Month: February 2013

Global Central Bank Monetary Policy Week in Review – Feb. 23, 2013

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Last week four central banks took monetary policy decisions with two banks (Turkey and Colombia) taking further steps to ease their stance while the other two (Thailand and Namibia) kept rates on hold, illustrating how monetary policy on a global scale remains accomodative despite fresh signs that the cycle of loose policy is nearing its end.

    Ultra-low interest rates in advanced economies continues to push funds toward higher yielding yet safe currencies, such as Turkey and Thailand, with Turkey’s central bank drawing on its arsenal to prevent capital inflows from boosting its currency and domestic assets while the economy is weak.
    But the main focus of last week was the Federal Reserve’s minutes from its January meeting that showcased the intensifying debate over how and when the Fed should exit from quantitative easing.
    While there is no doubt of the Fed’s commitment to easy money and questions over the economic impact of its latest asset purchase program, global financial markets are hyper-sensitive to any sign the program is coming to an end.
    The strong reaction of markets for the second month in a row to a debate over when to rein in quantitative easing illustrates the intense pressure on the Fed to choose its exit route carefully so it doesn’t destroy markets’ and consumers’ fragile confidence and derail the economic recovery.
    China’s move to drain funds from markets for the first time in eight months also served to remind financial markets of just how accomodative global monetary policy is – and has been for the last five years – and how the global shift to a more neutral policy is likely to be a recurring theme.
  Through the first eight weeks of this year, 77 percent of this year’s 69 policy decisions among the 90 central banks followed by Central Bank News have favored unchanged rates compared with 19 percent of decisions favoring rate cuts. This ratio is steady from last week.
    While the overall global economy remains sluggish, the contrast between Colombia and Thailand shows how growth in Asia is continuing to pick up speed while the slowdown in most of South America has yet to ease its grip.
    Colombia’s central bank cut its key rate for the sixth time since it embarked on an easing cycle last July and is concerned that low inflationary expectations could become entrenched amid a weakening economy, a sign that further rate cuts are likely.
    The Bank of Thailand is facing the opposite situation with its economy growing faster than expected and growing inflationary pressures. It is among the handful of Asian central banks that may raise rates later this year to curtail inflation from a combination of strong domestic demand, growing exports and capital inflow that is pushing up its currency and adding further fuel to asset prices.
    Turkey’s creative and flexible monetary policy was once again on display this week as the bank tries to find the right balance between stimulating economic growth yet discouraging hot money from flowing into the country to take advantage of the relatively high interest rates.
    While the Central Bank of the Republic of Turkey eased its policy stance by cutting short-term rates, it combined this with a “measured tightening” of reserve requirements – a macro-prudential measure – to limit capital inflows and excessive bank lending. Meanwhile, the benchmark interest rate, seen as a more heavy-handed tool, was left unchanged.
    The immediate effect was that the Turkish lira fell, showing that its nimble and multi-pronged policy is still paying off.
TURKEY EM 5.50% 5.50% 5.75%
THAILAND EM 2.75% 2.75% 3.00%
NAMIBIA 5.50% 5.50% 6.00%
COLOMBIA EM 3.75% 4.00% 5.25%
    NEXT WEEK (week 9) features only four scheduled central bank meetings, including Angola, Israel, Hungary and Trinidad & Tobago.
    Other events that financial markets will closely follow include Italy’s general election on Sunday and Monday and Federal Reserve Chairman Ben Bernanke’s scheduled testimony on Tuesday and Wednesday to the Senate Banking Committee.
COUNTRY MSCI          MEETING              RATE        1 YEAR AGO
ANGOLA 25-Feb 10.00% 10.25%
ISRAEL DM 25-Feb 1.75% 2.50%
HUNGARY EM 26-Feb 5.50% 7.00%
TRINIDAD & TOBAGO 28-Feb 2.75% 3.00%

Monetary Policy Week in Review – Feb. 23, 2013: Global policy still loose as 2 of 4 ease, but shift to neutral nearing – Central Bank News.

Gold updates

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When It Comes to Gold, Stick to the Facts

February 19, 2013

Gold dipped below $1,600 last week, falling to a six-month low, much to the chagrin of gold investors. I find the timing of the correction peculiar, given the G20 Finance Ministers Meeting taking place over the weekend. There’s been a growing debate over Japan’s move to devalue its currency to stimulate growth, with reaction from the G-7 leaders stating that “domestic economic policies must not be used to target currencies,” reports Reuters.

While the G-7 tried to legitimize the currency debasement with this statement, in reality, investors seem to be able to see through to the real motivations.

The main reason the mainstream media gave for the correction in the yellow metal is hedge funds’ selling of gold late last year. According to quarterly filings, Hedge Fund Manager George Soros sold half of his holdings in the SPDR Gold Trust ETF (GLD) in the fourth quarter of 2012. Bloomberg attributed the sell as a move that may “bolster speculation that gold’s 12-year bull-run is coming to the end.” However, Soros may have liquidated his gold holdings because he identified a significant short-term opportunity in the currency markets.

I have said many times that government policies are precursors to change, and late last year, Japan’s new leader, Prime Minister Shinzō Abe, openly indicated his intention to drive down the currency to make the economy more competitive and increase inflation. As a result of Japan’s policy changes, the yen weakened, driving up the price of gold in Japan’s local currency.

In other words, a gold investor in Japan was likely ecstatic with his gold trade over the past few months.

Take a look at the comparison of gold’s return in different currencies. The chart below compares the percentage change of gold in the Japanese yen to the metal’s percentage change in U.S. dollar terms over the last six months. From the middle of August 2012 until about November, gold prices in both currencies closely followed each other.

However, as a result of changes in government policies, over the six-month period, gold rose nearly 19 percent in yen, while only increasing less than one percent in U.S. dollar terms.

Currency Swing had Huge Effect on Gold

George Soros seemed to anticipate the effect that Japan’s government policies would likely have on the velocity of money. This turned out to be a brilliant move, as “wagering against the yen has emerged as the hottest trade on Wall Street over the past three months,” says the Wall Street Journal. The newspaper reported that Soros gained “almost $1 billion on the trade since November,” during a time the yen declined nearly 20 percent in four months.

I admire Soros for his ability to identify significant effects that government policies have on markets as easily as recognizing when ice turns to water. More importantly, he quickly acts on these emerging events.

This isn’t his first big win in foreign markets. In 1992, based on British government policy changes, Soros shorted British pounds and bought German marks, earning $1.8 billion for his fund.

Just like recognizing how new equilibriums can alter the dynamics of an environment, government policies can significantly change the velocity of money. Global investors watch for these trends to know where to invest in commodities and markets, find new opportunities and adjust for risk.

I discussed the potential motivation behind Soros’ trade with CNBC’s Simon Hobbs on Friday. I explained how gold’s correction was reaching an extreme, indicating a potential buying opportunity. You can see on our oscillator model how gold has dropped nearly 2 standard deviations on a year-over-year basis. An event like this has happened only about 2 percent of the time over the last 10 years. Following these extreme lows, gold has historically increased as much as 15 percent over the next year.

Gold Price at an Extreme

See the CNBC interview here


Back in June 2012, I told CNBC the same thing: Gold had reached an extreme low, and only a few months later, the metal climbed nearly 10 percent.

During short-term gold corrections, it’s much more important to focus on the facts, including the fact that gold is increasingly viewed as a currency. Rather than buying real estate, lumber or diamonds, central banks around the world are buying gold. According to the World Gold Council (WGC), over 2012, central bank demand totaled 534 tons, a level we have not seen in nearly 50 years.

Central Bank Gold-Buying Reaches 48-Year High

Emerging market central banks have been adding gold to their reserves, including Mexico, Brazil, the Philippines, South Korea and Russia. Over the past decade, Russia has accumulated a total of 958 tons of gold, making its gold reserves the eighth largest of all central banks, says the WGC.

Another fact about gold is the persistence of the Love Trade. As you can see below, jewelry demand declined slightly, about 3 percent in 2012, and more than half of this demand came from India and China, the countries with a cultural affinity toward gold. India’s gold purchases declined 12 percent due to an import tax and a weak rupee. However, even though the gold price experienced a significant increase in local currency, India’s demand is “all the more remarkable and serves to emphasise the importance of gold to Indian consumers,” says the WGC.

Notably, India had a better-than-expected fourth quarter, and retained its rank as the largest gold market in the world.

Gold Demand Declined 4 Percent

In China, there was a slowdown in GDP in the first half of the year, which weighed on gold purchases. For the year, the WGC indicated that there was only a slight increase in demand over the previous year.

In 2013, the WGC expects both markets to remain strong, forecasting growth rates of about 10 to 15 percent. I believe as GDPs in Chindia rise, so will their gold demand. And as long as the precious metal is attractive to both the fear trade and the love trade, hold tight to gold, with a 5 to 10 percent weighting in gold and gold stocks, and rebalancing annually.

When It Comes to Gold, Stick to the Facts – U.S. Global Investors.

Gaining acceptance on Twitteratti

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Social Media ….. Socializing your Business

WeLearn - Welingkar Hybrid Learning Programs

You are the brand! Nothing else. You are selling yourself as a person/ your company with the attitude that you are worthy of being followed. After boasting about Twitter and its fact and speaking about some of the well-liked twitter handles in “Climbing the Ladder of Twitterati” let’s move on and explore how you can brand yourself on “Twitter”.

Gaining acceptance on twitterati

Tweeting Right:
Engage your twitter followers by sharing both witty and useful information. “Tweet 80% content your readers will find helpful and 20% self promotion. A good mix will give you more than 100% promotion.” tweeted @watsonk2. It is observed that the most active twitter days are Monday through Wednesday and the peak Twitter times are early afternoon, noon specifically. Use quotes, posts, facts from your industry to engage.
Don’t: @sarahebuckner tweets “It drives me crazy when people don’t post for few hours, and then post 9 times in a row…

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Namibia – Central Bank News

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Namibia’s central bank held its benchmark repo rate steady at 5.50 percent, saying the current low interest rate should be maintained to mitigate the impact of slow growth in many of the country’s trading partners.
The Bank of Namibia, which cut its rate by 50 basis points in 2012, said economic growth is expected to ease slightly in 2013, in line with key trading partners “although growth of domestic demand may remain strong, while elevated inflation may persist,” the bank said in a statement from its governor, Ebson Uangutu.
Namibia’s economy is estimated to have expanded by 4.6 percent in 2012 and is forecast to grow by 4.4 percent in 2013, driven by secondary industries, particularly construction, the bank said. In 2011 the economy grew by 4.8 percent.
The mining sector, which was estimated to have expanded by 17 percent in 2012, is expected to see moderate growth of 3.8 percent this year.
Namibia’s Gross Domestic Product contracted by 5.4 percent in the third quarter from the second for an annual decline of 1.3 percent, down from the second quarter’s annual growth rate of 10.7 percent.
Namibia’s inflation rate rose to 6.6 percent in January, above 2012’s average rate of 6.5 percent, and December’s 6.34 percent rate.

The increase in inflation was due to annual increases in administered prices, particularly education and housing, while food inflation remained elevated, the bank said.
Domestic demand remains strong with private sector credit extension up an annual 17 percent in December, the second highest level seen in almost six years. Credit to businesses grew by 22.2 percent at the end of December while credit for mortgages was up by 13.1 percent, below November’s 14.3 percent.
Namibia’s dollar currency depreciated against major currencies in January, December and November, based on its peg to the South African Rand which has declined due to the sale of rand-based assets, including government bonds, the Bank of Namibia said.
But Namibia’s stock of international reserves is sufficient to cover the fixed exchange rate peg with foreign reserves equal to 3.4 months of import cover.

Turkey’s Central Bank News

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Turkey’s central bank kept its policy rate steady at 5.50 percent but continued to shift its daily interest rate corridor downwards to support growth but tightened its reserve requirements to slow down the growth of credit from a continuing inflow of capital that is putting upward pressure on the Turkish lira.
The Central Bank of the Republic of Turkey (CBRT), which started narrowing its interest rate corridor in September 2012, cut the overnight lending rate, which forms the ceiling of the corridor, by 25 basis points to 8.50 percent and the overnight borrowing rate, which forms the floor, to 4.50 percent.

“The Committee has indicated that credit growth displays a significant acceleration amid
strong capital inflows,” the central bank said following a meeting of its monetary policy committee.
“Accordingly, it was deemed appropriate to implement a measured tightening through reserve
requirements, while delivering a limited downward shift in the interest rate corridor,” it added.
The reserve requirements were raised by 25 basis points for lira deposits for up to one year but less than three years and by 50 basis points on most foreign currency deposits, effective March 1, draining some $940 million from the market.
The central bank said domestic demand remained moderate “while exports continue to increase despite weak global activity,” which is narrowing the current account deficit.

    The central bank also said the daily funding of liquidity via one-week actions would be set between 0.2 and 6.5 billion Turkish lira until the policy committee’s next meeting and the upper limit for one-month repo auctions was set at 2.5 billion lira.
In the event that liquidity conditions change, the bank said it would provide funds beyond the limits.

“Ongoing uncertainties regarding the global economy necessitate the monetary policy to
remain flexible in both directions,” the CBRT said.

Turkey’s inflation rate rose to 7.31 percent in January, up from December’s 6.16 percent, but the bank said in its statement that it expects inflation to continue to decline.
The central bank targets annual inflation of 5.0 percent, the same as in 2012 when inflation averaged 6.2 percent, down from 10.4 percent in 2011.
While narrowing and shifting the interest rate corridor downward last year, the CBRT kept the benchmark one-week repo rate steady until December when it was cut by 25 basis points, the first cut since August 2011.
Turkey’s Gross Domestic Product rose by 0.2 percent in the third quarter from the second quarter for annual growth of 1.6 percent, down from 3.2 percent in the second and 2.3 percent in the first quarter.

The economy is estimated to have expanded by 2.5 percent last year, down from 8.5 percent in 2011. The central bank forecasts 2013 growth of 4 percent or higher.



Turkey cuts short-term rates, holds policy rate, raises RRR – Central Bank News.

Global Central Bank Monetary Policy Review for weekend 16 February 2013

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Last week 12 central banks took monetary policy decisions with just one bank (Georgia) cutting rates while the other 11 central banks kept rates unchanged (Mozambique, Indonesia, Russia, Ghana, Armenia, Sweden, Botswana, Japan, Korea, Sri Lanka and Chile), reinforcing this year’s trend toward stable policy rates after last year’s hectic pace of monetary easing.

Through the first seven weeks of this year, 77 percent of 65 policy decisions taken by the 90 banks covered by Central Bank News have resulted in unchanged interest rates while 18 percent have resulted in rate cuts. . . . . .


Central Bank News.