Wednesday, December 17, 2014

U.S. Fed holds rate, will be "patient" in normalizing policy

    The U.S. Federal Reserve maintained its benchmark federal funds rate at zero to 0.25 percent, as widely expected, and said it "can be patient in beginning to normalize the stance of monetary policy," a new guidance that is consistent with its previous statement that its policy rate would be maintained for "a considerable time" following the conclusion of quantitative easing in October.
    The Federal Reserve, the central bank of the United States, has held its fed funds rate at the current level since December 2008 but is slowly taking steps toward its first rate rise - expected around the middle of 2015 - in light of the continuing strengthening of the U.S. economy.
     Along with cutting its rate to essentially zero, the Fed has undertaken three major installments of asset purchases to hold down long term interest rates. The third installment, which included purchases of U.S. Treasuries and housing-related debt and known as QE 3, started in September 2012 and concluded in October with the final asset purchases of $15 billion.
    The next step for the Fed in normalizing its policy is to prepare financial markets for its first rate hike by adjusting the language in its guidance. Since September the Fed has been considering replacing the phrase "considerable time" - which it began to use in September 2012 - with another description that conveys the message that the Fed will not jeopardize the economic recovery and yet respond appropriately to the improving economy.
    Financial markets have recently turned volatile in response to the near 50 percent fall in crude oil prices since June and economists have questioned whether the Fed would be worried over whether this would have a lasting impact on its inflation projections.

Central Bank News Link List - Dec 17, 2014 - Fed likely to signal rate hike on track despite global woes

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.

Thailand holds rate but 2 members vote to cut by 25 bps

    The Thai central bank maintained its policy rate of 2.0 percent, as expected, but said two of the members of its policy committee voted to cut the rate by 25 basis points to provide further support to the economy, which is expected to expand at slower pace in 2015 than projected.
    The Bank of Thailand (BOT), which cut its rate by 25 basis points in March, said headline inflation had trended downward due to energy prices and was projected to remain subdued for some period while core inflation decelerated due to lower demand.
    Thailand's Gross Domestic Product expanded by 1.1 percent in the third quarter from the second quarter for annual growth of 0.6 percent, slightly up from 0.4 percent in the second quarter.
    The BOT said domestic private spending was the main driver of growth while less-than-expected government spending was weighing on private investment as most businesses were waiting for public investment plans to proceed. In addition, exports are held back by the uncertain global outlook.
    "Going forward, members agreed that monetary policy should remain accommodative in order to reinforce the momentum of economic recovery," the BOT said.
    Thailand's headline inflation rate fell to 1.26 percent in November from 1.48 percent in October  while core inflation eased to 1.6 percent from 1.67 percent. The BOT targets core inflation of 0.5-3.0 percent.

Georgia maintains rate, sees inflation at target H2 2015

    Georgia's central bank maintained its policy rate at 4.0 percent, saying it was still considering a gradual withdrawal of its expansionary monetary policy while assessing the negative impact on foreign demand from the "complicated situation in the region" and its impact on economic growth.
    The National Bank of Georgia (NBG), which started tightening policy is February but then stopped the process due to the increase in geopolitical risks, said it was still expecting a "significant strengthening of inflationary pressure" and to reach its target of 5 percent inflation in the second half of 2015.
    Georgia's headline inflation rate eased to 2.8 percent in November from 3.4 percent in October.

Czech may move FX target lower on deflation risk

    The central bank of the Czech Republic maintained its benchmark two-week repo rate at technically zero - 0.05 percent - along with its commitment to intervene in foreign exchange markets  to keep the koruna currency below 27 to the euro.
    But the Czech National Bank (CNB), which has been using the exchange rate as an additional tool to ease monetary conditions since November 2013, also said it would consider "moving the exchange rate commitment to a weaker level" if there were a renewed risk of deflation and a systematic decrease in inflation expectations that were capable of causing a slump in domestic demand due to deflationary pressures from abroad.
    The Czech headline inflation rate eased to 0.6 percent in November from 0.7 percent in October, 0.2 percentage points lower than the CNB's forecast, mainly because this year's rise in excise duties will feed into cigarette prices lower than expected while food and fuel prices were also lower.
    The CNB said the data confirms that its decision to use the exchange rate as a monetary policy tool helped to avert the threat of deflation and it currently forecasts that headline and monetary-policy relevant inflation will return to the 2.0 percent target in early 2016.
    The Czech economy expanded by 0.2 percentage points less than expected by the CNB in the third quarter of this year, with Gross Domestic Product up by an annual 2.4 percent, down from 2.5 percent in the second quarter. On quarterly terms GDP rose by 0.4 percent, up from 0.3 percent in the second quarter.

Tuesday, December 16, 2014

Hungary holds rate, loose policy for extended period

    Hungary's central bank maintained its base rate at 2.10 percent, as expected, and confirmed its guidance that it expects to maintain the current loose monetary conditions "for an extended period" in order to reach its inflation target in the medium term.
    The National Bank of Hungary (MNB), which ended a two-year easing cycle in July after cutting rates by 490 basis points, repeated inflationary pressures are likely to remain moderate in the medium term, helped by unused capacity in the economy, with inflation remaining significantly below the 3.0 percent target next year before rising to around 3 percent in the second half of the forecast period.
    The MNB added that downside risks to inflation had increased since its September projection but the negative output gap is expected to close gradually and the disinflationary impact of the real economy is likely to diminish.
    "With current monetary conditions maintained, inflation is likely to move into line with the target in the second half of the forecast period, despite disinflationary trends in external markets," MNB said.

   The National Bank of Hungary issued the following statement:

Morocco cuts rate 25 bps on "relatively low" inflation

    Morocco's central bank cut its key policy rate by another 25 basis points to 2.50 percent as inflation is expected to "remain relatively low," averaging 0.4 percent for 2014, 1.2 percent in 2015 and 1.3 percent in the first quarter of 2016.
   The Bank of Morocco, which has now cut its rate by 50 basis points this year, said the rate cut also took into account increases in minimum wages this July and in July 2015 along with the review of water and electricity prices, and projected oil prices.
    "Considering this central inflation forecast, the objective to reduce the fiscal deficit to sustainable levels and the continued improvement in foreign exchange reserves, and in order to further support economic recovery, the Board decided to lower again the key rate by 25 basis points to 2.5 percent," the central bank said.
    Morocco's consumer price inflation rate rose to 0.6 percent in October from 0.1 percent in September for a 0.3 percent decline in the first 10 months of this year compared with a 2.1 percent increase in the same 2013 period. This was mainly due to a 6.6 percent drop in food prices - compared with a 4.8 percent rise.
    Morocco's Gross Domestic Product expanded by an annual 2.3 percent in the second quarter of this year, up from a rate of 1.7 percent in the first quarter but down from 5.1 percent in the second quarter of 2013. The central bank attributed the lower growth rate this year to a 2.6 percent fall in agricultural value added after a rise of 20.2 percent last year.
    For the full year, GDP is estimated to expand by 2.5 percent and then by 4.4 percent in 2015, driven by a recovery in non-agriculture.
    Meanwhile, the unemployment rate in the third quarter rose 0.5 percentage points to 9.6 percent despite a 0.3 percent fall in the labour participation rate. The non-agricultural output gap is negative, suggesting the absence of demand-led inflation pressure, the central bank said.

Sweden holds rate, sees rise H2 2016, plans measures

    Sweden's central bank maintained its benchmark repurchase rate at zero percent and pushed back any rate rise to the second half of 2016 in an attempt to expand its monetary policy stance and reduce the risk that long-run inflation expectations fall further in response to falling oil prices.
    The Riksbank, which in October slashed its rate to zero percent and said it would maintain this rate until mid-2016, added that it would continue to postpone any rate increase if its policy stance has to be eased further and was preparing "further measures" that could be presented in February.
    While inflation remains too low, primarily due to lower oil prices, the Riksbank said economic activity was improving with Gross Domestic Product growth and employment seen rising.
     The Riksbank again lowered its forecast for consumer price inflation to 0.3 percent in 2015, down from the October forecast of 0.4 percent, and the 2016 forecast to 2.0 percent from 2.1 percent. Inflation in 2017 was still forecast to rise by 3.2 percent.
     The central bank's forecast for its repo rate was maintained at zero percent in 2015 but cut to 0.2 percent in 2016, down from 0.3 percent. For 2017 the repo rate is seen averaging 1.1 percent compared with its previous forecast of 1.4 percent.
    The forecast for growth in 2014 was again cut to 1.8 percent from the October forecast of 1.9 percent while the forecast for 2016 GDP growth was maintained at 3.3 percent and the 2017 forecast kept unchanged at 2.3 percent.

Monday, December 15, 2014

Russia raises rate 650 bps to 17.0 pct to protect ruble

    Russia's central bank surprised financial markets by raising its key policy rate by 650 basis points to 17.0 percent to limit the depreciation of the ruble currency and curb inflation.
    The rate rise by the Bank of Russia comes less than a week after it raised its rate by 100 basis points to 10.50 percent during a scheduled meeting of its board of directors. The Russian central bank has now raised its rate by 1,150 basis points this year.

    The Bank of Russia issued the following statement:

"From 16 December 2014 the Bank of Russia Board of Directors decided to raise the Bank of Russia key rate to 17.00 percent per annum. This decision is aimed at limiting substantially increased ruble depreciation risks and inflation risks.
From 16 December 2014 in order to strengthen the efficiency of monetary policy loans secured by non-marketable assets or guarantees for 2 to 549 days will be provided at a floating interest rate, set at the Bank of Russia key rate level, increased by 1.75 percentage points (up to the present these loans for 2 to 90 days were provided at fixed rate).
Moreover, for further expanse of credit institution ability to manage their foreign exchange liquidity it was decided to increase maximum allotment amount for 28-dayFX REPO auctions from 1.5 to 5.0 billion USD and to conduct 12-month FX REPO auctions on weekly basis."

Central Bank News Link List - Dec 15, 2014 - Fed faces big decision over a few choice words

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.

This week in monetary policy: Sweden, Morocco, Croatia, Czech Republic, Thailand, United States, Georgia, Albania, Hungary and Japan

    This week (December 15 - 19) 24 central banks from 10 countries are scheduled to decide on monetary policy: Sweden, Morocco, Croatia, the Czech Republic, Thailand, the United States, Georgia, Albania, Hungary and Japan.
    Following table includes the name of the country, its MSCI classification, the date the policy decision will be announced, the current policy rate, and the rate one year ago.

SWEDEN DM 16-Dec 0.00% 0.75%
MOROCCO FM 16-Dec 2.75% 3.00%
CROATIA FM 17-Dec 5.00% 5.00%
CZECH REPUBLIC EM 17-Dec 0.05% 0.05%
THAILAND  EM 17-Dec 2.00% 2.25%
UNITED STATES DM 17-Dec 0.25% 0.25%
GEORGIA 17-Dec 4.00% 3.75%
ALBANIA 18-Dec 2.25% 3.00%
HUNGARY  EM 18-Dec 2.10% 3.00%
JAPAN 19-Dec                  N/A                  N/A