Monetary Policy Week in Review - 1 October 2011

The past week in monetary policy was relatively quiet with just 4 central banks announcing interest rate decisions.  Israel cut its rate by 25bps to 3.00%, while Romania held at 6.25%, Taiwan held at 1.875%, and Colombia held at 4.50%.  Also making news in central banking and monetary policy was the announcement from the central bank of Angola, where it said it would launch a new benchmark interest rate.  Elsewhere, Vietnam announced deposit interest rate caps, and Denmark announced a set of emergency bank liquidity provisioning measures.

Colombia Central Bank Keeps Rate at 4.50%

The Central Bank of Colombia kept its benchmark monetary policy interest rate steady at 4.50%.  The Bank said [translated]: "The international environment has deteriorated in the weeks after the last Board (meeting). Concerns about sovereign debt problems have grown and growth forecasts in the U.S. and Europe in 2011 and 2012 have been revised downwards. In some of the economies of Asia and Latin America, new information points to a moderation in growth. International prices of commodities have fallen but remain at high levels."  The Bank also said: "considering the extreme volatility in financial markets, the Bank of the Republic shall call auction in the spot market for an amount of U.S. $ 200 million when the representative market rate (TRM) deviates 2% or more (down or up) moving average of order 10"

State Bank of Vietnam Caps Bank Deposit Rates

The State Bank of Vietnam (SBV) has set a maximum interest rate for demand and time deposits shorter than 1 month of 6.00% p.a. and maintained a maximum interest rate for deposits greater than 1 month of 14.00% p.a.  The SBV said: "in cooperation with the public securities authorities has detected a number of violations of the maximum interest rate and imposed strict sanctions on these cases of violation. In addition, several credit institutions have offered the VND mobilizing interest cap of 14% p.a for very short terms (24 hours, 2 days, 1 week and 2 weeks), thus causing negative impact on the implementation of Directive No. 02/ CT-NHNN and potential maturity and liquidity risks for credit institutions and the banking sector as a whole."

Denmark Announces Emergency Bank Liquidity Program

The Danmarks Nationalbank announced it will provide as much as 400 billion kroner in an emergency liquidity provision program to assist the nation's banks.  The measures include expanding the existing collateral basis, and introducing 6-month loans in addition to the existing 7-day loan facility.  Danmarks Nationalbank Governor, Nils Bernstein, said: "The expansion of credit facilities is intended to supplement the banks' access to raise loans, thereby easing the transition to a situation without government guarantees when these guarantees expire in 2012 and 2013,"

Angola Central Bank to Introduce New Benchmark Interest Rate

The Banco Naconal de Angola (BNA) has announced plans to introduce a new benchmark interest rate in October this year.  The BNA had previously formed a new monetary policy committee in August, and the committee will meet monthly to set the new rate; much in line with global practices.  The BNA also plans to introduce a Luanda Interbank Offered Rate (Luibor) according to Bloomberg.  Central bank governor, Jose de Lima Massano, said the efforts will "preserve the value of the national currency and the stability of prices in the economy".

Taiwan Central Bank Holds Discount Rate at 1.875%

The Central Bank of the Republic of China (Taiwan) held its discount rate unchanged at 1.875% and the collateralized loan rate at 2.250% and the unsecured loans rate at 4.125%.  Bank Governor, Perng Fai-nan, said: "A global slowdown and consumer prices stabilizing led to the decision," and further noted "Taiwan's imported inflation will cool as global prices ease in the next three months after peaking in the third quarter."  Perng also noted on the recent deterioration in conditions: "Taiwan's economy won't be as bad as back in 2008,".

Romania Central Bank Keeps Rate at 6.25%

The Banca Nationala a Romaniei kept its key monetary policy interest rate unchanged at 6.25%.  The Bank said: "Disinflation is expected to continue in the period ahead, so that annual inflation rate will near the target. The faster disinflation while keeping the monetary policy rate unchanged and amid a moderate leu exchange rate volatility translate into a tightening of real broad monetary conditions aimed at supporting the convergence of inflation towards the medium-term objectives."

Bank of Israel Cuts Rate 25bps to 3.00%

The Bank of Israel cut its benchmark interest rate by 25 basis points to 3.00% from 3.25%.  The Bank said: "The decision to reduce the interest rate for October to 3 percent is based mainly on the negative turnaround in the global economy, is consistent with the return of inflation to within the target range of price stability, and is intended to support growth while preserving financial stability."  Also noting: "The more severe global slowdown is reflected in a slowdown in the growth of real activity in Israel, and in particular in the weakness of goods exports."

Top 10 Most Extreme Monetary Policy Moves of 2011

Here's a listing of the top ten most extreme monetary policy moves in the year to date of 2011 (as judged by Central Bank News).  To be sure, there's still another quarter of the year to go, and with heightened concerns about global growth and the ongoing European debt crisis the list could yet be expanded.  But for now, let's look over some of the most extreme moves in the year so far in monetary policy:

1. Belarus Financial Crisis
   The National Bank of the Republic of Belarus has surely set the record for interest rate increases this year, upping its rate a total of 1950 basis points this year to 30% and devaluing the Belarussian ruble, as the country dealt with an economic, financial, credit, and currency crisis.
2. The Twist
   One of the most anticipated moves of the year was the US Federal Reserve's $400B twist to its quantitative easing program where it plans to sell $400B of shorter term maturities and buy $400B of longer term securities to push down longer term interest rates.
3. Swiss Franc Floor
   After a series of interventions and serious jawboning the Swiss National Bank finally announced a hard floor on the EUR/CHF exchange rate at 1.20 - the exchange rate moved over 1000 "pips" (basis points) following the announcement.
4. ECB SMP and the Confidence Crisis
   In the wake of the US downgrade a confidence crisis began to grip markets, the ECB was rumored to be buying the debt of Greece, Portugal and Ireland, but not Spain or Italy. The ECB subsequently capitulated and signaled an expansion of its SMP (Securities Market Program) to include those countries and immediately bought record amounts (EUR 22B that week).
5. Bank of Japan Earthquake Response
   Following the devastating earthquake and tsunami in Tōhoku, Japan, the Bank of Japan announced an initial 5 trillion yen expansion to its asset purchase program, and launched a 1 trillion loan program for financial insitutions affected by the quake. The Bank expanded the asset purchase program another 10 trillion yen in August to help sustain the recovery.
6. Vietnamese Hyperinflation
   Vietnam has seen inflation surge past 20 percent this year (22.16% in July), and has announced a string of monetary policy moves to try reign in run-away prices, including 500 basis point increase in the refinancing rate (now 14.00%), reserve ratio hikes, and currency related adjustments.
7. Brazilian Rate Reversal
   After raising the Selic rate 5 times this year by a total of 175 basis points to 12.50%, the Banco Central do Brasil's Copom dropped the rate by 50 basis points back to 12.00%. This has lead some to speculate the trend of emerging market policy tightening may be starting to turn.
8. Kiwi Earthquake Insurance
   Following the fatal earthquake in New Zealand's 3rd largest city, the RBNZ "acted pre-emptively" by dropping the OCR by 50 basis points to 2.50%. It made reference to removing the "insurance [interest rate] cut" at its July meeting, however that was contingent on the global financial outlook and exchange rate...
9. Joint Liquidity Operations
   In a brief statement, the ECB announced joint USD liquidity operations with the US Federal Reserve, Bank of England, Bank of Japan, and Swiss National Bank. While it didn't explain why, most read it as a show of solidarity and cooperation, and an attempt to shore-up European bank liquidity.
10. 'Chindia' Tightening
    Perhaps the most representative economies in the emerging market monetary policy tightening story were China and India - also two of the largest and most dynamic emerging markets. China chalked up 75 basis points of interest rate hikes, and 300 basis points in RRR hikes, while India upped its rate 200 basis points.

Source: Central Bank News

Monetary Policy Week in Review - 24 September 2011

The past week in monetary policy saw 10 central banks reviewing monetary policy settings, with just 1 (Nigeria +50bps to 9.25%) changing interest rates.  Those that held rates unchanged were: Morocco 3.25%, Turkey 5.75%, Hungary 6.00%, Norway 2.25%, USA 0.25%, Iceland 4.50%, Hong Kong 0.50%, South Africa 5.50%, and the Czech Republic 0.75%.  On required reserve ratios, Croatia increased its RRR by 100bps to 14.00%.  Of course the biggest news was the US Federal Reserve's FOMC announcing 'operation twist', where it adjusted its quantitative easing program; switching $400B of shorter term maturities to $400B of longer term maturities.

Czech National Bank Keeps Repo Rate at 0.75%

The Ceska Narodni Banka (CNB) kept the two-week repurchase rate on hold 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: "At this moment, when we look at risks to our forecast, which are principally driven by external environment, they are quite markedly in the direction of lower rates, and less markedly in the direction of lower inflation."

South African Reserve Bank Keeps Repo Rate at 5.50%

The South African Reserve Bank [SARB] kept its monetary policy interest rate, the repo rate, on hold at 5.50%.  The Bank said: "Recent data have confirmed the fragile and uneven nature of the domestic economic recovery, and unfavourable forward-looking indicators are consistent with a downward revision of the Bank's economic growth forecast. At the same time a number of exogenous factors have continued to put upward pressure on domestic inflation. This combination of declining growth and rising inflation poses a challenge to monetary policy going forward, and is a feature being experienced in a number of emerging markets."

HKMA Holds Rate at 0.50% Following FOMC

The Hong Kong Monetary Authority kept 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%, and $400B portfolio rearrangement.  Norman Chan, HKMA Chief Executive, said of the FOMC announcement: "This time the Fed's new policies will not have any impact on Hong Kong's interbank (HIBOR) interest rate,".  Chan did however note discomfort with the Hong Kong housing market: "We can't relax. We must continue to prevent the Hong Kong housing market from the risk of overheating. If necessary we will be ready to push out policies to safeguard Hong Kong's banking stability."

Central Bank of Iceland Keeps Rate at 4.50%

Iceland's Sedlabanki held its seven-day collateral lending rate at 4.50%.  The Bank also held the deposit rate at 3.50% and overnight lending rate at 5.50%.  The Bank said: "inflation prospects suggest that, over the medium term, it is appropriate to continue the gradual withdrawal of monetary accommodation begun in August.  The risk that a modest interest rate hike will derail the economic recovery is low.  However, somewhat more favourable than expected inflation figures in August, continued strengthening of the króna, and a weaker outlook for the global economy allow the Committee to keep rates on hold at present."

FOMC Announces $400B "Twist" to QE Program

The US Federal Open Market Committee (FOMC) held the fed funds rate unchanged at 0 to 0.25 percent, and announced a refocus of its quantitative easing program (the so-called 'twist').  The Fed announced: "The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. This program should put downward pressure on longer-term interest ratesand help make broader financial conditions more accommodative."

The Fed previously held monetary policy settings unchanged at its August meeting, where it committed to low rates until 2013.  The US reported inflation of 3.8% in August, and 3.6% in both July, June and May, up from 3.2% in April, as high commodity prices caused a broader increase in prices.  Meanwhile the US economy grew 1.3% in Q2, compared to 0.4% in Q1 this year.  

The Fed also announced it would "reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. In addition, the Committee will maintain its existing policy of rolling over maturing Treasury securities at auction."

www.CentralBankNews.info

Norway Central Bank Holds Rate at 2.25%

Norway's central bank, Norges Bank, kept its key policy rate at 2.25%, and signaled no changes.  The Bank's Deputy Governor, Jan F. Qvigstad, said: "The prospects for the world economy have weakened considerably in the course of summer. External developments and the turbulence in financial markets are also affecting the domestic outlook. Against this background, we have chosen to leave the key policy rate unchanged at this meeting," and further noted: "The turbulence and uncertainty abroad, combined with lower inflation and weaker prospects at home, suggest that the key policy rate should be kept low for a longer period."

Croatian National Bank Lifts RRR 100bps to 14.00%

The Croatian National Bank increased the bank reserve requirement rate by 100 basis points to 14.00% from 13.00% previously; effective from the 12th of October.  The Bank said of the move: "Through this measure the central bank intends to withdraw from the banking system about 3.1 billion kuna (2.6 billion from the kuna component and 0.5 billion from the foreign exchange component of the reserve requirement).The purpose of withdrawing excess liquidity from the system is to stabilise the kuna vs. euro exchange rate, i.e. to ease depreciation pressures."  The Bank also noted it would "take measures to prevent excessive exchange rate fluctuations not based on real economic movements."

Magyar Nemzeti Bank (Hungary) Holds 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: "In the Council's judgement, Hungarian economic growth is likely to remain subdued over the next two years, with the level of output remaining below its potential throughout the period. Medium-term upside risks to inflation have fallen due to weak domestic demand. Inflation may fall back to 3% by the beginning of 2013, as the effects of cost shocks and increases in indirect taxes wear off."

Central Bank of Turkey Holds Rate at 5.75%

The Central Bank of the Republic of Turkey held its benchmark 1-week repo rate at 5.75%.  The Bank also held the overnight borrowing rate at 5.00% and kept the lending rate unchanged at 9.00%.  The Bank said: "The Committee has noted that core inflation may continue to rise in the short-term. However, due to the slowdown in economic activity, it is expected that the second round effects of exchange rate movements would be limited, and thus the increase in inflation would be temporary. Accordingly, the Committee has indicated that inflation outlook for the end of 2012 is consistent with the 5 percent target."

Bank al-Maghrib (Morocco) Holds Rate at 3.25%

The Bank al-Maghrib of Morocco held its main policy rate unchanged at 3.25%.  The Bank said: "Nationally, despite the slowdown in the global economic activity, domestic demand continued to hold up well.... In this context where the central inflation forecast is permanently consistent with the price stability objective and the balance of risks is tilted to the downside, the Board decided to keep the key rate unchanged at 3.25 percent."  The Bank also said: "In view of the sustained liquidity shortage on the money market and considering the outlook for liquidity factors, Bank Al-Maghrib will carry out longer term repo transactions, as part of its operations to regulate the money market."

Central Bank of Nigeria Hikes Rate 50bps to 9.25%

The Central Bank of Nigeria raised its monetary policy interest rate by 50 basis points to 9.25% from 8.75% previously.  The Bank also increased the key borrowing and lending rates by 50bps to 7.25% and 11.25% respectively.  Bank Governor, Lamido Sanusi, said: "Concerns remain about sustaining the current inflation trend. The anticipated high liquidity in the near future would have a bearing on inflation in the near future," further noting that "the fiscal stance continues to be expansionary. In addition there is the weight of structural factors such as the announced hikes in electricity tariffs and the expected removal of the petroleum subsidy."

Monetary Policy Week in Review - 17 September 2011

The past week in monetary policy saw 13 central banks review interest rate levels and monetary policy settings.  Those that changed rates were: Belarus +300bps to 30.00%, Kenya +75bps to 7.00%, and India +25bps to 8.25%.  Russia and Denmark also adjusted the bands of their deposit and lending rates, while holding their main rates steady.  The Banks that held rates unchanged were: Mauritius 5.50%, Mozambique 16.00%, Russia 8.25%, New Zealand 2.50%, Switzerland 0-0.25%, Georgia 7.50%, Latvia 3.50%, Denmark 1.55%, Sri Lanka 7.00%, and Chile 5.25%.  Also making headlines in central banking was the announcement from the ECB of joint US dollar liquidity operations as a move to augment European banking system liquidity.

Central Bank of Chile Holds Policy Rate at 5.25%

The Banco Central de Chile maintained its monetary policy interest rate unchanged at 5.25%.  The Bank noted the impact of slowing developed market growth  and volatility, and on its own economy said: "Domestically, output and demand figures show signs of moderation, in line with projections in the Monetary Policy Report. Labor market conditions are still tight and faster growth in nominal wages is observed. CPI inflation indicators have hovered around 3% y‐o‐y, while core inflation measures remain contained. Inflation expectations are close to the target."

Central Bank of Sri Lanka Keeps Rate at 7.00%

The Central Bank of Sri Lanka kept its benchmark repurchase rate steady at 7.00%, and also held the reverse repurchase rate at 8.50%, and the Statutory Reserve Ratio at 8%.  The Bank said: "It is expected that the moderation of world economic activity along with the slowing down of both advanced economies as well as emerging economies would have some dampening effect on credit and therefore monetary expansion in the period ahead,".  Also noting: "if warranted, appropriate monetary policy action would be taken to contain monetary expansion, going forward."

ECB Announces Joint USD Liquidity Operations

The European Central Bank (ECB) announced the commencement of joint USD liquidity operations: "The Governing Council of the European Central Bank (ECB) has decided, in coordination with the Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank, to conduct three US dollar liquidity-providing operations with a maturity of approximately three months covering the end of the year. These operations will be conducted in addition to the ongoing weekly seven-day operations announced on 10 May 2010. The schedule for these additional operations is as follows:"

Tender date	Settlement date	Maturity date
12 October 2011	13 October 2011	5 January 2012
9 November 2011	10 November 2011	2 February 2012
7 December 2011	8 December 2011	1 March 2012

Reserve Bank of India Hikes Repo Rate 25bps to 8.25%

The Reserve Bank of India [RBI] increased its repo rate by 25 basis points to 8.25% from 8.00% and raised the reverse repo rate to 7.25% from 7.00%.  The RBI said: "The monetary tightening effected so far by the Reserve Bank has helped in containing inflation and anchoring inflationary expectations, though both remain at levels beyond the Reserve Bank's comfort zone.  As monetary policy operates with a lag, the cumulative impact of policy actions should now be increasingly felt in further moderation in demand and reversal of the inflation trajectory towards the later part of 2011-12.  As such, a premature change in the policy stance could harden inflationary expectations, thereby diluting the impact of past policy actions. It is, therefore, imperative to persist with the current anti-inflationary stance. Going forward, the stance will be influenced by signs of downward movement in the inflation trajectory, to which the moderation in demand is expected to contribute, and the implications of global developments."

Denmark Central Bank Holds Lending Rate at 1.55%

The Danmarks Nationalbank held its key lending rate unchanged at 1.55% .  The Bank also cut the interest on certificates of deposit -10 basis points to 1.00%, the current account rate -10 basis points to 0.90%, and held the discount rate at 1.25%.  The Bank said in its press release: "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."

Latvia Central Bank Holds Interest Rate at 3.50%

Latvijas Banka kept its main monetary policy interest rate, the refinancing rate, unchanged at 3.50%, and held its other interest rates unchanged.  The Bank said:"In recent months the trend of abating inflation has become evident with only the raising of several tax rates preventing a more rapid drop in prices,".  The Bank further noted that "domestic demand is growing slowly and represents no risk of rising prices; moreover it is becoming likely that economic growth in Latvia will be slower next year as demand in external markets drops because of the global debt crisis."

National Bank of Georgia Holds Refinancing Rate at 7.50%

The National Bank of Georgia maintained its benchmark refinancing interest rate unchanged at 7.50%.  The Bank said: "As expected, in the recent months inflation kept decreasing. This trend could possibly continue in future. According to the existing forecasts, the inflation by the end of the year will be within the target level." The Bank further noted: "Recently the growth in economic activity has been stable. The decrease of the interest rates, decided on by the MPC at previous meetings has not yet been fully transmitted to economic activity. Accordingly, at this stage the committee decided to keep the policy rate unchanged."

Swiss National Bank Holds Rate Target at 0-0.25%

The Swiss National Bank held its target for the 3-month franc LIBOR unchanged at 0-0.25 percent, and reaffirmed its commitment to the EURCHF 1.20 floor set on the 6th of September.  The Bank said: "The Swiss National Bank will enforce the minimum exchange rate of CHF 1.20 per euro set on 6 September with the utmost determination. It is prepared to buy foreign currency in unlimited quantities. It continues to aim for a three-month Libor at zero and will maintain total sight deposits at the SNB at significantly above CHF 200 billion."

RBNZ Holds Official Cash Rate at 2.50%

The Reserve Bank of New Zealand kept the Official Cash Rate (OCR) steady at 2.50%, noting the impact of global developments.  The Bank Said: "If recent global developments have only a mild impact on the New Zealand economy, it is likely that the OCR will need to increase. For now, given the recent intensification in global economic and financial risks, it is prudent to continue to hold the OCR at 2.5 percent."

Central Bank of Kenya Raises Rate 75bps to 7.00%

The Central Bank of Kenya increased its benchmark lending rate by 75 basis points to 7.00% from 6.25% previously.  The central bank Governor, Njuguna Ndung'u, said: "The Committee observed that inflation, exchange rate and money market volatility continued to pose a challenge to the economy. Specifically, the debt crisis in Europe continues to have a significant impact on the economy through the exchange rate volatility. Events in the USA and Europe are expected to continue affecting  the exchange rate, inflation and the economic recovery."

Central Bank of Russia Keeps Refi Rate at 8.25%

The Central Bank of Russia held its benchmark refinancing rate steady at 8.25%, but cut the overnight auction-based repurchase rate by 25 basis points to 5.25% and raised the fixed overnight deposit rate by 25 basis points to 3.75%.  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 outlook for global economic activity, as well as of current money market conditions and the dynamics of the factors affecting banking sector liquidity. Implemented decision aimed at narrowing the gap between interest rates on the Bank of Russia liquidity provision and absorption operations should contribute to restrain money market interest rates volatility regarding the risks of the shortage of the rouble liquidity in the banking sector."

Belarus Central Bank Hikes Rate 300bps to 30.00%

The National Bank of the Republic of Belarus raised its refinancing rate by 300 basis points to 30.00% from 27.00% on the 14th of September.  The Bank said [translated]: "The consistent increase in the cost of borrowed money in the economy is intended to provide a further deterrent effect on customers' demand for credit resources of banks for the period of release on a single course.  At the same time, increasing the refinancing rate will be an additional factor in stimulating processes of savings in Belarusian rubles and reduce pressure on the exchange rate".  

Bank of Mozambique Holds Interest Rate at 16.00%

The Bank of Mozambique held its standing facility lending interest rate at 16.00%.  The Bank said [translated]: "The Monetary Policy Committee believes that the Mozambican economy progresses in line with the main macroeconomic targets set for 2011, to evaluate reported interim results for the first half of the year and the projected short- and medium in which the analysis is based, even if the risks outweigh global economic slowdown. The exchange rate developments that the country notes in the last 12 months and its recent situation reinforce the predictions of a more favorable inflation... the Monetary Policy Committee decided to keep interest rates unchanged... and to intervene in the interbank markets, to ensure that the monetary base does not exceed 33,800 million MT at the end of September 2011."

Bank of Mauritius Holds Repo Rate at 5.50%

The Bank of Mauritius held its benchmark interest rate unchanged at 5.50%.  The bank said it "noted that global economic activity is expected to recover more slowly than had been anticipated at its last meeting due to heightened uncertainty over the growth outlook.  While the threat of a new round of rapidly rising international commodity prices has lessened, there are still significant concerns that supply constraints could continue to pose upside risks to the inflation outlook, especially in fast-growing emerging economies.  The MPC has also noted that, against the background of weakening global growth prospects, a number of central banks in advanced and emerging economies have maintained interest rates at current levels."

Monetary Policy Week in Review - 10 September 2011

The past week in central banking saw interest rate announcements from 17 central banks around the world.  Just 4 of those central banks announced changes to interest rates: Armenia cut by -50bps to 8.00%, Tunisia cut by -50bps to 3.50%, and Serbia cut by -50bps to 11.25%, while Uganda increased by +200bps to 16.00%.  Meanwhile those that held interest rates unchanged were: Australia 4.75%, Sweden 2.00%, Canada 1.00%, Japan 0-0.1%, ECOWAS 4.25%, Poland 4.50%, South Korea 3.25%, Indonesia 6.75%, Philippines 4.50%, Malaysia 3.00%, Peru 4.25%, United Kingdom 0.50%, and the European Union 1.50%.  The other big news in central banking was the Swiss National Bank's move to set the EURCHF exchange rate floor of a minimum 1.20.  Also making headlines was key ECB official, Jürgen Stark, announcing his resignation.

Jürgen Stark Resigns From Position at ECB

The European Central Bank (ECB) has announced the resignation of key ECB official, Jürgen Stark.  The Bank said in the announcement: "Today, Jürgen Stark, Member of the Executive Board and Governing Council of the European Central Bank (ECB), informed President Jean-Claude Trichet that, for personal reasons, he will resign from his position prior to the end of his term of office on 31 May 2014. Mr Stark will stay on in his current position until a successor is appointed, which, according to the appointment procedure, will be by the end of this year. He has been a Member of the Executive Board and Governing Council since 1 June 2006."

European Central Bank Holds Refinancing Rate at 1.50%

The European Central Bank (ECB) maintained 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: "Looking ahead, we expect the euro area economy to grow moderately, subject to particularly high uncertainty and intensified downside risks. At the same time, short-term interest rates are low. While our monetary policy stance remains accommodative, some financing conditions have tightened. It remains essential for monetary policy to focus on its mandate of maintaining price stability over the medium term, thereby ensuring that recent price developments do not give rise to broad-based inflationary pressures... Inflation expectations in the euro area must remain firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. Such anchoring is a prerequisite for monetary policy to make its contribution towards supporting economic growth and job creation in the euro area. We will continue to monitor very closely all developments."

Bank of England Keeps Bank Rate at 0.50%

The Bank of England (BoE) kept its official Bank Rate, which is paid on commercial bank reserves, at a record low stimulatory level of 0.50%.  The BoE also made no changes to its 200 billion pound asset purchase program (also known as quantitative easing).  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 21st of September 2011, according to the Bank's announcement.  The Bank next meets on the 6th of October.

Peruvian Central Bank Holds Reference Rate at 4.25%

The Central Reserve Bank of Peru held its monetary policy reference rate steady at 4.25%.  The Bank said the "decision takes into account the slowdown observed in economic activity and the intensification of international financial risks. Should these trends continue, the Central Bank will change its monetary policy stance."  The Bank further noted: "Some current and advanced indicators of activity show a lower pace of growth than in the first semester. Furthermore, indicators of global activity show a lower growth and increased uncertainty continues to be observed in international financial markets."

Malaysia Central Bank Holds OPR at 3.00%

The Bank Negara Malaysia held its Overnight Policy Rate (OPR) unchanged at 3.00%, and held the floor and ceiling rates of the corridor for the OPR at 2.75 percent and 3.25 percent respectively.  The Bank said: "In the MPC's assessment, while inflation remains a concern, the increased uncertainties on the global and domestic economic growth prospects and their potential consequences could have a moderating impact on inflation."  On its own economy the Bank said: "Domestic growth prospects, however, continue to remain positive, underpinned by the expansion in private consumption and private investment.  Employment conditions remain favourable amid sustained business and consumer confidence. The public sector will also continue to support economic growth."

Philippine Central Bank Holds Rate at 4.50%

The Bangko Sentral ng Pilipinas held its overnight borrowing rate unchanged at 4.50% and the overnight lending rate at 6.50%, and kept reserve requirements unchanged at 21%.  The Bank said: "The Monetary Board is of the view that the risks to the inflation outlook may be receding as global inflationary pressures are expected to ease with the slowdown in the recovery of advanced economies. Food prices have also remained tame with favorable supply conditions in both domestic and international markets. The abating price pressures give monetary authorities sufficient room to keep policy rates on hold.  A pause in the policy stance allows for careful assessment of inflation risks amid signs of sluggish global economic growth. The Monetary Board believes that the current monetary policy stance remains in line with the need to safeguard price stability and support sustained economic growth."

National Bank of Serbia Cuts Rate 50bps to 11.25%

The National Bank of Serbia cut its 2-week repo rate by 50 basis points to 11.25% from 11.75% previously as global financial market and economic conditions created uncertainty.  The Bank said: "The decision on further relaxation of monetary policy was adopted to ensure that inflation returns to the target, without major volatility. The Executive Board expects that inflation will continue to decline until the end of the year and that it will enter the target tolerance band in the first half of the next year. Future path of the key policy rate will depend on the materialisation of risks, primarily in the international environment, and those relating to fiscal policy at home."

Bank Indonesia Keeps BI Rate at 6.75%

Indonesia's central bank, Bank Indonesia, kept the BI reference rate on hold again at 6.75%.  The Bank also widened the interest rate corridor band for monetary operations to 150 basis points below the BI rate from 100bps previously.  The Bank said:"The decision was taken by considering the importance of maintaining macroeconomic stability amid the heighten uncertainty in the global financial system triggered by the US and Euro area debt. Although the impacts of uncertainty in the global economy on domestic economy are so far limited, Bank Indonesia continues to monitor the developments and assess their impacts on Indonesian economic performance going forward."

Bank of Korea Holds Interest Rate at 3.25%

The Bank of Korea kept its 7-day repurchase rate unchanged at 3.25% as deterioration in global economic conditions delayed the Bank's path to normalization of monetary policy settings.  While noting the importance of the external environment, particularly risks to growth in developed economies, the Bank of Korea said: "Looking ahead, the Committee, while closely monitoring financial and economic risk factors both at home and abroad, will conduct monetary policy with a greater emphasis on ensuring that the basis for price stability is firmly anchored while the economy continues its sound growth."

Narodowy Bank Polski Keeps Interest Rate at 4.50%

The Narodowy Bank Polski's Monetary Policy Council held its benchmark 7-day interest rate steady at 4.50%.  The Bank said: "In the opinion of the Council, the significant monetary policy tightening implemented since the beginning of 2011 should facilitate inflation's return to the target in the medium term. Given the above the Council decided to keep the NBP interest rates at the current level. The Council does not rule out the possibility of further monetary policy adjustment, should the outlook for inflation returning to the target deteriorate."

Central Bank of West African States Holds Rate at 4.25%

The Central Bank of West African States [BCEAO] maintained its marginal lending facility rate at 4.25%, the minimum open market rate at 3.25% and the bank reserves requirement at 7.00%.  The BCEAO said in a statement [translated]: "During this session, the Committee considered the economic, financial and monetary recent West African Monetary Union, including the risks to price stability and economic growth prospects in the EU. In this regard, the Committee noted a trend toward slower pace of price growth." 

Bank of Japan Holds Overnight Call Rate at 0-0.10%

The Bank of Japan maintained its uncollateralized overnight call rate steady at a range of 0 to 0.1% by a unanimous vote.  The Bank said it "commits itself to continuing the virtually zero interest rate policy until it judges that price stability is in sight on the basis of the "understanding of medium- to long-term price stability."  In order for Japan's economy to overcome deflation and return to a sustainable growth path with price stability, the Bank will continue to consistently make contributions as the central bank by pursuing powerful monetary easing through the comprehensive monetary easing measures as described above, ensuring financial market stability, and providing support to strengthen the foundations for economic growth."

Banque du Canada Holds Target for Overnight Rate at 1.00%

The Bank of Canada maintained its target for the overnight rate unchanged at 1.00%; also holding the Bank Rate at 1.25% and the deposit rate at 0.75%.  The Bank noted: "In light of slowing global economic momentum and heightened financial uncertainty, the need to withdraw monetary policy stimulus has diminished.  The Bank will continue to monitor carefully economic and financial developments in the Canadian and global economies, together with the evolution of risks, and set monetary policy consistent with achieving the 2 per cent inflation target over the medium term."

Swedish Central Bank Holds Repo Rate at 2.00%

Sweden's Riksbank held its benchmark repo rate unchanged at 2.00%.  The Bank said: "The concern over public finances abroad has increased and global growth prospects have deteriorated. The slowdown in the Swedish economy is thus expected to be more pronounced than was forecast in July. The Executive Board of the Riksbank has therefore decided to now hold the repo rate unchanged at 2 per cent and to postpone continued increases slightly."

Central Bank of Tunisia Drops Rate 50bps to 3.50%

The Central Bank of Tunisia reduced its key interest rate by 50 basis points to 3.50% from 4.00% previously.  The Bank said: "To boost economic activity and the implementation of investment plans by limiting the financial burden on businesses, the Council decided to reduce, again, the rate of the BCT half a percentage point to bring it back to 3.5 percent,".  The Bank also noted a slowdown in activity in the non-manufacturing sectors, and a decrease in private investment and FDI flows; and noted the "persistence of economic difficulties" were connected with the recent regime change and associated period of instability.

Central Bank of Armenia Cuts Rate 50bps to 8.00%

The Central Bank of Armenia reduced its key refinancing rate by 50 basis points to 8.00% from 8.50% previously.  The Central Bank Board said in its release "Softening of monetary and credit terms are believed to keep inflation within the projected range of fluctuations creating additional impetuses for growth of economic activity".  The Bank also noted the impact of uncertainty and recent developments in advanced economies, particularly in Europe, and cited deflation risks as it aims to keep inflation within the target range of 4% (± 1.5%)

Bank of Uganda Hikes Rate 200bps to 16.00%

The Bank of Uganda increased its new monetary policy interest rate (the central bank rate [CBR]) by 200 basis points to 16.00% from 14.00% previously.  The BoU will also widen the ban around the CBR to 400bps (keeping 7-day interbank rates within that band), and set the September Rediscount Rate at 21% and the Bank Rate at 22%.  Bank of Uganda Deputy Governor, Louis Kasekende, said: "BoU is raising interest rates in order to curb the growth in bank credit, which has expanded rapidly over the last 12 months, to encourage higher levels of saving and to provide more support to the exchange rate." and further added that "If the inflation outlook deteriorates in the next few months, the BoU will implement further increases in the CBR."

Swiss National Bank Sets Minimum EURCHF Rate at 1.20

The Swiss National Bank (SNB) announced it "will no longer tolerate a EUR/CHF exchange rate below the minimum rate of CHF 1.20".  The Swiss central bank further noted that it "will enforce this minimum rate with the utmost determination and is prepared to buy foreign currency in unlimited quantities".  The SNB explained "The current massive overvaluation of the Swiss franc poses an acute threat to the Swiss economy and carries the risk of a deflationary development." and noted that it is "therefore aiming for a substantial and sustained weakening of the Swiss franc." 

Reserve Bank of Australia Keeps Cash Rate at 4.75%

The Reserve Bank of Australia (RBA) maintained its benchmark monetary policy rate unchanged at 4.75%.  The RBA said: "Most financial indicators suggest that monetary policy has been exerting a degree of restraint. Credit growth has declined over recent months and is very subdued by historical standards, even with evidence of greater willingness to lend. Most asset prices, including housing prices, have also softened. The exchange rate is high. Each of these variables is affected by other factors as well, but together they point to financial conditions being tighter than normal."

Monetary Policy Week in Review - 3 September 2011

The past week in monetary policy saw just 4 central banks review interest rate settings: Belarus increased +500bps to 27.00%, Brazil dropped -50bps to 12.00%, Israel held at 3.25% and Ghana held at 12.50%.  Aside from interest rates, the People's Bank of China was reported as planning to increase the scope of its Required Reserve Ratio, which by some estimates would amount to an effective 100 basis point increase.  Also on required reserves, the State Bank of Vietnam raised its foreign currency required reserve ratios by 100 basis points.

Bank of Ghana Holds Interest Rate at 12.50%

The Bank of Ghana held its key lending rate unchanged at 12.50%, pausing after two consecutive 50 basis point cuts.  Bank of Ghana Governor, Kwesi Amissah-Arthur, said: "Inflation expectations are well-anchored and have  stabilized along the single digit path, supported by favourable food prices. The rate has continued to decline and the 9 per cent target for the year is achievable." However the Bank also noted: "Despite the improved macroeconomic fundamentals, upside risks to inflation are emerging in the form of the adjustment in utility tariffs, wage pressures and other oil-induced and external pressures that may result in the overheating of the economy."