Monday, July 28, 2014

Monetary Policy Week in Review – Jul 21-25, 2014: Central banks continue to prepare for shift in Fed policy

    Central banks are continuing to position themselves to weather the fallout from the coming shift in U.S. monetary policy, with Hungary, Nigeria and Russia’s last week citing the need to maintain tight policy in light of the risks they will face from higher U.S. interest rates.
   The strong reaction of global financial markets to news last summer that the Fed was likely to start wrapping up five years of quantitative easing – an episode now known as “taper tantrum” – is still seared in the memory of policymakers who are eager to avoid a repeat.
    With the Fed’s third round of asset purchases set to conclude in November and the first rate rise expected in mid-2015, emerging market central banks want to ensure that they can offer attractive rates of return that reflect their inflation rates and the risk of exchange rate depreciation.
    Russia’s central bank, which last week surprised markets by raising its rate by 50 basis points, pointed to the growing likelihood of an acceleration in inflation from what it described as “negative trends,” including “adjustments in the monetary policy of foreign central banks and the potential impact of those factors on the national currency exchange rate.”
    Nigeria’s central bank, which maintained rates as expected, referred to “pressure points” that include the implications of the Fed’s tapering of quantitative easing on capital inflows and reserves.
    Hungary’s central bank, which said a two-year cycle of rate cuts had now come to an end, cited the need for “a cautious approach” to policy due to the uncertainty about the future global financial environment.
    New Zealand’s central bank also called for a pause after four consecutive rate rises to assess the impact of its tighter policy on the economy. But this move was widely expected due to the continued strength of its currency despite lower commodity prices.

    Meanwhile, policymakers are continuing to digest and discuss the implications of last month’s annual report by the Bank for International Settlements (BIS), which called attention to the growing risks from the build-up of debt, not only in advanced economies but also in emerging markets.
    The latest occasion was on Thursday, when Olivier Blanchard, economic counsellor and head of research at the International Monetary Fund (IMF), said he was less worried about the consequence of excessive risk taking in a low-yield environment than the BIS.
    Speaking to the press in connection with the update to the World Economic Outlook, Blanchard agreed that valuations in some financial markets were fairly optimistic but argued that because the leverage of some “principal actors” was not high, the impact of a fall in stock prices “would not be catastrophic in the sense of leading to bankruptcies of financial actors.”
    Naturally, that sounds comforting. The only problem is that economic history never repeats itself.  
    While leverage by major banks and investors worsened the 2007-2009 financial crises, the financial industry has changed since then and major flows of capital across borders are now in the form of portfolio flows rather than banking sector flows.
   “It does not follow that future bouts of market disruptions must follow the same mechanism as in the past,” the new economic adviser to the BIS, Hyun Song Shin, told central bankers at the BIS annual meeting on June 29 in Basel, Switzerland.
    Long-term investors may now respond to the same forces that leveraged players reacted to in the past.
    There is a higher proportion of investors with short-term time horizons in emerging market debt instruments that can amplify any shocks when global conditions deteriorate, said Shin, who has coined this “the second phase of global liquidity.”

    Through the first 30 weeks of the year, the 90 central banks followed by Central Bank News have raised their policy rates 30 times, or 10.6 percent of all decisions, up from 9.3 percent of decisions by the end of the first half and 8.7 percent at the end of the first quarter.
    Meanwhile, central banks have cut rates 37 times this year, or 13.1 percent of all decisions, up from 12.1 percent at the end of June and 11.9 percent at the end of the first quarter.
    Central banks are thus continuing to push down policy rates to support economic activity but the trend toward higher rates is unmistakable.
    Boosted by this week’s two rate rises, the global monetary policy rate (GMPR), the average nominal rate of the 90 central banks, rose to 5.55 percent from 5.53 percent at the end of June and 5.53 percent at the end of the first quarter and 5.41 percent end-2013.

LIST OF LAST WEEK’S CENTRAL BANK DECISIONS:

OTHER STORIES LIST LAST WEEK:


TABLE WITH LAST WEEK’S MONETARY POLICY DECISIONS:
COUNTRY MSCI      NEW RATE            OLD RATE         1 YEAR AGO
NIGERIA FM 12.00% 12.00% 12.00%
HUNGARY EM 2.10% 2.30% 4.00%
NEW ZEALAND DM 3.50% 3.25% 2.50%
RUSSIA EM 8.00% 7.50% 8.25%
TRINIDAD AND TOBAGO 2.75% 2.75% 2.75%
BANGLADESH FM 7.75% 7.75% 7.75%

    This week (Week 31) eight central banks will decide on monetary policy, comprising the countries of Israel, Angola, United States, Albania, Fiji, the Philippines, the Czech Republic and Colombia.

TABLE WITH THIS WEEK’S MONETARY POLICY DECISIONS:
COUNTRY MSCI              DATE  CURRENT  RATE         1 YEAR AGO
ISRAEL DM 28-Jul 0.75% 1.25%
ANGOLA 28-Jul 9.25% 10.00%
UNITED STATES DM 30-Jul 0.25% 0.25%
ALBANIA 30-Jul 2.50% 3.50%
FIJI  31-Jul 0.50% 0.50%
PHILIPPINES EM 31-Jul 3.50% 3.50%
CZECH REPUBLIC EM 31-Jul 0.05% 0.05%
COLOMBIA EM 31-Jul 4.00% 3.25%





   

Saturday, July 26, 2014

Central Bank News Link List - July 26, 2014 - Bangladesh Bank keeps policy rates unchanged

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.


          www.CentralBankNews.info

Friday, July 25, 2014

Trinidad holds rate, to manage inflation expectations

    Trinidad and Tobago's central bank maintained its benchmark repo rate at 2.75 percent to support the economy, but said it was "giving greater considerations to managing inflationary expectations in calibrating its monetary policy instruments" as the pace of economic activity strengthens.
    The Central Bank of Trinidad and Tobago, which has kept its rate steady since September 2012, said core inflation was relatively stable in the first half of the year, but "rising consumer demand, higher government spending and second round effects from the recent increase in cement prices could help accelerate inflationary pressure later in the year."
    Trinidad's headline inflation rate slowed to 3.0 percent in June from 3.08 percent in May while core inflation was 2.5 percent and food inflation eased for the third consecutive month to 3.5 percent.
    Trinidad's corporate sector is cautiously optimistic in its outlook, with the central banks survey in the second quarter showing almost 80 percent of firms expecting to raise production in the next six months and more firms were confident that the local economy would improve over the next 12 months compared with the previous survey.

Central Bank News Link List - July 25, 2014 - Brazil central bank reduces bank reserve requirements

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.


Russia raises rate 50 bps and will raise more if needed

    Russia's central bank raised its key interest rate by 50 basis points to 8.0 percent to reduce inflation and pledged it would raise rates further if inflation expectations remain heightened and inflation threatens to exceed its target in coming years.
    The Bank of Russia, which adopted an inflation-targeting regime on Feb. 1, has now raised its rate three times this year by a total of 250 basis points following rate rises in March and April.
    Russia's headline inflation rate accelerated further in June to 7.8 percent, the fifth month in a row of rising prices, with inflationary risks continuing to build due to "the aggrevation of geopolitical tension and its potential impact on the ruble exchange rates dynamics, as well as potential changes in tax and tariff policy," the central bank said, adding:
    "The build-up of these risks will lead to inflation expectations remaining heightened and creates threats of inflation exceeding the target in the coming years. The adopted decision is aimed at slowing the consumer price growth to the 4.0% target level in the medium term. If high inflation risks persist, the Bank of Russia will continue raising the key rate."

Thursday, July 24, 2014

Central Bank News Link List - July 24, 2014 - IMF cuts global growth outlook, warns of stagnation risk

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.