Friday, July 15, 2011

Monetary Policy Week in Review - 16 July 2011

The past week in monetary policy was dominated by Asian central banks, with the central banks of Japan, Indonesia, Thailand, and South Korea all announcing interest rate decisions.  The only banks to adjust interest rates were Thailand +25bps to 3.25%, and Kenya, which dropped its discount window rate -175bps to 6.25%.  Meanwhile those that held interest rates unchanged were: Japan 0.10%, Indonesia 6.75%, Latvia 3.50%, South Korea 3.25%, and Chile 5.25%.  Elsewhere in monetary policy and central banking, Brazil's central bank announced further policy measures to curb speculation on its currency, the Real.

While inflation remained a threat for most of the central banks who reviewed monetary policy settings during the week, for many the focus was squarely on the downside risks to both domestic and global growth.  Indeed a couple of the banks pointed specifically to the tail risks in the form of the European sovereign debt crisis.  For those that held rates unchanged, for the most part the messaging was positive, with some viewing inflationary pressures as somewhat contained, while many presented a positive outlook on their domestic economy.

As per usual, following is a selection of key quotes from central bank monetary policy statements and media releases from the past week:

  • Bank of Japan (held interest rate at 0.10%): "Japan's economic activity is picking up with an easing of the supply-side constraints caused by the earthquake disaster.  After declining sharply following the earthquake, production has recently shown clear signs of picking up with the easing of supply-side constraints."
  • Bank Indonesia (held interest rate at 6.75%): "Bank Indonesia views that the current BI Rate level is still in line with the effort to maintain stronger economic activities supported by stability, amid domestic excess liquidity and continued large capital inflows... Meanwhile, inflation is estimated to be under control and could be lower than earlier forecasted if there is no Government policies regarding energy prices while the supply and distribution of basic foods are well maintained."
  • Bank of Thailand (increased interest rate 25bps to 3.25%): "In light of the continued risks to inflation amid robust domestic demand, the MPC deemed it necessary to continue increasing the policy rate to maintain economic stability and anchor inflation expectations... Inflationary pressure remained high due to elevated energy prices and continued upward adjustments in the prices of prepared foods."
  • Bank of Korea (held interest rate at 3.25%): "The Committee expects the high level of inflation to continue in the coming months, driven largely by demand-side pressures resulting from the underlying uptrend in economic activity and by inflation expectations."
  • Banco Central de Chile (held interest rate at 5.25%): "Domestically, output, demand and labor market figures are progressing with strength, showing signs of moderation in line with the baseline scenario in the last Monetary Policy Report.  Annual CPI inflation indicators have hovered around 3%, while measures of core inflation remain bounded. Private inflation expectations show a decline, although some of them remain above the target."

As for next week the Reserve Bank of Australia (19th of July), and the Bank of England (20th of July) will release the minutes from their most recent monetary policy meetings, meanwhile the following central banks are scheduled to review interest rates:

  • Canada (Bank of Canada) - expected to hold at 1.00% on the 19th of July
  • Brazil (Banco Central do Brasil) - expected to increase rate 25bps to 12.50% on the 20th of July
  • South Africa (South African Reserve Bank) - expected to hold at 5.50% on the 21st of July
  • Turkey (Central Bank of the Republic of Turkey) - expected to hold at 6.25% on the 21st of July


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