Wednesday, February 20, 2019

Tunisia raises rate 100 bps to curb inflationary pressures

     Tunisia's central bank raised its key interest rate by another 100 basis points to 7.75 percent, saying continued inflationary pressures require "appropriate measures" to reduce the negative effects from inflation to the economy and the threat to purchasing power.
     The Central Bank of Tunisia (BCT) has now raised its rate by 350 basis points since April 2017, with the previous hike in June 2018.
     Tunisia's headline inflation rate eased to 7.1 percent in January from 7.5 percent in December and an average 7.3 percent in 2018, but the central bank said in a statement from Feb. 19 that its board had strong concerns over the outlook for inflation, particularly core inflation that is expected to continue its upward trend given the expected evolution of all inflationary indicators.
     In June 2018 Tunisia's inflation rate hit 7.8 percent, the highest since 1990.
     The central bank's board pointed to the continued current account deficit that hit a new record of 11.2 percent of gross domestic product in 2018 from 10.2 percent in 2017, and called on all parties to redouble efforts to contain the trade and current account deficits and improve the level of assets in foreign currency and the functioning of the foreign exchange market.
     BCT added the positive evolution of tourism and transfers from Tunisians abroad did not compensate from a worsening of the trade deficit, which meant foreign currency reserves only had a cover of 84 days in 2018, down from 93 days in 2017.
     Tunisia's economy slowed in the fourth quarter of last year to growth of 2.2 percent year-on-year from growth of 2.8 and 2.9 percent in the previous two quarters.
      In addition to monetary policy, the central bank's board also approved the bank's first 3-year strategic plan that aims to establish a clear and transparent governance framework for monetary policy, to implement a macroprudential framework to prevent risks, strengthen management of the payment system to reduce the use of cash in the economy, work to gradually lift foreign exchange resections and improve the collection and processing of data.
     Last October the International Monetary Fund (IMF) called on BCT to tighten its monetary policy further as real rates remain negative to reduce inflation further and avoid an erosion of purchasing power and help anchor inflation expectations.
     On Sept. 28, 2018, the IMF's executive board approved the payment of a US$247 million loan tranche to Tunisia, the fifth under a program that is tied to economic reforms agreed under a 4-year arrangement from May 2016.
     "Monetary policy focuses on curbing inflation, and continued exchange rate flexibility will help strengthen international reserves," the IMF said, adding Tunisian authorities' efforts to reduce macroeconomic balances are bearing fruit but unemployment and inflation remains high, high oil prices continue to weigh on external and fiscal balances, and investments are weak.

Zambia maintains rate but warns of hike if inflation rises

     Zambia's central bank left is policy rate unchanged at 9.75 percent but reiterated its warning from November that "should the upside risks to inflation materialize and push inflation above the target range, the Committee may adjust the policy rate upward."
     The Bank of Zambia (BOZ), which has kept its rate steady since February last year, said it maintained its rate today because it expects inflation to remain within, but in the upper bound, of its 6.0-8.0 percent target range within its forecast horizon that ends by the fourth quarter of 2020.
    BOZ's monetary policy committee added it was also keeping its rate steady to support financial sector stability and economic growth.
     Zambia's inflation rate was steady at 7.9 percent in January and December, slightly down from a lower-than-expected 8.0 percent in the fourth quarter of 2018, affected by pass-through effects from depreciation of the kwacha, an increase in transport costs following a 21.3 percent increase in fuel prices, and reduced supply of selected food items.
      In October 2018 inflation rose to 8.3 percent, above BOZ's upper limit, but then reverted back into the target range faster than expected.
      Over the forecast horizon, inflation is expected to remain within the target range but at an elevated level, with upside risks dominating from persistently higher than programmed budget deficits and debt service payments, a deterioration in the current account balance and a decline in international reserves, factors that will affect inflation through the exchange rate and expectations channels.
      After falling sharply in September 2018, Zambia's kwacha has been relatively steady in the last 4 months and was trading at 11.96 to the U.S. dollar today, unchanged this year.
      But during September, the kwacha depreciated 16.4 percent, mainly due to higher demand from foreign exchange for oil, negative sentiment from Zambia's credit rating downgrade and a strengthening of the dollar triggered by rate hikes by the U.S. Fed.
    Preliminary data for 2018 show the fiscal deficit, on a cash basis, is likely to be slightly lower than the 2017 deficit of 7.8 percent of gross domestic product but this is still higher than the 2018 target, BOZ said, adding it is critical to implement fiscal adjustment measures to achieve higher economic growth and maintain macroeconomic stability.
     Zambia's gross international reserves declined to US$1.57 billion, the equivalent of 1.8 months of import cover, from $1.63 billion at the end of September, mainly due to external debt service.
     Economic activity in the fourth quarter was positive in the fourth quarter, albeit at a reduced pace, BOZ said, with growth from higher mining output, electricity generation, consumer spending and tourism.
     For 2019 Zambia's economy is projected to grow about 4.0 percent, down from 4.1 percent in 2017, with downside risks from delayed implementation of fiscal adjustment measures, weak credit growth and lower-than-expected copper prices due to a slowdown in Zambia's major trading partners.
     BOZ's last change in rates came in February 2018 when it cut the policy rate by 50 basis points as part of a 12 month easing cycle that led to total rate cuts of 5.75 percentage points.  Prior to February 2017 BOZ had kept its rate steady at 15.50 percent from November 2015.

Sunday, February 17, 2019

This week in monetary policy: Zambia, Jamaica, Fiji, Indonesia, Sri Lanka, Mauritius, Colombia and Paraguay

    This week - February 17 through February 23 - central banks from 8 countries or jurisdictions are scheduled to decide on monetary policy: Zambia, Jamaica, Fiji, Indonesia, Sri Lanka, Mauritius, Colombia and Paraguay.
    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, 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.

FEB 17 - FEB 23, 2019:
COUNTRY                   DATE                     RATE                LATEST                    YTD              1 YR AGO
SRI LANKA22-Feb8.00%007.25%

Thursday, February 14, 2019

Egypt cuts rate 100 bps after hitting first inflation target

     Egypt's central bank cut its key interest rates by a 100 basis points, its first cut in 11 months, saying its first inflation target for the end of 2018 had been achieved and fresh data continue "to confirm the moderation of underlying inflationary pressure."
     This is the Central Bank of Egypt's (CBE) third rate cut since February 2018 and the overnight deposit rate has now been lowered by 300 basis points since then as inflation has fallen.
     The rate cut brings CBE's overnight deposit rate to 15.75 percent, the overnight lending rate to 16.75 percent, the rate on its main operation and discount rate to 16.25 percent.
      CBE said its rates remain consistent with tight real monetary conditions and achieving its inflation target for the fourth quarter of 2020 and price stability in the medium term.
      While some analysts had expected the CBE to cut its rate due to the recent decline in inflation, other analysts expected the central bank to remain on hold for longer, citing a recent tick up in core inflation and the continued adjustment of prices to the government's ongoing cut to subsidies and tax increases in connection with the International Monetary Fund's US$12 billion aid package.
      The CBE noted headline and core inflation rose in January but this was due to an unfavorable comparison.
      In January Egypt's headline inflation rose to 12.7 percent from 12.0 percent in December while core inflation, which excludes some volatile food items, rose to 8.6 percent from 8.3 percent.
      The rate cut follows CBE's decision in December to lower its inflation target to an average of 9.0 percent, plus/minus 3 percentage points, for the fourth quarter of 2020 from its previous target of 13 percent, plus/minus 3 percentage points, for the fourth quarter of 2018.
      While inflation has been declining, Egypt's economy has been improving since the November 2016 agreement with the IMF and gross domestic product growth rose to 5.5 percent in the fourth quarter of last year from 5.3 percent while unemployment fell to 8.9 percent, the lowest since December 2010.
     As part of its reforms agreed with the IMF, the government is targeting a primary surplus of 2.0 percent of GDP in fiscal 2018/19, up from a preliminary 0.1 percent last year, a move the IMF on Feb. 5 said appeared to be on track and this would achieve a cumulative fiscal adjustment of 5.5 percent of GDP in 3 years.
     Earlier this month the CBE received a US$2 billion fifth tranche of its IMF loan.
     In its statement, the IMF said Egypt's economic outlook remains favorable and the recent rise in inflation reflected temporary increases in food and energy but "a restrictive monetary policy stance has helped reverse the increase and keep core inflation well anchored."
     For the current fiscal year, which ends July 1, the IMF forecast inflation will average 15.8 percent and then ease to 12.8 percent in 2019/20 from 20.9 percent in 2017/18.
     Egypt's GDP is seen growing 5.5 percent in 2018/19, up from 5.3 percent in 2017/18, and 5.9 percent in 2019/20.
     After a plunge in November 2016, the Egyptian pound has been trending firmer and rose in late January and has continued to rise this month.
      Today the pound was trading at 17.54 to the U.S. dollar,  2.1 percent higher than at the start of this year.
     As part of the government's reforms, the CBE in November 2016 floated the pound, which quickly lost more than half its value, boosting import prices and inflation.
     The impact of higher fuel, electricity and tobacco prices from the subsidy cuts and higher import prices boosted Egypt's inflation rate to almost 33 percent in July 2017 while the central bank then raised its rates by a further 200 basis points to 18.75 percent the same month.
     By February 2018, the CBE became confident inflation had peaked and was falling so it was able to cut its rate twice in succession by a total of 200 basis points. But since April the rate was on hold.

Wednesday, February 13, 2019

Sweden maintains rate, still sees next hike in H2

     Sweden's central bank left its benchmark repo rate steady at minus 0.25 percent, as expected, and confirmed it still expects to raise its rate in the second half of this year to keep inflation around its target despite uncertainty over the strength of the global economy and a dampening of sentiment in Swedish households and business.
     Sveriges Riksbank, which in December 2018 raised its repo rate for the first time since July 2011, maintained its forecast to raise the repo rate about twice a year, each time by 25 basis points, through 2021 when it reaches 0.8 percent on average from 0.3 percent in 2020.
     But the Riksbank also said monetary policy continues to be expansionary to support economic activity, underlining the need to "proceed with caution" and adding "it is the economic outlook and inflation prospects that will determine future monetary policy."
     The Risksbank maintained its forecast for inflation to remain stable around its 2.0 percent target in coming years, but lowered its growth forecast for this year to 1.3 percent from December's forecast of 1.5 percent and the 2020 forecast to 1.9 percent from 2.0 percent.
     The 2021 growth forecast was kept unchanged at 1.8 percent.
      "Growth abroad has slowed down, but economic activity will continue to be good over the next few years, with low unemployment and rising wage growth in many countries," the Riksbank said, adding Sweden's labour market has been slightly stronger than expected, unemployment is at its lowest in a decade and inflation and inflation expectations are now established around 2 percent.
     The rate hike in December was the Riksbank's first change in its policy rate since February 2016 when it wrapped up an easing cycle that saw rates steadily drop from 2.0 percent in December 2011 in the wake of Europe's sovereign debt crises.
     In addition to the rate cuts, the Riksbank also embarked on bond purchases, known as quantitative easing, in February 2015 but took the first small step toward normalizing its monetary policy in December 2017 by letting the asset purchase program expire.
      The Riksbank confirmed that it will continue to reinvest payments and coupons from its portfolio of government bonds until further notice.
     At the end of January the Riksbank's bond holdings amounted to close to 355 billion Swedish krona, up from 290 billion in December 2017, based an earlier decision that large principal payments in the first half of 2019 will be distributed evenly across the period from January 2018 to June 2019 so the bond portfolio will continue to rise until March this year when a large principal payment is due that will then reduce its holdings.
     At its next meeting in April, the bank's executive board will decide how to manage future principal payment.
     The Riksbank also said its board had decided not to extend its mandate, which expired on Jan. 12,  that allows its to rapidly intervene in the foreign exchange market.
     The board's mandate was originally adopted in January 2016, when inflation and inflation expectations were far below 2 percent and a rapid rise in the krona's exchange rate was seen as "an acute threat" to keeping confidence in the inflation target.
     Sweden's headline inflation rate was steady at 2.0 percent in December and November while economic growth in the third quarter, as expected, cooled to annual growth of 1.6 percent in the third quarter of last year from 2.7 percent in the second quarter.
     The krona, which has declined steadily against the U.S. dollar since February 2018, has firmed this month but was still trading at 9.21 to the dollar today, down 2.5 percent this year.

Monday, February 11, 2019

Mozambique holds rate after 9 cuts in prudent policy

      Mozambique's central bank left its monetary policy rate steady at 14.25 percent after nine rate cuts in almost two years, saying it expects inflation to remain in single digits this year but considers it opportune to maintain a prudent monetary policy stance given more prominent risks and uncertainties underlying the projections for inflation.
     The Bank of Mozambique (BM) last cut its rate in December 2018 by 75 basis points and has cut it by a total of 900 basis points since April 2017, including 525 points last year.
     Mozambique's inflation rate rose slightly to 3.78 percent in January from 3.52 percent in December last year, down from 5.65 percent in December 2017.
      BM said the prospects for single-digit inflation this year were based on expectations of lower international fuel prices and price stability in Mozambique's main trading partners in the context of contained aggregate demand.
      Mozambique's economy, which was dealt several severe blows in recent years, is continuing to slowly recover, supported by the government's commitment to tight monetary and fiscal policies, and reforms to improve the business environment, governance and transparency.
      In the third quarter of this year the country's gross domestic product grew by an annual 3.2 percent, down from an upwardly revised 3.4 percent in the second quarter.
      On top of a decline in global commodity prices in 2014 and 2015, foreign donors, including the IMF, withdraw funding to Mozambique in 2016 when it was discovered the government hid almost $1.4 billion of debt, the equivalent of 10 percent of GDP.
       Following a visit in November by the IMF to initiate talks on cooperation next year, the IMF said the outlook for 2019 was for continued economic recovery and subdued inflation, with growth in a range of 4.0 to 4.7 percent, supported by monetary easing, clearing of domestic payment arrears to suppliers and higher foreign direct investment, particularly in liquified natural gas projects.
       Forecasting inflation of around 6 percent next year, the IMF said there was room for further monetary easing but that this should be done carefully given uncertainties in the global economy.
      Mozambique's metical was trading at 62.3 to the U.S. dollar today, down 1.1 percent this year and down 5.5 percent since the start of 2018.

Saturday, February 9, 2019

This week in monetary policy: Mozambique, New Zealand, Sweden, Namibia, Egypt and East Caribbean

    This week - February 10 through February 16 - central banks from 6 countries or jurisdictions are scheduled to decide on monetary policy: Mozambique, New Zealand, Sweden, Namibia, Egypt and Eastern Caribbean.
    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, 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.

FEB 10 - FEB 16, 2019:
COUNTRY                   DATE                     RATE                LATEST                    YTD              1 YR AGO
NEW ZEALAND13-Feb1.75%001.75%
EASTERN CARIBBEAN15-Feb6.50%006.50%

Friday, February 8, 2019

2019 Global Central Bank Calendar - updated with Zambia

     (Following item has been updated with this year's schedule for monetary policy statements by the Bank of Zambia and a change in the date for Bank of Mozambique's February meeting)

      Following is the 2019 calendar for monetary policy.

     The table includes scheduled meetings for more than 45 central bank committees or boards that decide monetary policy. In the event meetings take place over several days, the date listed is for the final day when decisions are normally announced.
     The calendar is updated regularly to reflect the latest information as some central banks only release tentative schedules at the beginning of the year while other central banks only schedule their meetings a few months in advance.
     Readers are encouraged to check the latest version of the calendar by clicking here.
     You may replicate the table in part or in full only if cite Central Bank News as the source or provide a link to

7-Jan    ILSIsraelBank of Israel
8-Jan    RONRomaniaNational Bank of Romania
9-Jan    PLNPolandNational Bank of Poland
9-Jan    CADCanadaBank of Canada
10-Jan    RSDSerbiaNational Bank of Serbia
10-Jan    PENPeruCentral Reserve Bank of Peru
14-Jan    KZTKazakhstanNational Bank of Kazakhstan
16-Jan    TRYTurkeyCentral Bank of Republic of Turkey
17-Jan     IDRIndonesiaBank Indonesia
17-Jan    ZARSouth AfricaSouth African Reserve Bank
21-Jan    PYGParaguayCentral Bank of Paraguay
22-Jan    NGNNigeriaCentral Bank of Nigeria
23-Jan    JPYJapanBank of Japan
24-Jan    KRWSouth KoreaBank of Korea
24-Jan    MYRMalaysiaCentral Bank of Malaysia
24-Jan    NOKNorwayNorges Bank
24-Jan    EUREuro areaEuropean Central Bank
25-Jan    AOAAngolaBank of Angola
28-Jan    FJDFijiReserve Bank of Fiji
28-Jan    GHSGhanaBank of Ghana
28-Jan    KESKenya Central Bank of Kenya 
29-Jan    HUFHungaryCentral Bank of Hungary
29-Jan    AMDArmeniaCentral Bank of the Republic of Armenia
30-Jan    GELGeorgiaNational Bank of Georgia
30-Jan    TJSTajikistanNational Bank of Tajikistan
30-Jan    BDTBangladesh Bangladesh Bank 
30-Jan    USDUnited StatesFederal Reserve
30-Jan    CLPChileCentral Bank of Chile
31-Jan    PKRPakistanState Bank of Pakistan 
31-Jan    UAH UkraineNational Bank of Ukraine
31-Jan    BGNBulgariaBulgarian National Bank 
31-Jan    COPColombiaCentral Bank of Colombia 
31-Jan    DOPDominican RepublicCentral Bank of the Dominican Rep.

Russia maintains rate but warns of rising inflation in H1

     Russia's central bank kept its key interest rate unchanged at 7.75 percent, as largely expected, but warned inflation is likely to rise further in coming months and future policy decisions will hinge on whether last year's two rate hikes were sufficient to bring inflation back to the target in 2020.
     In December the Bank of Russia raised its rate by 25 basis points in what it described as a proactive move to limit elevated risks to inflation following a similar-sized hike in September.
    These two rate hikes came after the central bank had been on a steady path of policy easing from January 2015 to April 2018 during which the key rate was cut by a total of 9.75 percentage points.
     But a combination of higher import prices from ruble depreciation, higher food prices, and a rise in consumer prices ahead of the January 1 rise in value-added-taxes (VAT) to 20 percent from 18 percent pushed up inflation steadily in the second half of last year to 5 percent in December.
     Inflation remained unchanged at 5.0 percent in January, the central bank said, adding the contribution of the VAT rise to inflation last month was moderate and the full impact of the VAT increase can not be fully captured until April.
     "The balance of risks remains skewed towards pro-inflationary risks, especially over a short-term horizon, driven by the VAT increase and price movements in individual food products," the central bank said, adding there is also uncertainty over external conditions and their impact on financial assets while there is a high risks of the supply of oil exceeding demand this year.
     The central bank expects inflation to temporarily accelerate and peak in the first half of this year before easing to 5.0 - 5.5 percent by the end of this year and then return to the target of 4.0 percent in the first half of 2020 as the effects of the ruble's weakening and the VAT rise disappear.
     The first estimates of Russia's economic growth last year show 2.3 percent, above the central bank's estimates of 1.5 - 2.0 percent, but it added the growth in economic activity had slowed in recent months and there was a decline in the growth rate industrial production, construction, real wages and retail sales in December.
      However, the central bank maintained its forecast for 2019 growth of 1.2 - 1.7 percent as government spending will help boost investment this year, offsetting some of the constraining impact from the VAT rise.
      Russia's ruble, which fell in the first half of 2018 and then bounced back following the central bank's September rate hike, firmed in response to the central bank's policy decision today and was trading at 65.8 to the U.S. dollar to be up 5.8 percent this year.

Thursday, February 7, 2019

Mexico holds rate, as expected, continues prudent stance

     Mexico's central bank kept its benchmark target for the overnight rate unchanged at 8.25 percent, as expected, reiterating that it will "maintain a prudent monetary policy stance" and closely follow any potential pass-through of exchange rate fluctuations to prices, the monetary policy stance relative to the U.S. and the slack in the country's economy.
     The Bank of Mexico (Banxico) most recently raised its rate in December, following the U.S. Federal Reserve's 9th rate hike since December 2015, and has raised the rate 15 times by a total of 5.25 percentage points.
     Analysts had expected Banxico to maintain its rate today after the Fed on Jan. 30 changed course and said it would be patient in further rate hikes along with an appreciation of the Mexican peso since early December.
     The peso was largely steady to firmer in response to Baxico's decision to trade at 19.1 to the U.S. dollar, up 2.9 percent this year.
     Noting the general slowdown in the world economy, the central bank said Mexico's economy had decelerated significantly in the fourth quarter from the third quarter and this could continue in the beginning of 2019, with the balance of risks to growth biased to the downside.
     Mexico's economy slowed to annual growth of 1.8 percent in the fourth quarter from 2.5 percent in the third quarter.
     Inflation fell to 4.37 percent in January from 4.83 percent in December, with expectations for headline inflation in the medium and long term still above the central bank's 3.0 percent target, at around 3.50 percent.
      Considering the balance of risks for inflation, including the risk pressure on the peso, along with pressures on energy or agricultural pries, the central bank said inflation risks remain to the upside.

India cuts rate 25 bps, stance to neutral as inflation falls

      India's central bank cut is policy repo rate by 25 basis points to 6.25 percent and its monetary policy stance to neutral from calibrated tightening, affirming the recent shift toward easier monetary policy worldwide in response to slowing global growth and weak inflation.
      The rate cut by the Reserve Bank of India (RBI) was the first since its new governor, Shaktikanta Das, took over from his predecessor Urjit Patel who stunned economists when he resigned in December in the wake of  Prime Minister Narendra Modi's pressure on the central bank to boost lending and the economy ahead of a general election due to be held by May.
      It is RBI's first rate cut since August 2017 and follows two hikes in June and August last year in response to rising inflation from higher oil prices and accelerating economic activity.
      But in recent months growth has decelerated - annual growth in the third quarter eased to 7.1 percent from 8.2 percent in the second quarter - and inflation hit an 18-month low of 2.19 percent in December, well below RBI's 4.0 percent target, pulled down by lower food and fuel prices.
      Nevertheless, the rate cut took most analysts and investors by surprise as they had expected the central bank to first shift its policy stance to neutral before cutting later in the year.
     In addition, analysts thought the RBI would be cautious in the wake of last week's expansionary government budget that was immediately seen as a pre-election move that could prove inflationary and boost the deficit as it included support to farmers and rural development, where two-thirds of Indians live, and a lower tax burden for the lower middle class.
     But Das said the path of inflation had moved downwards "significantly" and over the next year inflation is projected to remain below or around the RBI's target of 4.0 percent, opening up space for the rate cut.
     In addition, the output gap in India has opened up "modestly" as actual output has inched lower than potential, Das said, adding there was a need to strengthen private investment activity and buttress private consumption as investments are mainly supported by public spending.
     The RBI lowered its forecast for inflation for the fourth quarter of the current 2018/19 fiscal year  to 2.8 percent and the forecast for the first half of the 2019/20 financial year, which begins April 1, to 3.2-3.4 percent from December's forecast of 3.8-4.2 percent.
      Das pointed to several factors shaping inflation, including food inflation that has continued to surprise to the downside, a larger-than-expected easing of fuel prices, and a significant moderation of households' and producers' inflation expectations.
      Economic growth is expected to remain steady but Das said slowing global demand could pose headwinds and said trade tensions and other uncertainties appeared to be moderating global growth.
      RBI projected growth in the coming 2019/20 financial year of 7.4 percent, with risks evenly balanced, as compared with the December estimate for growth in the current 2018/19 financial year of 7.4 percent. India's statics office has estimated 2018/19 growth of 7.2 percent.
      India's rupee, which has eased slightly this year, rose 0.2 percent in response to the rate cut to 71.46 to the U.S. dollar and is down 2.1 percent since the start of this year.