U.S. Fed holds interest rate steady

Financial Markets
The yield on the benchmark 10-year U.S. Treasury note fell to as low as 1.586 percent on Wednesday,
the lowest level since November 2012, after the Federal Reserve kept interest rates unchanged and
offered no indication of summer rate hike. U.S. Treasuries are in the midst of their best start to a year
since 2003, returning nearly 5 percent this year, as waning global economic growth and the prospect of
Britain exiting the European Union increased demand for safe-haven government debt.

Oil prices traded lower Wednesday, pressured by concerns over global energy demand. A modest drop
in U.S. crude stockpiles and the Feds’ decision to leave policy rate unchanged failed to offer much
support for prices. Brent, the global benchmark, fell 1.7 percent to $48.97 a barrel, while West Texas
Intermediate (WTI), the U.S. benchmark, dropped 1 percent to $48.01 a barrel.


Advanced Markets
The U.S. central bank held the target range for the federal funds rate steady at 0.25 percent to 0.5
percent, where it has been since it lifted rates by a quarter point from near-zero levels in December 2015.
The Federal Reserve cited concerns about mixed economic data (weak May employment report and still
low inflation) and uncertainty about global economic and financial developments (for instance, the
outcome of U.K.’s referendum on the European Union membership). The median of the Federal Reserve
forecasts suggests policymakers are still expecting two interest-rate increases this year. Meanwhile, the
Fed revised both the growth and inflation forecasts for 2016. GDP growth was trimmed to 2 percent,
down from the previous projection of 2.2 percent, while inflation was revised upwards to 1.4 percent, from
the earlier reported forecast of 1.2 percent.

U.K.’s unemployment rate fell to 5 percent in the three months to April, the lowest level in more than a
decade, from a steady 5.1 percent in the previous five periods, and below the economists’ forecast of no
change. The current reading is below the pre-crisis average, suggesting that the labor market has
remained resilient in the face of uncertainty from the European Union membership referendum on June
23. Meanwhile, basic wage growth accelerated to 2.5 percent (y/y) in April from 1.9 percent in March, and
above the market expectation of 2 percent, partly attributed to the introduction of the national living wage
for low earners.

France’s consumer prices rose 0.4 percent (m/m, sa) in May, following a 0.1 percent gain in April. The
uptick in consumer prices was driven up by the rising cost of fresh food and an upturn in energy prices,
according to the France’s statistical authority (Insee). Year-on-year the inflation rate was zero percent in
May, from -0.2 percent in April. Excluding food and energy prices, consumer prices grew 0.1 percent
(m/m) for the third month in a row. Year-on-year, core inflation was 0.7 percent in May, up from 0.6
percent in April.


Emerging and Developing Economies
Europe and Central Asia

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Russian economy shrank 1.2 percent (y/y) in Q1, following 3.8 percent drop in Q4 and in line with
preliminary estimates, final figures showed. The fifth consecutive quarter of contraction was led by fall in
manufacturing, construction, wholesale and retail trade while agriculture, mining and quarrying, financial
and rental services advanced.

Moldova's economy grew 0.8 percent (y/y) in Q1, after contractions in the previous two quarters, mainly
due to a rebound in household consumption. In contrast, government spending and investment shrank.
External trade worsened as exports fell more than in Q4 and imports increased. On a quarterly basis,
GDP increased 1.7 percent (q/q sa) following an upwardly revised 0.4 percent expansion in Q4.


South Asia

Sri Lanka's economy grew 5.5 percent (y/y) Q1, following 2.5 percent expansion in Q4. The main drivers
of the growth were: construction, manufacturing, wholesale and retail trade, and financial services.


Sub-Saharan Africa

Consumer prices in Cape Verde dropped 1 percent (y/y) in May, after a 0.9 percent fall in April, led by
declines in cost of transport, education and clothing, housing rents and utilities. On the other hand, cost
of hotels, restaurants, cafes, miscellaneous goods and services, household equipment and maintenance
and health rose. On a monthly basis, consumer prices edged up 0.1 percent.


June 15, 2016



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