Central Bank of Colombia Hikes Rate 25bps to 5.00%

The Central Bank of Colombia raised its monetary policy interest rate 25 basis points to 5.00% from 4.75%.  The Bank said [translated]: "The increased risk of central forecasts growth remains a disorderly adjustment in Europe. The risk materializes, the world economy would grow significantly less than expected, international prices of basic goods could fall and exacerbated global risk aversion, all of which adversely affect the Colombian economy. For its part, the main risk to inflation coming from excessive expansion in demand or increases in cost overruns, with strong and lasting effects on expectations and credibility of monetary policy. In a longer time horizon, excessive credit growth and the persistence of low real interest rates could be a source of financial imbalances have negative consequences on the sustainability of economic growth."

RBNZ Governor Alan Bollard to Step Down This Year

The Reserve Bank of New Zealand Governor, Alan Bollard, has announced that he will be stepping down as Governor when his current term ends on the 25th of September this year.  Dr Bollard was appointed in September 2002, and is currently in his second five-year term.  The Chair of the Reserve Bank Board, Dr Arthur Grimes, noted that the Board will be searching in New Zealand and abroad to identify a successor to Dr Bollard.  The Governor of the Reserve Bank is appointed by the Minister of Finance on the recommendation of the Board.  

Central Bank Inflation Targeting Report Card - 2011

This report provides an update on 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 39 countries which have inflation targets that Central Bank News is monitoring; 22 last reported inflation above target, 8 had inflation below target, and 9 reported inflation within their target range. Note, the inflation figures in the table below are all on a headline, or gross, inflation basis.

National Bank of Angola Cuts Rate 25bps to 10.25%

The Banco Nacional de Angola (BNA) cut its new benchmark monetary policy interest rate by 25 basis points to 10.25% from 10.50% previously.  The BNA said: "Keeping in mind the analysis of macroeconomic indicators, which includes recent developments and prospects of the Angolan economy and internationally, the Monetary Policy Committee decided to reduce the BNA Basic Interest Rate - Rate BNA, to 10.25%."  The next meeting of the Monetary Policy Committee will take place on the 27th of February 2012.

Bank of Albania Cuts Interest Rate 25bps to 4.50%

The Bank of Albania cut its main monetary policy interest rate a further 25 basis points to 4.50% from 4.50% previously.  The Bank said: "in the Supervisory Council assessment, inflationary pressures remain controlled over the monetary policy relevant horizon. Moreover, economic agents' expectations on inflation remain anchored to the Bank of Albania's target band. At the conclusion of discussions, the Supervisory Council decided to cut the key interest rate by 0.25 percentage points to 4.50%. This decision serves to comply with the medium-term inflation target and provides the appropriate monetary conditions to stimulate Albania's economic activity."

Monetary Policy Week in Review - 28 January 2012

The past week in monetary policy saw 2 central banks cutting interest rates (Israel -25bps to 2.50%, and Thailand -25bps to 3.00%), and 1 bank cutting its reserve ratio (India cut CRR 50bps to 5.50%).  Meanwhile 7 central banks held rates unchanged (Japan 0.10%, India 8.50%, Hungary 7.00%, Turkey 5.75%, New Zealand 2.50%, USA 0-0.25%, and Hong Kong 0.50%).  The week also featured the US Federal Reserve announcing an inflation target of 2 percent and releasing its inaugural economic forecasts as part of its efforts to improve transparency.

HKMA Follows FOMC in Keeping Rate on Hold at 0.50%

The Hong Kong Monetary Authority kept its base rate steady at 0.50% following the decision of the US Federal Reserve to leave the fed funds rate unchanged at 0-0.25% until late 2014.  The HKMA said (according to WSJ) the Fed forecasts "reflect the still-soft outlook of the U.S economy, which is weighed by a weak job market, a depressed housing market, the need for long-term fiscal consolidation as well as the lingering sovereign debt crisis in Europe." Adding: "In such an uncertain environment... we would like to remind the public to be careful and avoid over-stretching themselves financially,"

FOMC Holds Rate at 0-0.25%, Announces Inflation Target, Releases Inaugural Fed Forecasts

The US Federal Open Market Committee (FOMC) kept the fed funds rate steady at 0 to 0.25 percent. The Fed said: "To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy.  In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014."

RBNZ Holds OCR at 2.50%, Signals No Change

The Reserve Bank of New Zealand kept the Official Cash Rate (OCR) on hold at 2.50%, noting the impact of global developments.  The Bank Said: "In the domestic economy we continue to see modest growth. Over recent months there have been signs of a limited recovery in household spending and the housing market. Further ahead, repairs and reconstruction in Canterbury will also provide a significant boost for an extended period, though there may be further delays resulting from the aftershocks. Given ongoing uncertainty around global conditions and the moderate pace of domestic demand, it remains prudent to keep the OCR on hold at 2.5 percent"

Bank of Thailand Cuts Interest Rate 25bps to 3.00%

The Bank of Thailand cut its benchmark 1-day bond repurchase rate by 25 basis points to 3.00% from 3.25%.  Bank of Thailand Assistant Governor, Mr. Paiboon Kittisrikangwan, said: "The MPC assessed that inflationary pressure remains contained, while headwinds from the global economy continue to pose  risks to Thailand's economic growth. The MPC therefore voted unanimously to reduce the policy rate by 0.25 percent, from 3.25 percent to 3.00 percent per annum, effective immediately. With  private sector confidence improving but still fragile, this policy accommodation should help accelerate the return of economic activity to normal levels."

Central Bank of Turkey Keeps Rate at 5.75%

The Central Bank of the Republic of Turkey kept its benchmark 1-week repo rate unchanged at 5.75%.  The Bank said: "The Committee has indicated that tight monetary policy stance should be maintained for a while in order to  keep inflation outlook consistent with the medium term targets. However, given the prevailing uncertainties regarding  the  global economy, it would be appropriate to preserve the flexibility of the monetary policy. Therefore, the impact of the measures undertaken on credit, domestic demand, and inflation expectations will be monitored closely and the amount of Turkish lira funding via one-week repo auctions will be adjusted in either direction, as needed."

Magyar Nemzeti Bank Holds Interest Rate at 7.00%

The Magyar Nemzeti Bank held its central bank base rate unchanged at 7.00%.  The Bank said: "In the Council's judgement, the Hungarian economy is likely be stagnant next year, with growth expected to resume only in 2013. The level of output will remain below its potential over the entire forecast period. As the effects of the indirect tax increases and the exchange rate depreciation wane, the disinflationary impact of weak domestic demand is likely to become the dominant factor shaping inflation."

Reserve Bank of India Holds Rate at 8.50%, Cuts CRR 50bps

The Reserve Bank of India [RBI] held its repo rate at 8.50% and reverse repo rate at 7.50%, but cut the cash reserve ratio [CRR] by 50 basis points to 5.50% from 6.00%.  The RBI said: "In reducing the CRR, the Reserve Bank has attempted to address the structural pressures on liquidity in a way that is not inconsistent with the prevailing monetary stance. In the two previous guidances, it was indicated that the cycle of rate increases had peaked and further actions were likely to reverse the cycle. Based on the current inflation trajectory, including consideration of suppressed inflation, it is premature to begin reducing the policy rate."

Bank of Japan Keeps Monetary Policy Settings Unchanged

The Bank of Japan held its interest rate at 0-0.10% and made no changes to its 55 trillion yen quantitative easing program.  The Bank said: "Japan's economic activity has been more or less flat, mainly due to the effects of a slowdown in overseas economies and the appreciation of the yen.  As for domestic demand, business fixed investment has been on a moderate increasing trend and private consumption has remained firm.  On the other hand, exports and production have remained more or less flat, due to the slowdown in overseas economies and the yen's appreciation as well as the remaining effects of the flooding in Thailand.  Meanwhile, although global financial markets remain under heavy strain, financial conditions in Japan have continued to ease."

Bank of Israel Cuts Interest Rate 25bps to 2.50%

The Bank of Israel cut its benchmark interest by 25 basis points to 2.50% from 2.75% previously.  The Bank said "The decision to cut the interest rate to 2.5 percent for February is consistent with the interest rate policy aimed at keeping inflation within the price stability target range and is intended to support real economic activity, against the background of the slowdown in global demand."

CBN Carry Trade Index Introduction

The chart below shows the just-launched Central Bank News Carry Trade Index.  Essentially the index is an indicator of the variance between interest rates of central banks.  The "all" (81 central banks) index was recorded at 772 basis points at the end of December 2011 (up from 664 basis points at the end of December 2010).  This index shows a gradual rise in the average difference among central bank rates, driven largely by tightening among emerging market and frontier markets, while developed markets have kept monetary policy rates at all time lows.

Monetary Policy Week in Review - 21 Jan 2012

The past week in monetary policy saw interest rate decisions announced by 8 central banks, with 4 of those announcing interest rate cuts, reflecting the ongoing European sovereign debt crisis and slowing global growth.  Those announcing interest rate cuts were Brazil -50bps to 10.50%, Georgia -25bps to 6.50%, Philippines -25bps to 4.25%, and Serbia -25bps to 9.50%.  Meanwhile those that held rates unchanged were Canada 1.00%, South Africa 5.50%, Mexico 4.50%, and Latvia 3.50% (Latvia did however reduce its required reserve ratios 100bps).  Also making headlines was a widening of the interest rate corridor, an effective easing, in Indonesia.

Central Bank of Mexico Holds Interest Rate at 4.50%

The Banco de Mexico held its overnight interest rate target steady at 4.50%.  The Bank said [Google Translated]: "the Governing Board believes that the current stance of monetary policy is conducive to achieving the goal of permanent 3% inflation, so has decided to maintain unchanged the target for the interbank interest rate. However, they remain attentive to the outlook for global economic growth and its possible implications for the Mexican economy, which in a context of strong monetary laxity in major advanced countries, in the end could make a suitable policy easing. Also, the Board will continue to closely monitor the behavior of all the determinants of inflation that might alert about widespread pressures on prices to adjust timely monetary stance, seeking at all times the convergence of inflation to its permanent objective of 3%."

South African Reserve Bank Holds Repo 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 remains of the view that inflation pressures are primarily of a cost-push nature, but is concerned that a persistent upward trend in inflation and prolonged breach of the inflation target could have an adverse effect on inflation expectations which could reinforce the upward inflation dynamics. However, the MPC is also cognisant of the slowing domestic economy and feels that given the lack of demand pressures, monetary tightening at this stage would not be appropriate. At the same time, the nominal policy rate is at a long term low and the real policy rate is slightly negative, indicating a monetary policy stance that is accommodative and supportive of the real economy."

Latvia Central Bank Holds Rate 3.50%, Cuts Reserve Ratio

Latvijas Banka kept its main monetary policy interest rate, the refinancing rate, steady at 3.50%, and held its other interest rates unchanged, but reduced the reserve ratio for bank liabilities above two years to 2% from 3%, and for other liabilities to 4% from 5%.  The Bank said: "By reducing the reserve ratio, additional financial resources are released for lending and more beneficial conditions for the availability of lending resources necessary for economic growth are created. A simultaneous reduction of the reserve requirement for liabilities of different maturities will promote a balanced impact on the availability of financing in the banking sector and will continue to maintain banks' motivation in attracting long-term financing."

Central Bank of Serbia Cuts Repo Rate 25bps to 9.50%

The National Bank of Serbia cut its 2-week repo rate by another 25 basis points to 9.50% from 9.75% previously.  The Bank said: "Inflation stayed on a downward path, ending 2011 somewhat lower than expected by the National Bank of Serbia, mainly due to the one-off effect of methodological changes in the calculation of fruit and vegetable prices. Inflation is expected to continue down and possibly undershoot the target tolerance band at the end of the first quarter. A part of this fall will be short-lived, resulting from the above methodological changes and other effects such as that of the administrative cap on trade margins and the so-called base effect of high monthly inflation rates recorded in the same period last year. This taken into account, inflation is expected to stabilise around the target in the third quarter of the year."

Philippines Central Bank Cuts Rate 25bps to 4.25%

The Bangko Sentral ng Pilipinas cut its overnight borrowing rate 25 basis points to 4.25% from 4.50% and the overnight lending rate to 6.25% from 6.50% previously.  The Bank said: "the inflation outlook remains comfortably within the target range, with expectations well-anchored. Latest baseline forecasts indicate that average annual inflation rates are likely to fall within the lower half of the 3-5 percent target range up to 2013. Pressures on global commodity prices are seen to continue to abate amid weaker global growth prospects. However, the impact of strong capital inflows on domestic liquidity and the effect of geopolitical tensions in the MENA region on global oil supplies will continue to pose upside risks to inflation."

Central Bank of Georgia Cuts Rate 25bps to 6.50%

The National Bank of Georgia reduced its benchmark refinancing interest rate by 25 basis points to 6.50% from 6.75%.  The Bank said: "Existing forecasts indicate that given the unchanged policy stance, the inflation rate will remain below the target. Hence the Monetary Policy Committee of the NBG considered it appropriate to continue easing the monetary policy and decided to decrease the refinancing rate by 25 basis points. The National Bank of Georgia considers that at present the recent monetary easing will be sufficient to keep the inflation in the medium term at the target level."

Brazil Central Bank Cuts Selic Rate 50bps to 10.50%

The Banco Central Do Brasil cut the Selic interest rate by another 50 basis points to 10.50% from 11.00% previously.  In its statement, Brazil's Central Bank Monetary Policy Committee (Copom) said [translated]: "The Monetary Policy Committee believes that the timely mitigate the effects coming from a more restrictive global environment, a moderate adjustment in the level of the base rate is consistent with the scenario of convergence of inflation to the target in 2012."

Bank Indonesia Widens Interbank Interest Rate Corridor

Indonesia's central bank, Bank Indonesia, widened its interest rate corridor for interbank funding (the deposit facility rate) to 200 basis points below the Bank Indonesia rate, from 150bps previously - effectively easing monetary policy settings.  The Bank said [translated]: "This is done as a step to strengthen the liquidity management of banks, by encouraging banks to transact with each other, while expected to improve the efficiency of banking. This decision is effective from Wednesday, January 18, 2012."

Bank of Canada Maintains Interest Rate at 1.00%

The Bank of Canada held its target for the overnight rate at 1.00%.  The Bank noted on the Canadian economy: "While the economy had more momentum than anticipated in the second half of 2011, the pace of growth going forward is expected to be more modest than previously envisaged, largely due to the external environment. Prolonged uncertainty about the global economic and financial environment is likely to dampen the rate of growth of business investment, albeit to a still-solid pace.  Net exports are expected to contribute little to growth, reflecting moderate foreign demand and ongoing competitiveness challenges, including the persistent strength of the Canadian dollar.  In contrast, very favourable financing conditions are expected to buttress consumer spending and housing activity. Household expenditures are expected to remain high relative to GDP and the ratio of household debt to income is projected to rise further."

UK Central Bank Sees Rise in Credit Card Limits

Credit card limits rose in the final three months of 2011, according to the latest Credit Conditions Survey from the Bank of England, the UK's central bank. This wasn't the only increase to appear in this Survey, which also pointed to the growth in the availability to households of unsecured credit in the final quarter of the year - growth which we can expect to see (a little) more of between now and March. The first quarter of 2012 should also see a slight increase in demand for 'other unsecured lending' (i.e. other than credit cards, where we can expect a drop). 

[Review] Clarity of Central Bank Communication About Inflation

The International Monetary Fund (IMF) has just released a working paper on central bank communication on inflation, which examines whether the clarity of central bank communications have changed with the economic environment.  The key finding of the paper is that there are "no strong indications that central banks were less clear in explaining their policies when faced with higher uncertainty or a less favorable inflation outlook."  However, the authors note that the global financial crisis "did have a negative impact on clarity of central bank communication."  The paper's authors are: Bulir, Ales; Cihák, Martin; and Jansen, David-Jan.

Monetary Policy Week in Review - 14 Jan 2012

The past week in monetary policy saw interest rate decisions announced by 11 central banks, with just one announcing a change in rates (Chile -25bps to 5.00%).  Those that held rates unchanged were: Sri Lanka 7.00%, Poland 4.50%, Kenya 18.00%, the EU 1.00%, UK 0.50%, Indonesia 6.00%, South Korea 3.25%, Mozambique 15.00%, Peru 4.25%, and Armenia 8.00%.  Also making the news during the week in central banking was reports that Iran's central bank had raised interest rates, and the resignation of Swiss National Bank Chairman, Philipp Hildebrand.

Iran Central Bank Reportedly Raises Interest Rates

The Central Bank of the Islamic Republic of Iran is reported to have decided to raise interest rates to stabilize its gold and currency markets.  Bloomberg cited IRNA quote from Kazem Delkhosh (and central bank official) "The council has decided to fix the rates for bank deposits at a rate higher than inflation".  Meanwhile financial blog Zero Hedge reported that Iran's central bank had raised rates to 20%, citing EA World View: "The effort is to reduce the flow of cash in the economy, but the official says it will increase capital investment by banks in an "impressive market"."  According to Bloomberg Iran's inflation rate is currently 20.6% (compared to a reading of 12.5% in the year ending March 2011).

Central Bank of Armenia Holds Interest Rate at 8.00%

The Central Bank of Armenia held its key refinancing rate unchanged at 8.00%.  The Central Bank Board said in its release: "The Board admitted that inflationary pressures coming in to the Armenian economy from external environment in short run are weak: international prices of raw materials and food products fell in December in view of the slowing of the world economy. Nevertheless, world economic developments and possible inflationary pressures therefrom are in the focus of the Central Bank. Inflationary pressures from domestic economic developments are at their smallest as the impact of the fiscal policy and private spending as well as the developments in the labor market on the inflation environment are estimated to be neutral."

Central Bank of Peru Holds Interest Rate at 4.25%

The Central Reserve Bank of Peru kept its monetary policy reference rate steady at 4.25%.  The Bank said: "This decision takes into account the lower growth being recorded by some components of expenditure, the current international financial risks, and the rise of inflation associated mainly with temporary supply factors. Future adjustments in the reference interest rate will depend on the evolution of inflation and its determinants."

Bank of Mozambique Holds Interest Rate at 15.00%

The Bank of Mozambique held its standing facility lending interest rate unchanged at 15.00%.  The Bank also held the required reserve ratio unchanged at 8.5%.  The Bank said [translated]: "In what was the first regular session of 2012, the CPMO noted the main macroeconomic results achieved in 2011, with emphasis on the inflation and international reserves resulting from the contribution of the partner institutions of macroeconomic management, economic operators and the general public, in pursuing the objective of preserving price stability."

South Korea Central Bank Keeps Repo Rate at 3.25%

The Bank of Korea held its 7-day repurchase rate steady at 3.25%.  The Bank said: "In Korea, exports have kept up their steady increase, but domestic demand has been subdued with consumption and construction investment decreasing from the previous month. On the employment front, the number of persons employed has sustained its large scale of increase, led by the private sector. The Committee anticipates that domestic economic growth will gradually return to its long-term trend level going forward, after remaining subdued for some time due mostly to the impact of external risk factors."

Central Bank of Chile Cuts Rate 25bps to 5.00%

The Banco Central de Chile cut its monetary policy interest rate by 25 basis points to 5.00% from 5.25% previously.  The Bank noted: "Domestically, output and demand have evolved in line with forecasts in the latest Monetary Policy Report. The labor market is still tight. The money market has normalized, while financing conditions for some agents are tighter than a few months ago. December's headline and core inflation was higher than expected due to the prices of perishables and other foods and the lagged incidence of the peso depreciation in the fourth quarter of 2011. Inflation expectations remain near the target."

Bank Indonesia Keeps Interest Rate at 6.00%

Indonesia's central bank, Bank Indonesia, kept the BI reference rate unchanged at 6.00%.  Bank Indonesia Governor, Darmin Nasution, said: "Board of Governors views that current BI rate is still consistent with inflation targets, financial system stability, and remains conducive to propel domestic economic expansion amidst global economic uncertainty. In 2011, Indonesian economy showed strong performance with low inflation, higher economic growth, stable exchange rate, and stable financial system. The achievement was supported by various policies implemented by Bank Indonesia and the government. Going forward, Bank Indonesia will monitor closely the worsening global economic condition. Regarding the policy, Bank Indonesia will continue to strengthen monetary and macro-prudential policy mix, as well as coordination with the government."

Bank of England Keeps Rate at 0.50%, APP at 275B

The Bank of England (BoE) held the Bank Rate at a record low stimulatory level of 0.50%, and continued with its Asset Purchase Program (Quantitative Easing) target of GBP 275 billion, after increasing it by 75 billion at its October meeting.  On its asset purchase program, the Bank said: "The Committee expects the announced programme of asset purchases to take until early February to complete. The scale of the programme will be kept under review."  The Bank releases its minutes on the 25th of January.

European Central Bank Holds Rate at 1.00%

The European Central Bank (ECB) held its Main refinancing operations rate unchanged at 1.00%.  ECB governor, Mario Draghi, said: "Inflation is likely to stay above 2% for several months to come, before declining to below 2%. At the same time, the underlying pace of monetary expansion remains moderate. As expected, ongoing financial market tensions continue to dampen economic activity in the euro area, while, according to some recent survey indicators, there are tentative signs of a stabilisation in activity at low levels. The economic outlook remains subject to high uncertainty and substantial downside risks. In such an environment, cost, wage and price pressures in the euro area should remain modest and inflation rates should develop in line with price stability over the policy-relevant horizon. "

Central Bank of Kenya Pauses Rate at 18.00%

The Central Bank of Kenya held the benchmark lending rate unchanged at 18.00%, and held the Cash Reserve Ratio at 5.25%.  The central bank Governor, Njuguna Ndung'u, said: "The information analysed by the Committee showed that inflation is projected to ease further in early 2012. This outcome is a consequence of the monetary policy stance, the appreciation and stability of the exchange rate and the decline in oil prices. Furthermore, expected improvements in food supply will result in lower commodity prices."

Polish Central Bank Holds Interest Rate at 4.50%

The Narodowy Bank Polski's Monetary Policy Council held the benchmark 7-day interest rate unchanged at 4.50%.  The Bank said: "In the opinion of the Council, in the medium term inflation will be curbed by gradually decelerating domestic demand amidst fiscal tightening, including reduced public investment spending, and interest rate increases implemented in the first half of 2011, as well as the expected global economic slowdown. The impact  of the situation in the global financial markets on zloty exchange rate together with a possible rise in commodity prices continues to be an upside risk to domestic price developments."

Central Bank of Sri Lanka Continues to Hold at 7.00%

The Central Bank of Sri Lanka held its benchmark repurchase rate steady at 7.00%, and reverse repurchase rate at 8.50%, and Statutory Reserve Ratio at 8%.  The Bank said: "the significant structural changes that have taken place in the Sri Lankan economy over the last several years are expected to provide the momentum for the economy to grow by about 8 per cent in 2012, even in the midst of the slowdown in global economic activity. Continued development efforts aimed at improving economic and social infrastructure  are expected to augment the productive capacity of the country and thereby enable the realisation of the country's growth potential."

Swiss National Bank Chairman Hildebrand Resigns

The Swiss National Bank announced that Chairman, Philipp Hildebrand, "is resigning from his office as Chairman of the Governing Board of the Swiss National Bank" with immediate effect.  The SNB Governing Board also noted that it would continue its policy of a minimum exchange rate of CHF 1.20 against the Euro, with "utmost determination".  Hildebrand's resignation followed allegations that his wife had acted on insider information about an impending SNB policy move in regards to foreign exchange transactions.  Vice Chairman, Thomas Jordan, will hold the position of Chairman in the interim.

Global Interest Rate Movements in 2011

This article reviews the monetary policy interest rate activity of the world's central banks during 2011.  The major theme of the year was monetary policy tightening, but the second half of the year featured many banks opting to reverse course or switch to outright net loosening.  Indeed of the 87 central banks that Central Bank News monitors, 34 made net increases to their interest rates, while 32 held their rates net unchanged, and 21 made net reductions to their policy interest rates, many of these in the second half of the year (see: Global Interest Rate Movements: Half-Year Review).

National Bank of Ethiopia Cut Reserve Requirement 500bps

The National Bank of Ethiopia cut the minimum deposit reserve ratio by 500 basis points to 10% from 15% previously, the Bank also cut the liquid assets to deposits ratio by the same margin to 20 percent from 25 percent previously.  The move is aimed to encourage banks to lend money, particularly to the export sector.  Ethiopia reported annual consumer price inflation of 39.2% in November. According to IMF statistics Ethiopia saw inflation of 10.5% in 2010, and economic growth of 6.96%, the IMF forecasts growth to average about 8% out to 2015, and inflation 6%.  Ethiopia's currency, the Ethiopian Birr (ETB), weakened about 2% against the US dollar last year, while the USDETB exchange rate last traded around 17.29.

www.CentralBankNews.info

Monetary Policy Week in Review - 7 Jan 2012

The past week in central banking and monetary policy was relatively quiet, with just 5 central banks announcing interest rate decisions.  Those changing interest rate settings were: Romania -25bps to 5.75%, Bangladesh +50bps to 7.75%, and Cape Verde +150bps to 5.75%.  Those that held rates unchanged were Uganda at 23.00%, and Trinidad & Tobago at 3.00%.  Also making news was the signing into law of sanctions against Iran's central bank by the US, Chinese leaders commenting on the direction of monetary policy in 2012, and the ECB appointing Belgian, Peter Praet, as Chief Economist; replacing the outgoing Jurgen Stark.

Bank of Cape Verde Raises Rate 150bps to 5.75%

The Banco de Cabo Verde (Bank of Cape Verde) increased its minimum cash availability ratio (DMC) by 200 basis points to 18.00% from 16.00%, and its base interest rate by 150 basis points to 5.75% from 4.25% previously. The Standard Lending Facility rate will be 8.75% and the Absorption Standing Facility Rate will be 3.25%. The Bank said [translated]: "The unfavorable balance of payments, the persistence of serious financial problems at the international level - in particular in the euro area - which could have impact on the evolution of the economy and domestic economic developments, require the making of monetary policy measures consistent with ensuring exchange rate stability and financial system."

www.CentralBankNews.info

Central Bank of Trinidad & Tobago Keeps Rate at 3.00%

The Central Bank of Trinidad & Tobago kept its repo rate unchanged at 3.00%.  The Bank said: "While there are signs that credit demand may be increasing, the basis for a sustained economic recovery is still to be established."  The Bank also noted "The increase in the headline inflation rate was mainly attributable to higher food prices. Core inflation, which excludes the impact of food prices, has been relatively well contained for most of 2011, indicative of the overall sluggish demand conditions in the economy."

Bangladesh Bank Lifts Repo Rate 50bps to 7.75%

The Central Bank of Bangladesh increased its repurchase rate by 50 basis points to 7.75% from 7.25% previously; also lifting the reverse repo rate by the same margin to 5.75% from 5.25 percent.  The Bank also moved on Wednesday to repeal interest rate caps on bank loans, which is designed to add a further contractionary impulse to the monetary policy mix. The Bank last raised the repo rate by 50 basis points around mid 2011.  Bangladesh reported inflation of 11.58% in November, and 11.42% in October 2011.  The economy of Bangladesh expanded by 5.83 percent in the year to June 2011.  Bangladesh's currency, the Bangladeshi Taka (BDT), last traded around 82 against the US dollar.

www.CentralBankNews.info

National Bank of Romania Drops Rate 25bps to 5.75%

The Banca Nationala a Romaniei reduced its key monetary policy interest rate by 25 basis points to 5.75% from 6.00%.  The Bank said: "The recovery of the Romanian economy has continued – underpinned by favourable dynamics of exports, as well as of industrial and farming output – whereas the growing uncertainties regarding global and European growth amid a worsened global risk appetite and heightened sovereign debt crisis in the euro zone are hindering the short-term outlook for the overall economic activity in Romania."

Bank of Uganda Holds Monetary Policy Rate at 23.00%

The Bank of Uganda held its new monetary policy interest rate (the central bank rate [CBR]) unchanged at 23.00%.  The Bank also reduced by 100 basis points the rediscount rate to 27.00% and the Bank Rate to 28.00%.  Bank of Uganda Governor, Emmanuel Tumusiime-Mutebile, said: "I acknowledge the fact that the long-term solution to controlling inflation rests on addressing the structural constraints and improving productivity, but controlling inflation in the short to medium term is extremely crucial in stimulating this long-term economic growth."

Chinese Leaders Comment on 2012 Monetary Policy

Top Chinese officials have recently made public comments on the direction of monetary policy in China for 2012.  China's President, Hu Jintao, said in his New Year speech: "We will continue to properly deal with the relationship among maintaining a stable and relatively fast economic growth, adjusting economic structure and managing inflation expectations."  Meanwhile, People's Bank of China Governor, Zhou Xiaochuan said the PBOC "will continue the prudent monetary policy and maintain the continuity and stability of its policies."