Global Monetary Policy Monitor

Transcription

1 Global Monetary Policy Monitor Thursday, December, Brazil and Indonesia are the exception In November, 6 countries announced monetary policy decisions, six of them changing the monetary policy rate. The decoupling among emerging-market economies throughout the year continues. Brazil and Indonesia, which suffer higher inflation and depreciation, raised policy rates. Meanwhile, Chile, Peru, Hungary and Thailand, with lower inflation and more stable exchange rates, found additional room to ease their monetary policy conditions. Brazil Hikes Cuts Interest-rate changes in November Indonesia Chile China Mexico Sweden Brazil Peru India Poland Australia Hungary South Korea Russia New Zealand Thailand Taiwan Turkey Canada Malaysia Philippines Colombia No change Israel South Africa Norway The Brazilian Central Bank s Monetary Policy Committee (Copom) increased the monetary-policy rate (Selic) by. pp in November, to % per year, as had been widely expected. After four consecutive meetings followed by the same post-decision statement, the Copom modified the text so as to signal, in our view, the approaching end of the rate-hiking cycle. Moderate economic growth and lower inflation readings published recently may have weighed on the Copom s decision. There were two changes from the statements issued in previous meetings. First, the beginning of the cycle was mentioned tonight ( started in the April meeting ), which seems to be an evaluation that the hiking cycle is already longstanding. Second, the Copom withdrew the following sentence: The Committee evaluates that this decision will contribute to set inflation into decline and ensure that this trend persists in the upcoming year. In our view, by leaving out this sentence, the Copom may be suggesting that the goal of curbing inflation is largely ensured by monetary tightening that has already been implemented. This signal that the hiking cycle is close to an end, reinforced by the minutes of the Copom meeting published one week later, was in line with our scenario. We maintain our forecast of an additional.- pp hike in the Selic rate in January, to.%, a level likely to be maintained until at least the end of. Mexico According to the minutes of the latest monetary policy meeting, the decision to lower the interest rate by bps (to.%) was unanimous. This is in contrast to the previous decision, when the central bank reduced the policy rate by bps, but two board members voted to keep it unchanged. There was also an unanimous agreement within the board that additional rate cuts would not be advisable in the foreseeable future, and that the central bank should communicate this message to the market. Please refer to the last page of this report for important disclosures, analyst and additional information. Itaú Unibanco or its subsidiaries may do or seek to do business with companies covered in this research report. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should not consider this report as the single factor in making their investment decision.

2 In the minutes, board members continued to be very concerned with economic growth and sounded comfortable with the inflation outlook. They see decreased (but still-high) downside risks for the economy relative to the previous meeting. Still, the board doesn t think that there is room for additional rate cuts. First, because it expects a narrower (though still wide) output gap ahead. Second, the real interest rate is already too low (specifically, the central bank cites the short-term ex ante real rate, which is close to zero) and a new rate cut could generate risks to financial stability. Finally, the higher public deficit announced for is also weighing on monetary policy guidance. However, this is not because of the positive impact of public spending on growth or because of the transitory impact of tax hikes on inflation. It is because there is the risk that the government will fail to bring the public deficit (excluding PEMEX investments) back down to zero over the next few years. In fact, one board member referred to the potential negative impact of the higher public deficit announced for on expectations. In the concluding remarks of the most recent inflation report, the central bank again highlighted the importance of solid public finances by pointing out that besides a successful reform agenda, strengthening Mexico s fiscal accounts is key to supporting growth in the medium term. We don t expect any policy rate moves soon. In our scenario, the central bank will remain on hold throughout, so the policy rate would likely end both and at.%. Chile The central bank lowered the monetary policy rate by bps for the second consecutive month in November. The policy rate is now at.%. Although this decision was in line with our estimate, we note that many market participants were expecting the central bank to deliver the next interest rate cut only in December (according to Bloomberg consensus, analysts expected a -bp cut in November, while analysts surveyed by the central bank expected the second cut only in December). More recently, the central bank starts to limit the expectation of further interest rate cuts. In a recent interview with a local newspaper, the governor of the central bank (Rodrigo Vergara) said that the current stance of the monetary policy is now neutral. In the most recent monetary policy report, published after this interview, the central bank assumes that in its baseline scenario the interest rate follows a path similar to the one expected by analysts in its survey, which implies that the easing cycle would end when the interest rate reaches.%. We continue to expect the central bank to maintain the interest rate in December before resuming the easing cycle. In our scenario, growth and inflation allow for two -bp rate cuts during Q. Peru The Central Bank reduced the policy rate by bps (to.%) in November. This was the first rate move since May. In the press statement, the board mentioned the below-trend economic growth in Peru, lower dynamism in the global economy, declining inflation expectations and the reversal of supply factors that affected domestic prices. The board also said that many current and leading activity indicators have weakened. Finally, the statement cited that this decision was preemptive and does not necessarily imply a sequence of interest rate reductions. The rate cut took markets by surprise. Until the November s decision, the central bank was addressing the economic slowdown through lower reserve requirements. Because Peru s economy is still partially dollarized, the central bank was hinting that it wasn t willing to add exchange-rate depreciation pressures by reducing the interest-rate differential. After the decision, Governor Velarde stated that slight reductions in the interest rate and in reserve requirements are possible. In fact, a few days later the central bank announced that it was lowering reserve requirements in local currency again. Meanwhile, the central bank is trying to contain the depreciation of the sol through heavy interventions in the spot market. Page

3 Although we do not expect a rate cut in December, we think that the below trend economic growth will lead the central bank to reduce the policy rate by bps early next year. So we see the policy rate ending at.%. Colombia The Central Bank left the rate unchanged at.% in November, in line with both our estimate and market consensus. In the press statement, board members mentioned the recent improvements in consumer and business confidence and stronger consumption of durable goods. They cited that the fall in the annual inflation in October was temporary, due to lower food prices. As in the previous month, the central bank reiterated that the current monetary conditions are expansionary. In this context, the bank reaffirmed their GDP forecast of.% -.%, and the Q forecast range from.8% to.%. However, it removed the downward risk in economic growth that it cited in the previous meeting (even though it maintained the neutral bias in the press release). We still expect lower rates in the future. In our view, the recovery in Colombia s activity saw in the Q will be short lived. However, we now expect the central bank to reduce the interest rate only in the H, so the policy rate would end this year at.% and at.%. See below a summary of the latest monetary policy decisions and the calendar for the next decisions scheduled in December.. Table Policy Rates (end of period) Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Emerging EM Asia China Deposit Rate India Repo Rate South Korea Base Rate Taiwan Offic. Disccount Rate Malaysia O/N Rate Thailand -day Repo Indonesia BI Rate Philippines Rev Repo LATAM Brazil Selic O/N Chile Disc Rate Colombia Repo Rate Mexico Repo Rate Peru Reference CEEMEA Hungary -wk Dep Poland 7-day interv Russia Repo Rate Turkey Effective rate Israel Base Rate South Africa Repo Rate Developed Norway Base Rate Sweden Base Rate Australia Cash Rate New Zealand Cash Rate Canada Lending Rate *Blank places mean absence of monetary policy decision for the month. ** Numbers in red indicate rate cuts, in green rate hikes and in grey another monetary policy change different from interest rates. Page

4 . Charts Interest Rates - Developed (%) Interest Rates - Latam (%) Norway Sweden Australia New Zealand Canada - Brazil Chile Colombia Mexico Peru Interest Rates - Asia (%) China India South Korea Taiwan Malaysia Thailand Interest Rates - CEEMEA (%) 8 6 Hungary Poland Russia Turkey Israel South Africa. Calendar of monetary policy decisions in December Date Country Monetary policy instrument Consensus Previous -Dec- Australia RBA Cash Rate Target.%.% -Dec- Canada Bank of Canada Rate Decision.%.% -Dec- Poland Poland Base Rate Announcement.%.% -Dec- Norway Deposit Rates.%.% -Dec- UK Bank of England Bank Rate.%.% -Dec- UK BOE Asset Purchase Target 7B 7B -Dec- Eurozone ECB Announces Interest Rates.%.% -Dec- Eurozone ECB Deposit Facility Rate.%.% 6-Dec- Mexico Overnight Rate.%.% -Dec- New Zealand RBNZ Official Cash Rate --.% -Dec- South Korea BoK 7-Day Repo Rate.%.% -Dec- Philippines BSP Overnight Borrowing Rate --.% -Dec- Chile Overnight Rate Target --.% -Dec- Peru Reference Rate --.% -Dec- Indonesia Bank Indonesia Reference Rate -- 7.% -Dec- Russia One-Week Auction Rate.%.% 7-Dec- Sweden Riksbank Interest Rate --.% 7-Dec- Turkey Benchmark Repurchase Rate --.% 7-Dec- Hungary Central Bank Rate Decision.%.% 8-Dec- India RBI Cash Reserve Ratio --.% 8-Dec- India RBI Repurchase Rate % 8-Dec- India RBI Reverse Repo Rate % 8-Dec- USA FOMC Rate Decision --.% 9-Dec- Taiwan CBC Benchmark Interest Rate --.88% 9-Dec- Japan BOJ Target Rate Dec- Colombia Overnight Lending Rate --.% -Dec- Israel Base Rate.%.% Page

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