inflation outlook

ECB holds rate, but keeping very close eye on data – Central Bank News

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ECB holds rate, but keeping very close eye on data – Central Bank News.

The European Central Bank (ECB) held its benchmark refinancing rate steady at 0.75 percent, as expected, but signaled that it may cut rates if the economy continues to weaken by saying it will be monitoring economic data “very closely” in coming weeks for the impact on its monetary policy stance.

    The ECB, which cut its rate by 25 basis points in 2012, said economic activity remained weak at the start of this year but it is still projecting a gradual economic recovery in the second half of 2013.
    However, it stressed the downside risks to this forecast, including weaker-than-expected domestic demand and slow or insufficient structural reforms, which would “have the potential to dampen the improvement in confidence and thereby delay the recovery,” ECB President Mario Draghi said in his prepared statement to a press conference.
    Last month ECB staff cut their growth forecast for the 17 nations that share the euro to a contraction in Gross Domestic Product of between 0.9 and 0.1 percent this year. In the fourth quarter of 2012, GDP shrank by 0.6 percent, the fifth quarterly contraction in a row, for an annual drop of 0.9 percent.
    “Against this overall background, our monetary policy stance will remain accommodative for as long as needed,” Draghi said, adding: “We are also closely monitoring money market conditions and their potential impact on our monetary policy stance and its transmission to the economy.”

    Draghi made no specific reference to recent events in Cyprus but said the fragmentation of euro area credit markets had to be reduced further so the ECB’s policy stance could be transmitted throughout the euro area.
    Despite the ECB’s low interest rates, there is a wide spread in the interest rates that businesses pay for loans in the euro area. Businesses in Southern Europe, for example in Spain and Portugal, pay much higher loan rates than those in Germany.
    Draghi called for further steps to establish a full banking union throughout the euro zone, saying in “light of recent experience” – an obvious reference to Cyprus – it is crucial that a single banking supervisor and a single resolution mechanism for troubled banks is implemented.
   Inflation in the euro zone continued to fall in March, with the annual rate down to 1.7 percent from February’s 1.8 percent, mainly due to lower energy prices.
    Draghi said inflationary expectations remain in line with the ECB’s price stability objective. The ECB targets inflation that is below, but close to 2 percent.
    Although most economists had expected the ECB to keep rates steady, a growing number were  expecting the bank to signal that it may ease policy later this year if the economy remains weak.
     The jobless rate in the 17 nation area was unchanged at 12.0 percent in February with rates in Greece and Spain above 50 percent.
    Last month the OECD said there was a strong case for the ECB to ease its policy given weak demand and inflation that is below its objective.
    “The risk of undue inflationary pressure associated with monetary easing is small, as the transmission mechanism is impaired, especially in the periphery countries where banks face high funding costs,” the OECD said in its interim economic report.
 

South Africa Central Bank News

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South Africa holds rate, Cyprus may undermine growth – Central Bank News.

South Africa’s central bank held its benchmark repurchase rate steady at 5.0 percent, saying its policy  stance is “appropriately accommodative” given the economy’s negative output gap and events in Cyprus that could further undermine growth prospects. This is balanced against inflationary risks.
    The South African Reserve Bank (SARB), which has been in an monetary easing cycle since December 2008, said the global economy was still characterised by a multi-speed recovery, with recent events in Cyprus increasing risk and uncertainty in Europe with “the potential to reignite the banking and sovereign debt crises and undermine growth prospects further.”
    In addition, the global outlook is clouded by fiscal gridlock in the United States, the bank said.
    South Africa’s growth prospects are subdued despite a better-than-expected fourth quarter GDP with the bank raising its 2013 forecast to 2.7 percent, from a previous forecast of 2.6 percent, but cutting its 2014 forecast to 3.7 percent from 3.8 percent.
    South Africa’s Gross Domestic Product bounced back to a 2.1 percent growth in the fourth quarter from the third for annual growth of 2.5 percent, up from 2.3 percent in the third quarter.
     For the full 2012 year, South Africa’s growth eased to 2.5 percent, despite a 9.3 percent contraction in the mining sector, from 3.5 percent in 2011.

     The SARB, which cut rates by 50 basis points in 2012, estimates the economy’s potential output growth at 3.5 percent and the important mining sector bounced back with annual growth of 7.3 percent in January.
    “Nevertheless the (mining) sector is expected to remain under pressure given the unsettled labour relations environment,” the SARB said, adding that the unresolved labour disputes pose a significant risk to the exchange rate and economic growth.
    However, a lower rand exchange rate provides an opportunity for the country’s manufacturing sector to become more globally competitive but to sustain this will require improved productivity and containment of wages and other cost, which underlines the need to control inflation, the bank said.
    South Africa’s consumer price inflation rate for all urban areas rose to 5.9 percent in February from 5.4 percent in January, mainly due to higher medical insurance costs, hitting core inflation which rose markedly to 5.3 percent from 4.7 percent.
    Incorporating the new CPI weights, a rebasing and lower electricity prices, the SARB forecasts inflation to average 5.9 percent in 2013 and 5.3 percent in 2014 compared with previous forecasts of 5.8 and 5.2 percent.
    In the third quarter of this year, inflation is expected to temporarily breach the bank’s upper target range, with prices averaging 6.3 percent and then easing to 5.2 percent in the final quarter.
    “This deteriorating is largely due to the depreciation of the rand and higher petrol prices, which more than offset the impact of the lower electricity price increases and lower starting point,” the bank said.
    In 2012 inflation averaged 5.6 percent, in the upper end of the central bank’s 3-6 percent target.
    “The MPC continues to assess the balance of risks to the inflation outlook to be on the upside, mainly due to the exchange rate and wage pressures,” the SARB said, adding underlying inflation appears to be relatively contained and there is lower risk from food price inflation.
    The government’s projected deficit for the past fiscal year of 5.7 percent of GDP is wider than initially budgeted due to lower revenue from weaker growth and for the 2013/14 fiscal year it is budgeted at 5.1 percent, declining to 3.6 percent by 2015/16.
    Earlier this month the Organisation for Economic Co-operation and Development (OECD) recommended that SARB cut interest rates despite rising inflation to support the economy while taking steps to prevent the rand from becoming overvalued.
 
    www.CentralBankNews.info

Global Monetary Policy Rates – February 2013 : Global Central Bank News

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Global Monetary Policy Rates – Feb. 2013: Rates decline further but pace slows as growth prospects improve – Central Bank News.

 Global interest rates declined further in February as six central banks cut rates by a total of 150 basis points, pushing the average global monetary policy rate down to 5.86 percent from January’s 5.88 percent and December’s 5.92 percent.
    The pace of rate cuts cooled from January when the 90 central banks followed by Central Bank News trimmed rates by a total of 342 basis points, as many central banks start to shift towards a more neutral stance to gauge the impact of last year’s rate cuts, U.S. budget cuts and Europe’s recession.
    Only one central bank raised rates in February: Serbia, which has now raised rates by 50 basis points this year, continuing its dogged fight against inflation.
    Apart from Denmark, which raised its rate in January for exchange rate reasons, Serbia is the only central bank worldwide to have tightened policy this year, illustrating how weak global demand is keeping inflation at bay and allowing central banks to cut interest rates to stimulate growth.
    Declining inflation rates and subdued upward pressure was specifically cited by five of this month’s rate cutters (Georgia, Azerbaijan, Poland, Hungary and Colombia) in their policy statements. 
    Nevertheless, some central banks are starting to voice concern over inflationary pressures, especially Brazil, Russia and Malaysia, while China has been draining funds from the banking system to temper the rise in inflation.
    While there are still major risks to the global economic recovery, the overall picture of the global economy is one of brightening prospects, with the U.S., China and emerging markets growing stronger while Europe is weakening.
    The Reserve Bank of Australia (RBA) and the Bank of Israel (BOI) typify those central banks that are in a holding pattern. After last year’s sizable rate cuts, their economies are adjusting with the RBA saying the full impact of “significant easing” is yet to come while the BOI notes it’s too early to tell whether the economy has reached a turning point.
    Asia remains the hub for global growth, with a pickup in China’s economic activity cited by both Indonesia and far-away Chile as helping their exports. South Korea, Thailand, Japan and Sweden also noted improving exports.
     New Zealand, whose strong currency is helping curtain inflation, is also more upbeat about its economic prospects and keeping a close eye on house prices for any signs of overheating.

INTEREST RATE CUTS, YEAR-TO-DATE IN BASIS POINTS, FEBRUARY 2013:

COUNTRY MSCI    CURRENT RATE       YTD CHANGE
KENYA FM 9.50% -150
MONGOLIA 12.50% -75
COLOMBIA EM 3.75% -50
GEORGIA 4.75% -50
HUNGARY EM 5.25% -50
JAMAICA 5.75% -50
POLAND EM 3.75% -50
AZERBAIJAN 4.75% -25
ALBANIA 3.75% -25
ANGOLA 10.00% -25
INDIA EM 7.75% -25
MACEDONIA 3.50% -25
BULGARIA FM 0.01% -2



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Mauritius Central Bank holds rate …..

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Mauritius holds rate, upside inflation risks vs. growth risks – Central Bank News.

 The central bank of Mauritius kept its benchmark repo rate steady at 4.90 percent and said the upside risks to inflation are persisting while downside risks from weak and uncertain economic conditions in the country’s main export markets continue to weigh on the domestic growth outlook.
    The Bank of Mauritius said its Monetary Policy Committee kept the rate steady in light of the “continued uncertainty on the global growth outlook,” but some committee members had “expressed strong concerns about the deteriorating inflaiton outlook” and “emphasised the need to normalise rates to encourage savings while containing speculative activities in some sectors.”
    “The MPC maintains strong vigilance in monitoring economic and financial developments and stands ready to meet in between its regular meetings, if the need arises,” the bank said.
    Mauritius’ inflation rate rose to 3.6 percent in February from January’s 2.9 percent, the bank said, noting the persistent upside risks to elevated global commodity prices, the impact of a recent PRB award to the public sector, a rise in retail petroleum prices and the expected second-round effect of these, as well as the projected rise in administered prices.

    Based on no rate changes, the bank’s staff forecast a headline inflation forecast of 4.7-4.9 percent by December 2013 compared with an expectations survey from last month that put the annual headline inflation rate at 5.0 percent in December and 5.2 percent for December 2014.
    The bank’s policy committee took note of fragile economic conditions among the developed economies of export interest to Mauritius while recovery is more robust among emerging economies.
    Mauritius’ third quarter Gross Domestic Product rose 1.3 percent from the second quarter for annual growth of 3.9 percent, up from the second quarter’s 3.2 percent and the first quarter’s 3.0 percent.
    The central bank said the output gap had narrowed a little but remained negative, but the underlying economic momentum is expected to remain positive.
    The bank’s staff forecasts 2013 economic growth of 3.4-3.9 percent, up from projected 2012 growth of 3.3 percent. In 2011 Mauritius’ Gross Domestic Product rose a real 4.1 percent, the same as in 2010.

    www.CentralBankNews.info