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Thailand's central bank maintained its policy rate at 2.0 percent but said economic growth in the first quarter is expected to contract by more than previously expected and it would "closely monitor economic and financial developments, and ensure that the monetary policy stance continues to lend sufficient support to the economy."
The easing bias by the Bank of Thailand (BOT) follows a 25 basis point cut in March and one of the members of the bank's monetary policy committee voted to lower the policy rate by another 25 points. But six members of the committee voted to maintain rates.
"The Committee deems prolonged political uncertainties to be the main cause for higher downside risks to growth. Financial conditions are accommodative, and are not hindering domestic spending," the BOT said.
In March the central bank said that it had still scope to ease, but omitted that statement today.
As expected, the bank said growth this year is expected to be lower than forecast and mainly driven by exports while inflationary pressures rose in line with expectations.
On Sunday, BOT Governor Prasern Trairatvorakul was quoted as saying the central bank would likely lower its 2.7 percent growth forecast in June due to the sluggish economy and the impact of budget problems caused by the dissolution of the Thai parliament.
In its March monetary policy report, the BOT cut its 2014 growth forest to 2.7 percent from a forecast of about 3.0 percent in January and earlier this month the BOT said first half economic growth may stagnate or decline on slower economic activity.
Last month the BOT also said private consumption contracted by an annual 2.5 percent in February and investment fell by 7.7 percent as prolonged protests and political stalemate hurt sentiment.
Tourism, which accounts for some 10 percent of the economy, contacted with February arrivals down 8.1 percent from the same month last year and up to 50 countries have warned tourists about traveling to Thailand.
The International Monetary Fund has forecast 2014 growth falling to 2.5 percent from 2.9 percent last years, but rebounding to 3.8 percent in 2015.
Thailand's Gross Domestic Product expanded by only 0.6 percent in the fourth quarter of last year from the third quarter for annual growth of 0.6 percent, down from 2.7 percent in the third quarter.
"Private investment and tourism have felt greater impact from political uncertainties," the BOT said, adding that exports have gradually improved but not enough to offset overall subdued growth.
"Looking ahead, the prospect for economic recovery hinges importantly on the political developments," the bank said.
The BOT cuts its policy rate by 50 basis points in 2013 but political unrest continues to weigh on domestic consumption and undermine consumer confidence.
Although the global economy is continuing to recover on the back of expansion in advanced economies, the BOT said emerging markets showed signs of moderation and growth in China was decelerating, "with increased risks in the financial sector."
Headline inflation in March rose to 2.11 percent from 1.96 percent in February while core inflation rose to 1.31 percent from 1.22 percent, the six consecutive month of rising prices after they reached a recent low of 0.61 percent in September.
The BOT, which targets core inflation of 0.5 to 3.0 percent, in March forecast core inflation this year of 2.5 percent, up from 2.2 percent in 2013, and headline inflation of 1.5 percent, up from 1.0 percent last year.
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Botswana's central bank maintained its bank rate at 7.5 percent, saying the economic outlook and inflation forecast is consistent with keeping inflation in the bank's 3-6 percent medium-term objective.
The Bank of Botswana, which cut its rate by 200 basis points in 2013 as inflation declined, said moderate domestic demand and expected benign external prices contribute to the positive inflation outlook though this could be affected by unanticipated large increases in administered prices and government levies as well as international food and oil prices beyond the current forecast.
Botswana's inflation rate eased to 4.4 percent in March from 4.6 percent in February, with the trimmed mean measure of core inflation down to 4.0 percent from 4.1 percent and inflation excluding administered prices down to 5.2 percent from 5.5 percent.
Botswana's headline inflation rate fell to 5.8 percent in 2013 from 7.5 percent in 2012 and the central bank expects inflation to remain within its 3-6 percent range this year.
The bank said in February this would give it scope to support economic activity through the current accommodative policy stance.
The International Monetary Fund has forecast 3.8 percent inflation this year and 3.4 percent in 2015.
The central bank said Botswana's economy was estimated to have expanded by 5.9 percent in 2013, reflecting a 10.6 percent growth in mining output and 5.2 percent growth in the non-mining sector.
"It is expected that non-mining GDP will remain below potential in the medium term and this will result in low inflationary pressure," the bank said, adding the influence of demand on economic activity is projected to be modest, mainly reflecting trends in government spending and personal income.
The central bank has forecast economic growth of 5.1 percent in 2014, supported by higher government spending. It said in February that government spending for fiscal 2014/15 had risen by 8.5 percent.
The IMF has forecast 4.1 percent real GDP growth this year and 4.4 percent in 2015.
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Sri Lanka's central bank maintained its monetary policy stance, as expected, and said the country's economy was poised for a stronger performance on the back of a recovery in the external sector, sustained momentum in construction and manufacturing, and low and stable inflation.
The Central Bank of Sri Lanka kept its Standing Deposit Facility Rate (SDFR) at 6.50 percent and the Standing Lending Facility Rate (SLFR) at 8.0 percent. The central bank rejigged its policy framework in January with the SDRF rate replacing the previous benchmark repo rate.
Sri Lanka's headline inflation rate was steady at 4.2 percent in March and February and the central bank expects inflation to remain in mid-single digits throughout the year although there might be some price pressures from supply disruptions linked to drought.
The central bank targets inflation of 4-6 percent this year and 3-5 percent in 2015 and 2016. In 2013 the central bank cut the benchmark rate by 100 basis points to boost economic growth, which rose to 7.3 percent in 2013 from 6.3 percent in 2012.
But the central bank said credit to the private sector only grew by a modest 4.4 percent in February from the same month last year, down from 5.2 percent in January. Credit obtained by public corporations declined further in February and continued fiscal consolidation, together with the proceeds of a sovereign bond issue in April is expected to ease the public sectors reliance on bank financing in coming months.
"The resulting release of funds for private investments bolstered by sufficient market liquidity levels would provide the necessary stimulus to strengthen private sector activity and in turn, as expected, expand credit growth from the second quarter onwards," the bank said.
Sri Lanka's Gross Domestic Product expanded by an annual 8.2 percent in the fourth quarter of 2013, and the central bank has forecast 7.8 percent growth for 2014.
Inflows of workers' remittances rose significantly in February and earnings from tourism also rose in the first quarter, the bank said, adding that gross official reserves were estimated at around US$ 8.0 billion at the end of February, the equivalent of 5.3 months of imports. Reserves are expected to rise further with the proceeds of this month's $500 million sovereign bond.
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Last week Ukraine’s central bank boosted its policy rate to support its embattled hryvnia currency while six other central banks maintained their rates, including Serbia’s central bank which became the latest bank to postpone a rate cut for fear of triggering capital outflows and disrupting the relative calm in global financial markets.
Six weeks after Russia’s central bank temporarily raised its rate by 150 basis points, the National Bank of Ukraine raised its benchmark discount rate by 300 points as the economic fallout from the political crises between the two countries widens.
With financial markets so far digesting this year’s shift in U.S. monetary policy with less hiccups than expected and the economic slowdown in China proceeding largely according to plan, the crises in Ukraine is the only major uncertainty facing the global economy.
So far, there has been limited global spillover from the Russia-Ukraine crises, with only neighboring Poland noticing a negative economic impact as its firms have revised down their forecasts for exports and view of current conditions.
But it’s clear that any further escalation of tensions in eastern Ukraine and new sanctions from the West against Russia have the potential to trigger a flight to safety and harm economic confidence.
"The situation in Ukraine is one which, if not well managed, could have broader spillover implications," IMF Managing Director Christine Lagarde Lagarde warned earlier this month.
Although Romania provides a physical buffer between Serbia and Ukraine, the Bank of Serbia is clearly worried that its currency, stocks and bonds would be engulfed by a flight to safety.
The Serbian central bank has on several occasions cited the need to keep domestic assets relatively attractive to global investors and said last week that the decision to maintain the rate at 9.50 percent was "guided by instability in international financial markets and heightened uncertainties surrounding the current geopolitical tensions."
The Bank of Mozambique in southern Africa also reflects this awareness of how fast sentiment in global financial markets can turn, saying it was maintaining a “prudent monetary policy” amid domestic and international risks.
Next week’s statement and policy decision by Russia’s central bank is likely to be scrutinized for warnings from the central bank of the economic and financial repercussions of further political brinkmanship by President Vladimir Putin.
Meanwhile in the euro zone, the single currency didn’t take too seriously warnings of easier monetary policy by a string of European Central Bank (ECB) officials.
After ECB Board Member Benoit Coeure on Friday, April 11 said "the stronger the euro, the more need for monetary accommodation," ECB President Mario Draghi on April 12 said a strengthening of the euro’s exchange rate would require further monetary stimulus. This message was then later echoed by Christian Noyer of the Bank of France and ECB Board Member Yves Mersch.
ECB policymakers were clearly hammering home the message from its April 3 statement that its council was “unanimous in its commitment to using also unconventional instruments within its mandate in order to cope effectively with risks of a too prolonged period of low inflation."
But the frequency and unanimity in the statements from ECB council members is unusual and appear to be coordinated.
On April 3, when the ECB council last met, the euro was trading at 1.37 to the U.S. dollar. It then rose in the following days in response to the lack of any easing measures, ending the week just below 1.39 on Friday April 11.
Draghi’s reference to the euro and further easing came on Saturday and on Monday Noyer said the ECB was ready to use unconventional measures to fend off too low inflation.
On Monday April 14 the euro eased slightly to 1.381 but it ended the week practically unchanged, down from 1.388 the previous Friday.
On Thursday April 17 Mersch in Albania echoes the view that further euro strength would trigger a reaction by the ECB with France’s economy minister then adding that he wants euro zone member countries to meet and discuss the euro and it’s exchange rate needs to come down.
But Mersch also gives an important clue to what might be behind that spate of coordinated comments about the strong euro.
Mersch said Draghi on April 3 had “explicitly mentioned … developments in the foreign exchange markets, which have increasingly an impact on our inflationary price developments.”
He added that Draghi had made it very clear that if these developments, i.e. the euro’s exchange rate, were to continue, this would “inevitably have to trigger a reaction by the ECB in order to maintain our accommodative monetary policy stance.”
What seems to have happened is that the wording of the statement issued by the ECB council was too balanced and thus wishy-washy in describing the harm a strong euro is doing to prices.
Draghi then fails to convey to the press the ECB council’s concern over the euro’s strength.
Looking at the transcript from the ECB press conference, Draghi’s introductory statement makes only a passing reference to exchange rates.
Draghi said the ECB council saw broadly balanced and limited upside and downside risks to the inflation outlook and “the possible repercussions of both geopolitical risks and exchange rate developments will be monitored closely.”
Hardly a statement that conveys concern over the euro to foreign exchange markets or the public.
At the start of the press conference, Draghi refers to the same statement, saying “the exchange rate is very important for price stability, so much so that we have made an explicit reference to it in the introductory statement.”
“But, as I have said several times, it is not a policy target,” Draghi adds, a reflection of the code of conduct that major central banks should not target exchange rates, and certainly not in public.
“It is an increasingly important factor in our medium-term assessment of price stability, but it is not a policy target. In this sense, we do not link our medium-term assessment to a precise level of the exchange rate. It is part of the overall information that comes into play when we undertake our medium-term assessment,” Draghi said.
Out of respect for the rules among the Group of 20 leading economic powers and major central banks, Draghi and the ECB end up watering down their statement of the euro’s exchange rate so much that financial markets fail to notice.
Instead, headlines from the April 3 meeting by the ECB council are dominated by the message that the ECB has discussed, and is ready, to use some form of quantitative easing if inflation fails to accelerate.
Through the first 16 weeks of this year, policy rates have been raised 14 times, or 9.5 percent of this year’s 148 policy decisions by the 90 central banks followed by Central Bank News, up from 9.2 percent the previous week and 8.7 percent end-March but down from 10.1 percent end-February.
Policy rates have been cut 15 times so far this year, or 10.1 percent of this year’s policy decisions, down from 10.6 percent the previous week, and 14 percent at the end of February.
TABLE WITH LAST WEEK’S MONETARY POLICY DECISIONS:
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