monetary policy committee
Brazil’s central bank raised its benchmark Selic rate by 50 basis points to 8.0 percent to help bring down inflation and “ensure that this trend will continue next year.”
In a brief statement, the Central Bank of Brazil said its policy committee, known as Copom, had agreed on the rate rise unanimously and it did not issue a bias about the future trend of policy.
It is the second consecutive rate rise by Brazil’s central bank following a 25 basis point rise in April, bringing this year’s total rate increase to 75 basis points. In 2012 the central bank cut rates by 375 basis points in response to declining economic growth before freezing rates from November through March.
Today’s rate rise was largely expected and follows recent warnings by the central bank’s governor that he would do “what is needed, in a timely manner, to ensure inflation declines.”
Brazil’s inflation rate eased to 6.46 percent in the rolling one-month period through May 15 from 6.49 percent in April, close to the upper limit of the central bank’s target range of 4.5 percent, plus/minus two percentage points. It was first decline since inflation started to accelerate in July 2012.
The central bank has forecast inflation of 5.7 percent this year and 5.3 percent in 2014.
Brazil’s Gross Domestic Product expanded by 0.6 percent in the first quarter, the same quarterly rate as in the fourth quarter, for annual growth of 1.9 percent, up from 1.4 percent in the fourth quarter, continuing a rebound since hitting a recent low of 0.5 percent in the second quarter of 2012.
Nevertheless, growth in the first quarter was below expectations as industrial output dropped, driven by a 6.6 percent drop in mining, along with lower construction activity.
Earlier today, the central bank lowered its 2013 growth forecast to 2.93 percent from 2.98 percent but maintained the 2014 forecast at 3.5 percent. In 2012 the economy expanded by only 0.9 percent.
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South Korea’s central bank cut its base rate by 25 basis points to 2.50 percent, saying downside risks to global growth remain “considerable” while domestic growth remains weak with the negative output gap likely to continue for a considerable time.
The Bank of Korea (BOK), which surprised many by holding its rate steady last month, said it would closely monitor the effect of its rate cut and the government’s 17.3 trillion won supplementary budget to keep inflation within its target over the medium term.
Last month the BOK’s Monetary Policy Committee also said there were downside risks to the global economy but this month it used stronger language by describing these risks as considerable.
At its meeting in April, the BOK decided by a narrow 4-3 vote to hold rates steady despite government pressure. It is the BOK’s first rate cut this year after two cuts in 2012, when the base rate was cut by 50 basis points.
The BOK said moderate economic recovery in the US was continuing but the sluggishness of the euro area’s economy has deepened and “the trends of improvement in economic indicators in emerging market countries such as China have been weaker than initially anticipated.”
“The Committee expects the global economy to continue its modest recovery going forward, but judges that the downside risks to growth remain considerable due chiefly to uncertainties related to for instance the sluggishness of economic activity in the euro area and to the implementations of fiscal consolidation in major countries,” the BOK said.
Korea’s Gross Domestic Product expanded by a stronger-than-expected 0.9 percent in the first quarter from the fourth quarter’s 0.3 percent, the highest growth rate in two years, signs interpreted by some observers that last year’s rate cuts were starting to pay off.
But the BOK said growth remains weak, and although exports are recovering, the pace is modest and domestic demand is alternating between improvement and worsening.
“Going forward, there is no change to the Committee’s forecast that the domestic economy will show a negative output gap for a considerable time, due mostly to the slow recovery of the global economy, to the influence of the Japanese yen weakening, and to the geopolitical risk in Korea,” the bank said.
South Korea’s economy expanded by 2.0 percent in 2012, down from 2011’s 3.6 percent, and the BOK now expects 2013 growth of 2.6 percent, slightly higher than the government’s 2.3 percent forecast.
Korea’s inflation rate fell to 1.2 percent in April from 1.3 percent the prior month, well below the BOK’s 2.5-3.5 percent range for the 2013-2015 period. Core inflation also eased to 1.4 percent from 1.5 percent in March.
The BOK expects inflation to remain low for the time being.
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Malaysia’s central bank held its benchmark Overnight Policy Rate (OPR) rate steady at 3.0 percent, as expected, saying this stance was appropriate in light of steady domestic growth and inflation that is expected to continue rise modestly.
The Central Bank of Malaysia, which has held rates steady since June 2011, said domestic supply and costs are expected to push prices higher, but “given the modest global growth prospects, pressures from global commodity prices are likely to be contained.”
At its previous meeting in March, the bank’s Monetary Policy Committee made the same observation about the outlook for inflation.
Malaysia’s inflation rate rose slightly to 1.6 percent in March from February.
Domestic demand is continuing to support Malaysia’s economy and investment activity and consumption have remained firm and the bank expects this to continue.
The central bank forecasts growth of 5-6 percent in 2013 compared with 5.6 percent in 2012 and 5.1 percent in 2011.
The central bank described the momentum in global growth as “modest” and the recovery uneven and there are still downside risks as growth in advanced countries is constrained by fiscal consolidation, while domestic demand continues to support growth in Asia.
“Despite the improvements in international financial market conditions, markets remain vulnerable to setbacks and changes in sentiment,” Malaysia’s central bank said.
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Brazil’s central bank raised its benchmark Selic rate by 25 basis points to 7.50 percent in response to a “high level of inflation,” but added that it would be cautious in any further changes to monetary policy due to domestic and external uncertainty and did not issue a bias in its future policy direction.
The Central Bank of Brazil said its policy committee, known as Copom, voted by six to two to raise the key interest rate, the first change in rates since November 2012.
The rate rise was widely expected by financial markets following a rise in inflation and warnings last week by Central Bank Governor Alexandre Tombini and Finance Minister Guido Mantega that they would not tolerate inflation.
Brazil’s inflation rate hit 6.59 percent in March – the first time since November 2011 it has been above the central bank’s upper tolerance level – continuing its steady rise since July last year.
The central bank targets annual inflation of 4.5 percent, plus/minus 2 percentage points and the bank has forecast inflation of 5.7 percent this year and 5.3 percent in 2014.
Brazil’s Gross Domestic Product rose by 0.6 percent in the fourth quarter from the third quarter, the sixth quarter with a rising growth rate.
On an annual basis, fourth quarter growth was 1.4 percent, up from 0.9 percent in the third quarter and 0.5 percent in the second quarter. Although growth is now trending upward it is still well below 2010 and 2011.
In 2012 Brazil’s economy expanded by only 0.9 percent, sharply down from 2010’s 7.5 percent.
At its previous meeting in January, the Copom committee said that stable monetary conditions for a “prolonged period” was the most appropriate strategy to ensure that inflation returns to target.
This followed the November 2012 meeting when the central bank froze rates at 7.25 percent for the first time after 10 consecutive rate cuts that began in August 2011 when the bank started its easing cycle by cutting rates from 12.50 percent.
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