<![CDATA[Hedgehogs.net: Ken Yeadon's connections' blogs]]> http://www.hedgehogs.net/pg/blog/keny/friends/?view=rss http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11632826/russia-holds-rate-to-bring-down-inflation-expectations Fri, 29 Jul 2016 16:07:32 +0100 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11632826/russia-holds-rate-to-bring-down-inflation-expectations <![CDATA[Russia holds rate to bring down inflation expectations]]>     Russia's central bank maintained its key policy rate at 10.50 percent, as expected, saying the recent decline in inflation expectations had stalled but that it would consider further rate cuts when inflation decelerates further, as it expects.
    The Bank of Russia, which cut its rate last month for the first time since July 2015, added that was keeping rates "at a level that encourages savings, brings down inflation expectations and promotes sustainable inflation reduction to the target level."
     Russia's headline inflation rate rose slightly to 7.5 percent in June from 7.3 percent in May, but then resumed its easing trend this month as expected, falling to 7.2 percent as of July 25, the central bank said, helped by a steady financial market, weak consumer demand and administered prices.
     "At the same time, there has been a stop in the decline of core inflation, seasonally adjusted monthly growth rates of consumer prices and inflation expectations," the central bank said.
    Russia's core inflation rate was steady at 7.5 percent in June and May, down only slightly from 7.6 percent in April.
    But the central bank expects inflation and inflation expectations to ease further due to low demand and an expected good crop yield.
    The central bank confirmed that it still expects inflation to reach its target level of 4 percent by late 2017 as it dips below 5 percent in July 2017.
    Russia's economy is continuing to recover, the bank said, with positive growth in the second half of this year "possible" and annual growth rates entering positive territory next year.
    However, some industries are still stagnating or contracting while investment continues to decline while non-commodity exports are still expanding and import substitution is rising.
   Russia's Gross Domestic Product shrank by an annual rate of 1.2 percent in the first quarter of this year, up from a fall of 3.8 percent in the fourth quarter of last year.

      The Bank of Russia issued the following statement:
"On 29 July 2016, the Bank of Russia Board of Directors decided to keep the key rate at 10.50 percent per annum. The Board notes that inflation dynamics and the nascent rebound in economic activity are overall aligned to the Bank of Russia’s baseline forecast. However, the decline in inflation expectations has stalled. This decision, along with the maintenance of moderately tight monetary policy, will help deliver on the inflation target. The Bank of Russia forecasts that the annual growth rate of consumer prices will be less than 5% in July 2017, to reach the target of 4% in late 2017. The Bank of Russia will consider the possibility of a further rate cut based on estimates for inflation risks and the alignment of inflation decline with the forecast trajectory. 
In making the key rate decision, the Board of Directors of the Bank of Russia was guided by the following considerations:
First. Inflation is currently slowing down in line with the Bank of Russia’s baseline forecast. This is helped by the economic environment including steady Russian financial market, persistently weak consumer demand and the indexation of administered prices and rates as previously planned. The Bank of Russia estimates the annual growth rate of consumer prices to decline, as of 25 July 2016, to 7.2%. At the same time, there has been a stop in the decline of core inflation, seasonally adjusted monthly growth rates of consumer prices and inflation expectations. The slowdown of inflation is set to continue, primarily triggered by demand-side constraints. The lower â€” compared to last year’s â€” indexation of administered prices and rates in July, as well as the expectations for good crops, will contribute to the slowdown of inflation, helping recede inflation expectations. According to the Bank of Russia forecast, as the moderately tight monetary conditions remain in place, annual inflation will dip below 5% in July 2017 to reach the target level of 4% by late 2017.
Second. The tight monetary conditions will be maintained, although somewhat eased following the contraction of the banking sector’s liquidity deficit and the June 2016 reduction in the Bank of Russia key rate. The real interest rates in the economy (adjusted for inflation expectations) will stay at a mark where demand for credit will be met without heightened inflationary pressure, retaining the incentives to save. To enable operating control over the level and structure of market interest rates, in the context of the switchover to a nascent liquidity surplus in the banking sector, the Bank of Russia will use the appropriate toolset to absorb liquidity.
Third. Production recovery fails to cause consumer price growth amid slack demand. Import substitution steps up and non-commodity exports expand. Economic dynamics are patchy across sectors and regions. Industry, including manufacturing, discovers new opportunities for growth. At the same time, certain industries stagnate or show lower output growth, while investment continues to contract. Nevertheless, the trend for economic recovery prevails. Positive quarterly growth of GDP is possible in the second half of the year. Annual GDP growth is predicted to enter positive territory in 2017. 
Fourth. The risks of failure to deliver on the 4% inflation target in 2017 persist following primarily, along with the external risks, the inertia of inflation expectations and the uncertainty over specific fiscal consolidation measures, including wage and pension indexation. The emerging trend towards wage increase and deposit rate cut may undermine households’ propensity to save. To alleviate these risks, the Bank of Russia has to keep rates at a level that encourages saving, brings down inflation expectations and promotes sustainable inflation reduction to the target level. 
The Bank of Russia will consider the possibility of a further rate cut based on estimates for inflation risks and the alignment of inflation decline with the forecast trajectory. 

The Bank of Russia Board of Directors will hold its next rate review meeting on 16 September 2016. The press release on the Bank of Russia Board decision is to be published at 13:30 Moscow time."

http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11632818/boj-boosts-etf-purchases-usd-lending-program Fri, 29 Jul 2016 07:06:12 +0100 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11632818/boj-boosts-etf-purchases-usd-lending-program <![CDATA[BOJ boosts ETF purchases, USD lending program]]>     Japan's central bank once again widened its highly accommodative monetary policy stance by increasing its purchases of exchange-traded funds (ETFs) and its U.S. dollar lending program to support Japanese firms' overseas activities.
    The Bank of Japan (BOJ), which surprised financial markets in January by applying a negative interest rate of minus 0.1 percent on banks' deposits that exceed reserve requirements, will double its purchases of ETFs to an annual pace of 6 trillion yen from 3.3 trillion and also double the U.S. dollar lending program to US$24 billion - about 2.5 trillion yen - from $12 billion to provide dollars for up to 4 years to support Japanese firms activities abroad through financial institutions.
    The latest initiative to boost economic activity and inflation was described as "enhancement of monetary easing" by the BOJ and aimed at preventing  international uncertainties, such as the U.K.'s decision to leave the European Union (EU) and slower growth in emerging markets, from leading to a deterioration in domestic business confidence and consumer sentiment as well as ensure smooth funding in foreign currencies by Japanese firms and financial institutions.
    The BOJ noted that Japan's government is currently compiling a large-scale stimulus package along with fiscal and structural policy initiatives, which together with its own measures should "provide synergy effects on the economy."  The package has been estimated at 20-30 trillion yen.
    The other planks in the BOJ's aggressive easing campaign, which goes back to April 2013 when it launched an aggressive campaign to rid the country of 15 years of deflation, were unchanged. This includes a goal of boosting the monetary base by an annual 80 trillion yen and applying a negative interest rate of minus 0.1 percent on some current account balances.
    Once again, the BOJ also lowered its forecast for economic growth in the current 2016 fiscal year, which began April 1, to 1.0 percent from 1.2 percent forecast in April, partly due to slow growth in emerging economies and uncertainties associated with the U.K. vote to leave the EU.
    The forecast for inflation was trimmed to 0.1 percent from 0.5 percent, reflecting an appreciation of the yen's exchange rate and a delay in any improvement to inflation expectations.
    The BOJ expects consumer price inflation to be slightly negative or around 0 percent due to the fall in energy prices, but then slowly accelerate toward the 2.0 percent target. In June Japan's headline inflation rate was steady at minus 0.4 percent .
    But for fiscal 2017 members of the BOJ's policy board raised their growth forecast to 1.3 percent from a previous 0.1 percent, reflecting the government's decision to postpone the planned hike in consumption taxes in April 2017 until October 2019 and demand linked to the Olympic Games.
    Inflation in 2017 is now seen rising to 1.7 percent, unchanged from April's forecast that excluded the impact of the planned hike in consumption tax to 10 percent from 8 percent, but below the previous 2.7 percent forecast for headline inflation.
    But the BOJ added that it expects the inflation rate to reach 2 percent during fiscal 2017 and then average around 2 percent thereafter.
    For fiscal 2018 the growth forecast was trimmed to 0.9 percent form 1.0 percent while the inflation forecast was unchanged at 1.9 percent.
    "Looking ahead, sluggishness is expected to remain in exports and production for some time, and the pace of economic recovery is likely to remain slow," the BOJ said, with domestic demand slowly trending higher and exports to rise as overseas economies, including advanced economies, strengthen.

    The Bank of Japan issued the following statement:

"Enhancement of Monetary Easing
1. Against the backdrop of the United Kingdom's vote to leave the European Union and the slowdown in emerging economies, uncertainties surrounding overseas economies have increased and volatile developments have continued in the global financial markets. In order to prevent these uncertainties from leading to a deterioration in business confidence and consumer sentiment as well as to ensure smooth funding in foreign currencies by Japanese firms and financial institutions, thereby supporting their proactive economic activities, at the Monetary Policy Meeting (MPM) held today, the Policy Board of the Bank of Japan decided upon the following.
  1. (1)  An increase in purchases of exchange-traded funds (ETFs) by a 7-2 majority vote[Note 1]
    The Bank will purchase ETFs so that their amount outstanding will increase at an annual pace of about 6 trillion yen1 (almost double the previous pace of about 3.3 trillion yen).

  2. (2)  Measures to ensure smooth funding in foreign currencies by Japanese firms and financial institutions by a unanimous vote
    a) Increasing the size of the Bank's lending program to support growth in U.S. dollars The Bank will increase the size of its lending program to support growth in U.S. dollars (the Special Rules for the U.S. Dollar Lending Arrangement to Enhance the Fund-Provisioning Measure to Support Strengthening the Foundations for Economic Growth Conducted through the Loan Support Program) to 24 billion USD (about 2.5 trillion yen; double the previous size of 12 billion USD). Under this lending program, the Bank provides its U.S. dollar funds for a period of up to 4 years to support Japanese firms' overseas activities through financial institutions.

    b) Establishing a new facility for lending securities to be pledged as collateral for the U.S. Dollar Funds-Supplying Operations The Bank will establish a new facility in which it lends Japanese government securities (JGSs) to financial institutions against their current account balances with the Bank so that these JGSs can be pledged as collateral for the U.S. Dollar Funds-Supplying Operations.
2. With regard to the guideline for money market operations, the guidelines for asset purchases except for ETF purchases, and the policy rate, the Bank decided to leave these unchanged.
  1. (1)  Quantity Dimension: The guideline for money market operations
    The Bank decided, by an 8-1 majority vote, to set the following guideline for money market operations for the intermeeting period:[Note 2]
    The Bank of Japan will conduct money market operations so that the monetary base will increase at an annual pace of about 80 trillion yen.

  2. (2)  Quality Dimension: The guidelines for asset purchases
    With regard to the asset purchases, the Bank decided, by an 8-1 majority vote, to set the following guidelines:[Note 2]
    1. a)  The Bank will purchase Japanese government bonds (JGBs) so that their amount outstanding will increase at an annual pace of about 80 trillion yen. With a view to encouraging a decline in interest rates across the entire yield curve, the Bank will conduct purchases in a flexible manner in accordance with financial market conditions. The average remaining maturity of the Bank's JGB purchases will be about 7-12 years.
    2. b)  The Bank will purchase Japan real estate investment trusts (J-REITs) so that their amount outstanding will increase at an annual pace of about 90 billion yen.
    3. c)  As for CP and corporate bonds, the Bank will maintain their amounts outstanding at about 2.2 trillion yen and about 3.2 trillion yen, respectively.

      (3) Interest-Rate Dimension: The policy rate
      The Bank decided, by a 7-2 majority vote, to continue applying a negative interest rate of minus 0.1 percent to the Policy-Rate Balances in current accounts held by financial institutions at the Bank.[Note 3]
      1. The Government is undertaking fiscal and structural policy initiatives, including a large-scale "stimulus package," which is currently being compiled. The Bank will pursue "Quantitative and Qualitative Monetary Easing (QQE) with a Negative Interest Rate" including measures decided today and provide highly accommodative financial conditions. The Bank believes that these monetary policy measures and the Government's initiatives will produce synergy effects on the economy.
      2. The Bank will continue with "QQE with a Negative Interest Rate," aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner. It will examine risks to economic activity and prices, and take additional easing measures in terms of three dimensions -- quantity, quality, and the interest rate -- if it is judged necessary for achieving the price stability target.[Note 4]
      3. As shown in the July 2016 Outlook for Economic Activity and Prices (Outlook Report) released today, there is considerable uncertainty over the outlook for prices against the background of uncertainties surrounding overseas economies and global financial markets. Against this backdrop, with a view to achieving the price stability target of 2 percent at the earliest possible time, the Bank will conduct a comprehensive assessment of the developments in economic activity and prices under "QQE" and "QQE with a Negative Interest Rate" as well as these policy effects at the next MPM. The Chairman instructed the staff to prepare for deliberations at the next meeting.

        1 Of about 6 trillion yen, 300 billion yen is used in line with the implementation of a program for purchasing ETFs composed of stocks issued by firms that are proactively investing in physical and human capital, as decided at the MPM held in December 2015.  

        [Note 1] Voting for the action: Mr. H. Kuroda, Mr. K. Iwata, Mr. H. Nakaso, Mr. Y. Harada, Mr. Y. Funo, Mr. M. Sakurai, and Ms. T. Masai. Voting against the action: Mr. T. Sato and Mr. T. Kiuchi. Mr. T. Sato dissented considering that ETF purchases of about 6 trillion yen annually would be excessive in light of their adverse impact on the price mechanism in the stock market and the Bank's financial soundness. Mr. T. Kiuchi dissented because an increase in ETF purchases would (1) impair the Bank's financial soundness, (2) lead to a rise in volatility in the stock market, and (3) give a wrong impression that the Bank targeted stock prices.

        [Note 2] Voting for the action: Mr. H. Kuroda, Mr. K. Iwata, Mr. H. Nakaso, Mr. T. Sato, Mr. Y. Harada, Mr. Y. Funo, Mr. M. Sakurai, and Ms. T. Masai. Voting against the action: Mr. T. Kiuchi. Mr. T. Kiuchi proposed that the Bank conduct money market operations and asset purchases so that the monetary base and the amount outstanding of its JGB holdings increase at an annual pace of about 45 trillion yen, respectively. The proposal was defeated by a majority vote.
        [Note 3] Voting for the action: Mr. H. Kuroda, Mr. K. Iwata, Mr. H. Nakaso, Mr. Y. Harada, Mr. Y. Funo, Mr. M. Sakurai, and Ms. T. Masai. Voting against the action: Mr. T. Sato and Mr. T. Kiuchi. Mr. T. Sato and Mr. T. Kiuchi dissented considering that an interest rate of 0.1 percent should be applied to current account balances excluding the amount outstanding of the required reserves held by financial institutions at the Bank, because negative interest rates would impair the functioning of financial markets and financial intermediation as well as the stability of the JGB market.
        [Note 4] Mr. T. Kiuchi proposed that the Bank, with the aim to achieve the price stability target of 2 percent in the medium to long term, continue with asset purchases and a virtually zero interest rate policy as long as each of these policy measures was deemed appropriate under flexible policy conduct based on the examination from the two perspectives of the monetary policy framework. 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. T. Sato, Mr. Y. Harada, Mr. Y. Funo, Mr. M. Sakurai, and Ms. T. Masai."


http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11632813/egypt-maintains-rate-on-balanced-risk-to-inflation-growth Thu, 28 Jul 2016 23:16:47 +0100 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11632813/egypt-maintains-rate-on-balanced-risk-to-inflation-growth <![CDATA[Egypt maintains rate on balanced risk to inflation, growth]]>     Egypt's central bank left its key policy rates steady, as expected by most economist, saying the current rates were appropriate given the balance of risks surrounding the outlook for inflation and economic growth.
    In its statement, the Central Bank of Egypt's (CBE) monetary policy committee dropped last month's reference to the need for fiscal consolidation. Egypt is expected to replace its current sales tax with a long-awaited Value Added Tax (VAT) by September as part of a fiscal reform that also aims to cut energy subsidies to help trim the budget deficit.
    The CBE, which has raised its rates by a total of 250 basis points following hikes in March and June, acknowledged the headline inflation rate accelerated to 13.97 percent in June from 12.30 percent in May but noted the monthly rate had dropped to 0.78 percent from 3.05 percent in May.
    The rise in inflation was partly due to unfavorable base effects and inflation was also pushed up by higher food prices, particularly red meat and poultry, along with seasonal increases for clothing and footwear in connection with Eid-Al-Fitr festivities that mark the end of Ramadan.
    The central bank made little reference to the exchange rate of the Egyptian pound apart from saying that the pass-through of previous movements to domestic prices remained limited.
    Last week CBE Governor Tarek Amer said to a local news agency that the time was not right to float the pound, with a devaluation depending on what the bank considers to be an appropriate time.
    The pound is currently trading around 8.88 to the U.S. dollar following an almost 14 percent devaluation in March to help relieve years of foreign currency shortage by creating a more favorable investment climate and attract capital inflows.
    However, a black market for foreign currency continues to exist, with the pound trading above 11 to the dollar.
    The CBE's main benchmark overnight deposit rate was maintained at 11.75 percent, the overnight lending rate at 12.75 percent and the rate on its main operation at 12.25 percent. The discount rate was left at 12.25 percent.

    The Central Bank of Egypt issued the following statement:

"In its meeting held on July 28, 2016, the Monetary Policy Committee (MPC) decided to keep the overnight deposit rate, overnight lending rate, and the rate of the CBE's main operation unchanged at 11.75 percent, 12.75 percent, and 12.25 percent, respectively. The discount rate was also kept unchanged at 12.25 percent.

Headline year-on-year inflation rose to 13.97 percent in June 2016 from 12.30 percent in May 2016, while the month-on-month rate dropped to 0.78 percent in June from 3.05 percent in May. Core inflation rose to 12.37 percent in June 2016 from 12.23 percent in May 2016, while the month-on-month rate dropped to 0.74 percent in June from 3.15 percent in May.

Annual headline inflation in June 2016 was partly affected by unfavorable base effects from the previous year and remained elevated due to the relatively high month-on-month inflation in May 2016. Monthly headline inflation in June 2016 came mainly on the back of higher prices of volatile food items, in addition to core food items, particularly red meat and poultry. Furthermore, monthly headline inflation was affected by retail items, particularly seasonal increases in the prices of clothing and footwear associated with the Eid-Al-Fitr festivities. The pass-through of previous exchange rate movements to domestic prices as measured by the consumer price index remained limited.

Output remained unfavorably impacted by domestic as well as external factors. Domestic demand contributed 4.8 percentage points to the 4.5 percent real GDP growth in the first half of 2015/16, while net external demand contributed negative 0.3 percentage points. By sector, the services sector was the highest contributor to economic growth, particularly construction and real estate, while tourism contributed negatively. Furthermore, growth continued to be supported by internal trade, agriculture and the general government sectors, whereas the industrial sector contributed negatively mainly due to continued weakness in the mining activity, but also due to negative contribution of non-petroleum manufacturing.

At this juncture, the MPC judges that the key CBE rates are currently appropriate given the balance of risks surrounding the inflation and GDP outlooks."


http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11632808/ukraine-cuts-rate-100-bps-and-expects-further-easing Thu, 28 Jul 2016 15:48:42 +0100 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11632808/ukraine-cuts-rate-100-bps-and-expects-further-easing <![CDATA[Ukraine cuts rate 100 bps and expects further easing]]>     Ukraine's central bank cut its key policy rate by another 100 basis points to 15.50 percent and said it would ease its policy stance further if the risks to price stability continue to abate, as it expects.
    The National Bank of Ukraine (NBU) has now cut its rate by 650 basis points so far this year and by 1,450 points since starting its easing campaign in August last year in response to easing inflationary pressures and a stabilization of the hryvnia's exchange rate on financial markets.
    From April 2014 through March 2015 the NBU raised its rate by a total of 23.5 percentage points, with the key rate topping out at 30.0 percent to support the embattled hryvnia and prevent inflation from getting out of control.
    Ukraine's headline inflation rate decelerated further to 6.9 percent in June from 7.5 percent in May, continuing the fall from 60.9 percent in April 2015, and the central bank said actual inflation fell at an even faster pace due to low demand, a gradual appreciation of the hryvnia and high food supply.
    The decline in inflation, along with the exchange rate appreciation, also helped lower inflation expectations of households, businesses and the financial community, the NBU added.
    The hryvnia came under severe pressure in February 2014 following political unrest, the annexation of Crimea by Russia and armed conflict in Eastern Ukraine. Last year it lost 24 percent against the U.S. dollar although capital controls and rate hikes by the central bank slowed its fall.
    The hryvnia started out 2016 on a weak footing but since mid-March it has been rising and was trading at 24.8 to the dollar today, marginally down from 24.0 at the start of this year and unchanged from the NBU's last policy meeting in June.
    With international financial markets remaining broadly favorable, the central bank said it was able to continue to replenish its international reserves while not hampering a further rise in the exchange rate. Another relaxation of administrative measures last month did not destabilize the FX market.
    The central bank reiterated that it expects inflation to approach its target of 12 percent by the end of this year, mainly due to higher utility tariffs, and then 8 percent by the end of 2017, helped by a slowdown in imported inflation from lower exchange rate volatility and inflation expectations.
    Headline inflation may even drop below the 12 percent objective by the end of this year if the impact of subdued consumer demand, high crops and favorable external conditions has a stronger-than-forecast effect on inflation, the central bank said.
    The NBU maintained its forecast for economic growth of 1.1 percent by the end of this year and by 3.0 percent by the end of 2017, but lowered its forecast for the current account deficit to US$1.8 billion from $2.3 billion due to lower natural gas imports, better terms of trade, a high crop yield and larger private remittances from abroad.
     A detailed forecast will be published in the inflation report on Aug. 4.
    The National Bank of Ukraine published the following statement:

"The Board of the National Bank of Ukraine has decided to cut the key policy rate to 15.5 %, effective from 29 July 2016.   Further alleviation of risks to price stability enabled the NBU to  ease monetary policy, which  is consistent with  the need to achieve the NBU’s inflation objectives  set at 12% +/-3% for 2016 and 8% +/-2% for 2017.

In June 2016, headline inflation slowed to 6.9% yoy. Actual inflation decelerated at a faster-than-projected pace.  

Low aggregate demand, a gradual appreciation of the hryvnia exchange rate and a high supply of food products have contributed to the slowdown in inflation.

Real wages resumed growth in annual terms. However, as before,  consumer demand did not exert additional pressure on inflation.

With the external conditions remaining broadly favorable, the net foreign exchange supply was recorded in the domestic market. Under such circumstances, the NBU continued to purchase foreign currency to replenish its international reserves, while not hampering a gradual appreciation of the exchange rate. As anticipated, the consequences of June’s relaxation administrative restrictions appeared to be manageable and did not destabilize the FX market.

Also, a high supply of raw foods pushed food prices down in H1 2016.     

Overall, these factors contributed to the faster-than expected slowdown in core inflation, having more than offset a contribution from administered prices and tariffs as well as oil prices.

The slowdown of actual inflation, along with the exchange rate appreciation, contributed to improvements in inflation expectations of households, businesses and the expert community. 

As previously projected, the medium-term inflation objectives remain unchanged at 12% by the end of 2016 and 8% by the end of 2017.   

In H2 2016, annual headline inflation is expected to get close to the target, mainly due to the reflection of the upward adjustments in utility tariffs in statistics.

At the same time, inflation in respect of other consumer basket components (core inflation and raw food prices) is expected to slow at a faster pace. The faster-than-expected deceleration can be attributed to the slowdown in imported inflation in the wake of low exchange rate volatility and improved inflation expectations. 

The NBU has also maintained its annual real GDP growth forecast  unchanged at 1.1% by the end of 2016 and 3.0% by the end of 2017. However, we revised the current account deficit forecast downwards from USD 2.3 billion to USD 1.8 billion. The downward revision reflected lower natural gas imports, improvements in the terms of trade, projected high yield of crops and larger private remittances from abroad.

The headline inflation might come below the 2016 end-year inflation objective of 12% should assumptions other than those reflected in the baseline  forecast scenario materialize. These assumptions include more significant effects of subdued consumer demand, the oversupply in the domestic market resulting from a high yield of crops, and favorable external conditions.

In the medium term perspective, the resumption of cooperation with the IMF, absence of adverse shocks in external markets and de-escalation of hostilities in the east of Ukraine and, as a consequence, further improvements in inflation expectations remain the key factors supporting disinflation. 

Should the baseline forecast scenario materialize and risks to price stability abate further, the NBU move ahead with the monetary easing. This move will promote the reduction of borrowing costs and boost economic growth. 

The decision to cut the key policy rate to 15.5% is approved by NBU Board Decision No. 172-рш, dated 28 July 2016, On Key Policy Rate.

A detailed macroeconomic forecast will be published in the Inflation Report on 4 August 2016.

The next meeting of the NBU Board on monetary policy issues will be held as scheduled on 15 September 2016."



http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11632803/sri-lanka-raises-rates-50-bps-to-curb-inflation-pressure Thu, 28 Jul 2016 14:48:04 +0100 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11632803/sri-lanka-raises-rates-50-bps-to-curb-inflation-pressure <![CDATA[Sri Lanka raises rates 50 bps to curb inflation pressure]]>      Sri Lanka's central bank raised its key policy rates by another 50 basis points to "curb excessive demand in order to pre-empt the escalation of inflationary pressure and to support the balance of payments" and said it would continue to monitor economic development and adjust its monetary policy stance as necessary.
    The Central Bank of Sri Lanka raised its Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) by 50 basis points each to 7.0 percent and 8.50 percent, respectively. The two rates have now been raised by 100 points this year following a similar hike in February.
   "The Board is of the view that tightening of monetary policy in a forward looking manner will ensure the maintenance of inflation at mid-single digits in the medium term, which is supportive of the growth momentum in the economy," the bank said.
     Although most economists surveyed had not expected a rate hike, the move is not a completely surprise as it follows an acceleration of inflation and a sustained increase in domestic credit that widened the trade deficit.
    Sri Lanka's inflation rate rose to 6.0 percent in June from 4.8 percent in the previous month, the highest rate since October 2013 as prices were pushed up by an increase in Value-Added-Tax (VAT) to 15 percent from 11 percent to reduce a rising budget deficit.
    Despite rising market interest rates following the central bank's tightening earlier this year,  credit to the private sector by commercial banks rose by an annual rate of 28 percent in May, continuing the strong pace of 28.1 percent seen in April, and provisional data show that high growth of credit to the private sector continued in June, which the central bank said "could create excessive demand and high inflation in the economy in the future."
     Growing credit also widened the trade deficit, with the central bank noting the cumulative deficit for the first five months had risen by an annual 1.4 percent.
    Sri Lanka's rupee has been slowly but gradually depreciating since September last year and was trading at 145.8 to the U.S. dollar today, down 1.2 percent this year.

    The Central Bank of Sri Lanka issued the following statement:

"The increasing trend in both headline and core inflation continued, reflecting the rise in demand driven inflationary pressures in the economy. Supply side disruptions arising from adverse weather conditions and the revisions introduced to the tax structure by the government also contributed to the upward movement in inflation in the past two months. Meanwhile, in the real sector, the available indicators suggest a continuation of the growth momentum in economic activity. In particular, power generation, tourism and port related services, construction sector, investment goods imports as well as the purchasing managers’ indices (PMI) for manufacturing and services sectors have shown improvements over the past few months.

On the monetary front, market interest rates have adjusted upwards in response to the monetary tightening measures adopted in early 2016 and continued low levels of rupee liquidity in the domestic money market. Although some deceleration in the growth of broad money (M2b) supply was observed in the month of May 2016, monetary expansion remained above the desired levels. In spite of the increase in market interest rates, credit granted to the private sector by commercial banks increased at the high pace of 28.0 per cent, year-on-year, in May 2016, in comparison to 28.1 per cent in April 2016. Provisional data also indicates that the high growth of credit to the private sector has continued during the month of June as well. The continued appetite for bank credit by the private sector in spite of the upward movement in market interest rates could create excessive demand and high inflation in the economy in future.

The sustained increase in domestic credit also caused a wider trade deficit. Accordingly, the cumulative trade deficit during the first five months of 2016 registered an increase of 1.4 per cent, year-on-year. Increased earnings from tourism and other services exports, workers’ remittances, and long term financial flows to the government, eased the pressure on the balance of payments to some extent.

Taking into consideration the developments discussed above, the Monetary Board, at its meeting held on 28 July 2016, was of the view that further tightening of monetary policy is required to curb excessive demand in order to pre-empt the escalation of inflationary pressures and to support the balance of payments. Accordingly, the Monetary Board decided to increase the main policy interest rates of the Central Bank, namely, the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR), by 50 basis points each, to 7.00 per cent and 8.50 per cent, respectively, effective from the close of business on 28 July 2016. 

The Board is of the view that tightening of monetary policy in a forward looking manner will ensure the maintenance of inflation at mid-single digits in the medium term, which is supportive of the growth momentum in the economy. As such, the current policy adjustment is not expected to have a significant impact on the long end of the yield curve. The Central Bank will continue to monitor macroeconomic developments closely and make appropriate adjustments to the monetary policy stance, as necessary."


http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11632790/us-fed-holds-rate-but-george-returns-to-hawkish-stance Wed, 27 Jul 2016 19:27:01 +0100 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11632790/us-fed-holds-rate-but-george-returns-to-hawkish-stance <![CDATA[U.S. Fed holds rate but George returns to hawkish stance]]>     The central bank of the United States left its benchmark federal funds rate steady at 0.25-0.50 percent, as widely expected, but Ester George, president of the Kansas City Fed, voted to raise the rate by 25 basis points.
     The dissent by George is hardly a surprise and comes after she earlier this month said low rates were creating risks and welcomed the rebound in hiring in June, and that the issues surrounding Britain's decision to leave the European Union were more of a long-term concern.
     George already voted to raise the rate in March and April but then joined the majority in June by agreeing to keep the fed funds rate steady.

    The Board of Governors of the Federal Reserve System issued the following statement:

"Information received since the Federal Open Market Committee met in June indicates that the labor market strengthened and that economic activity has been expanding at a moderate rate. Job gains were strong in June following weak growth in May. On balance, payrolls and other labor market indicators point to some increase in labor utilization in recent months. Household spending has been growing strongly but business fixed investment has been soft. Inflation has continued to run below the Committee's 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will strengthen. Inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further. Near-term risks to the economic outlook have diminished. The Committee continues to closely monitor inflation indicators and global economic and financial developments.
Against this backdrop, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.
In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation.
This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; James Bullard; Stanley Fischer; Loretta J. Mester; Jerome H. Powell; Eric Rosengren; and Daniel K. Tarullo. Voting against the action was Esther L. George, who preferred at this meeting to raise the target range for the federal funds rate to 1/2 to 3/4 percent."

http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11632785/georgia-cuts-rate-25-bps-and-expects-to-ease-to-6 Wed, 27 Jul 2016 19:07:36 +0100 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11632785/georgia-cuts-rate-25-bps-and-expects-to-ease-to-6 <![CDATA[Georgia cuts rate 25 bps and expects to ease to 6%]]>     Georgia's central bank lowered its benchmark refinancing rate by a further 25 basis points to 6.75 percent as its continues to roll back its tight monetary policy stance and said it expects to cut the rate further to 6.0 percent in the medium term.
    The National Bank of Georgia (NBG) has now cut its rate by 125 basis points since April when it embarked on an easing cycle following last year's rate hikes that totaled 400 points.
    Today's rate cut follows last month's guidance that further policy softening would depend on the forecast for inflation.
    Georgia's inflation rate in June fell by more than expected to 1.1 percent from 2.1 percent in May as food prices fell more than expected amidst weak aggregate demand and declining inflation expectations.
    Foreign demand remains weak, the central bank said, with exports in the first half of the year down by 12 percent.
    The NBG targets inflation of 5 percent this year, then 4 percent in 2017 and 3 percent afterwards.


http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11632774/nigeria-hikes-rate-200-bps-to-boost-naira-curb-inflation Tue, 26 Jul 2016 19:17:32 +0100 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11632774/nigeria-hikes-rate-200-bps-to-boost-naira-curb-inflation <![CDATA[Nigeria hikes rate 200 bps to boost naira, curb inflation]]>      Nigeria's central bank raised its Monetary Policy Rate (MPR) by 200 basis points to 14.0 percent due to its concern over a significant rise in inflation but also recognized that it lacks the instruments to jumpstart growth and cannot undermine its primary mandate and stability of the financial system.
    The Central Bank of Nigeria (CBN) has now raised its rate by 300 basis points this year following a hike in March. The central bank's monetary policy committee voted by a majority of five to raise the rate while three members voted to maintain the rate.
    "The Committee noted that inflation had risen significantly, eroding real purchasing power of fixed income earners and dragging growth," the central bank said, adding that members of the MPC agree that the country is passing though a difficult phase, dealing with critical supply gaps, but remains concerned over recession and the prospects of negative growth.
    Nigeria's inflation rate accelerated to 16.5 percent in June from 15.6 percent in May, resulting in negative real interest rates, which discouraging savings, and doesn't support the recent flexible foreign exchange market as foreign investors remain lukewarm and unwilling to bring in new capital.
    "Members further noted that there existed a substantial amount of international capital in negative yielding investments globally and Nigeria stood a chance of attracting such investments with sound macroeconomic policies," the CBN said.
    An increase in the policy rate should give impetus for improving the liquidity of the foreign exchange market, the central bank said, helping boost manufacturing and industrial output.
    Nigeria's naira was trading at 310.3 to the U.S. dollar, down 36 percent this year.

    The Central Bank of Nigeria issued the following statement:

"The Monetary Policy Committee met on 25th and 26th July 2016 against the backdrop of fragile global and domestic economic and financial conditions. The Committee evaluated the global and domestic macroeconomic and financial developments in the first six months of 2016 and the outlook for the rest of the year. In attendance were 8 members.

International Economic Developments
The Committee noted the continued sluggish growth in global output, being underpinned by weak demand and slowing productivity. In addition to existing risks, rising debt levels in the Emerging Market Economies (EMEs), volatile financial markets and the vote of the United Kingdom to exit the European Union “BREXIT” have lessened the prospects for a more prosperous global economy in 2016. Consequently, the International Monetary Fund (IMF), in July 2016, further downgraded its
baseline forecast for global growth to 3.1 per cent from 3.2 in April. The Organisation of Economic Cooperation and Development (OECD) forecast for global output in 2016 is even less optimistic at 3.0 per cent. Slower global growth prospects is traced to weak trade, sluggish investment,protracted weak aggregate demand and low commodity prices; which have translated to output declines in the Emerging Market and Developing Economies (EMDEs). The Brexit vote has created widespread uncertainty and elevated volatility in the global financial markets.
The United States (US) economy grew by 0.8 per cent in Q1 of 2016, though, much lower than the 1.4 per cent growth recorded in the last quarter of 2015. The tapered growth was attributed to the goods sector which continues to struggle under the weight of declining factory activity; the hitherto resilient service sector is now losing steam while trade remains under pressure from a strong dollar and weak domestic demand.
The Japan economy grew at an annualized rate of 1.7 per cent in Q1 of 2016, a reversal of the negative growth recorded in Q4 of 2015. The Bank of Japan (BoJ) at its 15th-16th July meeting of the Monetary Policy Committee, maintained its monthly asset purchase at ¥6.7 trillion (US$63.93 billion), leaving the policy rate also unchanged at negative 0.1 per cent.
The Euro Area grew by 0.6 per cent in first quarter, 2016, up from 0.3 per cent, recorded in fourth quarter of 2015. Downside risks to the growth outlook have, however, risen following the Brexit vote. The Governing Council of the European Central Bank (ECB), at its meeting of July 21st, 2016, retained its key interest rates on the main refinancing operations, the marginal lending facility and the deposit facility at 0.00, 0.25 and -0.40 per cent, respectively, with the expectation that they would remain at present or lower levels for an extended period of time. The ECB also sustained its monthly asset purchases of €80 billion (US$87.91) until March 2017, with possibility of extension.
In anticipation of and to mitigate the impact of the Brexit vote, the Bank of England (BoE) voted to continue its ₤375 billion (US$495 billion) monthly assets purchase program, financed through the issuance of reserves and possible increase in the quantum should the need arise. The Bank also retained its policy rate at 0.5 per cent, with a commitment to stimulate inflationary growth towards its 2.0 per cent long run path. The Bank also hinted at a possible further easing of monetary policy in August, 2016.
Major EMDEs continued to face declining capital inflows, rising financing costs and geo-political tensions, all of which pose constrain to growth. Depressed commodity prices continued to tilt the balance of risk towards the downside, thus, dampening prospects for near term economic and financial recovery in the EMDEs. Consequently, the IMF (WEO July 2016 Update) downgraded the 2016 growth forecast for this group of countries to 4.1 from 4.3 per cent in the April projection.
In July, oil and other commodity prices rallied against the backdrop of better-than-expected economic data on China in the second quarter, sustained attacks on oil production facilities in Nigeria, and continued unrest in Libya. Nonetheless, global inflation remained subdued despite widespread easing of monetary policy. In the advanced economies, recent developments such as BREXIT has increased the uncertainty surrounding the future of the Euro zone thus further weakening demand and suppressing inflation. Consequently, while the stance of monetary policy in most advanced economies is expected to remain accomodative through fiscal 2016 in the EMDEs, it is expected to remain mixed, reflecting diversity and multiplicity of shocks confronting them.

 Domestic Economic and Financial Developments
The Nigerian economy is still saddled with the effects of the shocks of the first quarter of 2016; which led to a contraction in output arising from energy shortages, high electricity tariffs, price hikes, scarcity of foreign exchange and depressed consumer demand, among others. Whereas the influence and persistence of some of the factors waned in the second quarter, it is unlikely that the economy rebounded strongly in the quarter as setbacks in the energy sector continued owing mainly to vandalism of oil installations. In addition, the implementation of the 2016 budget in the second quarter remained slower than expected in the second quarter. The Committee noted that
most of the conditions undermining domestic output growth were outside the direct purview of monetary policy. It nonetheless, hopes that the deregulation in the downstream petroleum sector and the liberalization of the foreign exchange market would help bring about the much needed relief to the economy.
Data from the National Bureau of Statistics (NBS) indicate that domestic output in the first quarter of 2016 contracted by 0.36 per cent, the first negative growth in many years.
This represented a decline of 2.47 percentage points in output from the 2.11 per cent reported in the fourth quarter of 2015, and 4.32 percentage point lower than the 3.96 per cent recorded in the corresponding period of 2015.
Aggregate output contracted in virtually all sectors of the economy, with the non-oil sector recording a decline of about 0.18 per cent, compared with the 3.14 per cent expansion in the preceding quarter. Agriculture and Trade were the only sectors with positive growth at 0.68 per cent and 0.40 per cent, respectively, Industry, Construction and Services contracted by 0.93, 0.26 and 0.08 percentage point, respectively.

The Committee noted a further rise in year-on-year headline inflation to 16.48 per cent in June 2016, from 15.58 per cent in May; 13.72 per cent in April, 12.77 per cent in March and 11.38 per cent in February 2016. The increase in headline inflation in June reflected increases in both food and core components of inflation. Core inflation rose sharply for the fourth time in a row to 16.22 per cent in June, from 15.05 per cent in May; 13.35 per cent in April; 12.17 per cent in March; 11.00 per cent in February and 8.80 per cent in January having stayed at 8.70 per cent for three consecutive months through December, 2015. Food inflation also rose to 15.30 per cent in June, from 14.86 per cent in May; 13.19 per cent in April; 12.74 per cent in March; 11.35 per cent in February, 10.64 per cent in January and 10.59 per cent in December, 2015. The rising inflationary pressure was largely a reflection of structural factors, including high cost of electricity, high transport cost, high cost of inputs, low industrial activities as well as higher prices of both domestic and imported food products.
The MPC expressed strong support for the urgent diversification of the economy away from oil to manufacturing, agriculture and services; and called on all stakeholders to increase investment in growth stimulating and high employment elasticity sectors of the economy in order to lift the economy out of its current phase.

Monetary, Credit and Financial Markets Developments
Broad money supply (M2) grew by 8.26 per cent in June, 2016, a 4.80 percentage points increase from 3.46 per cent in May compared with the 0.54 per cent contraction in June 2015. When annualized, M2 grew by 16.52 per cent in June 2016 against the provisional growth benchmark of 10.98 per cent for 2016. Net domestic credit (NDC) grew by 12.52 per cent in the same period and annualized at 25.04 per cent. At this rate, the growth rate of NDC exceeded the provisional benchmark of 17.94 per cent for 2016. There was no change in the level of banking sector
net credit to government in June, contrasting the 31.45 percent growth in May. Credit to the private sector grew by 14.45 per cent in June 2016, which annualizes to a growth of 28.90 per cent, outperforming the benchmark growth of 13.38 per cent for the year. The MPC expressed cautious satisfaction over the improved performance of credit to the private sector and urged the Bank to ensure that the tempo is sustained inorder to stimulate recovery of output growth.
The MPC noted that the level of money market interest rates largely reflected the liquidity situation in the banking system during the review period. Average inter-bank call rate, which stood at 20.0 per cent on 17th June 2016, closed at 50.0 per cent on July 15, 2016. The increase was attributed in part; to the newly introduced foreign exchange framework and the mop up of naira liquidity due to increased sale of foreign exchange by the CBN during the period. Generally, the period under review witnessed a decline in volume of activity in the inter-bank market owing to injections by FAAC and maturity of some CBN securities.
The MPC also noted the decline in the indices of the equities segment of the capital market. The All-Share Index (ASI) declined by 6.55 per cent from 29,597.79 on June 30, 2016, to 27,659.44 on July 22, 2016. Similarly, Market Capitalization (MC) declined by 6.26 per cent from N10.17 trillion to N9.50 trillion during the same period. Relative to end-December 2015, the indices fell by 3.43 per cent and 3.55 per cent, respectively. Globally, however, the equities markets remained generally bearish, in the aftermath of the Brexit vote.

External Sector Developments
The MPC noted the actions taken by the Bank as part of the implementation of the flexible foreign exchange regime decided at its meeting in May which was designed to improve liquidity and stabilize the foreign exchange market. The Bank introduced a flexible exchange rate regime in the inter-bank market; introduced a Naira-settled OTC-FMDQ-OTC trading platform, adopted two-way quote trading platform at the inter-bank foreign exchange market and appointed foreign exchange primary dealers. However, the average naira exchange rate weakened at the inter-bank segment of the foreign exchange market during the review period following the liberalization of the market. The exchange rate at the interbank market opened at N197.00/US$ and closed at N292.90/US$, with a daily average of N244.95/US$ between May 25 and July 19, 2016. The initial weakness was attributable to the normal market reaction to a new regulatory reform. The MPC reaffirmed its commitment to its statutory mandate of achieving a stable naira exchange rate.

The MPC’s Considerations
The MPC recognized the weak macroeconomic environment, as reflected particularly in increasing inflationary pressure and contraction in real output growth. In view of this, the MPC underscored the imperative of coordinated action, anchored by fiscal policy, to initiate recovery at the earliest time. Members called on the Federal Government to fast-track the implementation of the 2016 budget in order to stimulate economic activity to bridge the output gap and create employment. In the same vein, the MPC expressed concern over the non-payment of salaries in some states and urged express action in that direction to help stimulate aggregate demand. On its part, and as a complementary measure, the MPC restated its commitment to measures and deployment of relevant instruments within its purview to complement fiscal policy with a view to restarting growth. The Committee also enjoined deposit money banks (DMBs) to partner with Government and the Bank in this direction, by redirecting credit from low employment generating sectors to those capable of supporting growth, reducing unemployment and improving citizen standards of living.
 Members agreed that the economy was passing through a difficult phase, dealing with critical supply gaps and underscored the imperative of carefully navigating the policy space in order to engender growth and ensure price stability. The MPC therefore, summarized the two policy options it was confronted with as restarting growth or fighting inflation. The MPC was particularly concerned that headline inflation spiked significantly in June 2016, approaching twice the size of the upper limit of the policy reference band.
The Committee noted that inflation had risen significantly, eroding real purchasing power of fixed income earners and dragging growth. The MPC was further concerned that while the situation called for obvious tightening of the monetary policy stance, the recession confronting the economy and the prospects of negative growth to year- end needed to be factored into the policy parameters.

The arguments in favour of growth were anchored on the premise that the current inflationary episode was largely structural. In particular, members noted the prominent role of cost factors arising from reform of the energy sector, leading to higher domestic fuel prices and electricity tariffs and prolonged foreign exchange shortages arising from falling oil prices leading to higher inputs costs, domestic fuel shortages, increased transportation costs, security challenges, reform of the foreign exchange market reflected in high exchange rate pass-through to domestic prices of imports. Consequently, the current episode of inflation, being largely non-monetary but largely structural, tightening at this point would only serve to worsen prospects for growth recovery as the Bank had in June 2016, withdrawn substantial domestic liquidity through the foreign exchange market upon introduction of the flexible foreign exchange market regime. Members however, noted the negative effect of inflation on consumption and investment decisions and its defining impact on the efficiency of resource allocation and investment.
The MPC further noted the prolonged non-payment of salaries, a development which has affected aggregate demand and worsened growth prospects. It also noted that at the May MPC meeting, members weighed the risks of the balance of probabilities against growth and voted to hold, allowing fiscal policy some space to stimulate output with injections, but this has been long in coming. The MPC in putting forward for tightening considered the high inflationary trend which has culminated into negative real interest rates in the economy; noting that this was discouraging to savings. Members also noted that the negative real interest rates did not support the recent flexible foreign exchange market as foreign investors attitude had remained lukewarm, showing unwillingness in bringing in new capital under the circumstance. Members further noted that there existed a substantial amount of international capital in negative yielding investments globally and Nigeria stood a chance of attracting such investments with sound macroeconomic policies. Consequently, members were of the view that an upward adjustment in interest rates would strongly signal not only the Bank’s commitment to price stability but also its desire to gradually achieve positive real interest rates. Such a decision, it was argued, gives impetus for improving the liquidity of the foreign exchange market and the urgent need to deepen the market to ensure self-sustainability. Members were of the opinion that this would boost manufacturing and industrial output, thereby stimulating growth which is desired at this time.

The Committee’s Decisions
The MPC, recognizing that the Bank lacked the instruments required to directly jumpstart growth, and being mindful not to calibrate its instruments in such a manner as to undermine its primary mandate and financial system stability, in assessment of the relevant issues, was of the view that the balance of risks remains tilted against price stability. Consequently, five (5) members voted to raise the Monetary Policy Rate while three (3) voted to hold.
In summary, the MPC voted to:
(i) Increase the MPR by 200 basis points from 
12.00 to 14 per cent;
(ii) Retain the CRR at 22.50 per cent;
(iii) Retain the Liquidity Ratio at 30.00 per cent; and (iv) Retain the Asymmetric Window at +200 and -500 
basis points around the MPR"


http://www.hedgehogs.net/pg/blog/asiablues/read/11632768/oil-is-going-down-to-15-dollars-a-barrel-video Tue, 26 Jul 2016 18:03:48 +0100 http://www.hedgehogs.net/pg/blog/asiablues/read/11632768/oil-is-going-down-to-15-dollars-a-barrel-video <![CDATA[Oil Is Going Down To 15 Dollars A Barrel (Video)]]> By EconMatters

Demand is not going to be enough to rebalance the oil market, we still need a major supply rebalancing, as the oil market has been oversupplied for a decade.

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http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11632763/hungary-holds-rate-to-decide-on-3month-repo-in-sept Tue, 26 Jul 2016 17:17:27 +0100 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11632763/hungary-holds-rate-to-decide-on-3month-repo-in-sept <![CDATA[Hungary holds rate, to decide on 3-month repo in Sept]]>     Hungary's central bank left its base rate at 0.90 percent, as widely expected, confirming that the disinflationary impact from the real economy was gradually decreasing but there is still a degree on unused capacity in the economy and inflation will remain moderate for an extended period.
    The National Bank of Hungary (MNB), which wrapped up its latest easing cycle in May after cutting the rate by 45 basis points this year, added that its monetary council would decide on the required level of the three-month deposit rate and the operational use of that facility in September.
    The MNB is planning to change the use of its main policy tool, the three-month deposit facility, to encourage banks to offer cheaper loans and to buy government debt by lowering the amount from 1,600 billion forints that banks can deposit, and conduct monthly, rather than weekly, tenders.
     However, the council added that "a watchful approach to monetary policy is still warranted due to uncertainty in the global financial environment" with real money market rates still in negative territory and declining further as inflation rises.
    The MNB also confirmed its guidance that it would maintain the current base rate and maintain loose monetary conditions "for an extended period" if its current forecasts hold.

    The National Bank of Hungary issued the following statement"

"At its meeting on 26 July 2016, the Monetary Council reviewed the latest economic and financial developments and voted on the following structure of central bank interest rates with effect from 27 July 2016:
Central bank interest rate Previous interest rate (per cent)Change (basis points)New interest rate (per cent)
Central bank base rate0.90No change0.90
Overnight collateralised lending rate1.15No change1.15
Overnight deposit rate-0.05No change-0.05

In the Council’s assessment, the Hungarian economy is picking up again following the temporary slowdown at the beginning of the year
A degree of unused capacity remains in the economy and inflation remains persistently below the Bank’s target. Looking ahead, the disinflationary impact of the domestic real economic environment is gradually decreasing.
In June 2016 the annual inflation rate remained unchanged and core inflation fell relative to the previous month. The Bank’s measures of underlying inflation continued to indicate a moderate inflationary environment in the economy.Persistently low global inflation is restraining the increase in domestic consumer price inflationInflation expectations are at historically low levelsWhole-economy wage growth remains strong, which is likely to raise core inflation gradually through rising household consumptionInflation remains below the 3 per cent target over the forecast period, and only approaches it in the first half of 2018.
In the Council’s assessment, domestic economic growth is picking up again as temporary effects wear off. Retail sales continued to expand further at a dynamic rate during the spring months. In May, industrial production rose substantially relative to the same period of the previous year. Household consumption is expected to continue growing in the coming quartersLabour demand remained strong, and therefore the unemployment rate fell further in May, accompanied by an increase in the number of employeesThe time profile of this year’s economic growth is characterised by divergent trends. The economy is expected to pick up following temporary slow growth at the beginning of the year, mainly supported by domestic demand. The unwinding of adverse one-off factors affecting growth early in the year as well as the steps taken by both the Bank and the Government to support growth will result in the economy picking up again. Economic growth of around 3 per cent can be maintained by the extension of the Funding for Growth Scheme, the Growth Supporting Programme as well as the Government’s measures to promote housing construction and the faster drawdown of EU funding.
Moderate growth early this year is expected to result in a more negative output gap temporarily; however, the acceleration in growth and the expansionary impact on demand of next year’s budget contribute to the closure of the gapRising incomes and the expected pick-up in lending will contribute to the expansion in consumption, which in turn provides considerable support to economic growth in the coming years.
Sentiment in global financial markets has been volatile since the Council’s latest interest rate-setting decision, mainly influenced by the outcome of the referendum on EU membership in the United Kingdom and uncertainty around the country’s exit from the EU. Domestic financial markets proved stable in the turbulent atmosphere characterising global financial markets. A decline was observed along the yield curve since the previous policy decisionHungary’s strong external financing capacity and the resulting decline in external debt are contributing to the sustained reduction in the vulnerability of the economy. Following the previous signal by the Council, the change to monetary policy instruments announced in July supports further reduction in vulnerability and encourages lending using targeted unconventional tools. In view of the assessment of the effects related to the announced measures as well as the volatile global financial environment, the Magyar Nemzeti Bank continues to monitor movements in interbank rates and developments in the money and government securities markets. The Monetary Council will make a decision on the year-end required level of the three-month deposit and the operational details of the use of the facility in September. In the Council’s assessment, a watchful approach to monetary policy is still warranted due to uncertainty in the global financial environmentForward-looking domestic money market real interest rates are in negative territory and are declining even further as inflation rises.
In the Council’s assessment, there continues to be a degree of unused capacity in the economy and inflation remains moderate for an extended period. The disinflationary impact of the real economy is gradually decreasing over the policy horizon. If the assumptions underlying the Bank’s projections hold, the current level of the base rate and maintaining loose monetary conditions for an extended period are consistent with the medium-term achievement of the inflation target and a corresponding degree of support to the economy.
The abridged minutes of today’s Council meeting will be published at 2 p.m. on 10 August 2016."