Saturday, July 30, 2011

State Bank of Pakistan Cuts Rate 50bps to 13.50%

The State Bank of Pakistan unexpectedly dropped its discount rate 50 basis points to 13.50% from 14.00%.  The Bank said: "The key parameter in this assessment is the outlook of inflation that indicates that average inflation in FY12 is expected to remain in line with the announced target.  No adjustment in the interest rate would have entailed further tightening of monetary policy in real terms, which is not warranted given the decline in private investment."  The Bank also noted: "Pakistan's economy is currently facing three broad challenges in the shape of persistence of inflation at a high level, falling private investment and low growth, and rising total debt due to a low tax to GDP ratio."

Friday, July 29, 2011

Monetary Policy Week in Review - 30 July 2011

The week in monetary policy saw 8 central banks announcing interest rate decisions.  Of those that changed rates were: India +50bps to 8.00%, Nigeria +75bps to 8.75%, and Colombia +25bps to 4.50%.  Meanwhile those that held monetary policy interest rates unchanged were: Israel 3.25%, Hungary 6.00%, New Zealand 2.50%, Kenya 6.25%, and the Philippines 4.50%.  Other than interest rates, the Philippines raised its required reserve ratio by 100 basis points to 21%, and Turkey dropped its required reserve ratios by 100-200bps to add extra liquidity to the market.

Central Bank of Colombia Raises Rate 25bps to 4.50%

The Central Bank of Colombia lifted its benchmark monetary policy interest rate by 25 basis points to 4.50% from 4.25% previously.  The Bank said (translated): "Since March, the average measures of core inflation has been a slight upward trend in June and reached a level close to the midpoint of the target range (3% + / - 1 percentage point).  Inflation expectations at various horizons are also within that range." and also noted "The increase in the rate of intervention aims to maintain inflation within the target range this year and next and help prevent future financial imbalances that threaten the sustained growth of the economy."

Philippine Central Bank Raises Reserve Requirements 100bps

The Bangko Sentral ng Pilipinas held its overnight borrowing rate unchanged at 4.50% and the overnight lending rate at 6.50%, and increased the reserve requirement 100bps to 21% effective 5 August 2011.  The Bank said: "bank lending has been growing at double-digit rates since January 2011, supported by the strong momentum of domestic economic activity and stable financial conditions...  The Monetary Board is of the view that sustained foreign exchange inflows, driven by upbeat market sentiment over the brighter prospects for the Philippine economy, could fuel a further acceleration of domestic liquidity growth which could pose risks to future inflation."

Central Bank of Kenya Holds Interest Rate at 6.25%

The Central Bank of Kenya held its benchmark lending rate unchanged at 6.25%.  The central bank Governor, Njuguna Ndung'u, said: "the tight monetary policy stance would not achieve the desired results at the moment if the supply sides of food, fuel and energy were not effectively being managed to signal relief to the constraints guiding inflationary expectations.  It was noted that the growth of broad money supply has been below its target since September 2010 which rules out demand pull inflation."

Thursday, July 28, 2011

Reserve Bank of New Zealand Holds OCR at 2.50%

The Reserve Bank of New Zealand held the Official Cash Rate (OCR) unchanged at 2.50%, but signaled plans to increase the rate.  The Bank Said: "Provided current global financial risks recede and the economy continues to recover, the Bank sees little need for the March 2011 'insurance' cut to remain in place much longer.  The current very high value of the New Zealand dollar is acting as a drag on the New Zealand economy.  If this persists, it is likely to reduce the need for further OCR increases in the short term."

Wednesday, July 27, 2011

Magyar Nemzeti Bank Holds Interest 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, the Hungarian economy is likely to continue to pick up slowly over the next two years; however, the level of output will remain below its potential throughout the period.  Domestic demand is expected to recover only gradually.  Consequently, inflation may fall back to 3% by the end of 2012 even without policy tightening, despite the cost shocks hitting the economy."

Tuesday, July 26, 2011

Central Bank of Nigeria Lifts Rate 75bps to 8.75%

The Central Bank of Nigeria increased its monetary policy interest rate by 75 basis points to 8.75% from 8.00% previously.  The Bank also increased the key borrowing and lending rates by 75bps to 6.75% and 10.75% respectively.  Bank Governor, Lamido Sansui, said: "The inflation outlook appears uncertain owing to the expected implementation of the new national minimum wage policy and the imminent deregulation of petroleum products," and that there is "the need for pursuing policies to foster macro- economic stability, economic diversification as well as encouraging foreign capital inflows".

Monday, July 25, 2011

India Central Bank Hikes Rate 50bps to 8.00%

The Reserve Bank of India [RBI] increased its repo rate by 50 basis points to 8.00% from 7.50% and raised the reverse repo rate to 7.00% from 6.50% by the same margin; trouncing market expectations for a 25bp increase.  RBI governor, Duvvuri Subbarao, noted: "Considering the overall growth and inflation scenario, there is a need to persevere with the anti-inflationary stance,".  The RBI also commented on a desire to "maintain the credibility of the commitment of monetary policy to controlling inflation" and to "reinforce the point that in the absence of complementary policy responses on both demand and supply sides, stronger monetary policy actions are required,".

Israeli Central Bank Holds Interest Rate at 3.25%

The Bank of Israel maintained its benchmark interest rate steady at 3.25%.  The Bank noted: "Forecasters' inflation expectations for the next twelve months remained steady at slightly below the upper limit of the target range.  Forecasters' inflation expectations and those derived from the capital market go together with the assessment that the Bank of Israel will continue to increase the interest rate, but at a slower pace than in the first half of the year."  The Bank also maintained the view that: "at the current level of the interest rate, monetary policy continues to be expansionary."

Turkish Central Bank Cuts Required Reserves

The Central Bank of the Republic of Turkey dropped the required reserve ratio on 1-year foreign exchange deposits -100bps to 10% from 11%, and for deposits of up to 3-years -150bps to 10% from 11.5%, and for foreign exchange deposits longer than 3 years -200bps to 9% from 11%.  The moves come into effect from the 5th of August; the bank said the move would add liquidity of approximately 590 million to the market.  The Bank also suspended daily foreign exchange buying auctions of $30 million.

Friday, July 22, 2011

Monetary Policy Week in Review - 23 July 2011

The past week in monetary policy was relatively quiet, with just five central banks announcing interest rate decisions.  The only central bank to adjust rates was the Banco Central do Brasil, which increased its Selic rate by 25 basis points to 12.50%.  The other banks that held rates unchanged were: Canada at 1.00%, South Africa at 5.50%, Turkey at 6.25%, and Egypt at 8.25%.  Elsewhere in central banking, Taiwan's central bank increased commercial bank minimum liquidity requirements as part of an ongoing program to strengthen risk management in the banking system.

Egyptian Central Bank Holds Deposit Rate at 8.25%

The Central Bank of Egypt maintained the overnight deposit rate static 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: "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."

Turkish Central Bank Holds Interest Rate at 6.25%

The Monetary Policy Committee of the Central Bank of the Republic of Turkey maintained its benchmark 1-week repo rate unchanged at 6.25%.  The Bank also held the overnight borrowing and lending rates unchanged at 1.50% and 9.00% respectively.  The Bank said: "that it would be appropriate to narrow the interest corridor gradually should the sovereign debt problems regarding some European economies and the concerns on global growth continue to have adverse impact on the risk appetite.  The Committee has also stated that all policy instruments may be eased should global economic problems intensify and lead to a contraction in domestic economic activity."

Thursday, July 21, 2011

South African Reserve Bank Holds Rate at 5.50%

The South African Reserve Bank [SARB] held its monetary policy interest rate, the repo rate, unchanged at 5.50%.  The Bank said: "The MPC is not complacent and will remain vigilant and continue to monitor closely any indications of second-round effects on inflation emanating from these cost pressures as well as the changing risk profile of the inflation outlook." On inflation the SARB said: "The view of the MPC continues to be that the underlying inflation pressures are mainly of a cost push nature, notwithstanding signs of a possible moderate increase in underlying inflation."

Central Bank of Brazil Lifts Selic Rate 25bps to 12.50%

The Banco Central Do Brasil increased the Selic interest rate by 25 basis points to 12.50% from 12.25% previously.  In its statement, Brazil's Central Bank Monetary Policy Committee (Copom) said: "evaluating the prospective scenario and the balance of risks for inflation, the Copom decided, unanimously, at this moment, to raise the Selic rate to 12.50% p.a., with a neutral bias."  The statement dropped the use of the words "prolonged period" in terms of adjusting monetary conditions, suggesting the Bank may be near an end to its tightening cycle.

Tuesday, July 19, 2011

Bank of Canada Holds Interest Rate at 1.00%

The Bank of Canada held its target for the overnight rate steady at 1.00%; also holding the Bank Rate at 1.25% and the deposit rate at 0.75%.  The Bank commented in its statement: "To the extent that the expansion continues and the current material excess supply in the economy is gradually absorbed, some of the considerable monetary policy stimulus currently in place will be withdrawn, consistent with achieving the 2.0 percent inflation target.  Such reduction would need to be carefully considered".

Monday, July 18, 2011

Taiwan Central Bank Raises Minimum Liquidity Requirements

The Central Bank of the Republic of China (Taiwan) raised the minimum liquidity ratio for financial institutions to 10% from 7%.  The move will come into effect from 1 October 2011, and is designed to bring the statutory liquidity ratio in line with where most banks are currently operating (i.e. not in response to any rise in banking system risks).  The latest figures from the central bank indicated an overall liquidity ratio of 32.5% at the end of May.  The move is expected to strengthen risk management in the banking system over the longer term.

Saturday, July 16, 2011

Central Bank Meeting Calendar Launched

Central Bank News has just launched a central bank meeting calendar; compiling the scheduled monetary policy meeting dates of 25 of the world's central banks for the rest of 2011 on a single page.  The central banks featured in the table span the key developed market banks such as the US Federal Reserve, the ECB, and also features many key emerging market central banks such as the Banco Central do Brasil, Bank Indonesia, and others.  The central bank monetary policy meeting calendar complements the other central banking resources available on the Central Bank News website.

Friday, July 15, 2011

Monetary Policy Week in Review - 16 July 2011

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

Banco Central de Chile Holds Monetary Policy Rate at 5.25%

The Banco Central de Chile maintained its monetary policy interest rate unchanged at 5.25%.  The Bank said: "Domestically, output, demand and labor market figures are progressing with strength, showing signs of moderation in line with the baseline scenario in the last Monetary Policy Report.  Annual CPI inflation indicators have hovered around 3%, while measures of core inflation remain bounded. Private inflation expectations show a decline, although some of them remain above the target."

Thursday, July 14, 2011

Bank of Korea Holds Repo Rate at 3.25%

The Bank of Korea held its 7-day repurchase rate unchanged at 3.25%.  The Bank of Korea noted: "The Committee expects the high level of inflation to continue in the coming months, driven largely by demand-side pressures resulting from the underlying uptrend in economic activity and by inflation expectations." The Bank also said: "For Korea, the Committee judges the economy to have maintained its underlying upward trend, given for instance that exports show robust growth and that domestic demand is increasing modestly... Going forward, the Committee anticipates that the domestic economy will keep up this underlying trend, even in the presence of external risks."

Wednesday, July 13, 2011

Latvijas Banka Holds Refinancing Rate at 3.50%

Latvijas Banka held its main monetary policy interest rate, the refinancing rate, unchanged at 3.50%, and held its other interest rates unchanged.  The Bank said: "In view of the fact that the current inflation risk factors are not related to a rise in demand and that risks for price stability in the medium term are limited, the Bank of Latvia Council today resolved to leave unchanged the interest rates set by the Bank of Latvia and the mandatory reserve requirement in place for the banking sector."

Bank of Thailand Lifts Interest Rate Another 25bps to 3.25%

The Bank of Thailand increased its benchmark 1-day bond repurchase rate by 25 basis points to 3.25% from 3.00%.  Bank of Thailand Assistant Governor, Mr. Paiboon Kittisrikangwan, said: "In light of the continued risks to inflation amid robust domestic demand, the MPC deemed it necessary to continue increasing the policy rate to maintain economic stability and anchor inflation expectations."  The Bank also said: "Inflationary pressure remained high due to elevated energy prices and continued upward adjustments in the prices of prepared foods."

Tuesday, July 12, 2011

Central Bank of Kenya Reverses Discount Window Rate to 6.25%

The Central Bank of Kenya (CBK) reversed its 29 June 2011 decision, lowering CBK discount window rate to 6.25% from 8.00%.  The CBK maintained the central bank rate unchanged at 6.25% (having increased it 25bps on the 31st of May this year).  The Bank said in its circular: "Central banks always run discount windows as facilities of last resort as a means of providing temporary liquidity to banks in extreme cases.  The CBK is concerned that recently, commercial banks have not been using the Discount Window as a last resort, but as a permanent supply if liquidity."

Bank Indonesia Holds Interest Rate Unchanged at 6.75%

Indonesia's central bank, Bank Indonesia, maintained the BI reference rate on hold at 6.75%.  The Bank said: "Bank Indonesia views that the current BI Rate level is still in line with the effort to maintain stronger economic activities supported by stability, amid domestic excess liquidity and continued large capital inflows.  Going forward, Bank Indonesia will closely monitor risks on macroeconomic stability, particularly emanating from capital inflows and global commodity prices.  Meanwhile, inflation is estimated to be under control and could be lower than earlier forecasted if there is no Government policies regarding energy prices while the supply and distribution of basic foods are well maintained."

Bank of Japan Makes no Changes to Policy, Holds Rate at 0.10%

The Bank of Japan held its uncollateralized overnight call rate unchanged at a range of 0 to 0.1% by a unanimous vote.  The Bank also made no changes to its other monetary policy tools e.g. the 40 trillion yen asset purchase program.  The Bank said in its statement: "Japan's economic activity is picking up with an easing of the supply-side constraints caused by the earthquake disaster.  After declining sharply following the earthquake, production has recently shown clear signs of picking up with the easing of supply-side constraints."

Monday, July 11, 2011

Banco Central Do Brasil Announces Further Measures to Cap Real Gains

The Banco Central Do Brasil announced measures to discourage dollar shorting in order to cap a persistent rally of its currency, the Real.  The Bank will require that banks with short US dollar positions hold 60% of the value of short positions greater than $1 billion in non-interest bearing deposits at the central bank.  The Banco Central do Brasil had previously required banks to hold 60% of the value of short positions greater than $3 billion on deposit.  The Brazilian Real has appreciated 20% against the US dollar over the past two years.

Saturday, July 9, 2011

Inflation Targeting in a Rising Inflationary Environment

This report outlines where inflation is tracking in countries where the central bank has an inflation target.  Central Bank News has compiled a table of countries/central banks that have publicly announced an official inflation target.  In some cases the target is a government target, but in many cases it is one of the central bank's key performance indicators.  Of the 32 countries that Central Bank News is monitoring, which have inflation targets; 24 last reported inflation above target, 1 had inflation below target, and 7 reported inflation within their target range. Note, the inflation figures in the table below are all on a headline, or gross, inflation basis.

Friday, July 8, 2011

Monetary Policy Week in Review - 9 July 2011

The past week in monetary policy saw interest rate decisions from 14 central banks around the world, of which 7 made changes in their monetary policy settings.  Those that increased interest rates were: Sweden +25bps to 2.00%, China +25bps to 6.56%, the EU +25bps to 1.50%, and Denmark +25bps to 1.55%. While those that cut rates included Vietnam, which cut its OMO rate -100bps to 14.00%, and Ghana -50bps to 12.50%.  Those that held rates unchanged were: Australia 4.75%, Poland 4.50%, Malaysia 3.00%, the UK 0.50%, Sri Lanka 7.00%, Rwanda 6.00%, and Mexico 4.50%.  Also, setting monetary policy interest rates for the first time was the Bank of Uganda, which set its new monetary policy rate, the central bank rate, at 13.00%.

Banco de Mexico Holds Overnight Interest Rate at 4.50%

The Banco de Mexico held its overnight interest rate target steady at 4.50%.  In an unofficial translation the Bank noted: "The current levels of inflation are the result of several factors: the declining trend in costs of labor, the fading impact of tax changes last year, the favorable exchange rate (despite the recent episode of volatility in international financial markets) and a significant reduction in agricultural prices."

National Bank of Rwanda Holds Interest Rate at 6.00%

The National Bank of Rwanda governor Claver Gatete announced that the Bank had maintained its key lending rate unchanged at 6.00% at its July meeting.  Previously the Bank has noted that it expects inflation to be in the range of 8% by the end of December if current trends continue.  Rwanda has seen inflation pick up to 4.54% in May, compared to 4.98% in April, and 4.11% in March, and 1.09% in January this year.  

Sri Lanka Central Bank Holds Interest Rate at 7.00%

The Central Bank of Sri Lanka held its benchmark repurchase rate steady at 7.00%, and also maintained the reverse repurchase rate at 8.50%, and the reserve ratio at 8%.  The Bank said: "Having taken into consideration the continued decline in headline inflation as well as other macroeconomic developments, the Monetary Board decided to maintain the Bank's policy interest rates at their current levels,".

Thursday, July 7, 2011

Denmark's Central Bank Raises Lending Rate 25bps to 1.55%

The Danmarks Nationalbank raised its key lending rate by 25bps to 1.55% from 1.30% previously, following a similar move by the ECB.  The Bank also raised the interest on certificates of deposit to 1.20%, the current account rate to 1.10%, and the discount rate to 1.25%.  The Bank said in its press release that "The interest rate increase is a consequence of the increase by the European Central Bank of its rate on the main refinancing operations by 0.25 percentage point to 1.50 per cent."

Bank of England Holds Monetary Policy Stance Unchanged

The Bank of England (BoE) held the official Bank Rate, which is paid on commercial bank reserves, unchanged at 0.50%, as expected.  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 20th of July 2011, according to the Bank's announcement.

ECB Hikes Monetary Policy Interest Rate 25bps to 1.50%

The European Central Bank (ECB) increased the Main refinancing operations rate by 25 basis points to 1.50% from 1.25% and increased (+25bps) the Marginal lending facility to 2.25% and Deposit facility to 0.75%.  The Bank said: "The further adjustment of the current accommodative monetary policy stance is warranted in the light of upside risks to price stability. The underlying pace of monetary expansion is continuing to gradually recover, while monetary liquidity remains ample with the potential to accommodate price pressures in the euro area. All in all, it is essential that the recent price developments do not give rise to broad-based inflationary pressures over the medium term."

Bank Negara Malaysia Holds Rate at 3.00%, Lifts Reserve Requirements

The Bank Negara Malaysia maintained the 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.  However the Bank increased the Statutory Reserve Requirement (SRR) ratio by 100 basis points to 4.00% from 3.00%, effective from 16 July 2011.  The Bank said: "The decision to raise the SRR is undertaken as a measure to manage the significant build-up of liquidity, which may result in financial imbalances and create risks to financial stability."

Wednesday, July 6, 2011

Bank of Uganda Sets New Interest Rate at 13.00%

The Bank of Uganda set its new monetary policy interest rate (the central bank rate) at 13.00%.  Bank of Uganda Governor, Emmanuel Tumusiime Mutebile, said: "To tighten monetary policy, the Central Bank Rate will be set at 13% for the month of July. The interest rate will be used to guide the 7–day interbank interest rates,".

Bank of Ghana Cuts Lending Rate 50bps to 12.50%

The Bank of Ghana cut its key lending rate by 50 basis points to 12.50% in order to help boost lending as inflationary pressures reduce.  Bank of Ghana Governor, Kwesi Amissah-Arthur, said: "Inflation is going down and we don't see the banks responding (to lower interest rates)" and further noted that "the bank is confident that the annual inflation target of 9 percent is achievable".

The Bank of Ghana also reduced its lending rate by 50 basis points to 13.00% at its May meeting this year.  Ghana reported inflation of 8.9% in May, compared to 9.0% in April, and 9.1% in the previous month.  Ghana's economy grew 23% in the March quarter, compared to 9.5% in the previous three months, as Africa's newest oil exporter saw export earnings boosted by oil sales, as well as a high gold price and cocoa volumes.

Poland Central Bank Holds Interest Rate at 4.50%

The Narodowy Bank Polski's Monetary Policy Council maintained its benchmark 7-day interest rate unchanged at 4.50%.  The Bank said: "In the coming months, the annual CPI inflation rate will continue at an elevated level, mainly due to the strong growth in global commodity prices observed prior to the inflation increase."  The Bank also noted that it would "not rule out a further adjustment of monetary policy, should the outlook fro inflation's return to the target deteriorate".

The Bank also held unchanged the following rates: the rediscount rate at 4.75%, the Lombard rate at 6.00%, and the deposit rate at 3.00%.  The Bank last raised the interest rate by 25 basis points to 4.50% in June this year.  Poland reported inflation of 5% in May, up from 4.5% in April, 4.3% in March, and higher than the Bank's official inflation target of 2.5% +/- 1%. 

People's Bank of China Raises Interest Rate 25bps to 6.56%

The People's Bank of China raised its one-year benchmark lending rate by 25 basis points to 6.56% from 6.31%, and the one-year deposit rate to 3.50% from 3.25%. The latest monetary policy tightening measures come after the Bank said on Monday that it would continue to implement a prudent monetary policy as inflationary pressures still remained high.  In a release on monetary policy the Bank noted the slow global economic recovery, and risk factors, as well as noting a continued commitment to rapid economic development, but with vigilance on inflationary pressures.

The People's Bank of China last increased the interest rate by 25 basis points in April this year.  The Bank also raised the reserve requirements by 50 basis points in June this year to 21.5%.  China reported inflation of 5.5% in May, up slightly from 5.3% in April, and 5.4% in March this year, and above the government's target of 4%.  Meanwhile forecasts for June inflation are for as much as 6.5%, however many analysts see inflation peaking in June/July.

Tuesday, July 5, 2011

Sweden Central Bank Increases Interest Rate 25bps to 2.00%

Sweden's Riksbank raised its benchmark repo rate by 25 basis points to 2.00% from 1.75% previously.  The Bank said: "The Swedish economy is growing at a good rate, although international developments are marked by uncertainty,".  On inflation, the Bank noted: "Consumer price inflation is high at present as a result of rising mortgage rates.  Underlying inflationary pressures remain low, but are expected to increase as economic activity strengthens."  

The Riksbank last increased the benchmark repo rate by 25 basis points to 1.75% at its April meeting this year.  Sweden reported annual inflation of 3.3% in May, the same as April, and up slightly from 2.9% in March; while also above the Riksbank's inflation target of 2.0%.  Market expectations are for further interest rate increases from the Bank, with the repo rate expected to be 2.3% in Q4 2011, and 2.9% in Q3 2012.  The Swedish Krona last traded around 6.26 against the US dollar.

Reserve Bank of Australia Maintains Cash Rate at 4.75%

The Reserve Bank of Australia (RBA) maintained the cash rate unchanged at 4.75%.  The RBA said: "the Board judged that the current mildly restrictive stance of monetary policy remained appropriate".  The RBA also noted: "Year-ended CPI inflation is likely to remain elevated in the near term due to the extreme weather events earlier in the year.  However, as the temporary price shocks dissipate, CPI inflation is expected to be close to target over the next 12 months."

The Bank also held the cash rate unchanged at 4.75% at its previous meeting in June this year, it last increased the interest rate by 25 basis points in November last year.  Australia reported annual consumer price inflation of 3.3% in Q1 this year, up from 2.7% in the December quarter of 2010, and just outside the Bank's inflation target of 2-3%.  The Australian economy shrank -1.2% during the March quarter due to the impact of natural disasters; placing year on year GDP growth at a slower pace of 1.2%.

Monday, July 4, 2011

State Bank of Vietnam Reduces OMO Rate by 100bps to 14.00%

The State Bank of Vietnam reduced its open market operations (OMO) interest rate by 100 basis points to 14.00% from 15.00% previously, according to reports by Bloomberg and Reuters.  Aside from the OMO rate adjustment, the Bank held its main monetary policy rate, the Base rate, unchanged at 9.00%.  The Bank also held the Discount interest rate unchanged at 13.00%, and the Refinancing rate at 14.00%. 

Vietnam's central bank last increased the OMO, or reverse repurchase, interest rate by 100 basis points to 15.00% on the 17th of May this year.  The latest move comes after a string of aggressive monetary policy tightening measures as Vietnam deals with hyperinflation.  Vietnam reported annual inflation of 20.82% in June, up from 19.78% in May, and 17.51% in April this year, according to the General Statistics Office.  The Vietnamese Dong is currently trading around 20,600 against the US dollar (the Dong is allowed to trade within a +/- 1% band).

Friday, July 1, 2011

Global Interest Rate Movements: Half-Year Review

This article reviews the monetary policy interest rate activity of the world's central banks during the first half of 2011.  The key takeaway is that monetary policy tightening has been the dominant game for most emerging market central banks in the first half of the year, however the majority of central banks are still in the no-change camp.  Indeed of the 79 central banks that Central Bank News monitors, 33 made net increases to their interest rates, while 40 held their rates net unchanged, and only 6 made net reductions to their policy interest rates.

Of the central banks that net increased their interest rates, the average increase was 111 basis points, but with many opting for 25 (8), or 50 (7) basis points.  Meanwhile the outliers were Vietnam (600bps) and Belarus (550bps); the former dealing with hyperinflation, and the latter dealing with a number of economic worries.  And it wasn't only emerging markets that were net tighteners in the first half; Denmark, Norway, the EU, and Sweden were among those to tighten monetary policy settings.

As for those that loosened interest rates, it was much a case of being the outlier.  New Zealand dropped its official cash rate earlier this year after an earthquake hit one of its cities.  Meanwhile Iceland dropped rates in response to low inflation and continued economic challenges.  Qatar dropped its policy rate to help the non-energy part of its economy, and Ghana dropped rates due to easing in domestic inflation pressures.

So overall the first half of the year in monetary policy interest rates was characterised by inaction for most, tightening by many, with a few outliers reducing interest rates.  Much of the policy tightening went on in emerging markets where inflation has been pushed above inflation targets due to rising global commodity prices and strong economic growth and activity levels (i.e. both demand pull and cost push).

Going into the second half of the year the outlook is less certain, which in part explains inaction being the main stance for most of the monetary policy setters.  On commodities, there has been a recent correction in broad commodity prices, and many commodities finished the past quarter with price falls. A stable or falling global commodity price environment could see less tightening, and perhaps pockets of loosening.

Meanwhile the global economic growth outlook continues to be uncertain, with some economies e.g. the US making slow progress, and tail risks e.g. Greek sovereign debt default, having the potential to pull back the aggregate demand impulse.  So out next review could well see more banks opting for no change or even net policy loosening.  In any case, keep checking the website for monetary policy updates.


Article source:

Monetary Policy Week in Review - 2 July 2011

Over the past week there were 6 central banks announcing monetary policy decisions.  Only Kenya (+175bps to 8.00%), and Taiwan (12.5bps to 1.875) increased interest rates.  Meanwhile the central banks of Israel (3.25%), Albania (5.25%), Romania (6.25%), and Russia (8.25%) all held monetary policy settings unchanged.  Also of interest in central banking news was the announcement from the BIS [Bank for International Settlements] around increasing capital requirement regulations for globally systemically important banks.  The BIS also featured in the news as it stressed the need for central banks around the world to normalise monetary policy in order to promote sustainable economic growth.

Some of the common themes from the monetary policy statements included caution around the uncertain economic outlook, particularly within the global backdrop of heightened levels of sovereign debt risks.  There was also mention of the recent trends in commodity prices, with several key commodities turning down over the past quarter.  Another common concern was the growth outlook, both domestically, and globally; with the major economies of China and the US showing some weakness in recent economic indicators.

Following is a selection of the key quotes and comments from the central banks mentioned above. 
  • Bank of Israel (held interest rate at 3.25%): "In the first half of the year the Bank of Israel raised the interest rate markedly.  At the same time, steps were taken by the Bank of Israel and the Ministry of Finance in the housing market.  In addition, the shekel appreciated over recent months and there was a decline in commodity prices.  The impact on inflation of these items is expected to be felt in the future."
  • Bank of Albania (held interest rate at 5.25%): "inflation will continue to be under the pressure of foreign prices in the coming period,"..."but, barring unexpected developments, the effect of the shocks of foreign prices will wane while the effect of administered prices will cease in the third quarter".
  • Central Bank of Kenya (increased interest rate 175bps to 8.00%): "This further tightening of the monetary policy stance will curtail second-round effects arising from fuel and maize prices and exchange-rate volatility that have been fueling inflationary expectations,".
  • National Bank of Romania (held interest rate at 6.25%): "The inflation outlook continues to feature significant risks.  The developments in international commodity prices, the uncertainties related to the calendar and magnitude of administered price adjustments, the movements on global financial markets in the context of the evolution of the sovereign debt crisis, as well as the possible emergence of second-round effects from the supply-side shocks seen in the recent quarters remain a matter of concern."
  • Central Bank of the Republic of China (Taiwan) (increased interest rate 12.5bps to 1.875%): "Although the nation's inflation remains more stable than in most other countries, we have decided to maintain the pace in rate hikes to help control the public's prospective attitude toward consumer prices,".
  • Central Bank of Russia (held refinancing rate at 8.25%): "The decision was made following an assessment of inflation risks and risks for sustainable economic growth, including risks posed by the continued uncertainty over foreign market developments."

Next week is set to be a reasonably busy week in monetary policy, with rate hikes expected from 3 of the following central banks that are scheduled to review policy settings:
  • Australia (Reserve Bank of Australia) - expected to hold at 4.75% on 5th July
  • Sweden (Sveriges Riksbank) - possible 25bp increase from 1.75% on 5th July
  • Poland (National Bank of Poland) - expected to hold at 4.50% on 6th July
  • Malaysia (Bank Negara Malaysia)  - likely 25bp increase from 3.00% on 7th July
  • United Kingdom (Bank of England) expected to hold at 0.50% on 7th July
  • Eurozone (European Central Bank) expect 25bp increase from 1.25% on 7th July
  • Mexico (Banco de Mexico) expected to hold at 4.50% on 8th July


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