<![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/11702044/indonesia-cuts-rate-by-25-bps-second-month-in-a-row Fri, 22 Sep 2017 14:57:06 +0100 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11702044/indonesia-cuts-rate-by-25-bps-second-month-in-a-row <![CDATA[Indonesia cuts rate by 25 bps second month in a row]]>      Indonesia's central bank cut its benchmark 7-day reverse repurchase rate (RR) by a further 25 basis points to 4.25 percent, 
     It is the second month in a row that Bank Indonesia (BI) has cut its rate and has now cut it by 50 basis points this year. In addition to the 7-day repo rate, BI also cut the deposit rate by 25 points to 3.50 percent and the lending facility rate by 25 points to 5.0 percent.
      From January through June last year BI lowered its previous benchmark rate four times by a total of 100 basis points and then cut the current RR rate by a total of 50 basis points in August and October 2016.

http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11702026/paraguay-holds-rate-no-need-for-stimulus-for-the-moment Fri, 22 Sep 2017 04:48:46 +0100 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11702026/paraguay-holds-rate-no-need-for-stimulus-for-the-moment <![CDATA[Paraguay holds rate, no need for stimulus for the moment]]>       Paraguay's central bank kept its monetary policy rate at 5.25 percent, saying economic activity is still moderating but this does not warrant additional monetary stimulus, for the moment.
      Last month the Central Bank of Paraguay (BCP) cut its rate by 25 basis points, its first cut since July 2016, citing slowing economic activity. Since April 2016 it has cut the rate by 75 points.
      The BCP's open markets operation committee (CEOMA) said today's decision was unanimous and various measures show inflation converging to the target while inflation expectations remain anchored to the medium-term target.
       Paraguay's headline inflation was steady at 4.0 percent in August and July while core inflation declined to 5.2 percent in July from 5.3 percent in June.
      For 2017 BCP is targeting inflation of 4.0 percent, plus/minus 2 percentage points, down from 4.5 percent in 2016. The central bank's September FSC survey showed that agents expect inflation to end at 4.0 percent this year and in 2018.      Paraguay's economy contracted by 2.4 percent in the second quarter from the first quarter for annual growth of only 0.9 percent, sharply down from 6.6 percent in the first quarter, pulled down by falls in construction, utilities, industry and mining, and commerce.
      In April the central bank raised its 2017 growth forecast to 4.2 percent from a previous forecast of 3.7 percent. The economy grew by 4.0 percent last year.
      The September FSC survey showed median expectations of economic growth at 4.0 percent this year and in 2018.
      After falling sharply in 2014 and 2015, Paraguay's guarani has been relatively stable since 2016 and was trading around 5,678 to the U.S. dollar today, up 2.6 percent this year. 


http://www.hedgehogs.net/pg/blog/asiablues/read/11702017/youtube-videos Thu, 21 Sep 2017 20:13:37 +0100 http://www.hedgehogs.net/pg/blog/asiablues/read/11702017/youtube-videos <![CDATA[YouTube Videos]]>

By EconMatters

YouTube has decided to cancel private subscription channels as they deem they can make more money from ads on increased viewership, and it is in their best interests to eliminate a model that in a fundamental sense hurts their bottom line. The reasoning is they only get a minority of the channel subscription revenue, and viewers willing to pay for videos drops the overall audience views per video dramatically verse the free model. And given that Google keeps all except small pennies on the individual ads they sell per video, they come out ahead by having as many free channels as possible, with free videos and a larger viewership audience versus a much smaller audience which they only receive a minority revenue stream.

Thus the paid channel will be eliminated by year end, so those that already subscribe to EconMatters YouTube Channel make sure you watch all the videos before the service ends sometime in December of this year. I frankly have thought the YouTube management in response to any issues I have had over the years has been rather pathetic, but incompetence abounds so many places these days, that it has just become the cost of doing business in the world these days. I now know that there are costs to offering employees such a playground campus, nobody actually does any real work there, given the responses from my inquiries with the YouTube staff in the past.

At any rate, I may just continual to offer videos on the free YouTube model, but we are negotiating with a couple of Financial Websites for exclusive content arrangements such as Seeking Alpha, that may be an option. Also, I might just discontinue videos altogether and concentrate on writing for EconMatters exclusively, and focus on the book I am writing. Alternatively, EconMatters may send out paid market videos via a mailing list option or store all the videos in the cloud with a link for paid subscribers to view at their discretion. There are pros and cons with each option, so no decision has been made at this point on the matter. I will speak with my tech guy for his input on what makes the most sense, and eventually take some steps on this matter in the future.

I have enjoyed doing the videos, gotten a lot of good feedback, and overall deem this experiment a positive experience. Best of luck with your future endeavors, and thanks for subscribing to my paid YouTube channel, you are quite the diehard fans.



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http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11702010/south-africa-maintains-rate-but-3-members-wanted-a-cut Thu, 21 Sep 2017 17:58:44 +0100 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11702010/south-africa-maintains-rate-but-3-members-wanted-a-cut <![CDATA[South Africa maintains rate but 3 members wanted a cut]]>     South Africa's central bank left its benchmark repurchase rate at 6.75 percent, citing "heightened uncertainties in the economy" as capital investments continue to contract due to low business confidence and political uncertainty.
      The South African Reserve Bank (SARB), which surprised investors by cutting its rate by 25 basis points in July, said three members of its 6-member monetary policy committee wanted to cut the rate by another 25 points while the other three wanted to retain the rate and ultimately held sway.
      In an update to its economic forecast, SARB raised its 2017 growth forecast marginally to 0.6 percent from 0.5 percent and narrowed the output gap to minus 1.7 percent from minus 1.9 percent.
      For 2018 and 2019 the central bank maintained its growth forecasts of 1.2 percent and 1.5 percent, respectively. In 2016 the economy grew by only 0.3 percent.
      Despite positive growth in the second quarter after two consecutive quarters of contraction, SARB Governor Lesetja Kganyago said a fall in fixed capital formation showed underlying weakness in the economy and of particular concern was a 6.9 percent drop in private sector fixed investment.
     "This subdued outlook is expected to persist against a backdrop of continued political and policy uncertainty," Kganyago said, adding weak investment doesn't bode well for employment, with the unemployment rate steady at 27.7 percent in the second quarter.
      The public sector, which used to be the main source of employment growth, is now also likely to shed jobs as fiscal constraints intensify.
      Although SARB expects inflation to remain within its 3-6 percent target range in coming years, Kganyago said a number of risks to this outlook had increased and "the MPC assesses the risks to the inflation outlook to be somewhat on the upside."
      The exchange rate of South Africa's rand remains a key upside to the inflation outlook along with political risks, which he said were "now more imminent" along with the risk of further ratings downgrades, given the increased fiscal challenges and political uncertainty.
      A further upside risk to inflation stems from possible large increases in electricity tariffs, with a tariff increase of 20 percent boosting the inflation forecast by 0.2-0.3 percentage points.
      The central bank is also concerned that inflation expectations of business people and trade unions remain above or close to 6 percent for the next two years.
      "Lower inflation expectations among key price setters is an important element in reducing inflation in the future, thus enabling lower nominal interest rates," Kganyago said.
     South Africa's inflation rate rose to 4.8 percent in August from 4.6 percent and SARB retained its forecast for inflation to average 5.3 percent this year, down from 6.3 percent last year. For 2018 it raised its forecast slightly to 5.0 percent from 4.9 percent and to 5.3 percent in 2019 from 5.2 percent.
      SARB currently targets inflation in range of 3-6 percent but Kganyago said last month this 18-year old target should probably be lowered to bring it into line with other emerging markets.
      He suggested that a target of 3-4 percent would be more in line with that of South Africa's trading partners, adding that Brazil had recently lowered its target to 4.0 percent and India last year adopted a 4 percent target.
      After hitting a record low of almost 16.9 to the U.S. dollar in January last year, the rand has risen, supported by demand for high-yielding emerging market bonds amid easy global monetary policy.
      But the rand remains very sensitive to political developments, weak prospects for economic growth and is down 2.8 percent against the U.S. dollar since the July when SARB cut its rate.
     Today the rand was trading around 13.3 to the dollar, up 3 percent this year.

     The South African Reserve Bank issued the following statement by its governor, Lesetja Kganyago:

"The South African economy recorded positive growth during the second quarter of 2017 following two consecutive quarters of contraction. Growth prospects, however remain subdued as domestic fixed investment contracted further amid low business confidence. The inflation forecast has increased marginally since the previous meeting of the MPC, with increased uncertainty regarding a number of the main drivers.
The global economy is on a recovery path. Inflation has moderated in the emerging economies and remains benign in most advanced economies. The FOMC statement yesterday confirmed the gradual pace of reduction of its balance sheet and normalisation of its policy rate. Along with continued accommodative policies by the ECB, this is expected to contribute to the continuation of favourable prospects for capital flows to emerging economies.
The year-on-year inflation rate as measured by the consumer price index (CPI) for all urban areas increased to 4.8% in August, up from 4.6% previously, marginally below the Bank’s short-term forecast. Food and non-alcoholic beverage inflation surprised on the downside, moderating from 6.8% to 5.7%. Meat prices continued to accelerate in August, having measured 15.0%, but the lower cereal prices contributed to the slowing momentum. The Bank’s measure of core inflation, which excludes food, fuel and electricity, measured 4.7% in July and 4.6% in August in line with the short-term forecast.
Year-on-year producer price inflation for final manufactured goods declined from 4.0% in June to 3.6% in July. Food products price inflation moderated further, to 3.3% in July, but the divergent trend of manufactured meat prices continued with an increase of 17.8%. This trend was also evident in agricultural prices, where the subcategory of “live animals” increased by 31.7%, while “products of crops and horticulture” declined by 26.9%.
The Bank’s forecast for headline CPI inflation is unchanged at an annual average of 5.3% in 2017, and revised up by 0.1 percentage point to 5.0% and 5.3% in 2018 and 2019. A lower turning point of 4.6% is still expected in the first quarter of 2018. The same pattern is observed in the forecast for core inflation which is unchanged at 4.8% for 2017, but adjusted up to 4.9% and 5.0% for the next two years. These forecasts do not incorporate the most recent inflation outcome.
The main drivers of these changes are a lower repurchase rate, a less appreciated exchange rate assumption, a slightly narrower output gap and a marginal adjustment to the food price forecast as meat prices continue to surprise on the upside. Food price inflation is forecast to reach a low turning point of 4.8% in the first quarter of 2018, and to average 7.3% in 2017, and 5.2% and 5.6% in 2018 and 2019. There may be some downside risk to this forecast in light of the August food inflation outcomes. The electricity tariff assumption remains unchanged at 8.0% from July next year, but there may be some upside risk to this assumption, given Eskom’s recent application to Nersa.
Inflation expectations as reflected in the survey conducted by the Bureau for Economic Research at Stellenbosch University in the third quarter of 2017 continue to be relatively anchored at the upper end of the target range. Despite a decline of 0.2 percentage points in the average expected inflation for 2017 to 5.7%, expectations remain unchanged at 5.8% and 5.9% for the next two years. Expectations of analysts and business people moderated - although the latter remain above the target range - while those of trade unionists increased marginally. A welcome development is that average 5-year inflation expectations declined from 5.9% to 5.6%. This is the lowest level recorded since long-term expectations were first surveyed in 2011. Expectations implicit in the difference between nominal bonds and inflation-linked bonds are more or less unchanged since the previous meeting, with the 5-year break-even rate at 5.2%.
Global conditions remain generally favourable despite some geopolitical risks. The upswing appears to be synchronised, with increased world trade volumes. Growth in the US is forecast to remain above potential in the short to medium term, with the devastation caused by the recent hurricanes expected to have only a limited and short- lived impact on growth. The improved growth performance in the euro area also appears to be sustained and region-wide, while the Japanese economy has experienced moderate growth in the past few quarters. By contrast, growth in the UK has slowed, following weak investment in the face of the Brexit headwinds. The outlook for emerging markets is also relatively positive amid generally improving fundamentals.
Despite the improved growth outlook, global inflation pressures remain benign, particularly in the advanced economies. These trends are likely to contribute to the persistence of accommodative monetary policy stances in Japan and the euro area, where the recent appreciation of the euro is likely to dampen inflation pressures further. As expected, the US Fed yesterday announced a gradual reduction of its balance sheet. The process had been communicated previously and was largely priced in by the financial markets. The pace of policy rate normalisation is also expected to remain measured, as inflation continues to surprise on the downside, despite tightening labour market conditions. The stance of US fiscal policy is a source of uncertainty. Although tax reductions could lead to a faster pace of monetary tightening, the prospect of significant tax reforms has receded over time.
The rand exchange rate traded in a range of between R13.54 and R12.74 since the previous meeting of the MPC, driven in part by movements in the major currencies. Over this period, the rand depreciated by 2.8% against the US dollar, by 6.2% against the euro, and by 4.5% on a trade-weighted basis. The rand remains sensitive to political developments, weak economic growth prospects and the risk of further sovereign ratings downgrades. However, it has been supported by persistent trade account surpluses and associated narrowing of the current account deficit.
The rand has also been supported by the relatively accommodative global monetary policy settings. These have contributed to sustained demand for high-yielding emerging market bonds. Net purchases by non-residents of South African government bonds have amounted to R(63) billion year to date. The domestic yield curve relative to other peer emerging market economies remains attractive to non-residents despite a decline in the curve across all maturities. However, longer-term bond yields and the rand remain vulnerable to a large non-resident sell-off in the event of further credit ratings downgrades resulting in South Africa falling out of the global bond indices.
The domestic economic growth outlook remains constrained despite the higher-than- expected growth outcome of 2.5% in the second quarter of this year. This broad-based improvement, while welcome, is not expected to have a significant impact on the annual growth outcome. The Bank’s forecast for GDP growth for 2017 has been revised up marginally from 0.5% to 0.6%, while the forecasts for 2018 and 2019 have remained unchanged at 1.2% and 1.5%. This outlook is consistent with the Bank’s leading business cycle indicator which has been weakening since the beginning of the year, indicative of muted growth prospects. Business confidence also remains at very low levels, despite the slight improvement in the RMB/BER Business Confidence Index during the third quarter.
All the major sectors, apart from construction, recorded positive growth in the second quarter, with a particularly strong performance in the agricultural sector. The recovery in the manufacturing sector followed three successive quarterly contractions, while the tertiary sector reversed its one quarter contraction. The limited monthly data for the third quarter present a mixed picture at this stage. Mining sector output contracted in July while manufacturing recorded positive growth. However, the Absa PMI has averaged 43.5 index points in the first two months of the quarter, suggesting continued headwinds for the sector.
The underlying weakness in the economy is evident in the 2.6% contraction in gross fixed capital formation during the second quarter. Of particular concern is the 6.9% decline in private sector fixed investment, reflecting the low levels of business confidence. This subdued outlook is expected to persist against a backdrop of continued political and policy uncertainty.
These investment trends do not bode well for employment creation in the economy. Total employment declined in the second quarter of 2017 and the unemployment rate remained unchanged at 27.7%. The public sector, previously the main source of employment growth in the economy, is likely to continue to shed jobs as fiscal constraints intensify.
Consumption expenditure by households rebounded strongly in the second quarter following the sizeable contraction in the previous quarter. Spending on all three major goods components recovered, but expenditure on services contracted. Despite the improved outcome, the outlook for consumption expenditure growth remains subdued, although positive, amid very low levels of consumer confidence. Month-on-month retail trade sales decreased in July, but motor vehicle sales remained relatively strong in July and August. The Bank expects household consumption growth to be in the region of 1% for this year.
The underlying drivers of household consumption expenditure remains unchanged. Lower inflation, lower interest rates and higher real income growth are expected to provide some support for consumption. Offsetting effects include depressed consumer confidence, weak employment growth, the absence of significant wealth effects, and the prospect of further tax increases in the wake of fiscal revenue shortfalls.
In addition, growth in credit extension to the private sector has declined steadily over the past few months, as corporate demand for mortgage finance and general loans in particular moderated. Growth in credit extension to households remains weak and negative in real terms. These trends are also reflected in continued household deleveraging, with household debt to disposable income declining further to 72.6% in the second quarter, its lowest level since the beginning of 2006.
International oil prices have increased by about US$5 per barrel since the previous meeting, with Brent crude oil currently trading at around US$55 per barrel. Nevertheless, the MPC does not expect a further sustained acceleration in prices as the flexibility of US shale oil production is expected to provide a ceiling to prices. The previous oil price assumptions therefore remain unchanged. The domestic price of 95 octane petrol has increased by a cumulative 86 cents per litre since August, mainly due to higher international product prices. A further moderate increase is expected in October.
The MPC expects inflation to remain within the target range over the forecast period, closer to the mid-point than was the case early in the year. Core inflation has remained relatively stable, indicative of the absence of significant demand pressures. However, a number of risks to the inflation outlook have increased and the MPC assesses the risks to the inflation outlook to be somewhat on the upside.
The rand remains a key upside risk to the inflation outlook. Furthermore, some of the event risks, particularly those of a political nature, are now more imminent but with no greater degree of clarity regarding the outcome. The prospect of a further ratings downgrade persists, particularly given the increased fiscal challenges and political uncertainty. The narrower current account deficit and the global environment remain supportive of the rand. However, should inflation and/or growth surprise on the upside in Europe and in the US in particular, we could see a faster pace of monetary tightening, which could impact on capital flows and the rand exchange rate. At this stage, the markets appear to be pricing a high probability of an increase in the Federal funds rate in December, and three further increases next year.
A further upside risk relates to the possibility of a large electricity tariff increase than is currently assumed in our forecast from July next year. A tariff increase of 20% could raise the headline inflation forecast by between 0.2 and 0.3 percentage points, and the MPC will continue to assess the possible second round effects of these increases.
The MPC remains concerned that inflation expectations of business people and trade unions remains above or close to 6% for the next two years even though our own forecast and those of most analysts expect inflation to be much closer to 5%. Lower inflation expectations among key price setters is an important element in reducing inflation in the future, thus enabling lower nominal interest rates.
Until August, food price inflation had been moderating at a slower pace than expected, mainly due to the continued acceleration in meat prices. However, the August year- on-year outcome surprised significantly on the downside. Should this lower trajectory continue, there could be a downside risk to the food price forecast, and to the overall inflation outlook, particularly in the short term.
Although household consumption expenditure rebounded strongly in the second quarter, the MPC does not view this as indicative of the longer-term trend of expenditure, which is expected to remain constrained. The second quarter growth outcome, while positive, does not change our growth forecast significantly, and the outlook remains weak. The MPC assesses the risks to the revised growth forecast to be slightly on the downside.
In light of these developments and the deteriorating assessment of the balance of the risks, the MPC has decided to keep the repurchase rate unchanged at 6.75% per annum. Three members preferred an unchanged stance and three members preferred a 25 basis point reduction. Ultimately the committee decided to keep the rate unchanged.
Given the heightened uncertainties in the economy, the MPC felt it would be appropriate to maintain the current monetary policy stance at this stage, and reassess the data and the balance of risks at the next meeting. "


http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11702000/taiwan-maintains-rate-but-raises-growth-outlook Thu, 21 Sep 2017 14:24:26 +0100 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11702000/taiwan-maintains-rate-but-raises-growth-outlook <![CDATA[Taiwan maintains rate but raises growth outlook]]>      Taiwan's central bank kept its benchmark discount rate at 1.375 percent and while it raised its forecast for economic growth it added the country's output remains below potential and uncertainties still weigh on the global economic outlook and thus external demand.
      The Central Bank of the Republic of China (Taiwan) (CBC), which has maintained its rate since June 2016 following four consecutive cuts of a total of 50 basis points, added real interest rates had now risen above zero but both current inflation and inflation expectations remain anchored.
       Since the middle of this year, Taiwan's exports have been rising on the back of a firming global economy and the CBC expects exports to continue to benefit from this next year while the government rolls out an infrastructure program that will boost domestic demand and spending.
       For this year the CBC expects the economy to grow by 2.15 percent, with growth in the second half up by 1.93 percent, below 2.39 percent in the first half.
       In its policy decision from June, the CBC cited the government's 2017 growth forecast of 2.05 percent, with growth in the second half of 1.76 percent.
       For 2018 the CBC sees growth rising to 2.20 percent, with higher wages for public sector employees seen encouraging higher private wages, boosting overall consumption and growth.
       Although the global economy has strengthened in recent months, the CBC pointed to the risks stemming from the U.S. Federal Reserve's plan to normalize its balance sheet, the European Central Bank's review of its asset purchases, U.S. economic and trade policies, the rise in trade protectionism and geopolitical tensions.
     "In sum, uncertainties over the global economic outlook still weigh on external demand; domestic demand is mild, and economic growth, though projected to pick up at a moderate pace in the second half of this year and next year, would still run below potential," the CBC said.
      Taiwan's inflation rate rose slightly to 0.96 percent in August from 0.77 percent in July and averaged 0.72 percent year-on-year in the first 8 months of the year. Core inflation, which excludes vegetables, fruit and energy, was 0.97 percent in the same period.
       For this year the CBC forecast 0.80 percent headline inflation and 1.04 percent core inflation, rising to 1.12 percent and 1.13 percent, respectively, in 2018.
       The exchange rate of Taiwan's dollar has been firming since early 2016 despite a setback in the second half of last year. Today TWD was trading at 30.2 to the U.S. dollar, up 7.3 percent this year.

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

"I.    Global economic and financial conditions
Since the Board met in late June this year, advanced economies and emerging market economies have both been recovering at a steady pace. International institutions have revised up global GDP growth forecasts for 2017 and expect the global economy to perform better next year than this year.
However, the US Fed is about to initiate the balance sheet normalization program, while the ECB may also review its asset purchase scheme. In addition, the US economic and trade policies, the rise in trade protectionism, and geopolitical tension will all add to the risk to the global economic and financial outlook.
II.    Domestic economic and financial conditions
1.  Since mid-2017, solid global economic growth has driven up exports. With regard to domestic demand, private consumption recorded limited growth, while declining capital equipment imports reflected the fact that firms were cautious about investment. The CBC forecasts that, in the second half of the year, Taiwan's economy will expand at an annual rate of 1.93%, slower than the first half year's 2.39%. For the year as a whole, the economic growth projection is 2.15%.
Export growth is likely to benefit from a firming global economy next year. Meanwhile, the government rolled out the ''Forward-Looking Infrastructure Development Program'' to help bolster domestic demand with infrastructure spending. As a result, the CBC forecasts the domestic economy to advance by 2.20% for 2018. Recently-announced pay rise for public sector employees next year may also encourage private enterprises to follow suit, contributing to higher private consumption. This may help the domestic economy to register stronger growth than projected. 
Labor market conditions improved further and employment increased continuously, with the services sector accounting for a larger increase than others. For the first seven months of the year, the unemployment rate averaged 3.76%, decreasing by 0.15 percentage points compared to the same period last year. 
2.  From June onwards, on account of the rebound in domestic food prices, the CPI annual growth rate displayed a mild uptrend and reached 0.96% in August. For the first eight months of the year, the CPI annual growth rate averaged 0.72%. Core inflation (excluding vegetables, fruit, and energy items) recorded an average annual growth rate of 0.97%, indicating mild price rises. The CBC forecasts CPI and core inflation for 2017 to rise 0.80% and 1.04% year on year, respectively.
Looking ahead to 2018, in the context of stabilizing international oil prices, subdued global inflation expectations, moderate domestic demand, and the output gap remaining negative, the CBC projects the annual growth rates of CPI and core CPI for 2018 to be 1.12% and 1.13%, respectively, reflecting a stable inflation outlook.
3.  The CBC has continued to conduct open market operations to manage market liquidity. In the months from June to August, banks' excess reserves remained well sufficient. For the first eight months of the year, M2 and bank loans and investments posted average annual growth rates of 3.71% and 4.68%, respectively. This suggests that domestic financial conditions have been adequately accommodative and there is ample market liquidity to support expansions in corporate and household spending.     
Since the Board last convened, the NT dollar has strengthened slightly against the US dollar, the interbank overnight call loan rates have held steady, and government bond yields have trended down. While many countries registered negative real interest rates, Taiwan has seen its real interest rate return to positive territory (see Appendices 1 and 2). 
III.    Interest rate decision 
In sum, uncertainties over the global economic outlook still weigh on external demand; domestic demand is mild, and economic growth, though projected to pick up at a moderate pace in the second half of this year and next year, would still run below potential. Meanwhile, the real interest rate has risen above zero, and both current inflation and inflation expectations stay anchored. Against this backdrop, the Board judged that a policy rate hold is conducive to financial stability and economic recovery.
The Board reached the following decision unanimously at the Meeting today:
The discount rate, the rate on accommodations with collateral, and the rate on accommodations without collateral are kept unchanged at 1.375%, 1.75%, and 3.625%, respectively.
The CBC will continue to closely monitor the latest developments in both actual and expected inflation, output gap, and other international and domestic economic and financial conditions. We will undertake appropriate monetary policy actions accordingly in an attempt to fulfill the central bank’s statutory mandate.
IV.    In principle, the NT dollar exchange rate is determined by market forces. If irregular factors (such as massive inflows or outflows of short-term capital) lead to excess volatility and disorderly movements in the NT dollar exchange rate with adverse implications for economic and financial stability, the CBC will, in line with its mandate, step in to maintain an orderly market so as to ensure economic and financial stability."

http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11701994/norway-holds-rate-but-pulls-forward-date-for-rate-hike Thu, 21 Sep 2017 13:43:28 +0100 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11701994/norway-holds-rate-but-pulls-forward-date-for-rate-hike <![CDATA[Norway holds rate but pulls forward date for rate hike]]>       Norway's central bank left its key policy rate steady at 0.50 percent, as expected, but pulled forward the date for raising its rate on improving economic growth and rising inflation.
      However, Norges Bank (NB) also cautioned there was still a need for expansionary monetary policy as interest rates abroad remain low and capacity utilization in the country's economy is below normal, suggesting inflation will remain below the bank's 2.5 percent target in coming years.
     "Uncertainty surrounding the effects of monetary policy suggests a cautious approach to interest rate setting, also when it becomes appropriate to increase the key policy rate," NB said, adding changes in the outlook implied a somewhat earlier increase in the key rate than earlier projected.
      In its third of four policy reports for 2017, the central bank forecast the key policy rate would be unchanged at the current level this year and in 2018 but then rise to 0.7 percent in 2019, up from 0.1 percent projected in June, and 1.2 percent in 2020, up from 0.2 percent previously forecast.
      Although the output gap - the difference between actual and potential Gross Domestic Product - is forecast to remain negative until 2020, the mainland economy is picking up speed and is now forecast to expand by 2.0 percent this year, up from the June forecast of zero percent growth.
      In the second quarter of this year Norway's GDP grew by only 0.2 percent year-on-year, down from 2.5 percent in the first quarter
      For 2018 and 2019 the economy is seen continuing to expand by 2.0 percent, up from 0.1 percent previously forecast, and then by 2.1 percent in 2010, up from minus 0.1 percent.
      Headline inflation in Norway has been declining since October 2016 and fell to only 1.3 percent in August, the lowest rate since February 2013, partly reflecting the rise in the krona's exchange rate.
      Although the central bank raised its inflation forecast to 1.9 percent this year from a previous 0,1 percent, it is forecast to remain below the bank's target and average 1.3 percent next year, 1.5 percent in 2019 and 1.7 percent in 2020.
      Wages, however, were seen growing faster than previously expected, and forecast to rise 2.4 percent this year, then 2.8 percent next year, 3.3 percent in 2019 and 3.7 percent in 2020.
      Norway's krona, which tends to follow crude oil prices, has been strengthening since June and was trading at 7.82 to the U.S. dollar today, up 10.6 percent this year. However, it still remains more than 20 percent below the level seen in early 2014 before crude oil prices tanked.

      Norges Bank issued the following statement:

"There is a continued need for an expansionary monetary policy. Interest rates abroad are low. Capacity utilisation in the Norwegian economy is below a normal level, and the outlook suggests that inflation will remain below 2.5 percent in the coming years.
Capacity utilisation in the Norwegian economy is on the rise and appears to be somewhat higher than previously assumed. Inflation has declined as expected. Wage growth will likely remain moderate, and the outlook for inflation for the next few years is little changed. Inflation expectations appear to be firmly anchored, and the increase in capacity utilisation suggests that inflation will pick up further out. The changes in the outlook and the balance of risks imply a somewhat earlier increase in the key policy rate than projected in the June Report. Uncertainty surrounding the effects of monetary policy suggests a cautious approach to interest rate setting, also when it becomes appropriate to increase the key policy rate.
"The Executive Board's current assessment of the outlook and balance of risks suggests that the key policy rate will remain at today's level in the period ahead," says Governor Øystein Olsen.
In Monetary Policy Report 3/17, the key policy rate is forecast to be 0.5 percent over the coming year, rising gradually thereafter. The forecast is little changed on the June Report, but is a little higher towards the end of the forecast period."

http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11701975/us-fed-holds-rate-to-shrink-balance-sheet-in-october Thu, 21 Sep 2017 04:28:12 +0100 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11701975/us-fed-holds-rate-to-shrink-balance-sheet-in-october <![CDATA[U.S. Fed holds rate, to shrink balance sheet in October]]>      The U.S. central bank maintained  its benchmark federal funds rate at 1 - 1.25 percent, as expected, but will begin shrinking its massive $4.5 trillion balance sheet in October as it takes another small step toward tighter monetary policy.
      The Federal Reserve, which has raised its rate twice this year by a total of 50 basis points, also maintained its forecast for raising the fed funds rate by another 25 points this year and raised its forecast for economic growth this year.
      After slashing interest rates to essentially zero and purchasing government bonds and housing-related debt in the wake of the global financial crises, the Fed in December 2015 began raising its rate and will now turn its attention to normalizing its balance sheet that ballooned from less than $900 billion pre-2008 as it sought to hold down long-term interest rates to stimulate economic growth.
      The Fed's decision to begin whittling down its holdings of securities in October was largely expected, illustrating the Fed's policy of making sure it doesn't surprise financial markets.
      Back in June the Fed first laid out its principles and plans for gradually decreasing the reinvestments of principal payments from its securities. At that point it said the process would begin "this year" and then followed up in July when it said it would begin "relatively soon," giving financial  markets plenty of time to digest the implications for the critical Treasury market.
       At first the Fed will roll over principal payments from Treasuries that exceed $6 billion and reinvest payments from agency debt and mortgage-backed securities that exceed $4 billion.
       This cap on how much the Fed reinvests will then rise in three-month intervals over the next 12 months until it reaches $30 billion a month for Treasuries and $20 billion for housing securities.
       The gradual tightening of the Fed's monetary policy comes as the U.S. economy continues to improve, with the Fed describing economic activity as "rising moderately" as household spending expands and business investment picks up, resulting in "solid" job gains.
      The impact of recent hurricanes - Harvey, Irma and Maria - is expected to affect economic activity in the near term but based on past experience the Fed doesn't expect any lasting damage.
       Inflation may be boosted temporarily from higher gasoline prices but apart from that, the Fed still expects inflation to remain below 2 percent in the near term before stabilizes around this level - its target level - in the medium term.
       As in July, the Fed said near-term risks to its economic outlook were roughly balanced and it was monitoring inflation closely.
        The Fed's policy-making arm, the Federal Open Market Committee (FOMC) was once again unanimous in its decision.
       In an update to its economic projections, the Fed expects its key interest rate to rise to 1.4 percent this year, implying one more rate hike, and then rise to 2.1 percent in 2018, implying three hikes.
      In 2019 the fed funds rate is seen rising to 2.7 percent, down from 2.9 percent forecast in June as the longer-run rate was lowered to 2.8 percent from 3.0 percent. In 2020 the rate is seen at 2.9 percent.
       The U.S. economy is seen expanding by 2.4 percent this year, up from the June forecast of 2.2 percent but then easing to 2.1 percent next year, unchanged from June. In 2019 the economy is seen expanding by 2.0 percent up from 1.9 percent and then by 1.8 percent in 2020, which is also the longer-run growth rate.
      The Fed's preferred inflation gauge, personal consumption expenditure, is seen averaging 1.6 percent this year, unchanged from June, and then 1.9 percent next year, down from 2.0 percent,. In 2019 and 2010 inflation is seen at 2.0 percent.
      The U.S. headline inflation rate rose to 1.9 percent in August from 1.7 percent in July while the annual growth rate in the second quarter rose to 2.2 percent from 2.0 percent in the first quarter.

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

"Information received since the Federal Open Market Committee met in July indicates that the labor market has continued to strengthen and that economic activity has been rising moderately so far this year. Job gains have remained solid in recent months, and the unemployment rate has stayed low. Household spending has been expanding at a moderate rate, and growth in business fixed investment has picked up in recent quarters. On a 12-month basis, overall inflation and the measure excluding food and energy prices have declined this year and are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Hurricanes Harvey, Irma, and Maria have devastated many communities, inflicting severe hardship. Storm-related disruptions and rebuilding will affect economic activity in the near term, but past experience suggests that the storms are unlikely to materially alter the course of the national economy over the medium term. Consequently, the Committee continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and labor market conditions will strengthen somewhat further. Higher prices for gasoline and some other items in the aftermath of the hurricanes will likely boost inflation temporarily; apart from that effect, inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee's 2 percent objective over the medium term. Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.
In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1 to 1-1/4 percent. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained 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. The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant 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.
In October, the Committee will initiate the balance sheet normalization program described in the June 2017 Addendum to the Committee's Policy Normalization Principles and Plans.
Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Patrick Harker; Robert S. Kaplan; Neel Kashkari; and Jerome H. Powell."

Decisions Regarding Monetary Policy Implementation
"The Federal Reserve has made the following decisions to implement the monetary policy stance announced by the Federal Open Market Committee in its statement on September 20, 2017:
  • The Board of Governors of the Federal Reserve System voted unanimously to maintain the interest rate paid on required and excess reserve balances at 1.25 percent.
  • As part of its policy decision, the Federal Open Market Committee voted to authorize and direct the Open Market Desk at the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the System Open Market Account in accordance with the following domestic policy directive:
    "Effective September 21, 2017, the Federal Open Market Committee directs the Desk to undertake open market operations as necessary to maintain the federal funds rate in a target range of 1 to 1-1/4 percent, including overnight reverse repurchase operations (and reverse repurchase operations with maturities of more than one day when necessary to accommodate weekend, holiday, or similar trading conventions) at an offering rate of 1.00 percent, in amounts limited only by the value of Treasury securities held outright in the System Open Market Account that are available for such operations and by a per-counterparty limit of $30 billion per day.
    The Committee directs the Desk to continue rolling over at auction Treasury securities maturing during September, and to continue reinvesting in agency mortgage-backed securities the principal payments received through September from the Federal Reserve's holdings of agency debt and agency mortgage-backed securities.
    Effective in October 2017, the Committee directs the Desk to roll over at auction the amount of principal payments from the Federal Reserve's holdings of Treasury securities maturing during each calendar month that exceeds $6 billion, and to reinvest in agency mortgage-backed securities the amount of principal payments from the Federal Reserve's holdings of agency debt and agency mortgage-backed securities received during each calendar month that exceeds $4 billion. Small deviations from these amounts for operational reasons are acceptable.
    The Committee also directs the Desk to engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency mortgage-backed securities transactions."
  • In a related action, the Board of Governors of the Federal Reserve System voted unanimously to approve the establishment of the primary credit rate at the existing level of 1.75 percent.
This information will be updated as appropriate to reflect decisions of the Federal Open Market Committee or the Board of Governors regarding details of the Federal Reserve's operational tools and approach used to implement monetary policy.
More information regarding open market operations and the details of operational plans for reducing reinvestments may be found on the Federal Reserve Bank of New York's website"

http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11701825/mongolia-holds-rate-to-stabilize-inflation-around-target Wed, 20 Sep 2017 14:47:27 +0100 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11701825/mongolia-holds-rate-to-stabilize-inflation-around-target <![CDATA[Mongolia holds rate to stabilize inflation around target]]>       Mongolia's central bank retained its policy rate at 12.0 percent "to stabilize inflation around the target rate and thereby facilitate the stability of the macroeconomic environment in the medium to long run."
      The Bank of Mongolia (BM) cut its rate by 200 basis points in June, its first cut this year and the second cut following 100 point cut in December 2016 as the bank unwinds a 450-point rate hike in August 2016 to stabilize the exchange rate of the tugrik and preserve international reserves.
      Mongolia's inflation rate rose to 5.0 percent in August from 3.4 percent in July, in line with its target of keeping inflation below 8 percent for 2017 to 2019.
      Economic growth in Mongolia in the first half of the year topped forecasts, with growth at an annual rate of 5.3 percent, the BM said in a statement issued on September 19 and based on a meeting by the monetary policy committee on September 15.
      "Furthermore, economic growth is expected to accelerate and inflation is expected to stabilize around the medium term target rate of 8 percent," the BM said, adding the economy is currently stimulated by improved external demand, relatively high prices of major export commodities and increased investment in the mining sector.
       While the bank noted the positive sentiment in financial markets and the economy, it added that "further prospects are highly conditional on export prices and volume."
      The exchange rate of the tugrik has been depreciating since July as it reverses a rise in the first 7 months of the year. The turgrik was trading around 2,465 to the U.S. dollar today, up 0.6 percent since the start of this year.
      In May the IMF approved a 3-year, $434 million loan to Mongolia as part of a total financing package worth $5.5 billion that was supported by Japan, Korea, China, the World Bank and the Asian Development Bank, the fourth-largest package in IMF history.
       The package supports the government's economic recovery program that is aimed at building foreign exchange reserves, putting debt on a sustainable path, strengthening the banking sector and securing sustainable growth.
      With minerals, such as copper and coal, accounting for 90 percent of Mongolia's exports, the country was hit hard by the sharp drop in commodity prices and a slowdown in export markets.
       Mongolia's Gross Domestic Product grew by an annual rate of 4.2 percent in the first quarter of this year, up from 1 percent in the fourth quarter of last year and a contraction of 1.6 percent in the third quarter of 2016.

     The Bank of Mongolia issued the following statement:
"The Monetary Policy Committee meeting was held on 15 September 2017, and it was decided to keep the Policy rate unchanged at 12 percent.
As of August 2017, annual inflation measured by the consumer price index has reached 5 percent nationwide and 5.4 percent in Ulaanbaatar city. In the first half of this year, growth of the Mongolian economy exceeded forecasts and reached 5.3 percent (on annual basis). Furthermore, economic growth is expected to accelerate and inflation is expected to stabilize around the medium term target rate of 8 percent.
Mongolian economy is currently stimulated by improved external demand, relatively high prices of the major export commodities and increased investments in the mining sector. While the Bank observes positive changes in market sentiment and positive trends in economic activities, further prospects are highly conditional on export prices and volume.
The Bank’s decision to maintain the policy rate unchanged is consistent with its mandate to stabilize inflation around the target rate and thereby facilitate the stability of macroeconomic environment in the medium to long run.
Extracts of the meeting minutes will be released in two weeks on the Bank of Mongolia’s website."

http://www.hedgehogs.net/pg/blog/asiablues/read/11701554/financial-markets-as-price-discovery-mechanisms-video Wed, 20 Sep 2017 02:03:37 +0100 http://www.hedgehogs.net/pg/blog/asiablues/read/11701554/financial-markets-as-price-discovery-mechanisms-video <![CDATA[Financial Markets as Price Discovery Mechanisms (Video)]]>

By EconMatters

We discuss the API numbers ahead of the EIA report, talk a little about the options market, buying puts at a decent price, and finish off with a discussion of Norway`s sovereign wealth fund, and why it is so emblematic of how things have really gotten out of hand with Central Banks buying assets in Financial Markets, and the complete destruction of Financial Markets as Price Discovery Mechanisms.

Everyone is in the exact same trade, they just don`t know it! There is only one asset, there is no diversification in this Central Bank Market. There is no place to safe harbor the money at this point, the bubble is too large, any major fund that tries to be the first to liquidate causes the first set of many future market crashes to come.

This is the reason for all the Can Kicking by Central Banks, they even want to put off Taperings for as long as possible! The takeaway is that everyone`s capital gets destroyed at the same time. Mark my words this will be Capital Destruction like we have never experienced, the breadth and magnitude of the losses will wipe out entire country`s sovereign wealth funds, cut pension funds in half, make most bank`s insolvent, and there will be a liquidity vaccum in Financial Markets that will make for multiple days of the 2012 Flash Crash Scenario. Financial Markets will literally be like watching a Zombie Apocalypse meets Electronic Markets Horror Movie.

Norway`s Sovereign Wealth Fund - US Holdings: 2015 Investments=$205 Billion.

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http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11701512/hungary-slashes-overnight-deposit-rate-deposit-limit Tue, 19 Sep 2017 17:17:35 +0100 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11701512/hungary-slashes-overnight-deposit-rate-deposit-limit <![CDATA[Hungary slashes overnight deposit rate, deposit limit]]>       Hungary's central bank left its base rate steady at 0.90 percent but lowered its overnight deposit rate and slashed the amount of funds banks can park at the central bank to counter tighter monetary conditions as it once again pushed back the date for meeting its inflation target.
      The National Bank of Hungary (NBH), which has kept its key rate on hold since May 2016, cut the overnight central bank deposit rate by 10 basis points to minus 0.15 percent and lowered the upper limit on the stock of 3-month central bank deposits to 75 billion forint from the end of 2017 from 300 billion at the end of of the third quarter of 2017.
       After cutting its base rate by a total of 610 basis points from August 2012 to the current level in May 2016, the NBH has been easing policy by other means, including cutting the overnight lending rate, the required reserve ratio and by limiting the use of its 3-month deposit facility since July 2016 to encourage banks to buy government debt and offer cheaper loans.
       The limit on the stock of 3-month deposits that banks can hold, which the central bank now considers an integral part of its policy instruments, is set each quarter.
      "In the council's assessment the limitation of the stock of three-month deposits has fulfilled its role and the HUF 75 billion year-end limit on the stock will not be reduced further," the NBH said.
       The central bank said the additional liquidity provided by its limit on deposits had helped push down the 3-month Budapest Interbank Offered Rate (BUBOR) to new historic lows while yields on 3- and 5-year government securities were also at historic lows.
       "The repeated delay in the date of meeting the inflation target also warrants monetary easing," the NBH said, adding it was also increasing the stock of swap instruments to provide a loosing of monetary conditions up to the longest possible section of the yield curve as soon as possible.
      In the future, the central bank said the importance of the stock and maturity structure of swap instruments in providing forint liquidity would increase.
      Hungary's economy is slowly picking up speed and while the central bank maintained its growth forecast in its September inflation report, it lowered the inflation forecast.
      Economic growth this year is forecast to rise to 3.6 percent, then 3.7 percent in 2018 and 3.2 percent in 2019, the same as forecast in June. This compares with growth of 2.0 percent in 2016.
      Hungary's economy grew by an annual 3.2 percent in the second quarter of this year, down from 4.2 percent in the first quarter.
       But the central bank's aim of raising inflation to its medium-term target of 3.0 percent was once again pushed back by six months to the middle of 2019 from early 2019. In the June inflation report, the central bank also pushed back the date for achieving its inflation target by half a year.
       While the NBH maintained its forecast for inflation to average 2.4 percent this year, up from 0.4 percent in 2016, it lowered the 2018 forecast to 2.5 percent from a previous forecast of 2.8 percent and the 2019 forecast to 2.9 percent from 3.0 percent.
       In August Hungary's inflation rate rose to 2.6 percent from 2.1 percent in July but the central bank expects inflation to decline by the end of this year to the bottom of its tolerance band of 1 percentage points above and below the 3.0 percent target.

     The National Bank of Hungary issued the following statement:

"At its meeting on 19 September 2017, the Monetary Council reviewed the latest economic and financial developments and decided on the following structure of central bank interest rates with effect from 20 September 2017:
Central bank interest ratePrevious interest rate (percent)Change (basis points)New interest rate (percent)
Central bank base rate0.90No change0.90
Overnight deposit rate-0.05-10-0.15
Overnight collateralised lending rate0.90No change0.90
One-week collateralised lending rate0.90No change0.90

In the Council’s assessment, Hungarian economic growth picks up over the forecast horizon. Some degree of unused capacity has remained in the economy, but this is likely to be gradually absorbed as output grows dynamically. In the September projection, the inflation target is expected to be achieved in a sustainable manner one additional quarter later, i.e. by the middle of 2019, following a delay of half a year indicated in the June projection.
In August 2017, inflation rose to 2.6 percent and core inflation to 2.8 percent. The increase in core inflation mainly reflected base effects and temporary effects, such as changes in the prices of tobacco and dairy products. In line with the Bank’s expectations measures of underlying inflation were around 2 percent, significantly below the level of core inflation. The expansion in domestic employment, the tight labour market as well as increases in the minimum wage and the guaranteed minimum wage have led to a general, dynamic rise in whole-economy wages. The upward effect of this on costs is being offset by the reduction in employers’ social contributions and in the corporate income tax rate early this year. In line with the Bank’s expectations, there has not yet been any significant upward pressure on inflation from wages. The rise in global inflation which started at the beginning of the year has stalled, and consumer price indices in some economies have fallen. The European Central Bank revised down its projection for euro-area inflation again. External inflation, particularly in the euro area, is likely to remain low for a prolonged period.
In the coming months, the consumer price index is likely to decline again from its current level to the bottom of the tolerance band by the end of 2017. Core inflation is expected to decrease in the second half of next year as the temporary effects wane. Looking ahead, the Bank’s measures of underlying inflation are expected to be around 2 percent. Moderate imported inflation and historically low inflation expectations as well as the VAT rate cuts, announced for next year, have been slowing the rise in domestic prices. According to the projection of the September Inflation Report, the price stability target can be achieved sustainably one quarter later, i.e. by the middle of 2019.
Growth of the Hungarian economy continued in the second quarter of 2017. Industrial production stagnated in July due to factory shutdowns in the summer. A reversal and gradual pick-up in industrial production is expected towards the end of the year. Robust growth in construction and the expansion in the performance of the service sector are likely to continue in the coming months. Retail sales growth slowed somewhat in July. Labour demand remained strong: employment was at historically high levels in the second quarter of 2017. The unemployment rate remained at a low level. The general increase in domestic demand will continue to play a central role in economic growth. Hungary’s current account surplus is expected to fall over the forecast horizon in response to rising domestic demand. Economic growth this year will also be supported by the fiscal budget and the stimulating effects on investment of EU funding. The Monetary Council expects annual economic growth of 3.6 percent in 2017 and stable growth of between 3-4 percent over the coming years. The Bank’s and the Government’s stimulating measures contribute substantially to economic growth.
Sentiment in international financial markets has, on the whole, improved in the period since the Council’s previous interest rate decision. Besides to an escalation in geopolitical risks, favourable macroeconomic data and negotiations about Brexit also had an effect on risk appetite. Investors’ perceptions about the Central and Eastern European region continued to be positive. Due to the different inflation paths expected in the countries of the region and the different characteristics of inflation targeting regimes, market pricing suggests that the timing of central bank actions will differ. The amount of liquidity crowded out due to the introduction of an upper limit on the stock of three-month deposits continued to have a marked influence on domestic money market rates. The three-month BUBOR fell to a new historic low. The yield curves for the interbank and government securities markets shifted downwards. Three and five-year yields on government securities are at their historical lows.
Achieved through the change in  monetary policy instruments, the earlier loose monetary conditions, necessary to meet the inflation target in a sustainable manner, have, on the whole, become tighter in recent months.  The repeated delay in the date of meeting the inflation target also warrants monetary easing. The Monetary Council decided on harmonised measures to ensure the adequate monetary conditions. In particular, the Council reduced the interest rate on the overnight central bank deposit by 10 basis points. In addition, it set a HUF 75 billion upper limit on the stock of three-month central bank deposits outstanding from the end of 2017. The stock of swap instruments will be increased in the coming period. The objective of the latter is to provide the loosening effect up to the longest possible section of the yield curve as soon as possible.
In the Council’s assessment the limitation on the stock of three-month deposits has fulfilled its role and the HUF 75 billion year-end upper limit on the stock will not be reduced further. The importance of the stock and maturity structure of swap instruments providing forint liquidity increases in the future.
In the Council’s assessment, some degree of unused capacity has remained in the economy, but this is likely to be absorbed gradually as output grows dynamically. The inflation target is expected to be achieved in a sustainable manner one additional quarter later, i.e. by the middle of 2019, following a delay of half a year indicated in the June projection. The Council lowered the overnight deposit rate by 10 basis points to -0.15 percent and left the base rate, the overnight and one-week lending rates unchanged. The Council considers that the external environment continues to pose a downside risk to inflation. In the Council’s assessment, maintaining the base rate and loose monetary conditions for an extended period are necessary to achieve the inflation target in a sustainable manner. The Monetary Council will continue to monitor closely the risks to inflation and developments in monetary conditions, and will stand ready to ease them further using additional unconventional, targeted instruments.
The abridged minutes of today’s Council meeting will be published at 2 p.m. on 4 October 2017."