand pressures on inflation remain muted, reinforced by a moderately tighter fiscal policy stance.

In its previous statement the Committee noted that the more favourable inflation path allowed for some room to pause in the process of domestic monetary policy normalisation. The deterioration in the outlook suggests that this scope has narrowed. However, given the uncertainties related to US policy normalisation and the weak state of the domestic economy, the MPC has unanimously decided to keep the repurchase rate unchanged for now.

The timing of future interest rate increases will be dependent, as before, on a range of domestic and external factors. The MPC will remain vigilant and will not hesitate to act in order to maintain the integrity of the inflation targeting framework."

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Czech maintain rate, FX commitment, as expected

March 26, 2015 by CentralBankNews   Comments (0)

    The Czech National Bank (CNB) maintained its benchmark two-week repo rate at 0.05 percent and reiterated its commitment to intervene in foreign exchange market to keep the koruna currency below 27 to the euro, a decision that was largely expected.
    The central bank for the Czech Republic,  which has been using the exchange rate as an additional tool to ease monetary conditions since November 2013, has seen the koruna firm since mid-January with financial markets seen testing the bank's resolve to maintain its exchange rate cap.
    Last week the koruna hit 27.16 to the euro, the strongest level since November 2013, but since then it has eased slightly to trade around 27.4, still slightly firmer than 27.70 at the start of the year.
    The central bank has on several occasions extended the time frame for maintaining its cap on the koruna's exchange rate, with the cap currently in place until at least the second half of 2016.
    In its February inflation report, the CNB said it expects inflation to be zero or slightly negative this year before rising to its 2.0 percent target in 2016.
    Consumer price inflation was steady at 0.1 percent in February for the third month in a row.

    The Czech National Bank issued the following statement:

"The CNB Bank Board decided at its meeting today to keep interest rates unchanged. The two-week repo rate was maintained at 0.05%, the discount rate at 0.05% and the Lombard rate at 0.25%.
The CNB Bank Board also decided to continue using the exchange rate as an additional instrument for easing the monetary conditions and confirmed the CNB’s commitment to intervene on the foreign exchange market if needed to weaken the koruna so that the exchange rate of the koruna against the euro is kept close to CZK 27/EUR.
The CNB Bank Board repeated that it regards the commitment as one-sided. This means that the CNB will prevent excessive appreciation of the koruna below CZK 27/EUR by intervening on the foreign exchange market, i.e. by selling koruna and buying foreign currency. On the weaker side of the CZK 27 level, the CNB is allowing the koruna exchange rate to float according to supply and demand on the foreign exchange market."

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Fiji maintains rate, sees robust economy in 2015

March 26, 2015 by CentralBankNews   Comments (0)

     Fiji's central bank maintained its Overnight Policy Rate (OPR) at 0.5 percent, saying economic activity is robust - resulting in buoyant credit growth, higher consumption and investment activity - and this trend should persist in 2015.
    The Reserve Bank of Fiji (RBF), which has held its rate steady since November 2011, said this positive economic trend had put some pressure on the balance of payments situation through a larger trade deficit, but stronger tourism and remittance receipts had countered this impact.
    RBF Governor Barry Whiteside noted in his statement that Fiji's reserves had eased slightly to $1.778 billion as of March 25 from $1.806.3 billion as of Feb. 24.
    In its economic statement for February, the RBF forecast that consumption and investment this year would expand in line with the 4.0 percent growth forecast from last year, with new lending for investment purposes more than doubling to $43.1 million in January.
    Fiji's inflation rate rose to 2.1 percent in February from 0.3 percent in January but is expected to remain stable this year given the soft global commodity prices and low inflation in trading partners.

    The Reserve Bank of Fiji issued the following statement:

"The Reserve Bank of Fiji Board at its monthly meeting on 25 March agreed to maintain the Overnight Policy Rate at 0.5 percent.
 In announcing the decision, the Governor and Chairman of the Board, Mr Barry Whiteside stated that economic activity has been robust, driven by strong business confidence and accommodative monetary and fiscal policies.  This has resulted in buoyant credit growth and higher consumption and investment activity.  As expected given that Fiji is a growing open economy, imports have also continued to outpace exports.  Based on recent data, Mr Whiteside highlighted that this trend is expected to persist in 2015.
 Mr Whiteside cautioned that these positive economic outcomes have filtered into some pressure on Fiji’s balance of payments position through a growing trade deficit, although stronger tourism and remittance receipts countered this to a large extent.
Foreign reserves were around $1,778 million on 25 March, sufficient to cover 4.4 months of retained imports of goods and non-factor services.  Inflation was 2.1 percent in February and is expected to remain stable throughout 2015 given the soft global commodity prices (oil and food) and low trading partner inflation.
   The Reserve Bank will continue to monitor domestic and international economic conditions and align its policy decisions accordingly."

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Philippines maintains rate, sees manageable inflation

March 26, 2015 by CentralBankNews   Comments (0)

    The Philippine central bank maintained its key policy rates, including the benchmark overnight borrowing rate at 4.0 percent, as widely expected, saying it considers the inflation environment to be "manageable" and inflation expectations remain within the bank's target band.
   The Bangkok Sentral ng Pilipinas (BSP), which raised its rate by 50 basis points last year to curb inflation expectations, said the latest forecasts see inflation settling within the lower half of its target range of 3.0 percent, plus/minus one percentage point, this year and in 2016.
    Risks to the inflation outlook continue to be broadly balanced, with upside risks from expected rises in utility rates and possible power shortages while the uneven pace of global economic activity will mitigate upward pressure on commodity prices.
    Domestic demand in the Philippines remains robust due to solid private demand, adequate liquidity and buoyant business sentiment while public spending is higher.
    Consumer price inflation rate rose slightly to 2.5 percent in February from 2.4 percent in January while Gross Domestic Product in the fourth quarter rose by 2.5 percent from the third quarter for annual growth of 6.9 percent, up from 5.3 percent.
    Earlier this week Amando Tetangco, BSP governor, said the government's 2015 growth target f 7-8 percent was attainable while inflation should remain within the 2-4 percent range. In 2014 the Philippine economy expanded by 6.1 percent, slightly below the government's 6.5-7.5 percent target.

    Bangkok Sentral ng Pilipinas issued the following statement:

"At its meeting today, the Monetary Board decided to maintain the BSP's key policy rates at 4.00 percent for the overnight borrowing or reverse repurchase (RRP) facility and 6.00 percent for the overnight lending or repurchase (RP) facility.  The interest rates on term RRPs, RPs and special deposit accounts (SDA) were also kept steady. The reserve requirement ratios were left unchanged as well.
The Monetary Board’s decision is based on its assessment that the inflation environment continues to be manageable. Latest baseline forecasts indicate that inflation is likely to settle within the lower half of the target range of 3.0 percent ± 1 percentage point for 2015 and 2016. The forecasts are also supported by well-anchored inflation expectations, which remain within the target band over the policy horizon. The Monetary Board likewise noted that the risks to the inflation outlook continue to be broadly balanced, with upside risks emanating from pending petitions for adjustments in utility rates and possible power shortages. Meanwhile, global economic activity has turned slightly more positive but continues to be uneven, which could further mitigate upward pressures on commodity prices.
At the same time, the Monetary Board observed that domestic demand conditions remain robust, owing to solid private demand, adequate domestic liquidity, and buoyant business sentiment. Higher public spending is also expected to support economic activity.
Given these considerations, the Monetary Board is of the view that current monetary policy settings remain appropriate. Going forward, the BSP will continue to monitor domestic and external developments affecting the inflation outlook to ensure that the monetary policy stance remains consistent with its price and financial stability objectives. "

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Taiwan maintains rate, low oil spurs consumer spending

March 26, 2015 by CentralBankNews   Comments (0)

     Taiwan's central bank maintained its benchmark discount rate at 1.875 percent, as expected, saying the current rate will help maintain price and financial stability while fostering economic growth at a time of continued uncertainties surrounding the global economic recovery.
    The Central Bank of the Republic of China (Taiwan), which has maintained its rates since June 2011, said there was a "temporary softening in inflation expectations" and the government has forecast inflation to reach minus 0.33 percent for the first quarter before picking up gradually and averaging 0.26 percent for the year.
     Taiwan's consumer price inflation rate has been trending downward since September last year and fell to minus 0.19 percent in February for an average of minus 0.56 percent for the first two months.
    The central bank also reiterated its commitment to maintain "an orderly" exchange rate market, saying spillover from monetary easing in the United States, Japan and the euro area has led to "massive and volatile cross-border capital flows" that became a destabilizing force to its markets.
    If such massive inflows or outflows of capital lead to excess volatility or disorderly movements in the Taiwant dollar, the central bank would step into the market.
    Unlike most currencies, the Taiwan dollar has firmed slightly this year against the U.S. dollar, trading at 31.2 to the USD today, up 1.5 percent since the start of the year.
    The central bank noted the government's forecast for 2015 economic growth of 3.78 percent, up from 3.51 percent in 2014, with growth in the first quarter seen at 3.50 percent as the plunge in energy prices has helped bolster private consumption and private investment should pick up.

    The Central Bank of the Republic of China (Taiwan) issued the following statement:

"I. Global economic and financial conditions:
Since the beginning of the year, economic activity in the US has experienced moderate growth and some improvements have been seen in the euro area, whereas Japan's economy has remained lackluster and growth in emerging economies such as China has continued to slow. Global Insight forecast the world economy to expand by 2.9% in 2015, slightly higher than the 2.7% in the previous year. Nevertheless, market expectations of a possible rate hike by the Fed, a strengthening US dollar, expanded monetary easing measures in the euro area and Japan, and increasing volatility in international oil prices and financial asset prices affected the stability of financial markets. As a consequence, uncertainties in the global economy still linger.

II. Domestic economic and financial conditions:
1.Amid modest growth of the global economy, Taiwan's exports grew at a slightly slower pace. However, the plunge in energy prices helped bolster consumer confidence, boosting private consumption. Private investment is also likely to pick up. The Directorate-General of Budget, Accounting, and Statistics (DGBAS) forecasts Taiwan's economy to expand by 3.50% for the first quarter and by 3.78% for the entire year as growth is expected to advance further in the coming quarters.
Labor market conditions continued to improve on the back of a recovering economy and employment increased steadily. The unemployment rate dropped to 3.69% in February, the lowest since February 2001. As the government encouraged a wage hike and corporate profits also rose, enterprises began to take action to raise wages. For the year of 2014, average monthly earnings of the industrial and service sectors grew by 3.58%, the biggest increase in four years.
2.Dampened by significant declines in international commodity prices including oil, the CPI annual growth rate has trended downward since September 2014 and fell to -0.56% for the first two months of the year. The DGBAS forecasts inflation to reach -0.33% for the first quarter. However, inflation is expected to pick up quarter by quarter and to average 0.26% for the entire year. Major forecast agencies mostly projects domestic inflation to be under 1% for 2015.
Core inflation (excluding prices of fruits, vegetables, and energy) for the first two months of the year advanced at an average pace of 1.21%, with a mild increase projected for the year as a whole.
The weakening in prices of oil-related goods and services, reflecting international oil price declines, has driven down inflation expectations. Nonetheless, as the downward trend of oil prices began in mid-year of 2014 and contributed to a lower base, it is expected that the effect of an oil price slump on domestic prices will gradually abate.
3.The CBC has continued to conduct open market operations to manage market liquidity and maintain banks' net excess reserves at an appropriate level. The overnight interbank call loan rates remained broadly stable, and bank credit expanded steadily, with its year-on-year growth averaging 4.91% for the first two months of the year. Growth of the monetary aggregate M2 stayed within the target range. The M2 annual growth rate for the first two months of the year was 6.19%, sufficiently supportive of economic activity.

III. At the meeting today, the Board reached an unanimous decision:
In sum, uncertainties continue to surround the global economic recovery, while domestic economy improves steadily, and inflation is low and stable with a temporary softening in inflation expectations. Against this backdrop, the Board judges that a policy rate hold will help maintain price and financial stability and foster economic growth.
The discount rate, the rate on accommodations with collateral, and the rate on accommodations without collateral are kept at their current levels of 1.875%, 2.25%, and 4.125%, respectively.

IV. To sustain financial stability, the CBC has introduced a series of targeted macroprudential measures since June 2010 to rein in banks' real estate-related risks. Positive results from these measures, combined with government policy efforts towards a reasonable property tax levy, have successfully helped restrain activity in the housing market and expectations for rising housing prices.

V. As monetary easing in the US, Japan, and the euro area created spillover effects, massive and volatile cross-border capital flows became a destabilizing force to Taiwan's foreign exchange and financial markets. If seasonal or irregular factors (such as massive inflows or outflows of short-term capital) lead to excess volatility and disorderly movements in the NT dollar exchange rate with adverse implications for economic and financial stability, the CBC will, in line with its legal mandates, step in to maintain an orderly market.

VI. The CBC will continue to closely monitor both international and domestic economic and financial developments related to realized and expected inflation as well as output gap. We will undertake appropriate monetary policy actions with flexibility so as to fulfill the statutory objectives of central bank operations."

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Another 8 Million Barrels Added to Oil Storage

March 26, 2015 by EconMatters   Comments (0)

By EconMatters


EIA Inventory Report

The EIA Petroleum Report came out today and the report was pretty bearish. Much worse than the API Report released the night before. Of course, Oil was up on the report, in fact had a robust day at the close as the shorts got squeezed. This is nothing new for the market, almost every Wednesday or EIA Report day ends in the green, especially the Bearish ones, this goes back a long way in oil trading folklore. So much so that a funny joke amongst oil traders is “Crude Oil finished up $2 on the day, must have been a bearish inventory report!”

Year ago
Most recent
East Coast (PADD 1)
Midwest (PADD 2)
Cushing, Oklahoma
Gulf Coast (PADD 3)
Rocky Mountain (PADD 4)
West Coast (PADD 5)

Almost all the 8 million build is centered on the Midwest to Cushing to the Gulf Coast refinery corridor route which is even more bearish as all 3 storage outlets are building together. There is so much oversupply in the market that they cannot even make one energy hub appear better by moving the oil from one storage hub to the next a la the massive pipeline initiatives from Cushing to the Gulf Coast Region. Just look at the year ago numbers, the already bloated Gulf Coast Region added another 27 million barrels to storage from this time last year. Cushing has added almost 28 million barrels to storage in a year, and the Midwest has added an astounding 44 million barrels to storage in a year. Moreover, we are still in the middle of the building season, as I have seen years where we build right through May and a couple weeks in June putting in higher and higher overall oil inventories. This year better be a short building season, or the rails are going to come off the oil market rather quickly over the next couple of months.

US Oil Production

In regards to the production side of the equation we had another higher high in the Production Trend:

Year ago
Four-week averages
Year ago
Week ending
U.S. production


We produced 9.42 million barrels per day versus 9.41 the prior week and up 1.23 million barrels per day versus this time last year. No wonder we keep having these large upside inventory builds each week. This illustrates that the Rig Count Number is highly misleading, what matters is the Overall Well Count Number. Producers can bring additional wells online to the existing Rigs in operation while cutting less efficient Rigs from the equation, and the total wells producing oil can actually go up while the overall rig count numbers are coming down. The result lends itself to higher production output numbers each week.

Oil Imports

Year ago
Four-week averages
Year ago
Week ending
Crude oil, excluding SPR


Oil imports used to come down on a one to one basis as the domestic production increased but this correlation has come off the past year as imports have discovered a floor and continue to stay around these levels. As 7.39 versus 7.61 million barrels a day for a week isn`t going to offset the increased US Production gains year over year. Part of this is that certain refineries are set up in this country for Brent Oil, and they aren`t changing anytime soon because of the costs involved. So the baseline Brent comes to the US, the US Production keeps growing, and although the US exports refined product to reduce some of the North American Production, there just isn`t that level of demand to alter the supply demand imbalance in the market. There is just too much supply and not enough outlets via domestic demand, dwindling storage space, or export possibilities via products that changes this oversupply market dynamic.

Numbers, Assumptions & Capacity Constraints

The US has added almost 85 million barrels to storage facilities since January of 2015; that is an average of 7.67 million barrels of oil added to storage every week for the last 11 weeks, and it shows no sign of letting up anytime soon. So those who believe that there is plenty of storage available in the US need to start running the numbers. For example, on 09/26/2014 there was 356 million barrels in storage and now there is 466 million barrels as of 03/20/2015; that is an addition of 110 million barrels added to storage in roughly 6 months’ time. Furthermore, the trend of growing inventory builds is going the wrong direction for those thinking storage capacity isn`t an issue in the marketplace. What I mean by that is the builds are getting consistently bigger on average with each passing month. This last 8 weeks of inventory builds has really been unprecedented in the oil market, the run of consecutive large builds is unchartered territory for modern oil markets. Therefore all those storage capacity experts out there; what assumption are you building your model upon? Is it the last 12 months, 9 months, 6 months or 3 months from an inputs standpoint? If inventory builds stop this month that is one thing, but the ironic part of low oil prices means producers are finding more and more creative ways to pump more product to make up for lost revenue.

Unchartered Territory when everyone needs more Cash to Pay Existing Obligations

In short they need the cash to pay bills, who is to say that we don`t have inventory builds until the oil market finally crashes and production is forced offline? We really don`t know how this will all play out as this is unchartered territory in the modern era of oil markets. Even when prices were high oil inventories were well above their five year averages, so we are already at a poor structural starting point for a bear market in oil and the storage capacity issues that go along with this environment. I would say that if we have inventory builds from this point forward just based upon looking at the prior year`s additions in oil builds we have the following guideposts: In 2014 we continued to add to inventories through May 09, 2014, we added to oil inventories through May 24th for 2013, and builds continued through June 22nd for 2012. At this pace of builds things should get interesting in regards to storage capacity, and the economic decisions revolving around this logistical constraint. And if low prices throw a new dynamic in the market as yet un-factored into many pre-existing models in this modern era of high oil prices, the builds could possibly be much bigger on average compared with the previous three years from this point forward, and they may continue for much longer than usual.

500 Million Barrels Outside of SPR in Storage?

Another alternative scenario is that they just flat line through the drawing season, setting the stage for a fall collapse in oil prices if US production doesn`t come in substantially for the next inventory building season starting the latter part of this year. My point is it all depends on what the input numbers end up being, and nobody with a high degree of certainty has a good handle on these input assumptions, as we really are in unchartered territory. What if we have 10 more weeks of 8 million barrel inventory builds; that is 80 million barrels right there added to constrained existing storage facilities. This high an assumption I believe is problematic for both storage capacity and oil prices, and can it absolutely be ruled out? Who knows when everyone is incentivized to increase production as much as possible to make up for lower revenue streams to pay debt obligations and stay in business? We are already seeing secondary share issuances, the need for cash throws an ironic twist into the oil oversupply equation. What if we have builds straight through the summer driving season?

Economic Demand: Domestic & Global Perspective

Throw in the fact that US GDP and economic manufacturing data has been weak the first quarter of 2015; things seems to have slowed once again from an economic standpoint here in the US. In looking at the global perspective China`s latest weak PMI economic numbers indicate that their economy is really at its lowest growth phase in over a decade, and throw in the fact that they are done adding oil to their inventory reserves stocking program and the global demand picture for oil looks less than robust as well.

Still Oversupplied Oil Markets

In conclusion the demand picture looks weak both from a domestic and global perspective, the supply side of the equation is still a problem, and we haven`t even touched on Iran chomping at the bit to export more oil with some kind of a Nuclear Program Deal easing existing sanctions. The world had too much oil sloshing around 5 years ago, it had even more 9 months ago when prices started to decline, and it has even more today with $50 oil. Maybe the oil market needs to crash like the 1980s for the supply/demand imbalance to be rightsized in the market. Who knows where oil prices are ultimately headed and for how long, but one thing that does appear certain, is the supply demand picture hasn`t gotten any better since Saudi Arabia first signaled to markets that there was a problem. There is still far too much oil supply in the market right now with nowhere to go!

Electronic ‘Paper’ Energy Markets & Central Banks Distorted Fundamentals from Prices

The electronic artificial oil market where nobody took delivery for the physical commodity for the last decade with derivative style fiat stimulating markets juiced up by QE and ZIRP from central banks, throw in meaningless Arab Spring & Middle East Geo-Political Premiums to boot, and it is little wonder everybody and their uncle was suddenly in the oil producing business. The problem is that since the financial crisis, and the end of the commodity bull cycle after China`s Hosting of the Olympics was in the rear view mirror, the price of oil has been highly disconnected with the fundamentals of the global economy. And I am afraid that until electronic markets become physical delivery markets, prices will still outpace the fundamentals of the oil market, and the supply imbalance will take longer to right size with actual demand. This is where storage constraints eventually will balance out the supply demand equation, and bring about some discipline on behalf of producers. Storage constraints will eventually force a market crash in oil prices, until the oil market crashes completely like the 1980s, there are still too many oil producers currently in the market. Forget about Rig Counts, we need to see Producer Counts go down considerably, until that happens the oil market hasn`t bottomed.

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Georgia holds rate, sees short-term inflation rise from FX

March 26, 2015 by CentralBankNews   Comments (0)

    Georgia's central bank maintained its refinancing rate at 4.50 percent, saying it expects a certain increase in the inflation rate in coming months due to the depreciation of the lari currency that will raise the costs of U.S. dollar-denominated debt.
    But considering that both external and domestic demand has weakened significantly, the National Bank of Georgia (NBG) expects any increase in inflation to be of a short-term nature and therefore not increase inflationary risks.
    The NBG, which raised its rate by 50 basis points in February, said it would continue a "phased exit out of accommodative monetary policy" as the domestic and external economic situation improves.
    The Georgian central bank embarked on a tightening cycle in February 2014 but then had to pause until last month due to the risks from the Russian conflict with Ukraine. Georgia borders the Black Sea to the west, Russia to the north, and Turkey and Azerbaijan to the south.
    The lari started depreciating sharply against the U.S. dollar in November 2014 and hit a low of 2.3 by Feb. 24, down 18 percent since the start of 2015. Since then it has recovered to trade at 2.25 to the dollar today, down 16.4 percent this year.
    Last month the central bank's governor, Georgy Kadagidze, said the country's banks may restructure dollar loans to help soften the impact of the lari's depreciation. Economists have said more than 60 percent of Georgian banks' loan portfolios are denominated in foreign currency.

    The National Bank of Georgia issued the following statement:

"The Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on March 25, 2015 and decided to keep the refinancing rate unchanged at 4.5 percent.

The monetary policy decision is based on the macroeconomic forecast, according to which the risks and expectations affecting the forecast inflation have risen due to external shocks. Despite the appreciation of GEL nominal effective exchange rate, the recent depreciation of GEL vs USD has been reflected in the increase in the intermediate costs related to USD-denominated debt service.  Hence certain increase in the inflation rate is expected in the coming months. Taking into account that both external and domestic demand have significantly weakened, the Monetary Policy Committee considers the impact of the aforementioned factors on the inflation to be short-term in nature and these factor will not give rise to inflation risks in the medium term. Therefore, the Monetary Policy Committee considers necessary to keep the monetary policy rate unchanged. The phased exit out of accommodative monetary policy will be implemented together with improvement in domestic and external economic situation. 

According to existing forecasts by the end of 2015 inflation will remain within 5%. Annual inflation in February was 1.3%. The forecasts significantly depend on exogenous factors and contain risks of changing in both directions.  

The deterioration in economic trends in our main trade partners continues to affect negatively Georgian economy. In January and February merchandise exports, remittances and tourism inflows all decreased. The domestic demand has also weakened due to the increase in USD-denominated debt service costs. Hence both domestic and external demand has decreased. The output gap remains negative. The change in the exchange rate caused by the decrease in foreign currency inflows is probably sufficient to decrease import demand, which in turn will assist to restore external balance. Based on the aforementioned the aggregate demand is expected to be weak during the year and not to create inflationary pressure from demand side. 

The NBG will continue to monitor the developments in the economy and financial markets and will use all means and instruments at its disposal to ensure price stability. The dynamics of further changes in monetary policy will depend on the dynamics of expected inflation, tendencies in economic growth, global and regional economic environment.

The next meeting of the Monetary Policy Committee will be held on May 6, 2015."

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Sierra Leone cuts rate 50 bps to counter Ebola impact

March 25, 2015 by CentralBankNews   Comments (0)

    Sierra Leone’s central bank cut its monetary policy rate (MPR) by 50 basis points to 9.50 percent to promote private sector credit growth in an effort to stimulate economic activity against a backdrop of a challenging environment created by the twin shocks of Ebola and the collapse of international commodity prices, particularly iron ore.

    The Bank of Sierra Leone, which had kept the rate steady since December 2013, maintained its interest rate corridor, with repo transactions 50 basis points above the MPR and the standing facility rate 100 points above MPR.
    The central bank said downside risks to inflation along with spare capacity in the economy justified an easier monetary policy and called on commercial banks to scale up their lending activity to the private sector.
     Sierra Leone's consumer price inflation rate eased slightly to 7.60 percent in January from December's 7.85 percent, mainly due to lower petroleum prices and the temporary lifting of the public health emergency ban on movements of goods and persons.
    Downside risks to inflation remain, the central bank said, noting that changes to consumer prices are driven by supply side factors that are considered to be temporary.
    The Ebola crises that has gripped Sierra Leone has the potential to lead to a significant contraction of economic output in 2015, with implications for government revenue and the country's balance of payments position.
    "These developments may warrant expansionary monetary policy intervention to stimulate aggregate demand and growth," the central bank said.
    Sierra Leone's Gross Domestic Product expanded by 7.0 percent in December 2014 compared with a projected 6.0 percent, but the central bank said there was still evidence of an increase in spare capacity.

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