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8/11/2019 Monetary Policy Highlights for Global Central Banks for Month of August 2014
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Global Central Banks Highlights for Monetary
Policy Rates in month of August 2 14
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Global Central Banks Highlightsfor Monetary Policy Rates in
month of August 2014
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Colombia Central Bank :
The Board of Directors of Banco de la Repblica Raises the Benchmark Interest
Rate by 25 Basis Points
At todays meeting, the Board of Directors of Banco de la Repblicadecided to raise the benchmark
interest rate by 25 bp, placing it at 4.25%. The following aspects were taken into consideration by theBoard in reaching this decision.
After climbing and moving towards the 3% target faster than expected, annual consumer inflation declined
to 2.79% in June. This movement in inflation is due mainly to changes in the price of food and regulated
items. The average of the various measurements of core inflation behaved similarly, and one-year-ahead
inflation expectations remain near or slightly above 3%.
Average growth for Colombias major trading partners proved to be weaker than was anticipated several
months back, given the sharp drop in GDP in the United States during the first quarter and less growth
reported by several countries in the region. However, based on recent real and financial indicators, the
Bank's technical staff continues to project increased momentum in external demand during the coming
quarters. On the other hand, energy mining revenues are still at high levels, but with a tendency to decline.
In Colombia, recent figures prompted an upward revision of the economic growth forecast for 2014. It is a
well known fact that GDP growth in the first quarter was more than initially predicted, driven partly by
consumption and investment in the construction of civil works and structures. The good performance
shown by these items is likely to continue during the rest of the year. Moreover, consumer confidence has
improved, the slowdown in consumer lending has come to a halt, the momentum in retail sales continues
to be strong, and there is a downward trend in the unemployment rate. All this suggests that real
household spending will remain forceful this year. Consequently, the Banks technical staff set the new
forecast range for growth in 2014 at 4.2% to 5.8%, with 5% being the most likely figure.
Growth in aggregate demand remained strong in the midst of a context marked by almost full use of
productive capacity. At the same time, inflation expectations are near or slightly above 3%. All this is taking
place in an environment where growth in lending has increased and real interest rates on loans are at
levels conducive to spending. Given these circumstances, the Board of Directors felt it was appropriate to
raise the benchmark interest rate by 25 bp.
The Board will continue to carefully monitor performance and forecasts with respect to economic activity
and inflation in Colombia, asset markets and the international situation. Finally, it reiterated that monetary
policy will depend on the information that is available.
Tuesday, 12 August 2014
14:33
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Reserve Bank Of Fiji :
MONETARY POLICY STANCE REMAINS UNCHANGED
The Reserve Bank of Fiji Board, at its monthly meeting on 31 July, agreed to maintain the Overnight Policy
Rate (OPR) at 0.5 percent.
The Governor and Chairman of the Board, Mr Barry Whiteside, stated that, while recovery continues in
the global economy, growth prospects remain broadly fragile and uneven. In its latest update, the
International Monetary Fund downgraded its 2014 global growth projection to 3.4 percent from 3.6
percent, largely reflecting weak quarter one activity especially in the United States and the subdued
outlook for several emerging market economies. In addition, increased geopolitical tensions which could
escalate energy prices present prominent downside risks to the current global economic outlook.
The Governor also highlighted that indicators of domestic activity in the first half of 2014 suggest thatoutcomes are broadly consistent with the growth projection of 3.8 percent. Consumption and investment
activity remained firm in the review period, supported by the growth in household income and private
sector credit. Furthermore, apart from the fish and gold industries, sectoral performances were largely
positive.
On the external front, relatively higher import demand, underpinned by buoyant domestic activity,
outpaced the growth in exports and resulted in the widening in the trade deficit. Nevertheless, improved
tourism earnings and remittances continue to support the countrys balance of payments position. For long
term sustainability, the Governor emphasised the continuation of policies geared towards boosting the
export and import substitution sectors.
Mr Whiteside stated that given the stable outlook for its twin objectives of inflation and foreign reserves,
the accommodative monetary stance remains appropriate. Inflation was 1.1 percent in June while foreign
reserves were around $1,611.3 million as at 31 July 2014, sufficient to cover 4.4 months of retained
imports of goods and non-factor services.
The Governor concluded that, the Reserve Bank will continue to monitor international and domestic
developments, particularly the impact of growth on the Banks objectives, and align its policy decisions
accordingly.
RESERVE BANK OF FIJI
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National Bank of Romania :
Press Release of the Board of the National Bank of Romania
In its meeting of 4 August 2014, the Board of the National Bank of Romania decided the following:
To lower the monetary policy rate to 3.25 percent per annum from 3.50 percent starting with August 5,
2014;
To pursue an adequate liquidity management in the banking system;
To maintain the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-
denominated liabilities of credit institutions.
The NBR examined and approved the quarterly Inflation Report which will be presented to the public in a
news conference scheduled for August 6, 2014.
The analysis of the latest macroeconomic data shows the annual inflation rate remaining on a downwardpath and temporarily running below the lower bound of the variation band of the flat target. The new
projected inflation path is significantly lower than that forecasted in May.
Behind this stood one-off factors (the dynamics of volatile food prices, the nominal appreciation of the
local currency, the influence of import prices partly reflecting subdued euro area inflation) overlapping
with the persistent effects of the negative output gap and the downward adjustment in inflation
expectations.
The annual inflation rate fell to a new historic low of 0.66 percent in June 2014 from 0.94 percent in the
previous month and 1.55 percent in December 2013. At the same time, the average annual inflation rate
came in at 1.7 percent in June 2014 compared to 2.1 percent in May. The average annual inflation rate
based on the Harmonised Index of Consumer Priceswhich is relevant for ensuring comparability at
European level and assessing convergence with the European Unioncontinued to decrease, reaching 1.5
percent in June versus 1.8 percent in May. Romania thus ranks among the countries meeting the
corresponding nominal convergence criterion at EU level.
The improvement in economic activity in Romania has further been fostered by the favourable
performance of industrial output, fuelled mainly by external demand growth and the gradually rebounding
domestic demand, amid a further narrow current account deficit. The international reserves remain in a
comfortable zone while a substantial part of the IMF loan under the 2009-2011 arrangement has been
repaid.
The annual dynamics of total credit to the private sector fell deeper into negative territory, solely on
account of the steeper decline in the rate of change of the foreign currency component, whereas the
annual pace of increase in real terms of leu-denominated credit gained momentum and peaked at a five-
year high in June. Consequently, the share of foreign exchange loans in total credit to the private sector
(stocks) continued to narrow to 58 percent at end-June 2014 against 62 percent in June 2013, thus helping
consolidate the monetary policy transmission mechanism.
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In todays meeting, the NBR Board examined and approved the quarterly Inflation Report, which points to
the outlook for the annual inflation rate to run at markedly lower readings than previously forecasted, i.e.
below the midpoint of the flat target until mid-2015 and in the upper half of the variation band in the latter
part of the projection horizon. According to the new projection, the annual inflation rate will be 2.2 percent
at end-2014 and 3 percent at end-2015, while the average annual inflation rate is anticipated to stand at
1.4 percent in 2014 and 2.4 percent in 2015.Similarly to the previous assessments, the risks associated with this outlook stem chiefly from external
sources, being largely generated by possibly higher volatility of capital flows in Romania following
unfavourable developments in investors risk aversion to the emerging economies.
This could materialise amid the recent geopolitical and regional tensions, the ongoing cross-border
deleveraging and restructuring of some Eurozone banking groups, as well as in the context of uncertainty
surrounding the impact of possible monetary policy stance adjustments by major central banks worldwide.
Domestically, the main risks relate to the persistence of uncertainties about the consistent implementation
of the set of structural reforms and other measures agreed with international institutions in the context ofelections later this year.
Against this background, the Board of the National Bank of Romania has decided to lower the monetary
policy rate to 3.25 percent per annum from 3.50 percent previously. Hence, starting with 5 August 2014,
the interest rate on the NBRs lending facility (Lombard) will fall to an annual 6.25 percent from 6.50
percent and its deposit facility rate will stand at 0.25 percent per annum. The NBR Board has also decided
to continue to pursue adequate liquidity management in the banking system and to maintain the existing
levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of
credit institutions, reiterating that their harmonisation with European levels over the medium term will
carry on gradually, at an appropriate pace and time, conditional on the economic and financialenvironment domestically and externally.
These decisions help attain the overriding objective of preserving medium-term price stability as well as
financial stability, together with paving the way for balanced and lasting economic growth.
In this context, the consistent implementation of an adequate macroeconomic policy mix, in line with the
provisions of the external financing arrangements, and the resumption, by observing prudential rules, of
financial intermediation in parallel with an appropriate remuneration of bank deposits, conducive to
fostering domestic saving, are pivotal to consolidating favourable prospects for the Romanian economy,
thereby enhancing its resilience to external shocks.
The NBR monitors closely the domestic and global economic developments so as, by calibrating the
monetary policy conduct and making adequate use of its available tools, to maintain medium-term price
stability and preserve financial stability.
The new quarterly Inflation Report will be presented to the public in a news conference on 6 August 2014.
According to the approved calendar, the next NBR Board meeting dedicated to monetary policy issues is
scheduled for 30 September 2014.
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Reserve Bank of Australia :
Statement by Glenn Stevens, Governor: Monetary Policy Decision
At its meeting today, the Board decided to leave the cash rate unchanged at 2.5 per cent.
Growth in the global economy is continuing at a moderate pace, helped by firmer conditions in the
advanced countries. China's growth remains generally in line with policymakers' objectives. Commodity
prices in historical terms remain high, but some of those important to Australia have declined this year.
Financial conditions overall remain very accommodative. Long-term interest rates and risk spreads remain
very low. Emerging market economies are receiving capital inflows. Volatility in many financial prices is
currently unusually low. Markets appear to be attaching a very low probability to any rise in global interest
rates, or other adverse event, over the period ahead.
In Australia, growth was firmer around the turn of the year, but this resulted mainly from very strong
increases in resource exports as new capacity came on line; smaller increases in such exports are likely in
coming quarters. Moderate growth has been occurring in consumer demand. A strong expansion in
housing construction is now under way. At the same time, resources sector investment spending is starting
to decline significantly. Signs of improvement in investment intentions in some other sectors are emerging,
but these plans remain tentative as firms wait for more evidence of improved conditions before
committing to significant expansion. Public spending is scheduled to be subdued. Overall, the Bank still
expects growth to be a little below trend over the year ahead.
There has been some improvement in indicators for the labour market this year, but it will probably besome time yet before unemployment declines consistently. Recent data showed an increase in inflation,
with both headline and underlying measures affected by the decline in the exchange rate last year. But
growth in wages has declined noticeably and is expected to remain relatively modest over the period
ahead, which should keep inflation consistent with the target even with lower levels of the exchange rate.
Monetary policy remains accommodative. Interest rates are very low and for some borrowers have
continued to edge lower over recent months. Savers continue to look for higher returns in response to low
rates on safe instruments. Credit growth has picked up a little, including most recently to businesses. The
increase in dwelling prices has been slower this year than last year, though prices continue to rise. The
exchange rate remains high by historical standards, particularly given the declines in key commodity prices,and hence is offering less assistance than it might in achieving balanced growth in the economy.
Looking ahead, continued accommodative monetary policy should provide support to demand and help
growth to strengthen over time. Inflation is expected to be consistent with the 23 per cent target over the
next two years.
In the Board's judgement, monetary policy is appropriately configured to foster sustainable growth in
demand and inflation outcomes consistent with the target. On present indications, the most prudent
course is likely to be a period of stability in interest rates.
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Reserve Bank Of India :
Monetary and Liquidity Measures
On the basis of an assessment of the current and evolving macroeconomic situation, it has been decided
to:
keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 8.0 per cent;
keep the cash reserve ratio (CRR) of scheduled banks unchanged at 4.0 per cent of net demand and
time liabilities (NDTL);
reduce the statutory liquidity ratio (SLR) of scheduled commercial banks by 50 basis points from22.5 per cent to 22.0 per cent of their NDTL with effect from the fortnight beginning August 9, 2014;
and
continue to provide liquidity under overnight repos at 0.25 per cent of bank-wise NDTL and
liquidity under 7-day and 14-day term repos of up to 0.75 per cent of NDTL of the banking system.
Consequently, the reverse repo rate under the LAF will remain unchanged at 7.0 per cent, and the marginal
standing facility (MSF) rate and the Bank Rate at 9.0 per cent.
Assessment
2. Since thesecond bi-monthly monetary policy statement of June 2014,global economic activity has been
picking up at a modest space from a sharp slowdown in Q1. Investor risk appetite has buoyed financial
markets, partly drawing strength from assurances of continuing monetary policy support in industrial
countries. Portfolio flows to emerging market economies (EMEs) have risen strongly. This implies, however,
that EMEs remain vulnerable to changes in investor risk appetite driven by any reassessment of the future
path of US monetary policy or possible escalation of geopolitical tensions.
3. Sentiment on domestic economic activity appears to be reviving, with incoming data suggesting a firming
up of industrial growth and exports. The June round of the Reserve Banks industrial outlook survey also
points to improvement in business expectations in Q2. Leading indicators of the services sector are mixed,although there are early signs of modest strengthening of corporate sales and business flows. While the
initial slow progress of the monsoon and its uneven spatial distribution raised serious concerns regarding
agricultural production, these have been mitigated, though not entirely dispelled, by the pick-up in the
monsoon through much of the country in July. The implementation of government policy actions that have
been announced should create a congenial setting for a steady improvement in domestic demand and
supply conditions.
4. Retail inflation measured by the consumer price index (CPI) has eased for the second consecutive month
in June, with a broad-based moderation accompanied by deceleration in momentum. Higher prices of
vegetables, fruits and protein-based food items were offset by the muted increase in the prices of non-
food items, particularly those of household requisites and transport and communication. CPI inflation
excluding food and fuel decelerated further, extending the decline that began in September 2013.
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However, with some continuing uncertainty about the path of the monsoon, it would be premature to
conclude that future food inflation, and its spill-over to broader inflation, can be discounted.
5. Liquidity conditions have remained broadly stable, barring episodic tightness on account of movements
in the cash balances of the Government maintained with the Reserve Bank. While the systems recourse toliquidity from the LAF, and regular and additional term repos has been around 1.0 per cent of the NDTL of
banks, access to the MSF has been minimal and temporary. In order to manage transient liquidity pressures
associated with tax outflows and sluggish spending by the Government, the Reserve Bank injected
additional liquidity aggregating over ` 940 billion through nine special term repos of varying maturities
during the months of June and July. Despite the reduction in the export credit refinance effected in early
June, average utilisation of the facility has only been around 70 per cent of the available limit. The Reserve
Bank will review existing liquidity arrangements and continue to monitor and manage liquidity to ensure
adequate flow of credit to the productive sectors.
6. With the buoyancy in export performance sustained through Q1, the trade deficit has narrowed from its
level a year ago. While oil imports rose in June partly on higher international crude prices, gold import
growth picked up in response to some liberalization of import restrictions, and non-oil non-gold import
growth has turned positive since May. Turning to external financing, all categories of capital flows have
been buoyant. Surges in capital inflows in excess of the current account financing requirement and the
repayment of swaps by oil marketing companies have bolstered international reserves.
Policy Stance and Rationale
7. The moderation in CPI headline inflation for two consecutive months, despite the seasonal firming up of
prices of fruits and vegetables since March, is due to both base effects and the steady deceleration in CPI
inflation excluding food and fuel. The recent fall in international crude prices, the benign outlook on globalnon-oil commodity prices and still-subdued corporate pricing power should all support continued
disinflation, as should measures undertaken to improve food management. There are, however, upside
risks also, in the form of the pass-through of administered price increases, continuing uncertainty over
monsoon conditions and their impact on food production, possibly higher oil prices stemming from geo-
political concerns and exchange rate movement, and strengthening growth in the face of continuing supply
constraints. Accordingly, the upside risks to the target of ensuring CPI inflation at or below 8 per cent by
January 2015 remain, although overall risks are more balanced than in June (Chart 1). It is, therefore,
appropriate to continue maintaining a vigilant monetary policy stance as in June, while leaving the policy
rate unchanged.
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8. Prospects for reinvigoration of growth have improved modestly. The firming up of export growth shouldsupport manufacturing and service sector activity. If the recent pick-up in industrial activity is sustained in
an environment conducive to the revival of investment and unlocking of stalled projects, with ongoing
fiscal consolidation releasing resources for private enterprise, external demand picking up and
international crude prices stabilising, the central estimate of real GDP growth of 5.5 per cent within a likely
range of 5 to 6 per cent that was set out in the April projection for 2014-15 can be sustained. On the other
hand, if risks relating to the global recovery, the monsoon and geo-political tensions intensify, the balance
of risks could tilt to the downside (Chart 2).
9. The Reserve Bank will continue to monitor inflation developments closely, and remains committed to
the disinflationary path of taking CPI inflation to 8 per cent by January 2015 and 6 per cent by January
2016. While inflation at around 8 per cent in early 2015 seems likely, it is critical that the disinflationary
process is sustained over the medium-term. The balance of risks around the medium-term inflation path,
and especially the target of 6 per cent by January 2016, are still to the upside, warranting a heightened
state of policy preparedness to contain these risks if they materialise. In the months ahead, governmentactions on food management and to facilitate project completion should improve supply, but as consumer
and business confidence pick up, aggregate demand will also strengthen. The Reserve Bank will act as
necessary to ensure sustained disinflation.
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10. In the second bi-monthly monetary policy statement of June 2014, the Reserve Bank reduced the SLR to
22.5 per cent of NDTL in anticipation of recovery in economic activity. With the Union Budget for 2014-15
renewing commitment to the medium-term fiscal consolidation roadmap and budgeting 4.1 per cent of
GDP as the fiscal deficit for the year, space has opened up further for banks to expand credit to the
productive sectors in response to its financing needs as growth picks up. Accordingly, the SLR is reduced by
a further 0.5 per cent of NDTL.
11. In consonance with the calibrated reduction in the SLR, it is necessary to enhance liquidity in the money
and debt markets so that financial intermediation expands apace with a growing economy. Currently,
banks are permitted to exceed the limit of 25 per cent of total investments under the held to maturity
(HTM) category provided the excess comprises only SLR securities, and banks total holdings of SLR
securities in the HTM category is not more than 24.5 per cent of their NDTL as on the last Friday of the
second preceding fortnight. In order to enable banks greater participation in financial markets, this ceiling
is being brought down to 24 per cent of NDTL with effect from the fortnight beginning August 9, 2014.
12. The Reserve Bank has taken a number of steps to enhance efficiency, increase entry, speed up
resolution, and improve access to financial services, such as modified regulations on long term lending and
borrowing, proposals for licensing payment banks and small banks, a framework to deal with stressed
assets, actions to further the use of mobile phones in banking, and efforts to simplify know your customer
(KYC) norms, among others. The Reserve Bank will continue to carry forward its banking sector reforms
agenda.
13. The fourth bi-monthly monetary policy statement is scheduled on Tuesday, September 30, 2014.
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Bank Of Zambia :
GOVERNORS MONETARY POLICY STATEMENT 5TH AUGUST 2014
The Monetary Policy Committee (MPC) met today, 5th August 2014, to consider developments in the
domestic economy over the second quarter of the year. The MPC now meets on a quarterly basis and
following the meeting, issues a statement outlining its deliberations and its policy decision in order to
enhance transparency. The Bank of Zambias mandate is to maintain price and financial system stabilitythat supports balanced economic development. In its deliberations, the MPC considered recent
developments in the global economy and the possible ramifications of these developments on our
economy and the Central Banks ability to achieve its core objective of maintaining price stability.
GLOBAL ECONOMIC DEVELOPMENTS
Global economic growth continues to proceed at a moderate pace. The underlying strength appears to be
emanating from the USA and the UK economies. However, monetary policy easing measures undertaken
by their central banks are likely to be terminated by year end. Growth in Europe remains challenging
outside Germany, and this is compounded by geopolitical events in Europe, specifically in Ukraine and the
middle-east. Growth is likely to remain low and the recovery long. Global commodity prices are likely to beimpacted by the developments in Europe and the Middle-East, although the extent and direction of this
impact remains unclear at the current time. Underlying demand for commodities may remain supported,
however, by the growth in China, which is unlikely to slip below 7% as earlier feared.
MONETARY POLICY
Monetary policy over the second quarter of the year was challenging. Inflationary pressures were
persistent and these were compounded by excessive volatility in the foreign exchange market. Measures
taken to tighten monetary policy in April 2014, by upward adjustments in the policy rate to 12% and raising
of the statutory reserve ratio from 8% to 14%, had to be augmented at the end of May. Specifically, the
Bank of Zambia extended the application of statutory reserve ratios to Government and other deposits not
already subject to the reserve ratio. In addition, the penal rate on the overnight lending facility was raised
and access limited to once a week. Finally, the maintenance of statutory reserves by commercial banks was
tightened from a weekly average to a daily average basis.
In implementing the additional measures at the end of May, the Bank of Zambia was mindful of the fact
that the significant tightening in liquidity would have an impact on the interbank rates, but the primary
objective was to support price stability by arresting the excessive depreciation in the exchange rate. Indeed
in subsequent communications, we indicated that as stability returned to the foreign exchange market, we
would reassess these measures whilst taking into account wider developments in the economy. In this
regard, the measures the Bank of Zambia implemented have been successful in restoring relative stability
in the foreign exchange market and in the financial sector in general. In July, the Bank of Zambia was ableto begin the process of easing the tight liquidity conditions in a gradual manner. In its deliberations, the
MPC therefore, has taken into account this relative stability and assessed developments in the wider
economy in determining the appropriate monetary policy stance going forward.
INFLATION
Inflationary pressures appear to have stabilized between June and July, 2014. During the second quarter,
annual inflation rose to 7.9% in June from 7.7% in March, 2014 with both food and non-food inflation
rising. Food inflation rose to 7.8% from 7.6% having risen to 8% in May. Non-food inflation rose to 8.0% in
June form 7.8% in March. In July, annual inflation marginally rose to 8.0%. However, annual food inflation
fell from 7.8% in June to 6.9% in July, whilst non-food inflation rose from 8.0% in June to 9.2% in July. TheCommittee noted, however, that the increase in non-food inflation was to a large extent driven by the
increase in the Housing, Water, Electricity, Gas and Other fuels component of the consumerprice index.
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This in turn was largely due to the rise in electricity tariffs effected in July as ZESCO looks to migrate to cost
reflective tariffs that support increased investment in power generation and transmission.
Over the third quarter the upside risks to inflation include the second round effects of the upward revision
in electricity tariffs, the lagged effects of the depreciation in the exchange rate, particularly over the second
quarter, and the upward adjustment in the FRA maize floor price from K65 to K70. Downside risks to
inflation largely relate to the seasonal decline in food prices, exemplified by the record maize harvest aswell as the stabilization in the exchange rate which are expected to exert downward pressure on prices.
THE DOMESTIC MONEY MARKET AND GOVERNMENT SECURITIESFor much of the second quarter, money market liquidity was tight with the weighted interbank rate rising
to as high as 25% at the end of May from around 16% at end of March. Reflecting these tight conditions,
the overnight interbank rate remained significantly higher than the BoZ policy rate over the second quarter
of the year. One consequence of the higher interbank rates were that the wholesale funding costs for
banks also rose, putting pressures on lending margins and bank profitability. This was further compounded
by the rise in the Government security yield rates. The weighted average yield rate on Treasury bills and
Government bonds actually rose to 19.4% and 18.1% from 14.8% and 16.0%, respectively over the secondquarter. In July when pressures in the foreign exchange market receded, the Bank of Zambia was able to
ease liquidity in a measured way, by injecting liquidity into the banking system through Open Market
Operations. The result has been that the interbank rate has now fallen back to 14.5% from 25% in June,
easing the pressure on the wholesale funding costs for banks. At the end of June the stock of outstanding
Government securities registered a modest increase of 1.3% to K20.5 billion compared with K20.2 billion at
end March 2014. However, foreign investor holdings of Government securities declined by 5.9% to K1.2
billion from K1.3 billion. The decline was mainly attributed to maturities of securities during the quarter
which were not rolled-over. The modest increase in Government securities also reflects the fact that the
financing of the Government budget during the second quarter was within the budget projections.
DOMESTIC CREDIT AND INTEREST RATES
The growth in domestic credit and money supply, witnessed early in the year, eased at the end of the
second quarter. This reflected the stabilizing of conditions in the financial markets. Domestic credit fell by
22.1% to K24.8 billion from K31.9 billion in March 2014. This largely reflected a drop in credit to
Government following the receipt of the Eurobond proceeds. However, lending to private enterprises grew
by 9.3%. In terms of the provision of credit to the private sector, households (personal loans category)
continued to account for the largest share of outstanding credit of about 34.5% in June 2014 compared
with 34.8% in March 2014. The agricultural sector remained second at 17.6%, followed by Manufacturing
10.5%. The credit shares of these two sectors in March were 17.4% and 8.7%, respectively.
Broad money (M3), declined by 2.2% to K32.7 billion in June 2014 from K33.4 billion in March 2014 and
was 3.4% below the second quarter projected target of K33.8 billion. This largely reflected the 35.9%
contraction in Net Domestic Assets to K11.4 billion following the fall in lending to Government. The Net
Foreign Assets, however, increased by 36.3% to K21.2 billion, largely on account of the rise in the Bank of
Zambia foreign assets by 40.6%. Money supply growth excluding foreign currency deposits (M2), has,
however, fallen consistently throughout the quarter, partly reflecting a shift into foreign currency deposits.
Commercial banks nominal average lending rate rose by 1.7 percentage points to 18.7% in June 2014 from
17.0% in March 2014, partly due to the rise in the Bank of Zambia policy rate. In June, following the sharp
increase in the wholesale funding costs of commercial banks, the fixed margin between the policy rate and
the lending rates was adjusted upwards. Some banks subsequently adjusted upwards their lending rates.
The Bank of Zambia has subsequently eased liquidity conditions and the MPC has therefore also
deliberated on what the appropriate margin between the policy rate and the lending rates should be nowthat liquidity conditions had eased. Deposits rates also edged upwards, with the 30-day deposit rate for
amounts exceeding K20,000 rising to 6.7% from 5.6% in March 2014. The average savings rate for amounts
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not exceeding K20,000, however, remained unchanged at 3.5% in the quarter under review.
FOREIGN EXCHANGE MARKET AND THE EXTERNAL SECTOR
The foreign exchange market has stabilized with a significant reduction in volatility. Over the second
quarter the Kwacha depreciated by 2% to K6.26 against the US Dollar at the end of June from K6.10 per US
Dollar at the end of March. The Kwacha, however, crossed above K7 per US dollar at the end of May in
intra- day interbank trading, a depreciation of approximately 25% on a year to date basis. Following themeasures taken to tighten monetary policy, the Kwacha has subsequently shown relative stability at the
current level of K6.15 per US Dollar. During the second quarter, the real effective exchange rate
depreciated by 1.9% as reflected in the index, which rose to 106.07 in June 2014 from 104.12 recorded in
March 2014. This was largely driven by the 3.3% depreciation of the nominal effective exchange rate, of
which the South African rand and the Swiss franc accounted for 1.9 and 0.6 percentage points, respectively.
Preliminary data show that Zambia recorded a favourable Balance of Payments position, with an overall
BoP surplus of US $740.1 million compared with a surplus of US $8.4 million recorded during the first
quarter of 2014. This was driven by improvements in the financial account, largely attributed to the
sovereign bond proceeds, which compensated for unfavourable performance in the current account.
Zambia recorded current account deficit for the second consecutive quarter during the period under
review. However, Zambias trade balance remained positive over the second quarter, at US $330.6 million
compared to a trade balance of US $422.4 million during the first quarter of the year.
FISCAL POLICY
Fiscal performance improved in the second quarter of 2014. Preliminary data indicate that a central
Government fiscal deficit of K1.3 billion was recorded against the programmed deficit of K1.8 billion during
the second quarter of 2014, due to lower than programmed expenditure. Total revenue and grants were
K7.4 billion, hence 7.9% lower than the programmed amount of K8.1 billion. Total expenditure at K8.7
billion was 12.7% lower than programmed, mainly attributed to lower than programmed expenditure on
non-financial assets, use of goods and services as well as social benefits.
INDICATORS OF ECONOMIC ACTIVITY
Available indicators of economic activity suggest that the Government is on track in meeting its growth
objective for 2014, estimated at 6.5% using the rebased GDP. Most of the selected real sector development
indicators recorded tracked by the Monetary Policy Committee recorded higher output during the second
quarter of the year, particularly when assessed against developments in the corresponding quarter of
2013.
In the agricultural sector, the country continued to hold adequate maize stocks on the back of a bumper
harvest. However, the stock of maize grain held by the Food Reserve Agency (FRA) decreased by 20.3% to
343,581.3 mt from 431,130.0 mt at the end of March 2014 due to domestic sales. Copper output declined
by 2.5% to 276,075.0 mt from 283,042.3 mt in the first quarter. However, on a year-to-date basis, copperproduction was 559,117.3 mt, 16.3% higher than the 480,892.6 mt produced in the first half of 2013.
Electricity generation increased by 3.1% to 3,509,053 Mwh in the second quarter 2014 from 3,403,077
Mwh during the first quarter. On a year-to-date basis, total electricity generation amounted to 6,912,130
Mwh in the first half of 2014, higher than the 6,601,175 Mwh generated in the first half of 2013.
In the manufacturing sector, production of soft drinks rose by 16.9% to 456,326.8 hectolitres in the second
quarter of 2014 from 390,501.0 in the first quarter. This output was 39.1% higher than the 327,996.6
hectolitres in the corresponding quarter in 2013. Similarly, production of mineral water increased by 38.7%
over the second quarter to 1,872,672 litres from 1,349,730 litres in the first quarter. This level of
production was 56.3% higher than the 1,197,984 litres produced in the second quarter of 2013
THE BANK OF ZAMBIA POLICY RATE
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The measures taken by the Bank of Zambia during the second quarter in tightening monetary policy are
beginning to bear the intended results. However, inflationary pressures remain and, therefore, the
Monetary Policy Committee decided to maintain the policy rate at the current level of 12%.
The stabilization of the financial sector provides an opportunity for the Bank of Zambia to normalise money
market conditions. The measures taken to supply liquidity to the market through open market operations
have now seen the interbank rate fall to 14.5%. The wholesale funding costs rose sharply during the second
quarter, and the Bank of Zambia adjusted the effective interest rate margin which raised the lending rateceiling to 28% from 21%. With the interbank rate having returned to levels consistent with the policy rate,
the maximum annual effective lending rate ceiling has been adjusted down to 24% from 28%.
Statutory reserve ratios remain unchanged at 14%. However, the Bank will continue to monitor the
liquidity conditions in the market and stands ready to provide further support to the market should this be
required, including through the reduction of the statutory reserve ratios.
The Bank is further determined to ensure that it maintains price and financial system stability as the best
way of supporting the investment and growth of the economy. In this regard, the Bank will take
appropriate measures when this stability is challenged or under threat.
The next meeting of the monetary policy committee will be held on Friday 21 November, 2014.
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Bank Of Thailand :
Monetary Policy Committees Decision on 6 August 2014
Mr. Paiboon Kittisrikangwan, Secretary of the Monetary Policy Committee (MPC), announced the outcome
of the meeting on 6 August 2014 as follows.
The global economy continued to improve steadily. The US economy grew at a firmer pace fromaccelerating domestic demand and stronger labour market. The euro area and Japan recovered slowly,
entailing continued accommodative monetary policy. Growth in China and Asia stabilized on the back of
improving exports to major economies. Some central banks in the region have begun to raise policy
interest rates in light of domestic developments.
The Thai economy showed signs of improvements in the second quarter of 2014, from private spending
following the political resolution. Exports recovered modestly, while public spending fell slightly short of
previous assessment. In the second half of the year, firmer domestic demand and fiscal policy, particularly
public investment, should lend further impetus to growth recovery. Exports of goods and tourism are
expected to expand at a subdued pace. Inflationary pressure remains contained.
The committee judges that current accommodative monetary policy remains appropriate in supporting
economic recovery. The policy stance is deemed consistent with longterm financial stability, which should
complement governments reform efforts to lift the economys potential growth. The committee thus
voted unanimously to maintain the policy rate at 2.00 percent per annum.
Bank Of England :
Minutes of the Monetary Policy Committee Meeting held on 6 and 7 August 2014
The Governor invited the Committee to vote on the propositions that:
Bank Rate should be maintained at 0.5%;
The Bank of England should maintain the stock of purchased assets financed by the
issuance of central bank reserves at 375 billion.
Regarding Bank Rate, seven members of the Committee (the Governor, Ben Broadbent, Jon Cunliffe, Nemat Shafik,
Kristin Forbes, Andrew Haldane and David Miles) voted in favour of the proposition.
Ian McCafferty and Martin Weale voted against the proposition, preferring to increase Bank Rate by 25 basis points.
Regarding the stock of purchased assets, the Committee voted unanimously in favour of the proposition.
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European Central Bank :
Monetary policy decisions 7 August 2014 -
At todays meeting the Governing Council of the ECB decided that the interest rate on the main refinancing
operations and the interest rates on the marginal lending facility and the deposit facility will remain
unchanged at 0.15%, 0.40% and -0.10% respectively.
The President of the ECB will comment on the considerations underlying these decisions at a press
conference starting at 2.30 p.m. CET today.
National Bank of Serbia :
Key Policy Rate Stays at 8.5 Percent
At its meeting today, the NBS Executive Board voted to keep the key policy rate at 8.5%.
Y-o-y inflation is moving below the lower bound of the target tolerance band and is expected to return
within the target band by the year-end. Such movements are attributable to low inflationary pressures,
reflecting mainly low aggregate demand and the continuing disinflationary impact of prices of primary
agricultural commodities, relative stability of the dinar exchange rate and inflation expectations.
However, considering the expected depletion of effects of low food prices and the risks that may adversely
affect economic developments at home in the coming period, the NBS Executive Board decided to keep the
key policy rate on hold.
In taking the decision, the NBS Executive Board also took into account the persistent uncertaintiesemanating from the international environment, which may negatively impact the countrys risk premium
and foreign capital flows. The risks of further heightening of geopolitical tensions also relate to the
postponement or slowdown of the initiated economic recovery of euro area. The NBS Executive Board
expects that consistent implementation of fiscal consolidation measures and structural reforms in the
period ahead may contribute to the alleviation of external risks.
At its meeting today, the NBS Executive Board adopted the August Inflation Report, to be presented at the
press conference on Wednesday, 13 August.
The next rate-setting meeting is scheduled for 11 September 2014.
Governors Office07.08.2014
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Reserve money, the Banks operating target increased to D5.78 billion, or 19.7 percent. Although reserve
money growth was above the target of 13.5 percent, it was lower than the strong expansion of 26.4
percent a year earlier. The decrease in the pace of expansion of reserve money was mainly the result of the
contraction in the NFA of the Central Bank by 8.4 percent compared to the robust growth of 21.4 percent a
year ago. The NDA of the Central Bank, on the other hand, increased significantly to D2.5 billion, or 97.2
percent. Central Bank net claims on government rose from D1.3 billion in June 2013 to D2.2 billion in June
2014.
The banking sector remains fundamentally sound. Recent data indicate that capital and reserves increased
to D3.45 billion in June 2014, or 16.2 percent from June 2013. The risk-weighted capital adequacy ratio
averaged 35.1 percent, higher than the minimum requirement of 10.0 percent. All the banks met the
capital adequacy requirement.
Total assets increased to D25.57 billion, or 14.2 percent from a year earlier. Gross loans and advances,
which accounted for 23.4 percent of total assets, decreased to D5.97 billion, or 2.3 percent from June 2013.
Private sector credit, net of provisions declined from D4.42 billion in June 2013 to D4.09 billion in June
2014. The non-performing loans (NPL) ratio increased from 11.3 percent in June 2013 to 16.0 percent in
June 2014. Deposit liabilities totaled D15.15 billion in June 2014, higher than the D14.28 billion in June2013.
The industry recorded a net income of D197.0 million in the first six months of 2014 compared to D80.6
million in the corresponding period in 2013. The return on assets was 3.3 percent and return on equity
(21.3 percent) compared to 1.7 percent and 10.8 percent respectively in the first half of 2013.
In the year to end-June 2014, the domestic debt rose to D14.7 billion, or 29.3 percent from a year earlier.
Treasury bills and Sukuk-Al Salaam bills, accounting for 82.4 percent and 4.0 percent of the domestic debt
stock, increased by 36.1 percent and 50.1 percent respectively.
Yields in all the maturities rose reflecting in the main the tight monetary policy stance. The yield on the
91-day, 182-day and 364-day bills increased from 12.40 percent, 13.44 percent and 14.54 percent in June
2013 to 14.31 percent, 15.95 percent and 18.12 percent respectively in June 2014. The weighted average
interbank rate also increased from 10.45 percent in June 2013 to 14.54 percent in June 2014.
Government Fiscal Operations
Provisional data on Government fiscal operations for the first half of 2014 indicate that total revenue and
grants increased to D4.12 billion (22 percent of GDP), or 26.0 percent from the corresponding period in
2013. The outturn was also higher than the target of D4.10 billion (21.0 percent of GDP). Domestic
revenue, comprising tax and non-tax revenue, amounted to D3.16 billion, higher than the D2.82 billion inthe first half of 2013 and the target of D3.14 billion attributed mainly to the 14.0 percent increase in tax
revenue. Non-tax revenue, on the other hand, rose by only 2.0 percent.
Expenditure and net lending totaled D4.9 billion (26 percent of GDP), higher than the outturn of D4.2
billion (25 percent of GDP) and the projection of D4.83 billion. Current and capital expenditure rose to D3.3
billion and D1.5 billion compared to D3.0 billion and D1.2 billion respectively in the corresponding period in
2013.
The overall budget balance (including grants) recorded a deficit of D778.5 million (4.0 percent of GDP)
which was financed by both domestic and foreign sources.
External Sector Developments
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Provisional balance of payments estimates indicate an overall surplus of US$10.12 million in the first
quarter of 2014, higher than the deficit of US$4.70 million in the corresponding quarter in 2013. The
current account deficit widened from US$16.70 million in the first quarter of 2013 to US$19.41 million in
the quarter under review. Of the components of the current account, the goods account deficit narrowed
to US$37.30 million compared to a deficit of US$44.5 million in the same period in 2013. Merchandise
exports rose to US$41.1 million, or 101.4 percent. Total imports also rose to US$87.9 million, but at a
slower pace of 25.0 percent.
The surplus in the services account and the transfers account narrowed to US$12.8 million and US$13.5
million compared to US$17.7 million and US$16.0 million respectively in the corresponding quarter in 2013.
Furthermore, the deficit in the income account widened from US$5.9 million to US$8.4 million during the
same period. The capital and financial account, on the other hand, recorded increased surplus from
US$11.97 million to US$29.54 million in the first quarter of 2014.
At end-June 2014, gross international reserves totaled US$163.5 million, equivalent to 4.0 months of
import cover compared to US$176.06 million, or 4.8 months of import cover a year ago.
Volume of transactions in the foreign exchange market decreased to US$1.33 billion in the year to end-July2014, or 10.7 percent from a year earlier. In the year to end-June 2014, the Dalasi depreciated against the
US Dollar by 19.4 percent, Euro (20.8 percent) and Pound Sterling (30.5 percent).
Inflation Outlook
Consumer price inflation, measured by the National Consumer Price Index (NCPI), declined to 5.4 percent
in June 2014, from 5.8 percent in June 2013. Both food and non-food inflation decelerated to 6.2 percent
and 4.4 percent respectively from 6.8 percent and 4.6 percent in June 2013 respectively. However, core
inflation, which excludes the prices of volatile food items and energy, accelerated to 5.5 percent in June
2014 from 3.8 percent a year earlier.
At the last MPC meeting in May 2014, the MPC decided to leave the policy rate unchanged having
assessed the policy stance to be appropriate.
Monetary policy is forward looking because policy actions take time to work their way through the
economy and have their full effect on inflation.
Although headline inflation trajectory has not deteriorated, the MPC sees the risks to the inflation outlook
to be skewed to the upside. Apart from weather-related risks, the sharp depreciation of the Dalasi is
expected to put upward pressure on inflation as higher import prices would pass-through to domestic
consumer prices. In addition, readings of the latest private sector business sentiment survey indicateheightened inflationary expectations which could affect the price behaviour of agents in the economy.
Decision
Against this backdrop, the MPC has decided to increase the policy rate by 2.0 percentage points to 22.0
percent. The MPC would continue to monitor price developments and take appropriate action.
Central Reserve Bank Of Peru :
MONETARY PROGRAM FOR AUGUST 2014
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BCRP MAINTAINED THE REFERENCE INTEREST RATE AT 3.75%
1. The Board of the Central Reserve Bank of Peru approved to maintain the monetary policy reference rate
at 3.75 percent. This level of the reference rate is compatible with an inflation forecast according to which
inflation will converge to the target range in 2014 and to 2.0 percent in 2015. This forecast takes into
account that: i) inflation expectations remain anchored within the inflation target range; ii) GDP continues
to show lower growth rates than the countrys potential level of growth, which is expected to be a
temporary situation; iii) recent indicators show signals of recovery in the U.S. economy, and iv) the supply
factors that led inflation to increase are moderating at a slower pace than expected.
2. Inflation in July showed a rate of 0.43 percent, as a result of which inflation in the last 12 months fell
from 3.45 percent in June to 3.33 percent in July. The rate of inflation excluding food and energy was 0.24
percent, as a result of which the rate of inflation in the last 12 months fell from 2.77 percent in June to 2.73
percent in July. Inflation is forecast to remain initially close to the upper band of the target range due to
the persistent effect of the supply shocks and to converge thereafter to the 2 percent target.
3. Current and advanced indicators of activity continue to show a weaker economic cycle than the one
expected, with lower GDP growth rates than the potential output due mainly to the lower dynamismobserved in investment and exports.
4. The Board oversees the inflation forecasts and inflation determinants, and will implement additional
monetary easing measures if it is necessary.
5. The Board of the Central Bank also approved to maintain the annual interest rates on lending and
deposit operations in domestic currency (not included in auctions) between the BCRP and the financial
system, as described below:
a. Overnight deposits: 2.55 percent.
b. Direct repos and rediscount operations: 4.55 percent.
c. Swaps: a commission equivalent to a minimum annual effective cost of 4.55 percent.
6. The Monetary Program for September will be approved on the Boards meeting of
September 11, 2014.
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The Central Bank of Armenia :
Lowered the refinancing rate by 0.25 percentage points, 6.75% 2014 On August 12, the Central Bank has
decided to reduce refinancing rate by 0.25 percentage point to 6.75%. 2014 July recorded a 0.9% drop from
the previous year. 0.4% increase for the month, while the 12-month inflation rate has decreased to 0.4%
The Board believes that the 12-month inflation in the coming months. Gradually increase in 2015. The first
quarter is expected to stabilize its target indicator surroundings.
The Board notes that geopolitical developments the external sector increased uncertainties
associated with partner economic prospects, but external significant inflationary pressures are expected.
The Council estimates that in 2014.
The second quarter was maintained weak domestic and foreign demand, which contributed to the
low level of inflation formation: August Energy Prices and fourth Quarter of a number of products on the
introduction of compulsory labelling expand somewhat inflationary environment, however, short-term part
of the 12-month inflation still remain below the end of the year the target index, the lower the allowable
variation border monetary policy easing, combined with 2014.
The second half of the expected expansionary fiscal policy, will lead to the expansion of aggregate
demand and inflation rates during the restoration of 2015. However, the Board noted that the external and
internal further adjustments are possible depending on economic developments Monetary policy
directions, providing inflation purpose forecast horizon. Interest rate decisions are based on detailed
information can be published on 22 August Inflation report (2014 monetary policy in the third quarter of
the program).
Reported, the source is required. CBA press service tel / fax. 56 37 61 e-mail. [email protected]
PRESS RELEASE 12.08.2014
The Bank of Korea :
The Monetary Policy Committee of the Bank of Korea decided today to lower the Base Rate by 25 basis
points, from 2.50% to 2.25%.
Based on currently available information the Committee considers that, although the trend of economic
recovery in the US has been sustained, the euro area economic recovery still appears weak, while trends of
economic growth in emerging market countries have differed from country to country. The Committee
forecasts that the global economy will sustain its modest recovery going forward, centering around
advanced economies, but judges that the possibility exists of its being affected by the changes in globalfinancial market conditions stemming from the shift in the US Federal Reserves monetary policy stance, by
the weakening of economic growth in some emerging market countries and by geopolitical risks.
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In Korea, exports have maintained their buoyancy but the Committee judges that improvements in
domestic demand, which had contracted due mainly to the impacts of the Sewol ferry accident, have been
insufficient, and that the consumption and investment sentiments of economic agents also continue to
show sluggishness. On the employment front, the scale of increase in the number of persons employed has
expanded in line with increases in the 50-and-above age group and in the service sector. The Committee
expects that the negative output gap in the domestic economy will gradually narrow going forward,
although its pace of narrowing will be moderate.
Consumer price inflation fell from 1.7% the month before to 1.6% in July, due mainly to increases in the
extents of decline in the prices of agricultural and petroleum products. Core inflation excluding agricultural
and petroleum product prices rose slightly to 2.2%, from 2.1% in June. The Committee forecasts that
inflation will gradually rise, but judges that for the time being inflationary pressures will not be high.
Housing prices in the country excluding Seoul and its surrounding areas showed a slight upward
movement, while leasehold deposit prices both in Seoul and its surrounding areas and in the rest of the
country continued their modest uptrends. In the domestic financial markets, after having risen
substantially owing chiefly to the governments announcement of economic policies, stock prices have
fallen back somewhat due for example to geopolitical risks. The Korean won has depreciated under the
influence of the US dollars strength globally, and long-term market interest rates have fallen. Looking
ahead, the Committee will conduct monetary policy so as to keep consumer price inflation within the
inflation target range over a medium-term horizon while supporting the recovery of economic growth. In
this process it will closely monitor external risk factors such as shifts in major countries monetary policies,
changes in economic agents sentiment and movements of future economic indicators including the
household debt trend, while observing the effects of this months Base Rate cut and the governments
economic policies.
Indonesias Central Bank :
It was decided at the Board of Governors Meeting, convened on 14th August 2014, to hold the BI rate at a
level of 7.50%, with the lending facility and deposit facility rates maintained at 7.50% and 5.75%
respectively. Such policy is consistent with efforts to guide inflation towards its target corridor of 4.51% in
2014 and 4.01% in 2015, as well as reduce the current account deficit to a more sustainable level. Bank
Indonesia acknowledges the ongoing economic rebalancing process, underpinned by tenacious
macroeconomic stability, as corroborated by moderating domestic demand and falling inflation despite a
burgeoning current account deficit in line with seasonal trends during the second quarter of 2014. Looking
ahead, there remain a number of external and domestic risk factors that demand vigilance due to their
potential to undermine achievement of the inflation target and delay improvements in the current
account. To this end, Bank Indonesia will continue to strengthen its monetary and macroprudential policy
mix along with policies to bolster the structure of the domestic economy and manage external debt, in
particular corporate external debt. Furthermore, Bank Indonesia will also tighten policy coordination with
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the Government with respect to controlling inflation and reducing the current account deficit in order to
ensure economic rebalancing continues unimpeded by maintaining sustainable economic growth moving
forward.
Internationally, BI assessments indicate that the global economic recovery continued during the reporting
period. Supported by economic momentum in advanced countries as accommodative monetary policy
endured and fiscal pressures eased. Revised up GDP figures for the first quarter of 2014 along with sound
actual GDP data in the subsequent quarter indicate growing traction in the US recovery as investment,
consumption and the external sector expand. Meanwhile, economic growth in developing countries is
expected to remain relatively limited, thereby exacerbating the ongoing downward trend in international
commodity prices. Economic growth in China picked up during the second quarter of 2014 due to the
stimuli introduced. Looking forward, a number of global risks require monitoring, for instance the
normalisation policies of the Federal Reserve and Bank of England, as well as the risk of spillover and
spillback from sluggish emerging market economies.
Domestically, the economy cooled off during the second quarter of 2014 due to a contraction in exports,
specifically natural resource based commodities. The domestic economy expanded by 5.12% (yoy) in the
second quarter of 2014, down from the 5.22% (yoy) posted in the preceding quarter as a result of weaker
export performance of natural resource based commodities, such as coal, CPO and minerals. Such
conditions are evidenced by regional economic performance, with torpid economic conditions in the
second quarter stemming from plantations and mines on the islands of Sumatra and Kalimantan.
Concerning domestic demand, the economic slowdown is primarily attributable to a contraction in
government spending due to the postponement of social assistance disbursements, coupled with sluggish
non-construction investment activity. Notwithstanding, dogged household consumption bolstered
economic growth in the second quarter of 2014, credited to activities associated with the presidential
election as well as maintained public purchasing power in line with lower inflation. Moving forward,economic growth is projected to continue moderating as domestic demand wanes despite stronger export
performance. In general for 2014, the domestic economy is expected to expand in line with the previous BI
projection of 5.1-5.5%, with a bias towards the lower end of the range.
The Indonesia balance of payments improved in the second quarter of 2014 despite a growing current
account deficit. The surplus Indonesia balance of payments was supported by stronger capital and financial
account performance. The current account deficit was USD9.1 billion (4.27% of GDP) in the second quarter
of 2014, which is down on the deficit reported in the same period of the previous year at USD10.1 billion
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(4.47% of GDP) in accordance with stabilisation policy instituted by Bank Indonesia and the Government
but up dramatically from the USD4.2 billion (2.05% of GDP) reported in the previous quarter in line with
seasonal trends. The growing non-oil/gas trade surplus was again insufficient to offset the burgeoning oil
and gas trade deficit. Furthermore, exports of commodities such as coal, CPO and minerals experienced a
decline in line with moderating economic growth in emerging market countries along with enforcement of
the Mineral and Coal Mining (Minerba) Act. Conversely, manufacturing exports such as automotive, textiles
and clothing continued to expand as recoveries persisted in advanced countries. Imports of consumer
goods and oil remained high in the second quarter of 2014 in line with strong demand in the approach to
Ramadan and Eid-ul-Fitr. Meanwhile, servicing external debt and repatriation of dividends/coupons, which
increased in line with seasonal trends in the second quarter, aggravated pressures on the current account
deficit. In terms of the capital and financial accounts, a larger surplus than that registered in the preceding
quarter was reported due to a surge in portfolio investment inflows and FDI in line with the favourable
perception of investors regarding the domestic economic outlook. Consequently, foreign exchange
reserves in Indonesia swelled to US$110.5 billion, equivalent to 6.4 months of imports or 6.2 months of
imports and servicing external debt, which is well above international adequacy standards of around three
months. The current account deficit is expected to recover in upcoming quarters as manufacturing exports
rebound and exports of minerals recommence, accompanied by a deceleration of non-oil/gas imports.
The rupiah experienced depreciatory pressures but volatility was mitigated. Point to point, in the second
quarter of 2014 the rupiah declined by 4.18% (mtm) to a level of Rp11,855 per US dollar, while on average
the rupiah appreciated during the reporting period 1.76% to Rp11,629 per US dollar. Strong corporate
demand in harmony with seasonal trends that favour servicing external debt and repatriating
dividends/coupons placed additional pressures on the rupiah. Additionally, the wait-and-see attitude of
investors concerning the results of the presidential election, coupled with external conditions such as
geopolitical tensions in Ukraine and the ongoing conflict in Iraq, also affected rupiah performance. In July
2014, the rupiah appreciated on the back of a peaceful and orderly presidential election. On average, the
rupiah strengthened 1.8% (mtm) to a level of Rp11,682 per US dollar, compared to 2.4% point-to-point,
and closed at a level of Rp11,578 per US dollar. Looking ahead, Bank Indonesia will consistently maintain
rupiah exchange rates in accordance with its fundamental value.
Inflation was controlled and continued to follow a downward trend, thereby supporting achievement of
the inflation target in 2014, namely 4.51%. Headline inflation in the second quarter of 2014 was recorded
at 6.70% (yoy), down from 7.32% (yoy) posted in the previous quarter. Controlled inflation endured into
July 2014, at a rate of 0.93% (mtm) or 4.53% (yoy), which is relatively low compared to the seasonal
average during Ramadhan over the past three years. Lower inflation is credited to less intense inflationary
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pressures on volatile foods along with controlled core inflation. Inflation of volatile foods eased as supply
increased upon the arrival of the harvest season at a number of production centres. Meanwhile,
moderating domestic demand, minimal international price pressures and well-anchored inflation
expectations helped control core inflation. There remain several risk factors that require vigilance, for
instance potential corrections to administered prices such as electricity rates as well as rising food prices.
Solid financial system stability was supported by banking system resilience and relatively well maintained
financial market performance during the reporting period. Banking industry resilience was resolute, with
credit risk, liquidity risk and market risk all well mitigated and supported by a sound capital base. At the
end of the second quarter of 2014, the Capital Adequacy Ratio (CAR) of the banking industry was high at
around 19.40%, which is well above of the minimum 8% threshold. In addition, non-performing loans (NPL)
were low and stable at around 2.00%. Credit growth to the private sector decelerated to 16.6% (yoy) from
19.1% (yoy) in the previous quarter in line with the ongoing economic rebalancing process. Sound liquidity
conditions in the economy and banking industry were maintained during the reporting period, as reflected
by growth of M2 and deposits that expanded 13.1% (yoy) and 13.6% (yoy) respectively, accompanied by
relatively stable interest rates on the money market. Tight liquidity was experienced at several banks,
especially those pursuing aggressive expansion strategies and due to internal conditions, which helped
drive healthy competition for funds and raised bank interest rates. Meanwhile, the capital market
performed well during the second quarter and July of 2014, substantiated by gains in the JSX Composite.
Bank Indonesia will continue to coordinate with the Financial Services Authority (OJK) to maintain future
financial system stability, thereby supporting more balanced and sustainable economic growth.
Jakarta, 14th August 2014 Communication Department
Bank of Uganda :
Monetary Policy Statement 14th
August 2014
Inflation remains subdued. Annual Headline inflation edged down in the last three months to July 2014 dueto food crop inflation that has averaged minus 5.1 percent month-on-month. Core inflation averaged 3.1
percent in the same period, which is below the Bank of Ugandas (BoU) medium-term target of 5 percent.
In July 2014, annual Headline inflation declined to 4.3 percent from 5.0 percent in June 2014, largely on
account of a decline in food inflation, which fell from 17.2 percent to 12.9 percent during the same period.
Monthly core inflation has picked up slightly in the past 3 months mainly as a result of exchange rate
depreciation.
The latest economic indicators suggest that the domestic economy continues to register favourable
performance and economic growth is projected to be in the range 5.56.5 percent in FY 2014/15. Over
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the last twelve months, lending interest rates have declined somewhat and private sector credit has picked
up strongly.
The expansionary financial conditions continue to have the expected effects on the economy as reflected in
the strengthening of private consumption growth. Going forward, I expect economic growth momentum to
be sustained, anchored by domestic demand with additional support from the improved external
environment.
The key uncertainties for the domestic economy continue to be centred on the timing and extent of the
pickup in domestic investment and the prospects for export demand. It is possible that consumption and
investment could be stronger than expected. In addition, there are external risks as the global economic
outlook remains subject a considerable degree of uncertainty. Prospects for global economic activity in
2014 are weaker than earlier anticipated but are expected to gather momentum in 2015. Financial and
commodity markets also remain vulnerable to instability as geopolitical risks remain elevated.
The BoU macroeconomic forecasts remain unchanged since the last Monetary Policy Committee meeting.
Core inflation is forecast to remain in the range of 4 - 5 percent in the third quarter of 2014, increasing to
5.56.5 percent over the next 12 months. Given the assessment, the BOUs judgement is that the current
monetary policy stance is appropriately configured to foster sustainable growth in demand and inflation
outcomes consistent with the medium term target of 5 percent. Therefore, the BOU will maintain the
Central Bank Rate (CBR) at 11.0 percent in August - September 2014. The band on the CBR will be
maintained at +/-2 percentage points and the margin on the Rediscount rate at 3 percentage points on the
CBR. Consequently, the Rediscount rate and the Bank rate for August-September 2014 will remain at 14.0
percent and 15.0 percent, respectively.
The BoU will continue to carefully assess the evolution of risks to the global and domestic economy and the
implications of these risks for the overall outlook of domestic inflation and growth. Any future changes in
the monetary policy stance will be guided by the implications of domestic and external macroeconomic
conditions on the inflation outlook.
Central Bank of Chile :
In its monthly monetary policy meeting, the Board of the Central Bank of Chile decided to lower the
monetary policy interest rate by 25 basis points, to 3.75% (annual).
Internationally, incoming information confirms the outlook of recovery of the developed economies,
particularly the United States, while growth forecasts for emerging markets have deteriorated. External
financial conditions have remained favorable. With respect to commodity prices, an increase in the copper
price stands out, while agricultural prices have declined. Higher inflation in Latin America contrasts with thelow inflation rates that still prevail in developed economies.
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Local economic indicators show that the pace of expansion of output and demand has slowed further. The
drop in investment was compounded by a slowdown in private consumption. Despite signs of less
dynamism in the labor market, the unemployment rate remains low. In June, headline inflation reached
4.3% annually and core inflation measures declined. Y-o-y growth in nominal wages accelerated. Medium-
term inflation expectations remained around 3% annually.
The most likely scenario continues to consider that inflation will stay above the upper bound of thetolerance range still for some months, and then return to the target. This evolution will continue to be
monitored with special attention.
The Board will consider the possibility of making additional cuts to the monetary policy rate in line with the
evolution of domestic and external macroeconomic conditions and its implications on the inflationary
outlook. At the same time, the Board reiterates its commitment to conduct monetary policy with flexibility,
so that projected inflation stands at 3% over the policy horizon. Data released on : 15 July 2014
The Central Bank of Sri Lanka :
Monetary Policy ReviewAugust 2014
Headline inflation continued to remain in low single digit levels, although it increased to 3.6 per cent on a
year-on-year basis in July 2014 from 2.8 per cent in the previous month reflecting higher prices of certain
food items caused by adverse weather conditions. Meanwhile, core inflation, which reflects underlying
price movements, rose marginally to 3.7 per cent in July compared to 3.5 per cent in June 2014. Although
supply disturbances triggered by adverse weather conditions could cause temporary price fluctuations, the
outlook for inflation remains benign supported by relatively stable international commodity prices as well
as well contained demand pressures and inflation expectations.
Market interest rates have continued to adjust downwards in response to monetary policy measures taken
by the Central Bank in the recent past. Reflecting the impact of the low inflation environment, the
secondary market yield curve for Government securities has shifted downwards.
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Short term interest rates, including the average weighted prime lending rate (AWPR) have decreased to
historic low levels while longer term lending rates such as interest rates on housing loans and leasing are
adjusting downwards as expected. Deposit rates, which fell in tandem with policy interest rates, appear to
have stabilised at their new levels. Continued low inflation has enabled depositors to receive a positive real
interest rate on deposits while encouraging financial institutions to introduce new products offering long
term benefits to savers.
The growth of broad money (M2b) on a year-on-year basis was 13.3 per cent in June 2014 in comparison to
13 per cent in the previous month. Credit obtained by the private sector rose by Rs. 8 billion in June,
although on a year-on-year basis, private sector credit growth decelerated to 2 per cent by end June 2014.
Credit obtained by the private sector is expected to increase gradually with high levels of liquidity in the
domestic money market, low short term lending rates and declining longer term rates.
Considering available information for the first half of the year, real economic growth is likely to remain
broadly on target in 2014. Nevertheless, reflecting the continued low inflation environment, the Implicit
GDP Deflator is expected to be lower than the originally projected level of 6 per cent, and consequently,
nominal GDP growth is expected to be lower than the initially projected rate of 14.3 per cent. Accordingly,
the Central Bank expects broad money to grow by around 13 per cent, on a year-on-year basis by end
2014, compared to the previously expected 14 per cent for 2014.
The external sector strengthened further in recent months supported by timely and appropriate policies of
the Central Bank and the Government. Favourable developments in exports observed from June 2013 are
expected to continue during the remainder of 2014.
Higher inflows attributed to rising workers remittances and receipts from tourism along with the lower
trade deficit have positively impacted the external current account. Consequently, gross official reserves
surpassed the historic milestone of US dollars 9 billion, and currently stand at around US dollars 9.2 billion.
In the meantime, the Central Bank has purchased over US dollars 1 billion from the domestic foreign
exchange market on a net basis so far during the year.
In this background, the Monetary Board, at its meeting held on 14th of August 2014, decided to maintain
the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank
unchanged at their current levels of 6.50 per cent and 8.00 per cent, respectively.
The date for the release of the
next regular statement on
monetary policy would be
announced in due course.Monetary Policy Decision:
Policy rates unchanged
Standing Deposit Facility Rate
(SDFR)
6.50%
Standing Lending Facility Rate
(SLFR)
8.00%
Statutory Reserve Ratio (SRR) 6.00%
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The Bank of Botswana :
The meeting of the Monetary Policy Committee held on August 15, 2014 concluded that the
medium-term outlook for price stability remains positive, with inflation forecast to remain within
the 36 percent objective range.
Economic Outlook and Assessment of Risks
Global output is estimated to have grown by 3 percent in 2013 and is projected to increase by 3.6
percent in 2014 and 3.9 percent in 2015, buoyed by improved growth in advanced economies and
continuing strong performance in emerging markets. However, overall GDP growth remains
moderate, with subdued demand and capacity underutilisation in major economies, as well as the
high unemployment rates that continue to constrain worldwide inflation.
Botswanas output growth is estimated at 5.9 percent in the twelve months period to March 2014,
thus reflecting the 14.2 percent and 4.6 percent increase in mining and non-mining output,
respectively. It is anticipated that non-mining economic activity will be below potential in the
medium term. The impact of domestic demand on economic activity is projected to be modest,
largely indicating trends in government expenditure and personal incomes.
Inflation eased marginally from 4.6 percent in June to 4.5 percent in July 2014. Weak domestic
demand and the projected benign external price developments result in a positive inflation
outlook for the medium term. However, this outlook could be adversely affected by any
unanticipated large increase in administered prices and government levies as well as international
oil prices that are higher than currently forecast.
Monetary Policy Stance
The current state of the economy, domestic and external economic prospects, and the inflation
outlook, suggest that the current monetary policy stance is consistent with maintaining inflation
within the Banks 3 6 percent objective in the medium term. Accordingly, the Monetary Policy Committee
decided to maintain the Bank Rate at 7.5 percent.
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The Central Bank of Iceland :
The Monetary Policy Committee (MPC) of the Central Bank of Iceland has decided to keep the Banks
interest rates unchanged. According to the Banks updated forecast, published today, the outlook for the
real economy over the next three years is broadly similar to that described in the May issue of Monetary
Bulletin. However, the outlook is for slightly stronger growth in domestic demand this year and throughout
the forecast horizon.
The inflation outlook has improved somewhat since May, and it now appears that inflation will remain
close to target during the forecast horizon. A positive output gap is forecast to develop later than was
assumed in the last forecast and will be less pronounced. Inflation expectations have changed little in the
recent past, and long-term expectations are still above target.
The Banks foreign exchange transactions in the past year have contributed to greater exchange rate
stability. This year the Bank has bought significantly more foreign currency than it has sold, in both regular
and ad hoc purchases. The Bank intends to continue its regular purchases in the current amount as long asconditions remain relatively unchanged. As before, the Bank will intervene in the foreign exchange market
as needed to mitigate exchange rate volatility.
The slack in the monetary policy stance has probably disappeared, and it appears, based on the Banks
baseline forecast, that the current interest rate will suffice to keep inflation at target. Robust
growth in domestic demand in the near term and growing tension in the labour market could generate
increased inflationary pressures, however, and necessitate an increase in the Banks nominal interest.
20th
August 2014.
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