Wednesday, January 28, 2015

Albania cuts rate 25 bps, to keep stance some quarters

    Albania's central bank cut its key interest rate by 25 basis points to 2.0 percent and said it would maintain easy monetary conditions "some quarters ahead" to achieve its inflation target.
    But the Bank of Albania, which cut its rate by 75 basis points last year to stimulate the economy, signaled that it was unlikely to reduce rates further, saying today's "move provides adequate conditions for the return of inflation to the target and of the economy to equilibrium in the medium-term horizon."
    Despite last year's rate cuts, liquidity injections into the banking system and an improvement in lek currency loans in the last two quarters of 2014, the central bank said the full transmission of its policy into the economy continued to suffer from businesses' "reluctance to engage in long-term investments and the banking system's risk aversion."
    The bank's supervisory council also discussed its latest forecasts, saying there were no major changes, but in the short run the expected performance of economic growth had shifted upward whereas inflation has shifted downward.
    In its baseline scenario, the central bank forecasts annual inflation ranging from 1.2 to 3.8 percent in the four quarters ahead, with inflation returning to the bank's 3.0 percent target medium term, helped by economic growth and the closure of the negative output gap.
    Albania's inflation rate fell to 0.7 percent in December from 1.7 percent in November, mainly due to low food prices and continuing drop in oil prices against a backdrop of sluggish demand.
    "The external environment of the economy exerted disinflationary pressures on the Albanian economy, a trend expected to persist in 2015 as well," the central bank said.
    Albania's Gross Domestic Product expanded by an annual 3.3 percent in the third quarter of last year, up from 1.73 percent in the second quarter.

New Zealand holds rate, data to determine rate cuts, rises

    New Zealand's central bank maintained its benchmark Official Cash Rate ((CR) at 3.5 percent but adopted a neutral policy stance by saying that it "future interest rate adjustments, either up or down, will depend on the emerging flow of economic data."
    The Reserve Bank of New Zealand (RBNZ), the first central bank in advanced economies to raise its rate last year, added that it expects to keep its rate on hold for some time.
    In its previous statement from December, the RBNZ had maintained an tightening policy bias, saying further increases in the policy rate were expected to be required at a later stage. Economists had expected the RBNZ to maintain rates and adopt a more dovish outlook for rates.
    The reasons for the RBNZ's more pessimistic view is based on a weaker than expected growth in its trading partners, fiscal consolidation, lower dairy prices, the risk of drought and the dampening impact of the high exchange rate of the New Zealand dollar, known as the kiwi.
    The effect is that inflation is likely to be below the central bank's target band through this year, and could even turn negative "for a period" before its moves back toward 2 percent, but in a slower fashion that previously expected.
    On the other hand, RBNZ Governor Graeme Wheeler acknowledged that lower oil prices, and thus fuel prices, "will increase households' purchasing power and lower the cost of doing business," while the housing market was showing signs of picking up, particularly in Auckland.
    As in recent months, Wheeler said the exchange rate of the kiwi "remains unjustified" and unsustainable despite recent easing and he expects to "see a further significant depreciation."

Fed: US economy expanding at "solid pace," still patient

    The Federal Reserve acknowledged the strengthening U.S. economy - describing it as "expanding at a solid pace" - but maintained its guidance that it "can be patient in beginning to normalize the stance of monetary policy" and even after employment and inflation approach levels that are consistent with its mandate, the policy rate may be kept below levels considered normal.
    In December the Fed, the central bank of the United States, changed the wording of its guidance to the phrase that it would be "patient" in normalizing policy - shorthand for raising rates - from the previous phrase that it would maintain the current rate for "a considerable time" after the conclusion of quantitative easing last October.
   Economists had expected the Fed to change the words it uses to describe the U.S. economy in light of the strong expansion seen in the second and third quarters, with quarterly growth rates of 4.6 percent and 5.0 percent, respectively.
    Like other central banks, the Fed also acknowledged that the sharp drop in crude oil prices and energy prices, have "boosted household purchasing power," but this has also led to a decline in inflation to "further below" its long-run objective of 2.0 percent.
    In contrast to its statement on Dec. 17, when the Fed said it expected inflation to rise gradually toward its target, it said today that inflation is expected to decline further in the near term before gradually rising toward 2 percent over the medium term as the labor market continues to improve and the transitory effects of lower energy prices dissipate.
    Consumer price inflation dropped to 0.8 percent in December from 1.3 percent in November while core inflation, which excludes some volatile items, eased to 1.6 percent from 1.7 percent. In December the unemployment rate fell to 5.6 percent from 5.8 percent.
    Unlike December, today's statement by the Fed's policy committee, the Federal Open Market Committee (FOMC), was agreed unanimously. In December Richard Fisher, Narayana Kocherlakota and Charles Plosser had voted against the statement.
    The Fed has held its fed funds rate steady since December 2008 but is gradually moving toward its first rate rise, expected later this year, following the conclusion of asset purchases in October.

Thailand maintains rate but 2 of 7 vote for 25 bps cut

    Thailand's central bank maintained its policy rate at 2.0 percent but two members of its seven-member monetary policy committee voted to cut the rate by 25 basis points, up from one member who voted to cut rates at the previous meeting in November.
    The Bank of Thailand (BOT), which last cut its rate by 25 basis points in March 2014, said its committee members agreed that "monetary policy should stay accommodative to provide continued to support for the economy," adding that it was "ready to take appropriate actions as warranted," a clear signal of its concern over the risks to the global economy from a slow recovery in major trading partners, lingering political uncertainty and the possibility of higher volatility in global financial markets from the divergence in monetary policy among major central banks.
    In November the BOT had not used the phrase of taking appropriate actions as warranted, but only referred to pursuing appropriate policy to support the economy, indicating an increased readiness to cut rates if economic prospects are threatened.
    Last week Thailand's finance minister called on the central bank to cut rates to help the economy, adding that he was concerned the exchange rate of the baht could rise following the European Central Bank's (ECB) move to boost stimulus and thus hurt exports.
    The five members that voted to maintain rates argued a steady rate could contain some of the risks from a prolonged period of low interest rates and increased global financial market volatility.
    But the members that voted for a rate cut argued that monetary policy should play a greater role in boosting the economy in light of the higher global economic risks, a long lag in the implementation of fiscal stimulus and low inflation that will result in higher real interest rates.

Malaysia holds rate, assessing external developments

    Malaysia's central bank maintained its Overnight Policy Rate (OPR) at 3.25 percent, as widely expected, saying it would "carefully assess the external developments and their implications on the Malaysian economy" and "monitor the risks of destabilizing financial imbalances."
    Bank Negara Malaysia (BNM), which raised its rate by 25 basis points in July 2014, added that the prospects for the country's economy remain on a "steady growth path," a phrase the central bank often uses to describe economic activity.
    However, the BNM's reference to external developments clearly indicates growing concern over the downside risks to the global economic outlook along with increased volatility in international financial markets and heightened uncertainty with regard to global growth prospects and the decline in commodity prices.
    Nevertheless, the BNM expects the global economy to benefit from lower oil prices.
    In its December statement, the BNM pointed to the outlook for domestic growth and inflation along with the risks of destabilizing financial imbalances.
   The BNM still sees domestic demand as the key driver of economic growth due to a steady rise in income and employment along with the boost to disposable income from lower oil prices.
    Although the central bank expects its exports to be affected by lower commodity prices, it sees an improvement in the export of manufactured products.

Tuesday, January 27, 2015

Central Bank News Link List - Jan 28, 2015: Singapore central bank eases monetary policy

Here's today's Central Bank News' link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don't miss any important news.

Hungary maintains rate, no systemic risk from CHF rise

    Hungary's central bank maintained its base rate at 2.10 percent, as expected, and confirmed its guidance that it would keep the "current loose monetary conditions for an extended period."
    The National Bank of Hungary (MNB), which ended a two-year easing cycle in July after cutting its rate by 490 basis points, said the continued fall in the prices of oil and processed food have led to historically-low inflation dynamics but domestic demand-side disinflationary pressure are likely to weaken as economic activity gathers pace so inflation's likely to reach levels around 3 percent in the latter half of the bank's forecast period.
    Hungary's economy is likely to continue to expand due to improving domestic demand, but capacity utilization is expected to improve only gradually due to weak external demand so inflationary pressures are likely to remain moderate for an extended period.
    While repeating its recent guidance, the MNB appeared to signal that it may be considering cutting rates, saying recent data had shifted towards "the alternative scenario implying looser monetary policy" from its December 2014 inflation report.
    In that report, the MNB's council identified three alternative scenarios, each having significant impact on monetary policy.
    The first alternative assumes lower oil prices over the long term, which supports domestic growth and implies easier monetary policy due to downside inflation risks. A second alternative that assumes weaker-than-projected external demand, which also suggests looser monetary policy than in the baseline scenario. A third scenario includes intensified geopolitical tensions that result in a weaker exchange rate, which leads to inflation pressures and thus implies tighter monetary policy.

Monday, January 26, 2015

Kyrgyzstan raises rate 50 bps in effort to lower inflation

    The central bank of the Kyrgyz Republic raised its policy rate by a further 50 basis points to 11 percent to curb inflationary pressures from the deprecation of its som currency and said it would "take appropriate measures" to reduce inflation to its target.
    The National Bank of the Kyrgyz Republic, which targets inflation of 5-7 percent in the medium term, has now raised its policy rate by 500 basis points since July 2014.
    The som began to depreciate in August last year and was trading at 59.9 to the U.S. dollar today, down 1.7 percent this year and almost 14 percent since August 1.
    Kyrgyzstan's inflation rate accelerated to 10.5 percent in December from 10.2 percent in November and the central bank said preliminary data showed inflation of 10.4 percent as of mid-January.
    The economy of the Kyrgyz Republic, bordering Kazakhstan to the north and China to the east, continues to slow, the central bank said, adding that Gross Domestic Product expanded by 3.6 percent in 2014, down from 10.5 percent in 2013.
    This is below the 4.1 percent projected by the International Monetary Fund in July, with the country's economy hit by Russia's economic crises.

    The National Bank of the Kyrgyz Republic issued the following statement:

Central Bank News Link List - Jan 27, 2015: Fed seen raising rates midyear even with low inflation

Here's today's Central Bank News' link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don't miss any important news.

Sri Lanka holds rate, sees robust economic performance

    Sri Lanka's central bank maintained its key policy rates, including the Standing Deposit Facility Rate (SDFR) at 6.50 percent, saying the country's economy is "expected to record a robust performance in the period ahead" with appropriate macroeconomic policies to boost domestic and foreign investor confidence.
    The Central Bank of Sri Lanka, which has kept rates steady since October 2013, also said inflation was expected to decline in the months ahead due to subdued demand and inflation expectations, the impact of further reductions in fuel prices in January, and the expected reduction of administered prices of other key commodities as part of the government's '100-Day Programme.'
    Sri Lanka's headline inflation rate rose to 2.1 percent in December from 1.5 percent the previous month while core inflation eased to 3.2 percent from 3.6 percent in November, continuing its recent path of remaining between 3 and 4 percent.
    The central bank, which targets inflation of 3-5 percent this year, attributed low inflation to contained demand pressures along with favorable supply side developments and downward revisions in domestic energy prices in the last few months of 2014.
    The new governor of the central bank, Arjuna Mahendran, assumed his duties on Monday, replacing Ajith Nivard Cabraal who resigned in January following the presidential elections.

Angola postpones monetary policy meeting until Feb. 2

    Angola's central bank has postponed a meeting of its monetary policy committee to Monday, Feb. 9 from the originally scheduled Monday, Jan. 26.
    The National Bank of Angola (BNA) did not provide any reason for the change in a statement on its website.
    On Jan. 15 Angola's president appointed Jose Pedro de Morais, finance minister from 2002-2008, as the central bank's 15th governor, replacing Jose de Lima Massano.
    Massano was appointed as governor in October 2010 for an unspecified period.
    The BNA last changed its rate in October 2014 when it raised the benchmark Basic Interest Rate by 25 basis points to 9.0 percent following a rate cut in July of 50 basis points for a net reduction of 25 points in 2014.