Global Monetary Policy Monitor

Transcription

1 Global Monetary Policy Monitor July 15 B hikes, RICs cut In June, there were monetary policy decisions in of the 31 countries and regions (including the eurozone and the UK) we follow. Seven central banks cut interest rates, with China and New Zealand surprising markets. Once again, only Brazil hiked rates. With the June actions, we have again observed an increase in the number of central banks adding monetary stimulus, including the other BRIC economies: China, India and Russia. With the exception of Brazil, which will probably hike interest rates further in July, our expectation is for steady rates in the rest of Latin America. Central banks in Mexico and Chile are discussing the possibility of raising interest rates, but economic data in the two countries is reducing the probability of a move in the short term. Thus, we do not expect rate hikes in Chile either this year or next, and we expect hikes in Mexico only in 1Q1. Interest-rate changes in June Increases Cuts No change Brazil China Taiwan Poland Japan India Thailand Turkey Australia South Korea Indonesia Israel Mexico Hungary Philippines United States Russia Chile Euro zone Norway Colombia UK New Zealand Peru Switzerland P.M Actions in June Date Country Decision Consensus -Jun India Jun New Zeland Jun South Korea Jun Russia Jun Norway Jun Hungary Jun China Contents 1. Policy rates: Historical table. Charts 3. Monetary policy in LatAm 3. Calendar of monetary policy decisions in July 5 Macro Research Itaú Ilan Goldfajn Chief Economist Central banks stimulated again in June Number of CBs that reduced stimuli less number of CBs that raised stimuli - World -1 Feb-13 Jun-13 Oct-13 Feb-1 Jun-1 Oct-1 Feb-15 Jun-15 Source: Bloomberg, Itaú Monetary Policy Stance* Tight Neutral-Tight Neutral Neutral-Loose Loose Brazil India Australia Colombia United States Poland South Africa Turkey Euro Zone Taiwan Israel Switzerland United Kingdom Thailand Czech Republic Denmark Japan Philippines Malaysia Hungary Norway Indonesia New Zealand China Sweden Russia Movements to loosen Peru Canada Chile Mexico South Korea Movements to tighten * Itaú Estimate 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 Global Monetary Policy Monitor Tuesday, June, Policy rates: Historical table Policy Rates (end of period) Oct-1 Nov-1 Dec-1 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Emerging EM Asia China 1Y Lending Rate India Repo Rate South Korea Base Rate Taiwan Offic. Disccount Rate Malaysia O/N Rate Thailand 1-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 Czech Republic -wk Repo Hungary -wk Dep Poland 7-day interv Russia Repo Rate Turkey Effective rate Israel Base Rate South Africa Repo Rate Developed US Base Rate Euro Zone Base Rate UK Base Rate Japan Rate on Excess Reserves Norway Deposit Rate Sweden Base Rate Denmark Repurchase Rate Australia Cash Rate New Zealand Cash Rate Canada Lending Rate Switzerland Libor Taget *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.. Charts 5 Interest Rates - Developed (%) 1 Interest Rates - Latam (%) Apr-11 Feb-1 Dec-1 Oct-13 Aug-1 Jun Norway Sweden Australia New Zealand Canada Switzerland Denmark Interest Rates - Asia (%) Apr-11 Feb-1 Dec-1 Oct-13 Aug-1 Jun-15 China India South Korea Taiwan Malaysia Thailand Indonesia Philippines Apr-11 Feb-1 Dec-1 Oct-13 Aug-1 Jun-15 Brazil Chile Colombia Mexico Peru Interest Rates - CEEMEA (%) Apr-11 Feb-1 Dec-1 Oct-13 Aug-1 Jun-15 Hungary Poland Russia Turkey Israel South Africa Page

3 Global Monetary Policy Monitor Tuesday, June, Monetary policy in LatAm BRAZIL: Mission almost, but not yet, accomplished In June, the Brazilian Central Bank s Monetary Policy Committee (Copom) once again raised the benchmark Selic interest rate by 5 bps, to 13.75%. The decision was unanimous and in line with expectations. In the minutes of the meeting and in the Q Inflation Report (IR), the Copom signaled that the tightening cycle will continue ahead. The Copom repeated that "the scenario of convergence of inflation to.5% in 1 has strengthened," but that advances "are still not sufficient." However, the Copom stated in the IR that the effects of the current monetary policy strategy have already started to be observed. The committee points out that "inflation expectations are near or at the.5% midpoint target in the medium and in the long run". However, "inflation expectations for the end of 1 still show relevant differences in relation to target." We expect the Copom will deliver a final hike of.5 pp in July, and keep the Selic rate at 1.5% until the second quarter of 1. Indeed, we believe that an additional hike of.5%, with some marginal revaluation of the economic activity scenario by the Copom, would be sufficient to bring inflation down to levels close to the target by the end of 1, according to Copom's model. MEXICO: No rate hikes this year Mexico s central bank maintained its policy rate at 3% in June, as both we and the market consensus expected. In the press statement announcing the decision, the board highlighted the fragility of Mexico s economic recovery and noted that inflation remains under control. The board members (or at least most of them) concluded that the balance of risks to both activity and inflation had not changed since their previous meeting. Even so, the board continued to make clear that monetary policy in the U.S. will be a key variable in future decisions by Mexico s central bank. However, given the weak economic activity in Mexico, well-behaved inflation (in spite of the weakening of the MXN) and the fact that the exchange-rate market has been digesting the Fed s (likely) liftoff smoothly, we believe that the central bank will start its tightening cycle in 1Q1, months after the Fed does (we expect the Fed to raise rates in September). CHILE: No rate hikes in sight The Central Bank of Chile unanimously decided to leave its policy rate unchanged at 3.%. This was widely expected and is the eighth consecutive meeting in which the policy rate has been left unchanged. The board considered holding the policy rate to be the only relevant option. Although high, inflation is still expected to gradually decelerate toward the target (a view supported by the latest CPI and wage numbers), while weak activity meant the monetary stimulus should be maintained for a prolonged period. According to the minutes, the latest domestic information is in line with the June Monetary Policy Report, with inflation coming in as expected in May and expected to remain elevated for some months. Attention was drawn to the recent economic activity data, with some board members commenting that it was weaker than previously expected and showing no significant pick-up. The central bank noted that the labor market has shown low employment and labor-force growth rates alongside lower wage growth. Page 3

4 Global Monetary Policy Monitor Tuesday, June, 15 Given that we expect output to only gradually recover (.5% this year from 1.9% in 1) and for inflation to fall gradually towards 3.% (3.3% year-end), we differ with the central bank s guidance, and see no rate moves this year or in 1. The central bank is signaling that hikes would start in the first half of 1. However, we acknowledge that if high inflation proves to be more persistent than expected, rate hikes are likely and could come even sooner than the central bank is currently signaling (first half 1). COLOMBIA: Stable rates amid a slowing economy and high inflation The central bank of Colombia held its policy rate unchanged in its June meeting, at.5% for the tenth consecutive month. The decision was unanimous and widely expected by the market. The press release announcing the decision kept a neutral tone, as has been the case in recent meetings. Regarding domestic activity, the board considers that the 1Q15 growth rate, which showed the economy slowing after a dynamic 1, was in line with the staff estimate. Moreover, data available for Q15 suggests the adjustment to the new external conditions continues. In this context, household consumption could see additional moderation. This is expected to occur in spite of real interest rates that remain expansive and a relatively solid labor market. Turning to inflation, the board noted that the deceleration observed in May was due to lower dynamism in food prices, and that tradable and non-tradable prices (excluding food and regulated prices) kept rising. In fact, the average of core inflation measures has increased for eight consecutive months, reaching 3.99% in May. On the other hand, inflation expectations derived from asset prices and surveys (for the relevant policy horizon) remain in the 3%-3.5% range, broadly anchored in the board s opinion. We expect the central bank to remain on hold for the remainder of this year and the next. As the economy grows below potential and transitory effects impacting consumer prices subside, inflation will likely converge to the center of the target by the end of next year, making it unnecessary for the bank to raise rates. On the other hand, as the current-account deficit remains wide and the Federal Reserve Board is set to increase its interest rates in late 15, there is little room for additional easing. PERU: No space to reduce the policy rate Peru s central bank held the policy rate at 3.5%, as expected, in its June meeting. It is the fifth consecutive meeting at which the board has stayed on hold. The board retained a neutral tone. The current interest-rate level was deemed compatible with the expectation that inflation would converge to the.% target in the 15-1 horizon. The board indicated that it would monitor inflation expectations and its determinants in order to, if necessary, make adjustments to its monetary policy instruments. The decision considered the views that projected GDP growth remained below potential; inflation expectations are still anchored within the target range; signals of a global economic recovery are mixed, so there has been high financial and foreign-exchange market volatility; and finally, that inflation has been affected by temporary supply-side shocks that should revert but at a slower pace than initially anticipated. However, the central bank continues to implement monetary easing through lowering the reserverequirement rate for local currency (to.5% from 7.%, effective from the start of June). This is a continued attempt to increase liquidity and support credit growth, as the economy has yet to rebound from a slowdown last year, without adding pressures for exchange-rate weakening. However, reserve-requirement rate cuts are less effective now that its level is already low. Having said that, while we do not expect any policy-rate moves during the remainder of the year, or throughout next year, it is possible that the central bank reduces the reserve requirement rate further. Page

5 Global Monetary Policy Monitor Tuesday, June, 15. Calendar of monetary policy decisions in July Date Country Monetary policy instrument Consensus* Previous -Jul Sweden Riksbank Interest Rate % 7-Jul Australia RBA Cash Rate Target.%.% -Jul Poland Poland Base Rate Announcement % -Jul South Korea BoK 7-Day Repo Rate % 9-Jul Malaysia BNM Overnight Policy Rate 3.5% 3.5% 9-Jul United Kingdom Bank of England Bank Rate.5%.5% 9-Jul Peru Reference Rate % 13-Jul Indonesia Bank Indonesia Reference Rate % 1-Jul Chile Overnight Rate Target -- 3.% 1-Jul Japan BOJ Annual Rise in Monetary Base -- T 15-Jul Canada Bank of Canada Rate Decision.75%.75% 1-Jul Eurozone ECB Main Refinancing Rate --.5% 1-Jul Hungary Central Bank Rate Decision % -Jul New Zealand RBNZ Official Cash Rate 3.% 3.5% 3-Jul Turkey Benchmark Repurchase Rate % 3-Jul Mexico Overnight Rate -- 3.% 3-Jul South Africa SARB Announce Interest Rate % 7-Jul Israel Base Rate.1%.1% 9-Jul United Sates FOMC Rate Decision (Upper Bound).5%.5% 9-Jul Brazil Selic Rate % 31-Jul Russia Key Rate % 31-Jul Colombia Overnight Lending Rate --.5% * Source: Bloomberg Macro Research Itaú Ilan Goldfajn Chief Economist Tel: macroeconomia@itaubba-economia.com Click here to visit our digital research library. Page 5

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