Monetary Policy Week in Review - 30 Oct 2010

This week saw Monetary Policy decisions from the central banks of Columbia, Russia, Denmark, Japan, New Zealand, Norway, Poland, Sweden, Israel, and Hungary. The standouts were Denmark (raising its rate 10bps to 0.70%), and Sweden (raising its rate 25bps to 1.00%). The other standout was Poland, who raised its required reserve ratio 50bps to 3.50% from 3.00%, there was also additional announcements from Columbia about expanding its dollar buying program, and the Bank of Japan announced an expansion of the scope of its asset purchase program (as well as bringing forward the next meeting date).

But overall the preference of most banks was to hold interest rates steady due to either weak domestic demand, subdued inflationary pressures, and uncertainty about the outlook for the global economic recovery. Next week is also set to be a big week in terms of monetary policy with the US FOMC announcing their decision (and likely the details of "QEII", or a second round of quantitative easing), the ECB and Bank of Japan will also meet next week.

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www.CentralBankNews.info

New Zealand, Norway, Poland, hold monetary policy rates

The central banks of New Zealand, Norway, and Poland all held their monetary policy rates constant in their scheduled meetings. The Reserve Bank of New Zealand held the OCR at 3.00%, the Norges Bank held its key policy rate at 2.00%, and the National Bank of Poland held the reference rate at 3.50%, but increased the required reserve rate by 50 basis points to 3.50% from 3.00%.

In announcing its decision the Reserve Bank of New Zealand noted the downside risks to the outlook for global growth, as well as the weakening of domestic demand, and the short term impact of the Christchurch earthquake on the Canterbury region economy:

“Overall, continued GDP growth is expected to gradually absorb current surplus capacity over the next few years. Headline inflation is expected to move higher following the recent increase in the rate of GST. The subdued state of domestic demand suggests this inflation spike will have limited impact on medium-term inflation expectations.

“While it is appropriate to keep the OCR on hold today, it remains likely that further removal of monetary policy support will be required at some stage.”

Over in Norway it was a similar story about the risks to the global economic outlook, but also a weakening in domestic inflationary pressures, but with relatively robust growth:

“Consumer price inflation has been lower than expected and inflation is projected to remain at around 1½ per cent in the period to summer 2011. At the same time, growth in the Norwegian economy is continuing at a moderate pace”, says Governor Svein Gjedrem. The outlook for the world economy is still highly uncertain. The expected upward shift in key rates abroad has been deferred further ahead and long-term interest rates are very low. “An overall assessment suggests that the key policy rate be kept unchanged at this meeting”, says Gjedrem.

Finally in Poland, the most interesting aspect was the increase to the required reserve rate, which was one step towards monetary policy normalisation. The bank chose not to raise interest rates due to a lack of significant inflationary pressure, and the possibility of growing capital inflow to emerging economies such as Poland:

"In the Council’s assessment, the currently limited inflationary and wage pressure in the Polish economy and – not accounted for in the baseline scenario of the October inflation and GDP projection – the possibility of growing capital inflows to the emerging economies, including to Poland, amidst the extended period of expansionary monetary policy of major central banks, combined with the risk of further weakening of the global economic growth justify keeping the NBP interest rates unchanged."

So the summary from these three central banks was more holding, waiting and watching as the post-great recession global economic recovery unfolds.

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CentralBankNews.info

Sweden's Riksbank increases repo rate 25bps to 1.00%

The Swedish Central Bank (The Riksbank) increased the repo rate by 25bps to 1.00% from 0.75%, increasing the deposit rate to 0.25% from 0.00%, and increasing the lending rate to 1.75% from 1.50%. The Riksbank noted that the increase was due to an increase in economic activity (and associated improvement in inflationary pressure) but noted, given the risks to the global economic recovery, further increases would likely be limited:

The Swedish economy is growing rapidly. Inflationary pressures are low, but are expected to increase as economic activity strengthens. In order to stabilise inflation at a level close to the target of 2 per cent and to achieve a normal level of resource utilisation, there is a need to gradually increase the repo rate. However, as development abroad remains uncertain it will not be necessary to raise the repo rate as much in the years ahead. 

The Riksbank's next monetary policy meeting will take place on the 14th of December 2010.

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CentralBankNews.info

Hungary and Israel hold rates steady at 5.25% and 2.00%

The Magyar Nemzeti Bank, and Bank of Israel joined a growing trend world-wide toward holding off on raising interest rates as currency pressures and global uncertainties come to fore.

The Magyar Nemzeti Bank of Hungary held its central bank base rate at 5.25%, due to uncertainties about the inflation outlook and risks to growth. Looking to the last paragraph of its announcement:

The Monetary Council has decided to leave interest rates unchanged in light of the uncertainty about the inflation outlook and a prolonged period of output below potential. If upside risks to inflation materialise or there is a sustained increase in perceptions of the risks associated with the economy, an increase in the central bank base rate may be necessary.

Meanwhile, the Bank of Israel held its policy interest rate at 2.00%, as simply one of the tools in achieving price stability in the face of a stubborn house price inflation situation, and a desire to avoid risks to economic growth. Looking to the announcement:

In light of the Bank of Israel's decision to introduce a further macroprudential measure with regard to housing finance, and its implications for inflation, and in light of the indications of a slowdown in growth, the Governor decided to keep the rate of interest unchanged for November, at 2 percent.

The Bank of Israel will continue to monitor Israeli and worldwide economic and financial developments, and will use the instruments available to it to achieve its objectives of price stability, the encouragement of employment and growth, and support for the stability of the financial system, including keeping a close watch on developments in the housing market, and specially on house prices.

So more and more central banks are holding interest rates at the relatively low and stimulatory levels due a variety of reasons, but in common - concerns about the path of the global economic recovery. The Reserve Bank of New Zealand is set to meet this week, as is the Bank of Japan - both of which are likely also to hold.

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CentralBankNews.info

Recent Monetary Policy Decisions - 23 Oct 2010

In brief, here are some recent monetary policy decisions from the CBN Twitter account:

• Venezuela's Central Bank dropped the minimum reserve requirement for bolivar deposits 300bps to 20% from 23% to increase liquidity, and stimulate the flagging economy
  
• Banco Central do Brasil "evaluating the macroeconomic outlook and the prospects for inflation, Copom..." held the Selic rate at 10.75%
  
• The Bank of Thailand held its main interest rate at 1.75%, pausing after 2 straight increases, citing risks of a slowing global economy
  
• The Bank of Canada maintained its key lending rate at 1.00% due to a weaker US economy, subdued domestic housing market, concerns on the global economy
  
• The Central Bank of Sri Lanka held the repo and reverse repo rates at 7.25% and 9.0%, respectively, due to subdued inflation pressure

Stay tuned for more monetary policy and central bank news updates, follow us: https://twitter.com/centralbanknews

People's Bank of China increased interest rates 25bps

The People's Bank of China increased interest rates for the first time since 2007, raising the key rates by 25bps:

People's Bank of China, from October 20, 2010 from financial institutions raised the benchmark deposit and lending rates. The one-year benchmark deposit rate by 0.25 percentage points, from the current 2.25% to 2.50%; one-year benchmark lending rate by 0.25 percentage points, from the current 5.31% to 5.56%; other deposit and lending interest rates adjusted accordingly. [Google Translated]

See the original announcement: http://www.pbc.gov.cn/publish/goutongjiaoliu/524/2010/20101019190335092958679/20101019190335092958679_.html


Source: http://www.pbc.gov.cn

Turkish Central Bank held rate at 7%

The Central Bank of the Republic of Turkey kept its one-week repo lending rate at 7.00% for the 11th month.

The bank also reduced the overnight borrowing interest rate 50bps from 6.25% to 5.75% and held the lending rate at 8.75%.

See announcement: http://www.tcmb.gov.tr/yeni/announce/2010/ANO2010-33.pdf

Banco de Mexico held benchmark rate at 4.5%

 Banco de Mexico’s 5-member board, led by Governor Agustin Carstens, held its benchmark interest rate at 4.5% for the 14th time


From the google translated monetary policy release, the bank foresees little inflationary pressure in the short to medium term. Also the bank is monitoring the economic recovery in Mexico (and in the US, with the exceedingly loose monetary policy settings) and continues to work toward a target inflation rate of 3%

    It is estimated that inflation in the coming quarters will remain below the lower limit of the forecast said, though is expected to show an increase towards the end of the year, to resume its downward trend in 2011.


    Whereas, the Board of Governors has decided to maintain unchanged the target rate for overnight interbank interest. The Board will continue to monitor the behavior of inflation expectations, output gap, public prices, prices of grains and other determinants of inflation pressures could warn about unexpected and widespread on prices. This in order that, in that event, the Central Bank set the monetary policy stance to achieve the inflation target of 3 percent by the end of 2011.

See announcement: http://www.banxico.org.mx/informacion-para-la-prensa/comunicados/politica-monetaria/boletines/%7B7B6B50F4-D438-E8A0-01AE-A8743D278077%7D.pdf

Chile Central Bank raises rate 25bps to 2.75%

Banco Central de Chile raised its rate 25bps to 2.75%, after 4 straight 50bp increases from a record-low 0.50% rate in June.

The bank will likely continue to normalise policy, but within the backdrop of the Chilean economy, and the wider global economy:

The Board will continue to reduce the current monetary policy stimulus at a pace that will depend on the unfolding of domestic and external macroeconomic conditions.

See announcement: http://www.bcentral.cl/eng/press/communications/pdf/16092010.pdf

Bank of Korea holds key interest rate at 2.25% for 3rd month in a row

Bank of Korea's Governor Kim Choong Soo and the policy board kept the seven-day repurchase rate at 2.25% for the 3rd month in a row

http://eng.bok.or.kr

5 Recent Monetary Policy Decisions

Here's the 5 most recent updates we've posted on Twitter:

• As expected, the Philippines’ central bank (BSP) kept its key policy rate on hold at 4.0%
  
• European Central Bank holds main refinancing rate at 1.00%, noting a continued "moderate pace" of the recovery & inflation
  
• Bank of England Maintains Bank Rate at 0.5% and the size of the Asset Purchase Programme at £200 Billion
  
• Bank Indonesia held its benchmark rate unchanged at 6.5% for the 14th time, citing low inflationary pressures and large capital inflows
  
• Bank of Japan moves to 0-0.10% "virtually zero" target range and commences 5 trillion yen quantitative easing program

Stay tuned for more monetary policy and central bank news updates, follow us: https://twitter.com/centralbanknews

Welcome to the CentralBankNews.info blog

Welcome to the CentralBankNews.info blog.

CentralBankNews.info is an analyser, aggregator, and commentator on central bank news from around the world. To date we have posted updates on monetary policy decisions around the world through our Twitter account: http://twitter.com/centralbanknews

But the time has come for a blog to be created. Over time we will be adding more commentary and analysis on global monetary policy decisions, but will still be posting brief and factual news flashes on Twitter as well as expanding to a range of other channels to make it easier for you to connect to us and stay on top of development in monetary policy and central banking.

So, watch this space!