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.
Wednesday, January 28, 2015
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.
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.
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.
- Singapore central bank eases monetary policy (Bloomberg)
- MAS monetary policy statement (Monetary Authority of Singapore)
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.
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:
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.
- Fed seen raising rates midyear even with low inflation (Bloomberg)
- Turkish central bank signals early policy meeting, possible rate cut (Reuters)
- Swiss National Bank says stands ready to intervene in FX market (Reuters)
- Interest rates could rise sooner than thought, says BOE rate-setter (Guardian)
- Exclusive – Gulf Arab states may need to rethink policy: Qatar c.banker (Reuters)
- Mexico’s Carstens says price drop not yet sustained; peso pares loss (Bloomberg)
- Mexico central bank seen holding rate steady, hiking in Q3 (Reuters)
- Malaysia likely to hold interest rates (Rakyat Post)
- PM Key says New Zealand interest rates may stay lower for longer (Bloomberg)
- New Zealand rise melts away into distant future (New Zealand Herald)
- Traders signal deeper cuts after Bank of Canada’s interest rate shocker (BNN)
- How Draghi got divided ECB to say ‘yes’ to money printing (Reuters)
- Japan’s Amari: BOJ may have leeway in meeting inflation target (Reuters)
- Bundesbank’s Weidmann didn’t back ECB’s bond-buying program (WSJ)
- Belarus central bank cuts ratio for FX reserve requirements (BelTA)
- Majority of BOJ members say oil plunge benefits economy: Dec minutes (Reuters)
- Central bank surveys show FX volumes hit record highs (Reuters)
- Nigeria central bank governor rules out naira float (Reuters)
- Poland considers franc-loan conversion to make banks pay (Bloomberg)
- Serbian central bank sells euros to boost the dinar (Reuters)
- Serbian central bank says discussed CHF-denominated loan terms (Reuters)
- Indian economic growth forecasts pegged back despite rate cuts: Reuters Poll
- BOE’s Carney: We will get inflation back to target in two years (The Telegraph)
- Danish central bank will not lift current account cap to help banks (Reuters)
- Interest rates should be cut to help Thai economy: minister (Reuters)
- Cbank has room to lower interest rates in 2015-Vietnam Economic Times (Reuters)
- www.CentralBankNews.info
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.
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.
www.CentralBankNews.info
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.
www.CentralBankNews.info
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.
LIST OF LAST
WEEK’S CENTRAL BANK DECISIONS:
- Denmark cuts lending, deposit rates by 15 bps
- Turkey cuts rate 50 bps, changes to depend on inflation
- Nigeria holds rate, needs time for past hike to "crystalize"
- BOJ maintains QQE target and cuts inflation forecast
- Canada cuts rate 25 bps, lowers growth, inflation outlook
- Brazil unanimously raises rate by another 50 bps
- ECB maintains rates, further news at press conference
- ECB to boost asset purchases to 60 billion euros a month
- Armenia raises rate 100 bps, inflation expectations high
- Pakistan cuts rate 100 bps, revises down inflation f'cast
OTHER STORIES
LAST WEEK:
TABLE WITH
LAST WEEK’S MONETARY POLICY DECISIONS:
| 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.
TABLE WITH THIS WEEK’S MONETARY POLICY DECISIONS:
| COUNTRY | MSCI | DATE | CURRENT RATE | 1 YEAR AGO |
| 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.
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.
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