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Econ Grapher's connections' blogs

Kazakhstan cuts rate 25 bps but signals easing pause

June 4, 2018 by CentralBankNews   Comments (0)

      Kazakhstan's central bank lowered its base rate by another 25 basis points to 9.0 percent, as it signaled in April, but said monetary conditions were now at a neutral level and the risks that will limit the rate of decline in inflation this year and next year would restrain further rate cuts this year.
      It is the fourth consecutive rate cut by the National Bank of Kazakhstan (NBK) and the rate has now been cut by a total of 125 basis points this year. Since May 2016, when the central bank embarked on an easing cycle, the base rate has been lowered by 800 points.
      Today's rate cut was in response to the continued decline in inflation and inflation expectations as well as favorable trends in world oil markets, NBK Governor Daniyar Akishev told a televised press conference.
      Kazakhstan's inflation rate eased to 6.2 percent in May from 6.5 percent in April, within the central bank's target range of 5-7 percent, and against the backdrop of a weakening of the tenge's exchange rate and a decline in inflation expectations 12-months ahead to 6.0 percent.
      Akishev said the latest estimates show that inflation will remain within the target corridor this year and in 2019 and reach the medium-term inflation target of 4.0 percent by end-2020.
      The main factor that will limit the decrease in inflation is the expected rise in world food prices, imported inflation from trading partners and growth in consumer and investment demand.
      The normalization of U.S. monetary policy is also posing a risk of an outflow of capital from emerging markets, Akishev added.
      The tenge was hit in early April by a fall in Russia's ruble on new U.S. sanctions but has stabilized since then. Russia is Kazakhstan's largest trading partner.
      The tenge was trading at 330.9 to the dollar today, up 0.6 percent this year.
      The central bank said its international reserves amounted to US$90.4 billion, up 1.4 percent.

        www.CentralBankNews.info

       
     
   

This week in monetary policy: Kazakhstan, Australia, Moldova, India, Poland, Serbia, Turkey and Peru

June 4, 2018 by CentralBankNews   Comments (0)

     This week - June 3 through June 9 - central banks from 8 countries or jurisdictions are scheduled to decide on monetary policy: Kazakhstan, Australia, Moldova, India, Poland, Serbia, Turkey and Peru.
    Following table includes the name of the country, the date of the next policy decision, the current policy rate, the result of the last policy decision, the change in the policy rate year to date, the rate one year ago, and the country’s MSCI classification.
    The table is updated when the latest decisions are announced and can always accessed by clicking on This Week.

WEEK 23
JUNE 3 - JUN 9, 2018:
COUNTRY                    DATE                      RATE                 LATEST                     YTD               1 YR AGO       MSCI
KAZAKHSTAN 4-Jun 9.25% -25 -100 10.50%          FM
AUSTRALIA 5-Jun 1.50% 0 0 1.50%          DM
MOLDOVA 5-Jun 6.50% 0 0 8.00%
INDIA 6-Jun 6.00% 0 0 6.25%          EM
POLAND 6-Jun 1.50% 0 0 1.50%          EM
SERBIA 7-Jun 3.00% 0 -50 4.00%          FM
TURKEY 7-Jun 16.50% 850 850 8.00%          EM
PERU 7-Jun 2.75% 0 -50 4.00%          EM

Gambia cuts rate 150 bps to boost credit growth

May 31, 2018 by CentralBankNews   Comments (0)

      Gambia's central. bank lowered its policy rate by 150 basis points to 13.50 percent to "reinforce private sector credit growth particularly to small and medium size enterprises."
       It is the first rate cut by the Central Bank of The Gambia (CBG) since June 2017 and the policy rate has now been cut by a total of 950 basis points since it began an easing cycle in May 2017/
       The CBG also said it was introducing an overnight interest corridor as of Aug. 30 to help limit the volatility of short-term interest rates around its policy rate.
       "Lower volatility increases the effectiveness of the monetary policy rate and strengthens the interest channel of the monetary transmission mechanism," the central bank said, adding it would introduce standing lending and deposit facilities as part of it corridor framework.
       Gambia's inflation rate eased to 6.6 percent in April from 8.7 percent in April 2017 but was up from 6.7 percent in March 2018 due to a slight rise in non-food inflation, the central bank said.
       But the CBG expects this increase in inflation to be temporary and the outlook is for inflation to decelerate further toward its 5 percent target based on continued stability of the exchange rate and prudent monetary and fiscal policies.
       Risks to this outlook include higher global commodity prices, particularly energy and food, while  Gambia's debt to Gross Domestic Product ratio of 130 percent "poses a major risk to the economy."
       Gambia's economic recovery is gathering strength, the central bank said, adding real GDP is projected to grow by 5.4 percent this year, up from 3.5 percent in 2017, predicated on a rebound in agriculture and continued improvement in trade, tourism and construction.
       The exchange rate of Gambia's dalasi has remained stable and rose by 1.2 percent against the U.S. dollar from December last year to May 2018, the CBG said.

     
   
     The Central Bank of the Gambia issued the following statement:

  1. "The Monetary Policy Committee (MPC) of the Central Bank of The Gambia met on Wednesday May 30, 2018 to assess the performance, risks and outlook of the domestic and the global economy. The Committee decided on the key policy rate and the following are highlights of the deliberations on key economic indicators that informed the Committee’s decision.
Global Economic Outlook
  1. Since the last MPC, the global economy continues to strengthen supported by increased trade flows and higher investment, accommodative monetary policy, and recovery in commodity prices. Strong economic growth in emerging market and developing economies and robust recovery in advanced economies are expected to continue in 2018. In sub-Saharan Africa, economic growth is expected to improve further against the backdrop of more supportive external environment, including stronger global growth, higher commodity prices, and improved market access. However, there are risks to the global economic outlook including, prospect for increased trade protectionism, rising volatility in asset markets, and geo-political tensions.
  1. The International Monetary Fund (IMF) forecast the global economy to grow by 3.9 percent in2018 compared to 3.8 percent in 2017.Global inflation is projected to increase to 3.5 percent in 2018 from 3.2 percent in 2017 predicated on continued recovery in commodity prices and stronger global demand. 
Domestic Economic Outlook
Real Sector
  1. At the domestic front, economic recovery is gathering strength, supported by improved implementation of macroeconomic policies and business confidence. Real GDP is projected to grow by 5.4 percent in 2018 compared to 3.5 percent in 2017 predicated on rebound in agriculture, and continued improvement in trade, tourism, and construction. 
External Sector
  1. Preliminary Balance of payments estimates for the first quarter of 2018 indicates an improved position compared to the corresponding period a year ago, thanks largely to the increase in current transfers. 
  1. The current account deficit narrowed to US$7.01 million (0.7 percent of GDP) in the first quarter of 2018 from US$29.45 million (2.7 percent of GDP) a year ago, reflecting marked increase in current transfers  (mainly remittances) by 62.2 percent to US$60.71 million. However, the goods account balance worsened from a deficit of US$54.61 million (5.2 percent of GDP)in the first quarter of 2017 to a deficit of US$67.46 million (6.1 percent of GDP) in the first quarter of 2018, following sharp decline in exports and significant increase in imports. 
  1. The capital and financial account balance declined to a surplus of US$7.53 million in the first quarter of 2018 from a surplus of US$27.36 million in the same period a year ago.  Against the backdrop of strong international support and  improved  domestic foreign   exchange market conditions, gross international reserves is projected at 4 months of next year’s  imports of goods and services. 
Exchange rate developments
  1. In the year to end-March, 2018, volume of transactions in the domestic foreign exchange market totaled US$1.7 billion, higher than US$1.3 billion the same period last year, reflecting improved market conditions and confidence. Purchases of foreign currency, indicating supply, increased markedly by 31.1 percent to US$863.7 million during the period under review. Similarly, sales of foreign currency, indicating demand, increased significantly by 31.2 percent to 652.0 million. 
  1. The exchange rate of the dalasi remains stable.  From December 2017 to May 2018, the dalasi appreciated against all major international currencies traded in the domestic foreign exchange market.  The Dalasi appreciated against the US Dollar by 1.2 percent, Pound Sterling by 1.0 percent, Euro by 2.4 percent and CFA franc by 1.3 percent.  
Domestic Debt
  1. The Gambia’s domestic debt is stabilizing. Stock of domestic debt decreased from D29.3 billion or 62.2 percent of GDP in April 2017 to D28.8 billion or 55.8 percent of GDP in April 2018.  Stock of Treasury and Sukuk Al Salaam bills contracted significantly by 13.5 percent to D16.1 billion during the period under review.
  1. Yields on all Treasury bills and Sukuk Al Salaam bills declined, reflecting reduced borrowing by government.  The 91-day, 182-day and 364-day yields fell from 9.37 percent, 11.29 percent and 12.88 percent in April 2017 to 5.87 percent, 5.99 percent and 9.23 percent respectively in April 2018. 
Banking Sector
  1. According to financial soundness indicators, the banking sector remains well capitalized, highly liquid and profitable. The risk weighted capital adequacy ratio stood at 31 percent as at end-March 2018, significantly higher than the statutory requirement of 10 percent. Liquidity ratio of the banking industry stood at 94.7 percent, also significantly higher than the requirement of 30 percent. Non-performing loans ratio dropped from 9.7 percent at end-March 2017 to 7.2 percent as at end-March 2018.Total assets of the industry expanded from D33.5 billion as at end-March 2017 to D39.8 billion as at end-March 2018.
Monetary developments
  1. Money supply grew by 28.0 percent in March 2018, driven largely by the increase in net foreign assets (NFA) of the banking system from D1.5 billion in March 2017 to D8.0 billion in March 2018.Net domestic assets (NDA) of the banking system rose by 1.0 percent to D22.4 billion.  Reserve money, the Bank’s operating target, grew by 24.2 percent in March 2018 relative to 18.1 percent a year ago. 
  1. Private sector credit growth is recovering strongly following slowdown in government borrowing. Private sector credit grew by 6.2 percent in March 2018, the highest since 2014. On the other hand, the banking system’s net claims on government contracted by 5.8 percent. 
Inflation
  1. Consumer price inflation as measured by the National Consumer Price Index (NCPI) declined from 8.7 percent in April 2017 to 6.6 percent in April 2018. Compared to March 2018, inflation edged up slightly by 0.1 percentage point driven by marginal increase in non-food inflation due mainly to temporal factors. However, Food inflation remains unchanged at 6.4 percent. 
Inflation Outlook
  1. The Committee observed that economic and business environment continue to improve, and recovery is gaining momentum, thanks to sound macroeconomic policies, strong international support and improved confidence. 
  1. With reduced government borrowing and decline in interest rates, private sector credit has started to recover.
  1. The Committee observed that prices edged up slightly in the run-up to the month of Ramadan. The Committee judges this to be a temporary development and that the outlook remains a further deceleration in inflation towards the Bank’s medium term target of 5 percent, premised on continued stability of exchange rate on the back of prudent monetary and fiscal policies.
  1. According to the forward looking business sentiment survey, all respondents indicated higher economic activity in the first quarter of 2018.
  1. However, the Committee noted that there are risks to inflation outlook including rising global commodity prices, particularly energy and food.  Furthermore, debt to GDP ratio of 130 percent poses major risk to the economy.
Decision
  1. Taken the above factors into consideration, the Committee decided to reduce the Policy rate by 1.5 percentage points to 13.5 percent.  This decision is to reinforce private sector credit growth particularly to small and medium size enterprises.  The committee will continue to closely monitor domestic and international economic developments and stands ready to act accordingly should economic conditions change.
Information Note
Introduction of interest rate corridor
The Monetary Policy Committee (MPC) of CBG would like to announce the introduction of an overnight interest rate corridor effective August 30, 2018.The main purpose of the corridor is to limit the short term interest rate volatility around the key monetary policy interest rate. Excessive interest rate volatility is undesirable for the smooth implementation of monetary policy. Lower volatility increases the effectiveness of the monetary policy rate and strengthens the interest rate channel of the monetary transmission mechanism.  In the interest rate corridor framework, standing lending and deposit facilities will be introduced. 
Date for the next MPC
The next Monetary Policy Committee (MPC) meeting is scheduled for August 29, 2018. The meeting will be followed by the announcement of the policy decision on August 30, 2018."

Fiji maintains rate and accommodative policy stance

May 31, 2018 by CentralBankNews   Comments (0)

      Fiji's central bank kept its benchmark Overnight Policy Rate (OPR) at 0.50 percent and said its monetary policy stance would remain accommodative in light of the stable outlook for its twin objectives of inflation and foreign reserves.
      The Reserve Bank of Fiji (RBF), which has maintained its rate since October 2011, noted inflation rose to 4.0 percent in April, the highest in 12 months, from 2.6 percent in March but this was mainly due to supply-side shocks in the aftermath of natural disasters last month and relatively higher prices for kava and vegetables.
      This impact is expected to subside in coming months as the supply of most agricultural items normalizes, RBF said.
      On May 11 the central bank forecast upward pressure on prices in coming months but inflation would then stabilize around 3.0 percent by year-end and then average around 2.5 percent in 2019 and 2020.
       Fiji was hit by Tropical Cyclone Winston in February 2016, the worst ever cyclone in the Southern Hemisphere, and then by Cyclones Josie and Keni in April this year, which caused severe flooding and killed four people.
      But RBF Governor Ariff Ali said consumption remains upbeat and the economy is expected to register its ninth consecutive year of growth in 2018. Economic growth in 2017 has been estimated at 4.2 percent.
      Earlier this month the central bank lowered its 2018 growth forecast to 3.2 percent from 3.6 percent due to the devastating impact on agriculture from the cyclones in early April.
      But for 2019 the growth outlook was revised upwards to 3.4 percent from 3.2 percent while the 2020 outlook was unchanged at 3.2 percent.
      There has been a robust recovery in gold and timber production along with positive results in tourism and electricity production, while the global economic upswing continues to strengthen, underpinned by the recovery in emerging market economies, higher trade and investment.
      "However, geopolitical tensions between the United States and Iran and the general increase in commodity prices could pose risks" to the outlook, Ali added.
      Fiji's foreign reserves rose to US2.163 billion as of May 31, up from $2.157 billion on March 29, sufficient to cover five months of imports and services, and are expected to remain at comfortable levels by year-end.
      In 2017 Fiji's foreign reserves rose by $351.6 million to $2.272.8 billion end-year.

     

      The Reserve Bank of Fiji issued the following statement:

"The Reserve Bank of Fiji Board has agreed to keep the Overnight Policy Rate unchanged at 0.5 percent following its monthly meeting on 31 May.
Announcing the decision, the Governor and Chairman of the Board, Mr Ariff Ali, stated thatsectoral performances in the year have been generally positive so far, attributed to robust recovery in gold and timber production coupled with positive outcomes noted for visitor arrivals andelectricity generation.” 
Governor Ali highlighted that “consumption activity remains upbeat as reflected in increased VAT collections, higher vehicle registrations, and rising commercial banks’lending.” He added that despite the natural disasters in early April, the economy is expected to register its ninth consecutive year of economic growth in 2018.
On the international front, Governor Ali stated that the global economic upswing continues to strengthen underpinned by the recoveries in emerging market economies and the increase in global trade and investment activities. However, geopolitical tensions between the United States and Iran and the general increase in commodity prices could pose risks to our macroeconomic outlook going forward.
Nevertheless, the outlook for the Reserve Bank’s twin monetary policy objectives remains intact.Annual inflation increased to 4.0 percent in April from 2.6 percent in March, attributed to supply- side shocks post-natural disasters and relatively higher prices for yaqona (kava) and vegetables. However, this is anticipated to subside in the months ahead as supply of most agricultural market items normalise. Foreign reserves were adequate at $2,163.3 million as at 31 May, sufficient to cover 5.0 months of retained imports of goods and non-factor services and are expected to remain at comfortable levels by year-end.
Governor Ali concluded that in light of the latest global and domestic economic developments and the stable outlook for inflation and foreign reserves, the monetary policy stance would remain accommodative. The Reserve Bank will continue to monitor economic developments closely and will align monetary policy as and when appropriate."

     www.CentralBankNews.info

Kyrgyzstan cuts rate 25 bps, to maintain current policy

May 29, 2018 by CentralBankNews   Comments (0)

      Kyrgyzstan's central bank lowered its policy rate, the discount rate, by 25 basis points to 4.75 percent to help stimulate economic activity and said it intended to adhere to the current direction of monetary policy for the forthcoming period, provided there are no external shocks.
      It is the first rate cut by the National Bank of the Kyrgyz Republic (NBKR) since December 2016 and takes place against a backdrop of growing aggregate demand and moderate inflation.
      Kyrgyzstan's inflation rate eased to 2.0 percent in April from 2.7 percent in March for the lowest rate since February last year as food prices declined on a favorable situation in international food markets, the central bank said.
      Based on the current recovery of domestic demand and stable dynamics of food prices, including imports, NBKR said it expects inflation to remain moderate and within its 5-7 percent inflation target.
      The economy of the Kyrgyz Republic is continuing to benefit from growing aggregate demand based on a steady increase in remittances from abroad, rising real wages and growth among its trading partners.
      The economy expanded by an annual rate of 1.3 percent in the first quarter of this year, down from 4.5 percent in the fourth quarter of last year, and the central bank expects growth this year to remain close to its potential level.

      www.CentralBankNews.info
     

Turkey sets repo rate as policy rate, raises it 850 bps

May 28, 2018 by CentralBankNews   Comments (0)

      Turkey's central bank lived up to past promises and simplified its monetary policy framework, setting the one-week repurchase rate as its new policy rate and raising it by 8.50 percentage points to 16.50 percent, the current level of the late liquidity lending rate.
      In a brief statement the Central Bank of the Republic of Turkey (CBRT) said the new operational framework would take effect on June 1, and the overnight borrowing and lending rate would be set 150 basis points below and above the one-week repo rate.
      Several years ago Turkey's central bank said it was planning to simplify the operational aspects of its monetary policy but this talk then quieted in 2016 following a failed coup attempt that July and then the election of Donal Trump as U.S. president, which dented Turkish asset prices.
      Since then CBRT has used five different rates to control interest market rates and the attractiveness of Turkish assets, including the lira. This included the one-week repo rate, an overnight  funding and borrowing rate, and a late liquidity borrowing and lending rate.
      While the repo rate was last raised in November 2016 to 8.0 percent, CBRT has been tightening its monetary policy by other means, such as the rate it pays on local lenders' U.S. dollar reserves and require reserve ratios, and raising the volume of foreign exchange deposits.
       Since early 2017 the central bank has been using the late liquidity lending rate as its main tool to tighten its policy stance in response to high inflation from lira depreciation.
      This year alone, the late liquidity rate - used by banks to access funds shortly before local markets' close - has been raised 375 basis points, including last week's 300 basis point hike to 16.50 percent. Since 2017 the late liquidity lending rate has been raised by 650 points.
       Last week's hike in the late liquidity rate came in response to a fresh bout of pressure on the lira from investors who are unnerved by President Tayyip Erdogan's statements that he would exert greater control over the central bank if he win's the presidential elections on June 24.
       Erdogan has long been a vocal opponent of the central bank's tight monetary policy, claiming high inflation is a result of its high interest rates, an argument that runs counter to economic theory and practice.
       The lira reacted swiftly to the central bank's simplification of its policy framework, jumping 3.0 percent to 4.56 to the U.S. dollar. But the lira still remains almost 17 percent below the level at the start of this year.
      Turkey's headline inflation rate rose to 10.85 percent in April from 10.23 percent in March while core inflation rose to 12.2 percent.
       Last month the central bank raised its 2018 inflation forecast to 8.4 percent from 7.9 percent but retained its 2019 forecast of 6.5 percent and its medium-term outlook for inflation of 5 percent.

      www.CentralBankNews.info


This week in monetary policy: Israel, Kenya, Kyrgyzstan, Indonesia, Mauritius, Canada, Fiji, Bulgaria, Gambia & Dominican Rep.

May 27, 2018 by CentralBankNews   Comments (0)

      This week - May 27 through June 2 - central banks from 10 countries or jurisdictions are scheduled to decide on monetary policy: Israel, Kenya, Kyrgyz Republic, Indonesia, Mauritius, Canada, Fiji, Bulgaria, Gambia and Dominican Republic.
      Indonesia's central bank will hold an additional monthly meeting of its board of governors on Wednesday, May 30, triggering speculation that it will raise interest rates for the second time in less than two weeks to shore up the exchange rate of its rupiah and Indonesian assets. 
      On May 17 Bank Indonesia raised its benchmark BI 7-day reverse repo rate by 25 basis points to 4.50 percent - its first rate hike since November 2014 - but this did little to reverse the fortunes of the rupiah which has weakened in the last month.
      Wednesday's meeting by BI's board will be the first to be chaired by Perry Wariyo who took over from Agus Martowardojo on May 24.
      Wednesday also sees the first meeting of the Bank of Mauritius' new monetary policy committee, which includes three new members.
      On May 15 Mauritius' central bank reconstituted its monetary policy committee and postponed a meeting scheduled for May 18 to May 30 "due to administrative matters."
      The new committee will again be chaired by Yandraduth Googoolye, who took over as governor in December 2017, and includes previous members: Renganaden Padayachy, Mahendra Vikramdass Punchoo, Mustag Mohammad Namdarkhan, Streevarsen Narrainen.
      The new committee members are Sanjeev Sobhee  and Lim Chang Kwong Lam Thuon Mine, both appointed by the prime minister,  along with Ms. Pricilla Pattoo, who is appointed by the finance and economic development minister.
      The Bank of Mauritius has for several years been preparing to implement a new monetary policy framework to improve the responsiveness of market interest rates to changes in the policy rate.
      Following table includes the name of the country, the date of the next policy decision, the current policy rate, the result of the last policy decision, the change in the policy rate year to date, the rate one year ago, and the country’s MSCI classification.
     The table is updated when the latest decisions are announced and can always accessed by clicking on This Week.
WEEK 22
MAY 27 - JUN 2, 2018:
COUNTRY                    DATE                      RATE                 LATEST                     YTD               1 YR AGO       MSCI
ISRAEL 28-May 0.10% 0 0 0.10%          DM
KENYA 28-May 9.50% -50 -50 10.00%          FM
KYRGYZSTAN 28-May 5.00% 0 0 5.00%
INDONESIA *) 30-May 4.50% 25 25 4.75%          EM
MAURITIUS 30-May 3.50% 0 0 4.00%          FM
CANADA 30-May 1.25% 0 0 0.50%          DM
FIJI 31-May 0.50% 0 0 0.50%
BULGARIA 31-May 0.00% 0 0 0.00%          FM
GAMBIA 31-May 15.00% 0 0 20.00%
DOMINICAN REP. 31-May 5.25% 0 0 5.75%
*) ADDITIONAL MONTHLY MEETING

Indonesia to hold unscheduled meeting, rupiah rises

May 26, 2018 by CentralBankNews   Comments (0)

      Indonesia's central bank will hold "an additional" monthly meeting of its governors on May 30, igniting speculation that it will raise its key interest rates for the second time this month.
       Bank Indonesia (BI) said in a brief statement on Friday the additional meeting of its board of governors (RDG) would not replace the regular monthly meeting, which is scheduled for June 28.
       "This additional monthly RDG will discuss current economic and monetary conditions and future prospects," BI said.
       On May 17 BI raised its benchmark BI 7-day reverse repo rate by 25 basis points to 4.50 percent its first rate hike since November 2014, "amid the escalating risks in the global financial market and global liquidity downturn." BI's other key rates, the deposit and lending facility rates, were also raised by 25 points.
       BI added on that day that it was "ready to implement stronger measures to maintain macroeconomic stability" and the governor subsequently said he was prepared to raise rates further.
        Since that board meeting, Perry Wariyo has taken over as governor after Agus Martowardojo's 5-year term expired.
       At the press conference in connection with his inauguration on May 24, Wariyo said his priority in the short term was to stabilize the rupiah through interest rates, adding he intended to be more pre-emptive in monetary settings.
       So far BI's main instruments in curbing the rupiah's decline has been raising interest rates combined with the sales of U.S. dollars and the purchase of government bonds from foreign sellers.
       Last week BI also conducted three foreign exchange swap auctions to ensure enough rupiah liquidity following the rate hike and currency market interventions, up from two the previous week and one each week in April.
       Immediately following last weeks' rate hike, the rupiah continued to slide to hit 14,210 on Thursday to the dollar, down 4.5 percent since the start of the year.
       But news on Friday of the unscheduled board meeting led to a bounce in the rupiah, which rose to 14,037 per dollar late that day, down 3.3 percent this year.
       Indonesia's economy has slowed in the last two quarters, with annual growth in the second quarter of 5.06 percent. In its last statement, BI forecast growth this year of 5.1-5.5 percent and in his press conference Warjiyo forecast growth of 5.2 percent.
       He also forecast inflation near the midpoint of the central bank's target range of 3.5 percent, plus/minus 1 percentage point.
       In April Indonesia's inflation rate was steady from March at 3.4 percent.

       www.CentralBankNews.info

Angola unifies lending and basic rate, cuts reserve ratio

May 24, 2018 by CentralBankNews   Comments (0)

      Angola's central bank unified its marginal lending facility with its basic interest rate as the BNA rate, which it said would now reflect the effective cost of providing liquidity to commercial banks.
      As part of the change, the National Bank of Angola (BNA) lowered the rate on its marginal lending facility by 200 basis points to 18.00 percent, the existing basic interest rate.
      The BNA also lowered the ratio on mandatory reserves in national currency liabilities by 200 basis points to 19.0 percent while the rate on the liquidity absorption facility was kept at zero percent.
      The adoption of a unified rate is the latest move by the central bank to change its monetary operations following the arrival of Jose Massano as BNA governor in October last year.
       In January the BNA replaced its fixed exchange rate regime with a floating exchange rate regime with bands and began auctions to set a reference rate for the kwanza, which subsequently depreciated.
       Against the U.S. dollar, the kwacha has been dropping steadily since the new exchange rate regime began on Jan. 9, with the kwacha today trading at 234.7 today, down 29.3 percent.
       The BNA said the latest change was aimed at improving the effectiveness of its monetary policy instruments and thus contribute to macroeconomic stabilization and a sound financial system.
       In the future, the central bank's monetary policy committee will now meet bi-monthly, with the next meeting scheduled for July 20.
       Angola's inflation rate declined for the sixth consecutive month in April to 20.22 percent and was sharply down from just over 41 percent in December 2016.
       The monetary base, which became an operational variable of monetary policy in November last year, shrunk by 2.48 percent in April for a year-on-year increase of 10.11 percent, BNA said.
       Credit issued in the national currency grew by 0.88 percent in April from March for an annual increase of around 8.73 percent, the BNA said, while it sold a total of 596.33 million euros for accumulated sales this year of 2.842.13 billion euros.
       Gross International reserves declined to $US17.55 billion in April from $17.70 billion in March, enough to finance 7.31 months of imports.
        Earlier this week the International Monetary Fund (IMF) welcomed the reform program adopted by President Joao Lourenco, which took over from Jose Eduardo dos Santos last September, vowing to root out an endemic culture of corruption. Dos Santos had been in power almost 38 years.
        Lourenco's reform program envisages upfront fiscal consolidation, greater exchange rate flexibility, reducing public debt to 60 percent of Gross Domestic Product, improving the public debt profile, settling domestic payments arrears and enhancing anti-money laundering.
        The rise in crude oil prices is giving Angola an opportunity to address its macroeconomic imbalances after the plunge in oil prices in 2014 was met by fiscal tightening and foreign exchange restrictions. In the run-up to the August 2017 elections, the government then embarked on fiscal expansion and a pegged exchange rate that further eroded fiscal and external buffers.
        The IMF welcomed Angola's transition to greater exchange rate flexibility and the new monetary policy framework that is anchored on base money targeting consistent with an inflation objective.
        But it also stressed the need for the central bank to gradually phase out direct foreign exchange sales and to set a clear strategy and timetable for eliminating foreign exchange restrictions.
        The IMF forecast that Angola's economy would expand 2.2 percent this year, up from an estimated 1.0 percent last year, and 2.5 percent in 2019.
       Inflation is seen declining to an average of 27.8 percent this year from 2017's estimated 31.7 percent and then easing further to 17.1 percent in 2019.

      www.CentralBankNews.info

       

Turkey raises late lending rate 300 bps to curb inflation

May 23, 2018 by CentralBankNews   Comments (0)

      After weeks of speculation and pressure on the lira's exchange rate, Turkey's central bank raised its its late liquidity lending rate by 300 basis points to 16.50 percent and said it would use all available instruments in pursuit of price stability and continue to maintain a tight policy stance until there is a "significant improvement" in the outlook for inflation.
      The Central Bank of the Republic of Turkey (CBRT) said after an extraordinary meeting of its monetary policy committee that elevated levels of inflation and inflation expectations continue to pose a risk and it had "decided to implement a strong monetary tightening to support price stability."
      The rate hikes comes after top government economic officials on Monday met to discuss measures, including moves by the central bank, to address the pressure on the lira and accelerating inflation amid growing investor discomfort with President Tayyip Erdogan's determination to exercise control over monetary policy after June 24 elections and thus erode central bank independence.
       In response to the sharp rate hike, the lira jumped 6.6 percent to 4.56 to the U.S. dollar from a record low of 4.86. However, the lira is still almost 17 percent below its rate at the start of 2018.

      It is the central bank's second hike of its late liquidity lending rate this year and the rate has now been raised by 375 basis points this year and by 650 points since the start of 2017. 

       The previous increase of the rate on the bank's late liquidity window - used by banks to access funds shortly before local markets' close - came on April 25 when the rate was raised by 75 basis points.
      Keeping some of its power dry, the central bank left its benchmark one-week repurchase rate steady at 8.0 percent along with its other policy rates.
      While the repo rate has been kept steady November 2016, the CBRT has been tightening its policy stance by other means, including the late liquidity lending rate, the rate it pays on local lenders' U.S dollar reserves and required reserve ratios, and raising volume of foreign exchange deposits to boost the value of the lira and slow down inflation.
       On April 30 the central bank said it was moving closer to using a single interest rate as a policy rate, something analysts have long hoped for as the current system with multiple rates has made monetary policy less predictable and transparent,.
      Turkey's headline inflation rate rose to 10.85 percent in April from 10.23 percent in March while core inflation rose to 12.2 percent.
       Last month the central bank raised its 2018 inflation forecast to 8.4 percent from 7.9 percent but retained its 2019 forecast of 6.5 percent and its medium-term outlook for inflation of 5 percent.
       The CBRT's monetary policy committee had been scheduled to meet on June 7.

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