headline inflation

Canada’s Central Bank news

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Canada holds rate, sees stimulus for “a period of time” – Central Bank News.

Canada’s central bank kept its target for the benchmark overnight rate steady at 1.0 percent, as widely expected, and said the current “considerable monetary stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required.”
    The Bank of Canada’s (BOC) statement signals that it is pushing back the time frame for a rate rise even further than currently expected, continuing the shift begun in February toward a more neutral policy stance and reflecting its latest downward revision in growth forecasts.
    In its latest Monetary Policy Report released today, the BOC forecasts annual average growth of 1.5 percent in 2013, down from a January forecast of 2.0 percent, 2.8 percent in 2014, up from a previous 2.7 percent, and 2.7 percent in 2015.
    “The economy is expected to reach full capacity in mid-2015, later than previously anticipated,” the bank said in its policy report. In its January policy report, the BOC had expected the economy to reach full capacity in the second half of 2014.
   Headline and core inflation is expected to remain subdued in coming quarters before gradually rising to the BOC’s 2 percent target by mid-2015, also later than it forecast in January when it expected inflation to return to its target in the second half of next year.
     In February Canada’s headline inflation rate picked up to 1.2 percent in February, breaking a year-long trend of falling rates, but the BOC said this muted inflation reflected excess supply in the economy, heightened competitive pressure in the retail sector and some special factors, such as slower rises in regulated prices and pass-through of previous declines in agricultural prices.
    In addition to the “muted outlook for inflation” and “continued slack in the Canadian economy”, the BOC said policy rates could remain low for some time due to slower growth in household credit, which is likely to lead to a stabilization of household debt-to-income ratio around current levels.
    “Despite the projected recovery in exports, they are likely to remain below their pre-recession peak until the second half of 2015 owing to restrained foreign demand and ongoing competitiveness challenges, including the persistent strength of the Canadian dollar,” the BOC said, repeating its oft-voiced concern over the impact the strong dollar is having on the competitiveness of Canadian firms.
    In the fourth quarter of 2012, Canada’s Gross Domestic Product rose by 0.2 percent from the third for annual growth of 1.1 percent, the lowest rate since the fourth quarter of 2009.
    But the BOC expects growth to regain some momentum through 2013 as exports pick up and business investment recovers.
    On a annual basis, the BOC expects growth of 1.2 percent in the first quarter of 2013, down from a previous forecast of 1.4 percent, 1.2 percent in the second quarter, 1.6 percent in the third quarter and 2.1 percent in the fourth quarter.
    Global economic growth is largely as anticipated by the BOC in January, with the U.S. expansion continuing at a modest pace as strengthening private demand partially offset by accelerated fiscal consolidation.
    “The Bank expects global economic activity to grow modestly in 2013 before strengthening over the following two years,” the BOC said, forecasting global growth of 3.0 percent this year, up from a previous forecast of 2.9 percent, and 3.6 percent in 2014 and 3.8 percent in 2015.
     In April last year, the BOC first started to warn markets that it would have to raise rates at some point, partially due to its concern over high household debt.
    But households started to rein in spending in light of slower growth in the second half of 2012, and in January this year the central bank said a rate rise was now less imminent than expected due to a slowdown in the rise of household credit and a more muted outlook for inflation.
    At its previous meeting in March, the BOC further eased its bias toward higher rates, saying the policy stance was appropriate for the time being in light of better household balances, the slack in the economy and the continued muted outlook for inflation.
    The BOC has held its target for overnight rates steady at 1.0 percent since September 2010.

       www.CentralBankNews.info

Sri Lanka Central Bank News update

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Sri Lanka holds rate, lower inflation would allow rate cut – Central Bank News.

Sri Lanka’s central bank held its benchmark repurchase rate steady at 7.50 percent, as expected, saying a further decline in inflation would allow it to cut rates again.
    The Central Bank of Sri Lanka, which cut rates by 25 basis points in December 2012 after raising them twice earlier in the year, said inflation “fell significantly” as expected in March due to the base effect and lower food prices and inflation should remain at this “benign” level.
   However, a proposed revision to administered prices is likely to exert some upward pressure on price levels, the central bank added.
    In March the headline inflation rate fell to 7.5 percent from an average 9.4 percent for the previous nine months while core inflation eased to 6.8 percent from 7.4 percent in February. Both inflation measures have been in single digits for 50 consecutive months.
    After raising rates in early 2012 to rein in credit growth, the central bank cut rates in December and removed a ceiling on credit growth, and said these measures are “providing reasonable stimulus for a higher economic growth.”
    “At the same time, further depreciation of demand driven inflation on a sustainable basis would provide space for further easing of monetary policy,” the central bank said.
    In 2012 Sri Lanka’s economy expanded by 6.4 percent for average growth of 7.5 percent over the last two years, based on resilient agriculture during adverse weather and sustained industry activity. Although tourism and finance grew rapidly, its growth was moderate due to low external trade.
    The central bank has forecast growth of 7.5 percent this year, down from 2011’s 8.3 percent.
    Credit extended to the private sector rose by an annual 13.3 percent in February and with the public sector relying less on bank financing in coming months, this should help provide the necessary stimulus to strengthen private sector activity, the bank said
     Sri Lanka’s balance of payments, which recorded a surplus of US$ 151 million at the end of 2012, remains in surplus so far this year and is expected to improve further. Gross official reserves have risen to $6.9 billion, enough for 4.5 months of imports.

    www.CentralBankNews.info

 

Uganda Central Bank Monetary Policy News

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Uganda holds rate, economy gaining, inflation on target – Central Bank News.

Uganda’s central bank held its central bank rate (CBR) steady at 12.0 percent, saying it is maintaining a neutral policy stance as the economic recovery is gaining momentum and inflation is in line with its target.
    The Bank of Uganda (BOU), which slashed interest rates in 2012, said short-term economic prospects had improved compared to its outlook and “constraints to economic growth from deficient aggregate demand are now receding.”
    The BOU said inflationary pressures are largely subdued but annual core inflation is still forecast to remain 1-2 percentage points above the bank’s 5.0 percent target for the next few months.
    “Nevertheless, we expect core inflation to fall back towards 5 percent later in 2013,” the BOU said.
    Uganda’s headline inflation rate rose to 4.0 percent in March, slightly up from February’s 3.5 percent, with the underlying, or core, inflation rate rising to 6.8 percent from 5.6 percent.
    The rise in headline inflation was fueled by the first rise in food crop prices since November last year while core inflation rose due to the base effect of a drop in prices in March 2012.

    Last year the BOU cut rates by 1100 basis points after raising them sharply in 2011 to a high of 23.0 percent to curtail inflation that soared to an all-time high of 30.48 percent in October 2011. Inflation then plunged over the next 12 months to 4.5 percent in October 2012.
    Since then, inflation has stabilized and even declined to a two-year low of 3.5 percent in February.
    “There are signs of increased buoyancy in the economy,” the BOU said, adding that preliminary GDP data for the first half of 2012/13 indicate accelerating growth, driven by strong growth in services, construction and manufacturing.
    Recent trends also indicate that the recovery continued in the third quarter of the current financial year that ends June 30, the BOU said.
     “As such, it is possible that the negative output gap that characterised the economy in 2011/12 has narrowed significantly,” the BOU said, adding that private sector credit had risen in line with overall growth although shilling-denomicated loans remain subdued.
    Uganda’s Gross Domestic Product expanded by 1.8 percent in the third calendar quarter from the second quarter for annual growth of 2.8 percent, down from 3.2 percent rate in the second quarter.
    The central bank’s statement is considerably more confident about the economic outlook than last month when it said economic growth was below potential and upside inflationary risks had risen.

    www.CentralBankNews.info

Switzerland’s Central Bank News

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Swiss keep FX, interest rate targets, cut inflation forecast – Central Bank News.

 Switzerland’s central bank maintained its interest rate and exchange rate targets, as expected, and said the downside risks to the Swiss economy remain considerable while revising downwards its inflation forecast.
    The Swiss National Bank (SNB) kept its target range for three-month Libor at zero to 0.25 percent and repeated its pledge to “buy foreign currency in unlimited quantities” to keep the Swiss franc below 1.20 per euro.
    The cap on the Swiss franc was introduced in September 2011 as jittery investors from the euro zone sought refuge in Swiss assets, pushing up the value of the Swiss franc and negatively affecting the competitiveness of Swiss industry.
    Switzerland’s headline inflation rate in February was minus 0.3 percent, the 17th month in a row with deflation. In 2012 the average inflation rate was minus 0.7 percent
    The SNB now expects an inflation rate of minus 0.2 percent for 2013, plus 0.2 percent for 2014 and 0.7 percent for 2015. This compares with its previous forecast of 0.1 percent in 2013 and 0.4 percent in 2014.
    “Under this assumption, the Swiss franc weakens over the forecast period,” the SNB said, adding that “in the foreseeable future, therefore, there continues to be no threat of inflation in Switzerland.”

    Switzerland’s economic growth slowed as expected in the fourth quarter, but the SNB said it continues to expect growth of 1.0-1.5 percent in 2013.
    Gross Domestic Product expanded by 0.2 percent in the fourth quarter from the third, for annual growth of 1.4 percent, up from 1.2 percent.
    “Downside risks to the Swiss economy remain considerable,” the SNB said, adding that tensions in the euro area may rise again and uncertainty about the future of fiscal policies in many advanced countries is dampening consumer and investment confidence, posing risks to growth.
    “The global economic situation and sentiment on the financial markets therefore remain vulnerable,” the SNB said.

    www.CentralBankNews.info