<![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/11708881/indonesia-maintains-rate-raises-2018-growth-forecast Thu, 16 Nov 2017 15:45:49 +0000 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11708881/indonesia-maintains-rate-raises-2018-growth-forecast <![CDATA[Indonesia maintains rate, raises 2018 growth forecast]]>         Indonesia's maintained its benchmark 7-day Reverse Repo Rate at 4.25 percent, saying the domestic economy is continuing to grow "with a more equitable and balanced structure" and the current interest rate is sufficient to keep inflation in line with the target range and the current account at a healthy level.
       Bank Indonesia (BI), which has cut the rate twice this year by a total of 50 basis points, added it was aware of both global and domestic risks, including "limited growth in household consumption and banking intermediation," and the risks from a tightening of monetary policy in several developed economies.
        Based on rising exports and investments, BI raised its 2018 growth forecast slightly to between 5.1 - 5.5 percent from a previous 5.0 - 5.5 percent.
        Noting improved growth in the third quarter of this year, BI estimated 2017 growth of around 5.1 percent compared with its previous estimate of 5.0-5.4 percent.
        Indonesia's Gross Domestic Product grew by an annual rate of 5.6 percent in the third quarter, up from 5.01 percent in the previous two quarters, boosted by higher exports and rising commodity prices, while investments rose to the highest level since the second quarter of 2013 based on construction and non-construction investment.
        BI also sounded optimistic about global growth, saying strong exports and domestic demand are driving China's economy and restoring consumer confidence while the outlook for economic growth in both Japan and Europe have been upgraded.
      "Meanwhile, tenacious consumption and increasing investment contributed to the US economic gains," BI said.
        Indonesia's inflation rate remains low, with headline inflation easing further to 3.58 percent in October from 3.72 percent in September, with BI expecting inflation around 3.0-3.5 percent by the end of this year, within the lower end of its target range of 4.0 percent, plus/minus 1 percentage point.
       For 2018 BI expects inflation to remain within next year's target range of 3.5 percent, plus/minus 1 percentage point.
       As many other currencies, Indonesia's rupiah depreciated in October due to a rise in the U.S. dollar and was trading at 13,526 today, down 0.2 percent this year.

      Bank Indonesia issued the following statement:

"The BI Board of Governors agreed on 15th and 16th November 2017 to hold the BI 7-day Reverse Repo Rate at 4.25%, while maintaining the Deposit Facility (DF) and Lending Facility (LF) rates at 3.50% and 5.00% respectively, effective 17th November 2017. The decision was consistent with efforts to maintain macroeconomic and financial system stability as well as build economic recovery momentum, while paying due consideration to global and domestic economic dynamics. Bank Indonesia believes the current policy rate is adequate to control inflation within the target corridor and maintain a healthy current account deficit. Furthermore, the domestic economy has continued to grow, with a more equitable and balanced structure. Nonetheless, Bank Indonesia shall remain vigilant of the risks, including the global risks linked to the plans to tighten monetary policy in several advanced countries, as well as domestic risks, such as the limited growth in household consumption and banking intermediary. Bank Indonesia will continue to coordinate with the Government to reinforce the policy mix in order to maintain macroeconomic stability and financial system stability as well as to enhance structural reforms to strengthen fundamentals of Indonesia’s economy.
The global economy has continued to expand. The global economy is predicted to accelerate by 3.6% on 2017 and 2018 on the back of growth in China, Japan and Europe that has beaten previous expectations, coupled with solid economic gains in the United States. Strong exports and domestic demand are driving China’s economy and restoring consumer confidence. Furthermore, Japan’s economic outlook has been upgraded in line with the ongoing export recovery. In Europe, the economic growth projection has also been revised upwards on export performance, supported by improving world trade and domestic economic recovery. Meanwhile, tenacious consumption and increasing investment contributed to the US economic gains. Congruent with the improving world economic outlook, world trade volume (WTV) and international commodity prices are both expected to surpass the previous projections. Moving forward, Bank Indonesia shall continue to monitor the global risks, including potentially tighter monetary policy in advanced countries as well as geopolitical factors.
The national economy gained momentum in the third quarter of 2017, with more balanced growth. Domestic economic growth stood at 5.06% (yoy) in the reporting period, up from a stable 5.01% (yoy) over the past two periods. Furthermore, stronger economic growth in the third quarter of 2017 was accompanied by a more balanced structure after exports along with government and private investment performance improved. Exports were buoyed by rising commodity prices, such as crude palm oil (CPO) and coal, combined with stronger global economic growth. Furthermore, investment has posted its highest level since the second quarter of 2013, supported by building and non-building investment. On the other hand, government consumption has also increased in line with greater spending, while household consumption remains limited. By sector, the main driver of growth was the manufacturing sector and the trade, hotels and restaurants (THR) sector, as two dominant contributors to GDP and large labour absorber. Spatially, economic growth in Sumatra, Java, Bali-Nusa Tenggara, Kalimantan and Sulawesi accelerated on the back of the construction sector and manufacturing industry. In contrast, the economies of Maluku and Papua experienced a slowdown due, amongst others, to limited mining production. Consequently, Bank Indonesia predicts national economic growth in 2017 at 5.1%, improving thereafter to 5.1%-5.5% in 2018.
Indonesia’s balance of payments (BOP) increased significantly in the third quarter of 2017 after the current account deficit narrowed and the capital and financial account surplus expanded. The current account deficit stood at 1.65% of GDP in the reporting period, improving from 1.91% of GDP in the previous quarter. Stronger export performance, in terms of value and volume, helped to reduce the current account deficit despite a corresponding surge of imports to meet rising domestic demand. On the other hand, the capital and financial account enjoyed sharp gains in the third quarter of 2017 due to an influx of non-resident capital in the form of direct investment in line with investor optimism concerning the promising domestic economic outlook. Cumulatively, as of October 2017, the trade surplus had reached a total of USD11.78 billion, up from USD7.65 billion in the same period one year ago. Moreover, the position of official reserve assets at the end of October 2017 stood at USD126.5 billion, adequate to offset 8.6 months of imports or 8.3 months of imports and servicing government external debt, which is well above international adequacy standards of around three months. Throughout 2017, the balance of payments is expected to remain positive on the back of capital and financial account surplus, with current account deficit maintained at below 2% of GDP.
The Rupiah on average depreciated in October 2017, due to external factors. The rupiah depreciated by an average of 1.63% to Rp13,528 per USD in October 2017. The depreciation was in line with prevailing trends for most other global currencies against the US dollar. The US dollar appreciated globally as an impact of the financial market’s response to the nomination of The Federal Reserve Governor as well as its monetary policy stance normalisation, growing expectations of a further FFR hike and US plans for tax reform. Nevertheless, Bank Indonesia continues to stabilise the rupiah in line with its fundamental value, while maintaining market mechanisms.
Low headline inflation was maintained. Consumer Price Index (CPI) inflation in October 2017 stood at 0.01% (mtm) or 3.58% (yoy), below the October average for the past three years at 0.18% (mtm). Consequently, inflation as of October 2017 was recorded at 2.67% (ytd). Lower core inflation helped to control headline inflation in line with anchored expectations, low import prices and limited domestic demand. Furthermore, volatile foods (VF) also recorded low inflation, supported by supply-side improvements and the favourable impact of various government policies. Meanwhile, inflation of administered prices (AP) was kept under control. End of year inflation in 2017 is expected to remain low at 3.0%-3.5%, within the lower end of the 4.0±1% target range. Looking ahead, Bank Indonesia shall constantly strengthen policy coordination with the Central Government and Regional Administrations to control inflation within the target corridor, namely 3.5±1% in 2018.
Financial system stability remained stable, amid limited banking intermediation. The maintained financial system stability was reflected in the Capital Adequacy Ratio (CAR) in the banking industry which remained high at 23.0%, with a liquidity ratio of 22.6% in September 2017. At the same time, non-performing loans (NPL) were recorded at 2.9% (gross) or 1.3% (net). Meanwhile, the banking industry acknowledged slower credit growth, decelerating from 8.3% (yoy) to 7.9% (yoy). In contrast, deposit growth accelerated from 9.6% (yoy) to 11.7% (yoy) in the same period. For 2017, deposit growth is estimated at 10% while credit growth, at around 8%, is lower than expected. Considering the limited credit growth, Bank Indonesia decides to maintain the Countercyclical Capital Buffer (CCB) at 0%, to encourage the improvement of banking intermediation function. In conjunction with the relevant authorities, Bank Indonesia shall coordinate to maintain financial system stability and support economic recovery momentum."

http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11708856/iceland-maintains-rate-as-economic-boom-slows-fast Wed, 15 Nov 2017 14:35:43 +0000 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11708856/iceland-maintains-rate-as-economic-boom-slows-fast <![CDATA[Iceland maintains rate as economic boom slows fast]]>       Iceland's central bank kept its key rate on 7-day deposits at 4.25 percent, as it had flagged last month, saying the current stance "appears sufficient at present to keep inflation broadly at target" amid easing demand pressures and an improved inflation outlook.
      The Central Bank of Iceland (CBI) has cut its rate three times this year by a total of 75 basis points, with the most recent cut in October when it also said the rate was now sufficient to keep inflation broadly at the target.
       Although there are still "significant demand pressures," which call for a tight monetary stance to keep inflation under control, Iceland's booming economy is slowing faster than expected and the CBI lowered its outlook for growth this year sharply.
       The extraordinary boom in Iceland's tourism industry, the main source of export growth in the past two years, is now easing, while exports of marine products and silicon are also growing slower than expected and seen slowing further in the next few years.
       Although residential investment is still growing fast, it is now less than expected while house price inflation is also easing, helping curb inflation.
        The CBI now expects Iceland's economy to expand by 3.7 percent this year, down from 5.2 percent forecast in August and below 2016's 7.4 percent. Residential investment is seen expanding by 23.7 percent this year, down from 29.4 percent last year and 25.3 percent previously forecast.
       For 2018 the CBI is still expecting overall economic growth of 3.4 percent, up from 3.3 percent previously forecast, but growth is then seen easing toward the long-term growth trend of around 2.5 percent in 2019 and 2020.
       In the second quarter of this year Iceland's economy grew by an annual rate of 3.4 percent, down from 5.2 percent in the first quarter and over 10 percent in the previous two quarters, partly affected by a strike by fishermen that hit exports and inventories.
       With demand pressures easing and the Icelandic krona still strong, inflation remains under control although there are diminishing effects from the strong krona, the CBI said.
       This year inflation is seen averaging an unchanged 1.8 percent before rising to 2.5 percent next year, down from 2.6 percent forecast in August, and 2.3 percent in 2019, down from 2.8 percent. For 2020 inflation is seen at 2.8 percent, slightly above the CBI's 2.50 percent target.
       "Inflation expectations are well in line with the target, and fluctuations in the exchange rate during the year have had limited impact on inflation and inflation expectations," CBI said.
       Iceland's inflation rate rose to 1.9 percent in October from 1.4 percent in September while the exchange rate of the krona has been relatively stable since July. The krona was trading at 103.5 to the U.S. dollar today, up 9.1 percent this year.

        The Central Bank of Iceland issued the following statement:

"The Monetary Policy Committee (MPC) of the Central Bank of Iceland has decided to keep the Bank’s interest rates unchanged. The Bank’s key interest rate – the rate on seven-day term deposits – will therefore remain 4.25%. 
According to the Central Bank’s new macroeconomic forecast, published in Monetary Bulletin 2017/4, GDP growth will slow significantly this year, and more than the Bank projected in August. It is forecast at 3.7%, down from last year’s GDP growth rate of 7.4%, as a result of a slowdown in export growth, after several strong years, and a pickup in import growth. 
The outlook is for inflation to align with the target in mid-2018 and stay close to target for the remainder of the forecast horizon. House price inflation has eased, which will contribute to lower headline inflation if the trend continues. Counteracting this are the diminishing effects of a strong króna. The króna has appreciated since the last MPC meeting, and exchange rate volatility has eased in recent months. Inflation expectations are well in line with the target, and fluctuations in the exchange rate during the year have had limited impact on inflation and inflation expectations. 
There are indications that the output gap may have peaked. Significant demand pressures remain, however, which calls for a tight monetary stance so as to ensure medium-term price stability. Reduced demand pressures and an improved inflation outlook are consistent with the MPC’s expectations in October, and the Bank’s real rate is broadly as it was after the October interest rate decision. The current monetary stance appears sufficient at present to keep inflation broadly at target. Whether this turns out to be the case in the coming term will depend on economic developments, including fiscal policy and the results of wage settlements.

The Bank’s interest rates will therefore be: 

1. Overnight loan: 6.00%
2. 7 day collateralised lending rates: 5.00%
3. Seven-day term deposit: 4.25%
4. Current accounts: 4.00%
5. Minimum required reserves:  4.00%"


http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11708838/chile-holds-rate-still-pondering-rate-cut-on-low-inflation Wed, 15 Nov 2017 02:45:32 +0000 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11708838/chile-holds-rate-still-pondering-rate-cut-on-low-inflation <![CDATA[Chile holds rate, still pondering rate cut on low inflation]]>        Chile's central bank kept its monetary policy rate at 2.50 percent and repeated its guidance from last month that its board is paying special attention to the risk of low inflation as this "could require adjusting the policy rate."
       The Central Bank of Chile, which has cut its rate four times this year by a total of 100 basis points, added that it expects inflation to "remain low in the short term," which could delay the convergence of inflation to its target of 3.0 percent, plus/minus 1 percentage point.
       Last month the central bank's board was confronted by a decline in September inflation to 1.5 percent, with the result that financial markets priced in rate cuts.
       However, inflation then rose to 1.9 percent in October, "partly undoing the negative surprise of September," shifting those expectations toward no policy easing, according to the central bank.
       After a quarter-century of strong economic growth, Chile's economy has stagnated in the last four years and inflation remains below the central bank's target, leading to dissatisfaction with a sluggish economy, the central bank wrote in its background paper to today's board meeting.
      This has led to popular support for Presidential candidate Sebastian Pinera, president of Chile from 2010 to 2014, with the prospect of business-friendly policies boosting Chilean stocks. The presidential election is scheduled for Sunday, Nov. 19.
      However, the central bank said it expects economic growth to rebound in coming years, with growth expected to accelerate to 2.6 percent in 2018, up from 1.6 percent in 2016.
      In its September monetary policy report the central bank narrowed its 2017 growth forecast to 1.25-1.75 percent from 1.0-1.75 percent
      In the second quarter of this year Chile's Gross Domestic Product grew by only 0.9 percent, up from 0.1 percent in the first quarter, with third quarter data showing activity and demand in line with forecasts and investment still weak, affected by construction.
      Chile's peso has been appreciating steadily since January 2016 and was trading at 631.8 to the U.S. dollar today, almost 6 percent higher since the start of this year.

       The Central Bank of Chile issued the following statement:

"In its monthly monetary policy meeting, the Board of the Central Bank of Chile decided to keep the monetary policy interest rate at 2.5%.

On the external front, third-quarter activity figures are consistent with a more dynamic scenario. Global financial conditions show no major changes. The oil price increased in recent weeks, while the copper price declined slightly, but it is still above expectations.

At home, October’s CPI inflation of 0.6% exceeded the forecast, partly undoing the negative surprise of September, and placing annual inflation at 1.9%. Inflation expectations at short terms remain low, and medium-term expectations have remained constant. Third-quarter data at hand show the evolution of activity and demand in line with the latest Monetary Policy Report’s baseline scenario. Private consumption has performed in line with the labor market’s evolution and with not-so-pessimistic expectations. Investment is still weak, affected by construction activity.

Activity figures made available after the September Report are consistent with the baseline scenario and the monetary impulse depicted therein. However, inflation will remain low in the short term. This could delay its convergence to the target within the two-year horizon. The Board will pay special attention to this risk—already identified in the Report—as it could require adjusting the policy rate. At the same time, the Board reiterates its commitment to conduct monetary policy with flexibility, so that projected inflation stands at 3% over the two-year horizon."


http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11708818/armenia-holds-rate-but-gradual-tightening-in-near-future Tue, 14 Nov 2017 15:45:48 +0000 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11708818/armenia-holds-rate-but-gradual-tightening-in-near-future <![CDATA[Armenia holds rate, but gradual tightening in near future]]>       Armenia's central bank kept its benchmark refinancing rate at 6.0 percent for the fifth time in a row, but said a gradual neutralization of monetary stimulus will be necessary in the near future to reach the inflation target as inflation expectations were growing slightly faster than the rise in international food prices and supply at retail markets.
       However, the board of the Central Bank of Armenia (CBA) still wants to maintain the current monetary stimulus for now given the current state of inflation and inflation expectations and will adjust its monetary policy stance if inflation and other macroeconomic indices deviate from the forecast.
       The CBA has maintained its key rate since February after cutting it 12 times by a total of 450 basis points from 10.50 percent from August 2015.
       The CBA targets inflation of 12.50 - 5.50 percent around a 4.0 percent midpoint.
       Inflation in Armenia rose to 1.2 percent in October from 1.0 percent, with the CBA saying lower-than-expected fruit and vegetable prices are keeping the overall rate down but this impact will change in coming months though inflation should remain within the acceptable range.
       Over the past nine months economic activity in Armenia has been high, supported by strong growth in industry and services. Domestic demand has been recovering at a pace that is faster than expected, helped by growth in money transfers from abroad and the central bank's expansive monetary policy.
         Rising demand in Armenia - sandwiched between Turkey, Azerbaijan, Iran and Georgia - is reflected in high growth of imports, the CBA said.
       Last month the central bank noted that credit had risen 10 percent in August from July while imports had risen 14.6 percent and money transfers in the third quarter had risen a net 16.0 percent due to positive developments in Russia's economy.
        Armenia's economy grew by an annual rate of 5.5 percent in the second quarter of this year, down from 6.5 percent in the first quarter.


http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11708776/this-week-in-monetary-policy-chile-iceland-indonesia-and-egypt Sun, 12 Nov 2017 12:55:44 +0000 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11708776/this-week-in-monetary-policy-chile-iceland-indonesia-and-egypt <![CDATA[This week in monetary policy: Chile, Iceland, Indonesia and Egypt]]>
    This week (November 12 through November 18) central banks from 4 countries or jurisdictions are scheduled to decide on monetary policy: Chile, Iceland, Indonesia and Egypt.
    Following table includes the name of the country, the date of the next policy decision, the current policy rate, the result of the last policy decision, the change in the policy rate year to date, the rate one year ago, and the country’s MSCI classification.
    The table is updated when the latest decisions are announced and can always accessed by clicking on This Week.

NOV 12 - NOV 18, 2017:
COUNTRY                DATE                RATE           LATEST                 YTD               1 YR AGO       MSCI
CHILE 14-Nov 2.50% 0 -100 3.50%          EM
ICELAND 15-Nov 4.25% -25 -75 5.25%
INDONESIA 16-Nov 4.25% 0 -50 4.75%          EM
EGYPT 16-Nov 18.75% 0 400 14.75%          EM

http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11707919/peru-cuts-rate-25-bps-will-consider-more-cuts-if-needed Fri, 10 Nov 2017 02:45:43 +0000 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11707919/peru-cuts-rate-25-bps-will-consider-more-cuts-if-needed <![CDATA[Peru cuts rate 25 bps, will consider more cuts if needed]]>       Peru's central bank cut its monetary policy rate for the fourth time this year, a move that was expected by some but not all analysts, and again said it would pay close attention to new information about inflation to consider, if necessary, further changes in its monetary policy stance.
      The Central Reserve Bank of Peru (BCRP) cut its policy rate by 25 basis points to 3.25 percent and has now cut the rate by 100 points this year following cuts of the same size in May, July and September as inflation continues to decelerate.
      Today's rate cut comes after the central bank last month also said it would consider lowering its policy rate further and the bank's president, Julio Velarde, on Wednesday said inflation was likely to end the year at about 1.9 or 2.0 percent thanks to a rapid decrease in consumer prices.
      Peru's headline inflation rate dropped to 2.04 percent in October from 2.94 percent in September, hitting a level not seen since July 2010 as prices continue to decelerate after spiking earlier this year on food shortages following heavy flooding in March that killed more than 100 people.
       Excluding food and energy, inflation eased to 2.35 percent in October from 2.45 percent.
       In today's statement, the board of BCRP noted inflation had now reached the middle of its target range of 1-3 percent and inflation is forecast to remain within the range this year and next year. Inflation expectations 12-months ahead remain within the target range and are expected to continue to decline in coming months.
       In September the central bank forecast the inflation of 2.3 percent this year but in his comments to journalists Velarde said supply, and not demand, was behind the fall in consumer prices.
       Velarde was also quoted by Reuters as saying the annual growth rate would quicken to at least 3.7 precent in the fourth quarter though it probably would not change the bank's view of a 2.8 percent expansion in 2017.
        Peru's Gross Domestic Product grew by an annual 2.4 percent in the second quarter of this year, up from 2.1 percent in the first quarter, and Velarde said the economy grew by at least 3 percent year-on-year in September thanks to mining and an ongoing recovery in construction activity.
       In its statement, the central bank said the pace of economic growth was recovering rapidly and business expectations had continued to improve in October. Expectations remain on the optimistic side although economic growth remains below the potential level.
        For 2018 Peru's government has forecast growth of 4.2 percent and earlier this month in London Velarde said this figure was perfectly attainable and some investment banks had even penciled in growth of 4.4 percent.
        Velarde also described the recovery of Peru's economy as "very V-shaped," with domestic demand growing at more than 8 percent, construction at almost 9 percent and mining investment was up over 25 percent over the last couple of months.
        Peru is the world's second largest producer of copper, with prices currently at levels not seen since September 2014.
        The exchange rate of Peru's sol has been relatively stable after falling in 2014 and 2015. Today the sol was trading around 3.2 to the U.S. dollar, up 4.7 percent this year.

      The Central Reserve Bank of Peru issued the following statement:

"1. The Board of the Central Reserve Bank of Peru approved to lower the monetary policy interest rate from 3.50 to 3.25 percent. This decision takes into account the following factors:

i. Inflation in October continued decreasing and reached the middle of the inflation target range. The measurements of inflation trends continue declining and are within the target range as well. Moreover, both measurements of inflation are forecast to remain within the target range in 2017 and 2018;
ii. Expectations of inflation in 12 months continued to be within the target range and are expected to continue declining in the following months;
iii. The pace of growth of economic activity is recovering rapidly although it continues to be below its potential growth level in a context of low inflation, and
iv. The world economy continues recovering gradually, although there is some uncertainty associated with an eventual reversal of monetary stimulus in the advanced economies.

2. The Board gives close attention to new data on inflation and inflation determinants to consider the convenience of making additional adjustments in the Central Bank’s monetary policy stance should it be necessary.

3. Recent indicators of inflation and activity reflect the following:
i. Inflation in October recorded a rate of -0.47 percent, as a result of which the year-to-year rate of inflation fell from 2.94 percent in September to 2.04 percent in October. Inflation is expected to remain within this range during 2017 and 2018. Inflation without food and energy showed a rate of 0.02 percent, as a result of which the year-to-year rate fell from 2.45 percent in September to 2.35 percent in October, also within the target range.
ii. The indicators of business expectations have continued to improve in October and remain on the optimistic side, although economic growth remains below its potential level.

4. The Board of the Central Bank also approved to lower the annual interest rates on lending and deposit operations in domestic currency (not included in auctions) between BCRP and the financial system, as specified below:
i. Overnight deposits: 2.00 percent.
ii. Direct repos and rediscount operations: i) 3.80 percent for the first 15 operations carried out by a financial institution in the last 12 months, and ii) the interest rate set by the Committee of Monetary and Foreign Exchange Operations for additional operations to the 15 first operations carried out in the last 12 months.
iii. Swaps: a commission equivalent to a minimum annual effective cost of 3.80 percent.

5. The Board of BCRP will approve the Monetary Program for December on its meeting of December 14, 2017."


http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11707900/mexico-holds-rate-nafta-poses-risk-to-inflation-growth Thu, 09 Nov 2017 22:36:10 +0000 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11707900/mexico-holds-rate-nafta-poses-risk-to-inflation-growth <![CDATA[Mexico holds rate, NAFTA poses risk to inflation, growth]]>       Mexico's central bank maintained its benchmark at 7.0 percent, as widely expected, saying uncertainty from the renegotiation of North American Free Trade Agreement (NAFTA) poses an upside risk to inflation and a downside risk to economic growth.
       But the Bank of Mexico (Banxico), which had kept its rate steady since June, also said it expects inflation to continue to decline for the rest of this year, with the trend then accelerating next year so inflation converges towards the bank's 3.0 percent target towards the end of 2018.
       Banxico has raised its rate by 400 basis points since December 2015 when the U.S. Federal Reserve began tightening its monetary policy for the first time since the global financial crises.
       Mexico's headline inflation rate rose slightly to 6.37 percent in October from 6.35 percent in September, continuing to drop from a high of 5.0 percent in August, as the central bank expected.
       Core inflation in October was was steady at 4.8 percent and Banxico expects it to remain above 4.0 percent this year and then decelerate to moderately above 3.0 percent by the end of next year.
       However, the central bank underlined its inflation forecast is subject to the risk of a fall in the peso's exchange rate in the event of an "unfavorable evolution of the NAFTA negation process" or an adverse reaction to the normalization of monetary policy in the U.S.
       After firming in the first half of this year, the peso has depreciated since late September and trading has turned more volatile in response to U.S. monetary policy, possible U.S. fiscal expansion and uncertainty regarding the outcome of NAFTA talks. The interest rate differential between the U.S. and Mexico has also risen, the central bank added.
      U.S. President Donald Trump has threatened to withdraw from NAFTA if talks don't lead to improved trading conditions for the U.S.
      The peso was trading around 19.05 to the dollar today, still up 8.7 percent this year.
      Mexico's economy has slowed down this year, with Gross Domestic Product shrinking 0.2 percent in the third quarter from the second quarter for annual growth of only 1.6 percent, down from 1.9 percent in the second quarter and 3.2 percent in the first quarter.


http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11707627/philippines-maintains-rate-inflation-seen-in-target Thu, 09 Nov 2017 13:55:38 +0000 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11707627/philippines-maintains-rate-inflation-seen-in-target <![CDATA[Philippines maintains rate, inflation seen in target]]>        The Philippines' central bank kept its key overnight reverse repurchase rate (RRP) at 3.0 percent, as expected, saying inflation is still expected to remain within the government's target range for 2018 and 2019 despite trending upwards on higher utility rates and fuel prices.
        But Bangko Sentral ng Pilipinas (BSP), which has kept its monetary policy stance since September 2014 on "manageable" inflation, said the balance of risks to inflation continue "to lead toward the upside due to possible higher crude oil prices."
      In addition, a proposed tax reform and put temporary pressure on prices while a proposed reform in the rice industry and deregulation of rice imports could temper inflation.
      Inflation in the Philippines rose to 3.5 percent in October from 3.4 percent in September, within the target range of 3.0 percent, plus/minus 1 percentage point.
      On Monday the International Monetary Fund said the BSP's monetary policy stance remained appropriate but it should be ready to tighten if there were signs of overheating. It also said plans to unwind banks' high reserve requirements would help reduce macro financial risks but this should be done carefully to ensure that domestic liquidity is broadly unchanged.
      The BSP said the outlook for domestic economic activity remains firm, supported by positive sentiment among consumers and business and while credit is expanding in line with output growth, the central bank said it remains watchful over the implications of liquidity and credit conditions for price and financial stability.
       The Philippine economy expanded by an annual 6.5 percent in the second quarter, up from 6.4 percent in the first and the IMF forecast growth this year of 6.6 percent and 6.7 percent in 2018. Last year it grew 6.8 percent.
       The Philippine peso has depreciated slowly this year although it has bounced back in the last few weeks. Today the peso was quoted at 51.26 to the U.S. dollar, down 3.2 percent this year.
       Although the BSP's monetary policy stance has been steady since September 2014, the RRP rate was lowered by 100 basis points last year when it adopted an interest corridor system.

     Bangko Sentral ng Pilipinas (BSP) issued the following statement:

"At its meeting today, the Monetary Board decided to maintain the interest rate on the BSP’s overnight reverse repurchase (RRP) facility at 3.0 percent. The corresponding interest rates on the overnight lending and deposit facilities were also kept steady. The reserve requirement ratios were likewise left unchanged.
The Monetary Board’s decision is based on its assessment that the outlook for the inflation environment remains manageable. While inflation has trended higher due mainly to higher utility rates and fuel prices, latest forecasts continue to show the future inflation path staying within the Government’s  3 percent ± 1 percentage point target range for 2018-2019. Inflation expectations also remain anchored close to the midpoint of the inflation target range over the policy horizon.
The balance of risks to the inflation outlook continues to lean toward the upside due to possible higher crude oil prices. The proposed tax reform program of the National Government may exert potential transitory pressures on prices, although various social safety nets and the resulting improvement in output and productivity are also expected to temper the impact on inflation over the medium term. On the other hand, the proposed reform in the rice industry involving the replacement of quantitative restrictions with tariffs and the deregulation of rice imports could temper inflation.
At the same time, geopolitical tensions and lingering uncertainty over macroeconomic policies in advanced economies pose downside risks to near-term prospects for global economic growth.  Nonetheless, the outlook for domestic economic activity remains firm, supported by positive consumer and business sentiment and ample liquidity. Moreover, while credit continues to expand in line with output growth, the Monetary Board remains watchful over evolving liquidity and credit conditions and their implications for price and financial stability.
Based on these considerations, the Monetary Board believes that prevailing monetary policy settings continue to be appropriate. The BSP will continue to monitor price and output developments for any risks to the inflation outlook and will adjust its policy settings as necessary to ensure stable prices and sustainable economic growth."

http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11707622/malaysia-keeps-rate-but-may-review-easy-policy-stance Thu, 09 Nov 2017 12:45:37 +0000 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11707622/malaysia-keeps-rate-but-may-review-easy-policy-stance <![CDATA[Malaysia keeps rate but may review easy policy stance]]>       Malaysia's central bank left its benchmark Overnight Policy Rate (OPR) at 3.0 percent but took the first step toward tighter monetary policy by saying it "may consider reviewing the current degree of monetary accommodation" given strong strong global and domestic economic conditions.
       Voicing confidence about the outlook for the global and domestic economy in 2018, Bank Negara Malaysia (BNM) said the country's economic growth had "become more entrenched," with growth momentum spilling over from the external sector to the domestic economy as firms invest in production facilities, raise wages and hire more workers.
       "For 2018, domestic demand is expected to remain the key source of growth," BNM said, adding overall growth is expected to remain strong next year following better-than-expecteed growth in 2017.
       Malaysia's economy expanded by a higher-than-expected annual rate of 5.8 percent in the second quarter of this year, up from 5.6 percent in the first quarter.
       In August the central bank said growth this year will probably exceed the forecast of 4.8 percent. Growth in 2016 was estimated at 4.2 percent.
       BNM, which in July last year cut its rate for the first time since March 2009, expects inflation this year to be in the upper end of its forecast range and then moderate next year.
       However, the central bank added that oil prices will determine the trend in inflation and underlying inflation, as measured by core inflation, will be sustained by robust domestic demand.
       Malaysia's headline inflation rate rose to 4.3 percent in September from 3.7 percent.
       After tumbling in the immediate aftermath of last year's election of Donald Trump as U.S. president, Malaysia's ringgit has been appreciating this year and was trading at 4.19 to the U.S. dollar today, up just over 7 percent this year.

        Bank Negara Malaysia issued the following statement:

"At its meeting today, the Monetary Policy Committee (MPC) of Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 3.00 percent.
The global economy continues to strengthen. Growth has become more entrenched and synchronised across regions. Global trade has picked up significantly. Amid the sustained growth performance, economic slack is diminishing in the advanced economies. In Asia, growth is driven by sustained domestic activity and strong external demand. Financial markets have also been relatively calm in the recent period. For 2018, the global economy is projected to experience sustained growth. While there are risks arising from geopolitical and policy developments in major economies, economic prospects are expected to remain favourable.
For Malaysia, economic growth has become more entrenched. Both the domestic and external sectors continue to register strong performance. Growth momentum has been lifted by stronger spillovers from the external sector to the domestic economy as firms invest in productive capacity, raise wages and hire more workers. For 2018, domestic demand is expected to remain the key source of growth. Private consumption will remain the largest driver of growth, supported by continued improvements in income and overall labour market conditions. Investment will be sustained by infrastructure projects and higher capital investment in the manufacturing and services sectors. The external sector will provide additional impetus to the economy. Overall, the assessment is for growth to remain strong in 2018.
Domestic inflation has been driven mostly by movements in global oil prices. Consequently, headline inflation increased to 4.3% in September, arising from higher global prices of refined oil caused by disruptions in the global supply. For 2017 as a whole, headline inflation is expected to be at the upper end of the forecast range. Moving into 2018, headline inflation is projected to moderate on expectations of a smaller effect from global cost factors. Nevertheless, the trend of headline inflation will be dependent on future global oil prices which remain highly uncertain. Underlying inflation, as measured by core inflation, will be sustained by robust domestic demand.
The domestic financial markets have been resilient. The ringgit has strengthened to better reflect the economic fundamentals. Banking system liquidity remains sufficient with financial institutions continuing to operate with strong capital and liquidity buffers. The growth of financing to the private sector has been sustained and is supportive of economic activity.
At the current level of the OPR, the stance of monetary policy remains accommodative. Given the strength of the global and domestic macroeconomic conditions, the Monetary Policy Committee may consider reviewing the current degree of monetary accommodation. This is to ensure the sustainability of the growth prospects of the Malaysian economy.
The meeting also approved the schedule of MPC meetings for 2018. In accordance with the Central Bank of Malaysia Act 2009, the MPC will convene six times during the year. The meetings will be held over two days, with the Monetary Policy Statement released at 3 p.m. on the second day of the MPC meeting.
Schedule of Monetary Policy Committee Meetings for 2018
MPC Meeting No.
24 and 25 January 2018 (Wednesday and Thursday)
6 and 7 March 2018 (Tuesday and Wednesday)
9 and 10 May 2018 (Wednesday and Thursday)
10 and 11 July 2018 (Tuesday and Wednesday)
4 and 5 September 2018 (Tuesday and Wednesday)
7 and 8 November 2018 (Wednesday and Thursday)

http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11707605/thailand-holds-rate-monitors-inflation-domestic-demand Wed, 08 Nov 2017 16:35:56 +0000 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11707605/thailand-holds-rate-monitors-inflation-domestic-demand <![CDATA[Thailand holds rate, monitors inflation, domestic demand]]>       Thailand's central bank kept its policy rate steady at 1.50 percent, as widely expected, but said the "strength in the recovery of domestic demand and inflation developments must be monitored" although the overall outlook for economic growth continued to improve due to strong exports.
       The reference by the the Bank of Thailand (BOT) to monitoring inflation in addition to domestic demand is new as compared with the monetary policy committee's statements in recent months, signaling concern that inflation remains below the lower bound of bank's target and is projected to remain there this year.
       Given the BOT's concern over domestic demand and inflation, it maintained an accommodative monetary policy stance, saying this should help continue economic growth and thus "foster the return of headline inflation to target although this could take some time."
       Thailand's headline inflation rate was unchanged at 0.86 percent in October and September and in its September monetary policy report the BOT revised down its inflation forecast to 0.6 percent this year and 1.2 percent in 2018, with risks to inflation seen balanced.
       Inflation has been pushed lower due to lower prices of fresh food but the BOT expects inflation to slowly rise on a recovery in domestic demand, higher excise taxes and regulations on immigrant workers that may affect wages.
       The BOT targets inflation of 1-4 percent.
       Strong goods exports and tourism is fueling overall growth in Thailand's economy, which the BOT said was growing at a faster pace than previously assessed. And while private consumption is continuing to rise, the BOT said low-income households have yet to sufficiently recover and small and medium-sized firms are not fully benefitting from the recovery.
       In the September report, which was published Oct. 6, the BOT revised upwards its 2017 growth forecast to 3.8 percent from 3.5 percent as exports were seen growing by 8 percent. The 2018 forecast was revised up to 3.8 percent from a previous 3.7 percent.
      Thailand's Gross Domestic Product expanded by an annual 3.7 percent in the second quarter of this year, up from 3.3 percent in the first quarter, and the BOT has estimated third quarter growth of 4.0 percent.
       As in September, the BOT said the exchange rate of the Thai baht had remained stable against the U.S. dollar and largely unchanged against its trading partners but exchange rates could see high volatility due to uncertainty from U.S. economic policies and the monetary policy of other advanced economies.
         The baht, which was hit sharply during the "taper tantrum" of 2013, has been rising steadily since  December last year on rising optimism about the prospects for global growth and emerging market economies.
         The baht was trading at 33.1 to the U.S. dollar today, up 8.2 percent this year.

      The Bank of Thailand released the following statement:

"The Committee voted unanimously to maintain the policy rate at 1.50 percent.
In deliberating their policy decision, the Committee assessed that the Thai economy would grow at a faster pace than the previous assessment driven by growth in merchandise exports as well as continued improvement in domestic demand. Headline inflation was projected to edge up in line with the previous assessment. Overall financial conditions remained accommodative and conducive to economic growth. Financial stability remained sound overall, but there remained pockets of risks that might lead to the build-up of vulnerabilities in the period ahead. The Committee viewed that the current accommodative monetary policy stance remained conducive to the continuation of economic growth and should foster the return of headline inflation to target although this could take some time. Thus, the Committee decided to keep the policy rate unchanged at this meeting.

The Thai economy gained further traction from the previous assessment on account of stronger growth in merchandise exports and tourism driven by a stronger global economic recovery. Private consumption continued to expand, but earnings of low-income households had yet to sufficiently recover. In addition, small and medium-sized enterprises (SMEs) might not fully benefit from the economic recovery. Private investment in machinery and equipment continued to pick up. Meanwhile, public investment remained an important growth driver despite some slowdown following decelerated disbursement. Nevertheless, the improved growth outlook was still subject to both domestic and external risks that warranted close monitoring such as impacts from regulations on immigrant workers, uncertainties pertaining to US economic and foreign trade policies, and geopolitical risks.

Headline inflation slightly increased following a gradual rise in fresh food as well as energy prices. Meanwhile, demand-pull inflationary pressures remained low and would be subject to structural changes that might lead to a slower pace of inflation than in the past. Headline inflation was projected to slowly rise from the recovery in domestic demand, an increase in excise tax, and regulations on immigrant workers that might affect wages going forward.

Overall financial conditions remained accommodative and conductive to economic growth with ample liquidity in the financial system. Government bond yields and real interest rates remained low. Business financing through both credit and capital markets continued to expand. With regard to exchange rate developments since the previous meeting, the baht remained stable against the US dollar, and was largely unchanged relative to those of trading partners. In the period ahead, exchange rates might experience high volatilities due to uncertainties pertaining to US economic policies, and monetary policy conducts of major advanced economies. Thus, the Committee would continue to closely monitor developments in the foreign exchange market.

The Committee viewed that financial stability remained sound but would continue to monitor pockets of risks that might pose vulnerabilities to financial stability in the future. These included, in particular, the search-for-yield behavior in the prolonged low interest rate environment that might lead to underpricing of risks, and the deterioration in debt serviceability of households and SMEs especially those affected by changes in structural factors and business models.

Looking ahead, Thailand’s growth outlook improved further particularly on the back of external demand while strength in the recovery of domestic demand and inflation developments must be monitored. Hence, the Committee viewed that monetary policy should remain accommodative and would stand ready to utilize available policy tools to sustain economic growth while also ensuring financial stability."