Israel Central Bank Holds Benchmark Rate at 3.25%

The Bank of Israel maintained its benchmark interest rate steady at 3.25%.  The Bank noted: "The decision to leave the interest rate for September at 3.25 percent is consistent with the process of returning the inflation rate to within the target price-stability range of 1–3 percent a year within the next twelve months, and with supporting economic growth while maintaining financial stability.  The future direction of changes in the interest rate will be dependent on the inflation environment, economic growth in Israel and abroad, the monetary policy of the leading central banks, and developments in the exchange rates of the shekel."

Belarus Central Bank Hikes Rate 500bps to 27.00%

The National Bank of the Republic of Belarus will raise its refinancing rate by 500 basis points to 27.00% from 22.00% on the 1st of September, according to Belarusian news agency, NAVINY.BY.  The move is aimed at tackling Belarus' high inflation levels, as the East European nation deals with its economic crisis.  The Belarusian central bank last raised the refinancing rate by 200bps to 22.00% on the 17th of August, when it noted: "Along with general economic measures undertaken by the government, this tightening will help stabilize the external economic situation and limit inflation,".

Vietnam Central Bank Lifts Dollar Reserve Ratios 100bps

The State Bank of Vietnam raised the required reserve ratios on foreign currency for credit institutions by 100 basis points.  The ratio on non-term foreign currency deposits and deposits of less than 12 months will be 8% (7% previously) for most State-owned commercial banks, joint stock banks, 100 percent foreign owned banks, joint venture banks, and foreign bank branches.  The ratio will be 7% (6% previously) for the Bank for Agricultural and Rural Development, the Central People's Credit Fund, and cooperative banks.  The ratio on deposits longer than 12 months will be 6% (5%) and 5% (4%) respectively for those two groups.

People's Bank of China Adjusts Reserve Requirement Rules

The People's Bank of China has been reported as broadening the base of reserves it requires lenders to deposit with the central bank; including "margin deposits" i.e. collateral deposited by customers for acceptances, letters of credit and letters of guarantee, as part of the calculations for required reserves.  The move has been seen as punishing fast expansion of liquidity in this area, and it is estimated it will drain as much as 900 billion yuan of liquidity from the banking system, and will be implemented from early September.  The move will have a similar effect to tightening the reserve requirement ratio (equivalent to about 100bps), indicating that China continues to hold a tight monetary policy stance.

Monetary Policy Week in Review - 27 August 2011

The past week in monetary policy saw 8 central banks reviewing interest rates and monetary policy settings.  Just one bank adjusted its main interest rate, with Thailand adding  +25bps to 3.50%.  Meanwhile the other central banks held interest rates unchanged: Turkey 5.75%, Hungary 6.00%, Namibia 6.00%, Egypt 8.25%, Sierra Leone 23.00%, Denmark 1.55%, and Mexico 4.50%.  Aside from interest rates, the much watched annual Jackson Hole Economic Policy Symposium kicked off, with Ben Bernanke presenting the keynote speech where he stopped short of signalling QE3 but noted that the FOMC is actively considering options, and also talked at length about the role of fiscal policy in maximizing sustainable long term economic growth.

Mexican Central Bank Holds Interest Rate at 4.50%

The Banco de Mexico maintained its overnight interest rate target unchanged at 4.50%.  In its monetary policy statement the Bank noted: "productive activity in Mexico maintains a positive trend, although the rate of growth has lost some momentum,"... and "If the performance of the national economy and international financial markets results in an unnecessary tightening of monetary policy, the Governing Board will reflect on the appropriateness of adjusting it,".  Markets took the comments as indicating a possible rate cut, pricing in one 25 basis point rate cut by late 2012, according to Reuters.

Ben Bernanke's Jackson Hole Speech

The much awaited Jackson Hole speech has been posted to the US Federal Reserve website; below are some highlights.  The first quote is the one most people will be interested in, and refers to the fact that the Fed is optimistic on the long term prospects for the US economy, but that short term weakness should potentially be addressed; there is no obvious tip for a "QE3", instead the line is that the FOMC has options and will consider the issues and act accordingly.  In other words Bernanke has not ruled out further stimulus, but hasn't strongly signaled an impending move either.  Bernanke also stresses the role of fiscal policy and the need to address the long term sustainability of the US, but in the context of short term weakness.  Read the quotes below or see the whole speech and post your thoughts in the comments section below.

"In addition to refining our forward guidance, the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus. We discussed the relative merits and costs of such tools at our August meeting. We will continue to consider those and other pertinent issues, including of course economic and financial developments, at our meeting in September, which has been scheduled for two days (the 20th and the 21st) instead of one to allow a fuller discussion. The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools as appropriate to promote a stronger economic recovery in a context of price stability."

Denmark Central Bank Holds Lending Rate at 1.55%

The Danmarks Nationalbank held its key lending rate unchanged at 1.55% .  The Bank also reduced the interest on certificates of deposit -10 basis points to 1.10%, the current account rate -10 basis points to 1.00%, and held the discount rate at 1.25%.  The Bank said in its press release that "The interest rate reduction follows Danmarks Nationalbank's purchase of foreign exchange in the market.  The short euro market rates have fallen and the spread to the equivalent Danish rates has tended to strengthen the Danish krone."

Sierra Leone Central Bank Holds Rate at 23%

The Bank of Sierra Leone maintained its monetary policy rate steady at 23%, and kept the standing facility rate at 30%, and the reverse repo rate at 25%.  The Bank said: "The Committee underscored the need for the Bank to continue to maintain  a tight monetary policy  stance  in order to contain  the second round effects of imported inflation.  This will be achieved through active liquidity management in the secondary market to sterilize excess liquidity arising from foreign exchange inflows, complemented by weekly foreign exchange auctions."

Central Bank of Egypt Holds Interest Rate at 8.25%

The Central Bank of Egypt held its overnight deposit rate unchanged at 8.25%, and the overnight lending rate at 9.75%, while also holding the discount rate at 8.50% and the 7-day repo rate at 9.25%.  The Bank said: "It is important to note that while a marked decline in economic activity was expected, the magnitude is larger than anticipated at the outset of the revolution." The Bank also said: "the slowdown in economic growth should limit upside risks to the inflation outlook. Given the balance of risks on the inflation and GDP outlooks and the increased uncertainty at this juncture, the MPC judges that the current key CBE rates are appropriate." 

Bank of Namibia Holds Benchmark Rate at 6.00%

The Bank of Namibia maintained its benchmark interest rate, the repurchase rate, unchanged at 6.00%.  Bank of Namibia Governor Ipumbu Shiimi said: "despite the eased inflationary pressure there is a need to ensure sustained growth in the domestic economy.  Raising the rate at this point could choke off growth," and added that the Bank "still sees good growth prospects domestically, but this cannot happen in isolation from developments in the world economy,".

Bank of Thailand Raises Repo Rate 25bps to 3.50%

The Bank of Thailand raised its benchmark 1-day bond repurchase rate by 25 basis points to 3.50% from 3.25%.  Bank of Thailand Assistant Governor, Mr. Paiboon Kittisrikangwan, said: "The MPC agreed that the slowdown in advanced economies would partially weigh on Thai exports.  However, expanding  intra-regional trade  in tandem with the continued growth of domestic demand  in Asian economies as well as export diversification to new markets will help mitigate the impact.  Domestic consumption and investment are expected to expand due to favorable employment conditions, improved confidence, robust growth in credit demand, and fiscal stimulus going forward."

Hungary Central Bank Holds Base Rate at 6.00%

The Magyar Nemzeti Bank maintained its benchmark base rate steady at 6.00% as inflation drifted down towards its target.  The Bank said: "Hungary has also been affected by the decline in global risk appetite due to the euro-area sovereign debt crisis and uncertainty surrounding the outlook for growth in developed countries.  The Monetary Council has decided to leave interest rates unchanged in light of the above considerations.  Over the period ahead, the Council's interest rate decisions may be influenced by the success of measures to solve the euro-area debt crisis, in addition to expected developments in domestic inflation."  Hungary's central bank also made a separate announcement affirming its 3% inflation target, as part of a triennial review.

Turkish Central Bank Holds Benchmark Rate at 5.75%

The Central Bank of the Republic of Turkey maintained its benchmark 1-week repo rate unchanged at 5.75%.  The Bank said: "The Committee has agreed that the measures taken at the interim meeting on August 4, 2011 have contained the downside risks for the economy for the time being, and thus decided to keep the policy instruments unchanged at this meeting.  However, given the uncertainties regarding the global economy, it is important to monitor all developments closely, and to deliver the required policy response in a timely manner.  The Committee has also reiterated that all policy instruments may be eased should global economic problems further intensify and the  slowdown in domestic economic activity becomes more pronounced."

ECB Adds 14.3 B to SMP, Total Buying Now 110.5 B

The European Central Bank (ECB) spent a further 14.3 billion euros on bond purchases last week, down from 22 billion in the previous week, as part of the expanded SMP (Securities Market Program).  The purchases of the past two weeks eclipse the previous record of 16.5 billion euros that the ECB undertook when it began buying Greek government debt in May 2010.  The latest buying brings the total value of purchases under the program to 110.5 billion euros since the program began in May 2010.  According to Reuters, much of the buying last week was concentrated in Italian bonds, while Greek debt makes up the majority of the total purchases in the program to date (which also includes Irish, Spanish and Portuguese bonds).

2011 Jackson Hole Economic Policy Symposium: The Facts

The key event in central banking, and certainly the mind of the markets, for this week will be Ben Bernanke's "Jackson Hole speech" scheduled to take place Friday the 26th of August at 10am ET.  The regular event is where US Federal Reserve Chairman, Ben Bernanke, in 2010 introduced the idea of a second round of quantitative easing (aka QE2).  Naturally this has driven a lot of speculation about what he may say this time; certainly if nothing else, it will provide an insight into what the FOMC (Federal Open Market Committee) is thinking about the US economy, and how it is factoring that into its policy making.  Listed below are some of the key facts that have been released on the 2011 symposium so far:

Monetary Policy Week in Review - 20 August 2011

The past week in monetary policy saw just 5 central banks meeting to review monetary policy settings.  Those that changed interest rates were: Iceland +25bps to 4.50% and Georgia -25bps to 7.50%.  Meanwhile those that held interest rates unchanged were: Colombia 4.50%, Sri Lanka 7.00%, and Chile 5.25%.  Elsewhere the Monetary Authority of Singapore released a statement affirming is monetary policy stance, following significant financial market movements.  Similarly the Swiss National Bank announced even further measures to counter the strong Swiss franc.  Also on the radar was the ECB releasing data showing in the week ending the 12th of August it had spent 22 billion euros on bond purchases as part of its SMP.

Chilean Central Bank Holds Interest Rate at 5.25%

The Banco Central de Chile held its monetary policy interest rate unchanged at 5.25%.  The Bank noted concerns about the global environment, including slower growth in the EU and US, as well as and increase in "financial volatility and risk aversion".  On its own economy the Bank said: "Domestically, output, demand and labor market figures are evolving strongly and are showing signs of moderation at the margin.  However, in the case of product and demand,such moderation has been less than foreseen in the baseline scenario of June's MonetaryPolicy Report.  CPI inflation has hovered around 3% y‐o‐y while measures of core inflationremain bounded.  Inflation expectations show a significant decline and are close to the target."

Sri Lankan Central Bank Holds Repo Rate at 7.00%

The Central Bank of Sri Lanka maintained its benchmark repurchase rate unchanged at 7.00%, and also held the reverse repurchase rate at 8.50%, and the Statutory Reserve Ratio at 8%.  The Bank said: "with the continuous improvements in the supply of most food items, inflation is expected to moderate in the coming months," and further noted that "the central bank will continue to closely monitor the growth of monetary aggregates and will implement appropriate measures if demand-side pressures in the economy increase."

Central Bank of Colombia Holds Interest Rate at 4.50%

The Central Bank of Colombia held its benchmark monetary policy interest rate unchanged at 4.50%.  The Bank said: "The board considered it prudent to pause in interest rate increases, especially given the high uncertainty in international financial markets and their potential negative effect on the growth of the world economy in general, and Colombia in particular,".  On its own economy, the Bank said (translated): "the Colombian economy maintained good growth, driven primarily by strong household consumption.  Indicators of consumer confidence and the industry continue at high levels and the growth of credit to households and businesses continue to grow in an environment of real interest rates below their historical averages.  The GDP growth forecasts published in the last Inflation Report remain unchanged".

Monetary Authority of Singapore Confirms Policy Stance

The Monetary Authority of Singapore confirmed its monetary policy stance and position in regards to recent market movements in the SOR.  The MAS noted: "In response to media queries on recent market movements in the SGD Swap Offer Rate (SOR), the MAS spokesperson reiterated that interest rates in Singapore are market-determined and that the current monetary policy stance, announced in April 2011, remains appropriate."  The MAS also noted: "Singapore's domestic money markets continue to function in an orderly manner and MAS has had no need to undertake any extraordinary measures.  The monetary policy stance remains as that announced in the April 2011 Monetary Policy Statement (MPS), which was reaffirmed at the MAS Annual Report Press Conference on 21 July 2011." 

National Bank of Georgia Drops Refinancing Rate 25bps to 7.50%

The National Bank of Georgia decreased its benchmark refinancing interest rate by 25 basis points to 7.50% from 7.75%.  The Bank said (translated) the high rate of inflation (8.5% in July) was mainly driven by food price rises (6.7%), and it expects inflation to reduce in the coming months; towards target by the end of the current year.  The interest rate decrease was preventative in nature, in order to keep inflation around the target level in the medium term.  The Bank also noted the economic growth risks in the US and eurozone economies; commenting that it may ease pressure on commodity prices, but also impact on global growth risks.

Iceland Central Bank Hikes Interest Rate 25bps to 4.50%

Iceland's Sedlabanki raised its seven-day collateral lending rate by 25 basis points to 4.50% from 4.25%.  The Bank also increased the deposit rate by 25 basis points to 3.50% and overnight lending rate to 5.50%.  The Bank said: "The interest rate increase is in accordance with recent MPC statements and reflects the fact that the inflation outlook for the coming two years has deteriorated still further since the Committee's last meeting," and noted "It is necessary to act now to contain inflation and reduce potential pressure on the krona".

Swiss National Bank Intensifies Swiss Franc Measures

The Swiss National Bank (SNB) made an additional announcement on measures to halt a strong Swiss franc (CHF), but did not mention a potential Euro currency-peg as rumored.  The SNB said "the Swiss franc remains massively overvalued" and "it aims to expand banks' sight deposits at the SNB further, from CHF 120 billion to CHF 200 billion.  In order to achieve this new target level as quickly as possible, it will continue to repurchase outstanding SNB Bills and to employ foreign exchange swaps".  The SNB also noted it if necessary it will "take further measures against the strength of the Swiss franc".

Sudan Central Banking Developments: Currencies and Governors

Since the break-up of Sudan into two separate countries (North Sudan, and South Sudan), there have been a series of developments in central banking in the two countries as the process of building new nations gets underway.  The developments include the formation of a new central bank, the issuing of new currencies, and staffing changes.  The key facts in the timeline of post-secession Sudanese central banking are summarised below:

ECB Buys Record Amount of Bonds Under SMP

The European Central Bank (ECB) spent 22 billion euros on bond purchases last week, as part of the expanded SMP (Securities Market Program), according to Reuters reports.  The purchases exceed the previous record of 16.5 billion euros that the ECB undertook when it began buying Greek government debt in May 2010.  The latest buying brings the total value of purchases under the program to 96 billion euros since the program began in May 2010.  It is understood that much of last week's buying was concentrated on Spanish and Italian bonds, while Greek debt makes up the majority of the total purchases in the program to date (which also includes Irish and Portuguese bonds).

Kenyan Central Bank Sets Discount Window Rate at 11.34%

The Central Bank of Kenya set its interest rate for discount window lending at 11.34% following the implementation of new interest rate calculation rules.  The Bank said in a note last week that the CBK discount window interest rate would be the CBR (Central Bank Rate) + previous day's average interbank rate minus the CBR + a penalty 3 percentage points.  The Bank noted: "More recently, the foreign exchange market has once more been under severe pressure.  Consequently, the link between interest rates and exchange rates requires further elaboration in the Prudential Guidelines which govern liquidity for commercial banks".

Monetary Policy Week in Review - 13 August 2011

The past week in monetary policy was rocked by the turmoil in global sentiment in the wake of the US sovereign credit rating downgrade, and heightened concerns about contagion in the European sovereign debt crisis.  In all, 11 central banks reviewed monetary policy rates, with the following banks adjusting rates: Qatar -50bps to 4.50%, Mozambique -50bps to 16.00%, and Belarus +200bps to 22.00%.  Meanwhile the following central banks held interest rates unchanged: Rwanda 6.00%, Indonesia 6.75%, US 0.25%, Hong Kong 0.50%, Norway 2.25%, Serbia 11.75%, South Korea 3.25%, and Peru 4.25%.

Aside from interest rate adjustments the week saw further moves from the Swiss National Bank to attempt to cap gains in the Swiss franc, which saw heavy safe-haven buying earlier in the week as panic gripped the market.  Similarly the Central Bank of Turkey also announced a set of moves to support the Turkish Lira.  Elsewhere, the US Federal Reserve issued a statement following the Standard & Poor's credit rating downgrade, and the European Central Bank issued a statement following disruptive activity in the European bond markets, essentially saying that it would expand its SMP to include Spanish and Italian bonds.

Central Reserve Bank of Peru Holds Rate at 4.25%

The Central Reserve Bank of Peru maintained its monetary policy reference rate unchanged at 4.25%.  The Bank commented in its statement: "This decision takes into account the slowdown observed in global economic activity.  Future adjustments in the reference rate will depend on new information on the evolution of inflation and its determinants."  The Bank also said: "Some current and advanced indicators of activity show lower growth than in previous months.  Moreover, indicators of global activity show signs of weakness and increased uncertainty due to the downgrade of the U.S. debt and the persistence of risks associated with the fiscal situation of some industrialized countries."

Belarus Central Bank Hikes Rate 200bps to 22.00%

The National Bank of the Republic of Belarus raised its refinancing rate by 200 basis points to 22.00% from 20.00% previously.  The Nacionalny Bank Respubliki Belarus said: "Along with general economic measures undertaken by the government, this tightening will help stabilize the external economic situation and limit inflation,".  The Bank also commented that "as positive trends in the economy and financial markets develop, the Natsionalnyi Bank will return to its policy of gradually lowering the refinancing rate".

Mozambique Central Bank Drops Rate 50bps to 16.00%

The Bank of Mozambique reduced its standing facility lending interest rate by 50 basis points to 16.00% from 16.50%.  The Bank also reduced the reserve requirement for commercial banks by 25 basis points to 8.75% from 9.00%.  The Bank said: "The deliberations of the board took into consideration the objectives of economic growth, inflation forecasts for short and medium term and the important challenges that persist in some sectors, with significant weight in the growth of GDP".

Serbian Central Bank Holds Repo Rate at 11.75%

The National Bank of Serbia held its 2-week repo rate unchanged at 11.75% as global financial market turmoil created uncertainty.  The Bank said: "In line with the Executive Board's earlier judgements, inflation is on a declining path. The main factors behind its decline are the drop in food prices, occasioned by a good agricultural season, and low aggregate demand. The fall in y-o-y inflation rates over the coming period should lead to a drop in inflation expectations, which will provide additional impetus to the disinflation process."

South Korea Central Bank Holds Interest Rate at 3.25%

The Bank of Korea held its 7-day repurchase rate unchanged at 3.25% as the turmoil in global financial markets delayed the Bank's normalization of monetary policy settings.  The Bank of Korea said: "while emerging market economies have shown favorable performances, the recoveries in major advanced economies including the US have exhibited signs of weakening. Going forward, the Committee forecasts that the global economy will keep up its pace of recovery; nevertheless, the Committee recognizes the possibility of such factors as the potential for continuing economic slowdown in major countries, the spread of sovereign debt problems in Europe, and international financial market unrest posing downside risks to the global economy."

Qatar Central Bank Cuts Deposit Rate 25bps to 0.75%

The Qatar Central Bank reduced its main overnight deposit facility interest rate by 25 basis points to 0.75%% from 1.00% in order to boost the non-oil sector and regulate capital flows.  The Bank also reduced the overnight lending facility interest rate by 50 basis points to 4.50% from 5.00%, and cut the repo rate by 50 basis points to 4.50% from 5.00%.  The Qatari economy is expected to grow at a rate in excess of 15% this year due to increased gas output, high oil prices, and a 19% increase in government spending.

Norges Bank Keeps Interest Rate at 2.25%

Norway's central bank, Norges Bank, maintained its key policy rate at 2.25%, and signaled further rate increases.  The Norges Bank Governor, Øystein Olsen, said: "The decision must especially be seen against the background of the recent flare-up in financial market turbulence and clear signs of weaker growth internationally,"... and "An overall assessment of the outlook and the balance of risk suggests that the key policy rate be left unchanged at this meeting,".

Hong Kong Holds Interest Rate Unchanged at 0.50%

The Hong Kong Monetary Authority held its base interest rate unchanged at 0.50% following the decision of the US Federal Reserve to leave the fed funds rate unchanged at 0-0.25% until mid 2013.  Norman Chan, HKMA Chief Executive, said previously: "I don't think the ratings downgrade should impact the US government bond interest rate. International investors will continue to view US government debt as the safest and the most liquid tool for investment and risk-averse purposes,"... and "growth momentum in the US will be slow in the second half, but the risk of a double dip recession is not very high."

Swiss National Bank Takes Further Measures Against Currency

The Swiss National Bank (SNB) announced a further set of measures to halt a surging Swiss franc (CHF) as safe haven buying has driven a substantial rise.  The SNB said it would "significantly increase the supply of liquidity to the Swiss franc money market" and aims to "rapidly expand banks' sight deposits at the SNB from CHF 80 billion to CHF 120 billion.  The SNB will also conduct foreign exchange swap transactions, a measure that was last used in 2008.  The Bank kept the line that it is closely monitoring the market and will take further measures if necessary.

US FOMC Holds Fed Funds Rate at 0 to 0.25%

The US Federal Open Market Committee (FOMC) held the fed funds rate unchanged at 0 to 0.25 percent, and made no changes in regards to its completed quantitative easing programs.  The Fed noted: "The Committee currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013." - dropping the "extended period" comment and instead expecting to hold the rate until 2013.

Central Bank of Turkey Reduces FX lending Rates

The Central Bank of the Republic of Turkey announced a 100 basis point cut in the US dollar lending rate to 4.50% from 5.50%, and the Euro to 5.50% from 6.50%.  The interest rate changes apply to foreign exchange transactions which the Central Bank is a party to, and come into effect as of 9 August 2011.  The Bank commented: "In the upcoming period, developments regarding the foreign exchange markets will be closely monitored and necessary measures will be taken in a timely fashion."  The move comes after the central bank cut its benchmark 1-week repo rate last week by 50 basis points to 5.75% after holding an emergency meeting.

Indonesian Central Bank Holds Reference Rate at 6.75%

Indonesia's central bank, Bank Indonesia, kept the BI reference rate on hold at 6.75%.  The Bank said: "Bank Indonesia views that the current BI rate level is still consistent with efforts to maintain macroeconomic and financial stability as well as to support stronger economic growth. Bank Indonesia is confident that the impact of the recent turmoil in the global financial markets because of the U.S. credit rating downgrade to the domestic financial market is limited, and can be contained with continuous monitoring of market development and coordination with the government".

Rwanda Central Bank Holds Repo Rate at 6.00%

The National Bank of Rwanda held its key repo rate unchanged at 6.00%.  Bank Governor, Claver Gatete, said: "Considering current developments and outlook in economic fundamental, central bank monetary policy will remain accommodative to sustain lending to the economy consistent with the growth objective in 2011,".  The IMF previously noted that it is forecasting inflation of 7.5% for 2011 and cautioned the East African nation to tighten monetary policy in order to avoid second-round inflation effects of higher food and energy prices. 

European Central Bank Signals Expansion of SMP

The European Central Bank (ECB) signaled that it would expand its SMP (Securities Markets Programme) to include the bonds of Spain and Italy.  The ECB said in a statement that it "welcomes the announcements made by the governments of Italy and Spain concerning new measures and reforms in the areas of fiscal and structural policies.  The Governing Council considers a decisive and swift implementation by both governments as essential in order to substantially enhance the competitiveness and flexibility of their economies, and to rapidly reduce public deficits." The Bank then said: "the ECB will actively implement its Securities Markets Programme." in effect acknowledging that the two countries had met the criteria for support by committing to fiscal reform.

US Downgraded to AA+ from AAA by Standard & Poor's

Standard & Poor's downgraded the long-term rating of the US government and federal agencies from AAA to AA+.  In response the US Federal Reserve has said: "For risk-based capital purposes, the risk weights for Treasury securities and other securities issued or guaranteed by the U.S. government, government agencies, and government-sponsored entities will not change.  The treatment of Treasury securities and other securities issued or guaranteed by the U.S. government, government agencies, and government-sponsored entities under other federal banking agency regulations, including, for example, the Federal Reserve Board's Regulation W, will also be unaffected."

Monetary Policy Week in Review - 6 August 2011

The past week in monetary policy saw 12 central banks reviewing monetary policy settings, with 2 expanding asset buying programs, and just 3 adjusting interest rate levels.  Those that adjusted interest rates were: Pakistan -50bps to 13.50%, Uganda +100bps to 14.00%, and Turkey -50bps to 5.75%; Switzerland also adjusted its interest rate target range downward to halt gains in the Swiss franc.  Meanwhile those that held rates unchanged were: Botswana 9.50%, Uzbekistan 12.00%, Australia 4.75%, Japan 0.10%, Romania 6.25%, Russia 8.25%, EU 1.50%, UK 0.50%, and the Czech Republic 0.75%.

Other than interest rates, the Bank of Japan announced a 10 trillion yen expansion of its asset purchase (quantitative easing) program, Japan was also reported as intervening in the foreign exchange market to weaken the Yen.  Similarly the European Central Bank recommenced its bond buying program in efforts to stabilize financial markets.  Such moves spurred speculation that the US Federal Reserve may also adjust its quantitative easing program when it meets next week.  Elsewhere the People's Bank of China announced a ban on foreign Yuan loans for purposes other than import/export.

Ceska Narodni Banka Holds Repo Rate at 0.75%

The Ceska Narodni Banka (CNB) maintained the two-week repurchase rate unchanged at 0.75% as expected.  The Bank also held the the discount rate unchanged at 0.25% and the Lombard rate at 1.75%.  The Bank said: "Consistent with the forecast is broad stability of market interest rates at the start of the forecast horizon and a gradual rise in rates starting in late 2011/early 2012.  The rates do not react to the first-round effects of the VAT increase".

Bank of England Holds Bank Rate at 0.50%

The Bank of England (BoE) maintained its official Bank Rate, which is paid on commercial bank reserves, steady at 0.50%.  The BoE also made no changes to its 200 billion pound asset purchase program.  The Bank does not supply commentary with its monetary policy decisions, however the minutes of the monetary policy committee meeting will be published at 9.30am on Wednesday the 17th of August 2011, according to the Bank's announcement.  The Bank will also release inflation and output projections in its Inflation Report at 10:30am on Wednesday the 10th of August 2011.

Central Bank of Turkey Cuts Rate 50bps to 5.75%

The Central Bank of the Republic of Turkey cut its benchmark 1-week repo rate by 50 basis points to 5.75% from 6.25% after holding an emergency meeting.  The Bank also moved to increase the overnight borrowing rate to 5.00% from 1.50%, but kept the lending rate unchanged at 9.00%.  The Bank said: "Concerns regarding sovereign debt problems in some European economies and the global growth outlook have continued to intensify, increasing the risks highlighted in the July Committee meeting."  On the rate cut the bank said it was intended "to reduce the risk of a domestic recession that may be caused by the heightened problems in the global economy."

ECB Holds Interest Rate at 1.50%, Resumes Bond Buying

The European Central Bank (ECB) held the Main refinancing operations rate unchanged at 1.50%, the Marginal lending facility at 2.25% and Deposit facility at 0.75%.  The Bank said: "The information that has become available since then confirms our assessment that an adjustment of the accommodative monetary policy stance was warranted in the light of upside risks to price stability.  While the monetary analysis indicates that the underlying pace of monetary expansion is still moderate, monetary liquidity remains ample and may facilitate the accommodation of price pressures.  As expected, recent economic data indicate a deceleration in the pace of economic growth in the past few months, following the strong growth rate in the first quarter.  Continued moderate expansion is expected in the period ahead.  However, uncertainty is particularly high".

Russian Central Bank Holds Interest Rate at 8.25%

The Central Bank of Russia held its benchmark refinancing rate unchanged at 8.25% and the overnight auction-based repurchase rate at 5.50%, while also leaving reserve requirements unchanged, and the fixed overnight deposit rate at 3.50%.  The Bank said: "The decision was supported by the assessment of inflation risks and risks to the sustainability of economic growth, including those associated with the uncertainty of the global economic conditions." And also noted: "considering current domestic and external economic conditions and the effect of the monetary policy measures, implemented in recent months, the Bank of Russia judged that the current level of money market interest rates was appropriate to maintain the balance between inflation risks and risks to economic activity in the coming months".

Banca Nationala a Romaniei Holds Interest Rate at 6.25%

The Banca Nationala a Romaniei held its key monetary policy interest rate steady at 6.25%.  The Bank said it would "maintain the existing levels of minimum reserve requirement ratios on both leu-denominated and foreign currency-denominated liabilities of credit institutions".  The Bank also noted: "In the medium-term, upside risks to inflation remain significant, coming mainly from the timing and magnitude of administered price adjustments, the volatility of capital flows amid developments in the sovereign debt crisis in the European Union and the United States, as well as uncertainties regarding the evolution of global commodity prices."

Bank of Japan Holds Rate at 0.10%, Expands QE

The Bank of Japan held its uncollateralized overnight call rate unchanged at a range of 0 to 0.1% by a unanimous vote.  However the BOJ did decide "to enhance monetary easing by increasing the total size of the Asset Purchase Program by about 10 trillion yen from about 40 trillion yen to about 50 trillion yen".   The Bank said it "deemed it necessary to further enhance monetary easing, thereby ensuring a successful transition from the recovery phase following the earthquake disaster to a sustainable growth path with price stability,".

China Central Bank Halts Foreign Yuan Borrowing

The People's Bank of China announced a ban on mainland-based companies directly borrowing renminbi-denominated loans from foreign banks.  The Bank noted that the measure is "in line with the current macroeconomic controls and a prudent monetary policy", particularly given that such lending circumvents the benchmark interest rate that the central bank sets.  The Bank would continue to allow foreign yuan borrowing for financing import-export trade.

Swiss National Bank Announces Actions Against Strong Swiss franc

The Swiss National Bank (SNB) announced a set of measures designed to stem a sharp acceleration in the Swiss franc (CHF).  The Bank announced: "Effective immediately, the SNB is aiming for a three-month Libor as close to zero as possible, narrowing the target range for the three-month Libor from 0.00–0.75% to 0.00–0.25%".  The Bank will also "significantly increase the supply of liquidity to the Swiss franc money market over the next few days" and will no longer renew repos and SNB Bills that fall due.  The SNB will be watching the foreign exchange market closely and "will take further measures against the stength of the Swiss franc if necessary".

Bank of Uganda Raises Interest Rate 100bps to 14.00%

The Bank of Uganda raised its new monetary policy interest rate (the central bank rate) by 100 basis points to 14.00% from 13.00% previously.  Bank of Uganda Governor, Emmanuel Tumusiime Mutebile, said the move was "intended to reduce the growth of bank credit in the economy, which expanded very rapidly in the 2010-11 fiscal year, and to provide some support for the nominal exchange rate, which affects domestic prices of imported goods,".  The Bank added: "If the upside risks to inflation increase in the coming months, monetary policy will be tightened further,".

RBA Holds Cash Rate at 4.75%

The Reserve Bank of Australia (RBA) held its benchmark monetary policy rate steady at 4.75%.  The RBA said: "Year-ended CPI inflation has been high, affected by the extreme weather events earlier in the year.  As these effects reverse over the next couple of quarters, CPI inflation should decline. But measures that give a better indication of the trend in inflation have begun to rise over the past six months, after declining for the previous two years."  The Bank also noted: "Board remains concerned about the medium-term outlook for inflation", and noted "it is appropriate under such circumstances for monetary policy to exert a degree of restraint."

Uzbekistan Central Bank Holds Rate at 12.00%

The Central Bank of the Republic of Uzbekistan held its refinancing rate unchanged at 12.00%.  The Bank noted: "According to the primary directions of the monetary policy for 2011, as well as the actual and expected inflation level, the bank kept its refinancing rate unchanged,".  The Bank last reduced the refinancing rate by 200 basis points to 12.00% from 14.00% in late December 2010.  Uzbekistan reported annual inflation of 7.3% in 2010, compared to 7.4% in 2009, meanwhile inflation is forecast to be between 7-9% this year.  

Botswana Central Bank Holds Rate at 9.50%

The Bank of Botswana's Monetary Policy Committee kept the benchmark interest rate steady at 9.50%.  The Bank said: "The current state of the economy and the assumptions on both the domestic and external economic outlook, as well as the inflation forecast, suggest that maintaining the prevailing level of interest rates is consistent with the achievement of the Bank's 3 – 6 percent inflation objective in the medium term."