Emerging Markets Central Bank Watch | Mar 31, 2020

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CONTENTS

ARGENTINA BCRA leaves rate on hold as policy focus shifts to improving liquidity

BRAZIL BCB takes provisional pause, but all depends on COVID19 impact

CZECH REPUBLIC CNB to cut rates, being in full crisis mode; more emergency cuts possible

HUNGARY NBH signals commitment to provide unlimited liquidity

INDIA RBI likely to cut policy rate by 25-50bps on Apr 3

INDONESIA Bank Indonesia may cut key rate further on Apr 14

ISRAEL MPC likely to keep policy rate at 0.25% on Apr 6, use other easing tools

SOUTH KOREA BOK likely to hold key interest rate on Apr 9 as it waits for more data

MALAYSIA BNM likely to reduce OPR by 50bps at next MPC meeting on May 5

MEXICO 50bps cut shows CB is willing to boost growth amid outbreak

PAKISTAN https://ceemarketwatch.com/browser/report/20200331/1fc7ef868742cfda4104f0453d39cca9.html[31/03/2020 12:55:00] MPC cuts policy rate by 225bps to fight Covid-19 pandemic, more easing likely

PHILIPPINES BSP likely to cut the policy rate by 25bps on May 21

POLAND MPC could cut more, but all depends on coronavirus combat success

ROMANIA NBR may reduce reserve requirement, rate cut possible in case of need

RUSSIA Next move can be in either direction, we bet on rate cut in mid-2020

SOUTH AFRICA SARB intervenes to support market in crisis, expect the unexpected

THAILAND BOT likely to hold policy rate at 0.75% on May 20

TURKEY MPC says may adjust monetary policy depending on coronavirus impact on economy

UKRAINE Central bank likely to cut main rate in April again

ARGENTINA

BCRA leaves rate on hold as policy focus shifts to improving liquidity Argentina | Mar 25, 13:59

Dovish BCRA on hold amid global rate cuts signals Argentina's easing cycle finding its limit But benchmark rate loses potency as BCRA increasingly regulates banks' deposits and loans portfolio Captive market means room for further cuts may exist But BCRA needs to be careful as cuts impact govt's debt strategy and pressure on sterilization could spike in future

The ultra-dovish BCRA has surprisingly not cut its benchmark interest rate since Mar 2 despite the monetary policy easing by central banks around the world as the entity is focusing more on measures to increase liquidity and ensure banks have incentives to refinance loans and give new ones. Having two weeks go by without cuts has been very rare since the new BCRA administration took over Dec 10 last year. The fact that no cuts were made in the current context suggest the aggressive policy easing scheme may have found its limit for now, at least in what relates to the benchmark interest rate. https://ceemarketwatch.com/browser/report/20200331/1fc7ef868742cfda4104f0453d39cca9.html[31/03/2020 12:55:00] It could be argued, however, that the benchmark interest rate is losing potency as an instrument given that the BCRA is constantly adding regulations to control financial markets more directly. Aside from the heavy FX market controls, the BCRA is increasingly regulating how bank deposits and the loan portfolio should look. Forcing banks to accept inflation-linked time deposits when the benchmark interest rate is negative on real terms has predictably led to these types of deposits gaining prominence fast. As part of the policy package to respond to the coronavirus crisis, the BCRA is pushing banks to give loans at a negative rate set by the central bank, offering to lower reserve requirements in exchange.

Analyzing whether there is room for further cuts or not is complex. Since the BCRA introduced last week limitations on how much of its bills banks can hold, and remembering that the heavy capital controls mean many investors are captive to a large degree, it could be argued that cutting the rate a few percentage points more would be harmless. Under difference circumstances, some investors (not banks) could have incentive to dollarize their portfolio, which would put pressure on parallel exchange rates, but mechanisms to dollarize imply buying sovereigns bonds or stocks and holding for days at a time where all instruments are getting hammered.

A possible argument against a cut is that the monetary policy benchmark rate has influence over the banking interest rate the Treasury uses in its variable-rate bonds, so cuts could potentially complicate the federal government's debt strategy if it goes too far. We remind that the BCRA and the Economy Ministry are coordinating their actions, so it is not like the BCRA could cut its benchmark and catch the ministry by surprise.

Another argument against cuts is that pressure on the BCRA to finance the Treasury is rising due to the impact of the coronavirus crisis on the economy. All of the government's stimulus policies have to be financed by the BCRA in any amount that these increase the deficit. This could put pressure on the BCRA to sterilize once the crisis is over and the economy returns back to normal, which entails the central bank has to be careful now or risk being caught offside later. Being careful now applies to both rates and policies to relax reserve requirements.

Board of Directors

Member Position Miguel Pesce Governor Sergio Woyecheszen Deputy Governor Zenon Biagosch Director Claudio Golonbek Director Claudia Berger Director Jorge Carrera Director Guillermo Hang Director Carlos Hourbeigt Director Arnaldo Bocco Director Betina Stein Director

Source: BCRA

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Recent developments:

https://ceemarketwatch.com/browser/report/20200331/1fc7ef868742cfda4104f0453d39cca9.html[31/03/2020 12:55:00] Full lockdown in effect, govt aims to limit economic fallout with few resources, Mar 26, 17:51 BCRA reduces reserve requirements conditional on SME loans, limits bill holdings, Mar 20, 15:40 BCRA’s Pesce says rates can go lower, monetary financing will continue, Mar 19, 19:35 BCRA cuts benchmark rate 2pps to 38%, matching press leaks, Mar 05, 23:48 BCRA reportedly decides to cut rate 2pps this week on strong disinflation, Mar 03, 15:48

BRAZIL

BCB takes provisional pause, but all depends on COVID19 impact Brazil | Mar 25, 05:03

Next MPC meeting: May 6, 2020 Current policy rate: 3.75% CEEMarketWatch forecast: Cut (to 3.50%)

The BCB's rate-setting Copom cut the benchmark Selic rate by a greater-than-expected 50bps at its Mar 18 sitting, but said in the minutes for the meeting that it views the new rate as appropriate, though indicated everything would depend on the actual impact of the coronavirus outbreak on the economy. The unanimous Mar 18 cut brought the Selic rate to a new record low of 3.75%, but the Copom said in the minutes that a reduction in the rate beyond 50bps could have been counterproductive and actually result in tighter financial conditions, thus leading to the opposite desired effect. The real has weakened sharply to the USD since the start of the year. Still, the Copom indicated that uncertainties had increased due to the coronavirus outbreak and that means a massive slowdown could still see further easing.

On economic activity, the Copom said data released since the February meeting indicate the continuation of a gradual economic recovery, though the fact the data did not yet reflect the impact of the coronavirus pandemic undermined their usefulness. It reaffirmed that the key rate still needed to be below the natural rate to help stimulate the economy, but this statement too is not as valuable in such uncertain conditions. The Economy Ministry slashed Fri. the government's GDP growth forecast to 0.02% for 2020 from the 2.1% expected just ten days ago, as it said expectations have deteriorated fast in recent days amid the coronavirus outbreak and the impact for the global and domestic economies. Analysts polled by the BCB this past week cut their 2020 GDP growth forecast to 1.48% from 1.68% the week before in the sixth straight reduction. One would imagine the downside risk is for even worse forecasts this year.

The Copom again said inflation is running at levels compatible with meeting the inflation targets on the policy horizon. Still, short-term projections have been significantly hurt by recent commodity price movements, it said. State oil company Petrobras continues to slash fuel prices, for instance. The Economy Ministry cut the government's inflation forecast to 3.05% for 2020 from 3.12% before. For their part, analysts continue to expect IPCA inflation to close 2020 at 3.04%, which is well below the BCB's target of 4.00%. Inflation is expected to be near the target in future years as well.

Analysts expect the rate-setting Copom to cut again in May, seeing the Selic at a new record low of 3.50% in May, which would push the easing cycle started in July to 300bps. Analysts then expect the rate to be hiked by 25bps to 3.75% by end-2020.

Overall, the Copom will not cut the interest rate further without some evidence of the actual impact of the

https://ceemarketwatch.com/browser/report/20200331/1fc7ef868742cfda4104f0453d39cca9.html[31/03/2020 12:55:00] coronavirus on the economy, according to the minutes. Any decision will depend on the coming data. Our expectation is in line with the analysts polled by the BCB for a 25-bp cut in May. Additional measures on production, trade, and travel will be necessary to help contain the virus and then support economic activity. More fiscal space will be also necessary to mitigate a potential recession.

Copom structure and latest voting results

Board member Position Latest vote Roberto Campos Neto Governor Cut Fabio Kanczuk Director of Economic Policy Cut Carolina de Assis Barros Director of Administration Cut Maurício Costa de Moura Director of Institutional Relations and Citizenship Cut Otávio Ribeiro Damaso Director of Regulation Cut Paulo Sérgio Neves de Souza Director of Inspection Cut Bruno Serra Fernandes Director of Monetary Policy Cut Joao Manoel Pinho de Mello Director of Financial System and Resolution Cut Fernanda Feitosa Nechio Director of International Affairs and Corporate Risk Management Cut

Source: BCB

BCB Inflation Reports (December is the latest)

Latest Copom policy sitting statement

Latest policy sitting minutes

Selic interest rate historical

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Recent developments:

Analysts now see 50-bps cut in May, slash GDP forecast for 2020, Mar 30, 16:18 Copom sees new Selic rate as appropriate, but all depends on COVID19 progress, Mar 23, 22:50 Analysts see 25-bp cut in May, trim inflation forecasts for 2020-21, Mar 23, 15:26 BCB cuts policy rate by above-expected 50bps to new record low of 3.75%, Mar 18, 23:46 Analysts expect Mar and May cuts, less policy tightening in 2021-23, Mar 16, 15:35 BCB is active in spot forex market, offers USD 3bn in swaps, Mar 09, 16:35 Analysts now see 25-bp rate cut in Mar, less tightening in 2021, Mar 09, 16:32 BCB says it is monitoring domestic economic impact of coronavirus, Mar 04, 01:27 Analysts now expect less tightening in 2021, Mar 02, 15:55

CZECH REPUBLIC

CNB to cut rates, being in full crisis mode; more emergency cuts possible Czech Republic | Mar 25, 12:30

https://ceemarketwatch.com/browser/report/20200331/1fc7ef868742cfda4104f0453d39cca9.html[31/03/2020 12:55:00] Next MPC meeting: Mar 26, 2020 Current policy rate: 1.75% CEEMarketWatch forecast: 50bp cut

Rationale: The CNB entered in full crisis mode on Mar 16, when it cut its policy rate by 50bps at an emergency MPC meeting. Once again, there was no real connection with previous communication, as only two board members had expressed willingness to back rate cuts at the regular meeting on Mar 26. What changed, in our opinion, is the rapid depreciation of the national currency on Mar 16, when it lost 3.4% against the euro in a single day, reaching a level not seen since the end of the CNB's one-sided fx commitment in early 2017. We need to emphasise that we don't consider the exchange rate depreciation as the reason why interest rates were cut, we see it only as a trigger (or a wake-up call, if you prefer) that the situation has a reached a point where a normal MO is no longer feasible. This is why the board unanimously cut rates by 50bps and committed to further monetary easing, including more emergency cuts.

The minutes from the extraordinary meeting indicate that board members were in consensus about the need for the CNB to react. In fact, Ales Michl and governor Jiri Rusnok even toyed with the idea to carry out a 75bp rate cut. The idea was rejected after Tomas Holub argued it would send a poor signal to markets, as they would suspect the CNB had information about more negative developments, which wasn't the case. Board members were far less in agreement over the need of fx interventions, considering the rapid depreciation of the national currency. Michl said he would never back fx interventions, while Oldrich Dedek was concerned about their need. Marek Mora, Tomas Holub and Vojtech Benda seem to be on the other end, warning against possible negative effects from leaving the national currency weaken too much.

https://ceemarketwatch.com/browser/report/20200331/1fc7ef868742cfda4104f0453d39cca9.html[31/03/2020 12:55:00] As far as emergency cuts are concerned, we believe their timing is impossible to predict, as they depend largely on daily developments. Given news that Skoda and TPCA, two of the three automotive producers in the country, will suspend production in late March and the first half of April, the impact on economic activity will be immediate. We don't know how many more enterprises will do the same due to health concerns, but it could have a massive impact on economic activity, so we will be no longer surprised if the CNB jumps the gun again. The fx market seems to have calmed down after the emergency rate cut, but we have no illusions and volatility may reappear immediately after another bad news, though depreciation has continued and the national currency is at a 5-year low against the euro. Assuming that there is nothing major until the next MPC meeting on Mar 26 (and we understand it is a feeble assumption), we expect at least a 50bp cut, though it could be even higher, if board members see the economic outlook worsening faster than currently expected.

Inflation concerns seem to have been set aside, as board members said that the inflation outlook was very difficult to predict in the current circumstances. Since expectations are now for a recession by the middle of the year (the finance ministry projects GDP contract at 5.1% in 2020), it makes sense to expect that inflation will decelerate very sharply and probably even go into negative territory by the summer. Rusnok and Michl implied as much, and it is a view shared by other board members as well. We do expect prices of some products to peak in March, but it is likely to be a short-lived one, so even if the March CPI print jumps above 4% y/y, we don't believe it will draw a lot of attention.

In a long-term perspective, we believe the CNB is ready to bring rates as low as possible, though we don't believe they will go into negative territory. The CNB has the advantage that it had rates relatively high when compared to peers, so it has much more leeway. Other measures will probably include less stringent regulatory requirements for the bank sector, including a reduction of the countercyclical capital buffer rate (currently at 1.75%) and the already declared assistance to banks who would like to offer their clients loan payment delays (but up to 5 months). Offering repayment delays is on voluntary basis only, as the CNB said in an official statement and Rusnok said the CNB wouldn't force the measure on banks who don't want to adopt it. The CNB is already ready to offer additional

https://ceemarketwatch.com/browser/report/20200331/1fc7ef868742cfda4104f0453d39cca9.html[31/03/2020 12:55:00] liquidity, as it increased its repo auctions from one to three a week. We don't expect fx interventions, as a weaker national currency will eventually help exporters recover faster after the outbreak is over, while higher import prices won't matter much when domestic demand is heavily constrained by the Covid-19 outbreak and nationwide quarantine.

CNB board summary

Board member Overall Latest Latest comment Date Bias vote

Governor Jiri Rusnok neutral 50bp cut dovish (expects recession due to Covid-19 outbreak, doesn't rule Mar 17, out more cuts) 2020

Vice Governor Marek hawkish 50bp cut neutral (CNB to intervene only if there is a lasting impact from Mar 3, Mora epidemic)* 2020

Vice Governor Tomas neutral 50bp cut Jan 28, Nidetzky neutral (prefers a smooth interest rate path)* 2020

Vojtech Benda hawk 50bp cut Mar 14, slightly dovish (doesn't rule out a cut, but is cautious)* 2020

Oldrich Dedek dovish 50bp cut Oct 30, neutral (still leans towards interest rate stability)* 2019

Tomas Holub hawkish 50bp cut slightly hawkish (exchange rate depreciation has eased monetary Mar 17, conditions) 2020

Ales Michl hawk 50bp cut Mar 18, dovish (more rate cuts may follow, not to support fx interventions) 2020

Note: * Older comments (before Mar 16 meeting) Source: CEEMarketWatch estimates based on statements and voting behaviour of board members

Further reading

Non-rate monetary policy measures - https://www.bi.go.id/en/ruang-media/siaran-pers/Pages/sp_221520.aspx

Last MPC press release - https://www.bi.go.id/en/ruang-media/siaran-pers/Pages/SP_222220.aspx

Calendar of MPC meetings - https://www.bi.go.id/en/ruang-media/agenda/rapat-dewan-gubernur/Default.aspx

Last inflation comment - https://www.bi.go.id/en/ruang-media/siaran-pers/Pages/sp_221620.aspx

Monetary policy review (December) - https://www.bi.go.id/en/publikasi/kebijakan-moneter/tinjauan/Pages/Tinjauan- Kebijakan-Moneter-Des-2019.aspx

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Recent developments:

Bank Indonesia does not plan capital controls – governor, Mar 26, 17:21 Jokowi asks Bank Indonesia to maintain rupiah stability, Mar 20, 09:31 Bank Indonesia cuts key rate by 25bps to 4.50%, Mar 19, 12:19 Bank Indonesia not to change date of MPC meeting, Mar 16, 18:24 Fiscal and monetary response to COVID-19, market panic, Mar 13, 09:50 BI governor sees ample room for monetary easing, Mar 05, 18:47 Bank Indonesia projects GDP growth to slow to 4.9% y/y in Q1, Mar 04, 09:51 Bank Indonesia lowers reserve requirements, pledges to intervene due to Covid-19, Mar 03, 09:58 Central bank goes on with triple intervention, stock exchange bans short-selling, Mar 02, 09:52

ISRAEL

MPC likely to keep policy rate at 0.25% on Apr 6, use other easing tools Israel | Mar 25, 15:23

Current policy rate: 0.25% Next monetary policy meeting: Apr 6, 2020 Expected decision: Hold, use other tools for easing

In the current dynamic situation with very high uncertainties, we think that the BoI would try to keep the policy rate at the current level of 0.25% for as much as possible and use other tools to respond to the challenges the economy is facing because of the government responses to the coronavirus spread. Governor Amir Yaron broke the line of rare public addresses and has been very active as of late to try to sooth economic woos. He did not count on rhetoric only and the MPC launched mid-March three new types of tools to make the policy more accommodative.

https://ceemarketwatch.com/browser/report/20200331/1fc7ef868742cfda4104f0453d39cca9.html[31/03/2020 12:55:00] On Mar 15, the MPC announced the start of government bond purchases and repo operations with government bonds as collateral. The high market turbulence and the shortage of USD on the forex market have apparently forced the BoI to add another measure on Mar 16 so it introduced 1-week dollar-shekel swap operations. The BoI later on clarified the sizes of the government bond purchase programme (NIS 50bn or about USD 14bn against NIS 18bn in the 2008-2009 financial crisis) and the swap programme (NIS 15bn). The BoI also encouraged local commercial banks not to impose restrictions on lending and aid the economy in this crisis period and supplemented its advises by easing the regulatory environment in this regard.

There is no doubt that the easing will continue but the question is what tools the BoI will use. The business sector urged the BoI to start buying corporate bonds as well and deputy governor Andrew Abir stated that this move is not off the table but the BoI expects a government move in that regard first. Yaron said that there are tools for further accommodation available but did not elaborate. The BoI has sizeable forex reserves so it can afford to fuel liquidity on the market, which will likely be the near-term target for now. Governor Yaron said after the announcement of the launch of the quantitative easing that the benchmark interest rate in Israel is already very low and therefore other tools were preferred for now. Yet, we think that a rate cut should not be ruled out either but this is likely to be kept as a last resource, in case of predictions for a severe deterioration.

The BoI research chief said on Mar 24 that GDP will likely fall by some 2.5% in 2020 and unemployment would likely reach 7% at the end of the year. He believes that a recovery would start in 2021 already. The finance ministry has also said that it expects a stagnation at best but this forecast was made earlier in March so it is likely outdated already. Inflation has been particularly low and the oil price plunge would continue to press in the same direction. However, the shekel has weakened substantially since the crisis started, which should at least partially offset the downward pressure on inflation coming from oil prices. Reports emerged also that the ministry might increase excise tax on gasoline to an extent to offset the downward pressure from falling oil prices. It is possible food products stockpiling to lead to temporary shortages of some products and supply disruptions to add pressure too so inflation could start climbing, despite assurances that there are enough products for the domestic market, both

https://ceemarketwatch.com/browser/report/20200331/1fc7ef868742cfda4104f0453d39cca9.html[31/03/2020 12:55:00] from local production and imports. The adoption of aggressive easing policies of major central banks might also influence BoI decisions, we think.

BoI Board Summary

Board member Appointed Term ends Bias* Governor: Amir Yaron Dec-18 Dec-23 likely balanced Deputy governor: Andrew Abir Oct-17 Oct-21 Dovish BoI member: Michel Strawczynski Feb-20 Feb-25 n.a. External member: Reuben Gronau Oct-11 Oct-21 Hawk External member: Moshe Hazan Oct-17 Oct-21 Dovish External member: Zvi Hercowitz Oct-17 Oct-21 Balanced

Note: *CEEMarketWatch assessment made on media reports and speeches by MPC members Source: BoI, CeeMarketWatch

Board statements and press briefings

Minutes from MPC meetings

Calendar of MPC meetings

Latest BoI macroeconomic forecast, Jan 2020

Monetary policy reports

Bank of Israel Law

The Monetary Committee

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Recent developments:

Bank of Israel lowers banks’ capital requirements by 1pp to support lending, Mar 30, 07:53 Link to article about possibility BoI to buy corporate bonds, Mar 27, 15:06 Govt focuses on containment measures in past week, business rescue plan advances, Mar 26, 15:47 Reserves portfolio loss due to coronavirus does not exceed maximum risk – Abir, Mar 26, 12:20 BoI to purchase government bonds for NIS 50bn, Mar 23, 19:18 BoI might start buying corporate bonds but not now – deputy governor, Mar 20, 07:47 Israel heading towards complete lockdown, fiscal space for response is limited, Mar 19, 15:04 Businesses urge Bank of Israel to buy corporate bonds, Mar 19, 08:20 BoI to allocate up to USD 15bn for swap transactions, Mar 18, 19:18 Governor determined to take all steps to provide maximum protection to economy, Mar 16, 19:05 Bank of Israel injects liquidity through dollar-shekel swaps, Mar 16, 14:48 MPC launches govt bond purchases, repo operations with financial institutions, Mar 16, 07:53 Five MPC members support on-hold decision, one votes for rate cut – minutes, Mar 10, 07:32 No evidence of marked impact on Israeli economy from coronavirus – BoI, Mar 04, 17:21 Forecasters’ inflation expectations for next year fall to 1.0% in Feb, Mar 02, 08:02

https://ceemarketwatch.com/browser/report/20200331/1fc7ef868742cfda4104f0453d39cca9.html[31/03/2020 12:55:00] SOUTH KOREA

BOK likely to hold key interest rate on Apr 9 as it waits for more data South Korea | Mar 25, 15:30

Next policy meeting: Apr 9 Current policy stance: 0.75% Our forecast: Hold Rationale: BOK to wait for more data before committing to more stimulus

The BOK will likely hold its Base Rate on Apr 9 after delivering an emergency 50bps rate cut on Mar 16. In our view, BOK will want to wait for more economic data before committing to additional easing. Initially, BOK's head Lee Ju-yeol played down the chances for a pre-emptive rate cut as he said on Feb 14 that the BOK must consider actual economic conditions before committing to a rate cut which could have "good effects, but also side effects". However, following the surprising 50bps rate cut by the Fed on Mar 3, Lee hinted that the BOK could change its policy stance as Fed's interest rate is now at the same level as BOK's.

https://ceemarketwatch.com/browser/report/20200331/1fc7ef868742cfda4104f0453d39cca9.html[31/03/2020 12:55:00] In terms of CPI inflation, it decelerated to 1.1% y/y in February from 1.5% y/y in January largely due to weaker food prices and core inflation. Inflation should not be a significant concern for the BOK during the times of the coronavirus crisis, in our view, as the oil price shock will likely have a sizeable impact on inflation and will skew data for a considerable amount of time. Defending financial and currency market stability will likely be the main forces that drive BOK's decisions.

The main thing that prevented rate cuts in the past regular MPC meetings were the concerns expressed by some members about financial stability and a real estate bubble. The real estate bubble should be less of a concern for the MPC due to the coronavirus impact on real estate sales. In terms of financial stability, the government announced a KRW 100tn financial market stabilisation package and the BOK signed a currency swap deal worth USD 60bn with the Fed. These measures will likely defend the currency and financial markets from excessive volatility and untie the hands of the BOK to do more easing.

Overall, we think that the BOK will likely keep its remaining ammunition for some tim after bringing the Base Rate to record low of 0.75% in March. BOK could still lower the interest rate later in the year after as it has a clearer opinion on the gravity of the slowdown. Meanwhile, the government announced a KRW 11.7tn supplementary budget in order to cushion the economic impact of the coronavirus and more fiscal measures are likely to be announced eventually, which reduces the urgency to do more monetary easing.

Last but not least, it should be noted that 4 out of the 7 board members will be replaced by the President in April, which historically favours no action taken by the central bank in the period preceding and following a board reshuffle.

MPC meetings calendar

Minutes (in English)

Minutes from Feb 27 meeting (only available in Korean)

https://ceemarketwatch.com/browser/report/20200331/1fc7ef868742cfda4104f0453d39cca9.html[31/03/2020 12:55:00] Previous MPC decisions

MPC board members

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Recent developments:

BOK to provide unlimited liquidity through repo operations for 3 months, Mar 26, 09:12 BOK opposes corporate debt purchases, expands target of repo agreements, Mar 24, 08:21 BOK to purchase KRW 1.5tn government bonds in order to stabilize bond markets, Mar 19, 17:50 BOK cuts Base Rate by 50bps to 0.75% at emergency meeting, Mar 16, 11:58 BOK sees bigger, longer impact on economy from coronavirus, Mar 12, 09:24 BOK’s Lee hints at future rate cute following Fed’s move, Mar 04, 11:51

MALAYSIA

BNM likely to reduce OPR by 50bps at next MPC meeting on May 5 Malaysia | Mar 25, 14:02

Next policy meeting: May 5 Current policy rate: 2.50% Our forecast: Most likely 50bps rate cut, but 25bps also possible Rationale: Fed's emergency rate cuts set the tone more easing by BNM

The BNM will most likely cut its key interest rate (OPR) by 50bps at its next MPC meeting on May 5 in an attempt to stimulate the economy and defend it from the supply shock caused by the movement control order implemented on Mar 18. In addition, the global economy is bracing for a significant slowdown in Q2 as the EU and the US will likely enter a recession. Thus, the BNM will likely react with at least 25bps rate cut on May, but we think that a 50bps cut is more likely. In our view, BNM is likely to react quickly to potential threats instead of taking a more cautious stance judging from its previous policy actions. In addition, there is still the potential for an emergency MPC meeting, but we think that the BNM will likely take some time to evaluate its previous actions before committing to more stimulus. Moreover, monetary easing will likely be infective while the country is in a movement control order, which at this stage is scheduled to last until Apr 14, as it significantly constrains all economic activity.

https://ceemarketwatch.com/browser/report/20200331/1fc7ef868742cfda4104f0453d39cca9.html[31/03/2020 12:55:00] We remind that the BNM already reduced the OPR twice this year on Jan 22 and Mar 3, but we still think that it has leeway to reduce it further. Fed's unprecedented monetary policy easing certainly allows the BNM to be even more aggressive in pursuing interest rates moves without fearing a currency devaluation. BNM's head Nor Shamsiah commented on Feb 12 that the BNM has "ample room" to respond to an economic slowdown following the release of the disappointing Q4 GDP figures. We read these comments as a sign that BNM will not hesitate to act if it sees

https://ceemarketwatch.com/browser/report/20200331/1fc7ef868742cfda4104f0453d39cca9.html[31/03/2020 12:55:00] threats to economic growth.

The BNM has also announced some non-monetary measures to support the banking system and defend businesses from the crisis. On Mar 19 it decided to reduce the statutory reserve requirement by 1pp to 2% and allow banks to use government securities for the purpose of complying with regulatory reserves. This is expected to release some MYR 30bn liquidity in the banking system. On Mar 24 the BNM decided to order a six-month moratorium on payments on household and SME loans. In our view, these measures do not diminish the chance that the BNM will reduce the OPR on May 5 as monetary stimulus will also be needed to jumpstart the economy following the end of the movement control order.

The USD/MYR exchange rate has depreciated steadily since the beginning of the coronavirus crisis, however, we don't think that it has yet reached levels which are uncomfortable for the BNM to cut the OPR. Additional monetary stimulus could also boost investor sentiment as the government has thus far provided a relatively modest MYR 20bn fiscal stimulus package. In terms of CPI inflation, it recently decelerated to 1.3% y/y in February led by lower core inflation. However, the sharp drop in oil prices in response to the coronavirus outbreak will likely take a lot of steam out of inflation. Thus, we don't think that inflation will be a limiting factor for BNM to act.

Meanwhile, political uncertainty has greatly diminished since Mar 3 and now it seems likely that the new PN government will stay in office for the foreseeable future. We will probably have to wait until May 18 until the new government of PM Muhyiddin finally clears all doubts that it can survive a no-confidence vote in parliament. It seems that the PN coalition is using this time to boost its support in parliament and woo more MPs from the opposition to back the government.

MPC meeting calendar

Previous OPR decisions

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Recent developments:

BNM cuts SRR by 1pp, releases MYR 30bn into banking system, Mar 19, 16:38 BNM cuts OPR by 25bps to 2.50% on coronavirus fallout, Mar 03, 09:57

MEXICO

50bps cut shows CB is willing to boost growth amid outbreak Mexico | Mar 25, 06:12

Next MPC meeting: May 14 Current policy rate: 6.50% CEEMarketWatch forecast: Further easing, perhaps before the scheduled meeting

The CB met on Thursday and cut its Monetary Policy Rate (MPR) by 50bps in an unscheduled meeting, showing it's more concerned with plummeting economic activity than the possible pressure on prices and on the financial market presented by the Mexican Peso's sharp depreciation. We expect the bank to maintain this dovish position ahead, willing to cut its MPR further, perhaps even before its mid-May scheduled meeting.

https://ceemarketwatch.com/browser/report/20200331/1fc7ef868742cfda4104f0453d39cca9.html[31/03/2020 12:55:00] Economic activity was suffering before the coronavirus outbreak took a massive toll on financial markets and on the economic outlook. The 2019 recession didn't cede in early 2020, with economic activity likely to remain stagnant at best in Jan-Feb; thus, the outbreak and plummeting oil prices have pushed the 2020 GDP forecast consensus aims to a staggering 3.0% plunge, pushing authorities to favor severe market intervention. However, the fiscal authorities remain on hold, unable to present a comprehensive plant to react to the crisis.

The currency has taken a massive dive, depreciated by about 31% since 2019-end. This is sure to put upward pressure on merchandise prices; however, this may be offset by a looser output gap and declining energy prices. Indeed, CPI inflation slowed in March H1 h/h but held above the CB's 3.00% target. If economic figures suggest GDP is indeed set to plunge in 2020, we expect the bank to tolerate higher CPI inflation expectations, strengthening our expectation of easing ahead.

Still, this may not be a good time to move towards fast monetary easing. The sovereign's credit rate was already likely to be downgraded before the outbreak caused the current crisis. Thus, we fully expect the sovereign's credit rate to be downgraded. This is set to put to new pressure on financial markets and on the currency.

Overall, the CB assumed a dovish stance by cutting its policy rate by 50bps in an unscheduled meeting, in our view. We don't expect board members to abandon this position anytime soon, clearly putting more weight on growth concerns than on the currency depreciation. Thus, we expect at least 50bps easing in Q2, with the chance of even sharper easing; however, we recognize there is much uncertainty in these projections, warning it's impossible to predict how the pandemic will behave in Mexico, particularly considering the unconventional approach taken by President Andrés López, who has avoided the containment strategies promoted by similar nations.

Monetary Policy Council members

Members Overall bias Latest known vote

https://ceemarketwatch.com/browser/report/20200331/1fc7ef868742cfda4104f0453d39cca9.html[31/03/2020 12:55:00] Alejandro Díaz de León (Governor) Neutral 25bps cut Irene Espinosa Neutral 25bps cut Javier Guzmán Hawkish 25bps cut Jonathan Heath Dove 50bps cut Gerardo Esquivel Dove 25bps cut

Note: Overall bias calculated from voting behavior Source: Banxico

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Recent developments:

US bank says Mexico is second worst prepared country in LatAm vs Covid-19, Mar 28, 00:58 CB cuts monetary policy 50bps to 6.50% in unscheduled meeting, Mar 20, 23:49 Currency continues to plummet despite intervention, Mar 17, 18:03 FinMin Herrera sees room for monetary easing - Gossip column, Mar 09, 16:52 Analysts cut GDP growth forecast to 0.91% for 2020, Mar 02, 20:12

PAKISTAN

MPC cuts policy rate by 225bps to fight Covid-19 pandemic, more easing likely Pakistan | Mar 25, 15:34

Next policy meeting: To be announced (tentatively, mid-May) Current policy rate: 11.0% Our forecast: Cut by 25 - 50bps Rationale: easing inflationary pressures and subdued economic growth outlook

The State Bank of Pakistan (SBP) cut the benchmark policy rate by 225bps to 11.0% over the past one week to provide impetus to the economy amid Covid-19 pandemic. The first cut of 75bps came during the scheduled MPC meeting on Mar 17, while the central bank cut another 150bps at an emergency meeting held on Mar 24. The SBP also introduced measures to address the economic and health challenges posed by the spread of the pandemic, including providing credit to banks and hospitals at a subsidized rate. Moreover, the SBP is in coordination with banks and will soon announce measures to address pressures on cash flows of borrowers affected by coronavirus- related disruptions, including facilitating deferment and restructuring of their loans.

The MPC's policy rate cut was also triggered by the easing inflationary pressures as CPI inflation decelerated to 12.4% y/y in Feb, down from a more than nine-year high of 14.6% y/y in Jan, largely on the back of food prices followed by housing and utilities' prices. The SBP expected average CPI inflation to remain within the central bank's 11 - 12% forecast in FY20, before falling to the medium-term target range of 5-7%. However, with the expected demand slump due to Covid-19 pandemic couple with recent government's measures, including provision of food subsidy, reduction in petrol and diesel prices, allowance of wheat import and banning sugar export, the headline inflation forecast may be further revised down.

https://ceemarketwatch.com/browser/report/20200331/1fc7ef868742cfda4104f0453d39cca9.html[31/03/2020 12:55:00] On the economic front, the MPC expected both domestic and external demand to slowdown owing to the curtailment of economic activity prompted by the pandemic. Thus, the GDP growth forecast would be further revised down from its earlier projection of 3.0% for FY20, which, however, is still upbeat that the IMF's projection of 2.4%. The central bank projected a modest recovery next fiscal year (starts July 2020) provided that the spillover impact of the Covid-19 pandemic on global trade and financial markets is moderate and short-lived. The government's fiscal stimulus package of about PKR 1.2tn (about USD 7.2bn) would cushion the growth slowdown as well.

On the external front, the current account deficit has declined by 71.0% y/y in the Jul-Feb period of FY20, putting a downward pressure on the USD/PKR exchange rate. However, the recent FPI outflow from equity segment and government short-term securities triggered by the pandemic-related fears and global oil market crash has led to depreciation of the Pakistani rupee, which weakened by 4.3% between Mar 6 and Mar 25. We note that the net FPI outflow so far in the month of March stood at USD 1.6bn; foreign investors sold-off USD 95.4mn in equities compared to USD 23.1mn inflow, while T-bills witnessed an outflow of USD 1.5bn against the inflow of USD 18.5mn.

https://ceemarketwatch.com/browser/report/20200331/1fc7ef868742cfda4104f0453d39cca9.html[31/03/2020 12:55:00] The FPI in T-bills are particularly pertinent here. The SBP has used its tight monetary policy (the highest in Asia even after the latest rate cuts) to shore up its foreign exchange reserves. FPI inflows in the government treasury bills reached USD 3.4bn thus far in this fiscal year, raising the SBP's foreign exchange reserves to USD 12.8bn at end-February. We believe that the latest rate cuts might accelerate the FPI outflows in T-bills.

Overall, easing inflationary pressures and subdued economic growth outlook may lead the MPC to cut the policy

https://ceemarketwatch.com/browser/report/20200331/1fc7ef868742cfda4104f0453d39cca9.html[31/03/2020 12:55:00] rate by 25 - 50bps in its next MPC meeting, the date for which will be announced in May. However, downside risks to external outlook due to

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Recent developments:

MPC cuts policy rate by 150bps to 11.0% at emergency meeting, Mar 24, 16:28 MPC cuts key policy rate by 75bps to 12.5%, Mar 17, 19:19

PHILIPPINES

BSP likely to cut the policy rate by 25bps on May 21 Philippines | Mar 25, 08:50

Next monetary policy meeting: May 21 Current policy rate: 3.25% Expected decision: 25bp reduction Rationale: Mandate given to BSP governor to cut RRRs, reductions of GDP growth forecasts

We expect that the BSP's monetary board will reduce the interest rate on the central bank's overnight reverse repurchase (RRP) facility by 25bps to 3.00% at its meeting on May 21. The central bank has policy space to make such a cut, which will complete the reversal of a cumulative 175bp increase that took place in 2018.

On Tuesday, BSP governor Benjamin E. Diokno reduced by 200bps the reserve requirement ratio (RRR) for

https://ceemarketwatch.com/browser/report/20200331/1fc7ef868742cfda4104f0453d39cca9.html[31/03/2020 12:55:00] universal and commercial banks effective Mar 30. In a special meeting held on Monday, the BSP's monetary board authorized Diokno to reduce the RRRs of BSP-supervised financial institutions by up to a maximum of 400bps for 2020. These developments, along with the weak demand at auctions for Treasury securities, suggest that the market needs more liquidity.

An additional policy interest rate cut is also justified by several large downward adjustments to the GDP growth forecast for this year. The BSP projects the Philippines' growth in the range 5-5.5%, down from an original forecast of 6.5-7.5%, Diokno said. The analysis of the National Economic and Development Authority (NEDA) showed that the country's real GDP growth could be in the range from -0.6% to 4.3% in 2020. On a related note, S&P again cut its 2020 growth projection for the Philippines to 4.2% from the 6% baseline forecast last December.

On Mar 19, BSP's monetary board decided to lower the policy interest rate by 50bps to 3.25% effective Mar 20. BSP informed that the latest baseline forecasts indicate a lower path of inflation for 2020 and 2021, 'with inflation expectations remaining firmly anchored within the target range of 3.0 percent ± 1 percentage point over the policy horizon.' The average inflation is forecast to settle at 2.2% in 2020 and 2.4% in 2021. These figures are significantly below the February projections of 3.0% for 2020 and 2.9% for 2021, because of lower-than-projected inflation outcomes in recent months, a sharp decrease in global crude oil prices, and the adverse impact of COVID- 19 on global and domestic economic activity. Furthermore, the balance of risks to the inflation outlook now is toward the downside for both this year and next year.

The Mar 19 meeting of BSP's monetary board was the second one for this year. The first one was held on Feb 6, when the board lowered the policy interest rate by 25bps. We remind that in 2019 the BSP implemented three 25bp policy rate cuts at the monetary board meetings in May, August and September. Last year, the BSP also cut the reserve requirement ratio (RRR) for banks by a total of 400bps. The RRR for universal/commercial banks hence fell to 14%. Furthermore, last year the central bank amended the definition of deposit substitutes, excluding from it interbank borrowings, which will no longer be subject to reserve requirements.

Further reading

Press release after March 2020 monetary policy meeting

Schedule of monetary policy meetings

Highlights of MB meetings on monetary policy

Inflation Report

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Recent developments:

BSP cuts reserve requirement ratio for banks by 200bps to increase liquidity, Mar 24, 09:09 BSP cuts policy rate by 50bps to 3.25%, Mar 19, 18:53 BSP might consider 50bp policy rate cut on Mar 19 – governor Diokno, Mar 17, 09:39

POLAND

MPC could cut more, but all depends on coronavirus combat success https://ceemarketwatch.com/browser/report/20200331/1fc7ef868742cfda4104f0453d39cca9.html[31/03/2020 12:55:00] Poland | Mar 25, 14:22

Next MPC meeting: Apr 8, 2019 Current policy rate: 1.00% CEEMarketWatch forecast: 1.00%

Rationale: Poland's Monetary Policy Council has played an active role so far in the battle against the impact of the coronavirus, but it does appear fairly divided in terms of whether it will try to help the economy out further via standard interest rate cuts or will focus more on non-standard policies and liquidity help. If we had to say, the MPC could cut the key benchmark rate again -- it slashed it by 50bps to 1.00% on Mar 17 -- but this will depend on data coming in and any potential progress in the fight against the coronavirus.

The key member remains NBP and MPC chair Adam Glapinski, whose most recent comments didn't really clear up whether he believes another cut will be necessary. In a piece for the daily Rzeczpospolita on Mar 20, Glapinski charted a mostly positive course, talking up the ability of the government to fight the virus in the short term and the likelihood that after a short period of bad GDP the economy will be able to recover nicely in H2. He did, however, note that the coming decline of the economy would slow inflation sharply and so he would presumably see room to cut further. He also highlighted the ability of the cut to help out.

Of the other MPC members, Eryk Lon, Jerzy Zyzynski, Grazyna Ancyparowicz, and Rafal Sura have all said that further cuts are needed or might be needed or that the NBP might have to increase its help for the economy. With Glapinski's tie-breaking vote on the 10-person council, that means there could be 4 members for a cut already, with only 1 more required to secure another cut. Sura's position was less clear than the others, but we believe new member Cezary Kochalski, whose comments were not directly on rates, will back the policy put forward by Glapinski.

The hawks have been actively pushing against a cut, with Eugeniusz Gatnar, Lukasz Hardt, and Kamil Zubelewicz all saying no further cuts would be helpful, in part as they could undermine the zloty and in fact be counterproductive. MPC member Jerzy Kropiwnicki also seems sceptical that further cuts can help.

In the end, much will depend on whether the restrictions look like they can be eased after Easter or not. If so, that could contain the economic damage to March and the beginning of April and potentially open the way to recovery for the rest of the year. There are many questions about that, though, especially since it is not obvious how the economy can get back to normal without a safe vaccine and without triggering a new upswing in cases. Still, the short-term view is likely to be that recovery can be possible after the worst of the current outbreak is passed, assuming it is.

What all MPC members seem to agree on is that the NBP should continue non-standard policy moves as long as there are crisis conditions. This include more repo operations to help banking sector liquidity and more purchase of Treasury securities on the secondary market. MPC members have also said these instruments can perhaps be widened if the need is there. MPC members also suggest that key will be how effectively fiscal policy can be wielded to counter the impact of the crisis.

Overall, the next sitting of the council is set for Apr 7-8, which is just before the current sharp restrictions are due to end on about Apr 11 and before any of the high frequency data for March will be released. The MPC might not have much in the way of hard data to go on at the April sitting, which could suggest grounds for caution. It should, however, be clear if there is any success in flattening the curve, though, and so if the Polish and global situation is not better, a cut is possible. But if there is some success locally, then the MPC might want to wait till later. There is

https://ceemarketwatch.com/browser/report/20200331/1fc7ef868742cfda4104f0453d39cca9.html[31/03/2020 12:55:00] a currently non-rate sitting set for Apr 21, but the Mar 17 sitting shows the council can vote on rates if there is the need. The next sitting would come on May 5-6, when all the March data will be out, by when it should be clear if the strategy to contain and tackle the fallout of the coronavirus outbreak is clear and whether or how much more action is needed. For now, we think the April sitting will see a hold and then the later April or May sittings could see a cut, but all depends on the coronavirus.

Poland's Monetary Policy Council had been in something of a hibernation for five years until Tues., when it slashed its benchmark rate by 50bps to 1.00%, a new record low. The MPC majority, led by NBP and MPC chair Adam Glapinski, had been saying for weeks that rates would likely remain on hold for years to come, but then Glapinski came out with a statement on Fri. evening saying he believed rates should be cut due to the threat of the coronavirus outbreak, which has changed everything. That led directly to the cut and other solid action to help the economy.

Eryk Lon and Jerzy Zyzynski, the MPC's two main doves, both backed cuts and Rafal Sura and Cezary Kochalski did not rule them out. These four members plus Glapinski, who has the tie-breaking vote, carried the vote. On Fri., the three hawks, Eugeniusz Gatnar, Lukasz Hardt, and Kamil Zubelewicz, all opposed a cut, as did Jerzy Kropiwnicki. However, since Fri., the US Federal Reserve slashed its rate to zero and the risk to the domestic economy has only risen with increasingly restrictive measures imposed on society to stop the spread of the virus. We could thus not rule out that the decision to cut saw a bigger majority than just the 5 of 10 members.

The MPC didn't only cut its benchmark rate, but it also lowered the Lombard rate by 100bps to 1.50%, cut the rediscount rate by 70bps to 1.05%, and kept the rediscount rate at 0.50%. It said the discount rate on bills of exchange was 1.10%. The Lombard rate cut will reduce consumer lending rates, to help potentially encourage such credit or increase access as consumers begin to feel the pinch of not being able to work. The MPC likewise slashed the required reserve ratio from 3.5% to 0.5% and increased the remuneration of required reserves from 0.5% to the reference rate level in order to limit the risk of current economic disruption weighing on the supply of credit. The NBP announced on Mon. a raft of measures to support credit, companies, and the economy, including repo transactions to help with banking liquidity, T-bond purchases on secondary markets, discount credit bills aimed at refinancing new loans granted to economic entities by banks (which is akin to ECB TLTRO instruments).

In its defence of its rate cut, the MPC said the coronavirus impact would lead to a short-term economic hammering, though that might eventually be mitigated by stimulus packages announced at home and across the globe. CPI inflation would fall markedly due to the slower growth and the sharp fall in oil prices, it added. In the end, it said there was a higher probability of inflation decreasing more quickly in 2020 than anticipated in the March projection and inflation is to fall below the NBP inflation target in the monetary policy transmission horizon.

MPC breakdown

Institution Date in Date out Pol. support Comment Adam Glapinski Pres/Sejm Jun. 21, 2016 Jun. 21, 2022 PiS Has been positive about outlook Grazyna Ancyparowicz Sejm Feb. 9, 2016 Feb. 9, 2022 PiS Says more cuts might be needed Eryk Lon Sejm Feb. 9, 2016 Feb. 9, 2022 PiS Backs more cuts, more QE Jerzy Zyzynski Sejm Mar. 30, 2016 Mar. 30, 2022 PiS Says more cuts might be needed Eugeniusz Gatnar Senate Jan. 25, 2016 Jan. 25, 2022 PiS Opposes further cuts Jerzy Kropiwnicki Senate Jan. 25, 2016 Jan. 25, 2022 PiS Says cuts aren't the answer, backs QE

https://ceemarketwatch.com/browser/report/20200331/1fc7ef868742cfda4104f0453d39cca9.html[31/03/2020 12:55:00] Rafal Sura Senate Nov. 16, 2016 Nov. 16, 2022 PiS Says NBP might need to give more support Lukasz Hardt President Feb. 20, 2016 Feb. 20, 2022 PiS Opposes further cuts, backs more QE Kamil Zubelewicz President Feb. 20, 2016 Feb. 20, 2022 PiS Opposes further cuts Cezary Kochalski President Dec. 21, 2019 Dec. 21, 2025 PIS Says NBP might need to give more support

Source: NBP

he question is whether the council will go for more. There has been some criticism of the idea of a cut, which critics have said won't help an economy under lockdown, could discourage investment and saving, and is the wrong policy response at the right time. Everything depends on whether the restrictive measures designed to slow the spread of the coronavirus pay off, though even if they do, it would seem likely they will be in place for at least 3-4 more weeks. This sudden stop to the economy will require concerted action from the government and the MPC and we could not rule out further cuts in April. But it really is very hard to say as these are unprecedented times.

Archived video of all MPC press conferences

MPC's post-sitting statements

Latest council minutes

Latest NBP inflation report (March 2020)

Most recent MPC voting result

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Recent developments:

NBP plans bond purchase ops on Apr 16 and Apr 29, Mar 30, 18:41 MPC's Lon calls for govt to be able to buy bonds directly from govt, Mar 30, 15:40 MPC's Kochalski says MPC doesn’t see inflation as critical, Mar 26, 16:08 NBP buys back PLN 10.7bn in bonds in third purchase, Mar 26, 15:26 Unconventional measures and ECB, Mar 25, 16:28 MPC's Hardt opposes further cuts, backs non-standard ops, Mar 25, 05:01 Zubelewicz says NBP should focus on supporting PLN rather than cutting rates, Mar 23, 20:51 MPC's Kropiwnicki says NBP might need to buy govt bonds on primary market, Mar 23, 20:42 MPC's Gatnar says room for further rate cuts is limited, Mar 23, 17:49 MPC's Lon says he backs further policy easing, use of QE, Mar 23, 16:27 NBP buys back PLN 5.6bn in three series of govt bonds on 2ndary markets, Mar 23, 15:58 DepFinMin Skiba says Q2 to be hit hard by COVID19, rebound in late Q2 or Q3, Mar 23, 02:31 NBP sets up next T-bond purchase operation for Mar 23, Mar 20, 21:19 MPC's Ancyparowicz says zloty weakening to be temporary, Mar 20, 18:16 NBP's Glapinski sees high chance Poland will see positive scenario, Mar 20, 16:40 MPC support for rate cut seems to be there, though depends on COVID fallout, Mar 20, 14:59 Hardt says 'no' to more rate cuts, but backs non-standard moves, Mar 20, 14:06 NBP offers to buy PLN 10bn in three series of bonds in first step into market, Mar 19, 16:37 MPC defeated early March rate cut motion, noted coronavirus uncertainty, Mar 19, 15:45 Gatnar was missing from Tues. MPC sitting, Mar 19, 15:17 https://ceemarketwatch.com/browser/report/20200331/1fc7ef868742cfda4104f0453d39cca9.html[31/03/2020 12:55:00] Glapinski says GDP growth to slow to 1.6-1.7% in 2020 in most pessimistic view, Mar 18, 19:04 Glapinski says govt bond buys to start Thurs., NBP wants more QE-type tools, Mar 18, 17:24 MPC says it cut by 50bps due to coronavirus, also lowered reserve rate by 3pps, Mar 17, 17:53 MPC cuts benchmark rate by 50bps to 1.00%, cuts other rates too, Mar 17, 17:12 NBP announces widespread measures to support banks, financial markets, economy, Mar 16, 19:40 Banks' coronavirus offer includes deferred credit payments, Mar 16, 16:02 MPC's Lon strongly backs rate cut, Mar 16, 14:40 MPC's Kropiwnicki says state most boost budget spending, run deficit, Mar 16, 14:21 MPC's Ancyparowicz says govt should launch fiscal package before rate cuts, Mar 16, 14:11 Glapinski's rate cut motion already has enough support to pass, Mar 16, 04:11 Glapinski says he will motion for a rate cut, Mar 13, 21:13 MPC's Sura says pessimistic scenario could bring about 25-50bps in cuts, Mar 13, 13:52 Sura says July projection will decide if rate cuts needed, Mar 12, 15:20 MPC's Sura says rate cut to be discussed if July projection puts growth below 3%, Mar 11, 15:57 MPC's Hardt says market pricing of 100bps in cuts is 'completely unrealistic', Mar 10, 16:45 MPC's Hardt says GDP growth will come in below 3% in 2020, Mar 10, 15:50 Kropiwnicki says economic slowdown tied to virus will also slow inflation, Mar 10, 14:57 MPC's Kropiwnicki doubts fiscal & monetary policy can offset coronavirus impact, Mar 09, 18:10 Oil price crash to set fuel prices up to cut CPI by over 1.0pp from April, Mar 09, 17:16 MPC's Zyzynski supports 50-bp cut, potentially in May, Mar 09, 13:58 MPC's Lon says coronavirus threats and new projection point to fast cuts, Mar 09, 13:50 MPC rate hold comes as majority still backs stabilization despite coronavirus, Mar 04, 18:43 MPC keeps key rate at record low of 1.50%, as expected, Mar 04, 15:45 MPC's Gatnar says rates in Poland close to 'reverse interest rate' level, Mar 02, 18:25

ROMANIA

NBR may reduce reserve requirement, rate cut possible in case of need Romania | Mar 25, 14:13

Next MPC meeting: Whenever necessary Current policy rate: 2% CEEMarketWatch forecast: Decrease of minimum reserve requirement

Rationale: The NBR held an unscheduled MPC meeting on Mar 20 and cut the policy rate by 50bps to 2%. The NBR adopted an entire package of measures aimed at backing the economy in facing the impact of the coronavirus outbreak. The authority also narrowed the symmetrical corridor of the interest rates on its facilities around the policy rate to +/-0.5pps from +/-1pp and committed to provide liquidity to credit institutions through repo operations and by purchasing RON-denominated government bonds on the secondary market.

https://ceemarketwatch.com/browser/report/20200331/1fc7ef868742cfda4104f0453d39cca9.html[31/03/2020 12:55:00] The central bank entered crisis mode as of Mar 20 so it decided to suspend its MPC meeting calendar and hold monetary policy meetings whenever necessary. It also announced that depending on how the situation evolves, the NBR board stands ready to also proceed with cutting the minimum reserve requirement ratio on leu- and foreign currency-denominated liabilities of credit institutions. Therefore, we believe that in case of another emergency MPC meeting, the NBR will very likely cut reserve requirements first, in order to release liquidity in market, and only then consider another rate cut. Nevertheless, if the situation deteriorates fast, a rate cut is very likely, despite its effects on the already depreciating local currency.

Local analysts say that the NBR is carefully watching the local currency development while dealers claim it has often intervened with large amounts to ease its depreciation against the euro. Therefore, the RON depreciation might continue, but the central bank would keep it under control. That is why another rate cut decision will be very probably cautiously assessed in our view. Still, it is quite hard to predict when and if the pandemic effects in the economy will become so serious for the NBR to drop aside concerns on RON depreciation and inflation.

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Recent developments:

NBR board unanimously votes set of measures to fight epidemic effects – minutes, Mar 27, 15:54 NBR cuts policy rate by 50bps at extraordinary MPC meeting, Mar 20, 18:04 NBR's advisor sees no reasons to adjust policy rate in April due to coronavirus, Mar 05, 12:09

RUSSIA

Next move can be in either direction, we bet on rate cut in mid-2020 https://ceemarketwatch.com/browser/report/20200331/1fc7ef868742cfda4104f0453d39cca9.html[31/03/2020 12:55:00] Russia | Mar 25, 15:30

Current policy rate: 6.00% Next monetary policy meeting: April 24, 2020 Expected decision: on hold

The CBR left its key rate unchanged last week and produced a balanced statement, according to which the next move can be either a rate hike or a rate cut. The CBR said the on hold decision was a balance between short-term factors favouring a rate hike (market turbulence and increased inflationary pressure due to weaker ruble) and medium-term disinflationary factors (the coronavirus shock). For the time being we expect that the CBR will remain on hold also at the April meeting, but things can change very fast in either direction till then. Our base scenario is that the coronavirus impact will be stronger than the authorities currently expect and the next move will be a rate cut, possibly coming in mid-2020. If markets and oil prices stabilize at higher levels, we see significant chances also for a rate already in April. Official expectations are still for GDP to grow this year, albeit less than the 1.9% assumed in the budget, while we rather think that stricter measures against the coronavirus and a recession are inevitable.

Headline inflation dropped to 2.3% y/y in February, which was in line with expectations. Weekly figures suggest that inflation will be close to that level also in March, possibly accelerating to 2.4% y/y. Weekly inflation returned to 0.1% during the first half of March, but it remains subdued and the effects from the ruble weakening are yet to be felt. In the real economy, February brought very positive data and GDP growth was estimated at 2.9% y/y. We believe large part of this performance was due to a leap year effect, which supported industry and retail sales. Growth is likely to remain positive in March, but the impact of the coronavirus outbreak will start to be felt as people reduce purchases of non-essential goods and services. This will be mitigated by some stocking up on food and medicines. On the fiscal side, the government has no plans for a large stimulus package and so far discusses limited measures to help businesses and households directly affected by the coronavirus outbreak. https://ceemarketwatch.com/browser/report/20200331/1fc7ef868742cfda4104f0453d39cca9.html[31/03/2020 12:55:00] Press release after March 2020 monetary policy meeting (in English)

Medium term forecast (Feb 2020, in English)

Monetary policy report (February 2020, in English)

Monetary policy guidelines for 2020-2022 (in English)

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Recent developments:

Inflation expectations of households remain stable in March, Mar 26, 07:55 CBR was discussing both rate cut and rate hike - Nabiullina, Mar 20, 15:48 CBR keeps rate on hold, expects inflation to exceed target in 2020, Mar 20, 14:17 CBR announces additional forex sales if Urals is below USD 25, Mar 19, 16:18 FinMin starts forex sales due to Sberbank deal, Mar 19, 08:32 Ruble falls to USD/RUB 80 on oil below USD 25, Mar 19, 08:09 Consumer prices rise by 0.1% during March 11-16, Mar 18, 19:01 Inflation will return to 4% target faster than previously thought – CBR, Mar 13, 16:14 Consumer prices rise by 0.1% during March 3-10, Mar 12, 18:24 CBR sells USD 50mn on March 10, first day of forex sales, Mar 12, 10:54 CBR starts immediately forex sales under fiscal rule, Mar 11, 07:25 CPI inflation falls to 2.3% y/y in February, Mar 06, 18:14 Direct effect of coronavirus on Russian economy will be minimal – CBR, Mar 04, 17:39 Consumer prices rise by 0.1% during Feb 26 – Mar 2, Mar 04, 15:46

SOUTH AFRICA

SARB intervenes to support market in crisis, expect the unexpected South Africa | Mar 25, 15:59

Next MPC meeting: May 21, 2020

Current policy rate: 5.25%

CEEMarketWatch forecast: 4.75%

The MPC surprised markets with a rate cut of 100bps on Mar 19, much more than the 25bps consensus expectation in response to the crisis that will hit the economy as Covid-19 continues to spread globally. The SARB projected a GDP contraction of 0.2% in 2020 but said risks were on the downside. Projecting the slump is a very challenging task at this time but it is very likely much larger than the current projection of the central bank. We think this forecast will be adjusted sooner rather than later. The government announced an almost complete shutdown of the economy in the next 21 days. The tourism and travel industry will stop, mines and a large deal of manufacturing will also be down for the time being. It is unclear when and if all of the suspended operations will resume, promising a very deep supply and demand shock.

https://ceemarketwatch.com/browser/report/20200331/1fc7ef868742cfda4104f0453d39cca9.html[31/03/2020 12:55:00] Both global and local markets are in distress. The flight to safety has exposed riskier assets such South African currency, stocks and bonds. The rand has been hammered since the start of the crisis and USD/ZAR is aiming at 18.00 since last week, an all-time high. The yield on the 10Y government bonds in the secondary market soared to 13.25% on Tuesday from about 8.25% as the government announced the economy shutdown. Besides the interest rate cut which did not manage to stem market pressures, the central bank is now intervening with measures to support liquidity on the market. On Mar 20, additional daily liquidity auctions were announced and standing facility rates were cut so that banks were penalized to hold cash at the central bank. On Mar 25, a 3-month refinancing operation was added and additional maturities would be considered of up to 12 months depending on liquidity conditions. Also the central bank announced it was starting a government bond purchase programme without specifying the amounts which it will be purchasing on the secondary market but noting they will be across the yield curve.

Clearly, the central bank is trying to stem what is shaping up to be a severe economic crisis of larger proportions than the 2008-2009 financial crisis. Interest rates are no longer the only tool used by the central bank to alleviate credit market pressures. The MPC cut the base rate by 500bps between Nov 2008 and Aug 2009. The next MPC announcement is scheduled for May 21 but the SARB is clearly ready to step up with measures anytime and some analysts project rates could be cut by another 50-100bps potentially earlier. Expect the unexpected.

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https://ceemarketwatch.com/browser/report/20200331/1fc7ef868742cfda4104f0453d39cca9.html[31/03/2020 12:55:00] Recent developments:

SARB implements new emergency measures to ease liquidity for banks, Mar 20, 13:23 MPC cuts policy rate 100bps in response to crisis, Mar 19, 15:58 Petrol prices set for big decline in April – Automobile Association, Mar 13, 15:22 JSE experiences biggest crush since 1997, rand extremely volatile, Mar 13, 08:39 Weak growth is endogenous in South Africa’s fiscal problem – Kganyago, Mar 05, 09:15

THAILAND

BOT likely to hold policy rate at 0.75% on May 20 Thailand | Mar 25, 14:48

Next monetary policy meeting: May 20 Current policy rate: 0.75% Expected decision: Hold Rationale: Limited policy space; current stance based on conservative growth projections

We expect that the BOT's Monetary Policy Committee (MPC) will maintain the policy interest rate at the all-time low of 0.75% at its meeting on May 20. On Mar 25, the central bank held the policy rate and issued its new macroeconomic projections. The BOT now forecasts that GDP will decrease by 5.3% this year due to the COVID- 19 outbreak. While there is significant uncertainty, we think that this projection is conservative enough. Another reason supporting a hold decision in May is that the BOT has limited policy space. On the other hand, the central bank also forecasts annual average headline deflation of 1% this year. This could justify a policy rate cut by 25bps in May, which is the second most likely scenario, in our view.

https://ceemarketwatch.com/browser/report/20200331/1fc7ef868742cfda4104f0453d39cca9.html[31/03/2020 12:55:00] The CPI increased by 0.74% y/y in February, slowing down from 1.05% y/y in January. The headline inflation has hence fallen below BOT's target range after staying in it for just one month. The range has been narrowed to 1-3% this year from 1-4% in 2019.

At its regular meeting held on Mar 25, BOT's MPC voted four to two to maintain the policy rate at 0.75%. Two members voted to reduce the policy rate by 25bps, and one member was unable to attend the meeting. We remind that on Mar 20 a special meeting was held, with the MPC voting unanimously to reduce the policy rate by 25bps to 0.75% effective Mar 23. The statement said that the cut is intended to decrease interest burdens of borrowers affected by the COVID-19 outbreak and to ease liquidity strain in the financial markets. It would also reinforce fiscal measures, both already implemented and forthcoming, the central bank said.

On Mar 22, the BOT, the ministry of finance and the Securities and Exchange Commission announced a package of measures to stabilize the financial market and improve liquidity. The measures concern bond mutual funds, corporate bonds and government bonds.