Sri Lanka

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.
 LAST WEEK’S (WEEK 16) MONETARY POLICY DECISIONS:
COUNTRY MSCI     NEW RATE         OLD RATE        1 YEAR AGO
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%

 

Global Central Banks Monetary Policy Week in Review – Week ended Apr 13, 2013

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Monetary Policy Week in Review – Apr 13, 2013: Markets digest BOJ easing as 7 central banks hold rates and 1 cuts – Central Bank News.

Last week eight central banks took policy decisions with only one (Mongolia) cutting its rate while the other seven banks (Poland, South Korea, IndonesiaSerbia, Chile, Peru and Pakistan) kept rates on hold as markets continued to digest the Bank of Japan’s unprecedented monetary easing.
    Singapore’s Monetary Authority, which uses the exchange rate rather than interest rates to control inflation, also left its monetary policy stance unchanged.
    Global policy makers, such as the Federal Reserve’s Ben Bernanke and Christine Lagarde of the International Monetary Fund, have generally welcomed the BOJ’s expansionary move as a welcome contribution to global economic growth.
    Stocks markets have also rejoiced while currency markets have pushed down the value of the yen further, a move that may cause friction among Japan’s competitors, especially in Asia.
    Some of the additional money being pumped into Japan’s economy will also find its way into higher-yielding currencies, presenting central banks in those countries with the challenge of managing the inflows to avoid domestic asset bubbles and currency appreciation.
    Central banks in South America, such as Peru and Brazil, have been tackling these challenges for some time now and at meeting in Rio de Janeiro 10 of the region’s central banks said they were paying “special attention” to global liquidity.
    In its statement this week, the Central Bank of Chile again referred to an appreciation of its peso but did not sharpen its language from last month. This was viewed as a signal by the central bank that it is concerned over the currency’s level though not worried enough to start intervening, as it last did from January through December 2011.
    In addition to Chile, which merely said Japan’s quantitative easing was reflected in a depreciation of the yen, South Korea’s Monetary Policy Committee didn’t mince words, saying the weak yen would contribute to the country’s negative output gap.
    However, in its latest economic outlook, the Bank of Korea’s staff was more balanced, referring to both pluses and minuses from Japan’s move.
    Posing an upside risk from Japan’s move, the BOK outlook said economic growth could be stronger than expected while uncertainty surrounding the value of the yen – diplomatic words for depreciation – posed a downside risk to growth.
    The BOK surprised many observers by holding rates steady last week despite the confidence-sapping, sabre-rattling by its northern neighbor and a cut in its growth forecasts. But the bank argued that it was keeping a close eye on the geopolitical risks and the economy was continuing to grow, albeit at a weak level.
    Pakistan’s central bank laid out its balancing act succinctly. A decline in inflation has given it room to cut rates except for the fact that a rate cut could encourage an outflow of “speculative” capital that is dearly needed to repay foreign loans, including to the International Monetary Fund.
    Through the first 15 weeks of this year, 77 percent of the 141 policy decisions taken by the 90 central banks followed by Central Bank News have lead to unchanged rates, the same ratio as after the first 14 weeks.
    In fact, this ratio has remained largely stable this year, illustrating how many central banks – excluding those in the major advanced economies – find themselves in a bit of a sweet spot: Economic activity is slowly strengthening while weak global demand is keeping inflation under control.
    Globally, 19 percent of policy decisions this year have lead to rate cuts – largely by central banks in emerging economies and Japan as the first central bank in developed markets – down from 20 percent last week.
    Of the 27 rate cuts worldwide so far this year, 37 percent have come from central banks in emerging markets, while banks in other unclassified markets, such as Mongolia last week and Georgia in the previous week, have accounted for 44 percent of the cuts.
LAST WEEK’S (WEEK 15) MONETARY POLICY DECISIONS:
COUNTRY MSCI     NEW RATE         OLD RATE        1 YEAR AGO
MONGOLIA 11.50% 12.50% 13.25%
POLAND EM 3.25% 3.25% 4.50%
SOUTH KOREA EM 2.75% 2.75% 3.25%
INDONESIA EM 5.75% 5.75% 5.75%
SERBIA FM 11.75% 11.75% 9.50%
PERU EM 4.25% 4.25% 4.25%
CHILE EM 5.00% 5.00% 5.00%
PAKISTAN FM 9.50% 9.50% 12.00%
NEXT WEEK (week 16) features five central bank policy decisions, including Sri Lanka’s meeting that had been tentatively scheduled for last week, Turkey, Brazil, Sweden and Canada.
COUNTRY MSCI              DATE               RATE        1 YEAR AGO
SRI LANKA FM 16-Apr 7.50% 7.75%
TURKEY EM 16-Apr 5.50% 5.75%
BRAZIL EM 17-Apr 7.25% 9.00%
SWEDEN DM 17-Apr 1.00% 1.50%
CANADA DM 17-Apr 1.00% 1.00%

 

Sri Lanka’s Central Bank holds rate steady ……

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Sri Lanka holds rate steady, sees lower inflation in March – Central Bank News.

 Sri Lanka’s central bank held its benchmark repurchase rate steady at 7.50 percent and said inflation is expected to start declining in March and “reach a more favourable level by the end of the year.”
    The Central Bank of Sri Lanka, which raised rates by a 50 basis points in 2012, said the decline in inflation should also offset the upward pressure from an expected revision to administered prices.
    Sri Lanka’s inflation rate was steady at 9.8 percent in February from January, reflecting the remaining impact of changes to administered prices and disruptions to food supplies.
    “Inflation has been at single digits over the past 49 months and the positive outlook for inflation is expected to continue, supported by well contained demand and favourable domestic and global supply conditions,” the central bank said.
    But the central bank voiced concern that after its rate cut in December, commercial lending and deposit rates remain high. However, following recent discussions with leading banks, the central bank expects rates to be adjusted and this should “stimulate private sector economic activity towards the growth targets for 2013.”
    The central bank raised rates by 75 basis points during 2012 to rein in credit growth but then cut its rate by 25 basis points in December and removed its ceiling on loan growth as inflation was declining.
    Credit extended to the private sector continued to ease in January to an annual rate of 15.5 percent from the peak of 35.2 percent last March, “indicating that the relaxation of monetary policy in December 2012 is yet to be reflected in bank lending,” the bank said.
    Sri Lanka’s balance of payments has also continued to rise and “comfortable surplus is anticipated in 2013” even if the central bank has bought $US 486 million net this year. The exchange rate has been stable due to increased foreign exchange flows to the government bond market and from tourism and private transfers, the bank said.
     Sri Lanka’s Gross Domestic Product expanded by an annual rate of 4.8 percent in the third quarter, down from 6.4 percent in the second. The central bank expects economic growth to reach 7.5 percent this year, above the International Monetary Fund’s forecast of 6.25 percent. In 2011 Sri Lanka’s economy expanded by 8.3 percent.

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