Archive for Economics & Fundamentals

Busy Tuesday: BOJ, UK Claimant Count & German ZEW

By Orbex

Tomorrow we have a host of important data coming out, primarily during the European session. And it could really rile up the markets!

Somewhat ironically, the most important data, the BOJ Interest Rate decision, might not be as market moving as the others, such as UK Claimant Count and German ZEW Economic Sentiment Indicator.

After a relatively calm weekend in regards to market-moving news, attention is on a very busy schedule.

The fourth-quarter earnings season is getting into full swing this week! Analysts continue to point to weak economic data from the UK, while others see the ECB having a more positive outlook following the leadership change.

What We Are Looking For

First up in the really early morning for European traders we have the Interest Rate decision by the BOJ. Expectations pretty much assure that the bank will leave rates where they are. Where we could get some action is right after the announcement, as we have Kuroda’s interminable press conference.

There is a growing consensus that negative rates have not boosted the economy or inflation. This is leading a majority of economists to predict that the BOJ will soon end its stimulus.

The question is what “soon” means. Speculation now is whether Kuroda will lift the BOJ’s growth outlook, which could provide some support for the JPY.

During early trading, longer-term bond yields rose in anticipation.

UK Might Reverse Trend

The next major event to look out for is UK employment data for December. Of course, there could be an impact from the General Election at the beginning of the month with the concurrent uncertainty. So, the market may not take a miss of expectations too badly.

Usually, the figure that moves the market is Claimant Count Change. Projections expect this to come in at 21.2K, an improvement from 28.8K in November.

Expectations are for yet another improvement with the unemployment rate to come in at 3.7% compared to 3.8% prior. In terms of inflation implications and BOE policy, total pay is expected to have increased by 3.4% compared to 3.2% in the prior report.

If expectations are met, we could see some more optimism for the pound, since it would justify the BOE keeping from cutting rates just a little bit longer.

Germany Not So Optimistic

Finally, we have the ZEW Economic Sentiment Indicator. We can expect this to dip back to 4.3.

A result like this would still be in expansion, but it would be a break from the rising trend that it’s been having since the middle of last year.

This might simply be a correction, of course, since the change isn’t all that big. The current situation is expected to improve but still remain in contraction, to -12.4 compared to -19.9 prior.

By Orbex

Trump Impeachment Trial Underway

By Orbex

This probably isn’t the start to the year (or decade for that matter) that Donald Trump had in mind.

Last week, the US House of Representatives voted in favor of sending articles of impeachment to the Senate for a trial next week.

The motion passed by 228 votes to 193. House Speaker Nancy Pelosi signed the articles of impeachment alongside Democratic lawmakers who will lead the prosecution against Trump.

Making History

Speaking at a press conference ahead of the document signing, Pelosi told reporters:

“Today we will make history. When the managers walk down the hall, we will cross a threshold in history – delivering articles of impeachment against the president of the United States for abuse of power and obstruction of the House.”

Trail To Begin on Tuesday

The trial will begin this Tuesday. Given that the Senate is controlled by Trump’s Republican party, it is unlikely that the Senate will vote to convict Trump and remove him from office.

However, the damage to his reputation might strike a decisive blow to Trump’s chances of re-election at the upcoming presidential elections in November.

Trump’s 2020 Chances in Question

Trump’s chances of re-election have been in the news for other reasons this week.

Lev Parnas, the businessman embroiled in the Ukranian situation at the heart of Trump’s impeachment scandal, along with Trump’s personal attorney Rudy Giuliani, made controversial comments about the issue this week.

Parnas Comments Anger Trump

Speaking with CNN, Parnas told reporters that Trump’s motivations for attempting to discredit political rival Joe Biden were not due to his concerns over political corruption in Ukraine but instead, “were all about 2020.”

Parnas told reporters:

“That was the most important thing, for him to stay on for four years and keep the fight going. I mean, there was no other reason for doing it.”

However, ahead of the official arguments which begin on Tuesday, Trump has already vehemently argued that he does not know who Parnas in. This is despite the existence of a stream of pictures of the two men together.

In response, Trump has stated that while he might have taken a photo with him, he has no knowledge of who he is and has certainly never been in contact with him regarding any request for help.

Conviction Unlikely

The impeachment trial certainly takes the shine off Trump’s trade deal with China, which was signed in Washington last week. Again, while conviction and removal from office are unlikely for Trump, the key here will be the impact on his 2020 campaign.

Technical Perspective

The US Dollar index has posted a firm recovery off the 96.37 level. It is now testing the 97.42 resistance, in the middle of the bearish channel from 2019 highs.

Above here, the channel top is the next resistance, ahead of the 98.25 level.

By Orbex


Living Dangerously at Volcano Taal’s Shadow: New Geological and Weather Risks in the Horizon

By Dan Steinbock – The Philippine Taal eruption may reflect new risks. With accelerating climate change, more frequent eruptions could prove likely over time, while the US exit from the Paris Agreement will accelerate climate risks in the coming years.

On January 12, my wife and I were walking around Malate, close to Manila Bay. It was a beautiful, warm and sleepy Sunday afternoon. Little did we know about the turmoil that was bursting only 50 kilometers to the south in the proximity of Taal volcano, which is located on Luzon island in the province of Batangas.

After two stronger explosions, far worse followed in early evening as a continuous eruption generated a huge 10-15 kilometers high steam-laden tephra column with frequent volcanic lightning that rained wet ashfall as far as Metro Manila.

In addition to the danger zone of almost half a million people, 25 million people live within 100 km of the volcano. The Alert Level 4 remains effective in the region, indicating that “a hazardous explosive eruption is possible within hours to days.”

Taal may precipitate new kinds of risks.

“Geological” and “weather-related” events

According to the Global Climate Risk Index 2020, long-term climate risk is relatively highest in Puerto Rico, Myanmar, Haiti and the Philippines, which have been identified as the most affected countries in the past two decades. The ranking is based only on weather-related events – storms, floods as well as temperature extremes and mass movements (heat and cold waves etc.). It does not include “geological incidents,” like earthquakes, volcanic eruptions or tsunamis, which are not considered “relevant” for the purpose.

Intriguingly, in the past month alone, such geological incidents have hit several countries that top the list of weather-related events. Earthquakes registering a magnitude of 4.3 to 6.4 have shaken Puerto Rico, Myanmar, Pakistan, Nepal and Dominica, while the Philippines has also coped with Taal’s eruption.

Countries Most Affected by Recent earthquakes/Volcanic Activity

Long-Term Climate Risk Magnitude Date

  1. Puerto Rico 6.4 Jan 7    2020
  2. Myanmar 4.3 Jan 14 2020
  3. Haiti 3.1 Dec 18 2019
  4. Philippines 4.6 Jan 17 2020
  5. Pakistan 4.8 Jan 18 2020
  6. Vietnam 4.8 Nov 27 2019
  7. Bangladesh 4.3 Sep 3 2019
  8. Thailand 4.5 Nov 29 2019
  9. Nepal    4.2 Jan 12 2020
  10. Dominica 3.3 Jan 13 2020

Sources: Long-term climate risk: 1999-2018, Global Climate Risk Index 2020; Recent earthquakes: Earthquake Report.

Of course, correlation does not mean causation. But what does it mean?

Countries that are most affected by climate change are quite familiar with geological events as well. Last December, after 15 years of recovery, the catastrophic Aceh tsunami and earthquake, which affected 14 countries and caused 280,000 lives, marked its 15th anniversary. A day after the Taal eruption, Haiti marked its 10-year anniversary of the 2010 earthquake, which killed 300,000 people.

While climate skeptics tend to understate the association between geological and weather-related events, climate alarmists overstate the correlation. The emerging scientific view may prove more nuanced, however.

Geosphere and climate change

Recently, the number of those who do see “some kind” of correlation between climate change and volcanic activity has been on the rise. One of them is emeritus professor Bill McGuire in geophysical and climate hazards at University of California in Los Angeles (UCLA). In 2012, McGuire published Waking the Giant. As its subtitle suggests, he argues that, in the complicated Earth-system, a changing climate may “trigger earthquakes, tsunamis and volcanoes.”

A warmer atmosphere may promote greater melting of the polar ice caps, thereby raising sea levels and increasing the risk of coastal flooding. Similarly, the thin layer of gases that hosts the weather and fosters global warming may interact with the solid Earth – the geosphere — in a way as to make climate change an even bigger threat.

Although causal links are challenging to verify, an increasing number of scientists share McGuire’s views about the mechanics of the correlation between geological and weather-related events. In 2009, Chi-Ching Liu at Taipei’s Academia Sinica provided evidence for a link between typhoons barreling across Taiwan and the timing of small earthquakes beneath the island. In their view, storms might act as safety valves, repeatedly short-circuiting the buildup of dangerous levels of strain that otherwise could eventually instigate large, destructive earthquakes.

In a 2017 study on Iceland’s eruptions some 5,500-4,500 years ago, Graeme Swindles and his team in the UK University of Leeds found that the number of eruptions dropped significantly as the climate cooled and ice expanded. Since it took a long time to grow ice masses, there was a time lag of 600 years between when glaciers advanced and volcanic activity diminished.

Nevertheless, even small changes in ice volume can affect volcanism. And if the temperature is going up fast, it takes less time to melt ice, which may translate to a far shorter time lag.

According to the World Meteorological Association, 2019 was the second-warmest year on record. Since the 1980s, each successive decade has been warmer than any preceding decade since 1850. Climate change is contributing to rising probability of more volcanic activity in areas of the world where glaciers and volcanoes interact.

And as the climate warms faster, eruptions are likely to get bigger.

US withdrawal from Paris Accord amplifying risks

Despite rapidly-rising climate risks, the struggle against climate change is about to enter a more dangerous phase. In mid-2017, President Trump declared the United States would withdraw from the Paris Agreement (PA), an international accord to address climate change over the 21st century. Last November, the US began the official withdrawal procedure, which would likely take effect on or after November 4, 2020 – interestingly, a day after the 2020 US presidential election.

In US foreign policy, such withdrawal is likely to diminish US standing in the world by making the country an international rogue state on climate change, thereby reducing US reliability as a negotiating partner. Unlike Washington, Beijing and Brussels support the Paris Accord and have increased efforts in the global struggle against climate change.

In terms of the environment, US withdrawal would undermine international consensus and commitment to reduce greenhouse gas emissions (GHGs) to net zero in the second half of the century.

Most Americans and, according to surveys, 80% of young people think the federal government should address climate change opposing the impending Trump withdrawal. Many are promoting the proposed “Green New Deal,” a comprehensive legislative package introduced by Rep. Alexandria Ocasio-Cortez, the popular New York Democrat and Socialist.

In global economy, the Paris Accord was designed to pave a way to long-term shift for world economies could move toward “deep decarbonization” over time. During the transition, economic growth would be sustained, yet delinked from emissions of CO2 and other GHGs. While this transition would result in short- and medium-term costs, unsustainable development would impose far greater costs over time.

By the end of the century, the costs associated with unsustainable development, under high emissions scenarios, are projected in hundreds of billions of dollars per year (as reported by Climate Impacts and Risk Analysis, 2017) and up to -15.7% of GDP (2017 report by Hsiang and colleagues).

In brief, unsustainable climate change has unbearable costs. If the US exit will materialize at the end of the ongoing year, global climate risks and associated adverse costs will increase accordingly – including extreme geological events.

About the Author:

Dr. Dan Steinbock is an internationally recognized strategist of the multipolar world and the founder of Difference Group. He has served at the India, China and America Institute (USA), Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, see 

Versions of the original commentary have been released by China Daily and The Manila Times.


The Week Ahead: Keep It Steady

By Orbex

Trade of the week

USDCAD Comes Under Renewed Pressure

Wednesday will see heightened volatility in the Canadian dollar. The consumer price index (CPI) will indicate whether inflation has picked up, an upbeat number would boost the loonie at the greenback’s expense. Later on, the Bank of Canada is due to announce its interest rate decision. Resilience in the housing market and improved business sentiment could lead the BoC to issue a positive outlook. A rally in the Canadian dollar would resume the pair’s downtrend from last November. 1.3000 would be the immediate target, while 1.3100 around the 20 and 30-day moving averages will be a key resistance level.

AUDJPY Hovers Under Key Resistance

Brighter trade prospects allowed the Australian dollar to rally back to its highs from last summer. As the Bank of Japan issues its rate decision this week, markets widely expect the bank to keep its monetary policy steady for the time being. An upbeat growth outlook could support the yen in the short term. However, improvement in global sentiment is likely to favor the Aussie in the medium term. The pair is about to test the previous high of 76.50. A breakout on the upside could trigger a rally towards 77.30.


EURGBP Looks for Opportunity to Bounce

The euro’s recent recovery has much to do with signs of economic stabilization and an optimistic tone from the ECB in December. An assertive central bank on Thursday could further lift the single currency. On the flip side of the coin, soft UK retail sales have slammed a brake on the pound’s rally. A disappointing employment figure on Tuesday could fuel speculations of a BOE rate cut, and push the pound into new lows. 0.8460 is a major support level for the euro to rebound. On the upside, the psychological level of 0.8600 needs to be lifted before any protracted rally.

Gold Enters Consolidation Phase

Global sentiment remains upbeat after the US and China signed the “phase one’ trade deal, in which China agreed to buy $200 billion worth of US products. However, a number of market commentators fear that the truce is brittle. Chinese growth has slowed down drastically. It may seem too optimistic to believe that China has the capacity to absorb a 50% increase in American imports. The precious metal may continue to grind sideways after its meteoric rise. 1535 near the 20-day moving average is the immediate support.

By Orbex

China maintains LPR at 4.15% for 2nd month


China’s central bank left its new benchmark interest rate, the one-year Loan Prime Rate (LPR), steady at 4.15 percent for the second month in a row as expected after the rate on the medium-term lending facility (MLF) was maintained on Jan. 14.

The People’s Bank of China (PBOC) also kept the rate on the 5-year LPR, used to price mortgages, at 4.80 percent.
After reforming its method for calculating LPR and designating it as its new benchmark rate for all loans on August 17, 2019, PBOC set it as 4.25 percent on Aug. 20, 6 basis points below the old LPR and 10 basis points below the previous benchmark lending rate.

LPR was then cut a further 5 basis points in September and November last year for a total effective easing of 20 points in the benchmark lending rate since August.

Under the revised method for calculating the benchmark lending rate, LPR is expressed as a spread to the rate on MLF, which last week was maintained at 3.25 percent.


This week in monetary policy: China, Japan, Malaysia, Canada, Norway, Indonesia, ECB, Paraguay & Nigeria


    This week – January 19 through January 25 – central banks from 9 countries or jurisdictions are scheduled to decide on monetary policy: China, Japan, Malaysia, Canada, Norway, Indonesia, the euro area, Paraguay and Nigeria.
    Following table includes the name of the country, the date of the next policy decision, the current policy rate, the result of the last policy decision, the change in the policy rate year to date, and the rate one year ago.
    The table is updated when the latest decisions are announced and can always accessed by clicking on This Week.
JAN 19- JAN 25, 2020:
CHINA 20-Jan 4.15% 0 0 4.35%          EM
JAPAN 21-Jan -0.10% 0 0 -0.10%          DM
MALAYSIA 22-Jan 3.00% 0 0 3.25%          EM
CANADA 22-Jan 1.75% 0 0 1.75%          DM
NORWAY 23-Jan 1.50% 0 0 0.75%          DM
INDONESIA 23-Jan 5.00% 0 0 6.00%          EM
EURO AREA 23-Jan 0.00% 0 0 0.00%          DM
PARAGUAY 23-Jan 4.00% 0 0 5.25%
NIGERIA 24-Jan 13.50% 0 0 14.00%          FM


South Korea keeps rate and easy monetary policy stance


South Korea’s central bank left its base rate steady at 1.25 percent and said it would maintain its accommodative monetary policy stance as economic growth is expected to be moderate, restraining any upward pressure on inflation.

The Bank of Korea (BOK), which cut its rate twice last year, most recently in October,  also reiterated its guidance from November that it is still ready to “adjust the degree of monetary policy accommodation” while it carefully monitors global trade disputes, the economies of major countries, household debt and how geopolitical risks affect the domestic economy.

BOK said the pace of global economic growth had continued to slow but “sluggishness in the domestic economy has eased somewhat” as investment in facilities had risen slightly and consumption growth had expanded while investment in construction continued to decline.

BOK said South Korea’s economy is forecast to grow at the “lower-2% level” this year, as it projected in November, as the sluggishness in exports and facilities investment gradually eases and consumption rises while construction investment remains depressed.

In 2019 South Korea’s economy is estimated to have expanded 2.0 percent.

    The Bank of Korea issued the following statement:

“The Monetary Policy Board of the Bank of Korea decided today to leave the Base Rate unchanged at 1.25% for the intermeeting period.

Based on currently available information the Board considers that the pace of global economic growth has continued to slow with the ongoing sluggishness in trade. The global financial markets have been generally stable in line mainly with progress in the US-China trade negotiations, while recently volatility temporarily increased due to the escalation of military tensions in the Middle East. Looking ahead, the Board sees global economic growth and the global financial markets as likely to be affected largely by developments in global trade protectionism and geopolitical risks.

The Board judges that the sluggishness in the domestic economy has eased somewhat. Facilities investment has slightly increased and consumption growth has expanded, although construction investment and exports have continued to decline. Employment conditions have continued to improve in some respects, with the increase in the number of persons employed having risen. GDP is forecast to grow at the lower-2% level this year, consistent overall with the level projected in November. Although the adjustment in construction investment will continue, the sluggishness in exports and facilities investment will gradually ease and the consumption growth rate will moderately rise.
Consumer price inflation has risen to the upper-0% level, due largely to a smaller decline in the prices of agricultural, livestock and fisheries products and to increases in petroleum product prices. Core inflation (with food and energy product prices excluded from the CPI) has been at the mid-0% range, and the rate of inflation expected by the general public has remained at the upper-1% level. Looking ahead, it is forecast that during this year consumer price inflation will rise to around 1%, generally in accord with the path projected in November, and core inflation will run at the upper-0% level.
In the domestic financial markets, stock prices have risen and the Korean won-US dollar exchange rate has fallen, affected chiefly by movements in the global financial markets and expectations of a recovery in the semiconductor industry. Long-term market interest rates have rebounded from an earlier decline. The amount of increase in household lending has expanded, and housing prices have shown high rates of increase in Seoul and its surrounding areas especially.

Looking ahead, the Board will conduct monetary policy so as to ensure that the recovery of economic growth continues and consumer price inflation can be stabilized at the target level over a medium-term horizon, while paying attention to financial stability. As it is expected that domestic economic growth will be moderate and it is forecast that inflationary pressures on the demand side will remain at a low level, the Board will maintain its accommodative monetary policy stance. In this process it will judge whether to adjust the degree of monetary policy accommodation, while carefully monitoring developments in global trade disputes, the economies of major countries, the trend of increase in household debt, and geopolitical risks and examining their effects on domestic macroeconomic and financial stability conditions.”


Uzbekistan holds rate but sees possible slight rate cut

Uzbekistan’s central bank left its refinancing rate steady at 16.0 percent but said a slight decrease in the rate was possible in the next monetary policy meetings.
The Central Bank of the Republic of Uzbekistan (CBU), which has maintained its rate since raising it in September 2018 due to high inflation, said the decision to maintain the rate today was to strengthen its confidence that inflation would decelerate along with persistent uncertainties over changes to regulated prices.
Uzbekistan’s inflation rate at the end of 2019 was 15.2 percent, near the upper boundary of CBU’s forecast corridor of 13.5 to 15.5 percent, with a rise in the second half of last year mainly caused by a liberalization of some regulated prices (an uptick fo 21.6 percent in prices) along with a fall in the exchange rate of the sum in August 2019, the bank said.
But in the fourth quarter of last year, the quarterly inflation rate slowed to 5.0 percent from 5.7 percent in the same 2018 period and CBU is forecasting inflation of 12.0 to 13.5 percent in 2020.
This forecast is based on the assumptions of a slower rise in food prices, an expansion of agricultural output, better supply of textiles and construction, moderate credit growth, the exhaustion of some of the inflationary impulses that arose last year along with a fiscal stance that should prevent excess demand, thus easing the upward pressure on inflation and pressure on the exchange rate.
Last year the sum lost 12.3 percent of its value against the U.S. dollar but this year the depreciation has slowed with sum trading at 9,550 today, down 0.5 percent since January 1.
Uzbekistan’s economy expanded last year by an estimated 5.5 to 5.6 percent and the central bank said conditions for this year, especially in the first half, remain favorable due to stimulating fiscal and credit policies and the positive outlook for major export commodities.


What To Expect From China GDP

By Orbex

Tonight we have the biggest event for Asian markets for the week – probably even for the month!

We are expecting a host of economic data from China, chief among them quarterly GDP. The Asian giant is expected to close out the year just barely within official projections.

Despite downward pressure from many factors, officially, the Chinese economy continues to grow. This could help support other far east currencies.

Following the release of a barrage of economic data, including Industrial Production and Retail Sales, the Chinese National Bureau of Statistics will host a press conference. The comments from there can also move the market.

Therefore, the Asian session can be quite volatile. Analysts will be keen to hear the latest official projections for economic growth during 2020.

What We Are Looking For

The star of the event will be, as mentioned, quarterly GDP figures. The consensus of expectations is that China’s economy grew by 1.4% in the fourth quarter.

This would be just a slight slowing of the pace from 1.5% in the third. A result like this would imply an annual GDP growth rate of 6.0%, at the very bottom of the government’s projection range.

6.0% would be slower than during the middle of the 2009 crisis, and we’d have to go all the way back to 1992 to find a growth rate that low. However, the perception seems to be focused on going forward, with a more optimistic outlook.

Still Paying Attention to Drama

The primary reason most economists give for poor growth in China is the trade conflict with the US.

With the world’s two largest economies finally, officially signing a Phase 1 agreement, the outlook has turned positive. Poor economic indicators from China are being termed “last year’s news”.

China’s currency has been strengthening since September in the lead up to the latest round of trade negotiations and following record stimulus spending by the Chinese government.

Increased purchasing power might help fuel Chinese shopping sprees. This, in turn, would support exports from Japan, Australia, and New Zealand.

So, How Good?

Despite all the fanfare regarding the potential of the Phase 1 deal, there isn’t much consensus on what it means in terms of real impact on China’s economy.

It’s a step towards normalizing trade relations between the US and China. However, it is by no means a return to the situation in early 2017, when the Chinese economy was already starting to show some slack despite no trade issues.

As the measures of the agreement are implemented, we’ll get a better view of whether optimism among investors has gotten ahead of reality. Other emerging markets might find themselves benefiting more from the climate of easing trade tensions and more risk appetite than China.

Over the next few weeks, it will be interesting to review corporate reports from Chinese firms regarding their capital investment plans.

Also, we’ll have to see whether US firms plan to ramp up purchases from China. They might communicate this in their fourth-quarter reports over the next month.

By Orbex

Turkey cuts rate “measured” 75 bps, sees inflation easing


Turkey’s central bank lowered its policy rate by another 75 basis points to 11.25 percent and reiterated its monetary policy stance is consistent with the projected path of slowing inflation but it still needs to maintain a “cautious” policy stance to ensure inflation declines.

It is the first rate cut by the Central Bank of the Republic of Turkey (CBRT) this year but continues the rapid pace of easing since July last year when the current governor, Murat Uysal, took over from Murat Cetinkay, who was fired for failing to follow President Recep Tayyip Erdogan’s instructions to lower rates.

Since July 2019 CBRT has cut its key rate by 12.75 percentage points but inflation has also come down sharply since topping 25 percent in October 2018 following a currency crises that sent import prices soaring.

In 2019 Turkey’s inflation rate decelerated from just over 20 percent in January to a low of 8.55 percent in October before rising in November and further in December to 11.84 percent, fueling expectations the central bank may trim the size of today’s rate cut to around 50 basis points.

CBRT has forecast inflation of 12 percent by the end of 2019 and expects it to decline further to 8.5 percent by the end of 2020, with a decision in December to scrap an automatic tax increase on alcohol and tobacco products in the first half of this year helping curb inflation further.

“The course of inflation is considered to be broadly in line with the year-end inflation projection,” CBRT said, adding the exchange rate, domestic demand and producer prices have contributed to a mild trend in core inflation.

The central bank repeated its guidance that the monetary policy stance would be determined by considering the underlying trend in inflation to ensure it continues to decline.
In December the International Monetary Fund (IMF) forecast inflation would remain largely stable at around 12 percent in both 2020 and 2021, adding “the recent monetary policy easing has gone too far,” given the still-high inflation expectations and rapid credit growth in state-owned banks.

Turkey’s lira, which fell 33 percent in 2018 and another 11 percent in 2019, has bounced back in the last week and rose further today following the central bank’s decision.
The lira rose 0.5 percent to 5.85 per U.S. dollar today to be up 1.7 percent this year, helped by the recent rise in emerging market assets.

The Central Bank of the Republic of Turkey released the following press release from its monetary policy committee:

“Participating Committee Members

Murat Uysal (Governor), Murat Çetinkaya, Ömer Duman, Uğur Namık Küçük, Oğuzhan Özbaş, Emrah Şener, Abdullah Yavaş.
The Monetary Policy Committee (the Committee) has decided to reduce the policy rate (one-week repo auction rate) from 12 percent to 11.25 percent.
Recent data indicate that recovery in economic activity continues. Sectoral diffusion of economic activity continues to improve. However, investment demand remains weak. While favorable effects of improved competitiveness prevail, weakening global economic outlook tempers external demand. As the contribution of net exports to economic growth declines, economic recovery is expected to be sustained with the help of the ongoing disinflation process and improvement in financial conditions. Current account balance, which has recently recorded significant improvement, is expected to maintain a moderate course with the contribution of supportive policy measures.
Weakness in global economic activity and low levels of global inflation strengthen expectations regarding the continuation of expansionary monetary policies in advanced economies. Current global financial conditions and the recent partial improvement in expectations regarding global trade support the demand for emerging market assets and the risk appetite. Nevertheless, rising protectionism, uncertainty regarding global economic policies and geopolitical developments are closely monitored for their impact on capital flows, international trade and commodity prices.
Inflation outlook continued to improve and inflation expectations sustained their wide-spread decline. The improvement in macroeconomic indicators, inflation in particular, supports the fall in country risk premium and helps contain cost pressures. Developments in the exchange rate, domestic demand conditions and producer prices have contributed to a mild trend in core inflation indicators. The course of inflation is considered to be broadly in line with the year-end inflation projection. Accordingly, considering all factors affecting the inflation outlook, the Committee decided to make a measured cut in the policy rate. At this point, the current monetary policy stance remains consistent with the projected disinflation path.
The Committee assesses that maintaining a sustained disinflation process is a key factor for achieving lower sovereign risk, lower long-term interest rates, and stronger economic recovery. Keeping the disinflation process in track with the targeted path requires the continuation of a cautious monetary stance. In this respect, monetary stance will be determined by considering the indicators of the underlying inflation trend to ensure the continuation of the disinflation process. The Central Bank will continue to use all available instruments in pursuit of the price stability and financial stability objectives.
It should be emphasized that any new data or information may lead the Committee to revise its stance.
The summary of the Monetary Policy Committee Meeting will be released within five working days.”