Saturday, September 24, 2011

Monetary Policy Week in Review - 24 September 2011

The past week in monetary policy saw 10 central banks reviewing monetary policy settings, with just 1 (Nigeria +50bps to 9.25%) changing interest rates.  Those that held rates unchanged were: Morocco 3.25%, Turkey 5.75%, Hungary 6.00%, Norway 2.25%, USA 0.25%, Iceland 4.50%, Hong Kong 0.50%, South Africa 5.50%, and the Czech Republic 0.75%.  On required reserve ratios, Croatia increased its RRR by 100bps to 14.00%.  Of course the biggest news was the US Federal Reserve's FOMC announcing 'operation twist', where it adjusted its quantitative easing program; switching $400B of shorter term maturities to $400B of longer term maturities.
Monetary Policy Week in Review

The theme of unusually high uncertainty and slowing global growth continued to weigh heavily on central bank interest rate decisions, and contributed to the large proportion of no-change decisions during the week. Following are some of the key quotes from the central banks' monetary policy media releases over the past week:

  • Central Bank of Nigeria (increased 50bps to 9.25%): "Concerns remain about sustaining the current inflation trend. The anticipated high liquidity in the near future would have a bearing on inflation in the near future," further noting "the fiscal stance continues to be expansionary. In addition there is the weight of structural factors such as the announced hikes in electricity tariffs and the expected removal of the petroleum subsidy."
  • US Federal Reserve (held interest rate, adjusted QE): "The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. This program should put downward pressure on longer-term interest ratesand help make broader financial conditions more accommodative."
  • Central Bank of Turkey (held interest rate at 5.75%): "The Committee has noted that core inflation may continue to rise in the short-term. However, due to the slowdown in economic activity, it is expected that the second round effects of exchange rate movements would be limited, and thus the increase in inflation would be temporary. Accordingly, the Committee has indicated that inflation outlook for the end of 2012 is consistent with the 5 percent target."
  • Magyar Nemzeti Bank (held interest rate at 6.00%): "In the Council's judgement, Hungarian economic growth is likely to remain subdued over the next two years, with the level of output remaining below its potential throughout the period. Medium-term upside risks to inflation have fallen due to weak domestic demand. Inflation may fall back to 3% by the beginning of 2013, as the effects of cost shocks and increases in indirect taxes wear off."
  • HKMA (held interest rate at 0.50%): "This time the Fed's new policies will not have any impact on Hong Kong's interbank (HIBOR) interest rate,"
  • South African Reserve Bank (held interest rate at 5.50%): "Recent data have confirmed the fragile and uneven nature of the domestic economic recovery, and unfavourable forward-looking indicators are consistent with a downward revision of the Bank's economic growth forecast. At the same time a number of exogenous factors have continued to put upward pressure on domestic inflation. This combination of declining growth and rising inflation poses a challenge to monetary policy going forward, and is a feature being experienced in a number of emerging markets."

Looking at the central bank calendar, next week there are five central banks scheduled to announce monetary policy decisions:
  • ILS - Israel (Bank of Israel) - expected to hold at 3.25% on the 26th of Sep
  • RON - Romania (Banca Nationala a Romaniei) - expected to hold at 6.25% on the 29th of Sep
  • TWD - Taiwan (Central Bank of the Republic of China) - expected to hold at 1.875% on the 29th of Sep
  • MNT - Mongolia (Bank of Mongolia) - expected to hold at 11.75% on the 29th of Sep
  • COP - Colombia (Banco de la Republica de Colombia) - expected to hold at 4.50% on the 30th of Sep


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