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  • Monetary Policy Week In Review – Oct 13-17, 2014: Era Of Ultra-Easy Monetary Policy In US, UK May Be Extended

    The era of ultra-easy monetary policy in the U.S. and U.K. may continue for longer than expected as central bankers on both sides of the Atlantic last week signaled to financial markets that Europe's worsening growth prospects could lead to a delay in any tightening.
    The first sign of a possible shift in U.S. monetary policy came on Oct. 11 when Fed Vice Chairman Stanley Fischer said weaker-than-expected foreign growth could lead to the Fed to remove accommodation more slowly than otherwise.
    Fischer's comments were followed on Oct. 16 by James Bullard, president of the St. Louis Fed, who said the Fed may delay ending its asset purchases as planned later this month in response to declining inflation expectation in the U.S.
    The reaction of financial markets to the comments by Bullard - who won't be voting on monetary policy until 2016 - were immediate, the latest reminder of just how addicted highly charged financial markets have become to central bank liquidity.
    Talk of a "Yellen put" quickly resurfaced in media with Fischer and Bullard's remarks seen reflecting a more general view among members of the Federal Open Market Committee (FOMC).
    A "Yellen put" is a reference to the belief that the Fed under its new chair will continue the policy known as the "Greenspan Put" and the "Bernanke Put" and ultimately intervene to put a floor under prices if markets suddenly go into freefall.
    The next day, Oct. 17, it was the Bank of England's (NYSE:BOE) turn to reassure financial markets that it too was sensitive to "gloomier" global growth prospects, as its chief economist, Andrew Haldane, said in a speech and to the ITV television network.
    Haldane said the downturn in global growth prospects and lack of inflationary pressures meant that he was now less likely to vote for a rate increase than three months ago and the BOE could wait longer before raising rates.
    As in the U.S., financial markets immediately pushed back the time frame for when they expect the BOE to raise its rates for the first time July 2007.
    U.K. rates are now broadly expected to be raised in September 2015 rather than May while the first hike in U.S. rates is now seen by markets in the fourth quarter of 2015 rather than around the middle of the year.
    In Europe, the focal point of financial markets' worry over slowing global growth, there were signs that politicians finally grasp the urgent need to help the European Central Bank (ECB) in reviving stalling economic growth.
    German Finance Minister Wolfgang Schaeuble told the Welt am Sonntag newspaper that investments to improve competitiveness had to be increased quickly, echoing the International Monetary Fund's appeal for advanced economies to boost potential growth, partly by investments in ageing infrastructure.
    But Schaeuble also showed why it is so agonizingly difficult for the euro area to overcome "eurosclerosis" - a term created in the late 1970s to describe the excruciatingly slow pace of economic and political integration along with the sluggish pace of economic growth.
    Schaeuble said any investments to improve Germany's energy grid, roads or railways will not change the government's promise to balance its budget next year for the first time since 1969, a commitment that severely limits its ability to stimulate demand.

    The message from those central banks that deliberated policy last week echoed the concerns of the Fed and BOE, with inflation generally declining along with growing downside risks from the global economy.
    As in recent months, central banks worldwide are closely following the possibility of increased volatility in global financial conditions from the shift in U.S. monetary policy, a factor that was particularly noted by the Bank of Korea, the Bank of Uganda, the National Bank of Serbia, the Central Bank of Egypt, the Bank of Chile and the Bank of Mozambique.
    Last week also witnessed expected rate cuts by the central banks of Korea and Chile in response to weak economic activity.

    Through the first 42 weeks of this year, the 90 central banks followed by Central Bank News have cut their policy rates 53 times, or 13.8 percent of all policy decisions, up from 12 percent at the end of the first half and 12 percent at the end of the first quarter.
    Central banks in advanced economies have accounted for six of the rate reductions, with Israel cutting its rate three times, the European Central Bank twice and Sweden once.
    Following last week's rate cuts by Chile and South Korea, emerging market central banks have cut rates 24 times, just under half of all the rate cuts worldwide as the slowdown in Europe and China takes a bite out of their exports.
    Meanwhile, rates have been raised 38 times, or 9.9 percent of all policy decisions, up from 9.3 percent at the end of June and 8.7 percent at the end of March.
    Among advanced economies, only New Zealand has raised its rate four times while emerging market central banks have raised rates 18 times, frontier market central banks three times and other central banks 12 times.

    LIST OF LAST WEEK'S CENTRAL BANK DECISIONS:

     


    TABLE WITH LAST WEEK'S MONETARY POLICY DECISIONS:

    COUNTRYMSCINEW RATEOLD RATE1 YEAR AGO
    UGANDA 11.00%11.00%12.00%
    SINGAPOREDMN/AN/AN/A
    SOUTH KOREAEM2.00%2.25%2.50%
    SERBIAFM8.50%8.50%10.50%
    EGYPTEM9.25%9.25%8.75%
    CHILEEM3.00%3.25%4.75%
    SRI LANKAFM6.50%6.50%6.50%
    MOZAMBIQUE 8.25%8.25%8.25%

    THIS WEEK (Week 43) five central banks or monetary authorities are scheduled to decide on monetary policy: Namibia, Canada, the Philippines, Turkey and Norway.

    TABLE WITH THIS WEEK'S MONETARY POLICY DECISIONS:

    COUNTRYMSCIDATECURRENT RATE1 YEAR AGO
    NAMIBIA 21-Oct6.00%5.50%
    CANADADM22-Oct1.00%1.00%
    PHILIPPINESEM23-Oct4.00%3.50%
    TURKEYEM23-Oct8.25%4.50%
    NORWAYDM23-Oct1.50%1.50%

    www.CentralBankNews.info

    Oct 19 6:13 PM | Link | Comment!
  • Monetary Policy Week In Review – Oct 6-10, 2014: Volatility Returns As Forward Guidance Is Questioned

    Volatility returned with a vengeance in financial markets last week as investors took fright of the prospect of slowing economic growth, especially in Europe, at the same time the U.S. Federal Reserve wraps up its asset purchases and gears up for its first rate rise in more than eight years.
    Just how the Federal Reserve will communicate its future policy stance once the era of quantitative easing (QE) ends was one of the main topics discussed by the Federal Open Market Committee (FOMC) at their September meeting, according to the minutes released last week.
    For almost two years, the FOMC has been applying the forward guidance that the fed funds rate would be maintained for "a considerable time" after QE ends.
    It is now faced with the challenge of replacing that phrase with words that "avoid sending unintended signals about the Committee's policy outlook," as the minutes said.
    At its meeting on Sept. 16 and 17, the FOMC confirmed that it would end its asset purchase program at its meeting Oct. 29 with the final purchases in November, if the labor market continues to improve and inflation moves toward its 2.0 percent goal.
    Whether that timetable remains intact has now been thrown into doubt by the slowdown in global growth and the rising dollar that could hold back inflation, according to several FOMC members in recent days.

    How central banks can communicate their intended policy amid a sea uncertainty was the focus of a speech last week by Bank of Canada Governor (BOC) Stephen Poloz, who noted "there may be significant volatility when markets perceive the central bank is preparing to change its position."
    Poloz describes the recent use of forward guidance as taking certain policy options off the table, a move that is tantamount to giving the market a one-way bet.
    With memories of last summer's "taper tantrum" still fresh in most investors' memories, Poloz says financial markets respond to such one-way bets with leveraged positions so its hardly a surprise that volatility returns when it looks like the guidance is being changed.
    Another potential downside of forward guidance is that it is conditional upon economic forecasts. These assumptions become caveats for the guidance so fragile markets end up needing repeated assurances in light of new data that may undermine the forecasts.
    "In short, forward guidance can become addictive for markets if it is overly precise or heavily weighted with caveats," Poloz said.
    Poloz' conclusion is that forward guidance is useful but should be reserved primarily at the zero lower bound. During more normal times, central banks should offer full transparency of the risks the are weighing in policy deliberations.
    This allows financial markets to assess new information in sync with the central bank so the market remains two-way and less vulnerable to unusual leveraging and volatile shifts in sentiment.
    "Essentially, the net effect of dropping forward guidance is to shift some of the policy uncertainty from the central bank's plate back onto the market's plate, a more desirable situation in normal times," Poloz said.

    Through the first 41 weeks of this year, the 90 central banks followed by Central Bank News have cut their policy rates 51 times, or 13.5 percent of all policy decisions, up from 12 percent at the end of the first half and 12 percent at the end of the first quarter.
    Central banks in advanced economies have accounted for six of the rate reductions, with Israel cutting its rate three times, the European Central Bank twice and Sweden once.
    Meanwhile, rates have been raised 38 times, or 10 percent of all policy decisions, up from 9.3 percent at the end of June and 8.7 percent at the end of March.
    Among advanced economies, only New Zealand has raised its rate four times while emerging market central banks have raised rates 18 times, frontier market central banks three times and other central banks 12 times.

    LIST OF LAST WEEK'S CENTRAL BANK DECISIONS:

     


    TABLE WITH LAST WEEK'S MONETARY POLICY DECISIONS:

    COUNTRYMSCINEW RATEOLD RATE1 YEAR AGO
    AUSTRALIADM2.50%2.50%2.50%
    JAPANDMN/AN/AN/A
    INDONESIAEM7.50%7.50%7.25%
    CROATIAFM5.00%5.00%6.25%
    POLANDEM2.00%2.50%2.50%
    UNITED KINGDOMDM0.50%0.50%0.50%
    TAJIKISTAN 6.90%5.90%5.50%
    PERUEM3.50%3.50%4.25%

    This week (Week 42) seven central banks or monetary authorities are scheduled to decide on monetary policy: Uganda, Singapore, South Korea, Serbia, Egypt, Chile and Sri Lanka.

    TABLE WITH THIS WEEK'S MONETARY POLICY DECISIONS:

    COUNTRYMSCIDATECURRENT RATE1 YEAR AGO
    UGANDA 14-Oct11.00%12.00%
    SINGAPOREDM14-OctN/AN/A
    SOUTH KOREAEM15-Oct2.25%2.50%
    SERBIAFM16-Oct8.50%10.50%
    EGYPTEM16-Oct9.25%8.75%
    CHILEEM16-Oct3.25%4.75%
    SRI LANKAFM17-Oct6.50%6.50%

    www.CentralBankNews.info

    Oct 13 1:18 AM | Link | Comment!
  • Monetary Policy Week In Review – Sep 29-Oct 3, 2014: Policymakers Relaxed Over Dollar Rise, Romania Cuts Rate

    The main theme in global monetary policy last week was the continuing rise in the U.S. dollar as investors adjust to the widening split in policy cycles among major advanced economies.
    So far, policymakers appear relaxed about the dollar's appreciation against a broad spectrum of currencies - not just against the euro, yen and sterling, but also most emerging market currencies - as its rise boost the weakest economies, has been fairly gradual and long-awaited.
    At Thursday's press conference in Naples, Italy, Mario Draghi, president of the European Central Bank (ECB), said the change in exchange rates is the result of differing business cycles and thus in monetary policies.
    The euro dropped further to around 1.25 to the dollar at the end of last week, a level not seen since August 2012 when the euro zone was mired in recession with the ECB cutting rates its rate by 25 basis points in July to 0.75 percent.
    Haruhiko Kuroda, governor of the Bank of Japan, echoed Draghi's sentiment, saying the yen's weakening was broadly positive for the country's economy as long as it reflected the underlying fundamentals.
    The only change in policy rates last week was by the National Bank of Romania, which continued its easing cycle to help boost inflation and demand.
    The other five central banks that met last week - the ECB, the Reserve Bank of India, the Central Bank of Iceland, the National Bank of Angola and the National Bank of Rwanda - all maintained their policy rates.
    Through the first 40 weeks of this year, the 90 central banks followed by Central Bank News have cut their policy rates 50 times, or 13.5 percent of all policy decisions, up from 12 percent at the end of the first half and 12 percent at the end of the first quarter.
    Meanwhile, rates have been raised 37 times, or 10 percent of all policy decisions, up from 9.3 percent at the end of June and 8.7 percent at the end of March.

    LIST OF LAST WEEK'S CENTRAL BANK DECISIONS:

     


    TABLE WITH LAST WEEK'S MONETARY POLICY DECISIONS:

    COUNTRYMSCINEW RATEOLD RATE1 YEAR AGO
    ANGOLA 8.75%8.75%9.75%
    INDIAEM8.00%8.00%7.50%
    ROMANIAFM3.00%3.25%4.25%
    ICELAND 6.00%6.00%6.00%
    RWANDA 6.50%6.50%7.00%
    EURO AREADM0.05%0.05%0.50%

    This week (Week 41) eight central banks are scheduled to decide on monetary policy: Australia, Japan, Indonesia, Croatia, South Korea, Poland, the United Kingdom and Peru.

    While both South Korea and Poland are expected to cut their rates, most of the attention in financial markets is likely to be focused on the annual meetings of the International Monetary Fund (NYSE:IMF) and the World Bank in Washington D.C.

    On Tuesday the IMF will release its latest World Economic Outlook (WEO).

    TABLE WITH THIS WEEK'S MONETARY POLICY DECISIONS:

    COUNTRYMSCIDATECURRENT RATE1 YEAR AGO
    AUSTRALIADM7-Oct2.50%2.50%
    JAPANDM7-OctN/AN/A
    INDONESIAEM7-Oct7.50%7.25%
    CROATIAFM7-Oct5.00%6.25%
    SOUTH KOREAEM8-Oct2.25%2.50%
    POLANDEM8-Oct2.50%2.50%
    UNITED KINGDOMDM9-Oct0.50%0.50%
    PERUEM9-Oct3.50%4.25%

    www.CentralBankNews.info

    Oct 05 5:59 PM | Link | Comment!
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