CBE’s in­ter­est rates con­sis­tent with aim of at­tain­ing sin­gle digit in­fla­tion once state’s fis­cal con­sol­i­da­tion pro­gramme ends: CBE

Mea­sures to con­trol coun­try’s fi­nances ex­pected to tem­po­rar­ily af­fect pri­vate con­sump­tion re­cov­ery rate

The Daily News Egypt - - Front Page - By Hos­sam Mounir

The Cen­tral Bank of Egypt (CBE) stated that its cur­rent key in­ter­est rates are con­sis­tent with its goal of achiev­ing sin­gle rates of gen­eral in­fla­tion once the tem­po­rary ef­fects of the state’s fis­cal con­sol­i­da­tion pro­gramme are over. The CBE, in its mon­e­tary pol­icy re­port re­leased last week, noted that the out­look for in­fla­tion in­cluded lower prices for Brent oil price, and warned that global oil prices were still volatile due to po­ten­tial sup­ply fac­tors.

In or­der to con­tain in­fla­tion­ary pres­sures, which came due to the tran­si­tory na­ture of sup­ply to cer­tain fresh veg­eta­bles, the Mon­e­tary Pol­icy Com­mit­tee (MPC) sched­uled its meet­ing on 15 Novem­ber 2018 to main­tain key pol­icy rates un­changed.

It added that cur­rent pol­icy rates re­main in line with achiev­ing sin­gle digit in­fla­tion as soon as the ef­fects of the fis­cal con­sol­i­da­tion mea­sures dis­si­pate. The re­port noted that real GDP growth is ex­pected to con­tinue ben­e­fit­ing from struc­tural re­form mea­sures, while po­ten­tial fis­cal con­sol­i­da­tion mea­sures may tem­po­rar­ily re­cede the re­cov­ery of pri­vate con­sump­tion. Net ex­ports and in­vest­ments are ex­pected to con­tinue to com­ple­ment con­sump­tion as growth en­gines.

More­over, the over­all fis­cal deficit is bud­geted to decline to 8.4% of the GDP in 2018/19, com­pared to an ex­pected 9.8% in 2017/18 and 10.9% in 2016/17, and is tar­geted to con­tinue de­creas­ing there­after.

Mean­while, the pri­mary fis­cal bal­ance is bud­geted to record a sur­plus of 2.0% of the GDP in 2018/19, com­pared to an es­ti­mated sur­plus of 0.1% of the GDP in 201718 and a deficit of 1.8% of the GDP in 2016/17, with the aim of main­tain­ing this sur­plus hence­forth.

“Brent crude oil prices in­cor­po­rated in the do­mes­tic in­fla­tion out­look were down­wardly re­vised in line with re­cent de­vel­op­ments that af­fected the out­look of in­ter­na­tional oil prices.Yet spot prices re­mained sub­ject to volatil­ity due to po­ten­tial sup­ply fac­tors. In­ter­na­tional food price fore­casts,rel­e­vant to Egypt’s con­sump­tion bas­ket,were also down­wardly re­vised pri­mar­ily be­cause of lower prices of rice due to im­prov­ing pro­duc­tion prospects and ex­ports com­pe­ti­tion,” the re­port read.

In ad­di­tion to in­ter­na­tional com­mod­ity price de­vel­op­ments, risks from the ex­ter­nal econ­omy con­tinue to in­clude the pace of tight­en­ing fi­nan­cial con­di­tions, as well as trade ten­sions, ac­cord­ing to the CBE.

Mean­while, do­mes­tic risks sur­round­ing the in­fla­tion out­look keep in­clud­ing the tim­ing and mag­ni­tude of po­ten­tial fis­cal con­sol­i­da­tion mea­sures,unan­tic­i­pated sup­ply shocks,and the evo­lu­tion of in­fla­tion ex­pec­ta­tions as well as de­mand-side pres­sures.

An­nual head­line in­fla­tion has been re­cently af­fected by a sup­ply shock in some fresh veg­eta­bles, while an­nual core in­fla­tion con­tin­ued to record sin­gle dig­its

Fur­ther­more,an­nual head­line in­fla­tion rose to 16.0% and 17.7% in Septem­ber and Oc­to­ber 2018 re­spec­tively,af­fected by the in­fla­tion of se­lect fresh veg­eta­bles.This is a re­sult of the fis­cal con­sol­i­da­tion mea­sures which led head­line in­fla­tion to rise from a 25-month low of 11.4% in May 2018.

Nev­er­the­less, the CBE noted, an­nual core in­fla­tion con­tin­ued to decline to an av­er­age 8.7% be­tween July and Oc­to­ber 2018, the low­est rate in over two years.

Cor­re­spond­ingly, the spread be­tween an­nual head­line and core in­fla­tion con­tin­ued to widen since June 2018.

Monthly head­line in­fla­tion was mainly driven by food in­fla­tion since Au­gust 2018, af­ter be­ing se­verely driven by non-food in­fla­tion be­tween May and July 2018 due to fis­cal con­sol­i­da­tion mea­sures. In­fla­tion of fresh veg­eta­bles was the main con­trib­u­tor to food in­fla­tion, record­ing in Oc­to­ber 2018 their high­est an­nual in­fla­tion since April 2011. Prices of po­ta­toes and toma­toes rose for the eighth and fourth con­sec­u­tive month re­spec­tively, ac­count­ing for 65.8% of cu­mu­la­tive monthly head­line in­fla­tion be­tween Au­gust and Oc­to­ber 2018.

In ad­di­tion, in­fla­tion of fresh veg­eta­bles has been el­e­vated since June 2018 due to sea­sonal ef­fects that were height­ened by in­di­rect con­se­quences of the fis­cal con­sol­i­da­tion mea­sures, as well as tran­si­tory shocks re­lated to po­ta­toes and toma­toes. On the other hand, prices of core food items were largely sta­ble, ex­cept for prices of poul­try and eggs, which ex­pe­ri­enced volatil­ity since July 2018.

Mean­while, non-food in­fla­tion has been con­tained, ac­cord­ing to the CBE. “It only re­flected higher prices of nat­u­ral gas for hous­ing in Au­gust 2018, as well as pub­lic and pri­vate ed­u­ca­tion ser­vices prices in Oc­to­ber 2018, which were ex­pected in terms of tim­ing and mag­ni­tude,” it ex­plained.

The volatil­ity of core food in­fla­tion wit­nessed do­mes­ti­cally since Au­gust 2018 led to a di­ver­gence be­tween do­mes­tic and in­ter­na­tional core food price de­vel­op­ments. In­ter­na­tional core food in­fla­tion con­tin­ued to reg­is­ter neg­a­tive monthly rates since June 2018, driven mainly by price de­clines in poul­try, red meat, and dairy prod­ucts.This comes af­ter do­mes­tic and in­ter­na­tional core food price de­vel­op­ments have been largely con­sis­tent since the be­gin­ning of the year, ex­cept in June 2018 due to do­mes­tic fis­cal con­sol­i­da­tion mea­sures.

In De­cem­ber 2018, the CBE said that an­nual head­line in­fla­tion eased to 15.6% at the end of Novem­ber 2018, down from 17.7% in Oc­to­ber, while monthly in­fla­tion recorded a decline of 0.7% in Novem­ber down from 2.6% in Oc­to­ber.

Mean­while, the CBE pointed out that the an­nual core in­fla­tion reached 9.7% in Novem­ber 2018, down from 8.9% in Oc­to­ber. The monthly core in­fla­tion also shrank by 0.5% in Novem­ber down from 1% in Oc­to­ber.

Real mon­e­tary con­di­tions con­stricted

Real mon­e­tary con­di­tions con­stricted de­spite con­tin­u­ously be­ing im­pacted by po­ten­tial fu­ture in­fla­tion­ary pres­sures from fis­cal con­sol­i­da­tion mea­sures. This was sup­ported by the pre­vi­ous pol­icy rate in­creases, not­with­stand­ing the cu­mu­la­tive 200 ba­sis points (bps) pol­icy rate cuts since the be­gin­ning of 2018.

Mean­while, the trans­mis­sion of the nom­i­nal pol­icy rate cuts to nom­i­nal in­ter­est rates in the econ­omy was strong, ex­cept for rates of let­ters of credit (L/C) gov­ern­ment se­cu­ri­ties.

Af­ter de­clin­ing in De­cem­ber 2017, ex­cess liq­uid­ity con­tin­ued to in­crease since Jan­uary 2018 to record an av­er­age EGP 746.3bn, or 13.9% of the GDP, dur­ing the main­te­nance pe­riod which ended on 5 Novem­ber 2018.

The ab­sorp­tion of ex­cess liq­uid­ity over the short term rose mainly due to higher vol­umes in seven-day de­posit auc­tions, which reg­is­tered on av­er­age EGP 41bn,or 0.8% of the GDP and 5.8% of ex­cess liq­uid­ity since mid-Fe­bru­ary 2018, while the overnight ab­sorp­tion of ex­cess liq­uid­ity con­tin­ued to av­er­age EGP 19.2 bn, or 0.4% of GDP and 2.8% of ex­cess liq­uid­ity.

“Mean­while, the ef­fec­tive ma­tu­rity of liq­uid­ity-with­drawal op­er­a­tions greater than seven days con­tin­ued to range be­tween 38 and 69 days since March 2018, com­pared to 18 days be­tween Oc­to­ber 2017 and Fe­bru­ary 2018,” the CBE stated.

In the mean time,in­ter­bank ac­tiv­ity re­mained strong since April 2018 and the in­ter­bank yield curve pro­ceeded re­li­ably sta­ble post the 100% trans­mis­sion of the cu­mu­la­tive 200 bps pol­icy rate cuts on 15 Fe­bru­ary 2018 and 29 March 2018.Con­se­quently,the in­ter­bank rate con­tin­ued to re­main be­low the pol­icy rate by around 30 bps since mid-Au­gust 2017.

Yields for L/C gov­ern­ment se­cu­ri­ties sta­bilised at 15.8% fol­low­ing taxes dur­ing Oc­to­ber and the first half (H1) of Novem­ber 2018, af­ter con­tin­u­ing to rise be­tween May and Septem­ber 2018.

This com­pares to 13.7% in April 2018 and 14.6% on av­er­age in the fourth quar­ter (Q4) of 2017, be­fore the CBE’s pol­icy rate cuts.

The global events’ ef­fect on L/C gov­ern­ment se­cu­ri­ties has more than off­set the im­pact of the cu­mu­la­tive 200 bps pol­icy rate cuts in Fe­bru­ary and March 2018. The cov­er­age ra­tio sta­bilised at 1.7x on av­er­age dur­ing Oc­to­ber and H1 of Novem­ber 2018, com­pared to 2.1x be­tween Fe­bru­ary and April 2018 dur­ing the pe­riod of pol­icy rate cuts and 2.4x in 2017.

More­over, the in­verted yield curve in­creased in Oc­to­ber and be­gin­ning of Novem­ber, af­ter it has been flat­ten­ing since the be­gin­ning of 2018, ac­cord­ing to the CBE.

“This was driven by the re­cent con­sid­er­able in­crease in de­mand for trea­sury bonds (T-Bonds), which was more than enough to off­set the rel­a­tive in­crease in is­suance,” it ex­plained.

Mean­while, de­spite the con­tin­ued con­stric­tion of global fi­nan­cial con­di­tions and higher risk pre­mi­ums of emerg­ing mar­kets (Ems) since the be­gin­ning of 2018, Egyp­tian Eu­robond yields re­mained sta­ble re­li­ably since July 2018 af­ter ris­ing be­tween Fe­bru­ary and June 2018. More­over, Egypt’s cer­tifi­cate of de­posit (CDS) spreads re­mained rel­a­tively low com­pared to the ma­jor­ity of peers with sim­i­lar sovereign credit rat­ing. Fur­ther­more, Egypt’s out­look was raised to pos­i­tive in Au­gust 2018 by Moody’s, af­ter S&P up­graded Egypt’s credit rat­ing in May 2018.

In the bank­ing sec­tor, rates for new de­posits re­mained rel­a­tively sta­ble to record 12.8% on av­er­age since April 2018 af­ter de­clin­ing in re­sponse to the cu­mu­la­tive 200 bps cut in Fe­bru­ary and March 2018. Mean­while, rates for new loans con­tin­ued to decline to record 17.0% on av­er­age in Q3 of 2018.

The pric­ing of new de­posits de­clined by 1.2x com­pared to the cu­mu­la­tive 200 bps pol­icy rate cut, mainly driven by strong de­clines of de­posit rates in pub­lic sec­tor banks, while the pric­ing of new loans de­clined by 1.1x.The con­tin­ued decline of lend­ing rates led to a slight nar­row­ing of net in­ter­est mar­gins, af­ter reach­ing a peak in Q2 of 2018.

The CBE added that, in eq­uity mar­kets, real prices con­tin­ued to be af­fected by the neg­a­tive sen­ti­ment in EMs. Nev­er­the­less, the EGX30 USD in­dex con­tin­ued to out­per­form the MSCI EM in­dex since March 2018, since its re­cent cu­mu­la­tive 30% drop since May 2018.

Mean­while, real unit prices re­ported de­clines in se­lect dis­tricts of Cairo’s res­i­den­tial real es­tate sec­tor dur­ing Q3 of 2018 for the first time since Q4 of 2016.The de­mand con­tin­ued to shift from sec­ondary mar­kets to­wards pri­mary mar­kets, given more flex­i­ble pay­ment plans of­fered by nu­mer­ous de­vel­op­ers.

Broad money growth con­tin­ued to decline sup­ported by fis­cal con­sol­i­da­tion

Fol­low­ing the fad­ing of the ex­change rate reval­u­a­tion ef­fect in Q4 of 2017, an­nual M2 (money sup­ply) growth con­tin­ued to decline to av­er­age 17.1% in Q3 of 2018, sup­ported by fis­cal con­sol­i­da­tion.The con­tri­bu­tion of for­eign non-bank and ex­ter­nal fi­nanc­ing con­tin­ued to de­crease in Q3 of 2018, in line with the re­ver­sal of net port­fo­lio in­flows due to global fac­tors as well as the ab­sence of Eu­robond is­suances.To­gether they have more than off­set the in­crease in do­mes­tic bank fi­nanc­ing. Data up to 2018 Q2 show that de­creas­ing M2 growth favourably co­in­cided with an­nual changes of broad money ve­loc­ity, which had turned pos­i­tive since Q3 of 2017 sug­gest­ing lower room for non­in­fla­tion­ary money growth, de­spite show­ing weaker mo­men­tum re­cently.

Mean­while,fol­low­ing its decline be­tween Q2 of 2017 and Q1 of 2018, the con­tri­bu­tion of claims on the pri­vate sec­tor to M2 growth in­creased mod­er­ately in Q3 of 2018 for the sec­ond con­sec­u­tive quar­ter. In­fla­tion-ad­justed L/C claims on the pri­vate sec­tor be­gan to witness an­nual in­creases since Q1 of 2018, af­ter record­ing an­nual con­tracts in 2017.

“The re­cov­ery was es­pe­cially ev­i­dent for claims on the pri­vate busi­ness sec­tor, while claims on the house­hold sec­tor re­claimed by a rel­a­tively weaker mag­ni­tude. More­over, the con­tri­bu­tion from net claims on



pub­lic eco­nomic au­thor­i­ties re­sumed its dec­li­na­tion in Q3 of 2018 af­ter a brief in­ter­rup­tion in Q1 and Q2 of 2018. Mean­while, the con­tri­bu­tion from claims on pub­lic sec­tor companies sta­bilised in Q3 of 2018 for the sec­ond con­sec­u­tive quar­ter,” the CBE added.

Within the com­po­nents of M2, the cur­rency in cir­cu­la­tion (CIC) as a per­cent­age of L/C de­posits in M2 sta­bilised in Q3 of 2018 for the sec­ond con­sec­u­tive quar­ter at a ra­tio be­low it’s long-term his­tor­i­cal av­er­age, sug­gest­ing con­tin­ued nor­mal­i­sa­tion of cur­rency hold­ing be­hav­iour.

Mean­while, the an­nual growth of for­eign cur­rency (F/C) de­posits in USD re­mained re­li­ably sta­ble, and the com­po­si­tion of the pri­vate sec­tor de­posits con­tin­ues to be in­creas­ingly lean­ing to­wards L/C.

More­over, the struc­ture of house­hold de­posits in L/C con­tin­ued to be dom­i­nated by de­posits of more than three years since May 2018, fol­low­ing 1.5 years of dom­i­nance by de­posits less than 3 years amid the in­tro­duc­tion of 1.5-year sav­ing cer­tifi­cates in pub­lic banks, at a higher rate com­pared to longer-term sav­ing cer­tifi­cates.

This re­ver­sal is con­sis­tent with ex­emp­tions of these cer­tifi­cates since May 2018, given their can­cel­la­tion in late April 2018.

An­nual growth of the mon­e­tary base (M0), ad­justed by to­tal ex­cess liq­uid­ity, con­tin­ued to decline in Q3 of 2018 for the fourth con­sec­u­tive quar­ter due to CBE bal­ance sheet op­er­a­tions which led to lower ex­cess liq­uid­ity growth.

The money mul­ti­plier, mea­sured as the ra­tio be­tween lo­cal cur­rency com­po­nents of broad money and M0, re­mained broadly sta­ble for the fourth con­sec­u­tive quar­ter in Q3 of 2018, fol­low­ing its decline be­tween Q3 of 2016/17, given the rel­a­tive sta­bil­ity of the CIC, ex­cess liq­uid­ity and re­quired re­serves as a share of L/C de­posits.

An­nual real GDP growth sta­bilised at 5.4% in Q2 of 2018, af­ter ris­ing for six con­sec­u­tive quar­ters, and the un­em­ploy­ment rate sta­bilised at 10.0% in Q3 of 2018

Af­ter in­creas­ing for six con­sec­u­tive quar­ters since Q4 of 2016, real GDP growth sta­bilised at 5.4% in Q2 of 2018. Com­pared to the pre­vi­ous quar­ter, the pos­i­tive con­tri­bu­tion of pri­vate do­mes­tic de­mand and net ex­ports de­clined, while that of the pub­lic do­mes­tic de­mand in­creased. The un­em­ploy­ment rate sta­bilised at 10.0% in Q3 of 2018, af­ter be­ing on a down­ward slope for seven con­sec­u­tive quar­ters.

The decline in pri­vate de­mand was mainly driven by pri­vate con­sump­tion and to a lesser ex­tent by pri­vate in­vest­ments, while the in­crease in pub­lic de­mand was mainly driven by pub­lic in­vest­ments in elec­tric­ity, nat­u­ral gas ex­trac­tions, among other sec­tors. The pos­i­tive con­tri­bu­tion of net ex­ports to growth con­tin­ued to decline for the sec­ond con­sec­u­tive quar­ter, driven mainly by ex­ports.

At the sec­toral level, growth sta­bilised mainly as the less favourable pos­i­tive con­tri­bu­tion of the nat­u­ral gas ex­trac­tions, and ac­tiv­ity was off­set by mi­nor im­prove­ments in con­struc­tion and other sec­tors.

Avail­able lead­ing indicators for the non-hy­dro­car­bon sec­tor in­di­cated de­creas­ing ac­tiv­ity. The Pur­chas­ing Man­ager’s In­dex weak­ened com­pared to its av­er­age level in Q2 of 2018. Ho­tel oc­cu­pancy rates de­creased com­pared to Q3 of 2018. Car sales and Suez Canal net ton­nage re­ceded on an­nual terms in Q3 of 2018 com­pared to Q2 of 2018.

On the other hand, nat­u­ral gas pro­duc­tion in­creased on an­nual terms at a faster pace dur­ing July and Au­gust 2018, com­pared to the av­er­age pace in Q2 of 2018.

The ex­ter­nal bal­ance con­tin­ued to ben­e­fit from in­creased com­pet­i­tive­ness and the lib­er­alised ex­change rate sys­tem

The cur­rent ac­count deficit con­tin­ued to nar­row in Q2 of 2018 on an­nual terms for the sev­enth con­sec­u­tive quar­ter.The pace of im­prove­ment re­gained mo­men­tum in Q2 of 2018, af­ter los­ing ve­loc­ity in the pre­vi­ous two quar­ters.

Com­pared to the pre­vi­ous quar­ter, a more favourable an­nual con­tri­bu­tion from the hy­dro­car­bon trade deficit, net ser­vices re­ceipts and re­mit­tances have more than off­set the less favourable con­tri­bu­tion from the non-hy­dro­car­bon trade deficit and net in­come pay­ments.

“Taken to­gether, net ex­ports of goods and ser­vices con­tin­ued to con­tract in Q2 of 2018 on an­nual term for the sixth con­sec­u­tive quar­ter, as higher ex­ports of goods and ser­vices con­tin­ued to more than off­set higher im­ports,” ac­cord­ing to the CBE.

How­ever, the pace of an­nual im­prove­ment con­tin­ued to slow down for the third con­sec­u­tive quar­ter.

De­spite higher oil prices in Q2 of 2018, which in­creased the value of hy­dro­car­bon ex­ports and im­ports, the hy­dro­car­bon trade deficit re­sumed its im­prove­ment on an­nual terms in Q2 of 2018 for the sec­ond con­sec­u­tive quar­ter af­ter de­te­ri­o­rat­ing in Q4 of 2017, sup­ported mainly by lower im­port vol­umes and in­creased do­mes­tic pro­duc­tion.

Af­ter wit­ness­ing a grad­ual cur­tail­ment in its an­nual im­prove­ment since Q1 of 2017, the non-hy­dro­car­bon trade deficit con­tin­ued to in­crease in Q2 of 2018 for the third con­sec­u­tive quar­ter. The neg­a­tive an­nual con­tri­bu­tion of non-hy­dro­car­bon im­ports con­tin­ued to in­crease for the third con­sec­u­tive quar­ter, while the pos­i­tive con­tri­bu­tion of non­hy­dro­car­bon ex­ports de­clined for the first time since Q2 of 2017.

The ser­vices sur­plus con­tin­ued to in­crease in Q2 of 2018 on an­nual terms, and its con­tri­bu­tion to the im­prove­ment of the cur­rent ac­count deficit rose, yet its pace of growth soft­ened for the sec­ond con­sec­u­tive quar­ter.

The weaker pace was pri­mar­ily due to a less favourable con­tri­bu­tion from net re­ceipts from tourism, trans­porta­tion ex­clud­ing Suez Canal tolls, as well as net gov­ern­ment ser­vices, which have more than off­set the more favourable con­tri­bu­tion from Suez Canal tolls and net other ser­vices.

On the other hand, net for­eign di­rect in­vest­ments (FDIs) in­flows reg­is­tered an an­nual in­crease Q2 of 2018 for the first quar­ter since Q2 of 2017.

Mean­while, port­fo­lio flows reg­is­tered a net out­flow in Q2 of 2018 for the first quar­ter since Q3 of 2016. This was mainly due to net port­fo­lio outflows ex­clud­ing bonds due to global fac­tors more than off­set­ting the in­flow from the €2.0bn Eurobonds is­sued in April 2018. Fur­ther­more, gross in­ter­na­tional re­serves reg­is­tered $44.5bn in Oc­to­ber 2018, the high­est on record.

Global eco­nomic growth con­tin­ued to decline, in­ter­na­tional oil prices de­creased, and cap­i­tal outflows from EMs con­tin­ued, how­ever, at a rel­a­tively weaker pace

Eco­nomic growth of Egypt’s ex­ter­nal en­vi­ron­ment con­tin­ued to soften, reg­is­ter­ing 2.8% in Q3 of 2018, com­pared to 3.2% in Q4 of 2017, the high­est pace since 2011.

Eco­nomic growth in ad­vanced economies con­tin­ued to ease for the third con­sec­u­tive quar­ter to reg­is­ter 1.8%, as slower growth in the euro area, and Ja­pan more than off­set a slightly stronger growth in the UK.

Mean­while, eco­nomic growth of the US re­mained broadly sta­ble in 2018 Q3, com­pared to the pre­vi­ous quar­ter.

On the other hand, eco­nomic growth in emerg­ing economies soft­ened some­what to reg­is­ter 4.8% in Q3 of 2018, af­ter main­tain­ing its con­tin­u­ous im­prove­ment be­tween Q4 of 2015 and Q2 of 2018. Slower growth in In­dia and China com­pen­sated a higher growth in Brazil. Mean­while, eco­nomic growth of Rus­sia re­mained broadly sta­ble in Q3 of 2018, com­pared to the pre­vi­ous quar­ter.

Head­line in­fla­tion of Egypt’s ex­ter­nal en­vi­ron­ment con­tin­ued to in­crease for the sec­ond con­sec­u­tive quar­ter to reg­is­ter 2.5% in Q3 of 2018, com­pared to 2.2% in Q2 of 2018.

In­fla­tion in ad­vanced economies con­tin­ued to in­crease to reg­is­ter 2.2% in Q3 of 2018, up from 2.0% in Q2 of 2018, mainly due to a moder­ate ac­cel­er­a­tion of the euro area, the UK and Ja­pan in­fla­tion rates, de­spite the mar­ginal de­cel­er­a­tion of in­fla­tion rates in the US in Q3 of 2018.

Fur­ther­more, in­fla­tion rates in emerg­ing economies rose slightly to reg­is­ter 3.0% in Q3 of 2018, af­ter sta­bil­is­ing for the pre­vi­ous two quar­ters at 2.7%.The ac­cel­er­a­tion of in­fla­tion rate in Brazil, China, and Rus­sia neu­tralised the de­cel­er­a­tion of the in­fla­tion rate in In­dia in Q3 of 2018, com­pared to the pre­vi­ous quar­ter.

Af­ter slow­ing down in Q2 of 2018, global trade an­nual growth ac­cel­er­ated mod­estly to an av­er­age of 3.9% be­tween July and Au­gust 2018. This com­pares to an av­er­age of 3.6% in the pre­vi­ous quar­ter.

Brent crude oil prices con­tin­ued to decline to reg­is­ter an av­er­age of $69.9 per bar­rel in the first two weeks of Novem­ber 2018, af­ter peak­ing at $86.1 per bar­rel in mid-Oc­to­ber 2018.This was mainly driven by con­cerns about global eco­nomic growth, grow­ing US in­ven­to­ries, as well as a tem­po­rary waiver of Iran sanc­tions which came into ef­fect in early Novem­ber 2018. Nonethe­less, spot prices re­mained sub­ject to po­ten­tial volatil­ity stem­ming from the sup­ply side.

“Mean­while, in­ter­na­tional food prices, us­ing do­mes­tic consumer pri9ce in­dex (CPI) bas­ket weights of core food items, con­tin­ued to decline on an­nual terms in Oc­to­ber 2018 for the fifth con­sec­u­tive month, to reg­is­ter its largest an­nual decline since May 2016 at neg­a­tive 7.4%,” the re­port stated.“This decline was mainly due to red meat, dairy prod­ucts, oils, and sugar as pro­duc­tion con­di­tions im­proved.”

The Fed­eral Re­serve kept its pol­icy rate un­changed in Novem­ber, af­ter rais­ing it by 25 bps in Septem­ber 2018 for the third time in 2018.The Bank of Eng­land also kept its pol­icy rate un­changed in Novem­ber, af­ter rais­ing it by 25 bps in Au­gust 2018 for the sec­ond time since Novem­ber 2017.

Fur­ther­more, the Euro­pean Cen­tral Bank kept its pol­icy stance un­changed. The three cen­tral banks made no changes to their as­set pur­chase pro­grammes since the pre­vi­ous mon­e­tary pol­icy re­port.The Fed­eral Re­serve main­tained its bal­ance sheet re­laxed plan, which started in Oc­to­ber 2017, slow­ing down the amount of gov­ern­ment debt it rein­vests. Mean­while, the Euro­pean Cen­tral Bank main­tained its plan to phase out its as­set pur­chase pro­gramme, halv­ing monthly pur­chases since Jan­uary 2018 to €15bn un­til the end of De­cem­ber 2018.

Cap­i­tal flight from EMs, which started in Fe­bru­ary 2018, con­tin­ued for the ninth con­sec­u­tive month in Oc­to­ber 2018, how­ever, at the slow­est monthly pace since April 2018. Cap­i­tal outflows were sup­ported by con­cerns about the growth out­look for emerg­ing economies, the prospects of fur­ther es­ca­la­tion in trade ten­sions,tighter global fi­nan­cial con­di­tions, as well as weaker fun­da­men­tals in some emerg­ing economies.





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