Central bank

Global Central Bank Monetary Policy Week in Review – Apr 20, 2013

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Monetary Policy Week in Review – Apr 20, 2013: One central bank raises rate, 1 cuts as inflation remains sticky – Central Bank News.

Last week six central banks took policy decisions with two major banks in emerging markets (Turkey and Brazil) changing their rates in opposite direction while the other four central banks (Canada, Sweden, Mozambique and Sri Lanka) kept rates steady as inflation remains sticky despite weak global growth.
    Brazil’s 25 basis point rate hike – well-flagged and overdue – was significant because it illustrates that inflationary pressures are building in some emerging markets, specifically Asian countries, and central bankers will defend their inflation-fighting credentials.
    Brazil’s move was in contrast to decisions by Canada and Sweden to further push back the time frame for rate rises, showing how the euro area’s severe crises is hampering economic recovery throughout advanced economies while growth in many emerging markets is accelerating.
    While inflation remains an issue in many emerging countries, disinflation – or deflation in the case of Japan – haunts many advanced economies as long unemployment lines holds down wage pressure along with excess industrial capacity.
    Sweden’s Riksbank specifically cited the need to keep policy rates low for longer than forecast because inflation will take longer to return to target than expected. For 2013 inflation is forecast to average a mere 0.1 percent.
    Weaker-than-expected growth is also holding back inflation in Canada, with the Bank of Canada now first expecting inflation to return to target by mid-2015, at least six months later than it expected in January.
   Turkey, which bounced back swiftly from the global financial crises but then was hit by slow growth last year, cut its rate by a larger-than-expected 50 basis points despite inflation above the central bank’s target.
    The latest central bank decisions came as policy makers gathered in Washington D.C. for the annual meeting of the International Monetary Fund.
    While the IMF trimmed its 2013 global growth forecast, it also said the global economy was taking on the characteristics of a three-speed recovery. Growth in emerging and developing markets is still strong, the U.S. is getting back on its feet, but the euro area is continuing to contract with adverse feedback loops between weak banks, weak sovereigns and low economic activity reinforcing each other.
    Through the first 16 weeks of this year, 77 percent of the 147 policy decisions taken by the 90 central banks followed by Central Bank News have lead to unchanged rates, the same ratio as after 15 weeks.
    Globally, 19 percent of policy decisions this year have lead to rate cuts – largely by central banks in emerging economies – unchanged from last week and slightly down from 20 percent the week before then.
MOZAMBIQUE 9.50% 9.50% 13.50%
SRI LANKA FM 7.50% 7.50% 7.75%
TURKEY EM 5.00% 5.50% 5.75%
BRAZIL EM 7.50% 7.25% 9.00%
SWEDEN DM 1.00% 1.00% 1.50%
CANADA DM 1.00% 1.00% 1.00%
Next week (week 17) features nine central bank policy decisions, including Hungary, Namibia, New Zealand, Philippines, Fiji, Japan (including the economic outlook), Mexico, Colombia, and Trinidad and Tobago.
COUNTRY MSCI              DATE               RATE        1 YEAR AGO
HUNGARY EM 23-Apr 5.00% 7.00%
NAMIBIA 24-Apr 5.50% 6.00%
NEW ZEALAND DM 24-Apr 2.50% 2.50%
PHILIPPINES EM 25-Apr 3.50% 4.00%
FIJI 25-Apr 0.50% 0.50%
JAPAN DM 26-Apr 0.00% 0.10%
TRINIDAD & TOBAGO 26-Apr 2.75% 3.00%
MEXICO EM 26-Apr 4.00% 4.50%
COLOMBIA EM 26-Apr 3.25% 5.25%


Uganda Central Bank Monetary Policy News

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Uganda holds rate, economy gaining, inflation on target – Central Bank News.

Uganda’s central bank held its central bank rate (CBR) steady at 12.0 percent, saying it is maintaining a neutral policy stance as the economic recovery is gaining momentum and inflation is in line with its target.
    The Bank of Uganda (BOU), which slashed interest rates in 2012, said short-term economic prospects had improved compared to its outlook and “constraints to economic growth from deficient aggregate demand are now receding.”
    The BOU said inflationary pressures are largely subdued but annual core inflation is still forecast to remain 1-2 percentage points above the bank’s 5.0 percent target for the next few months.
    “Nevertheless, we expect core inflation to fall back towards 5 percent later in 2013,” the BOU said.
    Uganda’s headline inflation rate rose to 4.0 percent in March, slightly up from February’s 3.5 percent, with the underlying, or core, inflation rate rising to 6.8 percent from 5.6 percent.
    The rise in headline inflation was fueled by the first rise in food crop prices since November last year while core inflation rose due to the base effect of a drop in prices in March 2012.

    Last year the BOU cut rates by 1100 basis points after raising them sharply in 2011 to a high of 23.0 percent to curtail inflation that soared to an all-time high of 30.48 percent in October 2011. Inflation then plunged over the next 12 months to 4.5 percent in October 2012.
    Since then, inflation has stabilized and even declined to a two-year low of 3.5 percent in February.
    “There are signs of increased buoyancy in the economy,” the BOU said, adding that preliminary GDP data for the first half of 2012/13 indicate accelerating growth, driven by strong growth in services, construction and manufacturing.
    Recent trends also indicate that the recovery continued in the third quarter of the current financial year that ends June 30, the BOU said.
     “As such, it is possible that the negative output gap that characterised the economy in 2011/12 has narrowed significantly,” the BOU said, adding that private sector credit had risen in line with overall growth although shilling-denomicated loans remain subdued.
    Uganda’s Gross Domestic Product expanded by 1.8 percent in the third calendar quarter from the second quarter for annual growth of 2.8 percent, down from 3.2 percent rate in the second quarter.
    The central bank’s statement is considerably more confident about the economic outlook than last month when it said economic growth was below potential and upside inflationary risks had risen.


Uganda Central Bank News

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Uganda holds rate steady, inflationary risks on the upside – Central Bank News.

Uganda’s central bank kept its Central Bank Rate (CBR) steady at 12.0 percent for the fourth month in  a row, saying upside inflationary risks had risen slightly but economic growth was below potential, credit growth was weak and the exchange rate stronger,  factors that mitigate inflationary pressures.
     The Bank of Uganda (BOU), which cut its CBR rate by 1100 basis points last year as inflation eased, said its forecast for “annual core inflation over the next 12-18 months remains largely unchanged at around 5 percent, though the upside risks have increased somewhat.”
    Uganda’s headline inflation rate eased to 3.4 percent in February from January’s 4.9 percent due to lower food prices and annual core inflation was largely flat at 5.5 percent from January’s 5.6 percent.
    “The monthly core inflation, however, accelerated, pointing to a buildup of core inflationary pressures that may need to be checked, if sustained,” the BOU said in a statement.
    The central bank targets annual inflation of around 5 percent.
    The BOU said growth in monetary aggregates continued to recover at a modest rate but shilling-denomined loans to the private sector remained stagnant due to high lending rates and the difficulties facing companies.
    “Although real output is still below potential, real GDP growth is projected to gradually recover in 2013 and 2014; a projection which is supported by recent trends in the Composite Index of Economic Activity, that point to signs of increased buoyancy in the economy,” the bank added.
    Uganda’s Gross Domestic Product expanded by 1.8 percent in the third quarter of 2012 from the second quarter for annual growth of 2.8 percent, down from 3.2 percent in the second quarter. 


Global Central Bank Monetary Policy Week in Review – Mar 2, 2013

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Monetary Policy Week in Review – Mar 2, 2013: Rates still declining but most central banks in wait-and-see mode – Central Bank News.

Last week seven central banks took monetary policy decisions with two banks (Hungary andJamaica) cutting rates and the remaining five banks (Angola, Israel, Trinidad & Tobago, theDominican Republic and Zambia) keeping rates on hold.
    The main message from last week’s policy statements was that the global economy continues to slowly improve, risk appetite in financial markets is strengthening and inflationary pressures are contained by weak demand.
    But is the global economy strong enough for central banks to shift from an accommodative stance toward a more neutral stance without killing the recovery?
    The Bank of Israel illustrates the wait-and-see approach that currently characterizes global monetary policy.  Last year’s threat of financial meltdown from Europe’s debt crises has been averted by a combination of monetary easing and astute policy guidance. The main issue for many central banks this year is how to nudge interest rates higher without undermining economic confidence.
    The Israeli central bank, which last year cut its rate by 100 basis points as the economy slowed, noted that recent economic indicators were mixed. While an improvement in activity was possible in January, fourth quarter growth was below previous quarters.
     “It is therefore too early to assess whether this represents a turnaround in economic activity,” the BOI said.
    Through the first nine weeks of the year, 76 percent of the policy decisions taken by the 90 banks followed by Central Bank News have favored unchanged rates, down from last week’s 77 percent.
    But 20 percent of decisions have lead to rate cuts, slightly up from the 19 percent seen after the first eight weeks, showing that the trend in global monetary policy is still toward more easing.
    Emerging market central banks remain the most active rate cutters, with 26 percent of their deliberations so far this year leading to rate cuts compared with 22 percent of central banks in frontier markets.
    No central bank in developed markets has cut rates this year but that is largely because some of the major ones, such as the Federal Reserve, the Bank of Japan and the Bank of England, years ago slashed their rates to effectively zero and then started using their balance sheets to guide rates.
And though much attention is focused on how the Bank of Japan and the European Central Bank can further stimulate their economies, the Bank of Israel and the Federal Reserve illustrate that the global trend is starting to shift toward a more neutral stance.
    While Federal Reserve Chairman Ben Bernanke last week assured financial markets of his commitment to easy policy, his testimony and the minutes from the previous week were a stark reminder that the days of quantitative easing are likely numbered.
    Another topic in monetary policy last week was the nomination of new central bank governors in Japan and Hungary, with both decisions triggering a heated debate over central banks’ independence along with expectations that the new governors will pursue aggressive pro-growth policies.
    In Tokyo Prime Minister Shinzo Abe nominated Haruhiko Kuroda as successor to BOJ Governor Masaaki Shirakawa and in Budapest Prime Minister Viktor Orban picked Gyorgy Matolcsy to replace Andras Simor.
ANGOLA 10.00% 10.00% 10.25%
ISRAEL DM 1.75% 1.75% 2.50%
HUNGARY EM 5.25% 5.50% 7.00%
JAMAICA 5.75% 6.25% 6.25%
TRINIDAD & TOBAGO 2.75% 2.75% 3.00%
DOMINICAN REPUBLIC 5.00% 5.00% 6.75%
ZAMBIA 9.25% 9.25%                  N/A *
Note: The Bank of Zambia introduced a policy rate in April 2012, replacing money supply targeting. 
NEXT WEEK (week 10) features 13 scheduled central bank meetings, including Mauritius, Australia, Uganda, Poland, Brazil, Canada, Japan, Indonesia, Malaysia, the European Central Bank, the Bank of England, Peru and Mexico.
COUNTRY MSCI          MEETING               RATE        1 YEAR AGO
MAURITIUS 4-Mar 4.90% 4.90%
AUSTRALIA DM 5-Mar 3.00% 4.25%
UGANDA 5-Mar 12.00% 21.00%
POLAND EM 6-Mar 4.00% 4.50%
BRAZIL EM 6-Mar 7.25% 9.75%
CANADA DM 6-Mar 1.00% 1.00%
JAPAN DM 7-Mar 0.10% 0.10%
INDONESIA EM 7-Mar 5.75% 5.75%
MALAYSIA EM 7-Mar 3.00% 3.00%
EURO AREA DM 7-Mar 0.75% 1.00%
UNITED KINGDOM DM 7-Mar 0.50% 0.50%
PERU EM 7-Mar 4.25% 4.25%
MEXICO EM 8-Mar 4.50% 4.50%


What is Accommodative Monetary Policy?

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An accommodative monetary policy is an effort by the U.S. Federal Reserve Board or another central bank to stimulate its nation’s economy. Lower interest rates are the hallmark of an accommodative monetary policy. An interest rate is the cost of borrowing money; when money becomes cheaper through an accommodative monetary policy, it costs businesses and consumers less to borrow, thus they spend more. The additional spending of an accommodative monetary policy has a multiplier effect, and business picks up throughout the economy. At some point under an accommodative monetary policy, the economy tends to overheat. In other words, an accommodative monetary policy results in too much money chasing too few goods, or inflation. At that point, an accommodative monetary policy loses favor, as consumers and producers watch prices rise. The Fed then changes course from an accommodative monetary policy to “tighter money,” i.e. it takes steps to raise interest rates, tamp down business activity, and reduce inflation. A reasonably accommodative monetary policy is liked by investors inequities, because more business activity usually produces greater earnings and higherstock prices.


Accommodative Monetary Policy Definition – What is Accommodative Monetary Policy?.

Dominican Republic’s – Central Bank News

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The Central Bank of the Dominican Republic (CBDR) kept its Monetary Policy Reference (MPR) rate steady at 5.0 percent as inflation is forecast to be within the bank’s target this year and next and economic growth is also in line with expectations.
The CBDR, which cut its rate by 175 basis points in 2012 but also left the rate unchanged last month, said the domestic economy expanded by 3.9 percent last year, higher than the average in Latin America and liquidity in international financial markets was good, which could help the flow of capital to emerging economies. In 2011 the Dominican Republic’s economy grew by 4.5 percent.
“Credit to the private sector in the national currency continues to show a recovery and projections suggest that by the end of the year the funding would grow faster than nominal GDP,” the central bank said, adding that higher credit would allow faster recovery in consumption and private investment.
Inflation in the Dominican Republic rose to by a monthly 1.26 percent in January to an annual rate of 4.76 percent, up from December’s 3.9 percent, due to the impact of tax reform, the bank said.
The CBDR targets inflation of 5.0 percent, plus/minus one percentage point in 2013 and 4.5 percent, plus/minus one percentage point, in 2014.

Dominican Republic holds rate steady, inflation on target – Central Bank News.

Trinidad and Tobago’s Central Bank News

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The central bank of Trinidad and Tobago held its benchmark repo rate steady at 2.75 percent, saying its current accommodative policy stance was appropriate in light of contained inflationary pressures and the expectation that economic activity will improve in 2013.
The Central Bank of Trinidad & Tobago, which cut its rate by 25 basis points in 2012, said headline inflation rose by 7.3 percent in January, slightly above December’s 7.2 percent with food inflation up an annual 13.8 percent from 12.7 percent due to faster price increases for most food and vegetables.
The core inflation rate eased to a 2.2 percent rate in January from December’s 3.1 percent.
Private sector credit slowed down unexpectedly towards the end of 2012 after a slow but steady rise earlier in the year with the growth rate down to 2.1 percent in December from 3.8 percent in November and a 0.8 percent fall in business lending following a 2.6 percent rise in November.
With underlying inflationary pressures still well contained and continuing expectation for a turnaround in economic activity in 2013, the Bank views its present accommodative monetary stance as appropriate,” the central bank said.
    Last month the governor of the central bank said he was cautiously optimistic for 2013 and forecast economic growth of 2.5 percent.

Trinidad & Tobago’s Gross Domestic Product contracted by an annual 1.79 percent in the second quarter of 2012, wider than the 0.49 percent contraction in the first quarter.


Trinidad & Tobago keeps rate steady on contained inflation – Central Bank News.

Zambia’s Central Bank News

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Zambia’s central bank held its policy rate steady at 9.25 percent, saying in a brief statement that it had  noted the moderation in inflationary risks to inflation in March “mainly due to continued improvement in the supply of maize to millers by the Food Reserve Agency coupled with the expected increase in fish supply follow the lifting of annual fishing ban.”
The Bank of Zambia, which raised its policy rate by 25 basis points in 2012, also said a stable supply of vegetables was expected to moderate inflationary pressures.
“This is in spite of some inflationary risks associated with the cost push pressures arising from lagged pass-through effects of the deprecation of the Kwacha,” the bank said in a statement.
The kwacha was rebased on January 1 and the central bank has been selling dollars in recent months to support the local currency.
Zambia’s inflation rate eased to 7.0 percent in January from 7.3 percent in December


Zambia holds rate steady, sees inflation risks moderating – Central Bank News.

Jamaica’s Central Bank News

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Jamaica’s central bank cut its policy rate by 50 basis points to 5.75 percent, effective Feb. 25, saying the move was in light of the “generally weak economic conditions” and the government’s recent approval of debt reduction measures.
“These factors will have a dampening effect on inflationary impulses,” the Bank of Jamaica said in a statement from Feb. 22.
The cut in the policy rate – the rate payable on the Bank of Jamaica’s 30-day Certificates of Deposit –  is in line with the reduction in the rate on government securities on the National Debt Exchange.
    “These actions have occurred against the background of a staff level agreement between the Government and the International Monetary Fund on a medium- term economic programme,” the central bank said.
    Earlier this month the IMF and Jamaica reached a staff-level agreement on a $175 million economic reform program aimed at cutting Jamaica’s “unsustainable debt burden, which has undermined confidence and elevated risks to economic stability,” the IMF said on Feb. 15.
    The IMF’s executive board will take a final decision on the agreement by the end of March, subject to the Jamaican government carrying out some of the agreed measures, including a debt exchange that involves private investors, fiscal tightening and structural reform.

    “Over the last three decades, the Jamaican economy has experienced very low economic growth, declining productivity, and reduced international competitiveness,” the IMF said, adding the high cost of servicing debt has limited the government’s ability to provide services that are needed to achieve sustained rates of growth.
Jamaica’s Gross Domestic Product rose by 0.2 percent in the third quarter from the second quarter for annual contraction of 0.2 percent, the same rate as in the second quarter.
In its latest quarterly monetary policy report, the Bank of Jamaica estimated that the economy contracted by up to 1.0 percent in the fourth quarter due to the impact of Hurricane Sandy, the postponement of some projects and weak global and domestic demand.
For the first quarter of 2013, the central bank forecasts an expansion of the economy by 0.0-1.0 percent following four consecutive quarters of decline. For the 2012/13 fiscal year, which ends March 30, the central bank forecasts Jamaica’s GDP at minus 0.5 to plus 0.5 percent.
Jamaica’s inflation rate rose to 8.4 percent in January from 8.02 percent in December and the bank forecast inflation in the first quarter of 2013 of 2-3 percent. For the 2012/13 fiscal year, inflation is forecast in a range of 7.5-9.5 percent, a level the bank described as in its “desired range.”
Last month Fitch Ratings lowered Jamaica’s credit outlook to negative, saying the sustained erosion of its international liquidity position had reduced the government’s capacity to manage external and fiscal pressures.
    Jamaica’s net international reserves fell by $131.7 million to $125.6 million with gross reserves at $980.8 million at the end of December, representing 13.2 weeks of imports, according to the central bank.

Jamaica cuts rate 50 bps as government cuts deficit – Central Bank News.