Global Central Bank Monetary Policy Weekly Review – for weekended 11th May 2013

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Monetary Policy Week in Review – May 11, 2013: 8 banks cut rates by 550 bps as BOJ easing ripples through world – Central Bank News.

Last week 16 central banks took policy decisions with a record eight banks cutting rates by a total of 550 basis points as the Bank of Japan’s (BOJ) monetary easing looks to become a watershed event in global monetary policy by opening a new front in the currency wars.
Only weeks after the Group of 20 finance ministers and central bank governors agreed that they  “will refrain from competitive devaluation,” Australia and Korea – two of the G20 members – surprised markets by cutting interest rates.
Observers questioned the motives behind the two rate cuts as the global economic outlook had not drastically deteriorated.
It is already clear that the ripples from the BOJ’s easing is upsetting global balances, with a range of competitors reacting to the 17 percent plunge in the value of the yen to the U.S. dollar so far this year.
The only substantial change in the policy statements from the Reserve Bank of Australia(RBA) and the Bank of Korea (BOK) from April to May was the reference to foreign exchange while their observations about growth were largely unchanged.
The other six central banks that cut rates this week did not refer to exchange rates but said a lack of inflationary pressure had given them space to boost growth.
But the RBA said the exchange rate of the Australian dollar had been “little changed at a historically high level” while the BOK said Korea’s output gap would continue for a considerable time due to slow global growth, “the influence of the Japanese yen weakening” and geopolitical risks.
To be sure, the global economy has entered a soft patch. But that is exactly the point of international agreements. When times get tough, policy makers are supposed to consider the international ramifications of their actions and look to the common good.
The official reaction of the international community, both the G20 and the Group of Seven, to the BOJ’s new and more aggressive quantitative easing is that it benefits everyone because it strengthens global growth by supporting Japan’s domestic demand and stopping deflation.
Meanwhile, individual countries are adjusting their policies to the impact of the lower yen and the inflow of excess funds to their markets from the BOJ’s easing. Data showed that Japanese investors were net buyers of foreign bonds in recent weeks.
The Reserve Bank of New Zealand (RBNZ) intervened in foreign exchange markets for the first time since 2007 to weaken its dollar. The move was hardly a surprise after the RBNZ last month pinned some of the blame for the currency’s appreciation on Japan’s “substantial quantitative easing programme, ” which is making life hard for its exporters.
Thailand has been debating how to tackle the rise in its baht currency and capital inflows with the Bank of Thailand (BoT) on Monday meeting with government and private sector representatives to discuss a response.
The Thai finance minister has been vocal in his criticism of the BOT, saying it should take the strength of the currency into account when deciding on policy and not just inflation. So far the Thai central bank has resisted pressure and kept rates unchanged, arguing the inflows are due to investors’ confidence in the Thai economy and rate cuts would not make much of a difference.

Apart from Australia and Korea, the central banks of Kenya, BelarusPolandGeorgiaSri Lanka and Vietnam also cut rates this week. Seven banks held rates steady: MalawiNorway, the United KingdomMalaysia, PeruEgypt and Mozambique.
Gambia was the only central bank to raise rates this week. Four percent of all rate decisions this year have favored rate hikes, a largely stable ratio. It was Gambia’s first rate rise this year, reversing two rate cuts in 2012, with the bank citing accelerating inflation, partly due to currency depreciation.

 Since the BOJ announced its “new phase of monetary easing” on April 4, central banks’ policy rates have tumbled by a cumulative 1,235 basis points, accounting for 58 percent of the total decline in rates so far this year.
Although the decline in policy rates accelerated this week, the total fall this year only amounts to 2,126 basis points, still a far cry from cuts totaling 6,475 in 2012 and 7,517 in 2011. However, the fall in rates does not reflect the true extent of global monetary easing as it doesn’t take into account quantitative easing measures.
Through the first 19 weeks of this year, 24 percent of 186 policy decisions taken by the 90 central banks followed by Central Bank News have lead to rate cuts, a sharp increase from 20 percent after the first 18 weeks.
It was the highest number of rate cuts in one week so far this year, pushing down the average Global Monetary Policy Rate (GMPR) to 5.66 percent from 5.70 percent at the end of April and 6.2 percent at the end of 2012.
The majority of this year’s policy decisions still favor unchanged rates, but the trend is declining. At the end of this week, 72 percent of all decisions this year were to keep rates steady, down from 77 percent after the first 14 weeks of this year and 75 percent after the first 16 weeks.


KENYA FM 8.50% 9.50% 18.00%
AUSTRALIA DM 2.75% 3.00% 3.75%
BELARUS 25.00% 27.00% 34.00%
GAMBIA 14.00% 12.00% 13.00%
MALAWI 25.00% 25.00% 16.00%
NORWAY DM 1.50% 1.50% 1.50%
POLAND EM 3.00% 3.25% 4.75%
GEORGIA 4.25% 4.50% 6.00%
SOUTH KOREA EM 2.50% 2.75% 3.25%
UNITED KINGDOM DM 0.50% 0.50% 0.50%
MALAYSIA EM 3.00% 3.00% 3.00%
PERU EM 4.25% 4.25% 4.25%
EGYPT EM 9.75% 9.75% 9.25%
SRI LANKA FM 7.00% 7.50% 7.75%
VIETNAM FM 7.00% 8.00% 12.00%
MOZAMBIQUE 9.50% 9.50% 13.50%

 NEXT WEEK  (Week 20) features five central bank policy decisions, including Serbia, Indonesia, Iceland, Latvia and Turkey.
On Monday Thailand’s finance minister meets with the Bank of Thailand’s monetary policy committee, government officials and the private sector to discuss the rise in the Thai baht. Markets are speculating the meeting will result in a rate cut. The next scheduled policy meeting by Bank of Thailand is on May 29.

COUNTRY MSCI              DATE               RATE        1 YEAR AGO
SERBIA FM 13-May 11.75% 9.50%
THAILAND EM 13-May 2.75% 3.00%
INDONESIA EM 14-May 5.75% 5.75%
ICELAND 15-May 6.00% 5.50%
LATVIA 16-May 2.50% 3.50%
TURKEY EM 16-May 5.00% 5.75%

Global Central Banks Monetary Policy Weekly Review for week ended May 4, 2013

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Monetary Policy Week in Review – May 4, 2013: Europe, India cut rates, Fed assures QE depends on economy – Central Bank News.

 Last week 11 central banks took policy decisions with six banks keeping rates steady (Angola, Albania, the United States, the Czech Republic, Romania and Uganda), Bulgaria raising its rate and four banks cutting rates, most notably the European Central Bank (ECB) and theReserve Bank of India (RBI) along with Denmark and Botswana.
    Both the ECB and the RBI cut their key rates by 25 basis points, both rate cuts were widely expected and both central banks appealed – almost in unison – to their respective governments to get busy on reforming their economies as the problems, as ECB President Mario Draghi said, “cannot be fixed by monetary policy.”
    That sentiment was echoed by the RBI, which said “recent monetary policy action, by itself, cannot revive growth.”
    But that is where the similarities end.
   While Draghi said the ECB is “ready to act if needed,” including pushing the deposit rate into negative territory, the RBI cautioned there was  “little space for further monetary easing” due to inflationary pressures.
    Despite his willingness to act, Draghi is running out of options to reverse Europe’s shrinking economy. Large banks can draw all the money they need from the ECB at a refinancing rate of 0.50 percent while banks that rely on the interbank market for funds pay 6-7 basis points, or “almost zero, ” as Draghi said.
    And a plan to funnel loans to small and medium-sized businesses, mentioned by Draghi last month, turns out to be a very complex undertaking that will not happen in the near term.
    “The ECB cannot clean bank’s balance sheets,” Draghi said, admitting that he was frustrated that his efforts were not ending up with “better welfare, lower unemployment and better economic activity” in the 17-nation euro area.
    The core of the problem is that 80 percent of all loans or credits to businesses in Europe go through the banking system but banks are getting weaker and less able to lend as the ongoing recession increases the share on non-performing loans and toxic assets on their books. Some banks will now have to strengthen their capital base.
    “In Europe, you have to go through banks. You don’t have capital markets of the kind you have in the United States, so that we have to proceed via the banking system,” Draghi said, adding that 80 percent of all financial intermediation in the U.S. goes via capital markets.
    So together with the European Investment Bank (EIB), the ECB is working on ways to package and thus create a market for such loans, known as asset-backed securities (ABSs).
    But it’s far from an easy task and the outcome is far from clear.
    “We do not have a precise position on what we will do,” Draghi admitted, “you have to consider that the ABS market is dead and has been dead for a long time.”
    Another important event in central banking this week was the Federal Reserve’s  statement that it may either increase or decrease the amount of assets it will be purchasing, depending on the state of the U.S. jobs market and inflation.
    Like the Bank of Japan and the Bank of England, the Federal Reserve has been engaged in purchasing various assets, mainly government bonds, to keep long-term interest rates low as a way to  stimulate economic activity when official policy rates hit the zero bound.
    While the Federal Reserve is still sticking to its current plan of buying $85 billion worth of Treasuries and housing-related debt a month, the issue of how and when it will start to curtail these purchases weigh heavily on investors’ minds.
    Although the Federal Reserve has assured markets that its “exceptionally” low target for the federal funds rate will remain in place for quite a while, any sign that it will reduce its asset purchases seems likely to be interpreted as the start of monetary tightening, sending shockwaves through financial markets.
      Every word uttered by members of the Federal Open Market Committee of how and when the Federal Reserve will start to normalize monetary policy is causing jitters in markets, and the debate is likely to dominate sentiment for months.
    Signs of an improving U.S. economy is immediately met by expectations that the Federal Reserve will wind down asset purchases while signs of a worsening economy is seen as a reason for expanding asset purchases.
    By now officially linking its asset purchases to inflation and the jobs market – just like the federal funds rate – the Federal Reserve is seeking to soothe investors’ frayed nerves: Don’t worry, monetary policy will first be tightened when the economy is strong enough to handle it.
    Through the first 18 weeks of this year, 20 percent of the 168 policy decisions taken by the 90 central banks followed by Central Bank News have lead to rate cuts, up from 19 percent after the first 17 weeks.
    Central banks in emerging markets account for 38 percent of this year’s rate cuts, but thanks to this week’s cut by the ECB and Denmark, the ratio of rate cuts by banks in developed markets tripled to 9 percent from 3 percent.
    Central banks from other markets – such as Botswana this week and Mongolia and Georgia in past weeks – account for 41 percent of all rate cuts this year.
    But the overwhelming majority of this year’s decisions by central banks, 76 percent, have gone in favour of holding rates on hold following last year’s spree of rate cuts and the slow, but gradual improvement of the global economy.
ANGOLA 10.00% 10.00% 10.25%
BOTSWANA 9.00% 9.50% 9.50%
BULGARIA FM 0.02% 0.01% 0.15%
ALBANIA 3.75% 3.75% 4.25%
UNITED STATES DM 0.25% 0.25% 0.25%
EURO AREA DM 0.50% 0.75% 1.00%
CZECH REPUBLIC EM 0.05% 0.05% 0.75%
DENMARK DM 0.20% 0.30% 0.60%
ROMANIA FM 5.25% 5.25% 5.25%
UGANDA 12.00% 12.00% 20.00%
INDIA EM 7.25% 7.50% 8.00%
    Next week (week 19) features 13 central bank policy decisions, including Australia, Sri Lanka, Norway, Malawi, Poland, Georgia, South Korea, United Kingdom, Malaysia, Peru, Egypt, the Philippines and Mozambique. New Zealand will be issuing its financial stability report on May 8.
    In addition, the U.K is hosting the spring meeting of Group of Seven (G7) finance ministers and central bank governors on Friday and Saturday. The G7, which has met regularly since 1976, comprises Canada, France, Germany, Italy, Japan, the UK and the USA. Representatives of the European Union, the ECB and heads of international financial institutions also attend the meetings.
COUNTRY MSCI              DATE               RATE        1 YEAR AGO
AUSTRALIA DM 7-May 3.00% 3.75%
SRI LANKA FM 7-May 7.50% 7.75%
MALAWI 7-May 25.00% 16.00%
NORWAY DM 8-May 1.50% 1.50%
POLAND EM 8-May 3.25% 4.75%
GEORGIA 8-May 4.50% 6.00%
SOUTH KOREA EM 9-May 2.75% 3.25%
UNITED KINGDOM DM 9-May 0.50% 0.50%
MALAYSIA EM 9-May 3.00% 3.00%
PERU EM 9-May 4.25% 4.25%
EGYPT EM 9-May 9.75% 9.25%
PHILIPPINES EM 10-May 3.50% 4.00%
MOZAMBIQUE 10-May 9.50% 13.50%

Asian Apps challenge American Apps … Facebook beware . . .

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As Asian chat app Line enters US, its target Facebook | Business Standard.

Line, the Asian chat app that reached 100 million users about three times faster than Facebook, is putting growth before profit to take on the US social-networking giant and Twitter Inc. in their own backyard.

With 38 per cent of its users in Japan, developer NHN Japan is honing plans to expand Line’s reach, setting up a US marketing team and planning joint promotions and content- delivery agreements with local companies. NHN Japan is still at an investment phase as it targets as many as 1 billion customers globally, said Jun Masuda, chief strategy and marketing officer.

“This year, we want to capture North America,” Masuda said. “We’re not focused on being in the black. It isn’t time to cash in yet.”

Known for cartoon characters and other “stickers” that users can include in chat messages, Line is among several apps from Asia challenging Facebook, Twitter and Microsoft’s Skype as a way of communicating via mobile devices. South Korea’s KakaoTalk is looking to Vietnam and Indonesia to expand past 82 million users; China’s WeChat has about 300 million.

Line reached the 100 million-user mark 19 months after its June 2011 debut, compared with 49 months for Twitter and 54 months for Facebook, according to NHN Japan.

Line has features, such as group messaging, that make it stand out as an alternative to Facebook, said Tom Taulli, an independent analyst who covers initial public offerings. Still, incumbent chat providers are robust enough to keep from losing many users to Line, said Clark Fredricksen, a researcher at EMarketer Inc.

Evolving market
“In the U.S., things are clearly evolving in the direction of instant messaging and chat, and having a mobile experience across devices is important,” Fredricksen said. “There’s clearly an opportunity, but also major platforms that are big enough and innovative enough could head off any threat from a foreign competitor.”

Parent NHN Corp., operator of South Korea’s biggest search engine, has gained about 40 per cent in Seoul trading since June 1, 2011, against an 8.9 per cent drop in the benchmark Kospi index. Facebook is down 32 per cent since its May 18 debut.

“NHN is trying to carve out a niche market in the US and Europe,” said Park Dae Up, a Seoul-based analyst at Dongbu Securities Co. “Making big strides is difficult in those developed markets, where Facebook and Twitter already dominate. It’s trying to be a significant second-tier player.”

Operating systems
Facebook, based in Menlo Park, California, had more than 1 billion monthly active users as of December, with 82 per cent of them outside the U.S. and Canada, according to the company’s website. Twitter, based in San Francisco, surpassed 500 million user accounts in June, including about 140 million in the US, according to a report by Semiocast, a research company.

WhatsApp, based in Santa Clara, California, has seen its mobile messaging app downloaded by more than 100 million users of Android phones, Neeraj Arora, a spokesman for the company, said in an e-mail. It’s seeking to add more users of Apple devices by offering unlimited service for $1 a year, he said.

Line, with services including free voice calls, is available to users of Google Inc.’s Android, iPhone, Windows Phone and Research in Motion Ltd.’s BlackBerry operating systems as well as personal computers. The app has topped Apple’s rankings of free downloads in 41 countries, according to NHN.

When the app hit 120 million users on March 9, about 45 million accounts were in Japan and 15 million each were in Taiwan and Thailand, according to NHN. The company doesn’t disclose numbers for other markets.

Privacy voncerns
Part of the reason Line and free messaging service KakaoTalk have been successful in Asia may be that users in the region are particularly concerned about privacy, NHN’s Masuda said. While Facebook is known for its status updates and Twitter for its posts, the Asia-developed chat applications are mainly focused on person-to-person messages.

“There is a need for closed and private communication,” Masuda said.

Asian consumers are also more accustomed to paying for apps and services than those in Western markets, he said. While Line’s basic service is free, it earns revenue by selling stickers and from games and corporate accounts, he said.

NHN is nonetheless betting Line’s global appeal will grow. While it hasn’t set an official target, the company wants to grow to 500 million or 1 billion users in two to three years, Masuda said.

‘At Any Cost’
“We want to spread throughout the world at any cost,” Akira Morikawa, president of NHN Japan, said in a speech in Tokyo last week.

The company said Feb. 26 it teamed up with Nokia Oyj to make Line available on the Espoo, Finland-based company’s Asha mobile devices. The release is scheduled for this month in China, Malaysia, Indonesia, Thailand, Vietnam, the Philippines, Cambodia, Taiwan, Hong Kong, Singapore, Australia and New Zealand, Line said in a statement on its website.

In addition to selling stickers, Line plans to develop new services and may generate future sales by becoming a marketing platform for companies, Masuda said. The company doesn’t disclose sales or profit.

Line’s strategy of growing first and making a profit later may prove difficult, said Mitsushige Akino, a fund manager in Tokyo at Ichiyoshi Investment Management Co.

“NHN says they’re in a value-building stage, but while they keep saying that, many similar services may emerge,” Akino said.

KakaoTalk, WeChat
Any competitor can offer games, stickers and a place for advertisements, so holding onto users will require fresh, new ideas, he said.

KakaoTalk has more than doubled its users since January 2012, says developer Kakao Corp., based together with NHN Corp. (035420) in Seongnam, outside Seoul.

WeChat, a messenger app from Shenzhen-based Tencent Holdings Ltd. (700), China’s largest Internet company, said it had more than 300 million registered user accounts as of Jan. 21, two years after starting the service. The company has formed a team to study possible expansion in the U.S., Jerry Huang, a director, said in a Feb. 25 e-mail.

WeChat has the potential to reach at least 400 million users this year, Alicia Yap, an analyst at Barclays Plc in Hong Kong, said in a March 13 report.

“Even after they become big, Line still needs to create a model that makes users spend money,” Akino said. “I think that’ll be difficult.”

Doubling Marketing
NHN, which said last month it will spin off Line, may list the new company in Japan late next year, Korea Economic Daily reported March 18, citing unidentified bankers.

“We don’t lack funds,” Masuda said, adding that there were no plans for an initial public offering at the moment.

The company is spending 250 billion won ($224 million) marketing the app this year, more than double last year’s amount, Jay Park, a Seoul-based analyst at Samsung Securities Co., said in a Feb. 25 report. He estimates Line’s value at 7.9 trillion won, about 11 percent of Facebook’s $61.6 billion market capitalization.

“We expect Line to boast more than 300 million subscribers by end-2014,” Park said. “Although some are concerned over a sharp rise in Line-related marketing costs, we believe it is essential to carving out a share of a market.”