Central Bank of Seychelles Monetary Policy Decision Q4 2018 - - PowerPoint PPT Presentation

Central Bank of Seychelles

Monetary Policy Decision

Q4 2018

October 04, 2018

Monetary Policy Stance for the Fourth quarter of 2018

Decision

• Maintain Tight monetary policy stance for the fourth quarter of 2018
• Unchanged interest rate corridor
• SCF at 8% (ceiling)
• SDF at 2% (floor)
• MRR remains unchanged at 13%
• The reserve money target (average): R3,776 million which implies a quarterly

growth rate of 3.6%.

The CBS remains vigilant and continues to monitor inflationary developments during the quarter

Moderation in external inflationary pressures

Modest increase in energy prices being anticipated whilst food prices remained steady

Source: Food and Agriculture Organisation EIA forecast as at August 2018 EIA forecast as at June 2018

Source: EIA Short Term Energy Outlook

Depreciating trend against the USD with EUR and GBP weakening

12.50 13.50 14.50 15.50 16.50 17.50 18.50 19.50 20.50 03-Jan-18 18-Jan-18 02-Feb-18 17-Feb-18 04-Mar-18 19-Mar-18 03-Apr-18 18-Apr-18 03-May-18 18-May-18 02-Jun-18 17-Jun-18 02-Jul-18 17-Jul-18 01-Aug-18 16-Aug-18 31-Aug-18 15-Sep-18 SCR SCR/USD SCR/EUR SCR/GBP

Mixed indicators from the real sector

* Last outcome August 2018 / September figure estimated

Fall in tourist arrivals and tourism earnings

Drop in arrivals in Q3 YOY but even greater fall in yield

* Last outcome 2018 Q2

Mixed performance from fisheries sector

Slight fall in canned tuna production growth in Q2 but rise in export volume and value

Mixed production indicators in Q2 2018

Fish catch Canned tuna Egg Production Beer Stout Spirits Soft drinks Mineral Water Tobacco (Cigarettes) Blocks Paint & Paint products Animal Feed Electricity (kWh) Water Consumption Water Production Telecom Services (Mobile Accounts) International Call Local Call Telephone Exchange Lines Internet Connection Cable TV Connections Data Traffic Tonnes Tonnes Millions Litres Litres Litres Litres Litres Nos Nos Litres Kgs kWh kLts kLts Nos Hours Hours Nos Nos Nos GB

2018 Q2/ 2018 Q1 % Chg

1.1

• 15.7

9.9 26.8 57.1

• 1.2

12.7 5.3 64.2

• 17.9

2.9 126.6

• 2.1

1.1 0.1 2.3

• 2.7

0.9 6.2

• 10.2

3.7 27.2

YTD 2018/ YTD 2017/ %Chg

• 1.0

34.7 20.8 3.5 41.0

• 33.2

32.3 11.8 -19.5 9.1

• 3.7

22.4

• 2.1

7.6

• 18.9

4.3

• 0.3

5.1

• 3.7

133.1 19.8 49.4

* Last outcome Q1 2018 / Q2 2018 is an estimate

Positive GDP growth expected in Q2 2018

Near term forecast in Q2 2018 YOY growth

• f 4.6%

in Q1 2018

Economic outlook for 2018 indicates positive GDP growth

• Tourism
• Increased air connectivity
• Despite slowdown in performance, YTD arrivals growth and industry yield

remains positive

• Tuna production
• Mixed indicators: Higher production and higher export volume helps mitigate

the loss in export value

• Infrastructure projects expected to have a positive effect on growth
• E.g. Road developments, PUC projects, Housing Projects
• Credit schemes:
• Government targeting to increase credit to SMEs
• Demand for private sector credit remains high

Slowdown in money supply growth and rise in interest rates

Slowdown in money supply and total credit with double digit growth in private sector credit

4 6 8 10 12 14 16 18 20 22 Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug 2017 2018 Per cent (%) Total Credit YoY % Private credit YoY % Money supply YoY (%)

Individuals & Households account for biggest share

• f private sector credit

* Last outcome August 2018

Agriculture and Horticulture 1.7% Art & Entertainment 0.8% Building and Construction 7.9% Education 0.4% Fishing 0.9% Health 2.5% Manufacturing 3.3% Professional, Scientific & Technical Services 0.4% Real Estate 10.4% Telecommunications, Computer & Information 1.5% Tourism 15.4% Trade 10.2% Transport 4.6% Community, Social & Personal 0.9% Others 2.7% Individuals & Households 22.9% Mortgages 13.5%

Evolution of key interest rates

2.0 3.0 4.0 5.0 6.0 7.0 8.0 11.9 12.2 12.5 12.8 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug 2017 2018 Per cent (%) Per cent (%) Avg lending rate 91 day T-bill Avg savings rate (sec) 7-day DAA (sec)

Modest inflationary pressures domestically

Moderation in inflationary pressures

CPI Jul Aug Month on Month (%) 0.41

• 0.20

Year on Year (%) 3.13 2.78 12-month average (%) 3.76 3.66 0.0 1.0 2.0 3.0 4.0 5.0 6.0 Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug 2017 2018 Per cent (%) Annualised Year-on-year

Potential sources of inflationary pressures

• Impact of revision in domestic utility tariffs and tariff rebalancing

programme

• Second round effects of depreciating exchange rate
• Fiscal policies:
• Increase in Minimum wage in January 2019 + 13th month salary
• Review of public sector salary grid
• Progressive income tax
• Property Tax
• “Glass” tax
• Populist measures (pressure to meet public expectations)
• Elections in 2020
• Ongoing infrastructure Projects may pick up in pace in Q4 and into 2019
• Housing and PUC Projects
• Modest increase in oil prices

Maintain a tight monetary policy stance for Q4 2018 in light of rising inflationary pressures and uncertainty that is expected in the short to medium term CBS ready to adjust the policy stance to safeguard price stability