- Yamaguchi: BoJ may ease monetary policy further, if needed (RTT)
- Putin says rising interest rates stoke Russia growth concerns (Bloomberg)
- RBNZ's next move is up, but when? (stuff.co.nz)
- S.Korean central bank has room for policy cut amid stable inflation (Xinhua)
- Analysis: QE gilt expiry clouds BOE MPC Feb policy statement (MNI)
- Peru raises dollar reserve requirements to damp sol rally (Bloomberg)
- (Bangladesh) monetary policy seeks to attain higher GDP growth (financial express)
- Danish housing slump is over, central bank's Callesen says (Bloomberg)
- Slowing Russian growth sets up interest rate fight (euronews)
- www.CentralBankNews.info
Thursday, January 31, 2013
Central Bank News Link List - Jan. 30, 2013: Yamaguchi: BoJ may ease monetary policy further, if needed
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.
Albania cuts rate 25 bps to historic low as inflation falls
Albania's central bank cut its benchmark refinancing rate by 25 basis points to a historic low of 3.75 percent, saying the rate reduction should help ensure that inflation meets the bank's target as inflationary pressures are low and have been declining in recent months.
The Bank of Albania, which cut rates by 75 basis points in 2012, said economic activity this year is positive and similar to 2012 but growth is expected to remain below potential and demand-side inflationary pressures are expected to remain low.
The central bank forecasts annual inflation this year between 0.8 and 3.8 percent compared with 2012's average inflation rate of 2.0 percent, following December's 2.4 percent inflation rate.
The central bank targets inflation of 3 percent, plus/minus 1 percentage point.
Albania's central bank governor, Ardian Fullani, said foreign demand had been the main driver of economic growth this year and data show this trend continuing in the fourth quarter. In the third quarter,
Albania's Gross Domestic Product rose by 2.4 percent from the second quarter for annual growth of 2.7 percent, up from 2.1 percent in the second quarter and the first quarter's contraction of 0.2 percent.
"On the other hand, domestic demand remains sluggish, due to the lack of fiscal stimulus and the performance of slow consumption and private investment," Fullani said in a speech after the central bank's council approved the semi-annual statement on January 30.
Models, supervision determine banks' risk weights - report
Investors have a hard time comparing the riskiness of the major global banks because there are differences in how each bank calculates the potential danger of their assets, according to a report by the Basel Committee on Banking Supervision.
Based on tests of how 15 major banks assign risks to a simple, hypothetical portfolio of financial instruments, the Basel Committee found differences, either due to supervisory decisions or due to the in-house models that banks use to calculate risk.
“While some variation in risk weightings should be expected, excessive variation arising from bank modelling choices is undesirable when it does not reflect actual risk-taking,” said Stefan Ingves, Chairman of the Basel Committee and governor of Sveriges Riksbank.
The Swiss-based Basel Committee, which includes banking supervisors from almost 30 countries, sets global standards and has been tightening its rules in recent years in an effort to prevent another global financial crises.
The Committee’s analysis of how banks assess the risks from financial instruments is important because the global financial crises in 2007-2009 was largely triggered by major losses on banks’ investments in housing related securities that were held in their trading books.
Malaysia holds rate, to keep policy while inflation low
Malaysia's central bank kept its benchmark Overnight Policy Rate (OPR) steady at 3.0 percent, as widely expected, saying its policy stance remains supportive of growth while inflation is contained.
Bank Negara Malaysia (BNM), which has held its policy rate unchanged since June 2011, said data showed that the domestic economy had expanded at a robust pace in the fourth quarter of 2012, driven by sustained domestic consumption and investments with some improvement in the external sector.
This year, the central bank expects domestic demand to continue to expand with private consumption supported by higher income and stable employment while investments will be led by capital spending in the domestic-oriented sectors, the oil and gas industry and infrastructure.
The global economy, which is showing signs of improvement, albeit at an uneven pace, will provide additional support to Malaysia's economy, BNM said, adding there were still downside risks to the prospect for global growth.
"The MPC considers the current stance of monetary policy to be supportive of the economy while inflation remains contained," the bank said after a meeting of its Monetary Policy Committee.
Bank Negara Malaysia (BNM), which has held its policy rate unchanged since June 2011, said data showed that the domestic economy had expanded at a robust pace in the fourth quarter of 2012, driven by sustained domestic consumption and investments with some improvement in the external sector.
This year, the central bank expects domestic demand to continue to expand with private consumption supported by higher income and stable employment while investments will be led by capital spending in the domestic-oriented sectors, the oil and gas industry and infrastructure.
The global economy, which is showing signs of improvement, albeit at an uneven pace, will provide additional support to Malaysia's economy, BNM said, adding there were still downside risks to the prospect for global growth.
"The MPC considers the current stance of monetary policy to be supportive of the economy while inflation remains contained," the bank said after a meeting of its Monetary Policy Committee.
Wednesday, January 30, 2013
New Zealand holds rate, keeping eye on inflation risks
New Zealand's central bank held its Official Cash Rate (OCT) steady at 2.5 percent, as expected, saying inflation remains subdued but it expects economic growth to strengthen during the year and it was keeping an eye on house price inflation and household credit for signs of inflation risks.
The Reserve Bank of New Zealand (RBNZ), which has held its rate steady since March 2011, said global growth was set to recover this year and financial markets were accordingly positive, which was helping the lower bank funding costs and interest rates for households and firms.
"Domestically, recent data on business confidence and construction activity suggests GDP growth is recovering from the softness seen through the middle of last year," the bank said in a statement, quoting its governor, Graeme Wheeler.
"Overall, we expect economic growth to strengthen over the coming year, reducing spare capacity and bringing inflation slowly back towards the 2 percent target midpoint," Wheeler said.
New Zealand's Gross Domestic Product expanded by 0.2 percent in the third quarter from the second for annual growth of 2.0 percent, down from 2.6 percent in the second quarter.
The Reserve Bank of New Zealand (RBNZ), which has held its rate steady since March 2011, said global growth was set to recover this year and financial markets were accordingly positive, which was helping the lower bank funding costs and interest rates for households and firms.
"Domestically, recent data on business confidence and construction activity suggests GDP growth is recovering from the softness seen through the middle of last year," the bank said in a statement, quoting its governor, Graeme Wheeler.
"Overall, we expect economic growth to strengthen over the coming year, reducing spare capacity and bringing inflation slowly back towards the 2 percent target midpoint," Wheeler said.
New Zealand's Gross Domestic Product expanded by 0.2 percent in the third quarter from the second for annual growth of 2.0 percent, down from 2.6 percent in the second quarter.
U.S. Federal Reserve holds rate, $85 bln asset purchases
The Federal Reserve held the target for its benchmark federal funds rate unchanged at 0-0.25 percent and maintained its monthly purchases of $85 billion of mortgage-backed securities and longer-term Treasury bonds, saying the expansion in U.S. economic activity had paused in recent months, mainly due to weather-related disruptions and other temporary factors.
The Federal Reserve's monetary policy committee, the Federal Open Market Committee (FOMC), also said it would continue to purchase Treasuries and housing market securities until the labor market shows substantial improvement, repeating its statement from December.
As in December, the Federal Reserve said it expects to maintain its "exceptionally low range for the federal funds rate" at least as long as the unemployment rate remains above 6.5 percent and inflation two years ahead is forecast at a maximum of 2.5 percent, half a percentage point over the Federal Reserve's 2.0 percent target.
The Federal Reserve, which has held its key rate unchanged since December 2008, surprised markets last month by linking its easy policy stance to the unemployment rate. Previously the FOMC said it would keep interest rates low to at least mid-2015.
"To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens," the FOMC said in statement after a two-day meeting.
The Federal Reserve's monetary policy committee, the Federal Open Market Committee (FOMC), also said it would continue to purchase Treasuries and housing market securities until the labor market shows substantial improvement, repeating its statement from December.
As in December, the Federal Reserve said it expects to maintain its "exceptionally low range for the federal funds rate" at least as long as the unemployment rate remains above 6.5 percent and inflation two years ahead is forecast at a maximum of 2.5 percent, half a percentage point over the Federal Reserve's 2.0 percent target.
The Federal Reserve, which has held its key rate unchanged since December 2008, surprised markets last month by linking its easy policy stance to the unemployment rate. Previously the FOMC said it would keep interest rates low to at least mid-2015.
"To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens," the FOMC said in statement after a two-day meeting.
Central Bank News Link List - Jan. 30, 2013: Rising bond yields show Bernanke QE converges with growth
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.
- Rising bond yields show Bernanke QE converges with growth (Bloomberg)
- ECB: Banks plan further tightening of credit conditions (MNI)
- NZ central bank kept up passive currency intervention (WSJ)
- Forint gains second day as central bank warns on policy tools (Bloomberg)
- Bank of Israel's Fischer says deputy possible successor (Reuters)
- (Fed) monetary policy may already be tightening (CNBC)
- Global regulator report to raise questions over bank risk (dow jones)
- ECB: Banks plan further tightening of credit conditions (MNI)
- Analysts debate meaning of (China) central bank's newest tool (Caixin)
- Economists, central bank disagree on baht measures (The Nation)
- Home loans point to boost from BoE scheme (Reuters)
- Analysis: Pall of bank "legacy assets" hangs over euro zone (Reuters)
- Interest rate hike could trigger global meltdown: Kaye (mining.com)
- www.CentralBankNews.info
Tuesday, January 29, 2013
Hungary to consider rate cuts if inflation in line with target
Hungary's central bank, which earlier today cut its base rate by another 25 basis points to 5.50 percent, said it would only consider further rate cuts if the outlook for inflation remains in line with the bank's 3 percent target and the improved sentiment in financial markets is sustained.
The National Bank of Hungary, which began cutting rates last August, said the short-term outlook for inflation had recently improved and it expects inflation to return to around the target as the impact of last year's tax rises wanes and domestic demand remains weak.
However, the bank also warned that if companies pass on higher production costs in response to government measures that affected the prices of non-core items, "it may pose an upside risk to the medium-term outlook for inflation" and it would closely monitor underlying inflation.
Since August last year, the central bank has cut rates by 150 basis points to stimulate growth and this month's guidance is largely similar to last month when it also said it would only consider further rate cuts if good financial market sentiment continues and the inflation target is achievable.
Hungary's inflation rate eased further to 5.0 percent in December from November's 5.2 percent, with lower prices of durable goods, processed foods and fuels the major factor.
The National Bank of Hungary, which began cutting rates last August, said the short-term outlook for inflation had recently improved and it expects inflation to return to around the target as the impact of last year's tax rises wanes and domestic demand remains weak.
However, the bank also warned that if companies pass on higher production costs in response to government measures that affected the prices of non-core items, "it may pose an upside risk to the medium-term outlook for inflation" and it would closely monitor underlying inflation.
Since August last year, the central bank has cut rates by 150 basis points to stimulate growth and this month's guidance is largely similar to last month when it also said it would only consider further rate cuts if good financial market sentiment continues and the inflation target is achievable.
Hungary's inflation rate eased further to 5.0 percent in December from November's 5.2 percent, with lower prices of durable goods, processed foods and fuels the major factor.
Central Bank News Link List - Jan. 29, 2013: Israel c.bank chief Fischer to step down 2 years early
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.
- Israel c.bank chief Fischer to step down 2 years early (Reuters)
- Bernanke seen buying $1.14 trillion in assets in 2014 (Bloomberg)
- Praet: ECB's tools can still relax borrowing conditions if necessary (dow jones)
- TSC to ask Carney: Can UK monetary policy framework be better? (MNI)
- Malaysia interest rates seen on hold for now as inflation mild (malaysian insider)
- (Tanzania) central bank initiates monetary policy shift (afriquejet)
- Polish central banker says zloty shouldn't weaken significantly further (dow jones)
- Central bank warns of threats to Irish recovery (Reuters)
- Insight: Irish banks at mercy of international paymasters (Reuters)
- www.CentralBankNews.info
Hungary cuts base rate another 25 bps to 5.50 pct
Hungary's central bank cut its benchmark base rate by another 25 basis points to 5.50 percent, as expected, and said it would provide details of its decision later.
The National Bank of Hungary cut its rate by 125 basis points in 2012 and said last month that it would consider further rate cuts but only if sentiment in financial markets continued to improve and there was evidence that the inflation target was achievable.
In December Hungary's inflation rate fell to 5.0 percent in December from 5.2 percent in November, still considerably above the bank's 3.0 percent inflation target.
Hungary's Gross Domestic Product contracted by 0.2 percent in the third quarter from the second quarter, the third quarterly contraction, pushing down the annual rate of shrinkage to 1.5 percent from the second quarter's 1.3 percent drop and the first quarter's 1.2 percent contraction.
The recession and high level of excess capacity is expected to keep downward pressure on inflation.
www.CentralBankNews.info
The National Bank of Hungary cut its rate by 125 basis points in 2012 and said last month that it would consider further rate cuts but only if sentiment in financial markets continued to improve and there was evidence that the inflation target was achievable.
In December Hungary's inflation rate fell to 5.0 percent in December from 5.2 percent in November, still considerably above the bank's 3.0 percent inflation target.
Hungary's Gross Domestic Product contracted by 0.2 percent in the third quarter from the second quarter, the third quarterly contraction, pushing down the annual rate of shrinkage to 1.5 percent from the second quarter's 1.3 percent drop and the first quarter's 1.2 percent contraction.
The recession and high level of excess capacity is expected to keep downward pressure on inflation.
www.CentralBankNews.info
India cuts rate, CRR on easing inflation, subdued growth
India's central bank cut its policy repo rate by 25 basis points to 7.75 percent and reduced the cash reserve ratio (CRR) for banks by the same amount to 4.0 percent, citing tight liquidity conditions, saying inflationary pressures appear to have peaked and economic activity remains subdued.
The Reserve Bank of India (RBI), which cut its benchmark repurchase rate by 50 basis points in 2012, said it was likely that inflation would remain range-bound around the current level in 2013-14 and this would allow it to focus on supporting growth. The growth forecast was revised downward.
"This provides space, albeit limited, for monetary policy to give greater emphasis to growth risks," the RBI said in its third quarter policy review, citing the bank's governor Dr. D. Subbarao.
"This policy guidance will, however, be conditioned by the evolving growth-inflation dynamic and the management of risks from the twin deficits," he added.
Financial markets had expected the RBI to cut its repo rate due to weak growth, waning inflationary pressures and the bank's statement in December that lower inflation would allow it to support growth.
The cut in the CRR should inject around 180 billion rupees into the banking system, RBI said. Other key rates, such as the reverse repo rates was cut to 6.75 percent, the marginal standing facility and the bank rate to 8.75 percent.
The Reserve Bank of India (RBI), which cut its benchmark repurchase rate by 50 basis points in 2012, said it was likely that inflation would remain range-bound around the current level in 2013-14 and this would allow it to focus on supporting growth. The growth forecast was revised downward.
"This provides space, albeit limited, for monetary policy to give greater emphasis to growth risks," the RBI said in its third quarter policy review, citing the bank's governor Dr. D. Subbarao.
"This policy guidance will, however, be conditioned by the evolving growth-inflation dynamic and the management of risks from the twin deficits," he added.
Financial markets had expected the RBI to cut its repo rate due to weak growth, waning inflationary pressures and the bank's statement in December that lower inflation would allow it to support growth.
The cut in the CRR should inject around 180 billion rupees into the banking system, RBI said. Other key rates, such as the reverse repo rates was cut to 6.75 percent, the marginal standing facility and the bank rate to 8.75 percent.
Monday, January 28, 2013
Colombia cuts rate 25 bps, economy still below potential
Colombia's central bank cut its benchmark intervention rate by a further 25 basis points to 4.0 percent, as expected, with the economy still growing below its potential and no upward pressure on inflation.
Banco de la Republic Colombia also said it would expand its purchase of foreign exchange to keep down the peso by a monthly $500 million to a minimum total of $3 billion between February and May, with daily purchases of not less than $30 million.
The central bank, which has now cut rates by five times since July for a total reduction of 125 basis points, did not give any hints about its next move, but said it would depend on new information.
Data from the fourth quarter of 2012 suggests that household spending will grow slightly slower than in the third quarter due to uncertainty over investments, especially civilian works and construction.
"In short, the Colombian economy is growing below its potential, observed and projected inflation falling below the target of 3%, and no looming upward pressure on it in the near future," the central bank said in a statement.
Banco de la Republic Colombia also said it would expand its purchase of foreign exchange to keep down the peso by a monthly $500 million to a minimum total of $3 billion between February and May, with daily purchases of not less than $30 million.
The central bank, which has now cut rates by five times since July for a total reduction of 125 basis points, did not give any hints about its next move, but said it would depend on new information.
Data from the fourth quarter of 2012 suggests that household spending will grow slightly slower than in the third quarter due to uncertainty over investments, especially civilian works and construction.
"In short, the Colombian economy is growing below its potential, observed and projected inflation falling below the target of 3%, and no looming upward pressure on it in the near future," the central bank said in a statement.
Israel holds rate, growth expectations show slight pickup
Israel's central bank kept its policy rate steady at 1.75 percent, saying inflationary expectations for the year ahead are slightly below the bank's midpoint range and indicators are pointing to a slight improvement in the expectations for economic activity.
The Bank of Israel (BOI), which cut rates by 100 basis points in 2012, said that for the first time in a long while investment houses consider the risks to the global economy to have decreased, with the risk of a worsening of Europe's debt crises down, uncertainty about the U.S. fiscal cliff receding and data from the United States and China continuing to be positive.
In contrast, data from Europe show that economic activity still hasn't reached a turning point and the recession continues, the BOI said.
Israel's inflation rate rose by more than forecast to 1.6 percent in December from November's 1.4 percent but the central bank said it was in line with the seasonal path and inflation forecasts for the next 12 months based on market expectations eased to 1.5 percent. Market expectations for the central bank's policy rate one year from now is for 1.6 percent.
"The decision to keep the interest rate for February 2013 unchanged at 1.75 percent is consistent with the Bank of Israel's interest rate policy, which is intended to entrench the inflation rate within the price stability target of 1-3 percent a year over the next twelve months, and to support growth while maintaining financial stability," the BOI said in a statement.
The Bank of Israel (BOI), which cut rates by 100 basis points in 2012, said that for the first time in a long while investment houses consider the risks to the global economy to have decreased, with the risk of a worsening of Europe's debt crises down, uncertainty about the U.S. fiscal cliff receding and data from the United States and China continuing to be positive.
In contrast, data from Europe show that economic activity still hasn't reached a turning point and the recession continues, the BOI said.
Israel's inflation rate rose by more than forecast to 1.6 percent in December from November's 1.4 percent but the central bank said it was in line with the seasonal path and inflation forecasts for the next 12 months based on market expectations eased to 1.5 percent. Market expectations for the central bank's policy rate one year from now is for 1.6 percent.
"The decision to keep the interest rate for February 2013 unchanged at 1.75 percent is consistent with the Bank of Israel's interest rate policy, which is intended to entrench the inflation rate within the price stability target of 1-3 percent a year over the next twelve months, and to support growth while maintaining financial stability," the BOI said in a statement.
Mongolia cuts rate 75 bps as inflationary pressures ease
The central bank of Mongolia cut its policy rate by 75 basis basis points to 12.5 percent due to a decline in demand-pull and supply-driving inflationary pressures but said it was cautious about easing considering uncertainties in foreign trading and foreign investments.
The Bank of Mongolia, which raised its rate by 100 basis points in April 2012, said the rate cut should help provide stable monetary and credit growth, ensure smooth functioning of the financial system and promote economic activity.
"Although macroeconomic outlook enables policy rate reduction, the MPC acknowledges cautious easing of monetary policy, considering uncertainties in foreign trade and foreign investment environment," the central bank said in a statement following a meeting of its monetary policy committee on Jan. 25.
Mongolia's inflation rate eased to 14 percent in December from 14.4 percent in November. The central bank targets inflation of less than 10.0 percent. It 2013 policy guidelines call for inflation of below 8 percent at the end of 2013 and in the range of 5-7 percent in 2014-2015.
www.CentralBankNews.info
The Bank of Mongolia, which raised its rate by 100 basis points in April 2012, said the rate cut should help provide stable monetary and credit growth, ensure smooth functioning of the financial system and promote economic activity.
"Although macroeconomic outlook enables policy rate reduction, the MPC acknowledges cautious easing of monetary policy, considering uncertainties in foreign trade and foreign investment environment," the central bank said in a statement following a meeting of its monetary policy committee on Jan. 25.
Mongolia's inflation rate eased to 14 percent in December from 14.4 percent in November. The central bank targets inflation of less than 10.0 percent. It 2013 policy guidelines call for inflation of below 8 percent at the end of 2013 and in the range of 5-7 percent in 2014-2015.
www.CentralBankNews.info
Angola cuts rate 25 bps, inflation hits lowest rate in history
Angola's central bank cut its BNA base rate by 25 basis points to 10.0 percent and said the country's inflation rate in December continued to decline and hit the "lowest rate in Angola's recent economic history."
Angola's annual inflation rate fell to 9.02 percent in December, the lowest that can be observed since January 2001, from 9.83 percent in November. The National Bank of Angola (BNA) has aimed to get inflation into single digits for many years and in August the rate fell below 10 percent for the first time ever and is continuing to decline.
The central bank, which also cut its base rate by 25 basis points last January but then kept rates steady the rest of the year, said the subindex for food and non-alcoholic beverages, miscellaneous goods and services and clothing and footwear recorded the biggest changes in December. It did not give further details.
Credit extended to the economy grew by 1.12 percent in December, for growth in 2012 of around 23 percent, continuing the trend seen in previous months, the BNA said.
The average exchange rate of the kwanza to the U.S. dollar was 95.826 at the end of December for a slight depreciation of 0.57 percent during 2012, "showing the stability of the national currency," BNA said.
www.CentralBankNews.info
Angola's annual inflation rate fell to 9.02 percent in December, the lowest that can be observed since January 2001, from 9.83 percent in November. The National Bank of Angola (BNA) has aimed to get inflation into single digits for many years and in August the rate fell below 10 percent for the first time ever and is continuing to decline.
The central bank, which also cut its base rate by 25 basis points last January but then kept rates steady the rest of the year, said the subindex for food and non-alcoholic beverages, miscellaneous goods and services and clothing and footwear recorded the biggest changes in December. It did not give further details.
Credit extended to the economy grew by 1.12 percent in December, for growth in 2012 of around 23 percent, continuing the trend seen in previous months, the BNA said.
The average exchange rate of the kwanza to the U.S. dollar was 95.826 at the end of December for a slight depreciation of 0.57 percent during 2012, "showing the stability of the national currency," BNA said.
www.CentralBankNews.info
Sunday, January 27, 2013
Central Bank News Link List - Jan. 28, 2013: Japan leader urges swift action from central bank
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.
- Japan leader urges swift action from central bank (Reuters)
- Carney says flexible central banks not 'maxed out' on policy (Bloomberg)
- Colombia central bank may cut interest rates (Reuters)
- RBI signals policy overhaul may ease interest-rate constraints (Bloomberg)
- S. Korean central bank hints at policy rate cut (Xinhua)
- Brazil real rallies as central bank intervenes to boost currency (Bloomberg)
- China central bank sees 2013 GDP up 8%:report (MarketWatch)
- Reserve Bank (of New Zeland) tipped to leave interest rates on hold (radionz)
- At Fed, nascent debate on when to slow asset buying (NYT)
- ECB's Coene says no currency war yet (Reuters)
Saturday, January 26, 2013
Monetary Policy Week in Review – Jan. 26, 2013: Pure inflation targeting crumbles further, 9 banks hold rates
The global trend toward flexible monetary policy and away from a singular focus on inflation accelerated this week as the Bank of Japan doubled its inflation target, the Bank of Canada delayed an rise in interest rates, the Bank of England governor said it was time to review the policy framework and a Riksbank board member called for a macroprudential framework that would help ensure financial stability.
Two forces are driving this change in monetary policy. Firstly, in the wake of the global financial crises, central bankers have become de facto responsible for financial stability along with price stability. Secondly, economic growth is inadequate in advanced economies despite central banks’ ultra-low interest rates and creative use of their balance sheets.
What we are now witnessing is a change to central banks’ operational framework that reflects the lessons of the global financial crises.
The 2007-2009 financial crises showed that low inflation does not prevent economic crises and may in fact contribute to the build-up of financial imbalances. If central bankers don’t pay close attention to credit and debt, which can accumulate without causing inflation, it poses a systemic risk that can destroy the livelihood of millions of people and wreck havoc on societies.
Central bankers no longer believe it makes sense to deal with the aftermath of financial crises - as former Federal Reserve Chairman Alan Greenspan suggested - because cleaning up after a crises is a complicated, costly and lengthy affair. Society is far better served if financial crises can be prevented.
Crises prevention has thus moved to the forefront of central bankers’ agenda. Financial regulation is increasingly focused on protecting the entire financial system, rather than just individual institutions, and the implementation of monetary policy must take financial stability into account, not just inflation.
Much was said in the press about the Japanese government’s pressure on the Bank of Japan to double its inflation target to 2 percent and its adoption of a Federal Reserve-style open-ended asset purchases, though first in 2014.
But little attention was paid to the fact that the BOJ never had an inflation target before – it was a goal – and the BOJ went to great lengths to stress that it was not adopting a rigid target, but rather a flexible UK-style target.
“Switching from a "goal" to a "target" reflects an increasing awareness regarding the importance of flexibility in the conduct of monetary policy in Japan,” the BOJ said, adding that monetary policy can’t just automatically react to price shocks in order to achieve a certain inflation target.
“It is not appropriate to run monetary policy mechanically aiming to achieve a certain inflation rate within a certain period of time in order to achieve sustainable growth with price stability,” the BOJ said, adding:
“Moreover, reflecting the recent experiences at home and abroad, many credit bubbles emerged under the recognition that prices were stable on a real-time basis, but they created large fluctuations in economic activity and prices after the bursting of the bubbles,” BOJ said, putting another nail in the coffin of strict inflation-targeters.
In Canada, where the Bank of Canada (BOC) two years ago first acknowledged that financial imbalances affect the inflationary target, the explicit reference to household debt in the same sentence as inflation was another reminder of the changes in the conduct of monetary policy.
In the U.K., Mervyn King, the outgoing governor of the Bank of England (BOE), said the UK’s focus on price stability remains essential but acknowledged there are times when inflation targets should be set aside due to concern over financial stability.
And with the U.K.’s inflation target almost 21 years old and coming of age, “it would be sensible to review the arrangements for setting monetary policy,” King said in Belfast.
In Sweden, Riksbank First Deputy Governor Kerstin af Jochnick said monetary policy was now taking household debt into account when setting interest rates because the financial crises had demonstrated that it poses a macro economic risk.
The reason for broadening the bank’s policy framework was simple: Sweden has no macroprudential framework to tackle household debt so by default the Riksbank has to take action.
The Riksbank's position is symptomatic of the change in central banks.
Interest rates are a blunt instrument to manage household debt, a fact that Kerstin af Jochnick readily acknowledges. In the past, this argument was used by central banks to abdicate responsibility for pricking asset price booms.
Now, however, the Riksbank steps up to the plate and says it, just like the BOE, welcomes the added responsibility of overseeing financial stability.
“It is desirable that the Riksbank should be able to use the policy rate to an even greater extent to stabilise inflation and the real economy in the future, and that more appropriate tools than the repo rate can be used to reduce the risks of financial imbalances.
“A functioning framework for macroprudential policy can improve the conditions for ensuring that the Riksbank attains its two main objectives: price stability and financial stability,” Kerstin af Jochnick said in Stockholm.
Returning to this week’s policy decisions, 10 central banks met to decide on their policy stance with only the National Bank of Denmark adjusting rates upward in response to easing pressure on the krone from euro-zone investors seeking a safe haven.
Although Turkey held its benchmark rate steady, it continued to adjust its rate corridor, cutting both the floor and ceiling rates. As with other major central banks in advanced economies with rates effectively at the zero bound, the Bank of Japan should be counted in the easing camp due to further quantitative easing measures.
Through the first four weeks of 2013, 28 central banks have decided on monetary policy with 24, or 86 percent, keeping rates steady, two cutting rates and two raising rates.
LAST WEEK’S
(WEEK 4) MONETARY POLICY DECISIONS:
| COUNTRY | MSCI | NEW RATE | OLD RATE | 1 YEAR AGO |
| JAPAN | DM | 0.10% | 0.10% | 0.10% |
| TURKEY | EM | 5.50% | 5.50% | 5.75% |
| NIGERIA | FM | 12.00% | 12.00% | 12.00% |
| MALAWI | 25.00% | 25.00% | 13.00% | |
| CANADA | DM | 1.00% | 1.00% | 1.00% |
| PHILIPPINES | EM | 3.50% | 3.50% | 4.25% |
| SOUTH AFRICA | EM | 5.00% | 5.00% | 5.50% |
| LATVIA | 2.50% | 2.50% | 3.50% | |
| DENMARK | DM | 0.30% | 0.20% | 0.70% |
| TRINIDAD & TOBAGO | 2.75% | 2.75% | 3.00% |
Next week (week 5) eight central banks will be deciding on monetary policy, including Israel, Colombia, India, Hungary, the United States, Malaysia and New Zealand. Angola’s central bank will issue its decision on Monday as the bank’s policy committee did not finish its deliberations last week.
| COUNTRY | MSCI | MEETING | RATE | 1 YEAR AGO |
| ANGOLA | 28-Jan | 10.25% | 10.25% | |
| ISRAEL | DM | 28-Jan | 1.75% | 2.75% |
| COLOMBIA | EM | 28-Jan | 4.25% | 5.00% |
| INDIA | EM | 29-Jan | 8.00% | 8.50% |
| HUNGARY | EM | 29-Jan | 5.75% | 7.00% |
| UNITED STATES | DM | 30-Jan | 0.25% | 0.25% |
| MALAYSIA | EM | 31-Jan | 3.00% | 3.00% |
| NEW ZEALAND | DM | 31-Jan | 2.50% | 2.50% |
Subscribe to:
Comments (Atom)