Monetary Policy Week in Review – Sept. 29, 2012: Global growth still weak, fresh concern over hot money

    The past week in monetary policy saw interest rate decisions by 12 central banks around the world, with three banks (Hungary, the Czech Republic and Trinidad &Tobago) cutting rates, one bank (Uruguay) raising rates, and the remaining 8 (Israel, Georgia, Romania, Mauritius, Sierra Leone, Colombia, Albania and the Dominican Republic) keeping rates unchanged.

    The interest rate cuts were in response to continued weakness in the global economy with Hungary holding out the prospect of further cuts if inflation, which is already above the bank’s target, remains moderate.

    Although Israel and Mauritius kept rates unchanged, both banks cut growth forecasts.

    As last week, the impact on emerging economies from very low interest rates in the United States - flagged to remain close to zero to mid-2015 - is causing concern.

    While the Dominican Republic noted a growing flow of capital to emerging markets, Uruguay took action and raised rates to dampen inflationary expectations before they threaten growth prospects.

    LAST WEEK'S MONETARY POLICY DECISIONS:

COUNTRY	NEW RATE	PREVIOUS RATE	RATE 1 YEAR AGO
ISRAEL	2.25%	2.25%	3.00%
HUNGARY	6.50%	6.75%	6.00%
GEORGIA	5.75%	5.75%	7.50%
ROMANIA	5.25%	5.25%	6.35%
CZECH REPUBLIC	0.25%	0.50%	0.75%
MAURITIUS	4.90%	4.90%	5.50%
SIERRA LEONE	20.00%	20.00%	23.00%
COLOMBIA	4.75%	4.75%	4.50%
TRINIDAD & TOBAGO	2.75%	3.00%	3.00%
ALBANIA	4.00%	4.00%	5.25%
DOMINICAN REPUBLIC	5.00%	5.00%	6.75%
URUGUAY	9.00%	8.75%	8.00%

    NEXT WEEK: The central bank calendar next week calls for 7 central bank meetings: Australia, Poland, Iceland, the European Central Bank (ECB), the United Kingdom, Japan and Pakistan.

    Australia and Poland may reduce rates while the ECB and the Bank of England are not expected to change policy. Iceland should raise rates, according to the IMF, while the Bank of Japan is under pressure to weaken the yen. Pakistan is expected to keep rates steady.

COUNTRY	MEETING DATE	CURRENT RATE	RATE 1 YEAR AGO
AUSTRALIA	2-Oct	3.50%	4.75%
POLAND	3-Oct	4.75%	4.75%
ICELAND	3-Oct	5.75%	4.50%
EURO AREA (ECB)	4-Oct	0.75%	1.50%
UNITED KINGDOM	4-Oct	0.50%	0.50%
JAPAN	5-Oct	0.10%	0.10%
PAKISTAN	5-Oct	10.50%	13.50%

 www.CentralBankNews.info

Uruguay raises rate 25 bps, worried over inflation threat

    The central bank of Uruguay raised its monetary policy rate by 25 basis points to 9.00 percent, concerned that actual inflation and inflationary expectations were well above the bank's target range.
    The uncertain global economy and worrying economic and financial situation in several European countries implies that international interest rates will remain extremely low for a considerable period, Banco Central del Uruguay (BCU) said in a statement following a meeting of its Monetary Policy Committee.
    Investors will therefore continue to move towards reserve currencies for safe haven and also seek  profit by investing in the securities of emerging markets. Commodity prices have also risen recently but the recent slowdown in the economic growth of emerging markets cannot offset the inflationary pressures of higher food, minerals and energy prices, the bank added.
    At the same time, the bank said Uruguay's economy continues to grow at reasonable rates, especially considering the international slowdown, and it is "necessary to avoid a situation in which inflation threatens an otherwise healthy economy."

Colombia keeps rate steady, continues to buy FX

    The central bank of Colombia kept its benchmark intervention rate unchanged at 4.75 percent, as expected by most economists, saying domestic demand was stronger-than-expected in the second quarter and inflation was close to the midpoint of the bank's target range.
    Banco de la Republica Colombia also said it would buy a total of foreign currency worth $3 billion through daily auctions of at least $20 million between Oct. 1 and March, 29, 2013.
    "According to the evaluation of the current balance of risks, the Board considered it appropriate to maintain the interest rate at 4.75% intervention," the central bank said in a statement.
    The central bank raised its policy rate in January and February by a total of 50 basis points, but then cut in July and August, leaving rates at the end-2011 level.
    Colombia's economy expanded by 1.6 percent in the second quarter for an annual increase of 4.9 percent, exceeding the range estimated by the central bank's technical team, as domestic demand grew a higher-than-expected 6.4 percent.
    Growth in the third quarter is likely to be lower than in the second quarter, but "for all of 2012, it is likely that economic growth is higher than the midpoint of the estimated range (between 3 and 5 percent)," the bank said.

Central Bank News Link List - Sept 28, 2012: China underestimated global slowdown, key to rates

Here's today's Central Bank News link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don't miss any important news.

• China underestimated global slowdown, key to rates-c.bank adviser (Reuters)
• FSA to oversee Libor in streamlining of tarnished rates (Bloomberg)
• Beijing, Seoul blast Fed push (WSJ)
• ECB, BoE to ease policy by year end, but not in October - Reuters poll (Reuters)
• Mexico's worsening inflation outlook worrisome-cenbanker (Reuters)
• Poland keeps inflation target at 2.5%, allows FX interventions (MNI)
• Poland seen cutting rates next Weds as slowdown deepens - poll (Reuters)
  

Dominican Republic holds rate, eyes economic rebound

    The Central Bank of the Dominican Republic kept its monetary policy rate unchanged at 5.0 percent as domestic demand remains below its long-term trend, but the bank expects a rebound in private credit and economic activity as market interest rates decline following two interest rate cuts earlier this year.
    The central bank cut rates in June and August for a total reduction of 125 basis points and the bank said this easing, along with a reorganization of public finances and a new agreement with the International Monetary Fund (IMF), "would help improve the macro economic conditions in the coming quarters."
    The central bank said in a statement that the decision to keep the rate steady also took into account the latest projections that call for inflation to fall below the lower limit of the bank's 2012 target, but within the bank's 2013 target range of 5.0 percent plus/minus one percentage point. The bank has a 5.5 percent inflation target for 2012, also with a 1.0 percentage point range.

Czech central bank cuts repo rate 25 bps to 0.25%

    The central bank of the Czech Republic cut its benchmark two-week repo rate by 25 basis points to 0.25 percent, a move that had been expected by economists.
    The rate cut by the board of the Czech National Bank (CNB) follows a similar 25-basis-point cut in June, bringing this year's rate reduction to 50 basis points.
    The CNB also cut its Lombard rate by 75 basis points to 0.75 percent, while the discount rate was cut by 15 points to 0.10 percent. The new rates take effect on October 1.
    The Czech economy has been contracting for the last four quarters, leading economists to expect that the CNB would either cut rates further or undertake some form of quantitative easing.
    In the second quarter, the Czech Gross Domestic Product fell by 0.20 percent, after a 0.8 percent contraction of the first quarter. The annual shrinkage of the GDP was 1.0 percent in the second quarter.
    Inflation in August rose to 3.30 percent, up from 3.10 percent in July. The CNB targets inflation of 2.0 percent.

    www.CentralBankNews.info

Romania holds policy rate steady at 5.25%

    The central bank of Romania held its monetary policy rate unchanged at 5.25 percent, as expected by economists, and said it would also ensure adequate liquidity in the banking system and maintain existing levels of minimum reserve requirements.
    The National Bank of Romania said  details about its decision would be presented later today.
    Romania's central bank cut its policy rate in February and March for a total reduction this year of 50 basis points.
    Romania's Gross Domestic Product expanded by 0.50 percent in the second quarter for an annual growth rate of 1.7 percent, up from 0.30 percent.
    The inflation rate in August rose to 3.9 percent , up from 3.0 percent, due to the higher cost of food from drought . The central bank targets annual inflation of 2-4 percent.
     www.CentralBankNews.info

Albania keeps key interest rate unchanged at 4%

    The central bank of Albania kept its benchmark refinancing rate unchanged at 4.0 percent, saying monetary conditions were appropriate to ensure that it would meet its inflation target and still provide enough stimulus to support domestic demand and growth.
    The Bank of Albania said foreign demand had supported economic growth in the second quarter with increased exports and lower imports and data show that this positive momentum continued in July.
    But domestic demand and economic growth remains below potential, which is reflected in slow growth in production costs and well-anchored inflation expectations.  The central bank expects these factors to continue to determine inflation in the future.
    "Economic activity in the country is expected to remain low... as a result, inflationary pressures remain low and under control," the Bank of Albania said in a statement after a meeting of its Supervisory Council on Sept. 26.
    The bank said inflation in August rose 0.1 percent to an annual rate of 2.8 percent. The central bank targets inflation of 3.0 percent.
    The Bank of Albania has cut its rates three times this year, for a total cut of 75 basis points.

    www.CentralBankNews.info
   

Central Bank News Link List - Sept 27, 2012: Chicago Fed president defends central bank moves

Here's today's Central Bank News link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don't miss any important news.

• Chicago Fed president defends central bank moves (AP)
• Euro zone split over how to interpret debt deal (Reuters)
• BOJ's Sato says ready to ease policy again (Reuters)
• Russia central bank said to lift inflation target (Market Watch)
• Romania may leave interest rate steady for fourth meeting on CPI (Bloomberg)
• Peru central banker sees steady growth through 2014 (Reuters)
• Indonesia's robust demand to lift inflation rate, OECD says (Bloomberg)
• Ghana working on reducing interest rates - Mahama (citifmonline)
• Central bank pledges no baht intervention unless necessary (Bangkok Post)
• www.CentralBankNews.info

Georgia holds rate, inflation expected to reach target

    The National Bank of Georgia kept its main policy rate, the refinancing rate, unchanged at 5.75 percent as inflation is expected to reach the bank's target in the medium term and the economy's output gap is insignificant.
    Georgia's central bank said Gross Domestic Product growth in the second quarter was 8.2 percent, which the bank described as "quite high."
    The central bank has cut its policy rate four times this year for a total reduction of 100 basis points.
    Inflation in Georgian fell to an annual rate of minus 0.4 percent in August for an annual average of 0.1 percent, significantly below the bank's target of 6.0 percent.
    "According to existing forecasts in the coming months inflation will start to moderate and growth will approach its target value in the second half of the next year," the central bank said in a statement.
    Georgia's inflation rate fell to 2.0 percent in 2011 from 11.2 percent in 2010.
    It said credit growth had decelerated in the past two months, which is typical ahead of elections, but credit activity is expected to increase in coming months given high liquidity in the banking sector.
   
     www.CentralBankNews.info

Central Bank News Link List - Sept 26, 2012: Low rates may lead to risky behavior, IMF says

Here's today's Central Bank News link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don't miss any important news.

• Low interest rates may lead to risky behavior, IMF says (Bloomberg)
• British banks step back from Libor role (WSJ)
• Swiss central bank disputes S&P on bond holdings (Dow Jones)
• Plosser/Media Q&A: Fed raising risks with additl accomodation (MNI)
• Manojit Saha: RBI may hold rate in Oct policy (Business Standard)
• European Central Bank's Draghi defends bond-buying plan to Germans (Daily Telegraph)
• BOJ board member suggests riskier-asset buys (MNI)
• Australia's biggest banks split over RBA's Oct. 2 rate move (Bloomberg)
• Bank of Canada says strong C$ a drag on economy (Reuters)
• www.CentralBankNews.info

Central Bank News Link List - Sept 25, 2012: G20 deputies say central bank fix not enough for ailing economy

Here's today's Central Bank News link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don't miss any important news.

• G20 deputies say central bank fix not enough for ailing economy (Reuters)
• ECB, Bundesbank checking legality of bond-buying programme-paper (Reuters)
• Plosser says QE3 risks Fed credibility, won't boost jobs (Bloomberg)
• China's central bank injects record funds to ease crunch (Bloomberg)
• China's economy, inflation trend stable: central bank (Reuters)
• Analysts expect Czech central bank to cut rates by quarter (Prague Daily Monitor)
• Ex-Bundesbank head Weber warns c.banks could be creating asset bubbles (Fin Review)
• Colombia finmin wants to study lowering cenbank interest rate (Reuters)
• www.CentralBankNews.info

Hungary cuts rate, will consider further cuts if inflation low

     The central bank of Hungary cut its base rate by 25 basis points for the second month in a row, citing a weak economy and an expected easing in inflation, and held out the prospect of further rate cuts as long as improved conditions on financial markets persist and inflation remains under control.
    Magyar Nemzeti Bank said the bank base rate would be cut to 6.50 percent,while the rate on overnight deposits was cut by 100 basis points to 5.50 percent and the rate on overnight collateralised loans by 100 basis points to 7.50 percent.
    "Overall, expected developments in inflation and financial markets as well as persistently weak demand warrant an easing of current monetary conditions," the bank said after a meeting of its Monetary Council.
   "The Council will consider a further reduction in interest rates if the improvement in financial market sentiment persists and medium-term upside risk to inflation remain moderate," it added.
    Hungary's central bank surprised markets last month by cutting its rate by 25 basis points and some economists had expected the central bank to follow-up with another rate cut this month.

Joint Forum wants lead supervisor of conglomerates

     Countries should pick a supervisor with overall responsibility for an entire financial conglomerate to prevent any supervisory blind spots and coordinate and monitor all  risks, according to a final report on "Principles for the Supervision of Financial Conglomerates" by the Joint Forum.
    The global financial crises highlighted the glaring shortcomings of the supervision of financial conglomerates with their myriad of regulated and unregulated units that span national and industry boundaries. Deciding which supervisory body was responsible for which unit was not always clear.
    In response to the crises, the Joint Forum - set up in 1996 to include banking, insurance and securities regulators - published an initial framework in 1999 for how to avoid such supervisory gaps.
    These principles have now been updated to reflect progress made by the Joint Forum's parent committees: the Basel Committee on Banking Supervision, the International Organization of Securities Commissions (IOSCO) and the International Association of Insurance Supervisors (IAIS).

Israel holds rate steady, revises up 2012 growth forecast

    The Bank of Israel (BOI) held its policy interest rate steady at 2.25 percent and revised upwards its 2012 growth forecast but cut its 2013 forecast due to the fallout from Europe's economic contraction.
    The Israeli central bank now expects the 2012 Gross Domestic Product to expand by 3.3 percent, up from a June forecast of 3.1 percent.  The bank's upward revision follows that of Israel's Central Bureau of Statistics, which revised upwards it forecast for 2012 growth to 3.5 percent after 4.6 percent in 2011.
    But the forecast for 2013 growth was revised down to 3.0 percent, from 3.4 percent previously, due to the impact of Europe's slowdown.
     The forecast also looks for the central bank to keep interest rates steady until the end of 2013 and the inflation rate to accelerate over the next year due to higher indirect taxes, higher commodity prices and the past deprecation of the shekel. The inflation rate of the next four quarters until the end of the third quarter 2013 is expected to be 2.6 percent, the bank said.
    Inflation in August rose to a higher-than-expected 1.90 percent from 1.35 percent in July, but the bank said this was due to supply side factors. Inflation expectations, however, remained stable.
    The Bank of Israel has cut its interest rate by 50 basis points so far this year, most recently in June.

Mauritius keeps rate steady, cuts growth forecast

    The central bank of Mauritius kept its key repurchase rate steady at 4.90 percent, as expected by most economists, and cut its growth forecast amid increasing inflationary pressures.
    The Bank of Mauritius, which cut is repo rate by 50 basis points in March, said it now projects economic growth of 3.3 percent for 2012, down from a previous forecast of 3.8 percent. Mauritius' Gross Domestic Product rose a real 4.1 percent in 2011, the same rate as in 2010.
    Despite recent measures announced by the European Central Bank and the U.S. Federal Reserve, the central bank said there were significant risks of "prolonged sub-par growth in the main export markets."
    "Considerable uncertainty remains with regard to the domestic economic outlook," the bank said in a statement following a meeting of its Monetary Policy Committee.
    It said that upside risks to domestic inflation had risen, partly due to higher global food and energy prices. In August, annual inflation in Mauritius was steady at 3.7 percent, with the annual average down to 4.6 percent from 4.9 percent in July.

Central Bank News Link List - Sept 24, 2012: BOJ ready to act boldly to support economy - Yamaguchi

Here's today's Central Bank News link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don't miss any important news.

• BOJ ready to act boldly to support economy - Yamaguchi (Reuters)
• BOJ minutes: may need to up inflation expectations via FX - one member (Reuters)
• Zloty weakens as Polish central banker Gilowska in hospital (Bloomberg)
• MAS may relax monetary policy due to declining inflation: analysts (channelnewsasia)
• Euro zone to boost bailout fund firepower to 2 trilion euros: report (Reuters)
• Central bank of Russia's rate hike a mistake, says Merrill Lynch (Investment Europe)
• Shekel weaker against dollar as interest rate decision awaited (Globes)
• Mauritius may keep benchmark rate unchanged (Bloomberg)
• IMF to boster financial oversight, but won't become global policy arbiter (WSJ)
• Coeure says not clear that further ECB interest-rate cut needed (Bloomberg)
• Thailand braces for QE3-induced inflation (Bangkok Post)
• Time for Bank of Canada to stop talking up rates? (Financial Post)
• Question mark again hangs over long-term Brazil rates policy (WSJ)
• Sri Lanka to review its tight monetary and credit policies toward year-end (Colombo Page)
• Under Ben Bernanke, a more open and forceful Federal Reserve (Washington Post)
• Alan Bollard: Steady steering through a crises (The New Zealand Herald)
• www.CentralBankNews.info