Wednesday, April 16, 2014

Central Bank News Link List - Apr 16, 2014 - Yellen: Full employment in forecast; still 2 years away

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.

Mozambique holds rate, maintains "prudent" policy

     Mozambique's central bank maintained its benchmark standing facility rate at 8.25 percent and will intervene in markets to maintain the monetary base at 46.451 billion meticais in April, continuing what it described as "a prudent monetary policy" in an environment characterized by uncertainty about global economic growth along with domestic and international risks.
    The April target for Mozambique's monetary base is up 4 percent from the Bank of Mozambique's March target of 44.657 billion meticais and the February target of 44.994 billion. In 2013 the central bank cut cut its policy rate by 125 basis points.
    Inflation in Mozambique rose to 3.0 percent in March from 2.38 percent in February due to the impact of floods at the beginning of the year, the depreciation of the medical against the U.S. dollar and the South African rand and a general acceleration of prices in South Africa.
    After depreciating from mid-January through February, the metical has firmed slightly, but was still down 4 percent this year against the U.S. dollar, trading at 31.25 today.

Canada holds rate, change depends on new information

    The Bank of Canada (BOC), maintained its policy rate at 1.0 percent, as widely expected, and reiterated that "the timing and direction of the next change to the policy rate will depend on how new information influences the balance of risks."
    The BOC also repeated its view from March that underlying inflation is expected to remain below its 2.0 percent target "for some time" so the downside risks to inflation remain important while at the same time the risks associated with household imbalances remain elevated.
    "In sum, the Bank continues to see a gradual strengthening in the fundamental drivers of growth an inflation in Canada," the BOC said, adding this view was based on a projected upturn in exports and investment.
    In its latest monetary policy report, the BOC trimmed its growth forecasts but raised the inflation forecasts slightly. On average, however, the BOC still sees growth averaging about 2.5 percent in 2014 and 2015 before easing to around the growth rate of the economy's potential of 2.0 percent in 2016.
    Annual growth in Canada's Gross Domestic Product is forecast at 2.3 percent in the first quarter of this year, unchanged from the January's forecast, then 2.4 percent in the second quarter and third quarters, down from a previous forecast of 2.5 percent, and 2.3 percent in the fourth quarter, down from 2.5 percent.

Namibia keeps rate on "encouraging" 2014 prospects

    Namibia's central bank maintained its repo rate at 5.50 percent, saying the country's economy performed broadly satisfactory in the first two months of this year and "the prospects for 2014 are encouraging as economic growth is expected to continue and inflation will remain at sustainable levels."
    The Bank of Namibia, which last cut its rate in August 2012, maintained its forecast for the economy to expand by 5.3 percent in 2014, supported by a a continued expansion of construction activities and mining - mainly diamond mining - along with strong growth in consumer demand.
    In the fourth quarter of 2013 Namibia's Gross Domestic Product grew by 4.3 percent from the third quarter for annual growth of 5.1 percent, down from 13.6 percent in the third quarter. In 2013 growth averaged 4.3 percent and the International Monetary Fund forecasts 4.3 percent growth in 2014.
   Namibia's inflation rate rose to 5.3 percent in March from 5.13 percent the previous month, for average first quarter inflation of 5.1 percent, below 6.0 percent in the same 2013 quarter.
    "Inflation is anticipated to increase slightly in the second quarter of 2014, although it is expected to remain below 6 percent," the central bank said.

Tuesday, April 15, 2014

Will US escape inflation that follows money printing?

   (Following article is written by Michael Lombardi of Profit Confidential for Central Bank News. Central Bank News will occasionally carry articles by guest contributors if they are of interest to our readers.)

  Is the Federal Reserve ignoring the very basic law of economics…the law of diminishing marginal utility? You remember that term from economics in high school. The law of diminishing marginal utility states that the more of something you have, the lesser its impact on you.
    The Fed has been printing money in hopes of stimulating growth in the U.S. economy. As the Fed printed more paper money, its balance sheet grew to over $4.0 trillion.
    Below, I’ve made a table that looks at gross domestic product (GDP) growth in the U.S. each year since 2009, and where the balance sheet of our central bank stood at the end of each year.

U.S. GDP Growth vs. Growth in Size of Fed Balance Sheet
YOY Change
in GDP
Fed Balance Sheet (Trillions)
YOY Change in Balance Sheet
Data source: Federal Reserve Bank of St. Louis web site,
 last accessed April 1, 2014.

 In the table above, you will notice something interesting; aside from 2009, there is no real correlation between the increases in the assets (paper money printed) on the Fed’s balance sheet and GDP growth. In fact, after all the money the Fed has printed, the U.S. economy grew last year at its slowest pace since 2011.
    The Federal Reserve predicts the U.S. GDP in 2014 will increase between 2.8% and three percent; that’s a jump of about 50% since 2013. (Source: Federal Reserve, March 19, 2014.) I believe this to be way too optimistic. (And as we have seen in the past, these projections are usually guided lower later in the year anyway.) 
    Since the beginning of 2014, we have been seeing dismal economic data suggesting the U.S. economy will not be growing as much as expected this year. The law of diminishing marginal utility is starting to become very evident; the money printing is not producing the positive effects on the economy like it did before.
    Examples of slow growth this year…
    Personal consumption, a big part of U.S. GDP, is soft, as U.S. retailers have been posting very soft sales increases this year.
    The number of new homes sold continues to decline, too. Existing-home sales are running this year at their lowest point since 2012.
    But in spite of the proof of slowing GDP growth, the failed policies of easy money continue to be the policy of choice. Recently, at the 2014 National Interagency Community Reinvestment Conference in Chicago, Illinois, Janet Yellen said, “…I think this extraordinary commitment is still needed and will be for some time, and I believe that view is widely shared by my fellow policymakers at the Fed.” (Source: “What the Federal Reserve Is Doing to Promote a Stronger Job Market,” Board of Governors of the Federal Reserve System web site, March 31, 2014.)
    No central bank in the history of mankind has printed as much new paper money as the Federal Reserve has over the past five years. And while economists and the Fed are not concerned with it today, my research shows that whenever this kind of money printing stopped in the past, the country printing the money subsequently encountered a very weak currency and rapid inflation. I don’t think the U.S. will escape this. In fact, I think inflation is already a big problem if we include the increase in food prices and energy prices that are excluded from the government’s official measure of inflation growth.

Central Bank News Link List - Apr 15, 2014 - Japan PM talks with BOJ chief, does not push for easing

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.