<![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/11530516/india-holds-rate-on-inflation-pressure-possible-fed-move Tue, 04 Aug 2015 08:09:20 +0100 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11530516/india-holds-rate-on-inflation-pressure-possible-fed-move <![CDATA[India holds rate on inflation pressure, possible Fed move]]>     India's central bank left its benchmark repurchase rate steady at 7.25 percent, as expected, saying it was "prudent" to maintain the current accommodative policy stance in light of its rate cut in June, persistent inflationary pressures, and uncertainty revolving around the timing of the U.S. Federal Reserve's policy decisions.
    The Reserve Bank of India (RBI), which has cut its rate by 75 basis points this year, held out the prospect of further easing, saying "significant uncertainty will be resolved in coming months" - including the impact on inflation from the monsoon and the Fed's policy action - and while it awaits "greater transmission of its front-loaded past actions, it will monitor developments for emerging room for more accommodation."
    RBI Governor Raghuram Rajan said the median base lending rate by commercial banks had only declined by around 30 basis points, "a fraction" of the RBI's 75 point cut so far this year, but added that further transmission of the rate cuts should be seen in the third quarter of this year as loan demand picks up while the government's infusion of bank capital into public sector banks should help loan growth and ease liquidity conditions.
    Rajan described the rise in India's core inflation rate in June as "worrisome," but the prospect of softer crude oil prices and a near-normal monsoon season so far implied that inflation forecasts for January-March 2016 had been cut by 0.2 percent, with the risks broadly balanced around the RBI's target of 6.0 percent for January 2016.
    India's consumer price inflation rate rose to 5.4 percent in June from 5.01 percent in May and the full impact of higher service taxes from June will feed into inflation over the rest of the year. Prices of some foods, such as protein-rich items, pulses and oilseeds, had risen sharply in recent months, Rajan said, noting that this has to be carefully monitored as they tend to be sticky and impart and upward bias to inflation and inflation expectations.
   But the sharp fall in crude oil prices since June and the likelihood of this persisting due to the global supply glut and expanding production by Iran should have a mitigating influence on inflation along with an increase in planing of pulses and oilseeds, the prospects of rain in August and September, and the government's effort to contain shocks to food prices and keep rises in minimum support prices moderate.
    The RBI's outlook for India's economy is "improving gradually," Rajan said, maintaining the forecast for projected output growth in 2015-16 at 7.6 percent.

    The Reserve Bank of India released the following statement by its governor, Raghuram Rajan:

"Monetary and Liquidity Measures
On the basis of an assessment of the current and evolving macroeconomic situation, it has been decided to: 
  • keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 7.25 per cent; 
  • keep the cash reserve ratio (CRR) of scheduled banks unchanged at 4.0 per cent of net demand and time liability (NDTL); 
  • continue to provide liquidity under overnight repos at 0.25 per cent of bank-wise NDTL at the LAF repo rate and liquidity under 14-day term repos as well as longer term repos of up to 0.75 per cent of NDTL of the banking system through auctions; and
  • continue with daily variable rate repos and reverse repos to smooth liquidity. 
Consequently, the reverse repo rate under the LAF will remain unchanged at 6.25 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 8.25 per cent
2. Since our last statement, global economic activity has recovered modestly in Q2 of calendar 2015. The US economy rebounded on stronger consumption growth and steadily improving labour market conditions, though recent wage data suggest continuing slack. The Euro area has grown at a moderate pace through the first half of 2015, supported by consumer spending, easing financing conditions and a modest downturn in still-high unemployment. In Japan, growth slowed in Q2 after an upside surprise in Q1. Domestic consumption is still weak, but manufacturing activity picked up in July and strengthening exports and corporate profitability could stimulate capital spending in H2. In the emerging market economies (EMEs), activity decelerated through H1 due to headwinds from weak external demand, tightening external financing conditions, deteriorating structural bottlenecks and spill overs from unsettled conditions in financial markets. Despite aggressive policy stimuli, the Chinese economy is slowing on macroeconomic rebalancing, sizable stock market corrections, a cooling property market and excess capacity in several manufacturing industries. Manufacturing activity weakened further in July, clouding near-term expectations. Recessionary conditions persist in both Russia and Brazil, with downside risks from commodity prices and geopolitical developments casting a shadow on the outlook, including for other EMEs.
3. In recent months, financial markets have experienced high turbulence due to the Greek crisis, the Chinese stock market slump and shifts between risk-on and risk-off sentiments based on changes in beliefs about when the Federal Reserve will start raising rates. Bond market sell-offs originating in Germany lifted bond yields across the world, including in EMEs, and tightened financing conditions. Equity markets were buoyed by the search for yields which stretched asset valuations until end-June, when sharp stock market corrections in China pulled down share prices globally. Currency markets were dominated by the rising US dollar, which impacted foreign currency borrowing exposures, increased exchange rate volatility and also produced sizable capital outflows from EMEs. Investors have reduced exposures to EMEs as an asset class, but a generalised flight to safety is yet to be seen. Investors have also shunned commodities affected by the Chinese slowdown, including bullion.
4. In India, the economic recovery is still work in progress. After strong rainfall in June, July has been below par, but on net, the monsoon is near normal. Higher reservoir levels also auger well for the prospects of kharif output, particularly for areas that are dependent on irrigation. Consequently, kharif sowing has expanded significantly relative to a year ago, especially in respect of oilseeds, pulses, rice and coarse cereals. These developments, supported by contingency plans for vulnerable districts, provide cushion against adverse weather shocks. If prospects of a good harvest strengthen, currently weak rural demand will improve to provide an important boost to activity. Shrinking exports in some industries, in part a result of weak global demand and global overcapacity in those industries and in part a result of the significant depreciation of currencies of some major trading partners against the rupee, also contributed to weak aggregate demand. The Reserve Bank’s survey-based indicators point to flat capacity utilisation and new orders, with corporate sales growth declining – although lower inflation explains some of the compression in top lines. Although overall business confidence is positive, the level of optimism was a shade lower in April-June than in the preceding quarter. Investment, as measured by new projects, is still weak, primarily because of still-low capacity utilization. In the critically important power sector, where final demand is strong, the recent step-up in generation in response to the commendable easing of bottlenecks in coal supply is being partly negated by structural problems relating to clogging of transmission grids and the dire financial state of electricity distribution companies (DISCOMs).
5. However, there are signs that consumption demand, especially in urban areas, is picking up. Car sales for July were strong. Nominal bank credit growth is lower than previous years, but adjusted for lower inflation as well as for lower borrowing by oil marketing companies and increased borrowing from commercial paper markets, credit availability seems to be adequate for most sectors.
6. The services sector continues to emit mixed signals. The pick-up in heavy commercial vehicle sales and rising port and domestic air freight in Q1 suggest strengthening transportation activity (for Indian data, Q refers to fiscal year quarters). Purchasing managers’ indices were in contraction zone in June, mainly due to lower new and existing business conditions. Survey-based expectations of the outlook for the services sector point to positive sentiment in Q2 on the back of an expected increase in turnover and profit margin.
7. Headline consumer price index (CPI) inflation rose for the second successive month in June 2015 to a nine-month high on the back of a broad based increase in upside pressures, belying consensus expectations. The sharp month-on-month increase in food and non-food items overwhelmed the sizable ‘base effect’ in that month. Food inflation rose 60 basis points over the preceding month, driven by a spike in prices of vegetables, protein items - especially pulses, meat and milk - and spices.
8. Furthermore, excluding food and fuel, inflation rose in respect of all sub-groups other than housing. The momentum of price increases remained high for education. Inflation pressures increased for personal care and effects and household goods and services sub-groups. Inflation in CPI excluding food, fuel, petrol and diesel has been rising steadily since April and exceeded headline inflation through Q1. Near-term inflation expectations of households returned to double digits after two quarters, although those of professional forecasters remained anchored. Rural wage growth was moderate but there are indications of incipient pressures from corporate staff costs.
9. Liquidity conditions have been very easy in June and July. A seasonal reduction in demand for currency and increased spending by Government coupled with structural factors such as low credit deployment relative to the volume of deposit mobilisation contributed to surplus conditions in the money markets. This resulted in a significantly lower average daily net liquidity injection under the fixed rate repos under LAF, and variable rate term repo/reverse repo and MSF at ₹477 billion in June, down from ₹1031 billion in May. In July there was net absorption of ₹120 billion through these facilities. In response to the reduction in the policy repo rate in June the weighted average call rate eased from 7.47 per cent in May to 7.11 per cent in June. The Reserve Bank also conducted open market sales worth ₹83 billion in the second week of July, essentially in response to lack of demand for longer duration reverse repos. The call money rate remained below the repo rate through July, reflecting comfortable liquidity conditions.
10. Headwinds from weak global demand conditions restrained merchandise exports. The contraction in exports in Q1 of 2015-16, both volume and value, was the steepest since Q2 of 2009-10. The sharp fall in international commodity prices - especially crude oil - compressed import payments, helping to narrow the trade deficit. Domestic production shortages and lower international prices were, however, evident in higher imports of electronic goods, pulses, iron ore and fertilisers. Net surpluses on account of trade in services were sustained in Q1 and have, along with the lower trade deficit, helped reduce the current account deficit (CAD). Despite slowing portfolio flows, other forms of foreign capital flows such as foreign direct investment and non-resident deposits were sustained. With the shrinking external financing requirement, reserves were built up to an all-time high at the end of June, providing a buffer against adverse global shocks. 
Policy Stance and Rationale
11. The bi-monthly policy statements of April and June indicated that the accommodative stance of monetary policy will be maintained going forward, but monetary policy actions will be conditioned by (a) fuller transmission by banks of the Reserve Bank’s front-loaded rate reductions into their lending rates; (b) developments in food prices and their management, especially the effects of the monsoon, while looking through both seasonal as well as base effects; (c) a continuation and even acceleration of policy efforts to unclog the supply side so as to make available key inputs such as power and land, as also repurposing of public spending from poorly targeted subsidies towards public investment and reducing the pipeline of stalled investment; and (d) signs of normalisation of the US monetary policy. In the June statement, it was pointed out that a targeted infusion of bank capital is also warranted so that adequate credit flows to the productive sectors as investment picks up.
12. Since the first rate cut in January, the median base lending rates of banks has fallen by around 30 basis points, a fraction of the 75 basis points in rate cut so far. As loan demand picks up in Q3 of 2015-16, banks will see more gains from cutting rates to secure new lending, and more transmission will take place. The welcome announcement by Government of infusion of bank capital into public sector banks will help loan growth and hence transmission, as will currently easy liquidity conditions.
13. During 2015-16 so far, inflation conditions have evolved around the path projected in April and June bi-monthly policy statements, though they surprised somewhat on the upside in June. Large base effects, which the Reserve Bank will look through, are expected to pull down headline inflation in July and August. From September, favourable base effects wane.
14. Turning to the balance of inflation risks, most worrisome is the sustained hardening of inflation excluding food and fuel. Moreover, the full effects of the service tax increase, which took effect from June, will feed through over the rest of the year. Some food prices, particularly of protein-rich items, pulses and oilseeds have risen sharply in recent months. They will have to be carefully monitored as they tend to be sticky and impart an upward bias to inflation and inflation expectations. This assumes significance in view of households’ inflation expectations rising again. Several factors, however, could have a significant mitigating influence. These include the sharp fall in crude prices since June and the likelihood of this softness persisting in view of the global supply glut and expanding production by Iran; the welcome increase in planting of pulses and oilseeds and prospects of rainfall in August and September according to some forecasters; the effects of the Government’s current pro-active supply management to contain shocks to food prices, especially of vegetables, alongside its decision to keep increases in minimum support prices moderate.
15. Relative to the projections of the second bi-monthly statement, inflation projections in this bi-monthly statement are elevated by the higher than expected June observation but reduced by prospects of softer crude prices and a near-normal monsoon thus far. This implies that inflation projections for January-March 2016 are lower by about 0.2 per cent, with risks broadly balanced around the target of 6.0 per cent for January 2016 (Chart 1).
16. Taking into account all this, and given that policy action was front-loaded in June, it is prudent to keep the policy rate unchanged at the current juncture while maintaining the accommodative stance of monetary policy. Short term real risk free rates are nevertheless supportive of borrowing by interest rate sensitive consumer segments such as housing and automobiles. Significant uncertainty will be resolved in the coming months, including the likely persistence of recent inflationary pressures, the full monsoon outturn, as well as possible Federal Reserve actions. As the Reserve Bank awaits greater transmission of its front-loaded past actions, it will monitor developments for emerging room for more accommodation.
17. The outlook for growth is improving gradually. Favourable real income effects could accrue from weaker commodity prices, in particular crude oil, and a possible step-up in agricultural activity if monsoon conditions continue to improve. On the other hand, global growth projections for 2015 have generally been revised downwards and, therefore, the export contraction could become a prolonged drag on growth going forward. Notwithstanding some improvement in the state of stalled projects, supply constraints continue to be binding and new investment demand emanating from the private sector and the central Government remains subdued. On an assessment of the evolving balance of risks, the projected output growth for 2015-16 has been retained at 7.6 per cent (Chart 2).
18. The fourth bi-monthly monetary policy statement will be announced on September 29, 2015."

http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11530511/australia-holds-rate-omits-need-for-a-to-ease-further Tue, 04 Aug 2015 07:39:52 +0100 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11530511/australia-holds-rate-omits-need-for-a-to-ease-further <![CDATA[Australia holds rate, omits need for A$ to ease further]]>      Australia's central bank left its benchmark cash rate steady at 2.0 percent, as expected, and repeated its guidance from last month that its policy stance would be determined by "further information on economic conditions and financial conditions to be received over the period ahead."
     But the Reserve Bank of Australia (RBA), which has cut its rate twice this year by a total of 50 basis points, added that the Australian dollar, known as the aussie, "is adjusting to the significant declines in key commodity prices," omitting its frequent statement that "further depreciation seems both likely and necessary," signaling that it is more comfortable with the current exchange rate.
    The aussie has been depreciating since September 2014 and fallen to levels not seen since April 2009. In response to the RBA's statement, the aussie firmed to 1.36 to the U.S. dollar from 1.37, for a drop of 10.3 percent since the start of the year and a fall of 17.6 percent since the start of 2014.
    In his statement, RBA Governor Glenn Stevens repeated that Australia's economy was continuing to growth at a pace that its "somewhat below long-term averages," but added today that this was associated with "somewhat stronger growth of employment" compared with July's statement that unemployment had been "little changed."
    In June Australia's unemployment rate rose to 6.0 percent from 5.9 percent in May but was still down from the recent peak of 6.3 percent in October 2014.
   However, as in recent statements, Stevens added that country's economy would be operating with spare capacity for some time and inflation was forecast to remain consistent with the RBA's target over the next one to two years, even with a lower exchange rate.
    Australia's headline inflation rate rose slightly to 1.5 percent in the second quarter form 1.3 percent in the first quarter, well below the RBA's target of 2 - 3 percent.

    The Reserve Bank of Australia issued the following statement by its governor, Glenn Stevens:

"At its meeting today, the Board decided to leave the cash rate unchanged at 2.0 per cent.
The global economy is expanding at a moderate pace, but some key commodity prices are much lower than a year ago. Much of this trend appears to reflect increased supply, including from Australia. Australia's terms of trade are falling nonetheless.
The Federal Reserve is expected to start increasing its policy rate later this year, but some other major central banks are continuing to ease policy. Hence, global financial conditions remain very accommodative. Despite fluctuations in markets associated with the respective developments in China and Greece, long-term borrowing rates for most sovereigns and creditworthy private borrowers remain remarkably low.
In Australia, the available information suggests that the economy has continued to grow. While the rate of growth has been somewhat below longer-term averages, it has been associated with somewhat stronger growth of employment and a steady rate of unemployment over the past year. Overall, the economy is likely to be operating with a degree of spare capacity for some time yet. Recent information confirms that domestic inflationary pressures have been contained. That should remain the case for some time, given the very slow growth in labour costs. Inflation is thus forecast to remain consistent with the target over the next one to two years, even with a lower exchange rate.
In such circumstances, monetary policy needs to be accommodative. Low interest rates are acting to support borrowing and spending. Credit is recording moderate growth overall, with growth in lending to the housing market broadly steady over recent months. Dwelling prices continue to rise strongly in Sydney, though trends have been more varied in a number of other cities. The Bank is working with other regulators to assess and contain risks that may arise from the housing market. In other asset markets, prices for equities and commercial property have been supported by lower long-term interest rates. The Australian dollar is adjusting to the significant declines in key commodity prices.
The Board today judged that leaving the cash rate unchanged was appropriate at this meeting. Further information on economic and financial conditions to be received over the period ahead will inform the Board's ongoing assessment of the outlook and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target."

http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11530499/central-bank-news-link-list-aug-3-2015-australias-reserve-bank-likely-to-keep-interest-rates-on-hold Mon, 03 Aug 2015 20:22:15 +0100 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11530499/central-bank-news-link-list-aug-3-2015-australias-reserve-bank-likely-to-keep-interest-rates-on-hold <![CDATA[Central Bank News Link List - Aug 3, 2015: Australiaâs Reserve Bank likely to keep interest rates on hold]]>
Here's today's Central Bank News' link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don't miss any important news.

http://www.hedgehogs.net/pg/blog/skinnercm/read/11530489/things-worth-reading-3rd-august-2015 Mon, 03 Aug 2015 11:05:41 +0100 http://www.hedgehogs.net/pg/blog/skinnercm/read/11530489/things-worth-reading-3rd-august-2015 <![CDATA[Things worth reading: 3rd August 2015]]>

Things we're reading today include ...


]]> 11530489 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11530484/this-week-in-monetary-policy-australia-india-romania-thailand-albania-kenya-uk-czech-rep-and-japan Mon, 03 Aug 2015 10:00:11 +0100 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11530484/this-week-in-monetary-policy-australia-india-romania-thailand-albania-kenya-uk-czech-rep-and-japan <![CDATA[This week in monetary policy: Australia, India, Romania, Thailand, Albania, Kenya, U.K., Czech Rep. and Japan]]>
    This week (August 3 through August 8) central banks from 9 countries or jurisdictions are scheduled to decide on monetary policy: Australia, India, Romania, Thailand, Albania, Kenya, the United Kingdom, the Czech Republic and Japan.
    Following table includes the name of the country, its MSCI classification, the direction of the latest decision, the date the new policy decision will be announced, the current policy rate, and the rate one year ago.
    The table is updated when the latest decisions are announced and can always accessed by clicking on This Week.

AUSTRALIA DM UNCH. 4-Aug 2.00% 2.50%
INDIA EM CUT 4-Aug 7.25% 8.00%
ROMANIA FM UNCH. 4-Aug 1.75% 3.50%
THAILAND EM UNCH. 5-Aug 1.50% 2.00%
ALBANIA UNCH. 5-Aug 2.00% 2.50%
KENYA FM RAISE 5-Aug 11.50% 8.50%
UNITED KINGDOM DM UNCH. 6-Aug 0.50% 0.50%
CZECH REPUBLIC EM UNCH. 6-Aug 0.05% 0.05%
JAPAN DM UNCH. 7-Aug                  N/A                  N/A

http://www.hedgehogs.net/pg/blog/skinnercm/read/11530379/the-finansers-week-27th-july-2nd-august-2015 Sun, 02 Aug 2015 17:05:43 +0100 http://www.hedgehogs.net/pg/blog/skinnercm/read/11530379/the-finansers-week-27th-july-2nd-august-2015 <![CDATA[The Finanser's Week: 27th July â 2nd August 2015]]>

Our main stories this week include ...


]]> 11530379 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11528087/trinidad-tobago-raises-rate-25-bps-for-6th-time-in-a-row Sat, 01 Aug 2015 01:09:46 +0100 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11528087/trinidad-tobago-raises-rate-25-bps-for-6th-time-in-a-row <![CDATA[Trinidad & Tobago raises rate 25 bps for 6th time in a row]]>     Trinidad and Tobago's central bank raised its benchmark repurchase rate by 25 basis points for the sixth consecutive time to 4.25 percent but said the rate still remains below its longer term average and it "views the monetary policy stance as supportive to economic growth."
   The Central Bank of Trinidad and Tobago has now raised its rate by a total of 150 basis points since embarking on its tightening campaign in September 2014. In 2015 it has raised the rate 100 points.
    The main factor behind the decision to raise the rate was the recent forward guidance by the U.S. Federal Reserve regarding the start of a normalization of monetary policy, followed by the potential for core inflation pressures to pick up over the next few months and finally the weaker-than-expected growth in the non-energy sector in the first half of this year.
    "Despite slower-than-expected growth in the non-energy sector in the first half of 2015, the MPC (Monetary Policy Committee) anticipates a respectable performance in the non-energy sector in the second half of 2015," the central bank said.
    Referring to this week's statement by the Fed, the central bank said it had "hinted the U.S. labor market is reaching a position where a rate hike could be possible this year,"and over the past few months an improving U.S. economy have led to rising yields on 10-year Treasuries.
    As a result, the differential between Trinidad and Tobago and U.S. 10-year bonds has narrowed substantially to 69 basis points at the end of July from 82 points at the end of May.
    "Higher domestic rates are necessary to enhance yields of TT$ instruments to mitigate potential capital outflows," the central bank said.
    In addition, the central bank said rising inflationary pressures remain a concern, with pressures expected to pick up in the rest of this year due to a possible rise in food inflation, strong consumer credit, public sector wage agreements that is likely to lift consumer spending and higher public spending in the remaining four months of fiscal 2015.
    The central bank said headline inflation was steady at just over 5.50 percent in June while core inflation slowed marginally to just below 2 percent.

      The Central Bank of Trinidad and Tobago issued the following statement:

"At its July 2015 meeting, Central Bank’s Monetary Policy Committee (MPC) agreed to raise the ‘Repo’ rate for a sixth consecutive time by 25 basis points to 4 ¼ percent. The MPC based its decision on three factors. The first and most influential factor was recent forward guidance by the US Fed on the start of normalization of U.S. monetary policy. The second factor was the potential for domestic core inflationary pressures to pick up over the next few months. The third factor upon which the MPC deliberated was weaker-than-anticipated growth in the non-energy sector in the first half of 2015.

Since the previous meeting of the MPC, uncertainty related to the Greek debt crisis and the sharp correction in Chinese equity markets dominated sentiment in global financial markets. Even though near term risks from these events appear to have dissipated somewhat for now, risks associated with the timing of the first increase in the US Fed funds rate still persist. In her mid-July 2015 testimony to Congress, US Fed Chairwoman Janet Yellen reiterated the Fed remains on track to raise rates this year, as long as the U.S. economy evolves as expected. At its July 28-29th meeting, the FOMC hinted the U.S. labor market is reaching a position where a rate hike could be possible this year. Over the past few months, improving U.S. economic conditions and rising expectations for a Fed rate increase have led to increasing yields on the benchmark 10-year US Treasury. As a result, the interest rate differential between TT – US 10- year Treasuries narrowed substantially to 69 basis points at the end of July 2015 from 82 basis points at the end of May 2015. Higher domestic rates are necessary to enhance yields of TT$ instruments to mitigate potential capital outflows.

Locally, rising inflationary pressures remain a concern for the MPC. Headline inflation held steady at just over 5 ½ percent in June 2015, while core inflation slowed marginally to just below 2 percent. However, the MPC expects inflationary pressures to pick up in the remaining months of 2015 due to a number of factors:
• Food inflation accelerated for the first time in 2015 spurred by rising input costs (specifically poultry) and falling supply associated with the outbreak of a pest in the Dominican Republic, a major source market for fruits and vegetables. In June 2015, food inflation rose to 9.7 percent. The advent of the rainy season raises the possibility of flooding and may lead to additional disruptions to domestic agricultural supply, further pushing up food inflation, which drives headline inflation.
• Consumer credit continues to grow at a fairly strong pace, increasing by 7 ½ percent in May 2015. Recently concluded public sector wage agreements are expected to lift consumer spending and inflationary pressures.
• Central Government maintained an expansionary fiscal stance in the first eight months of FY2015. Capital expenditure, in particular, increased by nearly 9 ½ percent due to a pick-up in the pace of project implementation as well as the settlement of some outstanding commitments. The MPC expects public spending to ramp up in the remaining four months of fiscal 2015, boosted by higher public sector wages and ongoing capital infrastructure projects ahead of the general elections.

The Repo rate increased by 150 basis points since September 2014, but this is still below its longer term average. The MPC, therefore, views the monetary policy stance as supportive to economic growth. Despite slower -than- expected- growth in the non-energy sector in the first half of 2015, the MPC anticipates a respectable performance in the non-energy sector in the second half of 2015.

 With liquidity levels falling to a daily average of $3.2 billion over the past three months (May – July 2015), the MPC agreed to continue with an aggressive programme to absorb excess liquidity and strengthen the impact of higher interest rates throughout the financial system. Commercial banks’ median prime lending rate increased to 8 ¼ percent in July 2015 from 8.00 percent in May 2015. Commercial banks are expected to further increase their interest rates in coming months.

The next Monetary Policy Announcement is scheduled for September 25th 2015."


http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11528082/colombia-holds-rate-and-cuts-2015-growth-forecast Sat, 01 Aug 2015 00:22:51 +0100 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11528082/colombia-holds-rate-and-cuts-2015-growth-forecast <![CDATA[Colombia holds rate and cuts 2015 growth forecast]]>     Colombia's central bank maintained its benchmark intervention rate at 4.5 percent, saying temporary price shocks should reverse during the monetary policy horizon though the "recent depreciation of the peso could delay the convergence of inflation to the target."
    The Central Bank of Colombia, which raised its rate by 125 basis points in 2014 to curb inflation, added that it expects the country's economy in the second quarter to expand at a pace that is similar to the first quarter, with the drop in oil prices and other commodity prices that are exported having a negative impact on national income, partly explaining the "sharp devaluation" of the peso's exchange rate.
    Colombia's economy expanded by 0.8 percent in the first quarter from the fourth quarter and on an annual basis Gross Domestic Product grew by 2.8 percent, down from 3.5 percent in the fourth quarter and the lowest annual growth rate since the fourth quarter of 2012.
    For 2015 the central bank lowered its growth forecast to 2.8 percent from a previous forecast of 3.2 percent, adding growth could be in a range of 1.8 to 3.4 percent. In 2014 GDP grew 4.8 percent.
    The central bank noted that inflation remained relatively stable in June and inflation expectations one and two years ahead remain around the bank's midpoint target of 3.0 percent.
    Colombia's inflation rate rose marginally to 4.42 percent in June from 4.41 percent in May, above the central bank's upper limit of 4.0 percent.
    Colombia's peso has been depreciating for the last 12 months, with the pace accelerating from May. Today the peso was trading at 2,880 to the U.S. dollar for a decline this year of 17 percent.
    Last month Colombia's finance minister, Mauricio Cardenas, was quoted as saying policymakers expect inflation to slow toward the end of the year and are not considering any rise in interest rates, with the rise in inflation due to short-lived supply shocks, particularly to potatoes and rice.

    The Central Bank of Colombia issued the following statement (translation by Google):
"The Board of the Central Bank at its meeting today decided to keep interest rates at 4.5% intervention. In this decision, the Board took into account mainly the following aspects:

    • Annual consumer inflation (4.42%) remained relatively stable in June. The average of the four measures of core inflation (4.14%) increased for the ninth consecutive month. Inflation expectations of analysts to one and two years and those arising TES 2, 3 and 5 years continue around 3%.  
    • The slower growth in food supply, transmission nominal depreciation consumer prices and the increase in costs of imported raw materials, largely explain the acceleration in inflation. 
    • The depreciation of the peso and the persistence of El Niño may postpone the convergence of inflation to the target directly and by activation of indexation mechanisms. 
    • In the United States the records of the first half of 2015 showed a moderation in the growth rate compared to the second half of 2014. The euro area and Japan maintained a slow recovery while China's economy has slowed a little more than expected. Latin American economies grow larger at low or negative rates. These results have affected external demand for weaker than the estimated one quarter behind Colombian producers. 
    • The agreement between Greece and its creditors significantly reduced global risk aversion. The dollar continues to strengthen and expects the Federal Reserve increased US interest rates this year. 
    • The international oil price dropped like other commodity prices exported by Colombia. The decline in the terms of trade has a negative effect on national income and partly explains the sharp devaluation of the peso against the dollar.
    • In Colombia, given the indicators of retail, consumer confidence and trade, economic expectations, import, and to developments in foreign demand for domestic goods and services, technical team estimates that economic growth for the second quarter of 2015 would have been similar to that recorded in the first. For all 2015, the most likely figure was revised from 3.2% to 2.8%, contained in a range between 1.8% and 3.4%.
In short, inflation remains above the upper limit of the target range and domestic spending in the economy continues to adjust to the lower dynamics of national income. It is expected in the horizon of monetary policy action temporary price shocks are reversed in an environment of inflation expectations anchored at the finish. However, the recent depreciation of the peso could delay the convergence of inflation to the target. 

The Board will continue to carefully monitor the behavior and projections of economic activity and inflation in the country, asset markets and the international situation. It reiterates also that monetary policy will depend on the information available."


http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11528069/russia-cuts-rate-50-bps-gdp-may-shrink-above-forecast Fri, 31 Jul 2015 16:35:09 +0100 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11528069/russia-cuts-rate-50-bps-gdp-may-shrink-above-forecast <![CDATA[Russia cuts rate 50 bps, GDP may shrink above forecast]]>     Russia's central bank cut its key policy rate by a 50 basis points to 11.0 percent to reflect that "the balance of risks shifts towards the considerable economy cooling despite a slight increase in inflation risks," and said further rate cuts would depend on the risk of higher inflation compared with the risk of further economic slowdown.
    The Bank of Russia, which has now cut its rate by 600 basis points in 2015 as it continues to roll back last year's 1,150 points of rate increases, still sees inflation decelerating sharply early next year to below 7.0 percent by July due to slack domestic demand and then reaching its target of 4.0 percent by 2017.
    Russia's consumer price inflation rate rose slightly to 15.8 percent as of July 27 from 15.3 percent in June but down from a 2015-high of 16.9 percent in March. The central bank said the rise in July inflation was expected and caused by a greater increase in utility tariffs as compared with 2014.
    But Russia's economy is mired in recession and the central bank said it expects Gross Domestic Product in the second quarter to shrink even more in the second quarter than in the first quarter when it contracted by an annual rate of 2.2 percent.
    On a quarterly basis, first quarter GDP fell by 1.29 percent following declines of 0.55 percent in the fourth quarter and 0.34 percent in the third quarter.
    "Due to a more significant domestic demand shrinkage than expected in the first half of 2015, the output forecast may be revised downwards," the central bank said.
    Last month the Bank of Russia said 2016 GDP could expand by 0.7 percent if oil prices recover to $70 a barrel but if they remain around $60, then the economy could contract by 1.2 percent.
    The ruble fell 45 percent against the U.S. dollar in 2014, hit by the fall in oil prices and Western sanctions over the conflict in Ukraine, before recovering in February this year.
    But since mid-May it has again depreciated to trade at 61 to the U.S. dollar today, practically unchanged since the start of 2015.

    The Bank of Russia released the following statement:

"On 31 July 2015, the Bank of Russia Board of Directors decided to reduce the key rate from 11.50 to 11.00 per cent per annum, taking into account that the balance of risks shifts towards the considerable economy cooling despite a slight increase in inflation risks. According to the Bank of Russia forecast, consumer price growth will continue to slow amid slack domestic demand. Annual inflation will fall below 7% in July 2016 and reach the 4% target in 2017. The Bank of Russia will further decide on its key rate depending on the balance of inflation risks and risks of economy cooling.
Annual inflation temporarily accelerated in July, which was expected and caused by a greater increase in utility tariffs compared with 2014. As of 27 July 2015, annual consumer price growth rate rose to 15.8% from 15.3% in June, according to Bank of Russia estimates. Weekly inflation declined to 0.0 â€” 0.1% again after a significant increase early this month. Amid a considerable reduction in real income slack consumer demand hampers consumer price growth. 
Relatively tough monetary conditions also contain prices. Money supply (М2) growth rate remains low. Lending and deposit rates show downward trends under the influence of earlier Bank of Russia decisions to reduce the key rate. However, they still remain high, on the one hand, contributing to attractiveness of ruble savings, and, on the other hand, alongside with high debt burden and tighter borrower and collateral requirements, resulting in lower annual lending growth.
Major macroeconomic indicators demonstrate further economy cooling. The Bank of Russia estimates GDP decrease in 2015 Q2 compared with the similar quarter last year to be more significant than that in Q1 2015. Though structural factors continue hampering the economic growth, output contraction is having cyclical nature. Low consumer and business confidence as well as decreased capacity and labour force utilisation are indicative of this. However, unemployment remains low amid the negative demographic trends, while the labour market adjusts to the new conditions largely through wage decrease and growing part-time employment. These factors along with the decline in retail lending will result in further contraction of consumer spending. Fixed capital investments will continue to contract due to economic agents’ negative expectations with regard to the Russian economic outlook and tighter lending conditions. Poor substitution of external funding sources with domestic ones caused by shallow Russian financial market and high debt burden will also contain investment demand. Implementation of government anti-recession measures will facilitate investments. Sluggish investor and consumer activity will result in low demand for imports. Export decline will be less considerable given the floating exchange rate. As a result, net exports will be the only component to make a positive contribution to annual output growth. Due to a more significant domestic demand shrank than that expected in the first half of 2015, the output forecast may be revised downwards. 
The economic situation in Russia will further depend on the dynamics of world energy prices and the economy’s ability to adapt to external shocks. At the same time the scenario with oil prices remaining below US$60 per barrel for a long time is more probable than it was in June.
Slack domestic demand will facilitate the continuation of annual inflation reduction in years 2015-2017. A slowdown in consumer price growth will make room for inflation expectations decrease. In early 2016, annual inflation is expected to decelerate considerably due to high base of 2015. According to Bank of Russia forecasts, in July 2016, annual consumer price growth will stand at below 7% to reach the 4% target in 2017.
Inflation risks arise mostly from aggravated external economic situation, enhanced inflation expectations, revision of increases in administered prices and tariffs, of payments indexation for 2016-2017, and fiscal policy easing in general. The Bank of Russia will further decide on its key rate depending on the balance of inflation risks and risks of economy cooling.
The next meeting of the Bank of Russia Board of Directors on the key rate is scheduled for 11 September 2015. The press release on the Bank of Russia Board of Directors’ decision is to be published at 13:30, Moscow time."

http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11528056/dominican-rep-holds-rate-inflation-seen-below-target Fri, 31 Jul 2015 03:19:14 +0100 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11528056/dominican-rep-holds-rate-inflation-seen-below-target <![CDATA[Dominican Rep. holds rate, inflation seen below target]]>     The Central Bank of the Dominican Republic (CBDR) left it monetary policy rate steady at 5.00 percent, saying forecast still show that inflation will remain below the lower limit of the bank's target for 2015 before converging to the center of the target range at the end of the forecast horizon.
    Inflation in the Dominican Republic rose to 0.62 percent in June from 0.23 percent in May and a 2015-low of minus 0.04 percent in April.
    The central bank targets inflation of 4.0 percent, plus/minus 1.0 percentage point. It has cut the rate by 125 basis points this year, most recently in May.
    Domestic production, demand and employment remains on track to expand along its expected path, the central bank said, adding the current account deficit is projected at 2.0 percent of Gross Domestic Product by the end of the year, helping the foreign exchange market remains stable and the accumulation of foreign exchange reserves, currently equal to 3.4 months of imports.
    In May the central bank's governor raised his forecast for economic growth this year to around 6 percent, up from the previous forecast of 5.0-5.5 percent.

    The Central Bank of the Dominican Republic issued the following statement:

"At its monetary policy meeting in July 2015, the Central Bank of the Dominican Republic (CBDR) decided to keep its interest rate monetary policy at 5.00% annually.

The decision on the benchmark rate was made after reviewing the country macroeconomic outlook, mainly the balance of risks around inflation projections and expectations of the private sector and relevant international environment for the Dominican economy. It was noted that the annual inflation rate in June rose to 0.62%. The accumulated inflation stood at 0.60% at the end of that month. Likewise, core inflation, monetary conditions related to the economy, stood at 2.32% in June yoy. Forecasts continue to indicate that inflation would remain below the lower limit of the target set in the monetary program for 2015, converging to the center of the range of 4.0% ± 1.0% at the monetary policy horizon.

In the external environment, according to Consensus Forecast is forecast growth of United States of America (USA) of 2.4% for 2015 and 2.8% for 2016. Under this premise, it is expected that the US Federal Reserve started its standardization process currency in the fourth quarter and inflation gradually converging toward the goal at the end of 2016, after reaching the goal of unemployment around 5.25%. In the case of the Eurozone, Consensus Forecast expects an expansion of output of 1.5% for 2015 and 1.8% in 2016. Although there is still uncertainty as to the outcome of the crisis in Greece, the effects on market volatility capital have tended to moderate. Projections for Latin America were revised downwards and suggest that the economy would not grow in 2015, increasing by around 1.5% in 2016. However, this projection is highly influenced by the deteriorating situation in Venezuela growth. If this country were excluded from the sample, Latin America would grow about 0.7% in 2015 and 2.0% in 2016.  

As for commodity prices, the correction in the stock markets of China, the second largest economy has been reflected in significant reductions accompanied by a trend appreciation of the dollar worldwide. In this context, the conservative estimates of the performance of the world economy in the medium term remain.

Domestically, domestic production, demand and employment expand as the expected path. The trend cycle monthly indicator of economic activity (IMAE) at end-May has an annual growth rate of around 6.1%, having been revised GDP growth in the first quarter from 6.5% to 6.6%. Also, credit to the private sector in domestic currency grew at an annual rate of around 11.5% in July. On the side of fiscal policy, public finances continue to show a surplus for the month of May, indicating that by the end of this year a primary surplus would be generated over the provisions of the National Budget 2015. The current level of public debt Consolidated is around 46.0% of GDP, below the regional average. Similarly, the external accounts are developing well, projecting a deficit of current account of the balance of payments at around 2.0% of GDP by year-end. This trend will benefit the relative stability of the exchange market and the accumulation of international reserves, which currently stand at around 3.4 months of imports.    

The CRBBB confirms its commitment to implement monetary policy aimed at achieving its inflation target, while also continue to monitor the evolution of the world economy and the domestic situation, to take the necessary measures to risks to price stability and the proper functioning of the financial and payment systems."