key monetary policy rates
Colombia’s central bank held its benchmark interest rate steady at 3.25 percent, as expected, saying the economy continues to grow below its potential and inflation is below 3.0 percent but it is “particularly difficult to interpret current trends in economic activity and its projection.”
But recent rate cuts and proposed fiscal policy measures should help raise economic growth toward the country’s productive capacity and this will help inflation move closer to the central bank’s target.
“In this context, the balance of risk assessment indicates the need to maintain the policy interest rate at 3.25%, while waiting for more information,” the central bank said.
The Central Bank of Colombia central bank has cut rates seven times by a total of 200 basis points since July last year, most recently by 50 basis points in March.
Economic activity in the first quarter of this year has slowed from 2012, the central bank said, with household consumption growing at a slower rate along with a deterioration in industry.
But the recent behaviour of some components of aggregate spending and fewer working days in the first quarter compared with last year has made it difficult to interpret current trends, the bank said.
“However, economic growth is expected to increase throughout the year in reaction prior monetary policy actions and programs recently announced by the national government,” the bank said.
The central bank’s staff forecasts that Colombia’s Gross Domestic Product should expand by 3-5 percent this year, with 4.3 percent the most likely figure, up from 2012’s 4.0 percent last year. In 2011 Colombia’s economy grew by 6.6 percent.
Colombia’s government has proposed a wide-ranging 5 trillion peso stimulus plan to revive industry and agriculture, boost housing, reduce energy costs and measures to cut company costs.
Colombia’s inflation rate accelerated slightly to 1.91 percent in March from a 60-year low of 1.83 percent in February, but still well below the central bank’s target range of 2-4 percent.
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Mexico’s central bank held its benchmark target for its overnight rate steady at 4.0 percent, saying the recent rise in inflation was temporary and there are no widespread pressures so inflation should resume its downward trend in June and then gradually move toward’s the bank’s 3.0 percent target.
The Bank of Mexico, which last month cut its rate for the first time since July 2009 but stressed it was not embarking on a new cycle of easing, said inflation was expected to remain high in April and May and then settle around 3-4 percent during the second half of the year before declining to around 3 percent in 2014.
A rise in Mexico’s inflation rate to 4.72 percent in the first half of April from 4.25 percent in March and 3.55 percent in February strengthened expectations that the bank would not cut rates further in an attempt to dampen the rise in the peso and temper the inflow of capital.
Mexico’s core inflation rate is expected to remain close, and even below, the bank’s 3.0 percent target for most of 2013 and 2014, the central bank said, adding that it would keep a close eye on prices to ensure that there are no second-round effects of the rise in inflation.
Mexico’s economy continues to show signs of weakness, further reducing inflationary pressure, and downside risks to economic activity prevail from the possibility that recent slowdown in the U.S. economy could intensify, the bank said.
“On balance, significant downside risks to global economic growth prevail,” the central bank said, adding that Japan’s growth prospects had improved from its “unprecedented monetary and fiscal stimulus” but there are doubts of the effectiveness of its strategy in the medium term given the uncertain transmission channel through which the Bank of Japan is operating.
With weak global activity and declining international raw materials prices, the inflationary outlook remains favourable in most countries and monetary policy is expected to remain accommodative in advanced and emerging economies and “in some cases additional relaxations could occur,” it said.
Mexico’s peso has risen by more than six percent against the U.S. dollar this year and its exports declined by 2.9 percent in February when the economy only expanded by 0.2 percent from January for annual growth of 0.4 percent, according to the national statistics office’s IGAE index, which captures most of the components of Gross Domestic Product.
The low growth in February was caused by a 1.2 percent drop in industrial output while agriculture and services registered higher growth.
In the fourth quarter of 2012, Mexico’s GDP rose by 0.8 percent from the third quarter for annual growth of 3.2 percent, the same rate as in the third quarter.
Mexico’s economy is forecast to grow by around 3.5 percent this year, down from 2012’s estimated 3.9 percent.
Last month the central bank said inflation was expected to rise to around 4 percent in coming months before settling down to a rate of about 3.0 percent in the second half and in 2014.
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Hungary’s central bank cut its base rate for the ninth time in a row, as expected, to 4.75 percent and said it would consider further rate cuts if the outlook for inflation remains in line with the bank’s target and sentiment in financial markets remains positive.
The guidance by the National Bank of Hungary signals that it will continue the easing cycle that it started in August 2012. Since then, the central bank has cut it key rate by 225 basis points and by 100 basis points this year alone.
The central bank expects Hungary’s economy to resume growing this year, helped by better exports, but the level of output remains below its potential and unemployment above its long-term level.
“The council expects weak demand conditions to persist, which will ensure that inflationary pressures in the economy remain muted in the period ahead,”the bank said, adding that the decline in inflation confirms that weak demand is exerting a strong downward pressure on prices.
Hungary’s inflation rate fell to 2.2 percent in March, down from 2.8 percent in February and the seventh month in a row with declining inflation since a recent peak of 6.6 percent in September last year. It was the lowest inflation rate observed since September 1974.
The central bank, which targets inflation of 3.0 percent, said inflation is likely to remain below its target throughout this year and settle close to the target in 2014.
Hungary’s Gross Domestic Product contracted by 0.9 percent in the fourth quarter from the third quarter, the fourth consecutive quarterly contraction. On a year-on-year basis, the economy shrank by 2.7 percent from the fourth quarter of 2011.
Consumer demand is expected to remain modest in the period ahead with consumers behaving cautiously and keeping the savings rate high due to increased uncertainty about the economic environment and a protracted process of reducing debt.
Last month the central bank said it would consider further rate cuts if inflationary pressures remain moderate and largely repeated this forecast today.
“The Council wil consider a further reduction in the policy rate if the medium-term outlook for inflation remains in line with the Bank’s 3 percent target and the improvement in financial market sentiment is sustained,” the bank said.
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Canada’s central bank kept its target for the benchmark overnight rate steady at 1.0 percent, as widely expected, and said the current “considerable monetary stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required.”
The Bank of Canada’s (BOC) statement signals that it is pushing back the time frame for a rate rise even further than currently expected, continuing the shift begun in February toward a more neutral policy stance and reflecting its latest downward revision in growth forecasts.
In its latest Monetary Policy Report released today, the BOC forecasts annual average growth of 1.5 percent in 2013, down from a January forecast of 2.0 percent, 2.8 percent in 2014, up from a previous 2.7 percent, and 2.7 percent in 2015.
“The economy is expected to reach full capacity in mid-2015, later than previously anticipated,” the bank said in its policy report. In its January policy report, the BOC had expected the economy to reach full capacity in the second half of 2014.
Headline and core inflation is expected to remain subdued in coming quarters before gradually rising to the BOC’s 2 percent target by mid-2015, also later than it forecast in January when it expected inflation to return to its target in the second half of next year.
In February Canada’s headline inflation rate picked up to 1.2 percent in February, breaking a year-long trend of falling rates, but the BOC said this muted inflation reflected excess supply in the economy, heightened competitive pressure in the retail sector and some special factors, such as slower rises in regulated prices and pass-through of previous declines in agricultural prices.
In addition to the “muted outlook for inflation” and “continued slack in the Canadian economy”, the BOC said policy rates could remain low for some time due to slower growth in household credit, which is likely to lead to a stabilization of household debt-to-income ratio around current levels.
“Despite the projected recovery in exports, they are likely to remain below their pre-recession peak until the second half of 2015 owing to restrained foreign demand and ongoing competitiveness challenges, including the persistent strength of the Canadian dollar,” the BOC said, repeating its oft-voiced concern over the impact the strong dollar is having on the competitiveness of Canadian firms.
In the fourth quarter of 2012, Canada’s Gross Domestic Product rose by 0.2 percent from the third for annual growth of 1.1 percent, the lowest rate since the fourth quarter of 2009.
But the BOC expects growth to regain some momentum through 2013 as exports pick up and business investment recovers.
On a annual basis, the BOC expects growth of 1.2 percent in the first quarter of 2013, down from a previous forecast of 1.4 percent, 1.2 percent in the second quarter, 1.6 percent in the third quarter and 2.1 percent in the fourth quarter.
Global economic growth is largely as anticipated by the BOC in January, with the U.S. expansion continuing at a modest pace as strengthening private demand partially offset by accelerated fiscal consolidation.
“The Bank expects global economic activity to grow modestly in 2013 before strengthening over the following two years,” the BOC said, forecasting global growth of 3.0 percent this year, up from a previous forecast of 2.9 percent, and 3.6 percent in 2014 and 3.8 percent in 2015.
In April last year, the BOC first started to warn markets that it would have to raise rates at some point, partially due to its concern over high household debt.
But households started to rein in spending in light of slower growth in the second half of 2012, and in January this year the central bank said a rate rise was now less imminent than expected due to a slowdown in the rise of household credit and a more muted outlook for inflation.
At its previous meeting in March, the BOC further eased its bias toward higher rates, saying the policy stance was appropriate for the time being in light of better household balances, the slack in the economy and the continued muted outlook for inflation.
The BOC has held its target for overnight rates steady at 1.0 percent since September 2010.
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Turkey’s central bank cut its main short-term interest rates by 50 basis points, saying that weak global demand and the outlook for commodity prices should “contain the upward pressures on inflation.”
The Central Bank of the Republic of Turkey (CBRT) cut its policy rate, the one-week repo rate, to 5.0 percent from 5.50 percent along with the top and bottom rates on its daily interest rate corridor.
The overnight borrowing rate in the corridor was cut by 50 basis points to 4.0 percent and the overnight lending rate to 7.0 percent.
The rate on borrowing facilities for primary dealers was also cut by 50 basis points to 6.5 percent.
The CBRT has been steadily narrowing its interest rate corridor since last September, including a 100 basis point cut in the ceiling rate last month. However, it only cut its main policy rate in December, seeking to balance the need to stimulate declining economic activity without boosting credit growth too much and encouraging the inflow of capital that looks to take advantage of the high yield.
The CBRT said capital inflows had re-accelerated and credit growth was above the bank’s reference rate so “in order to balance the risks to financial stability, the proper policy would be to keep interest rates low while increasing foreign currency reserves via macroprudential measures.”
In addition to cutting short-term rates, the bank will further raise its reserve options coefficients, a tool that helps the central bank control banks’ foreign exchange reserves and thus liquidity.
Turkey’s inflation rate rose to 7.29 percent in March, slightly up from 7.03 percent in February. The CBRT targets annual inflation of 5.0 percent this year, the same as in 2012 when inflation averaged 6.2 percent.
The central bank said demand was developing in line with expectations, with domestic demand healthy, but exports were lower. The current account deficit had increased in light of a revival in domestic demand but it expects to contain a further widening of the deficit.
Turkey’s Gross Domestic Product stagnated in the fourth quarter from the third quarter for annual growth of 1.4 percent, down from a 1.6 percent annual rate in the third quarter.
In the first four months of this year, the CRBR has cut the overnight lending rate by 200 basis points and the overnight borrowing rate by 100 basis points. The short-term rates have been declining during the last decade from 2002 when the borrowing rate was 57 percent and the lending rate 62 percent.
In 2012 the CBRT started cutting the overnight lending rate from 12.50 percent while keeping the borrowing rate steady at 5.0 percent.
Earlier this month, the central bank’s governor, Erdem Basci, held out the hope for “a measured rate cut, ” and a few day’s later Prime Minister Recep Erdogan said interest rates around 6 percent were too high in light of a decline in inflation to around 6 percent from 63 percent in 2002.
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Sri Lanka’s central bank held its benchmark repurchase rate steady at 7.50 percent, as expected, saying a further decline in inflation would allow it to cut rates again.
The Central Bank of Sri Lanka, which cut rates by 25 basis points in December 2012 after raising them twice earlier in the year, said inflation “fell significantly” as expected in March due to the base effect and lower food prices and inflation should remain at this “benign” level.
However, a proposed revision to administered prices is likely to exert some upward pressure on price levels, the central bank added.
In March the headline inflation rate fell to 7.5 percent from an average 9.4 percent for the previous nine months while core inflation eased to 6.8 percent from 7.4 percent in February. Both inflation measures have been in single digits for 50 consecutive months.
After raising rates in early 2012 to rein in credit growth, the central bank cut rates in December and removed a ceiling on credit growth, and said these measures are “providing reasonable stimulus for a higher economic growth.”
“At the same time, further depreciation of demand driven inflation on a sustainable basis would provide space for further easing of monetary policy,” the central bank said.
In 2012 Sri Lanka’s economy expanded by 6.4 percent for average growth of 7.5 percent over the last two years, based on resilient agriculture during adverse weather and sustained industry activity. Although tourism and finance grew rapidly, its growth was moderate due to low external trade.
The central bank has forecast growth of 7.5 percent this year, down from 2011’s 8.3 percent.
Credit extended to the private sector rose by an annual 13.3 percent in February and with the public sector relying less on bank financing in coming months, this should help provide the necessary stimulus to strengthen private sector activity, the bank said
Sri Lanka’s balance of payments, which recorded a surplus of US$ 151 million at the end of 2012, remains in surplus so far this year and is expected to improve further. Gross official reserves have risen to $6.9 billion, enough for 4.5 months of imports.
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Peru’s central bank maintained its policy rate at 4.25 percent, as expected, saying inflation is still in its target range and the economy is growing at a pace that is close to its potential.
The Central Reserve Bank of Peru (BCRP), which has held rates steady for two years since April 2011, said economic growth has stabilized around its long-term sustainable level even though the sectors that are linked to markets abroad show weak performance.
“Inflation is expected to coverage to the 2 percent target in the next months due to the improvement observed in the food supply conditions, due to a pace of growth of economic activity close to the economy’s level of potential output, and due to inflation expectations anchored to the target range in a context in which weak production indicators persist in the global economy,” the board of BCRP said.
Peru’s inflation rate was 2.59 percent in March, slightly up from February’s 2.45 percent but down from January’s 2.87 percent, and within the central bank’s target range of 1.0-3.0 percent.
Peru’s economy expanded by 6.3 percent in 2012 and in the fourth quarter Gross Domestic Product was up by 0.6 percent from the third quarter for annual growth of 5.9 percent, down from the third quarter’s rate of 6.8 percent.
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South Korea’s central bank held its base rate steady at 2.75 percent, saying the domestic economy is continuing to expand on the back of a recovery in exports and investments but the pace is weak and consumption has declined further, keeping inflation low.
But the Bank of Korea (BOK), which cut rates twice in 2012 by a total of 50 basis points, said it would “closely monitor external risk factors and Korea’s geopolitical risk and any consequent changes in financial and economic conditions.”
Financial markets were split in their expectations to the BOK’s decision, with a growing number of economists expecting a cut to boost confidence in light of the recent threats from North Korea, the growing competition from Japan and its weaker yen, and the Korean government’s pressure for the central bank to stimulate the economy to avoid a slowdown in the second half of the year.
The BOK’s assessment of the economic outlook is largely steady from last month, when it also said it expected the economy to operate below its potential “for a considerable time, due mostly to the slow recovery of the global economy.” This month, however, it added that the influence of the weak yen would also contribute to the negative output gap.
Nevertheless, the BOK expects the global economy to sustain its modest recovery, based on continued growth in the U.S. and an improvement in China and emerging markets.
There are still downside risks to the global economy, the BOK said, referring to a delay in the economic recovery in the euro area, which remains sluggish, and the impact of fiscal consolidation in the United States.
The BOK added that stock prices had fallen substantially and the Korean won had “depreciated significantly” against the U.S. dollar as foreigners had withdrawn some investment funds in connection with “the reemergence of euro area risk and with the increase in geopolitical risk in Korea.”
South Korea’s headline inflation rate has been easing recently and dropped to 1.3 percent in March from 1.4 percent in February and January’s 1.5 percent, well below the BOK’s 2.5-3.5 percent range for the 2013-2015 period. Core inflation rose slightly to 1.5 percent in March from 1.3 percent.
Although inflation remains low due to weak demand, the BOK said it expects inflation to rise as downward pressure from “institutional factors” disappear.
South Korea’s economy expanded by 2.0 percent in 2012, down from 2011’s 3.6 percent, with Gross Domestic Product in the fourth quarter up by 0.3 percent from the third quarter for annual growth rate of 1.5 percent.
The government recently cut its 2013 growth forecast to 2.3 percent, below the BOK’s forecast of 2.8 percent from January, and is now planning an additional budget, not only to make up for the expected revenue shortfall but also to add stimulus.
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Indonesia’s central bank held its BI rate steady at 5.75 percent, but said it was “wary of a number of risks to inflation and would adjust its monetary policy response as needed,” including absorbing excess liquidity and strengthen its coordination with the government to reduce the current account deficit and minimize inflationary pressures from volatile food prices through changes to import policy.
Bank Indonesia (BI), which cut rates by 25 basis points in 2012, trimmed its forecast for economic growth in 2013 to a range of 6.2-6.6 percent from a previous forecast of 6.3-6.8 percent and said second quarter growth this year is forecast to be steady from an estimated 6.2 percent in the first quarter.
Domestic demand is continuing to grow quite strongly, the BI said, with robust private consumption supported by improved purchasing power and consumer confidence.
Non-construction investment has slowed but “export volume has increased in line with the economic recovery in some major trading partners, particularly China,” the BI said, adding growth is also supported by high growth throughout the region.
For 2014, economic growth is expected to rise to 6.6-7.0 percent, slightly down from an earlier forecast 6.7-7.2 percent, as domestic demand remains strong and global growth strengthens, the BI said.
Indonesia’s Gross Domestic Product contracted by 1.45 percent in the fourth quarter from the third for annual growth of 6.1 percent, slightly down from the third quarter rate of 6.17 percent.
The inflation rate jumped to 5.9 percent in March from 5.3 percent in February, the highest in 22 months, and above the BI’s target of 4.5 percent, plus/minus one percentage point.
But core inflation was stable at 4.2 percent and and the BI expects inflationary pressures to ease due to government measures to address food supply problems and the upcoming harvest season.
There is still downward pressure on Indonesia’s rupiah, though it has been more moderate as the BI has strengthened its foreign exchange intervention, used term deposits and deepened the FX market.
In the first quarter, the rupiah weakened by 0.7 percent against the U.S. dollar to an average rate of 9.68 per dollar and the bank expects moderate depreciation pressure in the second quarter.
Last week the BI’s outgoing governor Darmin Nasution told reporters that an increase in the policy rate would be inevitable if inflationary pressures continued.
Nasution’s term ends May 23 and he will be replaced by Finance Minister Agus Martowardojo.
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