Uganda’s central bank cut its central bank rate (CBR) by 100 basis points to 11.0 percent to stimulate domestic demand while the outlook for inflation improves and the forecast is cut.
It is the Bank of Uganda’s (BOU) first rate cut since December after cuts totaling 1,100 basis points in 2012.
Uganda’s headline inflation rate in May rose slightly to an annual rate of 3.6 percent from 3.4 percent in April but core inflation eased to 5.6 percent from 5.8 percent, “an indication that inflationary pressures have remained muted,” the BoU said.
The BoU now forecasts that core inflation will stabilise around the bank’s 5.0 percent medium-term inflation target over the next 12 months, with the balance of risks now neutral. In April the BOU forecast core inflation of 1-2 percentage points above the target over the next few months before easing toward the target later this year.
The change in forecast is mainly due to weaker-than-expected household consumption, which is likely to dampen demand side pressures on consumer prices, and a higher-than-expected appreciation of the the exchange rate, which dampens prices of imported consumer goods.
Economic growth in the current 2012/13 fiscal year, which ends June 30, is now forecast to be higher than in 2011/12, driven by a recovery in demand for exports and investments.
The BOU said that in 2013/14 it was unlikely that net export demand would continue to provide the primary source of growth so domestic demand will have to contribute more and household consumption will have to rebound. Investment is also expected to rise, driven by both the public and private sectors.
Last month the BOU projected Gross Domestic Product growth of 5.3 percent in 2012/13 and 6-7 percent in 2013/14.
Private sector credit demand remains constrained by high bank lending rates and structural factors and the BOU said strong credit growth will be important in boosting demand, saying its rate cut should “also be a signal for commercial banks to reduce their lending rates further in order to boost demand for bank credit.”
The BOU said it would maintain its band around the central bank rate at plus/minus 2 percentage points and the margin on the rediscount rate at 3 percentage points.
In 2011 the BOU raised rates to a high of 23.0 percent in response to a rise in inflation to an all-time high of 30.5 percent in October 2011. Inflation then started to drop and hit a two-year low of 3.5 percent in February this year as the central bank slashed rates last year.
Bank of Uganda’s Website for more details : http://www.bou.or.ug/bou/home.html
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World Growth forecast by OECD Organisation for Economic Cooperation and Development for 2013 2014
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The Central Bank of Trinidad and Tobago held its benchmark repo rate steady at 2.75 percent, saying its accommodative policy stance was appropriate in light of contained price pressures and economic growth that remains weaker than expected.
The central bank, which cut rates by 25 basis points in 2012, said private sector credit growth remained subdued but the financial system was highly liquid and it “stands ready to employ additional measures in the coming months to contain excessive build-ups in financial system liquidity.”
In response to the large build-up of liquidity – commercial banks’ daily excess reserves at the central bank averaged $6.5 billion during May 1-21, up from $5.3 billion in April – the central bank facilitated the issue of a $1 billion liquidity absorption bond. With the proceeds sterilized, excess reserves fell to $5.8 billion on May 21 from over $7 billion earlier in the month.
In addition, the central bank sold foreign currency, removing $637 million from the system and rolled over a $1 billion fixed deposit held by commercial banks at the central bank.
“Nevertheless, with liquidity still at elevated levels, there was no activity on the inter-bank market and banks did not access the central bank’s repo facility,” the bank said.
Given the high levels of liquidity, treasury rates have remained depressed and banks lowered their lending rates early this year to encourage credit demand.
Headline inflation rose by 1.5 percent in April from March, but on an annual basis, the inflation rate fell to 5.5 percent from 6.9 percent.
For the first time since October 2011, food price inflation slowed to single digits, reaching 9.4 percent in April, down from 26.2 percent in April 2012 and 15.0 percent in April 2011.
“The recent slowdown in headline inflation and the continued stability in core inflation suggest that general price pressures are contained, although food price pressures may increase in coming months with the advent of the rainy season,” the central bank said, adding that “economic growth is still not as strong as expected, underlined by the further contraction in business credit.
On an annual basis private sector credit granted by the financial system grew by 2.0 percent in March, down marginally from 2.1 percent in February while business lending contracted for the fourth consecutive month, down by 2.4 percent year-on-year in March.
Trinidad & Tobago’s Gross Domestic Product contracted by an annual 0.39 percent in the fourth quarter of 2012 and earlier this month the central bank said in its monetary policy report that it was still forecasting 2.5 percent growth this year, up from 0.2 percent in 2012, based on a rebound in natural gas production.
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The Central Reserve Bank of Peru (BCRP), which has held rates steady since April 2011, said inflation was projected to converge to the midpoint of the bank’s 1-3 percent target range over the next months due to improved food supply while production remains close to potential and inflation expectations are anchored around the target range.
Peru’s headline inflation rate eased to 2.3 percent in April, down from 2.6 percent while the core inflation rate was 3.4 percent. The central bank has forecast that inflation this year will be between 1.5 and 2.5 percent.
Peru’s economy has stabilized around its sustainable level although the sectors related to the external market continue remain weak, the BCRP added.
Peru’s Gross Domestic Product expanded by 0.6 percent in the fourth quarter from the third for annual growth of 5.9 percent, down from 6.8 percent.
Last year Peru’s economy grew by 6.3 percent, the fastest growth rate in Latin America, but down from 6.9 percent in 2011.
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Malawi’s central bank held its benchmark bank rate steady at 25.0 percent, saying it would “be premature to loosen monetary policy at this early stage” despite signs of lower inflationary pressure and a stabilization of the kwacha currency.
The Reserve Bank of Malawi (RBM), which raised rates by 1200 basis points in 2012 to combat inflation, said “the deceleration in month-on-month inflation provides a clear sign that inflation is being brought under control and that the prospects for lower annual inflation rates have strengthened.”
Malawi’s headline inflation rate eased to 36.4 percent in March, down from 37.9 percent the prior month. But on a monthly basis, inflation only rose by 0.2 percent in March in contrast to the 6.6 percent monthly rise in February.
The RBM also said there were signs of a stabilization of the kwacha based on a rise against the U.S. dollar from curtailed demand for foreign exchange as a result of tight monetary conditions and proceeds from tobacco auction sales.
“The strengthening of the kwacha against the US dollar will serve to dampen inflationary pressures, including fuel prices, provided that the stability is sustained over the next few months,” the bank added.
Although liquidity conditions remain tight, the RBM said growth in bank credit remains strong, with lending to the private sector up by an annual 28 percent in March.
“This credit expansion needs to be contained in order to ensure that inflationary pressures are reined in,” the central bank warned.
But the central bank welcomed lower Treasury bill yields and said it looked forward to a further decline as the government continues to rein in domestic borrowing.
The Malawi government is projecting economic growth of 5.7 percent this year while the International Monetary Fund forecasts 5.5 percent.
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Botswana’s central bank cut its Bank Rate by 50 basis points to 9.0 percent, its first rate cut since December 2010, to reignite economic growth while the medium-term inflation outlook is positive.
The Bank of Botswana (BoB) said economic growth is below potential and unemployment is high and forecasts suggest that a more accommodative policy stance would be consistent with the achievement of the bank’s 3-6 percent medium-term inflation objective.
In the short term, however, the BoB said inflation is expected to remain above the bank’s target range due to transitory factors.
But weak domestic demand and forecast low external inflationary pressures means the “underlying trend is forecast to be downwards, and this means that inflation is anticipated to converge to the medium-term objective range in the second half of 2013,” the BoB said.
In March Botswana’s inflation rate rose to 7.6 percent, up from 7.5 percent in February, but down from 8.0 percent in March 2012.
The BoB said domestic output grew by 3.7 percent in the 12 months to December 2012 with the non-mining sectors slowing to growth of 5.8 percent from 7.8 percent in 2011, while the mining sector contracted by 8.1 percent.
The central bank expects that non-mining expansion will remain below potential in the medium term and therefore exert minimal inflationary pressure. In addition, the impact of demand on economic activity is forecast to be modest, reflecting trends in government spending and personal income.
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Colombia’s central bank held its benchmark interest rate steady at 3.25 percent, as expected, saying the economy continues to grow below its potential and inflation is below 3.0 percent but it is “particularly difficult to interpret current trends in economic activity and its projection.”
But recent rate cuts and proposed fiscal policy measures should help raise economic growth toward the country’s productive capacity and this will help inflation move closer to the central bank’s target.
“In this context, the balance of risk assessment indicates the need to maintain the policy interest rate at 3.25%, while waiting for more information,” the central bank said.
The Central Bank of Colombia central bank has cut rates seven times by a total of 200 basis points since July last year, most recently by 50 basis points in March.
Economic activity in the first quarter of this year has slowed from 2012, the central bank said, with household consumption growing at a slower rate along with a deterioration in industry.
But the recent behaviour of some components of aggregate spending and fewer working days in the first quarter compared with last year has made it difficult to interpret current trends, the bank said.
“However, economic growth is expected to increase throughout the year in reaction prior monetary policy actions and programs recently announced by the national government,” the bank said.
The central bank’s staff forecasts that Colombia’s Gross Domestic Product should expand by 3-5 percent this year, with 4.3 percent the most likely figure, up from 2012’s 4.0 percent last year. In 2011 Colombia’s economy grew by 6.6 percent.
Colombia’s government has proposed a wide-ranging 5 trillion peso stimulus plan to revive industry and agriculture, boost housing, reduce energy costs and measures to cut company costs.
Colombia’s inflation rate accelerated slightly to 1.91 percent in March from a 60-year low of 1.83 percent in February, but still well below the central bank’s target range of 2-4 percent.
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Mexico’s central bank held its benchmark target for its overnight rate steady at 4.0 percent, saying the recent rise in inflation was temporary and there are no widespread pressures so inflation should resume its downward trend in June and then gradually move toward’s the bank’s 3.0 percent target.
The Bank of Mexico, which last month cut its rate for the first time since July 2009 but stressed it was not embarking on a new cycle of easing, said inflation was expected to remain high in April and May and then settle around 3-4 percent during the second half of the year before declining to around 3 percent in 2014.
A rise in Mexico’s inflation rate to 4.72 percent in the first half of April from 4.25 percent in March and 3.55 percent in February strengthened expectations that the bank would not cut rates further in an attempt to dampen the rise in the peso and temper the inflow of capital.
Mexico’s core inflation rate is expected to remain close, and even below, the bank’s 3.0 percent target for most of 2013 and 2014, the central bank said, adding that it would keep a close eye on prices to ensure that there are no second-round effects of the rise in inflation.
Mexico’s economy continues to show signs of weakness, further reducing inflationary pressure, and downside risks to economic activity prevail from the possibility that recent slowdown in the U.S. economy could intensify, the bank said.
“On balance, significant downside risks to global economic growth prevail,” the central bank said, adding that Japan’s growth prospects had improved from its “unprecedented monetary and fiscal stimulus” but there are doubts of the effectiveness of its strategy in the medium term given the uncertain transmission channel through which the Bank of Japan is operating.
With weak global activity and declining international raw materials prices, the inflationary outlook remains favourable in most countries and monetary policy is expected to remain accommodative in advanced and emerging economies and “in some cases additional relaxations could occur,” it said.
Mexico’s peso has risen by more than six percent against the U.S. dollar this year and its exports declined by 2.9 percent in February when the economy only expanded by 0.2 percent from January for annual growth of 0.4 percent, according to the national statistics office’s IGAE index, which captures most of the components of Gross Domestic Product.
The low growth in February was caused by a 1.2 percent drop in industrial output while agriculture and services registered higher growth.
In the fourth quarter of 2012, Mexico’s GDP rose by 0.8 percent from the third quarter for annual growth of 3.2 percent, the same rate as in the third quarter.
Mexico’s economy is forecast to grow by around 3.5 percent this year, down from 2012’s estimated 3.9 percent.
Last month the central bank said inflation was expected to rise to around 4 percent in coming months before settling down to a rate of about 3.0 percent in the second half and in 2014.
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Namibia’s central bank held its benchmark repo rate steady at 5.50 percent, repeating that interest rates need to remain low to “support the economy and mitigate, as far as possible, the impact of endured slow growth in many our trading partners.”
The Bank of Namibia, which has held rates steady this year after cutting by 50 basis points last year, said the country’s economy was resilient and growth this year is forecast at 4.4 percent, down from an estimated 5.0 percent in 2012.
“Despite ongoing uncertainties in the global economy, domestic growth continues to be relatively strong, while inflationary pressures are low,” the Bank of Namibia said, adding developments were largely in line with its assessment from February.
So far this year, growth has been driven by higher output from mining, agriculture, manufacturing and construction, while wholesale and retail has contributed less.
A recent decline in international commodity prices is of a concern as this impacts the mining industry, the bank said, adding that the government budget will support domestic production and consumption through relatively high levels of expenditure and tax relief.
Namibia’s inflation rate rose to a “manageable” 6.3 percent in March from 6.21 in February, with no changes anticipated in the short to medium-term, the bank said.
Credit growth also remains robust, with credit to the business sector the main driver while credit to individuals rose less. The fiscal position of the government has improved, allowing for the build-up of a cash balances with the central bank.
Foreign reserves are still enough to cover three months of imports and the currency peg, the bank said.
At its previous meeting in February, the Bank of Namibia also forecast that the economy would grow by 4.4 percent this year and it was keeping its policy rate low to mitigate the impact of slow growth in many trading partners.
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New Zealand’s central bank held its Official Cash Rate (OCR) steady at 2.5 percent, as expected, and repeated that “at this point” it still expects to keep the rate steady through 2013.
The Reserve Bank of New Zealand (RBNZ) said economic growth was picking up with consumer spending on the rise and rebuilding after the Canterbury earthquake gaining momentum, while house price inflation is high in some regions despite already elevated prices.
“The Bank does not want to see financial or price stability compromised by housing demand getting too far ahead of supply,” RBNZ Governor Graeme Wheeler warned in the bank’s statement.
On the other hand, fiscal consolidation is constraining demand and drought has lowered agricultural production which has lead to a temporary rise in international dairy prices.
And the New Zealand dollar “remains overvalued and is higher than projected in March,” Wheeler said, adding:
“Further appreciation has occurred partly in response to the announcement of a substantial quantitative easing programme in Japan. The high New Zealand dollar continues to be a significant headwind for the tradeables sector, restricting export earnings and encouraging demand for imports.”
Last month the International Monetary Fund said the New Zealand dollar, known as the kiwi, was overvalued by around 15 percent and any attempt to devalue it through intervention would be futile because global investors were attracted to the currency as it’s a safe place to park money at a time of extreme monetary easing and ultra-low rates in major advanced economies.
New Zealand’s inflation rate was stable at 0.9 percent in the first quarter from the fourth quarter and the RBNZ expects it to remain close to the bottom of its target range this year.
The RBNZ, which has held its policy rate steady since March 2011, targets annual inflation of 1-3 percent and forecasts that inflation will gradually rise toward the 2 percent midpoint.
“At this point, we expect to keep the OCR unchanged through the end of the year,” Wheeler said, repeating the central bank’s policy guidance from March. Last month it also warned that it did not want price stability affected by housing demand getting too far ahead of supply.
Earlier this month the central bank’s deputy governor, Grant Spencer, said the RBNZ would revise its outlook for interest rates if the rise in house prices and expanding credit starts to fuel excessive consumption and inflationary pressures.
In the fourth quarter of last year, New Zealand’s Gross Domestic Product rose by 1.5 percent in the fourth quarter from the third quarter for annual growth of 2.5 percent, up from 2.0 percent in the third quarter.
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