KEY THEMES
Annual core inflation hit its highest level since June 2019, climbing to 6% y/y from 5.8% in November. Meanwhile, monthly core inflation eased to 0.2% from 0.5% in November. Yesterday, we published our MACROView note regarding annual headline urban inflation. As expected, annual urban headline inflation was up in December after two months of disinflation. The reasons appear to be a combination of the unfavorable base-year effect and lagging global-driven inflationary pressures. We think such drivers will put annual inflation right back on the rise, which is likely to continue hovering around 6-7% in Q1 2022. For more details, please read our note here.
Elsewhere, the CBE has issued a circular yesterday that puts in place a mechanism under which it could in the future provide emergency liquidity to banks. The CBE stressed that such mechanism is different from the open market operation, which is one of the tools to control the overall liquidity supply within the banking sector. The emergency liquidity mechanism will be used as a last resort for banks that are unable to meet their liquidity needs form the interbank market or other markets for that matter. Given its emergency nature, the mechanism shouldn’t be utilized under any circumstances to pay out dividends, buy back shares, or fund staff compensation. Furthermore, the pricing of the emergency liquidity came with a 5% margin above the CBE’s overnight lending rate, with a maximum tenor of 180 days. Hence, any bank applies for the emergency liquidity shot will fall under tight supervision.