Wednesday, January 28, 2015

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.

Monetary Policy Week in Review – Jan 19-24, 2015: 60 pct of central bank policy decisions result in rate change

    The European Central Bank’s (ECB) embrace of full-scale quantitative easing with the purchase of government bonds was the main feature of global monetary policy last week along with five rate cuts, including surprise cuts by Canada and Denmark.
    Turkey and Pakistan’s rate cuts were largely expected while Brazil’s rate rise was also expected. Armenia continued its tightening cycles in response to the ongoing pressure on its dram currency due to the country’s close links with Russia.
    Through the first five weeks of this year, the 90 central banks followed by Central Bank News have cut their policy rates 11 times, or 44 percent of this year’s 25 policy decisions, a clear indication of central banks’ bias toward cutting policy rates in the face of weakening global growth and falling inflation from lower oil prices.
     Meanwhile, four central banks have raised rates this year – Belarus, Mongolia, Brazil and Armenia – amounting to 16 percent of this year’s policy decisions.
     This means that 60 percent of this year’s monetary policy decisions have resulted in rate changes, showing how hyper-active central banks have been in adjusting their policy to the main drivers of global monetary policy so far this year: the ECB’s expanded stimulus, the crises in Russia, the pending policy tightening by the Federal Reserve, sluggish global growth and falling inflation.
     In comparison, 24.3 percent of the 482 policy decisions in 2014 resulted in rate changes, with 13.5 percent of the decisions favoring rate cuts and 10.8 percent favoring rate increases.
    Nine of the 65 rate cuts last year were taken by central banks in advanced economies compared with 25 from emerging market central banks, 14 from frontier markets and 17 from other central banks.
     Four of the 52 rate increases in 2014 came from advanced economies – New Zealand accounted for all these rate hikes – while 24 rate rises were done by emerging market central banks, five from frontier market central banks and 19 by central banks in other markets.
    Despite the large number of rate cuts, the Global Monetary Policy Rate (GMPR) - the average rate of the 90 central banks followed by Central Bank News – rose to 5.84 percent at the end of last week from 5.74 percent at the end of 2014.
    This is partly due to a change in the central banks included in the coverage - the Kyrgyz Republic has been included while Samoa has been dropped – and the fact that central banks often raise rates in larger increments than when they cut rates.
    The 500 basis point rate rise by Belarus on Jan. 8 is a case in point, with this rise larger than the combined rate cuts so far this month by Bulgaria, Uzbekistan, Romania, India, Switzerland, Egypt, Peru, Denmark, Canada and Pakistan.



COUNTRY MSCI      NEW RATE            OLD RATE         1 YEAR AGO
DENMARK DM 0.05% 0.20% 0.20%
TURKEY EM 7.75% 8.25% 10.00%
NIGERIA FM 13.00% 13.00% 12.00%
BRAZIL EM 12.25% 11.75% 10.50%
JAPAN DM                   N/A                  N/A                  N/A
CANADA DM  0.75% 1.00% 1.00%
EURO AREA DM  0.05% 0.05% 0.25%
DENMARK (DEPO RATE) DM -0.35% -0.20% -0.10%
ARMENIA 9.50% 8.50% 7.75%
EASTERN CARIBBEAN  23-Jan 6.50% 6.50%
PAKISTAN FM 8.50% 9.50% 10.00%

    This week (Week 5) central banks from 15 countries or jurisdictions are scheduled to decide on monetary policy: Israel, Kyrgyzstan, Angola, Sri Lanka, Hungary, Bangladesh, the United States, Thailand, Malaysia, South Africa, New Zealand, Mexico, Russia, Colombia and Trinidad and Tobago.

ISRAEL DM 0.25% 0.25% 1.00%
KYRGYZSTAN 26-Jan 10.50%                  N/A
ANGOLA 26-Jan 9.00% 9.25%
SRI LANKA FM 27-Jan 6.50% 6.50%
HUNGARY EM 27-Jan 2.10% 2.85%
BANGLADESH FM 28-Jan 7.75% 7.75%
UNITED STATES DM 28-Jan 0.25% 0.25%
THAILAND EM 28-Jan 2.00% 2.25%
MALAYSIA EM 28-Jan 3.25% 3.00%
SOUTH AFRICA EM 29-Jan 5.75% 5.50%
NEW ZEALAND DM 29-Jan 3.50% 2.50%
MEXICO EM 29-Jan 3.00% 3.50%
RUSSIA EM 30-Jan 17.00% 5.50%
COLOMBIA EM 30-Jan 4.50% 3.25%
TRINIDAD & TOBAGO 30-Jan 3.25% 2.75%

Israel holds rate, repeats current rate supports recovery

    Israel's central bank maintained its benchmark interest rate at 0.25 percent and repeated its guidance from December that the current rate "supports the continuation of the recovery in economic activity, and the return of inflation to within the target range."
    The Bank of Israel (BOI), which cut its rate by 75 basis points in 2014, said recent data continued to point to an acceleration in economic activity in the fourth quarter following the slowdown in connection with the military offensive in Gaza in July.
    The BOI estimated in December that operation "Protective Edge" detracted about 0.3 percent from economic output. Israel's Gross Domestic Product expanded by 0.06 percent in the third quarter from the second quarter but the Central Bureau of Statistics revised its 2014 growth forecast up to 2.6 percent from 2.2 percent while the BOI has forecast growth of 2.5 percent and 3.2 percent in 2015.
    A survey of companies in the fourth quarter showed an improvement in most industries, with a 1.5 percent rise in the export from low technology industries that are affected to a greater extent by the depreciation of the shekel currency, and there has been a step up in the rate of growth in the composite index and labour market data are positive.
    Last week the shekel rose against the euro but has weakened against the U.S. dollar. Since August, when the BOI cut its rate to the current level, the cumulative depreciation has been 5.5 percent. Today  the shekel was quoted at 3.99 to the dollar and just under 4.5 to the euro.