Dominican Rep. Holds Rate as Past Easing Boosts Demand

This article was originally published on CentralBankNews.info on November 30, 2019. It is reproduced here with permission from the author.

The Central Bank of the Dominican Republic (BCRD) left its monetary policy rate steady at 4.50 percent for the third month, saying domestic demand is continuing to react favorably to the expansive monetary policy measures it has taken since June and energized private credit, which has risen 11 percent so far this year and 12 percent in the last 12 months.

BCRD cut its policy rate three times in a row by a total of 100 basis points in June, July and August and released more than 34 billion Dominican peso in legal reserves to productive sectors.

Economic activity has improved with growth of 5.2 percent year-on-year in October following 5.1 percent growth in September for average growth in the first 10 moths of 4.8 percent.

“The dynamism that economic activity has registered in recent months will contribute to economic growth of around its 5.0 percent potential by the end of the year, ” BCRD said, confirming its forecast from September after a monetary policy meeting on Nov. 29.

Inflation in the Dominican Republic rose to 2.48 percent in October from 2.02 percent in September but remains below BCRD’s lower limit of its target range of 4.0 percent, plus/minus 1 percentage point.

The Dominican peso fell fast between mid-September and mid-October but since then it has firmed slightly. Today it was trading at 52.9 to the U.S. dollar, down 4.7 percent this year.

The central bank said the exchange rate had been relatively stable, depreciating less than the average Latin American currency and emerging economies due to the strength of macroeconomic fundamentals and the credibility of economic policies.

This article was originally published on CentralBankNews.info on November 30, 2019. It is reproduced here with permission from the author.

Trinidad & Tobago Holds Rate, Low Credit Demand, Inflation

This article was originally published on CentralBankNews.info on September 27, 2019. It is reproduced here with permission from the author.

The Central Bank of Trinidad and Tobago (CBTT) left its benchmark repo rate steady at 5.0 percent in light of slowing global growth, easier monetary policy by major central banks, low inflation, sluggish demand for business credit, an external balance that has yet to be restored, and an economic recovery that is not broad based.

CBTT, which has kept its rate steady since raising it in June 2018, said natural gas production was starting to normalize after being hit by unplanned shutdowns and crude oil output was steady, but expected spillovers from higher government spending on manufacturing and private consumption were not yet evident.

Trinidad & Tobago’s economy contracted 2.1 percent in the fourth quarter of last year, larger than a contraction of 1.6 percent in the third quarter, and in July S&P Global Ratings downgraded the country’s sovereign credit rating to BBB from BBB+ based on lower-than-expected energy production and economic growth that would weaken the government’s revenue base and delay its plans to balance its budget.

Credit extended to the private sector rose “moderately” to 4.5 percent in July from 3.5 percent in March, but CBTT said business credit had declined by 2.8 percent year-on-year, although this was shallower than in previous months.

Inflation in Trinidad and Tobago is “well contained,” according to CBTT, with annual inflation of 1.2 percent in August, up from 1.1 percent in previous three months, but severe flooding in September is likely to lead to a further uptick in some prices.

The Central Bank of Trinidad and Tobago issued the following statement:

“International economic conditions remain delicate amidst rising global risks. In addition to ongoing trade tensions between the United States and China, rising geopolitical pressures in the Middle East threaten stability in oil markets, while Brexit discussions in the UK are coming to a head. The International Monetary Fund, in its July 2019 World Economic Outlook Update, revised global growth projections for 2019 further downward by 0.1 per cent to 3.2 per cent. Since then, faced with a slowdown of the US economy, the US Federal Reserve cut the Federal funds rate by 25 basis points in July and September 2019. These actions precipitated policy rate cuts by several central banks, which eased capital outflow and exchange rate pressures, especially among emerging market and developing economies. Meanwhile, in global energy markets over the past few months the price of oil trended higher surpassing US$60 per barrel in September while the price of natural gas remained relatively stable. 

Domestically, unplanned shutdowns at Atlantic LNG during the second quarter of 2019 adversely impacted natural gas production, while crude oil production had stabilized at just over 59 thousand barrels per day. Heading into the third quarter, preliminary data suggest that natural gas production has normalized and crude oil output remained steady. In the non-energy sector, preliminary data for indicators monitored by the Central Bank point to improved performances in the distribution and finance sectors during the second quarter. However, the expected spillovers from the pick-up in government capital spending on the manufacturing and private construction sectors are not yet evident.

Data from the Central Statistical Office show that headline inflation remained well contained at 1.2 per cent in the twelve months to August 2019. Core inflation was anchored at 1.0 per cent, but higher prices for vegetables (10.9 per cent) caused food prices to accelerate to 2.0 per cent – the highest rate of increase thus far for 2019. It is likely that severe flooding in September would lead to a further uptick in the price of some domestic produce. Meanwhile, labour market conditions may be softening. Data from the Ministry of Labour, Small and Micro Enterprises showed that the number of persons retrenched during the first six months of 2019 rose on a year-on-year basis.

Private sector credit extended by the consolidated financial system expanded moderately to 4.5 per cent in July 2019 (year-on-year) compared with 3.5 per cent in March 2019. However, business credit continued to decline (-2.8 per cent), but the fall-off was shallower than in previous months. Consumer credit, driven by double-digit increases in lending for debt consolidation and refinancing, grew by 6.5 per cent and real estate mortgage loans increased by a steady 8.6 per cent. Commercial banks’ daily excess reserves at the Central Bank have averaged just over $4.5 billion thus far in September 2019 after somewhat tighter conditions earlier in the year. The Central Bank has had to carefully balance the public sector’s financing requirements and credit and inflationary conditions in calibrating its liquidity operations. As such, net maturities of open market operations injected $2,180 million into the financial system during June-August 2019.

Although declining US rates have improved the interest rate gap between short term TT-US treasury securities, the differential for three-month instruments remained below parity at -67 basis points at the end of August 2019. Meanwhile, there continues to be some disequilibrium in the foreign exchange market and the Central Bank maintained its fortnightly sales of foreign currency to authorised dealers.

The Monetary Policy Committee (MPC) in its deliberations considered the changes in the external environment, especially slowing global growth and policy actions by major central banks. Locally, the available indicators suggest that the economic recovery is not yet broadbased, inflation remains low, the demand for business credit is sluggish and external balance has not yet been restored. Taking these factors into consideration, the MPC agreed to maintain the repo rate at 5.00 per cent. The Bank will continue to carefully monitor and analyze international and domestic developments.

The next Monetary Policy Announcement is scheduled for December 27, 2019.”

This article was originally published on CentralBankNews.info on September 27, 2019. It is reproduced here with permission from the author.

Jamaica Holds Rate But May Cut If Inflation Decelerates

This article was originally published on CentralBankNews.info on September 30, 2019. It is reproduced here with permission from the author.

Jamaica’s central bank left its policy rate steady at 0.50 percent as it considers monetary conditions appropriate for inflation to reach its target but warned that if “downside risks to inflation materialize, the Bank stands ready to implement additional measures to meet the inflation target.”

The Bank of Jamaica (BOJ) has lowered its policy rate 12 times and by a total of 325 basis points since July 2017 – including 4 times and by 125 points this year – when it adopted a new monetary policy framework that made the overnight deposit rate the new policy rate.

BOJ said its latest 50 basis points rate cut in August was aimed at mitigating the risk that inflation would fall below its target in the next 2 years and it now considers the risks to inflation to be skewed upwards, which implies the inflation forecast is likely to be revised upwards from its August forecast.

Jamaica’s inflation rate eased to 4.1 percent in August from 4.3 percent in July, in the lower end of the bank’s inflation target of 4.0 to 6.0 percent.

In August BOJ forecast inflation would decelerate to 3.7 percent in September and then accelerate toward the middle of the target in the fourth quarter in light of an expected rise in food prices.

But between the March 2020 quarter and the June 2020 quarter, inflation was expected to remain below 5.0 percent midpoint target due to lower energy prices and low inflation among the country’s trading partners.

But agricultural prices are likely to be revised upwards and inflation may also be driven up by higher-than-expected growth in credit to the private sector, reflecting a stronger-than-expected impact of past monetary policy easing.

Economic growth is expected to remain below its potential in the next 2 years, partly due to a temporary closure of a alumina plant while weaker global growth represents a risk that economic growth in Jamaica will be lower than projected.

Jamaica’s gross domestic product grew by an annual 1.7 percent in the first quarter of this year, down from 2.0 percent in the previous quarter.

Earlier this month staff from the International Monetary Fund completed its 6th and final review of Jamaica its economic reform program that gives the country access to an additional US$220 million credit as part of $1.63 billion in precautionary funds.

While the IMF congratulated Jamaica for the successful completion of the reform program, which has lowered unemployment, debt, inflation and taxes, it also said the country’s short-term outlook was clouded by the closure of the Alpart mine due to investment upgrades.

The Bank of Jamaica released the following statement:

“Bank of Jamaica announces its decision to hold the policy interest rate (the rate offered on overnight balances at Bank of Jamaica) unchanged at 0.50 per cent per annum.

The decision to hold the policy rate unchanged is based on the Bank’s current assessment that monetary conditions are generally appropriate to support the achievement of the inflation target of 4.0 per cent to 6.0 per cent over the ensuing four to eight quarters. Bank of Jamaica will therefore continue to closely monitor the impact of the significant monetary loosening on credit expansion, and consequently, on investment and economic growth. However, should the downside risks to inflation materialise, the Bank stands ready to implement additional measures to meet the inflation target.

Inflation

Annual inflation at August 2019, as reported by the Statistical Institute of Jamaica, was 4.1 per cent, down from 4.3 per cent at July 2019 but higher than the 3.9 per cent recorded at August 2018. The August 2019 outturn is in line with Bank of Jamaica’s forecast and represents the fourth month in a row that annual inflation fell within the Bank’s target of 4.0 per cent to 6.0 per cent, albeit below the mid-point of 5.0 per cent. Underlying or core inflation, however, remained low at 2.4 per cent.

At its assessment in August 2019, Bank of Jamaica’s forecast anticipated that inflation would decelerate to 3.7 per cent at September 2019 before accelerating towards the middle of the target in the December 2019 quarter, given expectations for higher food prices in the context of hot, dry weather conditions. Over the March 2020 to June 2021 quarters, inflation was projected to remain below the mid-point of the Bank’s target, mainly reflecting the impact of lower energy prices and low inflation among Jamaica’s main trading partners. The Bank’s policy action to reduce the policy rate by 25 bps to 0.50 per cent in August 2019 was aimed at mitigating the risk that inflation would fall below the target at various points over the next eight quarters.

Bank of Jamaica’s current assessment is that the risks to the August 2019 inflation forecast are skewed upwards. This implies that the inflation forecast is likely to be revised upwards, within the target range. Agricultural prices are likely to be revised upwards over the near-term given recent weather-related shocks. Inflation may also be affected by higher than projected growth in credit to the private sector, reflecting a stronger-than-anticipated impact of past monetary policy easing. The main risks that could cause inflation to be lower than expected include lower than previously anticipated imported inflation and lower external demand.

Other Economic Variables

At its assessment in August 2019, Bank of Jamaica’s forecast anticipated that over the next eight quarters the Jamaican economy is likely to continue to reflect some slack (that is, projected GDP growth being lower than Bank of Jamaica’s estimate of potential GDP growth). The imminent temporary closure of the Alpart alumina plant will result in a fall in production in the mining sector and GDP growth over the next eight quarters. Non-mining GDP is however likely to continue to reflect stable growth. Weaker global growth in the context of the intensification of global trade tensions represents a risk that GDP growth in Jamaica will be lower than projected. The main upside risk to GDP growth emanates from the impact of the Bank’s accommodative monetary policy over the last eight quarters.

Other macroeconomic indicators continue to be positive. Foreign reserves remain above levels deemed to be adequate, market interest rates remain low, the current account of the balance of payments remains sustainable, labour market conditions are improving and the fiscal performance continues to be strong.

The next policy decision announcement date is 19 November 2019.”

This article was originally published on CentralBankNews.info on September 30, 2019. It is reproduced here with permission from the author.

Mexico Cuts Rate 25 BPS, Two Vote For 50 BPS Cut

This article was originally published on CentralBankNews.info on September 26, 2019. It is reproduced here with permission from the author.

Mexico’s central bank lowered its benchmark interest rate for the second month in a row, citing the decline in inflation, ample slack in the economy and lower domestic interest rates, factors that are consistent with the convergence of inflation to its target.

The Bank of Mexico (Baxico) cut its target for the overnight interbank interest rate by another 25 points to 7.75 percent and has now cut it by 50 points this year following a similar cut in August, when the rate was cut for the first time in just over 5 years.

Between December 2015 and December 2018 Banxico raised its rate 15 times to curb inflation from a peso that was weakened by the rising U.S. dollar and higher U.S. interest rates.

But in the wake of the U.S. Federal Reserve’s pivot toward easier monetary policy in January this year, Banxico also shifted its policy stance

The bank’s governing board was split in its decision, with 2 of its members voting to cut the rate by 50 basis points.

“The current environment continues to pose significant risks that could affect the country’s macroeconomic conditions, its ability to grow, and the economy’s price formation process,” Banxico said, calling on measures to address the deterioration of the credit ratings of both Mexico and Pemex, and the achievement of fiscal targets for 2019 and 2020.

Mexico’s inflation rate dropped to a 2019-low of 3.16 percent in August from 3.78 percent in July, continuing the decline since hitting 5 percent in September 2018 and 7 percent in December 2017.

The Bank of Mexico issued the following statement:

“Banco de México’s Governing Board has decided to lower the target for the overnight interbank interest rate by 25 basis points to 7.75%.

Available information suggests that the moderation of world economic growth continued during the third quarter of the year. Likewise, the outlook for global growth has continued to be revised downwards, in an environment where headline and core inflation in the main advanced economies are below their central banks’ targets. In this context, several central banks have loosened their monetary policy stances. In its September meeting, the US Federal Reserve cut the target range for the federal funds rate by 25 basis points. The European Central Bank also implemented several monetary policy easing measures. During this period, episodes of volatility in financial markets have taken place, mainly associated with trade tensions between the United States and China, although they have recently diminished. The world economy also faces other political and geopolitical risks. Thus, the balance of risks for world economic activity remains biased to the downside.

Domestic financial markets have reflected the effects of lower interest rates for all terms in the main advanced economies as well as episodes of volatility with exchange rate adjustments, although these have diminished over the last weeks. In this regard, interest rates on government securities for all terms have continued to decrease. Regarding the risks that may affect the performance of financial assets in Mexico, uncertainty persists with respect to the bilateral relationship between Mexico and the United States and to the credit rating outlook both for Pemex’s debt and for Mexico’s sovereign debt.

The current environment continues to pose significant risks that could affect the country’s macroeconomic conditions, its ability to grow, and the economy’s price formation process. In this regard, it is particularly important that, in addition to a prudent and firm monetary policy, measures to foster an environment of confidence and certainty for investment and higher productivity are adopted, and that public finances are consolidated in a sustainable way. In this context, addressing the deterioration of both the sovereign’s and Pemex’s credit ratings as well as achieving both the fiscal targets for 2019 and the goals set in the 2020 Economic Package are necessary. Strengthening the rule of law, tackling corruption, and fighting insecurity are equally imperative.

Although economic activity in the previous quarters and in July remained stagnant, it is expected to recover slightly over the rest of the year. Slack conditions in the economy during the early part of the quarter remained at levels similar to those of the previous one, with a persistent negative output gap. In an environment of significant uncertainty, the balance of risks for growth remains biased to the downside.

Between July and the first fortnight of September, headline inflation fell from 3.78% to 2.99%, due mainly to a decline of the non-core component, which went from 3.64% to 0.57%, reflecting the lower increases of energy, agricultural and livestock product prices. Core inflation has remained persistent around 3.8%. As for inflation expectations from surveys, short-term expectations have followed the latest data, while longer term ones have remained relatively stable, although at levels above 3%.

As for upside inflation risks, core inflation may continue to show persistence and there is the possibility that the exchange rate comes under pressure stemming from external or domestic factors. Should the economy require an adjustment of the real exchange rate, Banco de México will contribute to an orderly process, preventing second-round effects on the economy’s price formation process. Additional risks are the threat by the United States to impose tariffs on Mexican imports and the adoption of compensatory measures, although this risk has dissipated somewhat; that energy prices or agricultural and livestock product prices increase; weak public finances; and that global protectionist measures escalate. In addition, given the magnitude of various wage revisions, that cost-related pressures arise, insofar as such revisions exceed productivity gains. Regarding downside risks, the peso exchange rate may appreciate, possibly associated with a context of more accommodative monetary policy stances and lower interest rates worldwide, or in case greater certainty arises regarding the trade relation with the United States. Another downside risk is that the prices of certain goods included in the non-core subindex register lower rates of change. In addition, that slack conditions widen more than anticipated, which would impact the behavior of core inflation. Given the aforementioned, high uncertainty still persists regarding the risks that might affect inflation. In this context, Banco de México will be alert to the possible materialization of inflation risks, both to the downside and to the upside.

To guide its monetary policy actions, Banco de México’s Governing Board follows closely the development of inflation vis-à-vis its forecasted trajectory, taking into account the monetary policy stance and the time frame in which monetary policy operates. In this process, it uses available information on all inflation determinants as well as on medium- and long-term inflation expectations, including the balance of risks for such factors. Monetary policy must also act prudently if for any reason the uncertainty faced by the economy increases significantly. In this context, considering the reduction of headline inflation, the ample slack in the economy, and the recent behavior of external and domestic yield curves, Banco de México’s Governing Board decided by majority to lower the target for the overnight interbank interest rate to 7.75%, taking into account that under the current environment such level is consistent with the convergence of headline inflation to the central bank’s target within the time frame in which monetary policy operates. Two members voted for lowering said target to 7.50%. In order to consolidate a low and stable inflation, in an environment in which price formation and slack conditions in the economy are subject to risks, the Governing Board will continue to follow closely all factors and elements of uncertainty that have an impact on inflation and its outlook, and will take the required actions based on incoming information so that the policy rate is consistent with the orderly and sustained convergence of headline inflation to Banco de México’s target within the time frame in which monetary policy operates.

Banco de México’s Governing Board will maintain a prudent monetary policy stance and, under the current environment of uncertainty, will follow closely the potential pass-through of exchange rate fluctuations to prices, Mexico’s monetary policy stance relative to that of the U.S.-in an external environment that it is still subject to risks- and the behavior of slack conditions and cost-related pressures in the economy. In the presence and possible persistence of factors that, by their nature, involve risks to both inflation and its expectations, monetary policy will be adjusted in a timely and firm manner to achieve the convergence of inflation to its 3% target and to strengthen the anchoring of medium- and long-term inflation expectations so that they attain such target.”

This article was originally published on CentralBankNews.info on September 26, 2019. It is reproduced here with permission from the author.

Chile Cuts Rate Another 50 BPS, More Cuts May Be Needed

This article was originally published on CentralBankNews.info on September 4, 2019. It is reproduced here with permission from the author.

Chile’s central bank lowered its monetary policy rate by another 50 basis points to 2.0 percent and said further monetary stimulus might be required to boost inflation amid disappointing domestic activity and the escalating trade conflict between the U.S. and China that is affecting other economies that are integrated into value chains and financial markets.

It is the second rate cut by the Central Bank of Chile this year following a similar-sized cut in June and the policy rate has now been cut 100 basis points this year, putting the rate at a level not seen since August 2010.

The rate cut was widely expected following the central bank’s guidance in July that it may be necessary to ease further if the current trends continue, with the size of any easing to be assessed in connection with the September monetary policy report, which will be released on Sep. 4.

“The board’s decision considers that the economy’s performance of the second quarter and its outlook indicated that inflation will take longer to converge to the target, calling for stronger monetary stimulus,” the central bank said, adding:

“It also estimates that further stimulus might be required, which will be evaluated in the upcoming meetings in light of the evolution of the macroeconomic scenario.”

Unlike its cut in June, the board was unanimous in today’s decision to cut the rate. In July a majority of its board decided to maintain the rate.

“The main development since the previous meeting has been the worsening of the external scenario,” the central bank said, adding global trade volume has virtually stagnated and the impact of the U.S.-Sino trade conflict is compounded by likelihood of the U.K.’s non-deal exit from the European Union and the severe deterioration of the situation in Argentina.

As the world’s largest copper producer, Chile’s economy has been hit by falling demand and a slump in prices for for copper since June last year, with economic growth slowing to an annual rate of 1.9 percent in the second quarter following 1.6 percent in the first quarter.

“In the second quarter, domestic activity and demand growth disappointed expectations,” the central bank said, as exports had performed worse than expected and private consumption was also soft.

In its June policy report, the central bank lowered its 2019 growth forecast to 2.75 – 3.5 percent from March’s forecast of 3.0 – 4.0 percent and 2018’s growth of 4.0 percent and last month Chile’s government lowered its 2019 forecast to around 3.0 percent from an earlier forecast of 3.8 percent.

The economic expectations survey for August showed 2.6 percent growth for 2019, 3.1 percent for 2020 and 3.3 percent for 2021.

Inflation remained below the central bank’s target of 3.0 percent at 2.2 percent in July while Chile’s peso has been depreciating steadily since April last year and was trading at 725.9 to the U.S. dollar today, down 4.4 percent this year.

The Central Bank of Chile issued the following statement:

“At its Monetary Policy Meeting, the Board of the Central Bank of Chile decided to lower the monetary policy interest rate by 50 basis points, to 2.0%. The decision was adopted by the unanimous vote of the Board members.

The main development since the previous Meeting has been the worsening of the external scenario. Especially significant has been the escalating trade conflict between the United States and China, with an impact on other economies that are integrated into value chains and financial markets. Global activity continued to slow in an important group of economies, where the weakening of manufacturing stood out, while services activity remains dynamic. The deterioration is deeper for global trade volumes, which virtually stagnated, and for expectations indicators. The trade conflict is compounded by the greater likelihood of a non-deal exit of the United Kingdom from the European Union, various geopolitical risks and a severe deterioration of the situation in Argentina. In this context, monetary policy has become more expansionary globally, but still financial markets continue to show high volatility and risk aversion. Thus, further declines in interest rates were observed in the fixed-income market, together with stock market relapses, depreciation of most currencies against the dollar and widespread falls in commodity prices. Inflationary figures remain contained in many economies around the world.

The local financial market followed the external developments, where worth singling out were the depreciation of the peso against the dollar and the fall of stock prices and long-term interest rates. The latter, combined with the prospects of a more expansionary monetary policy, has resulted in low borrowing costs for all categories of credits and maturities. In real terms, consumer and commercial loans show a somewhat reduced dynamism, while housing loans have sped up their growth pace.

 In the second quarter, domestic activity and demand growth disappointed expectations. GDP growth was influenced by one-off supply-side factors and a fall in manufacturing. On the expenditure side, less progress was made in private consumption, although some of the one-off factors that affected GDP also had an impact on consumption growth. This, in a context in which consumer expectations have deteriorated from early in the year and private salaried employment shows less dynamism. Investment grew more than anticipated, thanks especially to its construction and other works component, offsetting a lower-than-expected expansion of machinery and equipment. Exports performed worse than expected. In this scenario, economic growth expectations have been adjusted downwards. The August Economic Expectations Survey (EES) anticipates GDP growth of 2.6% for 2019, 3.1% for 2020, and 3.3% for 2021.

Annual CPI and CPIEFE variation has remained around 2%. Among the components of the latter, services inflation continues to be low in historical terms and the evolution of the prices most closely related to the output gap and wages continues to stand out. Over the two-year horizon, private expectations for headline inflation remained at 3% and 2.8% according to the EES and the Financial Brokers Survey (FBS), respectively.

The Board’s decision considers that the economy’s performance of the second quarter and its outlook indicate that inflation will take longer to converge to the target, calling for a stronger monetary stimulus. It also estimates that further stimulus might be required, which will be evaluated in the upcoming meetings in light of the evolution of the macroeconomic scenario. With that, the Board reiterates that it will conduct monetary policy with flexibility, so that projected inflation stands at 3% over the two year horizon.

The September Monetary Policy Report containing the projections and analyses that provide ground for the Board’s decision, will be published tomorrow Wednesday 4 September at 8:30 hours.

The minutes of this Monetary Policy Meeting will be published at 8:30 hours on Monday, 23 September 2019. The next Monetary Policy Meeting will be held on Tuesday 22 and Wednesday 23 October, and the statement thereof will be released at 18:00 hours of this latter date.”

This article was originally published on CentralBankNews.info on September 4, 2019. It is reproduced here with permission from the author.

Paraguay Cuts Rate 4th Time As Economic Activity Slows

This article was originally published on CentralBankNews.info on August 21, 2019. It is reproduced here with permission from the author.

Paraguay’s central bank lowered its policy rate for the fourth time this year, saying economic activity had slowed amid rising uncertainty about a resolution to the trade tensions between the U.S. and China while inflationary pressures are not expected in coming months.

The Central Bank of Paraguay (BCP) cut its monetary policy rate by another 25 basis points to 4.25 percent and has now cut it by 100 points following cuts in February, March and July.

In addition to slower global economic activity, BCP said the regional outlook had become more complex in recent weeks, especially after the primary elections in Argentina, and the latest data show lower rates of growth in the economic activity in Brazil.

Domestically, the aggregate indicator of activity showed a smaller decline in recent months while the index that excludes agriculture and electricity showed a slight rebound in June, the bank added.

BCP has forecast 2019 growth of 1.5 percent, down from 3.7 percent in 2018.

Looking ahead, the bank’s monetary policy committee CEOMA said it considers flexible monetary conditions to be compatible with the convergence of inflation to its 4.0 percent target and it would continue to monitor domestic and external data to evaluate its next policy decision.

Paraguay’s inflation rate rose to 3.1 percent in July from 2.8 percent in June while its gross domestic product shrank 2.0 percent year-on-year in the first quarter of this year from growth of 1.0 percent in the previous quarter.

Paraguay’s guarani has been weakening since April last year and was trading at 6,110 to the U.S. dollar today, down 2.7 percent this year.

This article was originally published on CentralBankNews.info on August 21, 2019. It is reproduced here with permission from the author.

Mexico Cuts Rate 1st time in 62 months on growth risks

This article was originally published on CentralBankNews.info on August 15, 2019. It is reproduced here with permission from the author.

Mexico’s central bank lowered its policy rate for the first time in 62 months, saying inflation has decreased as it expected but the economy continues to stagnate and uncertainty about the relationship with the United States continues to pose a risk to economic growth.

The Bank of Mexico (Banxico) cut its benchmark target for the overnight interbank interest rate by 25 basis points to 8.0 percent, its first rate cut since June 2014 following 15 rate hikes from December 2015 through December 2018 in response to a weakening peso and inflationary pressures.

But in the wake of the U.S. Federal Reserve’s change of course in late January this year to a more dovish stance, which resulted in a rate cut on July 31, Baxico also shifted its policy stance and is now following the Fed and 53 other central banks that have eased their policy stance this year.

Banxico said a majority of its board member had voted to cut the rate, deciding that a lower interest rate is consistent with inflation converging toward its target of 3.0 percent. One board member voted to maintain the rate.

The board added that it would maintain a prudent monetary policy stance during the current environment of uncertainty and closely follow the potential pass-through of fluctuations to the exchange rate to consumer prices along with the behavior of economic slack and price pressures.

Noting the deceleration in world economic activity along with U.S. trade disputes, the central bank said the balance of risks to the world economy had deteriorated, and while the peso has fluctuated, interest rates on government securities have fallen and the latest data suggest weaker demand has widened the economy’s slack more than expected so the balance of risks to economic growth remains biased to the downside.

In July Mexico’s inflation rate eased to 3.78 percent from 3.95 percent though inflation expectations remained relatively stable while the economy shrank 0.7 percent year-on-year in the second quarter after growth of 1.2 percent in the first quarter.

This article was originally published on CentralBankNews.info on August 15, 2019. It is reproduced here with permission from the author.