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Botswana maintains rate with inflation in line with target

April 30, 2018 by CentralBankNews   Comments (0)

      Botswana's central bank left its Bank Rate steady at 5.0 percent, saying the state of the economy and the outlook for domestic and external activity suggests the current monetary policy stance is consistent with inflation within its objective range of 3-6 percent.
       The Bank of Botswana (BB), which has maintained its rate since cutting it to the current level in October 2017, said subdued domestic demand pressures and the modest increase in foreign prices contributed to the positive outlook for inflation, with upside risk from an improving global economy and the potential rise in commodity price, unexpected increases in administered prices and government levies or taxes.
       Downside risks emanate from modest demand pressure and a restrained rise in salaries.
       Botswana's inflation rate eased to 2.8 percent in March from 3.2 percent in February, with the exchange rate of the pula softening in the last month after appreciating since January 2016.
      The pula was trading at 9.8 to the U.S. dollar today, up 0.7 percent this year and 9 percent higher than at the start of 2017.
       Last year Botswana's economy grew by 2.4 percent, down from 4.3 percent in 2016, as mining output contracted by 11.2 percent, faster than a 3.5 precent decline in 2016.
       This year BB expects the economy to benefit from growth in services and a recovery in mining activity, in line with the positive global economic prospects. In addition, stability in water and electricity supply, accommodative monetary conditions and higher government spending should support economic activity.
      "Overall, the economy is expected to operate close to, but below full capacity in the medium term," the central bank said.

     

       The Bank of Botswana issued the following statement:

"At the meeting held on April 30, 2018, the Monetary Policy Committee of the Bank of Botswana decided to maintain the Bank Rate at 5 percent. The outlook for price stability remains positive as inflation is forecast to be within the 3 – 6 percent objective range in the medium term. Inflation fell from 3.2 percent in February to 2.8 percent in March 2018.

Subdued domestic demand pressures and the modest increase in foreign prices contribute to the positive inflation outlook in the medium term. This outlook is subject to upside risks emanating from improving global economic activity and the potential rise in commodity prices beyond current forecasts. Furthermore, any substantial unanticipated upward adjustment in administered prices and government levies and/or taxes also present upside risks to the inflation outlook. Modest demand pressures and the restrained increase in salaries present downside risks to the outlook.

Real GDP in Botswana grew by 2.4 percent in 2017 compared to a faster growth of 4.3 percent in 2016. The slower growth reflects a lower increase of 4.2 percent in non-mining activity, compared to 5.5 percent in the previous year. Mining output, however, contracted significantly by 11.2 percent in 2017 compared to a decline of 3.5 percent in 2016. GDP is projected to expand in the short-to-medium term, driven largely by growth in the services sectors and recovery in mining activity, in line with the positive global economic prospects. Furthermore, the projected accommodative monetary conditions in the domestic economy and expansion in government expenditure in the 2018/19 fiscal year, as well as stability in water and electricity supply, are expected to support economic activity in the non-mining sectors. Overall, the economy is expected to operate close to, but below full capacity in the medium term.

Global output growth is estimated at 3.8 percent in 2017 compared to 3.2 percent in 2016 and is projected at 3.9 percent in 2018 and 2019, reflecting expected broad-based improvement in economic performance. However, protectionist trade policies, potential build-up of financial vulnerabilities induced by easy financial conditions, geopolitical tensions and adverse weather could negatively affect the medium-term growth prospects. Regionally, economic expansion in South Africa is projected to improve in 2018 on the back of the positive outlook arising from higher commodity prices and a recovery in investor sentiment.
The current state of the economy and the outlook for both domestic and external economic activity suggest that the prevailing monetary policy stance is consistent with maintaining inflation within the objective range of 3 – 6 percent in the medium term. Therefore, the Monetary Policy Committee decided to retain the Bank Rate at 5 percent."

      www.CentralBankNews.info

This week in monetary policy: Botswana, Bulgaria, Angola, Dominican Rep, Australia, Georgia, Tajikistan, Albania, USA, Czech Rep, Norway, Moldova & Chile

April 30, 2018 by CentralBankNews   Comments (0)

    This week - April 29 through May 5 - central banks from 13 countries or jurisdictions are scheduled to decide on monetary policy: Botswana, Bulgaria, Angola, Dominican Republic, Australia, Georgia, Tajikistan, Albania, USA, Czech Republic, Norway, Moldova and Chile.
    Following table includes the name of the country, the date of the next policy decision, the current policy rate, the result of the last policy decision, the change in the policy rate year to date, the rate one year ago, and the country’s MSCI classification.
    The table is updated when the latest decisions are announced and can always accessed by clicking on This Week.
WEEK 18
APR 29 - MAY 5 2018:
COUNTRY                    DATE                      RATE                 LATEST                     YTD               1 YR AGO       MSCI
BOTSWANA 30-Apr 5.00% 0 0 5.50%
BULGARIA 30-Apr 0.00% 0 0 0.00%          FM
ANGOLA 30-Apr 18.00% 0 0 16.00%
DOMINICAN REP. 30-Apr 5.25% 0 0 5.75%
AUSTRALIA 1-May 1.50% 0 0 1.50%          DM
GEORGIA 2-May 7.25% 0 0 7.00%
TAJIKISTAN 2-May 14.00% -75 -200 16.00%
ALBANIA 2-May 1.25% 0 0 1.25%
USA 2-May 1.75% 25 25 1.00%          DM
CZECH REPUBLIC 3-May 0.75% 0 25 0.05%          EM
NORWAY 3-May 0.50% 0 0 0.50%          DM
MOLDOVA 3-May 6.50% 0 0 9.00%
CHILE 3-May 2.50% 0 0 2.50%          EM

Russia holds rate but still assumes it will ease further

April 27, 2018 by CentralBankNews   Comments (0)

      Russia's central bank left its key monetary policy rate at 7.25 percent after cutting it five times in a row after the ruble's plunge earlier this month triggered uncertainty over how this would impact inflation expectations.
      But the Bank of Russia, which has cut its rate twice this year and six times in 2017, remains confident that inflation will not overshoot its 4.0 percent target and that it will continue to lower rates this year even if the estimated neutral rate has moved slightly higher.
      Today's decision by the central bank's board was widely expected by financial markets after central bank officials said the fall in the ruble had lowered the likelihood of a rate cut today and the weaker ruble could spur inflation and inflationary expectations.
      Between April 9 and April 11 the ruble plunged 10 percent and Russian stocks by 9 percent in response to fresh sanctions by the United States for its alleged meddling in the 2016 presidential election and criticism by President Donald Trump over its support for the Syrian government, which was accused of launching a chemical weapons attack.
       But on April 10 Bank of Russia Governor Elvira Nabiullina said she would not step in to halt the ruble's slide, describing it as a market correction as investors were uncertain over the impact of sanctions, and the free float of the ruble would help absorb any external shocks.
       Deputy Governor Ksenia Yudayeva echoed Nabiullina's statement on April 16 and added the situation on the currency market was balanced and the central bank doesn't intervene purely due to volatility but only if there are risks to financial stability.
       The assurances by the central bank officials helped soothe investors' nerves but while Russian stocks have bounced back the ruble remains weaker than before the sanctions.
       In response to today's policy decision, the ruble firmed 0.5 percent to 62.5 to the U.S. dollar and is now up 3.4 percent since a low of 64.6 on April 11.
       But the ruble is still 7 percent below its pre-sanction level and down 7.7 percent since the start of the year.
       "The Bank of Russia estimates that the ruble weakening will quicken inflation movement to 4% without the risks of overpassing this level, unless the external environment changes considerably," the central bank said, confirming it still expects inflation in a range of 3-4 percent by the end of this year and then to remain close to 4.0 percent in 2019.
       Russia's inflation rate rose slightly to 2.4 percent in March from a record low of 2.2 percent in February and is estimated by the central bank at 2.3-2.5 percent in April, saying weekly data showed little response by consumer prices to the ruble weakening.
       Household inflation expectations also dropped to a historical low of 7.8 percent in March though the central bank said it was unclear how expectations would respond to financial market volatility.
       The weakening of the ruble should help boost inflation toward the 4 percent target earlier than expected, the bank said, adding that monetary policy is still expected to become neutral this year.
        The bank had estimated a neutral policy rate in a range of 6-7 percent but said today the potential size of further rate cuts was now smaller as the estimated neutral rate had shifted closer to the upper bound of this range given a rise in Russia's risk premium and the increase in interest rates in advanced economies.
        Economic activity in Russia is continuing to expand but is still posing little disinflationary pressure on consumer prices, paving a way for inflation to return to 4 percent.
        Output continued to expand throughout March, the bank said, forecasting economic growth in the first quarter of 1.3-1.5 percent and confirming its forecast for growth of 1.5-2.0 percent by the end of 2018, in line with the country's potential.

       The Bank of Russia issued the following statement:

"On 27 April 2018, the Bank of Russia Board of Directors decided to keep the key rate at 7.25% per annum. Annual inflation remains low. The April weakening in the ruble against the backdrop of geopolitical tension will be a factor for consumer price growth paces to quicken as they move closer to 4%. However, this does not create risks of inflation overshooting the target. At the same time uncertainty remains over the potential impact of the recent developments on inflation expectations. Inflation is forecast to range between 3–4% as of the end of 2018 and hold close to 4% in 2019.
The Bank of Russia still assumes that monetary policy will become neutral in 2018. At the same time, the Bank of Russia considers that the potential key rate reduction intended to bring about neutral monetary conditions has decreased given the rise in interest rates across advanced economies and country risk premium growth for Russia. Moving forward, in its decision-making the Bank of Russia will be guided by assessments of inflation risks, inflation dynamics and economic developments against the forecast. 
In making its key rate decision, the Bank of Russia recognised the following factors.
Inflation dynamics. Inflation remains low, driven by long-term factors including, in the first place, a moderate recovery in domestic demand. 
Consumer prices grew at the pace of 2.4% in March, and consumer price growth in April is estimated at 2.32.5%. The recent weekly data on inflation are indicative of a still feeble response of consumer prices to the ruble weakening. The gradual depletion of the past year’s vegetable stocks and the related growth in imports contributed to an expected slight increase in both monthly and annual inflation between March and April, relative to February. 
In March, household inflation expectations dropped to a historical low of 7.8%. That said, uncertainty is in place over how inflation expectations will respond to the April developments in financial markets. 
The Bank of Russia estimates that the ruble weakening will quicken inflation movement to 4% without the risks of overpassing this level, unless the external environment changes considerably. Inflation is forecast to range between 34% as of the end of 2018 and hold close to 4% in 2019.
Monetary conditions. The Bank of Russia’s estimates suggest that the potential for key rate reduction to shape neutral monetary conditions shrank somewhat. As the country risk premium increased and interest rates were revised upwards in advanced economies, the estimated neutral interest rate has shifted closer to its upper bound within the range of 67%. 
Economic activity. Business activity keeps on expanding and is hardly posing any disinflationary pressure on consumer price movements. This paves the way for inflation to return to 4%. Output growth continued throughout March, including industrial output, and capacity utilisation increased. Unemployment was close to its natural level. Economic activity is backed up by gradually recovering consumer demand as wages are growing and retail lending is expanding. 
GDP growth rate is estimated at 1.31.5% in the first quarter and 1.5-2% as of the end of 2018, which is in line with the potential economic growth rate. 
Inflation risks. The Bank of Russia registers a rise in inflation risks triggered by some internal and external factors. First, geopolitical factors and accelerated yield growth in advanced economies may cause surges in volatility in financial markets and affect expectations for the exchange rate and inflation. Furthermore, uncertainty still persists over the dimensions of fiscal decisions, which are needed to estimate the impact of such decisions on inflation. 
The Bank of Russia leaves unchanged its estimates of risks associated with consumer and oil price volatility, wage movements and possible changes in consumer behaviour.
In its key rate decision-making the Bank of Russia will be guided by assessments of inflation risks, inflation dynamics and economic developments against the forecast. 
The Bank of Russia Board of Directors will hold its next rate review meeting on 15 June 2018. The Board decision press release is to be published at 13:30 Moscow time."

BOJ maintains policy, raises growth, lower inflation f'cast

April 27, 2018 by CentralBankNews   Comments (0)

     The Bank of Japan (BOJ) maintained its monetary policy stance, with two new deputy governors voting with Governor Haruhiko Kuroda, as the bank's growth forecast for the current fiscal year was raised while the inflation forecast was lowered.
      The BOJ, which in September 2016 changed the focus of its monetary policy to yield curve control from quantitative easing to boost inflation to 2 percent, added risks to economic activity in fiscal 2018 were balanced while the risk were skewed to the downside for fiscal 2019, mainly due to international developments and the dampening impact of a hike in taxes in October 2019.
       On the price front, the BOJ said the risks were skewed to the downside from lagging inflation expectations, the lack of responsiveness to the output from some services prices and rent, and the development of foreign exchange rates and international commodity prices.
       In an update to its economic forecast, the majority of the BOJ's board expects Japan's Gross Domestic Product to grow by 1.6 percent in fiscal 2018, which began on April 1, up from 1.4 percent that was forecast in January. This compares with an estimated 1.9 percent growth in fiscal 2017.
       Inflation, which declined to 1.1 percent in March from 1.5 percent in February, is seen averaging 1.3 percent in fiscal 2018, down from the previous forecast of 1.4 percent.
       For fiscal 2019 economic growth is seen at 0.8 percent, up from a previous forecast of 0.7 percent while inflation, including the impact of a hike in sales taxes, is seen unchanged at 2.3 percent.
        For fiscal 2020, growth is seen steady at 0.8 percent while inflation is seen at 2.3 percent and 1.8 percent when the impact of a rise in consumption taxes to 10 percent from 8 percent is excluded.
       The BOJ also confirmed that it will continue with "Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control" as long as necessary in order to reach its 2.0 percent inflation.
        This policy includes a negative interest rate of minus 0.1 percent on banks' deposits that exceed reserve requirements along with the purchase of government bonds of around 80 trillion yen in order to keep 10-year government bond yields around 0 percent.
        The two-day meeting by the BOJ's policy board was the first since Governor Kuroda was approved for a second term, and included two new board members: Masazumi Wakatabe and Masayoshi Amamiya.

        www.CentralBankNews.info



ECB maintains policy stance as inflation still subdued

April 26, 2018 by CentralBankNews   Comments (0)

      The European Central Bank (ECB) retained its key interest rates and confirmed that it will continue to purchase assets at a pace of 30 billion euros a month until the end of September, or beyond if necessary, as inflation remains "subdued" and economic growth has recently moderated.
       But while the ECB remains confident inflation will converge towards its target and the economic expansion is on track, it still maintained that "an ample degree of monetary stimulus remains necessary for underlying inflation pressures to continue to build up and support headline inflation developments over the medium term."
       The decision by the ECB's governing council was largely as expected by financial markets with the euro easing to $1.219, continuing its recent fall since topping $1.25 on Feb. 1, on softer economic activity in the first quarter.
       But the euro remains 1.6 percent higher than at the start of this year on expectations this softening of growth is temporary and the ECB will begin to wind down its asset purchase program this year before embarking on rate hikes around the middle of 2019.
      "The underlying strength of the euro area economic continues to support our confidence that inflation will converge towards our inflation aim of below, but close to 2% over the medium term," said ECB President Mario Draghi, despite adding that underlying inflation remains subdued and "has yet to show convincing signs of a sustained upward trend."      
        Inflation in the 19-nation euro area rose slightly to 1.3 percent in March from only 1.1 percent in February. In its March forecast the ECB maintained its forecast for inflation to average 1.4 percent this year and remain at this level in 2019.
        At the previous meeting in March, the ECB governing council began preparing financial markets for normalizing its monetary policy by dropping a reference to being ready to increase its asset purchases, also known as quantitative easing, which was first begun in March 2015.
       Between March 2015 and March 2016 the monthly average purchases of public and private assets by the ECB amounted to 60 billion euros and then 80 billion from April 2016 to March 2017.
       From March 2017 monthly purchases were then lowered back down to 60 billion euros and then in October last year the ECB's council whittled it further down to 30 billion until the end of September 2018.

       Economic growth in the euro area was steady at annual growth of 2.7 percent in the third and fourth quarters of last year, for average growth of 2.4 percent in 2017, the highest since 2007.
       Recent data have showed some moderation in the pace of growth since the start of this year, Draghi said, adding this could reflect a pull-back from the high pace of growth last year while temporary factors may also be at work.
        But private consumption is still supported by declining unemployment - the jobless rate fell to  8.5 percent in February to the lowest since December 2008 - growing household wealth, rising business investment, corporate profits and housing investment, Draghi added.
        And while the global expansion is still boosting euro area exports, Draghi said the risks related to global factors, "including the threat of increased protectionism, have become more prominent."
       The risks to the growth outlook remains broadly balanced.
       In March ECB staff raised their 2018 growth forecast to 2.4 percent but left the 2019 and 2020 forecast unchanged at 1.9 percent and 1.7 percent, respectively.

       The ECB issued the following statement by its president, Mario Draghi:

"Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. We will now report on the outcome of today’s meeting of the Governing Council. 
Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. We continue to expect them to remain at their present levels for an extended period of time, and well past the horizon of our net asset purchases.
Regarding non-standard monetary policy measures, we confirm that our net asset purchases, at the current monthly pace of €30 billion, are intended to run until the end of September 2018, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. The Eurosystem will continue to reinvest the principal payments from maturing securities purchased under the asset purchase programme for an extended period of time after the end of its net asset purchases, and in any case for as long as necessary. This will contribute both to favourable liquidity conditions and to an appropriate monetary policy stance. 
Following several quarters of higher than expected growth, incoming information since our meeting in early March points towards some moderation, while remaining consistent with a solid and broad-based expansion of the euro area economy. The underlying strength of the euro area economy continues to support our confidence that inflation will converge towards our inflation aim of below, but close to, 2% over the medium term. At the same time, measures of underlying inflation remain subdued and have yet to show convincing signs of a sustained upward trend. In this context, the Governing Council will continue to monitor developments in the exchange rate and other financial conditions with regard to their possible implications for the inflation outlook. Overall, an ample degree of monetary stimulus remains necessary for underlying inflation pressures to continue to build up and support headline inflation developments over the medium term. This continued monetary support is provided by the net asset purchases, by the sizeable stock of acquired assets and the ongoing and forthcoming reinvestments, and by our forward guidance on interest rates. 
Let me now explain our assessment in greater detail, starting with the economic analysis. Real GDP increased by 0.7%, quarter on quarter, in the fourth quarter of 2017, following similar growth in the previous quarter. This resulted in an average annual growth rate of 2.4% in 2017 – the highest since 2007. The latest economic indicators suggest some moderation in the pace of growth since the start of the year. This moderation may in part reflect a pull-back from the high pace of growth observed at the end of last year, while temporary factors may also be at work. Overall, however, growth is expected to remain solid and broad-based. Our monetary policy measures, which have facilitated the deleveraging process, should continue to underpin domestic demand. Private consumption is supported by ongoing employment gains, which, in turn, partly reflect past labour market reforms, and by growing household wealth. Business investment continues to strengthen on the back of very favourable financing conditions, rising corporate profitability and solid demand. Housing investment continues to improve. In addition, the broad-based global expansion is providing impetus to euro area exports.
The risks surrounding the euro area growth outlook remain broadly balanced. However, risks related to global factors, including the threat of increased protectionism, have become more prominent. 
Euro area annual HICP inflation increased to 1.3% in March 2018, from 1.1% in February. This reflected mainly higher food price inflation. On the basis of current futures prices for oil, annual rates of headline inflation are likely to hover around 1.5% for the remainder of the year. Measures of underlying inflation remain subdued overall. Looking ahead, they are expected to rise gradually over the medium term, supported by our monetary policy measures, the continuing economic expansion, the corresponding absorption of economic slack and rising wage growth.
Turning to the monetary analysis, broad money (M3) continues to expand at a robust pace, with an annual growth rate of 4.2% in February 2018, slightly below the narrow range observed since mid-2015. M3 growth continues to reflect the impact of the ECB’s monetary policy measures and the low opportunity cost of holding the most liquid deposits. Accordingly, the narrow monetary aggregate M1 remained the main contributor to broad money growth, continuing to expand at a solid annual rate.
The recovery in the growth of loans to the private sector observed since the beginning of 2014 is proceeding. The annual growth rate of loans to non-financial corporations stood at 3.1% in February 2018, after 3.4% in January and 3.1% in December 2017, while the annual growth rate of loans to households remained unchanged at 2.9%. The euro area bank lending survey for the first quarter of 2018 indicates that loan growth continues to be supported by increasing demand across all loan categories and a further easing in overall bank lending conditions for loans to enterprises and loans for house purchase. 
The pass-through of the monetary policy measures put in place since June 2014 continues to significantly support borrowing conditions for firms and households, access to financing ‒ notably for small and medium-sized enterprises ‒ and credit flows across the euro area.
To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed the need for an ample degree of monetary accommodation to secure a sustained return of inflation rates towards levels that are below, but close to, 2% over the medium term.
In order to reap the full benefits from our monetary policy measures, other policy areas must contribute decisively to raising the longer-term growth potential and reducing vulnerabilities. The implementation of structural reforms in euro area countries needs to be substantially stepped up to increase resilience, reduce structural unemployment and boost euro area productivity and growth potential. Against the background of overall limited implementation of the 2017 country-specific recommendations, greater reform effort is necessary in euro area countries. Regarding fiscal policies, the ongoing broad-based expansion calls for rebuilding fiscal buffers. This is particularly important in countries where government debt remains high. All countries would benefit from intensifying efforts towards achieving a more growth-friendly composition of public finances. A full, transparent and consistent implementation of the Stability and Growth Pact and of the macroeconomic imbalance procedure over time and across countries remains essential to increase the resilience of the euro area economy. Improving the functioning of Economic and Monetary Union remains a priority. The Governing Council urges specific and decisive steps to complete the banking union and the capital markets union.
We are now at your disposal for questions."

Sweden holds rate, pushes back rate hike to end-year

April 26, 2018 by CentralBankNews   Comments (0)

       Sweden's central bank left its benchmark repo rate at minus 0.50 percent but pushed back its forecast for a rate hike to "towards the end of the year" from "during the second half of this year", saying continued support from monetary policy is needed to keep inflation on target.
       Sveriges Riksbank, which has maintained its ultra-low rate since February 2016, said it is proceeding "cautiously" when approaching what would be the first rate hike since July 2011 as the risks of too low inflation are more difficult to manage when interest rates are at current levels than when inflation is too high.
       "If the conditions for inflation were to change, the Executive Board is prepared to adjust monetary policy," said the Riksbank.
       Although economic activity in Sweden remains strong and headline inflation is close to the central bank's target, the Riksbank said underlying inflation had been lower than expected and this raised questions about the strength of recent price increases.
       Part of the reason for higher inflation stems from the recent rise in higher energy prices and a weakening of the krona's exchange rate in recent months.
       The Riksbank said it wants economic activity to remain strong to impact prices and ensure that the exchange rate "develops in a way compatible with inflation stabilizing close to the target."
       Arguing in favor of raising rates, the Riksbank said low rates are helping raise the risks from high and rising household debt but the fundamental causes of high debt still remain and the answers lie in housing and taxation policy, and in some cases macro prudential policy.
       As in February, Deputy Governor Henry Ohlsson voted to raise the repo rate by 25 basis points due to strong economic growth in Sweden and abroad.
       Today's decision by the Riksbank was expected by financial markets as inflation has decelerated in recent months and the Riksbank wants to ensure that inflation rises sustainably to its 2.0 percent target after undershooting since January 2012.
       In response to the Riksbank's dovish decision, the Swedish krona eased to 8.58 to the U.S. dollar from 8.54, or by 0.5 percent, and is now 4.5 percent below the level at the start of this year.
       Sweden's headline inflation rate rose to 1.9 percent in March from 1.6 percent in the two preceding months while underlying inflation - the Riksbank's preferred inflation gauge that is known as CPIF inflation - hit 2.0 percent in March.
       In an update to its forecast, the Riksbank raised its headline inflation forecast for 2018 to 1.8 percent from 1.7 percent in February but kept the 2019 forecast steady at 2.6 percent. For 2020 headline inflation is seen rising to 2.9 percent.
      Underlying inflation is also seen higher and averaging 1.9 percent this year, up from 1.8 percent previously forecast, but then remaining steady at 1.9 percent in 2019 before rising to 2.0 percent in 2010.
      The path for the repo rate was lowered to minus 0.5 percent for 2018 from minus 0.4 percent and then to minus 0.1 percent for 2019 from a previous zero percent. For 2020 the repo rate is seen averaging 0.5 percent, down from 0.6 percent.
      Economic activity is seen slightly weaker this year than previously forecast, with Gross Domestic Product up by 2.6 percent compared with 2.8 percent, but up from 2017's 2.4 percent. But in 2019 growth is seen rising by 2.0 percent, up from 1.8 percent forecast in February.
      In the fourth quarter of last year Sweden's GDP expanded by an annual rate of 3.3 percent, up from 2.9 percent in the second quarter, for average 2017 growth of 2.4 percent, down from 3.2 percent in 2016.

     
       
    Sveriges Riksbank issued the following statement:

"Economic activity in Sweden is still strong and inflation has been close to the target for the past year. However, underlying inflation has been somewhat lower than expected recently, which raises questions regarding the strength of the development in inflation. If inflation is to remain close to the target going forward, continued support is needed from monetary policy. The Executive Boardhas therefore decided to hold the repo rate unchanged at −0.50 per cent and assesses that the rate will begin to be raised towards the end of the year, which is somewhat later than previously forecast.

Strong economic activity abroad and in Sweden
The overall picture of the economic outlook and inflation prospects remains largely unchanged since the monetary policy meeting in February. Economic activity abroad is continuing to strengthen. However, despite growth being at a high level and unemployment having fallen, inflationary pressures remain moderate, particularly in the euro area.
Conditions in the Swedish economy are strong; the employment rate is high and unemployment has fallen to the lowest level since the financial crisis. Inflation has been close to the target over the past year. In March, CPIF inflation was 2.0 per cent.

Weaker krona but lower underlying inflation
One reason why inflation is now 2 per cent is that energy prices have increased rapidly. Underlying inflation, on the other hand, has been unexpectedly low recently, which raises questions regarding the strength of the development in inflation. The weakening of the krona exchange rate in recent months is contributing to higher inflation, but if CPIF inflation is to remain close to the target going forward, it is important that economic activity is strong and has an impact on price developments. It is also important that the krona exchange rate develops in a way compatible with inflation stabilising close to the target.

Inflation needs continued support from monetary policy
Monetary policy therefore needs to remain expansionary and the Executive Board has decided to hold the repo rate unchanged at −0.50 per cent. Given the questions regarding underlying inflation, the forecast for the repo rate has been revised down somewhat and indicates that the rate will start to be raised at a slow pace towards the end of the year. The Riksbank’s holdings of government bonds amount to just over SEK 320 billion, expressed as a nominal amount. Until further notice, redemptions and coupon payments will be reinvested in the bond portfolio.

Monetary policy needs to proceed cautiously
It has taken a long time to bring up inflation and inflation expectations, and there is considerable uncertainty over the development of inflation. Monetary policy thus needs to proceed cautiously. If the conditions for inflation were to change, the Executive Board is prepared to adjust monetary policy. The risks of too low inflation merit particular attention, as at the prevailing interest rate levels this is more difficult to manage than inflation that is too high.

Important with measures to reduce risks linked to household indebtedness
The low interest rates contribute to increasing the risks linked to high and rising household indebtedness. At the same time, the fundamental causes of the high household indebtedness still remain. Achieving long-term sustainable development in the Swedish economy therefore requires measures within housing policy, taxation policy and, where necessary, within macroprudential policy.
Deputy Governor Henry Ohlsson entered a reservation against the decision to maintain the repo rate at its current level and against the repo-rate path in the Monetary PolicyReport. He advocated raising the repo rate to −0.25 per cent with reference to thestrong economic growth in Sweden and abroad.
The decision on the repo rate will apply from 2 May 2018. The minutes from the Executive Board’s monetary policy meeting will be published on 8 May. A press conference with Governor Stefan Ingves and Jesper Hansson, Head of the Monetary Policy Department, will be held today at 11 a.m. in the Riksbank. Press cards must be shown. The press conference will be webcast live at www.riksbank.se.

       www.CentralBankNews.info

Paraguay maintains rate as inflation within target range

April 25, 2018 by CentralBankNews   Comments (0)

       Paraguay's central bank left its monetary policy rate at 5.25 percent, saying the most prudent strategy is to continue with the current monetary policy settings as inflation remains consistent with the objective and expectations remain anchored to this goal.
       The Central Bank of Paraguay (BCP), which has maintained its rate since cutting it by 25 basis points in August 2017, added the decision by its markets operation committee (CEOMA) was unanimous.
       Today's decision by BCP comes as the runner-up in Sunday's presidential election, Efrain Alegre, demanded a recount, saying he had evidence of fraudulent voting.
       The official elections tribunal said Mario Abdo had won 46.44 percent to Alegre's 42.74 percent. Abdo is the son of the late private secretary of dictator Alfredo Stroessner, who ruled Paraguay for 35 years until 1989.
       Voters were picking the successor to President Horacio Cartes who introduced the country to international capital markets in 2013. Since then Paraguay has tapped bond markets five times, most recently in March when it raised $530 million in 30-year bonds at a yield of 5.6 percent.
       Paraguay's inflation rate was steady at 4.1 percent in February and March, within the central bank's target of 4.0 percent, plus/minus 2 percentage points.
       Paraguay's economy expanded by an annual rate of 3.0 percent in the third quarter of 2017, up from 1.1 percent in the second quarter.
       The exchange rate of the guarani, which fell sharply from September 2014 to January 2016, has been appreciating slightly this year, quoted at 5,564.9 to the U.S. dollar today, up 0.6 percent.

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Offshore, EMEs, US boost Q4 '17 global banking - BIS

April 23, 2018 by CentralBankNews   Comments (0)

     The upturn in international banking activity that began in the third quarter of 2017 gained momentum in the fourth quarter with lending to borrowers in offshore banking centers surging by $124 billion followed by a $55 billion rise to emerging market economies (EMEs) and a $45 billion increase in credit to borrowers from the United States, according to the Bank for International Settlements (BIS).
      Total cross-border lending by global banks rose by $123 billion from end-September to end-December 2017 for annual growth of 2 percent and total outstanding claims have now reached $29 trillion, said Swiss-based BIS.
       In the last few years, offshore banking centers have been one of the fastest growing areas of cross-border banking, with Hong Kong and Singapore recording the largest increases in the fourth quarter of last year with lending of $63 billion and $41 billion, respectively.
       And in 2017 outstanding claims on offshore centers by global banks topped the previous peak of $4.3 trillion in March 2008, during the Global Financial Crises, with total claims now at $4.6 trillion end-2017, said BIS, known as the central bankers' bank.
      Most of these claims were denominated in U.S. dollars, $2.8 trillion, followed by $0.7 trillion in yen-lending and $0.3 trillion in euros. Lending activity between offices in the same banking group rose by $134 billion.
      Cross-border lending to emerging markets rose for the fourth consecutive quarter, with the $55 billion rise in the fourth quarter boosting annual growth to 9 percent, driven by lending to Africa, the Middle East and emerging Asia.
       After edging up in the first three quarters of last year, credit to borrowers from Russia again fell in the fourth quarter by $8 billion to end the year at $99 billion, sharply down from $189 billion in early 2013.
        Lending to borrowers in Latin America also continued to shrink, down by $12 billion in the fourth quarter, bringing the annual fall in 2017 to 3 percent, similar to the decline seen in 2016.
       Credit to Brazil and Mexico saw the largest quarterly declines while claims on Chile and Argentina rose, BIS said.
       Japanese banks have expanded their global presence since 2009 - they surpassed French banks in 2011, U.S. banks in 2013 and UK banks in 2015 - and now have the largest international balance sheets, with total foreign claims of $4 trillion at the end of 2017.
     
       Click to read BIS' international banking statistics at end-December 2017.

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This week in monetary policy: Hungary, Argentina, Paraguay, Turkey, Fiji, Sweden, ECB, Moldova, Japan, Russia & Colombia

April 21, 2018 by CentralBankNews   Comments (0)

    This week - April 22 through April 28 - central banks from 11 countries or jurisdictions are scheduled to decide on monetary policy: Hungary, Argentina, Paraguay, Turkey, Fiji, Sweden, ECB, Moldova, Japan, Russia and Colombia.
    Following table includes the name of the country, the date of the next policy decision, the current policy rate, the result of the last policy decision, the change in the policy rate year to date, the rate one year ago, and the country’s MSCI classification.

    The table is updated when the latest decisions are announced and can always accessed by clicking on This Week.
WEEK 17
APR 22 - APR 28, 2018:
COUNTRY             DATE               RATE           LATEST              YTD            1 YR AGO       MSCI
HUNGARY 24-Apr 0.90% 0 0 0.90%          EM
ARGENTINA 24-Apr 27.25% 0 -150 26.25%          FM
PARAGUAY 24-Apr 5.25% 0 0 5.50%
TURKEY 25-Apr 8.00% 0 0 8.00%          EM
FIJI 26-Apr 0.50% 0 0 0.50%
SWEDEN 26-Apr -0.50% 0 0 -0.50%          DM
EURO AREA 26-Apr 0.00% 0 0 0.00%          DM
MOLDOVA 26-Apr 6.50% 0 0 9.00%
JAPAN 27-Apr -0.10% 0 0 -0.10%          DM
RUSSIA 27-Apr 7.25% -25 -50 9.25%          EM
COLOMBIA 27-Apr 4.50% 0 -25 6.50%          EM

Indonesia maintains rate and confirms growth forecast

April 19, 2018 by CentralBankNews   Comments (0)

      Indonesia's central bank left its benchmark 7-day reverse repurchase rate steady at 4.25 percent, as expected, and confirmed that it still expects economic growth this year of 5.1-5.5 percent while inflation should remain within the bank's target range despite "rising external pressures."
      Bank Indonesia (BI), which lowered its key rate by 200 basis points in 2016 and 2017, also reiterated its recent view that it considers this past easing of monetary policy as sufficient to boost the momentum behind the economic recovery.
      However, BI also echoed other central banks' concern of the risks facing the global economy from increased uncertainty in financial markets from a normalization of U.S. monetary policy and "inward-oriented trade policy, geopolitical risks from the Middle East, rising oil prices, and the possibility of a trade war between the United States and China.
        Indonesia's economy, which grew 5.1 percent last year, is forecast to expand at a faster rate in the first quarter of this year than in the same 2017 quarter, buoyed by domestic demand, particularly investment, BI said.
        Investments are up in building and non-construction investment, supported by government and private infrastructure projects, and mining investment.
        BI's first quarter business survey shows higher business activity along with improved performance by non-financial corporations while private consumption is expected to rise due to higher income and accelerated social assistance.
        Exports of mined commodities and manufacturing is also positive while imports are seen rising, particularly of capital goods and raw materials.
        Indonesia's Gross Domestic Product grew by an annual rate of 5.19 percent in the fourth quarter of last year, up from 5.06 percent in the third quarter.
        Indonesia's trade balance recorded a surplus of US$1.09 billion in March, after a deficit of $0.05 billion in February, with a surplus in the first quarter of $0.28 billion, helping boost foreign reserves to $126.0 billion at the end of March, the equivalent of 7.7 months of imports and serving of official external debt.
        The current account deficit is forecast to be in a range of 2.0-2.5 percent of GDP in 2018, below the 3.0 percent limit considered safe.
        Indonesia's inflation rate rose to 3.4 percent in March from 3.18 percent in February - within the BI's target of 3.5 percent, plus/minus 1 percentage point - and is expected to remain in the range this year, BI confirmed.
        The exchange rate of Indonesia's rupiah depreciated in February and March, with BI attributing this to an improvement in U.S. economic data along with expectations of more aggressive rate hikes by the U.S. Fed and the risk of a US-China trade war.
        These factors encouraged the reversal of foreign capital and put pressure on the exchange rate of currencies worldwide, including the rupiah.
        However, the rupiah has stabilized in April, helped by BI's "stabilization measures," continued control of inflation, a rising rating on its debt, and a surplus in the trade balance that boosted the inflow of foreign portfolio capital.
        Last week Moody's joined other ratings agencies and upgraded Indonesia's rating to Baa2 from Baa3 and raised its outlook to stable, noting the country's control of budget deficits and inflation.
       The rupiah was trading around 13,790 to the U.S. dollar today, down 1.6 percent this year.
       Indonesia's parliament earlier this month confirmed Perry Warjiyo as the next governor of BI. Warjiyo, who has been deputy governor since April 2013, will take over from Agus Martowardojo when his term expires in May.

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