Friday, September 2, 2011

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.

Following are some of the key quotes from the monetary policy statements and media releases from the banks that reviewed interest rates over the past week:
  • Banco Central do Brasil (dropped rate -50bps to 12.00%): "Reevaluating the international scenario, the committee considers that there has been substantial deterioration, shown by, for example, generalized and large reductions in growth projections for the principal economic blocks.  The committee understands that this increases the chances that restrictions that are today seen in various mature economies will prolong themselves for a longer period than expected." ..."Therefore, the committee understands that the international scenario shows a bias toward disinflation on the relevant horizon."
  • National Bank of Belarus (increased rate +500bps to 27.00%): [Google Translated]: "Such an increase in refinancing due to the need to tighten monetary policy to stabilize the foreign exchange market and reduce the intensity of price increases. In addition, increasing the refinancing rate will increase the amount of compensation to depositors of costs associated with inflationary pressures, and will be an additional deterrent to the growth of money supply."
  • Bank of Israel (held rate at 3.25%): "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."
  • Bank of Ghana (held rate at 12.50%):"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."

Looking to the central bank calendar, next week is set to be a busy one on the monetary policy front with 11 central banks scheduled to review interest rate levels and monetary policy settings.  The Fed will also release its Beige Book economic report on the 7th, and China will release inflation data on Friday.
  • AUD - Australia (Reserve Bank of Australia) - expected to hold at 4.75% on the 6th of Sep
  • SEK - Sweden (Riksbank) - expected to hold at 2.00% on the 7th of Sep
  • PLN - Poland (National Bank of Poland) - expected to hold at 4.50% on the 7th of Sep
  • JPY - Japan (Bank of Japan) - expected to hold at 0.10% on the 7th of Sep
  • CAD - Canada (Bank of Canada) - expected to hold at 1.00% on the 8th of Sep
  • IDR - Indonesia (Bank Indonesia) - expected to hold at 6.75% on the 8th of Sep
  • KRW - South Korea (Bank of Korea) - expected to hold at 3.25% on the 8th of Sep
  • MYR - Malaysia (Bank Negara Malaysia) - expected to hold at 3.00% on the 8th of Sep
  • PHP - Philippines (Bangko Sentral ng Pilipinas) - expected to hold at 4.50% on the 8th of Sep
  • GBP - United Kingdom (Bank of England) - expected to hold at 0.50% on the 8th of Sep
  • EUR - Eurozone (European Central Bank) - expected to hold at 1.50% on the 8th of Sep


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