Friday, November 18, 2011

Monetary Policy Week in Review - 19 Nov 2011

The past week in monetary policy saw just 6 central banks announcing interest rate decisions. Of those to change interest rates, Rwanda increased 50bps to 7.00%, while Belarus added 500bps to 40.00% as the country deals with hyperinflation.  Those that held rates unchanged were: Japan 0-0.10%, Chile 5.25%, Sri Lanka 7.00%, and Latvia 3.50%.  Elsewhere Argentina dropped dollar reserve requirements, and the World Gold Council announced record buying of gold by central banks.

Following are some of the key quotes from the central banks which made monetary policy announcements:

  • Belarus (increased 500bps to 40.00%) "Another increase in the refinancing rate and interest rates on liquidity management operation is a sequential step to curb inflation and stabilize the economy and financial sector in general. Dunn's measure will also support renewed growth in recent months Urgent rubles deposits in banks and stabilize inflation expectations in the economy, and will become more factor to enhance the balance of payments surplus. National Bank and continues to conduct a balanced monetary policy, with the individual attention necessary to ensure price stability in the economy."
  • National Bank of Rwanda (increased 50bps to 7.00%): "Rwanda's macroeconomic stability. The financial sector is sound and resilient to external shocks, the inflation remains moderate, the currency is stable and this has contributed to high economic growth expected to reach 8.8% by the end of the year. However, there still exist risks in the global economy that may affect Rwanda. This includes: the persistent debt crisis in the euro zone, the global high food and fuel prices and increasing regional inflationary pressures. This calls for preventive action to mitigate any negative impact on the Rwandan economy."
  • Bank of Japan (held rate at 0-0.10%): "Japan's economic activity has continued picking up, but at a more moderate pace mainly due to effects of a slowdown in overseas economies.  As for domestic demand, business fixed investment has been increasing moderately and private consumption has remained firm.  On the other hand, exports and production have continued to increase, due in part to the restocking of inventories abroad that had declined after the earthquake, but at a more moderate pace mainly reflecting the effects of the slowdown in overseas economies."
  • Sri Lanka (held rate at 7.00%): "The outlook for Sri Lanka's economy remains positive with the economy continuing along the high growth trajectory", and "even though inflation and the inflation outlook remain benign, the Monetary Board is of the view that a change to the existing monetary policy stance is not warranted.
  • Banco Central de Chile (held rate 5.25%): "Domestically, output figures are evolving close to projections in the last Monetary Policy Report's baseline scenario, while domestic demand is somewhat stronger. Labor market conditions remain tight. Headline inflation has been somewhat higher than expected because of the incidence of fuels and foodstuffs. Core inflation figures remain contained. Inflation expectations are close to the target.
  • Latvijas Banka (held rate at 3.50%): "As the global prices of energy resources and food are stabilizing and assuming that the Government will refrain from raising any taxes, a substantial drop in inflation can be predicted for next year. Domestic demand is growing slowly and represents no risk of rising prices; moreover it is becoming likely that economic growth in Latvia will be slower next year as the demand in external markets drops because of the global debt crisis."

Looking at the central bank calendar, there's just Turkey scheduled to meet next week to review monetary policy settings.  However there are meeting minutes due from the Federal Open Market Committee (FOMC) on Tuesday (1-2 Nov meeting), Bank of Japan on Monday (Oct 27th meeting), and the Bank of England on Wednesday (10th Nov meeting); so it will be a good chance to see some of the key issues the central bankers are thinking and debating about.
  • TRY - Turkey (Central Bank of the Republic of Turkey) expected to hold at 5.75% on the 23rd of Nov


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