Central Bank News suspends production

     Dear Readers
     After reporting on global monetary policy for a decade, it's time for a change. Effective immediately, Central Bank News is suspending publication. 

      

     I will no longer be updating the Central Bank News website with monetary policy decisions or updating tables with changes to interest rates, inflation targets, reserve requirements, the names of governors or calendars.

     It has been a privilege to report on the evolution of monetary policy and publish Central Bank News, and it has always been exciting to hear from readers from every corner of the world.

     My goal in publishing Central Bank News was to provide accurate, comprehensive and timely information about monetary policy for the benefit of my readers. It is my sincere hope I have come close to meeting this goal.

     Anyone interested in further information, can contact me via email at centralbanknews@yahoo.com.

       

     Sincerely,
     Your publisher
      

     Peter Nielsen

Central banks speed up policy tightening week 5, 2022

      The tightening of global monetary policy picked up speed last week as another nine central banks - from Asia through Europe, Africa and then to the Americas - raised interest rates to dampen buoyant demand and prevent rising inflation from boosting inflation expectations further.

      In the first five weeks of 2022, central banks from 51 countries have examined their monetary policy stance, with more than half of those - 27 to be exact - concluding their policy was too loose, with 24 of those banks then raising interest rates.

      Last week alone, nine central banks - Kyrgyzstan, Dominican Republic, Australia, Armenia, Lesotho, Brazil, United Kingdom, the European Central Bank and the Czech Republic - tightened their monetary policy stance by either raising interest rates or stopping the injection of liquidity into financial markets by scrapping further purchases of government bonds.

      In comparison, only three central banks have raised interest rates this year, resulting in a net tightening of global monetary policy by 24 central banks so far this year compared with a net tightening in the entire year of 2021 by 23 central banks.

     The tightening of global monetary policy, which began in earnest in October 2021, comes after 256 rate cuts by 93 central banks in 2020 and 17 rate cuts by 12 central banks in 2021.

     Decisions by central banks aimed at tightening monetary policy - which includes rate hikes along with reduced asset purchases - account for 91 percent of all changes to monetary policy year-to-date, up from 88 percent in the previous week and up from 87 percent in 2021

Czech raises rate 6th time but signals it may pause

      The central bank for the Czech Republic raised its interest rates for the sixth time to push inflation down to its target and anchor firms' and households' inflation expectations, but signaled it may now take a pause in tightening by saying "future monetary policy steps will depend on incoming new information and future forecasts."
      The Czech National Bank (CNB) raised its benchmark 2-week repurchase rate by a further 75 basis points to 4.50 percent and has now raised the rate a total of 4.25 percentage points since it began tightening its policy stance in June 2021 and followed this up with rate hikes in August, September, November, December and today.
      The CNB also raised its discount rate by the same amount, putting it at 3.50 percent and its Lombard lending rate at 5.50 percent.

      The bank's board was split in its decision, with five members voting for the rate hike while two members voted to leave rates unchanged.

      Today's rate hike was expected and comes after CNB in December said it was ready to continue increasing interest rates to maintain price stability as risks were "markedly" inflationary.

       However, in its statement today, the bank's board omitted any reference to being ready to continue raising rates and said the balance of risks were now "moderately inflationary."

      Inflation in the Czech Republic rose for the sixth straight month to 6.6 percent in December - more than three times CNB's target of 2.0 percent, and the highest rate since September 2008.

      "The Czech National Bank is thus continuing to respond to the combination of strong price pressures from the domestic and foreign economies, which are gradually passing through to domestic inflation," CNB said, boosting its forecast for inflation this year to 8.5 percent from a previous 5.6 percent.

      "Headline inflation will rise significantly further at the start of this year and exceed 9%, with all its components contributing to the increase," CNB said.

       But after peaking during the first half of this year, inflation is expected to fall gradually and approach the target in the first half of 2023 as production costs slow and the impact of a higher koruna and tighter monetary policy slows domestic demand.

      The Czech economy is expected to continue to recover from the pandemic, driven by household consumption, and CNB forecast growth this year of 3.0 percent, slightly down from its previous forecast of 3.5 percent, but similar to estimated 2021 growth of 3.1 percent.

      "Next year, economic growth will accelerate slightly," CNB said, forecasting growth of 3.4 percent.

       The last time CNB's benchmark interest rate was at 4.50 percent was in January 2002 when the CNB was in the midst of an easing cycle that began in July 1997 when it began cutting the rate from 18.20 percent and continued cutting until August 2003 when the rate hit 2.0 percent.

       Between then and the European sovereign debt crises, the interest rate fluctuated between a high of 3.75 percent and 0.75 percent before the CNB in November 2012 slashed the rate to 0.05 percent. 
       The rate remained at this rock-bottom level until the economy finally recovered and the rate could be raised in August 2017, four months after CNB also ended its exchange rate commitment.

ECB confirms it will end pandemic asset purchases

     The European Central Bank (ECB) kept its main interest rates on hold and confirmed it was ending asset purchases under its pandemic emergency purchase program (PEPP) at the end of March as the economy continues to recover and inflation is likely to remain higher than previously expected.
     The ECB, the central bank for the 19 countries that share the euro currency, left its benchmark refinancing rate at 0.0 percent, the marginal lending rate at 0.25 percent and the deposit rate at minus 0.50 percent, and reiterated it expects to maintain these rates until inflation stabilizes at its target of 2.0 percent over the medium term.

      "This may also imply a transitory period in which inflation is moderately above the target," said the ECB's governing council, confirming its decision in December to end its PEPP asset purchase program - which was created in March 2020 and ultimately reached a size of 1.85 trillion euros - next month.

      To cushion the impact on financial markets from ending the bond purchases, the ECB will continue to reinvest principal payments from maturing PEPP securities until at least the end of 2024 and boost its monthly asset purchases under its Asset Purchase Program (APP) from 2015 to 40 billion euros in the second quarter and then reduce it to 30 billion in the third quarter.

      By October the ECB will then lower its monthly purchase of assets to the previous monthly pace of 20 billion euros and confirmed this will continue "for as long as necessary to reinforce the accommodative impact of its policy rates."

      "The Governing Council expects net purchases to end shortly before it starts raising the key ECB interest rates," the ECB said, confirming earlier guidance.

      The ECB's marginal tightening of its policy stance comes against a backdrop of a steady improvement in the economy although growth is likely to remain subdued in the first quarter as the current Omicron wave of the COVID-19 pandemic weighs on activity at the same time shortages of materials, equipment and labour holds back output in some industries.

      However, ECB President Christine Lagarde also told a news conference the economy is affected less and less by each wave of the pandemic and the factors restraining production and consumption should gradually ease, allowing the economy to pick up speed during the year.

      In the fourth quarter of last year the gross domestic product of the euro area grew 4.6 percent year-on-year for 2021 growth of a record 5.2 percent after shrinking 6.4 percent in 2020.

      Inflation in December rose to a 2021-high of 5.1 percent, pushed up by energy prices, and the ECB expects inflation to remain high in the near term before declining during the year.

      But Lagarde also said the risks to the inflation outlook were tilted to the upside, particularly in the near term, and the pace at which supply bottlenecks are resolved remains a risk to the outlook for both economic growth and inflation.

     "We continue to see the risks to the economic outlook as broadly balanced over the medium term," Lagarde said, adding the economy could be stronger if households become more confident.

      "By contrast, although uncertainties related to the pandemic have abated somewhat, geopolitical tensions have increased," she said, a clear reference to the tensions over Russia and Ukraine.

BOE raises rate 2nd time, sees more hikes, ends QE

      The Bank of England (BOE), the central bank for the United Kingdom, raised its main interest rate for the second time and will start reducing its stock of government and corporate bonds to tighten its monetary policy stance further as the economy is expected to bounce back quickly after a soft spell and inflation continues to rise in coming months.
       BOE raised its bank rate by another 25 basis points to 0.50 percent and has now raised it by a total of 50 points after raising the rate by the same amount in December last year as it seeks to curb rising inflation from persistent cost and price pressures in a tight labor market.
      BOE has now unwound most of the 60 basis points cut in the bank rate in March 2020 - at the height of the COVID-19 pandemic when the rate was slashed to a rock-bottom 0.10 percent from 0.75 percent -and forecast rates will continue to rise to around 1.50 percent by mid-2023.

      The bank's monetary policy committee was split in its decision, with a majority of five members voting for the 25 basis point rate hike while four members voted to raise the rate by 50 points. 

      However, all nine members of the committee agreed it was time to reduce the bank's stock of UK government and corporate bonds by ceasing to reinvest maturing assets.

      In addition to cutting rates in 2020, BOE also expanded it purchases of assets - known as quantitative easing - to ensure interest rates remained low and economic activity was stimulated, with the central bank's total stock of assets purchased eventually reaching 895 billion pounds.

      But with the UK and global economies recovering rapidly, central banks and governments worldwide are now unwinding the massive amount of stimulus injected in 2020 and 2021 to avoid economies from overeating and high inflation from becoming persistent.

     "The MPC (monetary policy committee) judges that, if the economy develops broadly in line with the February Report central projections, some further modest tightening in monetary policy is likely to be appropriate in the coming months," BOE said, adding the extent of tightening will depend on the prospects for inflation.

      Initially, BOE will begin the process of reducing its stock of 20 billion pounds of sterling denominated non-financial investment-grade corporate bonds by first stopping reinvesting maturing bonds and then begin selling them all by the end of 2023.

      The central bank said it would first consider selling its 875 billion pound stock of UK government bonds once the bank rate was raised to at least 1.0 percent.

      As many other counties, economic activity in the UK slowed in December and January in response to the Omicron variant, but  BOE said the economic impact was likely to be limited and of short duration, with economic output returning to its pre-pandemic level again by the end of the first quarter.

      In its latest monetary policy report, BOE lowered its forecast for economic growth in the first quarter of 2022 to 7.8 percent from an earlier 9.5 percent and cut the forecast for growth in the first quarter of 2023 to 1.8 percent from 2.1 percent.

      In the third quarter of last year, UK gross domestic product grew 6.8 percent year-on-year, down from 24.2 percent in the second quarter.

      "Beyond the near term, UK GDP growth is expected to slow to subdued rate," BOE said, pointing to the impact of higher global energy and goods prices on income and spending.

      Growth in the first quarter of 2024 is seen at 1.1 percent and 0.9 percent in first quarter of 2025.

      Inflation, however, is more than twice the BOE's target of 2.0 percent and hit 5.4 percent in December, almost 1 percentage point higher the bank forecast in November.

      BOE expects inflation to rise further in coming months to close to 6.0 percent in February and March before peaking around 7.25 percent in April, around 2 percentage points higher than earlier forecast, due to the higher costs of global energy and goods.

       BOE raised its forecasts for headline inflation of 5.2 percent in the first quarter of 2023, up from an earlier 3.3 percent, but expects wage growth and global bottlenecks to ease over time, with inflation declining to 2.1 percent in the first quarter of 2024 and then to 1.6 percent in 2025 first quarter.

      Based on forward market rates, BOE forecast the bank rate rising to 1.3 percent by the first quarter of 2023 - up from its previous forecast of 1.0 percent - then 1.4 percent in the first quarter of 2024 before easing to 1.3 percent in the first quarter of 2025.

Brazil raises rate 8th time, to slow pace of tightening

      Brazil's central bank raised its main interest rate for the 8th time and while it said it will persist in tightening monetary policy until inflation decelerates and inflation expectations anchor around its target, it also said it would reduce the size of rate increases in future policy decisions.
     The Central Bank of Brazil (CBC) raised its Selic interest rate by another 1.50 percentage points to 10.75 percent and has now raised it 8.75 percentage points since it began raising the rate in March last year and followed this up with rate hikes in May, June, August, September, October, December and today.

      After raising its rate by by 75 basis points each in its first three rate hikes, CBC accelerated the pace of tightening by raising the rate by 100 points in August and September last year before it then raised the rate by 150 points in October, December and then today.

      The central bank's policy-making committee, Copom was again unanimous in its decision.

     "The Committee considers that, given the increase in its inflation projections and in the risk of a de-anchoring of long-term expectations, it is appropriate to advance the process of monetary tightening significantly into the restrictive territory," CBC said.

     However, Copom also said the cumulative impact of past rate hikes was expected to begin to manifest themselves and " for its next steps, the Committee foresees as adequate, at this moment, a reduction in the pace of adjustment of the interest rate."

      Brazil's inflation rate decelerated to 10.06 percent in December from a 18-year high of 10.74 percent in November and CBC said various measures of underlying inflation remain above the range that is compatible with meeting the inflation target of 3.75 percent, plus/minus 1.5 percentage points.

      Based on interest rate expectations in the bank's Focus survey, Copom expects inflation of 5.4 percent for 2022 and 3.2 percent for 2023, under the assumption the Selic rate rises to 12 percent in the first half of 2022 before ending the year at 11.75 percent.

     In 2023 Selic is expected to decline to 8.0 percent.

Georgia holds rate after 4 hikes, retains tightening bias

     Georgia's central bank left its benchmark interest rate steady after raising it four times but said it would "keep a tightening bias until the risks of rising inflation expectations are sufficiently mitigated" as the risks remain high, both risks from geopolitical tensions as well as faster-than-expected tightening of global financial conditions.
     The National Bank of Georgia (NBG) kept its refinancing rate at 10.50 percent after raising it 2.50 percentage points from March through December last year, leading to a tight monetary policy stance which NBG said it would maintain to ensure high inflation doesn't raise long-term inflation expectations.

     Georgia's inflation rate rose to 2021-high of 13.9 percent in December from 12.5 percent in November but the central bank said the main driver of the increase in those two months was the base effect of subsidies on utility bills in 2020 and this will impact will persistence in January and February this year.

      NBG said it expects inflation to start to decline gradually from this spring and approach the bank's target of 3.0 percent by the end of the year, with the tighter monetary policy, along with the fading of one-factors and fiscal consolidation, contributing to this easing of inflation.

Armenia raises rate 8th time on upward inflation risks

     Armenia's central bank raised its benchmark interest rate for the 8th time, saying the risks of inflation deviating from its projected trajectory are mainly upwards and if these risks materialize, it would respond "accordingly and ensure the goal of price stability."
    The Central Bank of Armenia (CBA) raised its refinancing rate by a further 25 basis points to 8.0 percent and has now raised it a total of 3.75 percentage points since it began tightening in December 2020 and followed this up with rate hikes in February, May, June, August, September and December last year and today.
    CBA said the latest wave of the COVID-19 pandemic was spreading "rapidly," but its impact on the economy is assessed as weak."
     Inflation in Armenia fell to 7.7 percent in December from a 2021-high of 9.6 percent in November but due to rising energy prices and disruptions to supply chains in international commodity and food markets, CBA said there is a persistent high inflationary environment, which is leading central banks in partner countries to tighten monetary conditions faster than expected.
     "As a result, the external sector will continue to have an inflationary impact on the Armenian economy," CBA said, adding it considered it appropriate to raise the interest rate further so inflation gradually declines toward the target level of 4.0 percent.

     www.CentralBankNews.info

    

Lesotho raises rate 2nd time but cuts growth outlook

       Lesotho's central bank raised its main interest rate for the second time, saying this is to "ensure that the domestic costs of funds remains aligned with the rest of the region."
      The Central Bank of Lesotho (CBL) raised its CBL rate by another 25 basis points to 4.0 percent and has now raised it 50 points following the first rate hike in 3 years in November 2021 and today.
     CLB also revised upwards its target floor for Net International Reserves to US$$790 million from $760 million to maintain the exchange rate peg of Lesotho's loti with the South African rand.
     CBL's rate hike comes after the South African Reserve Bank (SARB) also raised its rate by 25 basis points on Jan. 27, SARB's second rate hike after a first hike in November last year.
     CBL's objective of price stability is achieved by ensuring the peg between the loti and the rand, known as an exchange rate targeting monetary policy framework.  CBL maintains enough foreign currency reserves to guarantee every loti issued.

      The monetary tightening comes as CBL revised downwards its forecast for domestic economic growth by an average of 0.2 percent points for the medium term, saying "risks to the domestic economic outlook included an unpredictable path of COVID-19 pandemic and uncertain fiscal outlook."

Dominican Rep. raises rate 3rd time as it normalizes

     The central bank of the Dominican Republic raised its monetary policy rate for the third time, saying this move is part of a normalization of monetary policy aimed at moderating shocks on prices and help inflation converge toward the target range within the context of "highly dynamic economic activity."
     The Central Bank of the Dominican Republic (BCRD) raised its monetary policy interest rate by a further 50 basis points to 5.0 percent and has now raised the rate 2 percentage points following rate hikes in November and December last year and Jan. 31, 2022.
     BCRD said it had also significantly reduced the excess liquidity in the financial system, especially through open market operations, to mitigate additional inflationary pressures and prevent an overheating of the economy in the future.
     The central bank noted headline inflation ended 2021 at 8.50 percent and core inflation hit 6.87 percent, which reflects the second-round effects on production associated with supply shocks.
    BCRD said it expectations inflation to converge to its target range of 4.0 percent, plus/minus 1 percentage point during the monetary policy horizon, but this is slower than originally expected.
    www.CentralBankNews.info

    

Kyrgyzstan raises rate 5th time to curb inflation

     The central bank of Kyrgyzstan raised its benchmark interest rate for the fifth time in a year as it continues to tighten monetary conditions to curb high inflationary pressures and said it would make additional adjustments to its policy if necessary.
     The National Bank of the Kyrgyz Republic raised its discount rate by a further 50 basis points to 8.50 percent and has now raised it 3.50 percentage points since it began the monetary tightening cycle in February 2021.
     "This decision was made in order to minimize the negative effect of external shocks on the current dynamics of inflation and inflation expectations in the Kyrgyz Republic," the central bank said.

     www.CentralBankNews.info