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China's central bank cut its benchmark one-year lending rate by 40 basis points to 5.6 percent, the first rate cut since July 2012, along with the one-year deposit rate that was cut by 25 basis points to 2.75 percent.
The People's Bank of China (PBOC) said in a statement that the new interest rates would take effect from Saturday, Nov. 22.
The PBOC also continued the process of liberalizing interest rates, allowing banks to pay depositors up to 1.2 times the benchmark rate, up from 1.1 times.
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South Africa's central bank maintained its benchmark repurchase rate at 5.75 percent, as expected, due to the lower trajectory of inflation and weak state of the economy.
But the South African Reserve Bank (SARB), which has raised its rate by 75 basis points so far this year, said it still believes that rates have to be raised over time and the "timing of future rate increases will be dependent on a range of factors, including the evolution of inflation expectations, the speed of normalization of monetary policy in the US and the state of the domestic economy."
The outlook for inflation has improved since the central bank's previous meeting in September, with the risks roughly balanced and headline inflation is now forecast to average 6.1 percent this year, down from the previous forecast of 6.2 percent.
For 2015 inflation is expected to average 5.3 percent, a sharp drop from the previous forecaster of 5.7 percent and for 2016 the forecast has been revised down to 5.5 percent from 5.8 percent, dropping to 5.4 percent in the final quarter of that year.
However, given the elevated level of core inflation and that fact that inflation is expected to increase as the impact of lower oil prices dissipates, SARB said it remains vigilant.
In October, South Africa's headline inflation rate was steady at 5.9 percent, just within the bank's target range of 3 to 6 percent.
The Bank’s forecast of headline inflation has improved since the previous meeting of the MPC, mainly due to the impact of declining international oil prices. Having reached a peak of 6,5 per cent in the second quarter of this year, inflation is now expected to average 5,9 per cent in the final quarter of 2014, and average 6,1 per cent for the year, compared with 6,2 per cent previously. The downward trend is expected to continue into next year, with inflation forecast to reach a low of 5,1 per cent in the second quarter, and to average 5,3 per cent for the year, compared with 5,7 per cent previously. The forecast for 2016 has been revised down from 5,8 per cent to 5,5 per cent, and is expected to measure 5,4 per cent in the final quarter of the year.
The US and the UK remain the main drivers of global growth although more broadly, global growth may get some impetus from lower oil and food prices, which should provide some boost to consumers. US economic growth was better than expected in the third quarter, with the first advanced estimate of 3,5 per cent, and the unemployment rate declining to 5,8 per cent, the lowest level since June 2008. The UK recorded growth of 2,8 per cent in the third quarter, while the unemployment rate was unchanged at 6,0 per cent. The Japanese economy contracted for a second consecutive quarter during the third quarter, and has prompted a reconsideration of a further VAT increase next year. The response to the further additional monetary stimulus announced recently remains uncertain amid a tighter fiscal policy stance. The Eurozone outlook also remains bleak, including in the core countries such as France and Germany, although lower food and oil prices, coupled with further monetary easing may have a positive impact.
Global inflation is expected to moderate in the face of benign food price inflation and falling international oil and other commodity prices. While this is welcome in the higher inflation regions, particularly emerging markets, it does aggravate deflationary risks in some of the advanced economies, particularly in the Eurozone and Japan. Monetary policy stances are expected to remain ultra-loose in these two regions, with a significant stimulus package announced recently in Japan and the ECB is anticipated to conduct further asset purchases. The US Fed has ended its programme of quantitative easing, but at this stage it is not contracting its balance sheet and proceeds from maturing assets are being reinvested. Although the general expectation is that the US Fed will begin raising interest rates in mid-2015, there are also some expectations that the more benign inflation outlook could delay this. Forward guidance from both the Bank of England and the US Fed is that any adjustment is likely to be gradual, and policy rates may be lower than their estimated long run normal rates for some time despite the improved growth outlooks. Since the previous meeting of the MPC, policy rates have increased in Brazil, Russia and Indonesia, but reduced in Sweden, South Korea, Chile and Poland.
The rand is expected to remain susceptible to sudden shifts in sentiment regarding changes in monetary policy stances in the advanced economies, and the continued uncertainty regarding the extent to which US normalisation is already priced in to the exchange rate. The asynchronous nature of advanced economy monetary policies is expected to complicate the outlook and outcomes. However, the rand is likely to remain more sensitive to changes in financial conditions in the US than in Japan and the Eurozone. The persistently slow adjustment of the current account deficit also makes the rand vulnerable to swings in sentiment that raise concerns about the financing of this deficit. Although the lower oil prices should reduce the oil import bill, its positive impact on the deficit may be limited by further declines in other commodity prices.
The mining sector appears to be recovering to some extent from the strike-affected first half of the year, and is expected to contribute positively to third quarter growth, following two consecutive quarters of contraction. The physical volume of mining production increased by 0,7 per cent in the third quarter compared with the second quarter, and further increases can be expected in the final quarter, as platinum output is still below pre-strike levels. By contrast, although the physical volume of manufacturing production increased in September, the month-long strike in the steel and engineering industry in July contributed to a quarter-to-quarter contraction of 1,3 per cent in the third quarter. Sentiment indicators suggest that the outlook for the sector remains bleak, with the manufacturing confidence index still at very low levels and capacity utilisation rates back at 2011 levels. More positively, the Kagiso PMI edged above 50 index points in October for the first time since March, driven mainly by the inventory and new sales orders sub-indices.
Consumption expenditure by households has remained relatively subdued, but there are signs of a moderate increase in the quarterly growth rate, as the negative effects of the protracted strikes on consumption dissipate. Consumption expenditure could be positively impacted by lower petrol prices. Although retail sales growth declined by 0,8 per cent (non annualised) in September, quarter-to-quarter growth of 0,9 percent was recorded in the third quarter, and 2,3 per cent year-on-year. Similarly, wholesale trade sales contracted in the third quarter, but increased by 5,9 per cent on a year-on-year basis. Motor vehicle sales have also shown some signs of recovery, although domestic sales are expected to be lower this year than in 2013. Retail sector confidence improved, with the BER reporting retailer confidence above the neutral level for the first time in two and a half years. Consumer confidence, however, declined significantly in the third quarter following an unexpected increase in the second quarter.
According to the October Medium Term Budget Policy Statement, government remains committed to its policy of fiscal consolidation, in order to prevent an increase in the debt ratio to unsustainable levels. The fiscal deficit is expected to decline from a projected 4,7 per cent of GDP in the current fiscal year to 3,0 per cent in 2017/18.
The timing of future interest rate increases will be dependent on a range of factors, including the evolution of inflation expectations, the speed of normalisation of monetary policy in the US and the state of the domestic economy."
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Turkey's central bank kept its policy rates steady, including the benchmark repo rate at 8.25 percent, and confirmed its guidance that the "tight monetary policy stance will be maintained, by keeping a flat yield curve, until there is a significant improvement in the inflation outlook."
But the Central Bank of the Republic of Turkey (CBRT), which raised its repo rate in January by 550 basis points and then cut it by 175 points from May through July, turned slightly more optimistic about the outlook, saying the contribution of domestic demand to growth was increasing and the moderate course of consumer loans and favorable terms of trade may help reduce the current account deficit.
As in previous months, the CBRT said elevated food prices continued to delay an improvement in the outlook for inflation though lower commodity prices, in particular falling oil prices were expected to contribute to push down inflation next year, in line with the latest quarterly forecast.
On Oct. 31, the central bank forecast that inflation in 2015 would decline to a midpoint of 6.1 percent, based on a range 4.6 percent and 7.6 percent, from a midpoint of 8.9 percent at the end of this year and then stabilize at the bank's 5.0 percent target in the medium term.
Headline inflation rose slightly to 8.96 percent in October from 8.86 percent in September.
The Central Bank of the Republic of Turkey issued the following statement:
"Participating Committee Members
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Zambia's central bank raised its policy rate by 50 basis points to 12.50 percent to "ensure the leveling off of inflation pressures over the third quarter is consolidated into lower inflation in 2015."
The Bank of Zambia, which has now raised its rate by 275 basis points this year, said inflation is forecast to remain at these elevated levels throughout the rest of this year and into 2015, above the inflation target of 7.0 percent set by the finance minister for end-December 2015.
Zambia's headline inflation rate rose to 7.9 percent in October from 7.8 percent in September.
The Bank of Zambia issued the following statement:
The renewed interest of non-residents in the economy was also reflected in the capital market. The Lusaka Stock Exchange (LuSE) registered an increase in market capitalization of 1% and an increase in the All Share Index of 1.8%. In terms of non-resident participation, LuSE recorded a net inflow of foreign portfolio investment of US $17.4 million, compared to a net outflow of US $12.8 million witnessed during the second quarter of the year, with a total of US $19.1 million worth of stocks bought against sales of US $1.7 million.
The growth in both domestic credit and broad money rebounded during the third quarter, after registering sharp declines during the second quarter of the year following the tightening in monetary policy. This reflected the easing in liquidity conditions by BoZ as well as some pick up in Government spending. Domestic credit rose by 14.8% to K28.5 billion from K24.8 billion in June. This was mainly due to the 68.9% and 7.4% rise in lending to Government and households, respectively. Credit to public enterprises fell, however, by 21%. On an annual basis domestic credit grew by 10.9% at end-September compared to a decline of 5.1% in June 2014.
At end-September commercial bank loans and advances had actually increased by 1.2% compared to a decline of 1.5% in the second quarter. With respect to the overall composition of credit, households continued to account for the largest share of outstanding credit at 34.3% followed by agriculture (17%), manufacturing (11.7%), wholesale and retail trade (8.8%), and mining and quarrying (6.2%).
Broad money increased by 2.9% to K33.6 billion in September 2014 from K32.7 billion in June 2014, a reversal of the 2.2% decline witnessed in the second quarter of the year. The growth in broad money was driven by a 20.6% increase in net domestic assets following a 68.9% rise in lending to Government. Net foreign assets on the other hand fell by 6.7% mainly due to the decline in net international reserves. On an annual basis, broad money growth stood at 16.1% at the end of the third quarter.
Commercial banks’ average lending rate remained unchanged at 19.3% in September 2014. However, the commercial banks’ average savings rate for amounts above K100 and the average 30-day deposit rate for amounts exceeding K20,000 edged upwards to 3.6% and 6.7% from 3.5% and 6.6%, respectively. Real interest rates remain high, with the real average lending rate rising to 11.5% whilst the real savings rate for amounts exceeding K20,000 remained negative at negative 1.1%.
During the third quarter, the foreign exchange market was characterised by lower volatility and the Kwacha appreciated against most of its major trading partner currencies and remained relatively flat against the US dollar. This was in contrast to the instability that characterised the second quarter of the year. Important drivers of the stability were, however, the measures taken by the central bank to reduce Kwacha liquidity in the money market. The Kwacha closed the quarter at K6.26 per US Dollar – approximately the same level as at the end of the second quarter. Against the British Pound, the South African Rand and the Euro, the Kwacha appreciated by 4.8%, 5.7% and 7.3%, respectively. The overall supply of foreign exchange improved with steady supply witnessed from foreign corporates and the mining companies. In keeping with its commitment to manage excess volatility, the Bank of Zambia bought US $85 million and sold US $69.1 million during the third quarter. In real terms, the exchange rate as measured by the real effective exchange rate index, appreciated by 7.4% with the index moving to 98.1 in September from 105.8 in June.
The next MPC meeting is scheduled to take place on February 8, 2015. In the interim, the MPC will continue to monitor financial sector developments as well as developments in the broader economy and will not hesitate to take appropriate monetary policy measures that safeguard macroeconomic stability and ensure that the country’s growth objective is not stifled."
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Georgia's central bank held its benchmark refinancing rate steady at 4.0 percent and revised downwards its inflation forecast but confirmed that it still considers it necessary to slowly exit its accommodative policy stance.
The National Bank of Georgia (NBG) began tightening its policy in February but since then it has held back from further tightening in light of increased risks that impacted domestic and external demand and slowed the process of inflation reaching its 6.0 percent target.
The NBG said its latest forecast sees inflation reaching its target by the end of 2015.
In October Georgia's headline inflation rate eased to 3.4 percent from 4.8 percent in September.
The National Bank of Georgia issued the following statement:
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The Bank of Japan (BOJ) maintained it recently-revised target for boosting the country's monetary base by an annual pace of about 80 trillion yen and repeated that the country's economy is recovering moderately though it acknowledged weakness on the production side to the drop in demand following the April sale tax hike.
The BOJ, which on Oct. 30 raised its target for increasing the monetary base by 10-20 trillion yen, also noted that exports from Japan have been "more or less flat" and changed its estimate of inflation, saying annual consumer price inflation is "likely to be at around the current level for the time being," a shift since September when its said consumer price were likely to rise by around 1.25 percent.
The BOJ issued the following statement:
[Note 1] Voting for the action: Mr. H. Kuroda, Mr. K. Iwata, Mr. H. Nakaso, Mr. R. Miyao, Mr. Y. Morimoto, Ms. S. Shirai, Mr. K. Ishida, and Mr. T. Sato. Voting against the action: Mr. T. Kiuchi. The member voting against the action considered that the guideline for money market operations before the decision of the "Expansion of the Quantitative and Qualitative Monetary Easing" on October 31, 2014 was appropriate.
[Note 2] Voting for the action: Mr. H. Kuroda, Mr. K. Iwata, Mr. H. Nakaso, Mr. R. Miyao, Mr. Y. Morimoto, Ms. S. Shirai, Mr. K. Ishida, and Mr. T. Sato. Voting against the action: Mr. T. Kiuchi. The member voting against the action considered that the guideline for asset purchases before the decision of the "Expansion of the Quantitative and Qualitative Monetary Easing" on October 31, 2014 was appropriate.
[Note 3] Mr. T. Kiuchi proposed that the Bank will aim to achieve the price stability target of 2 percent in the medium to long term and designate the QQE as an intensive measure with a time frame of about two years. The proposal was defeated by an 8-1 majority vote. Voting for the proposal: Mr. T. Kiuchi. Voting against the proposal: Mr. H. Kuroda, Mr. K. Iwata, Mr. H. Nakaso, Mr. R. Miyao, Mr. Y. Morimoto, Ms. S. Shirai, Mr. K. Ishida, and Mr. T. Sato
8:50 on Thursday, December 25"
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