Archive for Economics & Fundamentals

Getting Ready For German ZEW

By Orbex

Tomorrow we could get some extra volatility in Euro pairs with the release of key sentiment data from both Germany and the eurozone. Both figures come out at the same time. The market typically focuses on the largest economy in Europe. After risk sentiment getting a boost from Thursday’s ECB meeting, the question is whether that will continue.

The ZEW conducted their survey of major German and European firms in the lead-up the ECB decision. It’s too soon to see an effect from the policy changes in the central bank, of course. But given how strong the consensus was that some kind of easing would be in the offing, German businesses could have had a substantial improvement in their outlook, the portion of the survey that was most negative.

What We are Looking For

The market usually cares most about the ZEW Economic Sentiment Indicator (ESI). This measures expectations for the next six months. The consensus is for a substantial improvement, but still staying firmly in contraction, at -34.7 from -44.1 prior. This would reverse the trend seen since May when the indicator turned downwards and plunged to the worst result since the Euro crisis of 2011. During that same period, GDP in Germany slipped into negative growth.

Furthermore, the current situation assessment is expected to improve. The projection for the ZEW Economic Situation is -3.2. This would be a substantial improvement from -13.5 in the prior month, yet still in contraction.

ZEW ESI for Europe is expected at -32.2, an improvement also. This is from the prior month’s multi-year low of -43.6.


Aside from the effect of the at-the-time expected ECB action, one of the primary reasons to expect improvement in the figures this time around is a reversal in why they came in so bad last time. Last month’s poor result was attributed to a worsened trade dispute as well as increased Brexit uncertainty. The survey was done in the middle of the Parliament prorogation announcement.

Now that it seems the US and China are back at the negotiating table, and Brexit has returned to its normal level of chaos, risk sentiment has improved a bit. This has supported the DAX over the last couple of days, with the ECB measures seen helping the financial sector as well as supplying more liquidity to the market.

It’s Not All That Positive

While the markets might have felt relieved with the ECB’s action, and there is a slightly less negative atmosphere from the trade talks, that doesn’t mean that the concerns of German (and European) businesses have been resolved. Many firms have repeatedly said that regulatory issues are impacting them and that they are finding export difficult. The lower Euro might be helping with the latter, but comparatively the yuan is even lower. German industrial production is “overpriced” on the exchange market, in comparison with other rivals.

Analysts and the markets might be getting ahead of themselves in terms of German industrial sentiment. There is usually a period of euphoria following new QE measures. This data might be a return to reality and disappoint the markets. With expectations of such a large improvement, it’s hard to see a surprise beat. However, a result below expectations would be quite easy.

By Orbex


Pakistan maintains rate, current stance to lower inflation

Pakistan’s central bank left its policy rate steady after nine rate hikes since January 2018, saying the current policy stance was appropriate to being inflation down to its target range of 5 -7 percent over the next two years.
The State Bank of Pakistan (SBP), which has raised its rate by a total of 7.50 percentage points over the last 20 months, including 3.25 percentage points this year, added inflation had been largely as expected since its last monetary policy meeting in July and inflation projections for fiscal 2020 were largely unchanged.
SBP’s decision to keep its rate steady today comes after it said on July 16 that it was finished raising rates in response to the fall in the rupee over the last 18 months and from now on interest rates would be set in response to the outlook for inflation.
Since late July the rupee has risen and volatility subsided after the introduction of a market-based exchange rate system that followed an agreement with the International Monetary Fund (IMF) in May, which included a US$6.0 billion support package and unlocked another $38 billion from international partners.
After today’s policy decision the rupee jumped 0.5 percent to 156.1 to the U.S. dollar and is up 3.1 percent since July 29. But compared with early December 2017, before the SBP began raising rates to defend the rupee, the rupee has lost one-third of its value.
Prior to the IMF-deal – the country’s 13th since 1988 – Pakistan had followed a “strong rupee” exchange rate policy and effectively fixed it against the U.S. dollar at a rate that was too high, with the result the central bank had burned through reserves to defend it.
Pakistan’s inflation rate rose to 11.63 percent in August from 10.3 percent in July, reflecting the pass-through of earlier exchange rate depreciation, higher utility and food prices.
SBP confirmed its previous forecast for inflation to average 11 -12 percent in fiscal 2020, up from an average of 7.3 percent in 2018/19.
Pakistan’s economy has been slowing as expected but SBP confirmed its forecast for growth to average around 3.5 percent in fiscal 2020, which began on July 1, up from 3.3 percent in fiscal 2019.

The State Bank of Pakistan released the following monetary policy statement:

1. At its meeting on 16th September 2019, the Monetary Policy Committee (MPC) decided to leave the policy rate unchanged at 13.25 percent. The decision reflected the MPC’s view that inflation outcomes have been largely as expected and inflation projections for FY20 have remained unchanged since the last MPC meeting on 16th July, 2019. The MPC also viewed that, based on available information, the current stance of monetary policy was appropriate to bring inflation down to the target range of 5 – 7 percent over the next twenty-four months.
2. In reaching this decision, the MPC considered key economic developments since the last MPC meeting, developments in the real, external and fiscal sectors, and the resulting outlook for monetary conditions and inflation.

Key developments since the last MPC meeting
3. The MPC noted two key developments since the last MPC meeting. First, the interbank foreign exchange market had adjusted relatively well to the introduction of the market-based exchange rate system. The initial volatility and associated uncertainty in the exchange market had subsided. Reflecting these improved sentiments and continued adjustment in the current account, the rupee had strengthened modestly against the US dollar since the last MPC, unlike its previous trend. Second, on the external front, the US Fed, as anticipated, reduced its policy rate by 25 basis points (bps), followed by policy rate cuts by other major central banks around the world. This would help in lowering pressures on emerging markets’ currencies and potentially increase financial inflows.

Real sector
4. Recent economic activity indicators show a gradual slowdown, in line with earlier expectations, and the MPC continued to expect average growth in FY20 of around 3.5 percent. The slowdown is more pronounced in domestic oriented industries such as automobiles and steel. This trend is also reflected in the Large-scale Manufacturing (LSM) index which contracted by 3.6 percent in FY19, somewhat more than earlier expectations. On the other hand, the MPC noted that the LSM index does not fully capture activity in some key industries such as high value-added textile products. Export volumes have been growing briskly even though the growth in export dollar proceeds has been less pronounced due to declining international unit prices. The MPC also noted that the SBP-IBA Consumer and Business Confidence Surveys conducted during Aug-Sep 2019 show a modest improvement in the outlook for the economy. The outlook for agriculture and the services sectors was largely unchanged from the time of the previous MPC meeting. The agriculture sector growth is expected to improve considerably in FY20 over the last fiscal year while growth in services is expected to moderate gradually. In sum, the MPC continued to expect that economic activity would gradually turn around as business sentiment improves.

External sector
5. The external sector continued to show significant improvement with a sizeable reduction of around 32 percent (or 1.5 percent of GDP) in the current account deficit during FY19. The trend continued in the first month of FY20 as well. Specifically, driven by an encouraging 11 percent growth in exports and a contraction of 25.8 percent in imports, the current account deficit declined to US$ 579 million in July 2019 compared to US$ 2,130 million in the same period last year. This, together with the disbursement of program related inflows and activation of the Saudi oil facility, helped to build SBP’s foreign exchange reserves, which as of 6th September 2019, stood at US$ 8.46 billion. This is an increase of around US$ 1.18 billion from the end-June FY19 level. The improvements in the balance-of-payments and market sentiment allowed SBP to reduce its forward short liability position and hence increase its net international reserves.

Fiscal Sector
6. Recent developments in the fiscal sector had been mixed. On the one hand, revised figures showed that fiscal policy had been considerably more expansionary in FY19 than earlier expected with a primary deficit of 3.5 percent of GDP and an overall fiscal deficit of 8.9 percent of GDP. On the other hand, tax revenues (net of refunds) had grown considerably in July and August of FY20 which suggested that the economic slowdown may not be as pronounced as may have been feared. The MPC noted that fiscal prudence and meeting the program targets is essential to sustaining the improvement in macroeconomic stability.

Monetary and inflation outlook
7. On a cumulative basis, private sector credit (PSC) contracted by 1.3 percent in Jul-Aug FY20 showing the results of previous monetary tightening. The MPC noted that inflation developments were broadly similar between the new and the old base CPI: inflation had gradually risen over the previous months and remained high in both year-on-year and month-on-month terms. Core inflation had also risen in recent months. These developments were in line with the SBP’s earlier projections and reflected the pass-through of earlier exchange rate depreciation, adjustment in utility prices, and an increase in food prices. In sum, the MPC expected inflation to average 11 – 12 percent in FY20.
8. The MPC also considered risks to the inflation outlook. On the one hand, inflation could rise above the baseline projections in case of fiscal slippage or other adverse developments. On the other hand, inflation could begin to fall earlier than expected if oil prices decline, aggregate demand slows faster than expected, or the exchange rate appreciates. ”


Soybeans Analysis: Lower soybean supply forecast bullish for soybean price

By IFCMarkets

Lower soybean supply forecast bullish for soybean price

Soybean output estimate was downgraded in latest WASDE report. Will the soybean prices continue rising?

United States Department of Agriculture lowered it soybean production projection in monthly WASDE report to 3.581 billion bushels, down 47 million on a lower yield forecast of 47.9 bushels per acre. Domestic and global ending stocks were also revised downward. And China announced last Thursday a massive purchase of U.S. soybeans – 22.0 million bushels, the largest single-day purchase since June. Lower soybean output and higher demand is bullish for soybean prices.

SOYBEAN rising above MA(200) 09/16/2019 Technical Analysis IFC Markets chart

On the daily timeframe the SOYB: D1 has breached above the resistance line and the 200-day moving average MA(200), these are bullish developments.

  • The Parabolic indicator gives a buy signal.
  • The Donchian channel indicates no trend: it is flat.
  • The MACD indicator gives a bullish signal: it is above the signal line and the gap is widening.
  • The RSI oscillator has breached into the overbought zone, this is bearish.

We believe the bullish momentum will continue after the price breaches above the upper boundary of Donchian channel at 911.7. This level can be used as an entry point for placing a pending order to buy. The stop loss can be placed above the last fractal low at 858.3. After placing the order, the stop loss is to be moved every day to the next fractal low, following Parabolic signals. Thus, we are changing the expected profit/loss ratio to the breakeven point. If the price meets the stop loss level (858.3) without reaching the order (911.7), we recommend cancelling the order: the market has undergone internal changes which were not taken into account.

Technical Analysis Summary

Order Buy
Buy stop Above 911.7
Stop loss Below 858.3

Market Analysis provided by IFCMarkets

Massive Moves In Oil Following Drone Strike

By Orbex

Record Moves in Oil

Its been an extremely volatile start to the week for oil markets. Traders are reacting to the news over the weekend of drone attacks on the world’s largest oil processing site in Saudi Arabia. The strike, which hit the Aramco controlled site at Abqaiq as well as the nearby oil field in Khurais wiped out a massive 5.7 million barrels of crude.

To put this in perspective, the attack erased around 50% of Saudi Arabia’s oil output and around 5% of total global oil supply. In response, crude prices gapped higher by over 20% at the open last night, marking their largest spike higher on record.

Who was Behind the Attacks?

The Houthi rebel group from Yemen, which has been behind a spat of attacks on Saudi pipelines, claimed immediate responsibility for the attacks. However, the US has accused Iran of being responsible for the attacks with US secretary of State Mike Pompeo blaming the attacks on Tehran.  Pompeo told reporters there is “no evidence the attacks came from Yemen”.

Adding that:

“Amid all the calls for de-escalation, Iran has now launched an unprecedented attack on the world’s energy supply.”

Trump Joins In

Indeed, while not explicitly naming Iran, Trump wrote on Twitter:

“Saudi Arabia oil supply was attacked. There is reason to believe that we know the culprit, are locked and loaded depending on verification, but are waiting to hear from the Kingdom as to who they believe was the cause of this attack, and under what terms we would proceed!”

Iran Says it is Ready for War

Iran responded immediately to the US accusations, denying claims it was behind the attacks, and warning that it is ready for war with the US. Iranian foreign ministry spokesman Abbas Mousavi said Washington was using a “maximum pressure” strategy against Iran, though due “its failure [the US] is leaning toward maximum lies”.

These comments come on the back of a warning from a senior commander in the Iranian Revolutionary Guard who warned that US military bases and aircraft carriers (some stationed as far as 1243 miles from Iran) are well within range of Iranian missiles, adding that Iran is ready for a “full-fledged war”.

Risk of War

Tensions between the US and Iran have been escalating significantly this year. Following earlier attacks on Saudi Oil tankers, as well as the shooting down of an American drone, the US deployed warships to the strait of Hormuz. At on point, Trump had reportedly approved a full air strike on Iran, only to then cancel the decision. As the world watches on, many fear that this latest episode has exponentially increased the chances of a full military conflict between the two nations.


While the geopolitical impact and threat of war is a major concern, higher oil prices should soften the blow for OPEC. Meeting last week, the group downgraded its global oil demand forecasts for this year and next and has said that it is considering further crude production cuts when it meets in December. At the group’s last meeting in June, it extended the production cuts which started in January, now due to run until the end of Q1 2020.

Trade War

The ongoing trade standoff between the US and China is also driving oil prices. Crude had been trading higher earlier in the year as negotiations looked to be heading towards a deal but crashed when talks broke down in May as fresh tariff exchanges started. The market is now waiting for the next round of trade talks due this month following the re-starting of negotiations last month. Any positive developments should help keep oil supported in the near term.

Technical Perspective


The spike higher in crude saw prices breaking above the 61.03 June 2019 highs to trade highs of 62.26 before reversing back below the level. Price is now retesting the broken 58.67 level which is holding as support, for now. While above here, there is room for price to stabilise and continue to work higher. If we drop back below this level, however, focus will be on a retest of the broken bearish trend line from year to date highs next.

By Orbex


This week in monetary policy: Pakistan, USA, Brazil, Japan, Indonesia, Taiwan, Norway, Switzerland, UK, South Africa, China, Mongolia & Ghana

    This week – September 15 through September 21 – central banks from 13 countries or jurisdictions are scheduled to decide on monetary policy: Pakistan, the United States, Brazil, Japan, Indonesia, Taiwan, Norway, Switzerland, United Kingdom, South Africa, China, Mongolia and Ghana.
    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.
SEP 15 – SEP  21, 2019:
PAKISTAN 16-Sep 13.25% 100 325 8.50%          EM
UNITED STATES 18-Sep 2.25% -25 -25 2.25%          DM
BRAZIL 18-Sep 6.00% -50 -50 6.50%          EM
JAPAN 19-Sep -0.10% 0 0 -0.10%          DM
INDONESIA 19-Sep 5.50% -25 -50 5.75%          EM
TAIWAN 19-Sep 1.375% 0 0 1.375%          EM
NORWAY 19-Sep 1.25% 0 50 0.75%          DM
SWITZERLAND 19-Sep -0.75% 0 0 -0.75%          DM
UNITED KINGDOM 19-Sep 0.75% 0 0 0.75%          DM
SOUTH AFRICA 19-Sep 6.50% -25 -25 6.50%          EM
CHINA (LPR) 20-Sep 4.25% -6 -6 4.31%          EM
MONGOLIA 20-Sep 11.00% 0 0 10.00%
GHANA 20-Sep 16.00% 0 0 17.00%          FM


Vietnam cuts key rates first time since July 2017


Vietnam’s central bank lowered its key interest rates by 25 basis point for the first time in over two years to support economic growth at a time of a “less favourable” state of the world economy in which many central banks, including the U.S. Federal Reserve and the European Central Bank, have lowered their interest rates.

The State Bank of Vietnam (SBV) cut its benchmark refinancing rate by 25 basis points to 6.0 percent, the rediscount rate to 4.0 percent and the overnight lending rate to 7.0 percent, and the rate on valuable papers offered through open market operations to 4.50 percent.

It was SBV’s first rate cut since July 2017 and the new rates will take effect on Sept. 16, SBV said in a statement from Sept. 13.

The central bank added the economy continues to be stable, inflation is under control and money and foreign exchange markets are stable.

As most other economies worldwide, Vietnam has been affected by the slowdown in global trade and its gross domestic product has slowed slightly to annual growth of 6.7 percent in the second quarter from 6.8 percent in the first quarter and 7.3 percent in the fourth quarter of last year.

In July the International Monetary Fund forecast Vietnam’s economic growth would ease to 6.5 percent this year and 2020 from 7.1 percent in 2018, with activity supported by higher income and consumption by the growing and urbanizing middle class, a strong harvest and manufacturing.

Vietnam’s inflation rate eased to 2.26 percent in August from 2.44 percent in July but the IMF forecast it would average 3.6 percent this year and 3.8 percent next year compared with 3.5 percent in 2018.

Vietnam’s dong has been relatively stable in the last 12 months, trading at 23,249.9 against the U. S. dollar, down 0.3 percent this year.


Azerbaijan cuts rate 10th time, inflation decides future

Azerbaijan’s central bank cut its benchmark interest rate for the 10th time since February 2018 but signaled it may now pause by saying future decisions on interest rates will be based on actual and projected inflation along with the impact of internal and external risks to inflation.
The Central Bank of the Republic of Azerbaijan (CBA) cut its discount rate by 25 basis points to 8.0 percent and has now cut it by 7 percentage points since last February. It is CBA’s sixth rate cut this year, with the rate cut 175 points.
CBA’s reference to inflation determining its next rate move compares with its guidance from July when it said the trend toward a neutral policy stance would continue as long as inflation is expected to remain within its target of 4.0 percent, plus/minus 2 percentage points.
Today CBA said it latest forecast sees inflation remaining within its target range by the end of 2019 and while inflation expectations had not changed, external factors – such as volatile trade, currency and commodity markets in the context of worsening global growth – now have a greater potential to impact inflation than domestic factors.
Azerbaijan’s inflation rate eased to 2.6 percent in August from 2.7 percent in July but is expected to rise to within the target range by the end of this year due to rising fiscal spending and consumption.
In the first 7 months of the year, gross domestic product expanded by 2.5 percent, with the growth in the non-oil sector 3 percent and currency reserves have risen 10.5 percent, or by US$4.7 billion, since the start of the year to $49.4 billion.


US Retail Sales Forecast To Slow In August

By Orbex

The monthly retail sales report, a barometer of consumer spending, is due to be released today.


Economists forecast that retail sales will moderate, after rising strongly in July. Retail sales are forecast to rise by 0.3% on the month, excluding autos. This follows a 1.0% increase in the previous month.

Headline retail sales are expected to rise by 0.3%, increasing at less than half of the pace of the rise in July.

The increase in retail sales comes after the data for July surprised to the upside. Consumers spent more at retail stores and restaurants. The report has been showing trends of underlying momentum that is increasing.

Retail Sales
Retail Sales M/M, July 2019

The consumer data comes at a time when various economic indicators are giving a mixed outlook. There is no doubt that the US economy is slowing. At the same time, there are concerns that the economy could be heading into a recession.

Even various measures of consumer confidence remain mixed. However, there are some indications that the retail sales report for August could beat the estimates, which remain a bit conservative once again.

Retail Sales Could Get a Bump from Auto Sales

Total deliveries rose 7% in the month of August.

The bump in the auto sales came on account of the early Labor Day weekend. Auto sales have been steadily improving throughout the year. The increase matches that of the same pace of increase in auto sales seen the year before.

In August, auto sales by volume rose 0.9% on a seasonally adjusted basis.

Monthly auto sales fell in the first six months of the year. On a year over year basis, yearly retail sales are down an estimated 1.9% through July. The long Labor Day weekend is traditionally a big weekend for auto sales at US dealerships.

However, some concerns remain with the big three automakers from Detroit reporting auto sales on a quarterly basis. Meanwhile, the rest of the automakers report the figures on a monthly basis.

US retail sales could see a modest pick-up with the actual data likely to come slightly above expectations. This is based on the fact that US household finances increased strongly. At the same time, lower costs of financing have helped to keep retail sales steady.

Consumer Confidence Remains Mixed

The Fed’s rate cut in July, along with expectations of further rate cuts, could continue to support household income. Despite the positive scenario, the uncertainty due to global trade remains a headwind.

In August, there were some declines in consumer confidence. The report from the University of Michigan showed that consumer sentiment was the lowest since 2012. But, on the contrary, consumer confidence rose to the highest level since 2000.

The consumer sentiment index fell by 8.6 points in August. This was the biggest monthly decline in the index since December 2012. The report underlined that the declines were due to the trade fears and escalation in tariffs.

While the UoM’s reading on consumer sentiment was a tad negative, it was a different story from the Conference Board. The Conference Board’s consumer sentiment report gave a more optimistic outlook.

Overall, expect the August retail sales report to once again come up better than the average estimates.

By Orbex


NZ: Upcoming PMI

By Orbex

Tuesday registered a surprise beat in electronic card retail sales data. Now, the next bit of market-moving data is tomorrow’s (or later tonight, depending on where you are) BusinessNZ Manufacturing Index.

This is like the Kiwi version of PMI and it can change the direction of the currency.

So far this week, the NZD has been trending stronger thanks to a series of good data. The resumption of trade talks is also a contributing factor.

Some analysts are pointing to the trend continuing at least until next Wednesday’s FOMC meeting. Expectations for the Fed to cut rates are keeping the kiwi bid against its American counterpart.

What We Are Looking For

The consensus among analysts is for the PMI data to return to just barely expansion at 50.2. This would be up substantially from 48.2 in the prior month.

July was the first time that this series dropped into contraction since mid-2013. So, a return to expansion, even if just technically, would likely be a relief to markets.

The worrisome part when it comes to the medium-term outlook is that not only has the manufacturing PMI been trending downward since the beginning of the year, but it continued to do so even as the RBNZ was cutting rates. And the rate cuts were part of an effort to spur growth and make access to capital easier.

There is More Hope Than Actuality

The expectations of a more upbeat number are banking on an improving outlook, rather than the current situation. We should remember that the PMI is a composite averaging the businesses’ perception of the current environment, and how they see it will be in six months.

Usually, the current situation tends to be better than the outlook, simply because there is uncertainty about what will happen in the future.

But, if the RBNZ’s plans were to work, and the trade dispute between the US and China were to be resolved, then that would give businesses a reason to expect a better future. Therefore, it would raise the total PMI despite a generally depressed view of the current situation.

The Causes

At the beginning of the week, we had some disappointing manufacturing volume data. It showed that the sector was slowing faster in the second quarter than expected.

This would lead us to suspect that PMIs will be less than auspicious for now. Especially considering that during the last quarter, businesses reported that they intended to keep, or in some cases cut, their capital expenditure programs.

The thing about New Zealand manufacturing is, though, that it’s mostly for the domestic market. Industrial exports from New Zealand account for a very small section of the market, indicating that the results in the PMI are a better reflection of the domestic economy, than any effect the country might be having from the trade war.

There is Cause for Strength

On that note, many analysts argue that New Zealand is less affected than other countries by the trade issues because even though China is the nation’s largest importer, it’s primarily of consumer goods for the domestic market. And China’s domestic figures have remained healthy since May of last year.

In summary, barring unforeseen circumstances, there are several issues lining up to support NZD strength in the short term. The question is whether the RBNZ will be satisfied with the economic figures and reemphasize its easing bias.

By Orbex


Turkey cuts rate another 325 bps but to remain cautious

Turkey’s central bank lowered its policy rate for the second time this year but said it would maintain a cautious monetary stance to ensure inflation continues to decline, with the outlook for inflation determining the extent of future monetary tightness.

The Central Bank of Turkey (CBRT) cut its benchmark one-week repo rate by a larger-than-expected 325 basis points to 16.50 percent and has now lowered it by a total of 750 points this year following a cut in July after Governor Murat Uysal took over from Murat Cetinkaya who was fired for failing to follow President Recep Tayyip Erdogan’s instructions to lower rates.

CBRT said the repo rate was now consistent with its projected disinflation path, which is critical for achieving lower sovereign risk, lower long-term rates and a stronger economic recovery.
Turkey’s inflation rate declined to 15.01 percent in August from 16.65 percent in July and domestic demand and the current tight monetary policy continue to support a further decline, with the central bank expecting inflation to fall faster than it projected in July.

Turkey’s economy is slowly improving but remains in contraction, with gross domestic product in the second quarter shrinking by an annual 1.5 percent following a fall of 2.4 percent in the first quarter and 2.8 percent in the fourth quarter of last year.

“Recently released data indicate that moderate recovery in economic activity continues,” the central bank said, adding net exports were contributing to growth while investment remains weak and private consumption has gradually improved.

     The Central Bank of the Republic of Turkey issued the following press release:

“The Monetary Policy Committee (the Committee) has decided to reduce the policy rate (one-week repo auction rate) from 19.75 percent to 16.50 percent.
Recently released data indicate that moderate recovery in economic activity continues. In the first half of the year, the contribution of net exports to economic growth continued, while investment demand remained weak and the contribution of private consumption gradually increased. Goods and services exports continue to display an upward trend despite the weakening in the global economic outlook, indicating improved competitiveness. In particular, strong tourism revenues support the economic activity through direct and indirect channels. Leading indicators point to a partial improvement in the sectoral diffusion of economic activity. Looking forward, net exports are expected to contribute to economic growth and the gradual recovery is likely to continue with the help of the disinflation trend and the improvement in financial conditions. The composition of growth is having a positive impact on the external balance. Current account balance is expected to maintain its improving trend.
Recently, advanced economy central banks have started to adopt more expansionary policies as global economic activity weakened and downside risks to inflation heightened. While these developments support the demand for emerging market assets and the risk appetite, rising protectionism and uncertainty regarding global economic policies are closely monitored in terms of their impact on both capital flows and international trade.
Inflation outlook continued to improve. In addition to the stable course of the Turkish lira, improvement in inflation expectations and mild domestic demand conditions supported the disinflation in core indicators. In August, consumer inflation displayed a significant fall with the contribution of core goods, energy and food groups. Domestic demand conditions and the level of monetary tightness continue to support disinflation. Underlying trend indicators, supply side factors, and import prices lead to an improvement in the inflation outlook. In light of these developments, recent forecast revisions suggest that inflation is likely to materialize slightly below the projections of the July Inflation Report by the end of the year. Accordingly, considering all the factors affecting inflation outlook, the Committee decided to reduce the policy rate by 325 basis points. At this point, the current monetary policy stance, to a large part, is considered to be consistent with the projected disinflation path.
The Committee assesses that maintaining a sustained disinflation process is the key 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, the extent of the monetary tightness 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.”