Thursday, March 31, 2011

Romania Central Bank Holds Rate at 6.25%

The Banca Nationala a Romaniei maintained its policy rate unchanged at 6.25% while adjusting reserve requirements "to ensure adequate management of liquidity in the banking system". The Bank cut the minimum reserve requirements ratio on foreign currency-denominated liabilities with residual maturities of up to two years by 500 basis points to 20% from 25%, and held the minimum reserve ratio on leu-denominated liabilities at 15%. The Bank noted that Romania had seen inflation of 7.6% in February 2011, up from 6.99% in January, and above the Bank's inflation target of 3% plus or minus 1%.

Taiwan Central Bank Raises Rate 12.5bps to 1.75%

The Central Bank of the Republic of China (Taiwan) raised its discount rate 12.5 basis points to 1.750% from 1.625% as it sought to normalize monetary policy settings. The Bank also raised the secured loans rate 12.5 basis points to 2.125% from 2.000% and the unsecured loans rate 12.5 basis points to 4.000% from 3.875%. Taiwan reported consumer price inflation of 1.3% in February, up slightly from 1.1% in January this year. The Bank noted that "the Directorate-General of Budget, Accounting, and Statistics (DGBAS) projects a 4.92% annual GDP growth for Taiwan this year", and also commented that inflation is likely to rise above 2.0% this year.

Tuesday, March 29, 2011

Morocco Central Bank Holds Rate at 3.25%

The Bank al-Maghrib of Morocco held its main policy rate at 3.25% in the face of steady inflation. The Bank said in its statement that the "inflation forecast is consistent with the price stability objective and the balance of risks is slightly tilted to the upside". The Bank commented that core inflation had been 1.7% in February, up slightly from 1.4% in January, meanwhile industrial producer prices rose to 14.2%in January from 8.1% in December, due to rising commodity prices. The Bank expects inflation to sit around 2.2% through H2 2011.

Bank of Israel Raises Interest Rate 50bps to 3.00%

The Bank of Israel raised its monetary policy interest rate 50 basis points to 3.00% due to rising consumer and house price inflation. The Bank said the move was "consistent with the process of returning the interest rate to a normal range intended to position inflation firmly within the target range and to support the further recovery of economic activity, while maintaining financial stability.". Israel recorded inflation of  4.2% over the past 12 months, which is above the 1-3% official inflation target. Israel saw house price inflation of 16.3% over the past 12 months.

Monday, March 28, 2011

Hungary Central Bank Holds Policy Rate at 6.00%

The Magyar Nemzeti Bank maintained benchmark base rate unchanged at 6.00%. Hungary reported consumer price inflation of 4.1% in February, up slightly from 4.0% in January, and above the official inflation target of 3.0%. The Bank noted that "To reach the target, the current interest rate level may need to be sustained for an extended period,". The Bank also commented "If incoming data suggest a greater pass-through from the cost shocks, it may be necessary to tighten current monetary conditions in response to upside risks to inflation," in reference to commodity prices.

Mauritius Central Bank Hikes Rate 50bps to 5.25%

The Bank of Mauritius raised its repo rate by 50 basis points to 5.25% from 4.75% due to rising inflation. Referring to a rising inflation rate the Bank said "In the light of this and the expected narrowing of the output gap, the MPC considered it important to start the process of normalizing the key policy rate,". Mauritius reported inflation of 6.8% in February, compared to the Bank's previous forecast that inflation will rise to 7% in June. The Bank expects the economy to grow 4.6% this year, having chalked up GDP growth of 4.4% in 2010.

Sunday, March 27, 2011

Introducing the "Global Central Bank Interest Rate Monitor" has just introduced the Global Central Bank Interest Rate Monitor - a listing of monetary policy interest rates of 75 Central Banks from around the world. The rate monitor provides a convenient collation of policy rates, and will be updated weekly. It is one of the most comprehensive listings of central bank interest rates online, and will also form the basis of a comprehensive global central bank interest data base. The Global Central Bank Interest Rate Monitor provides a strong complement to the regular updates on monetary policy actions that already provides.

Global Central Bank Interest Rate Monitor

Saturday, March 26, 2011

Bank of Albania Raises Interest Rate 25bps to 5.25%

The Bank of Albania raised its main monetary policy interest rate by 25 basis points to 5.25%, citing growing inflationary pressures. The Bank noted that "This is a change in our policy and we believe that it will help in achieving our objectives in the near future,". Albania reported inflation of 4.5% on an annual basis in February this year, with food prices increasing 4.9%. Albania has experienced higher inflation as a result of one-offs from tax increases, currency depreciation, rising import prices, and an expanding monetary base.

Pakistan Central Bank Holds Discount Rate at 14.00%

The State Bank of Pakistan kept the discount rate at 14.00% as its double digit inflation showed signs of easing. Pakistan reported inflation of 12.9% in February this year (14.2% in January), down from the highs of 15.5% in December last year. The Bank attributed the decline in inflation to a dissipation of the flood effect on food prices, incomplete pass-through of high oil prices, and a reduction and containment of the stock of government borrowings. The Pakistan government forecasts GDP growth of 2.5% in the year to June 2011, down from its original target of 4.5%.

Friday, March 25, 2011

Monetary Policy Week in Review - 26 March 2011

The past week saw several emerging market economies review interest rates, with many making further policy tightening adjustments. Of those that lifted their monetary policy interest rates were: Nigeria +100bps to 7.50%, Kenya +25bps to 6.00%, Uruguay +100bps to 7.50%, and the Philippines +25bps to 4.25%. Meanwhile the other central banks held their rates: Turkey 6.25%, Russia 8.00%, South Africa 5.50%, and the Czech Republic 0.75%. Aside from tightening official policy interest rates, a couple of the central banks made adjustments to required reserve ratios in order to tighten liquidity, those that tightened reserve requirements were: Turkey +300bps to 15%, and Russia +100bps to 5.5% (and +50bps to 4%).

So the global monetary policy picture continues to be dominated by emerging market policy tightening. The policy tightening measures are also not limited to the standard interest rate adjustments, as demonstrated this week by Turkey and Russia, and China in the previous week. As previously noted much of the inflation drivers have come in the form of surging agricultural and energy commodity prices, with strong aggregate demand adding pressure, as well as capital flows and strong liquidity growth.

The picture will however become increasingly murky towards the middle of the year as these policy adjustments start to kick in; any substantial changes in commodity prices will be the wild card. It also puts increasing emphasis on policy risks, as emerging markets attempt to pull down inflation - but without crashing their economies into a hard landing. But it is imperative that these economies do make a strong effort to limit inflation, particularly as periods of significant food price inflation tend to have a destabilizing impact (IMF research) on low income countries. Thus close monitoring of monetary policy actions in these economies has become increasingly important.


Article source:

Russian Central Bank Holds Refi Rate at 8.00%

The Bank Rossii decided to hold its main policy rate, the refinancing rate, at 8.00%, while increasing required reserves for banks. The Bank raised the mandatory reserve requirements for liabilities by 100bps to 5.5% from 4.5% for non-resident companies, and added 50bps to 4.0% from 3.5% for all others. The Bank said: "The decision was made based on the continued high inflation expectations and risks to the stability of economic growth,". Bank Rossii raised its key rates by 25bps last month. Russia reported consumer price inflation of 9.4% as of March 21, compared with 9.5% in February, compared to the Bank's target of 6% to 7%.

Thursday, March 24, 2011

Czech National Bank Holds Rate at 0.75%

The Czech National Bank maintained its benchmark two-week repo rate unchanged at 0.75%, the Bank also held the discount rate unchanged at 0.25% and the Lombard rate at 1.75%. The bank cited rising commodity prices as presenting upside inflation risk, as well as the planned increases in VAT. Though the Bank also cautioned on downside inflation risks stemming from a weak domestic economy and strong Koruna. The Czech economy grew 2.6% y-o-y and 0.3% q-o-q in 2010 Q4, with the key drivers being investment in inventories, and to a lesser extent, net exports.

South African Central Bank Holds Rate at 5.50%

The South African Reserve Bank held its repo rate unchanged at 5.50% as inflation risks rose. The Bank noted "Since the previous meeting of the Monetary Policy Committee, the risks to the outlook for domestic inflation have increased on the upside, mainly as a result of cost push pressures,". South Africa saw inflation of 3.7% in February this year, while the central bank is forecasting 4.7% inflation in 2011 and 5.7% in 2012 as commodity prices remain elevated.

Philippine Central Bank Hikes Rate 25bps to 4.25%

The Bangko Sentral ng Pilipinas raised its benchmark overnight borrowing or reverse repurchase (RRP) facility rate by 25 basis points to 4.25% from 4.00%, and the overnight lending or repurchase (RP) facility rate 25 basis points to 6.25%. The rate increase was driven by "signs of stronger and broadening inflation pressures as well as a further upward shift in the balance of inflation risks". The Bank also noted that " The latest baseline inflation forecasts now indicate that the 3-5 percent inflation target range in 2011 could be at risk.". Philippine inflation accelerated to a 9-month high of 4.3% in February due to higher food and energy commodity prices, as well as fares and utilities.

Uruguay Central Bank Increases Rate 100bps to 7.50%

The Banco Central Del Uruguay raised its benchmark rate 100 basis points to 7.50% from 6.50% previously, citing "concerns about the risk implied by the evolution of inflation, in a context of elevated growth,". The Bank also said "The central bank's monetary policy committee has watched with concern the trend of inflation in recent months, which has exceeded the target range," and on commodity prices said: "International prices continue rising in a global context of greater volatility and domestic factors are keeping internal prices on an upward trajectory.". Uruguay reported inflation of 7.67% in February, up from 7.27% in January this year.

Wednesday, March 23, 2011

Turkey Central Bank Holds Rate at 6.25%

The Central Bank of the Republic of Turkey held its key policy rate, the 1-week repo rate, at 6.25%. The Bank also held the borrowing rate unchanged at 1.50%, lending rate at 9.00% and the interest rate on borrowing facilities provided for primary dealers via repo transactions at 8.00%. The Bank raised the required reserve ratio for banks by 300 basis points to 15% from 12%. Turkey reported inflation of 4.16% in February, down from 4.9% in January; the Bank expects inflation to sit at about 5% in the medium term.

Central Bank of Kenya Lifts Rate 25bps to 6.00%

The Central Bank of Kenya increased the its lending rate by 25 basis points to 6.00% from 5.75% previously. The Bank noted that "this tightening will provide a solution to inflationary pressure and will stabilize the exchange rate while still protecting economic activity,". Kenya reported inflation of 6.5% in February, driven up by the surge in global energy and food commodity prices, with second round inflation effects starting to emerge. The Kenyan economy grew 5.4% in 2010, up from 2.6% in 2009 and 1.7% in 2008.

Central Bank of Nigeria Raises Rate 100bps to 7.50%

The Central Bank of Nigeria raised the monetary policy rate 100 basis points to 7.50% from 6.50% previously. The Bank also raised the borrowing and lending rates by 100 basis points to 5.50% and 9.50% while the reserve requirement was left unchanged at 2%. The move was driven by a need to cap-off rising inflation, which was reported at 11.1% in February this year. Referring to the Nigerian government's 2011 expenditure plan of $31.8 billion (up 17% from last year) the Bank governor, Sansui, said: "The fiscal stance is unduly expansionary,"... and there is "serious concern of the heightened inflation risk".

Friday, March 18, 2011

Monetary Policy Week in Review - 19 March 2011

The past week saw a lot of monetary policy announcements but only a few changes. Of those making changes, India increased +25bps to 6.75%, Chile increased +50bps to 4.00%, and Colombia increased +25bps to 3.50%. Meanwhile the rest held their rates steady (Latvia, Hong Kong, US, Iceland, Norway, Switzerland), but Japan - thought it held its rate unchanged - announced it would undertake further purchases as part of its asset purchase program to give its economy and financial markets a much needed boost following the earthquake and nuclear disaster. Another key story was China announcing a further +50 basis point hike to the required reserve ratio, bringing the total up to 20% for much of the largest banks.

So the theme of emerging market inflation is still running, with two key BRIC economies announcing tightening decisions in response to rising inflation. Of the tighteners this week India is probably facing the most substantial inflation problem, and some have queried whether the the RBI has done enough. Meanwhile Chile and Colombia are both seeing inflation come through from commodities and are acting primarily preemptively in terms of their monetary policy response. As for the others, both Norway and Switzerland hinted at policy removal in the medium term, as inflationary pressures start to build and the economy gets to the point where it can handle the removal of stimulus. But that also highlights that inflation is increasing all around the globe, spurred on primarily by rising commodity prices.

Next week there's no major central bank meetings scheduled, but the Bank of England will release the minutes of its recent monetary policy meeting, which will be useful to gain some insights into what they are thinking about the UK economy and monetary policy.


Article source:

Colombian Central Bank Raises Rate 25bps to 3.50%

The Banco de la Republica de Colombia increased its key monetary policy rate by 25 basis points to 3.50 percent from 3.25 percent. The move follows Colombia's credit rating upgrade by one-step to BBB- by Standard & Poor's this week. Colombia reported consumer price inflation of 0.6% month on month in February, or 3.17% year on year, compared to the central bank's 2 percent to 4 percent target.

China Raises Reserve Requirements 50bps

The People's Bank of China increased the required reserve ratio by another 50bps, the third increase this year, placing the ratio at as much as 20% for large banks. The move, intended to restrict Chinese bank lending, takes effect on March 25. China reported inflation of 4.9% in February, compared to the government's target for 2011 of 4%. This increase in the reserve ratio will likely lock up as much as Rmb370bn in funds that banks would otherwise have been able to lend, as the Bank attempts to control stubbornly high inflation by reducing liquidity.

Central Bank of Chile Raises Rate 50bps to 4.00%

The Central Bank of Chile raised its benchmark monetary policy interest rate by 50 basis points to 4.00% from 3.50% in order to fight second round effects from a spike in commodity prices. Chile reported inflation of 2.7% in February, compared to the Bank's 3% inflation target, while core CPI rising 0.2% from the previous month. The Bank noted it would continue to reduce monetary stimulus, and seek to anchor inflation expectations, in the context of domestic and external economic conditions.

Thursday, March 17, 2011

Swiss National Bank Holds Rate at 0.25%

The Swiss National Bank held its target for the 3-month franc LIBOR unchanged at 0.25 percent. The SNB expects inflation to remain relatively subdued: "Assuming an unchanged three-month Libor of 0.25% during the forecast horizon, average inflation is expected to amount to 0.8% for 2011, to 1.1% for 2012 and to 2.0% for 2013." The Bank also pointed to eventual tightening, noting: "The conditional inflation forecast shows that there is no threat to price stability in the short term. However, the rising path in 2012 and 2013 shows that the current expansionary monetary policy cannot be maintained over the entire forecast horizon without compromising price stability in the longer term."

Norges Bank Holds Interest Rate at 2.00%

Norway's central bank, Norges Bank, maintained its key policy rate at 2.00%, but signaled a possible rate increase in the near term. The Bank explicitly noted,"The Executive Board's current assessment is that the key policy rate should be increased before the end of the first half-year of 2011," though any rate increase would be contingent on developments in the global economy. The Bank expects inflation to remain relatively low, but to progress towards the 2.5 percent inflation target; February consumer price inflation was 1.2% (2.0% in January).

Iceland Holds Policy Rate at 4.25%

The Central Bank of Iceland held its benchmark 7-day collateralized lending rate at 4.25%, pausing after a string of interest rate cuts. The bank noted that it expects inflation to remain near target in the near term. Iceland reported inflation of 1.9% in February, compared to 1.8% in January. The Bank also said "With the prospect that inflation will remain near target and with interest rates at a historically low level, the direction of future policy moves remains uncertain,".

US FOMC Holds Rate at 0-0.25%

The US Federal Open Market Committee maintained the fed funds rate at 0 to 0.25 percent, and maintained its asset purchase program, or "QEII", at $600 billion. The Committee's statement noted: "The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period."

HKMA Holds Base Rate at 0.50%

The Hong Kong Monetary Authority maintained its base rate at 0.50%, following the decision of the US Federal Open Market Committee to hold its policy rate. Hong Kong's monetary policy follows that of the US due to its currency peg of the Hong Kong Dollar to the US Dollar.

Reserve Bank of India Lifts Rate 25bps to 6.75%

The Reserve Bank of India increased the repo rate by 25 basis points to 6.75 percent from 6.50% previously, the Bank also increased the reverse repo rate by 25 basis points to 5.75 percent. The move was driven by rising inflation, with the Bank raising its forecast for March WPI inflation to 8 percent from 7 percent, and maintained its growth forecast for the fiscal year at 8.5 percent. India reported annual headline inflation of 8.31 percent in February, faster than January's 8.23 percent.

Monday, March 14, 2011

Latvia Central Bank Holds Policy Rate at 3.50%

Latvia's Central Bank, Latvijas Banka, held its main monetary policy rate unchanged at 3.50%, and made no alterations to its reserve requirements. The Bank cited low inflationary pressures, and noted that 12-month average inflation was -1.1% in 2010, but "annual inflation in December, however, rose to +2.5%, primarily because of the low base effect and global developments in the food and energy resource markets". The Bank also commented that it expects the 12-month average inflation for 2011 to hover around 2.7%.

Bank of Japan Holds Rate at 0.10%, Expands Asset Purchase Program

The Bank of Japan announced an expansion to its asset purchase program of 5 trillion yen, taking the total to 40 trillion yen ($486 billion), while holding its monetary policy rate unchanged at 0-0.10%. The move followed the powerful 8.9 earthquake which struck Japan on Friday, causing tsunamis and damage to nuclear power plants. Japanese stocks fell about 5% when the market opened on Monday. The Bank also said it would inject as much as 15 trillion yen ($183.8 billion) into money markets to stabilize the financial system.

Monetary Policy Announcement:
Amendment to Asset Purchase Program:

Friday, March 11, 2011

Monetary Policy Week in Review - 12 March 2011

The past week was another busy week in monetary policy, with seven interest rate changes announced around the world. Those that raised interest rates included: Thailand +25bps, Kazakhstan +50bps, Korea +25bps, Serbia +25bps, and Peru +25bps. Meanwhile New Zealand -50bps and Trinidad & Tobago -25bps reduced their main policy rates. Those that reviewed policy settings but held rates included: Sri Lanka, the United Kingdom, Malaysia, and Egypt. In terms of other monetary policy moves Malaysia raised its reserve requirements, while Vietnam increased a couple of its other interest rates. Thus it was a relatively diverse week in terms of the range of decisions and monetary policy settings, but also in the motivation behind the moves.

If there was a theme to all the decisions, it was diversity. But looking through the differences, most economies in question had been experiencing rising inflationary pressures. The key motive for those who increased interest rates was a desire to anchor inflation expectations and avoid the second round effects of rising commodity prices. Meanwhile Trinidad & Tobago and New Zealand were more exceptions; New Zealand dropped rates in response to the earthquake; in order to boost confidence and stimulate economic activity, while Trinidad & Tobago had seen some disinflation and weakening in its economy. The other standout, in the context of the ECB's statement in the previous week, was the UK. The Bank of England made no changes to its policy, in contrast to the ECB - which signaled it may raise rates as soon as April. However the Bank of England doesn't release its meeting minutes until the 23rd of March, so any more detailed analysis of the decision can't practically take place until then.

The major central bank meetings scheduled for next week include: the Bank of Japan, US Federal Reserve Open Market Committee, and the Swiss National Bank. All three are expected to hold policy steady, however there is a possibility that Japan may announce some form of symbolic move in response to the massive earthquake that just hit Japan. In terms of the US FOMC, the accompanying statement will attract a lot of attention as people search for clues on how and when the Fed will exit some of its monetary policy easing programs such as "QEII". So keep checking back here for updates.


Article source:

Vietnam Central Bank Further Tightens Monetary Policy

The State Bank of Vietnam, having previously raised its main policy rate, lifted the rediscount rate to 12% from 7%, and increased the rate for recapitalizing banks to 12% from 11%. Vietnam reported annual inflation at a two-year high of 12.31% year on year in January, as prices rose 2.09% from January. The Vietnamese government has previously forecast economic growth of between 7.0% and 7.5% this year, compared to 6.78% in 2010, however with further tightening the actual result may be lower.

Peru's Central Bank Raises Interest Rate 25bps to 3.75%

The Banco Central de Reserva del Peru raised its reference interest rate by 25 basis points to 3.75% from 3.50% previously. The Bank noted that the move was largely preventative in nature, given rising food and energy prices globally. The Central Reserve Bank of Peru President Julio Velarde said the Peruvian economy is likely to grow 7% in 2011. Peru reported inflation at a five-month high of 2.23% in February, compared to the Bank's inflation target range of 1 percent to 3 percent.

Egypt Central Bank Holds Rate at 8.25%

The Central Bank of Egypt announced no changed to its overnight deposit rate (8.25%) and overnight lending rate (9.75%), following a period of unrest in the country and region. The Bank also said it would launch regular repurchasing agreements (repo) as part of its monetary policy operational framework in the form of a 7‐day repo set by the MPC at 9.25 percent. Egypt recorded headline CPI inflation of 10.79% in February, compared to 10.71% in January.

Trinidad & Tobago Central Bank Cuts Rate 25bps to 3.25%

The Central Bank of Trinidad & Tobago reduced its repo rate by 25 basis points to 3.25% from 3.50% previously. The move was designed to stimulate the economy, with the bank saying: "Meanwhile with the recovery of the non‐energy sector activity remaining an urgent priority, the Bank has decided to reduce the 'Repo' rate...". Trinidad & Tobago reported inflation of 12.5% in January 2011, down from 13.4% in December last year. While core inflation declined to 2.6% in January from 4.7% in December.

Malaysia Central Bank Holds Rate at 2.75%, Lifts Reserve Requirement

Malaysia's Central Bank, the Bank Negara Malaysia, held its overnight policy rate unchanged at 2.75% and increased the statutory reserve requirement ratio to 2% from 1% previously. The bank said: "While the stance of monetary policy is expected to remain supportive of growth, the degree of monetary accommodation may be reviewed given the sustained growth in the economy and risks to inflation,". Malaysia recorded inflation of 2.4% in January, a 20-month high. The Malaysian government expects the economy to expand by about 6%, compared to 7.2% in 2010.

Thursday, March 10, 2011

National Bank of Serbia Lifts Rate 25bps to 12.25%

The National Bank of Serbia increased its key monetary policy rate 25 basis points to 12.25% from 12.00% previously due to rising inflation pressures. The move follows up a previous 50 basis point hike this year. Serbia reported inflation of 11.2% in January this year, up from 10.3% in December; this compares to the Bank's inflation target of 4.5% +/- 1.5% for 2011, and 4.0% +/- 1.5% for 2012. Serbia has seen rising inflation due to rising agricultural prices both domestically and internationally, however the bank expects disinflationary forces to prevail through much of 2011.

Bank of England Holds Bank Rate at 0.50%

The Bank of England held its bank rate unchanged at 0.50% and made no changes to the GBP 200 billion quantitative easing asset purchase programme. The United Kingdom reported inflation of 4.0% in January this year, which is above the Bank's official inflation target of 2.0%. The Bank determined that the balance of risks are currently weighted towards economic growth risks, rather than rising inflation, but it remains to be seen as to how long that position will last.

Bank of Korea Raises Rate 25bps to 3.00%

The Bank of Korea raised the benchmark 7-day repurchase rate 25 basis points to 3.00% from 2.75% due to rising inflation. South Korea reported inflation of 4.5% in February this year, which is just above the Bank's inflation target range of 2% to 4% through 2012. The Bank is forecasting inflation to stabilize around 3.5% this year, compared to 2.9% in 2010. The South Korean economy grew 0.5% in the December quarter of 2010, bringing overall GDP growth to 6.1% for the year.

Reserve Bank of New Zealand Cuts OCR 50bps to 2.50%

The Reserve Bank of New Zealand reduced the Official Cash Rate by 50 basis points to 2.50% as an emergency response to the Christchurch earthquake. Alluding to the confidence effect of the rate cut, the Bank noted "Business and consumer confidence has almost certainly deteriorated." The Bank said that it would be closely monitor emerging economic data, and that the monetary policy accommodation will need to be removed as the rebuilding phase commences.

Wednesday, March 9, 2011

Kazakhstan Central Bank Raises Rate 50bps to 7.50%

The National Bank of Kazakhstan increased its key refinancing rate by 50 basis points to 7.50% from 7.00% previously, on the back of rising inflation. Kazakhstan reported a higher inflation rate last month, of 8.8%, which was the fastest since April 2009, and above the official inflation target of 8 percent. Kazakhstan recently returned its currency, the Tenge, to a "managed" free float, abolishing the tenge's trading corridor at the end of February.

Bank of Thailand Lifts Rate 25bps to 2.50%

The Bank of Thailand increased the 1-day bond repurchase rate by 25 basis points to 2.50% from 2.25% previously. The Bank noted in its statement: "the MPC assessed that gradual normalization of the policy rate remains appropriate for anchoring inflationary expectations and reducing the risk of financial imbalances in the economy". Thailand reported annual inflation of 2.87% in February, with core CPI inflation at 1.35%, compared to 1.32% in January, and below the Bank's official inflation target of 3 percent.

Tuesday, March 8, 2011

Sri Lanka Central Bank Holds Policy Rate at 7.00%

The Central Bank of Sri Lanka held the repurchase rate at 7.00% and the reverse repurchase rate at 8.50% as inflationary pressures continued. Sri Lanka saw inflation of 7.8% year on year in February 2011, with annual average inflation at 6.1% in February vs 6.0% in January. Inflation has been driven up by a spike in food prices, in part due to floods affecting key food producing areas.

Friday, March 4, 2011

Monetary Policy Week in Review - 5 March 2011

The past week saw 11 central bank monetary policy announcements, with 4 rate changes; all increases, and all emerging and developing markets. The banks that reviewed policy and held were: Australia, Canada, Poland, the EU, Indonesia, Mexico, and West Africa. Those that increased rates were: Azerbaijan +200bps, Brazil +50bps, Tajikistan +75bps, and the Dominican Republic +100bps. Other policy moves included a+25bps increase to the required reserve rate for banks in Peru. Other notable events in monetary policy included the significantly more hawkish tone of the European Central Bank monetary policy announcement, suggesting that it could raise rates as soon as next month.

Thus some overall themes to takeaway from the week in monetary policy includes the divergence of economic prospects and inflation experience in developed versus emerging markets. All of the developed economies held rates, and most of the emerging market economies raised rates, or signaled further policy tightening. But of course, the running theme was that of higher agricultural commodity prices and a geopolitical risk driven spike in energy prices creating upside inflation risks. The EU in particular identified the risks of second round effects on inflation (rather than the initial headline inflation impact). Indeed this is a significant source of upside inflation risk for central banks at the moment, so it is important that they anchor inflation expectations - but without derailing economic growth.

Next week the main central bank meeting on the calendar is the Reserve Bank of New Zealand monetary policy statement - which could prove interesting. Elsewhere, China will release its main statistics next week, which has in the past been a popular time for the People's Bank of China to make policy moves (e.g. after a high inflation figure), so watch this space.


Article source:

Mexico Central Bank Holds Rate at 4.50%

Banco de Mexico maintained the overnight interest-rate target at 4.50%, however the Bank cited rising agricultural commodity prices and tensions in the middle east as increasing upside inflation risk and rising uncertainty. Mexico saw inflation of 3.78% in January, versus 4.4% in December, which was above the central bank's 3% official inflation target. The Mexican economy grew 4.6% year-on-year in Q4 2010, compared to 5.3% growth in the third quarter.

West Africa Central Bank Holds Rate at 4.25%

The Central Bank of West African States 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 move was driven by unrest and instability in the region's largest economy, Cote d'Ivoire (Ivory Coast). The West African States (Benin, Burkina Faso, Cote d'Ivoire, Guinea Bissau, Mali, Niger, Senegal, Togo) saw their inflation rate rise to 3.9% in December 2010 from 2.6% in September.

Bank Indonesia Holds Benchmark Interest Rate at 6.75%

Bank Indonesia retained its benchmark reference rate at 6.75%, marking a temporary pause in its monetary policy tightening. The Bank said "we are still targeting inflation of 5 percent, plus or minus one percent, and we expect core inflation to be at that range,". The Bank also reiterated its position of a "monetary policy direction that is biased toward tightening as an effort to manage inflation pressure which remains high". Indonesia experienced 7.02% inflation in January 2011 from a year earlier; with core inflation at 4.36%, gaining from 4.18%.

Thursday, March 3, 2011

European Central Bank Holds Rate at 1.00%

The European Central Bank maintained the main refinancing operations (fixed rate) at 1.00%, and signaled interest rate increases as inflation creeps past the 2.00% ceiling of the official inflation target. The Bank noted: "analysis indicates that risks to the outlook for price developments are on the upside". Annual inflation rose to 2.4% in February 2011 according to a preliminary estimate from Eurostat. Warning of potential tightening the Bank also said: "Strong vigilance is warranted with a view to containing upside risks to price stability. Overall, the Governing Council remains prepared to act in a firm and timely manner to ensure that upside risks to price stability over the medium term do not materialise."

Dominican Republic Central Bank Raises Rate 100bps to 6.00%

The Central Bank of the Dominican Republic raised its Monetary Policy (Overnight) Rate by 100 basis points to 6.00% from 5.00%, and maintained the Lombard Rate at 9.50%. The Bank cited rising inflation as the driver: "In fact, the Consumer Price Index (CPI) increased by 1.25% in January 2011, while y-o-y inflation reached 6.17%. This level of annual inflation is above the Monetary Program's target range of 5-6% for 2011".

Tajikistan National Bank Raises Rate 75bps to 9.00%

The National Bank of Tajikistan raised its key refinancing rate by 75 basis points to 9.00% from 8.25%, in order to stem rising inflation. Tajikistan saw month on month inflation of 1.9% in January, and 0.9% in December, while recording full year inflation of 9.8% in 2010.

Brazil Central Bank Raises Selic Rate 50bps to 11.75%

The Banco Central do Brasil raised the Selic interest rate by 50 basis points to 11.75% from 11.25% previously. The Bank's policy committee said in its statement : "Following the process of adjustment of monetary conditions, the monetary policy committee decided, unanimously, to raise the rate to 11.75 percent a year, without a bias,". The move is intended to head off overheating as the Brazilian economy surges along with rising commodity prices. Brazil saw inflation of 5.99% in January, up from 5.91% in December.

Wednesday, March 2, 2011

Polish Central Bank Holds Rate at 3.75%

The National Bank of Poland held its benchmark interest rate unchanged at 3.75%, as part of its gradual process of policy normalization. Poland recorded inflation of 3.8% in January, versus 3.1% in December, according to figures from the statistics office. The Polish economy expanded 4.4% year-on-year in the Q4 2010, compared to 4.2% in Q3 2010.

Bank of Canada Holds Rate at 1.00%

The Bank of Canada held its benchmark interest rate unchanged at 1.00%, continuing its pause in monetary policy normalization. The Bank also continued to note that "any further reduction in monetary policy stimulus would need to be carefully considered," and commented on the heightened level of global risks. Canada recorded year on year inflation of 2.3% in January this year, compared to 2.4% in December 2010, and a 2.0% inflation target.

Tuesday, March 1, 2011

Reserve Bank of Australia Holds Rate at 4.75%

The Reserve Bank of Australia held the cash rate unchanged at 4.75%, "judging that the current mildly restrictive stance of monetary policy remained appropriate in view of the general macroeconomic outlook". The Bank noted in its monetary policy media release that "Inflation is consistent with the medium-term objective of monetary policy [inflation target of 2-3%], having declined significantly from its peak in 2008."

Azerbaijan Central Bank Lifts Rate 200bps to 5.00%

The Central Bank of the Republic of Azerbaijan increased its benchmark interest rate by 200 basis points to 5.00% from 3.00%. The Bank also increased reserve requirements 150 basis points to 2.00% from 0.50%. The moves were intended to head off rising inflation risks, as rising global commodity prices and further momentum in economic growth puts upward pressure on prices.

Peruvian Central Bank Hikes Reserve Requirements 25bps

The Central Reserve Bank of Peru announced an increase to the required reserve ratio of 25 basis points. Peruvian banks' average reserve requirement was 12.1 percent during the period 1-Feb-11 to 22-Feb-11, according to data from the Bank. The move is intended "to keep inflation expectations anchored within the 1 percent to 3 percent target range," as the fast growing emerging market faces rising inflation risks.