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  • Monetary Policy Week In Review – Apr 7-11, 2014: 7 Central Banks Hold Rates, ECB Mulls Answer To Strong Euro

    Seven central banks lived up to expectations last week and held their policy rates steady as the focus of global monetary policy shifted to Washington D.C. and the spring meetings of the International Monetary Fund (IMF) and the Group of 20 finance ministers and central bank governors.
    The G20 once again tiptoed around the issue of how individual central banks, such as the U.S. Federal Reserve, can limit some of the spillover effects of changes to its own policy on other countries.
    Compared with the G20's Sydney statement from February, when central banks were specifically mentioned, last week's statement didn't even mention central banks, a likely reflection of the fact that the Fed's tapering of its asset purchases so far has been less disruptive than expected.
    Here's the wording from last week's G20 statement:
    "We are strengthening our macroeconomic cooperation by further deepening our understanding of each other's policy frameworks and assessing the collective implications of our national policies across a range of possible outcomes. We will continue to provide clear and timely communication of our actions and be mindful of impacts on the global economy as policy settings are recalibrated."
    Here's the wording from the Sydney statement:
    "All our central banks maintain their commitment that monetary policy settings will continue to be carefully calibrated and clearly communicated, in the context of ongoing exchange of information and being mindful of impacts on the global economy."

    It was left to the European Central Bank (ECB) to provide some excitement, with two top ECB policymakers taking another step toward preparing financial markets for a policy response if the euro continues to strengthen.
    Earlier this month the ECB stressed that its governing council was unanimous and ready to use unconventional monetary instruments in addition to rate cuts to ward off the threat of deflation.
    On Friday ECB Executive Board Member Benoit Coeure told Bloomberg TV in Washington that "the stronger the euro the more need for monetary accommodation."
    As if to underscore that Coeure's statement was not just a personal opinion but the consensus view of ECB policy makers, ECB President Mario Draghi the day after told a news conference:
    "The strengthening of the exchange rate would require further monetary policy accommodation."
    In early Asian trading, the euro was quoted at $1.385, up almost 5 percent since the end of 2012 and 0.8 percent since the end of 2013 despite the more accommodative policy stance of the ECB compared with the Fed's tighter stance.

    Through the first 15 weeks of this year, policy rates have been raised 13 times, or 9.2 percent of this year's 141 policy decisions by the 90 central banks followed by Central Bank News, up from 8.7 percent end-March but down from 10.1 percent end-February.
    But global economic growth remains sluggish and inflation low, allowing some central banks to loosen their stance.
    Policy rates have been cut 15 times so far this year, or 10.6 percent of this year's policy decisions, down from 11 percent at the end of the previous week and 14 percent at the end of February.




    UNITED KINGDOMDM0.50%0.50%0.50%
    SOUTH KOREAEM2.50%2.50%2.75%

    This week (Week 16) six central banks will be deciding on monetary policy, including Singapore, Mozambique, Namibia, Canada, Serbia and Chile.

    MOZAMBIQUE 16-Apr8.25%9.50%
    NAMIBIA 16-Apr5.50%5.50%

    Apr 13 8:13 PM | Link | Comment!
  • Monetary Policy Week In Review – Mar 31-Apr 4: Brazil, Ghana Raise Rates As ECB Takes Step Toward Launching QE

    The central banks of Brazil and Ghana raised their policy rates last week as six other central banks left their rates unchanged, including the the European Central Bank (ECB), which nevertheless took a major step forward toward launching some form of unconventional monetary measure if inflation threatens to remain at the current low level.
    Despite the two rate rises, the Global Monetary Policy Rate (GMPR) - the average policy rate of 90 central banks followed by Central Bank News - remained steady at 5.56 percent from the end of March, but was up from 5.55 percent at the end of February and 5.53 percent at the end of January, illustrating how monetary policy worldwide is slowly but surely tightening.
    Through the first 14 weeks of this year, policy rates have been raised 13 times, or 9.7 percent of this year's 134 policy decisions by the 90 central banks, up from 8.7 percent from the previous week.
    But on a global scale, economic growth is still sluggish and inflation low, with the result that monetary policy is still being loosened in some countries. So far this year, policy rates have been cut 15 times, or 11 percent of this year's policy decisions, down from 12 percent at the end of the previous week and 14 percent at the end of February.

    The main events in global monetary policy last week were the policy decisions by the ECB and the Central Bank of Brazil.
    The ECB once again dashed hopes for a rate cut or some type of unconventional policy measure, such as quantitative easing or a negative deposit rate, amid renewed concerns over deflation.
    Nevertheless, the ECB took a major step forward in preparing financial markets and investors for the possibility of introducing some form of quantitative easing if inflation does not start to rise soon.
    Inflation in the euro zone fell to 0.5 percent in March from 0.7 percent in February and has now remained under 2 percent for the last 14 months. The ECB targets inflation of close to, but below 2 percent.
    But ECB President Mario Draghi dismissed concerns of Japanese-style deflation, telling a press conference that "frankly we do not see the risks of deflation as having increased."
    Explaining that the March inflation figure was impacted by this year's timing of Easter along with the base effect of energy prices, Draghi said the ECB and financial markets are still expecting inflation to rise as the economy improves. At this point, deflation is not priced into markets.
    However, the ECB council is clearly worried that the longer inflation remains at such a low level, it could lead to a fall in inflationary expectations. This would pave the way for consumers to postpone purchases and thus further delay the economic recovery.
    "It is quite obvious that the Governing council is looking at this prolonged period of low inflation and it is quite obvious that the longer the period of low inflation, the higher the risk for inflation expectations in the medium and long term," Draghi told the press conference.
    In an apparent reflection of the Bundesbank's recent acceptance of quantitative easing, Draghi said the ECB council was "unanimous in its commitment to using also unconventional measures," pointedly saying the ECB mandate would allow it to engage in quantitative easing.
    In contrast to the council's meeting last month, the ECB this time specifically discussed various forms of quantitative easing during what Draghi described as "a very rich and ample discussion."
    There are two reasons the ECB has been reluctant to undertake some form of quantitative easing, such as buying government or private sector bonds, as carried out by the Bank of Japan, the U.S. Federal Reserve and the Bank of England.
    The first and primary reason is that euro zone firms, unlike U.S. companies, rely much more on bank lending than capital markets for funds. When the Fed, for example, purchases bonds, it quickly affects the cost of credit whereas the health of banks is more critical to euro zone business.
    "In our case, the economy is based on the bank lending channel and therefore the programme has to be carefully designed in order to take this element into account," Draghi said, showing just how far along the ECB is in considering the details of its form of quantitative easing.
    The second reason that the ECB has been reluctant to engage in quantitative easing by buying sovereign bonds is that it would be dealing with 18 national bond markets, making such an operation much more complex to design and execute.

    In Brazil, the central bank raised its rate for the ninth time since embarking on its tightening campaign in April last year but signaled that is now ready to take a breather to judge the impact on inflation from its 375 basis-point hike in the benchmark Selic rate.
    As usual, the statement from the Central Bank of Brazil's policy committee, known as Copom, was slightly cryptic but the message was received by financial markets and the real currency fell.
    In its statement, the central bank dropped earlier references to rate rises as a continuation of a process that got under way in April 2013 and inserted that the decision was taken "at this moment," conveying the impression that the latest rate rise was more of a one-off than part of a tightening cycle.
    In addition, Copom also said its next move would be based on "the evolution of the macroeconomic scenario," signaling that the rate could be maintained in May unless inflation accelerates sharply.
    Brazil's inflation rate rose in February to 5.68 percent from 5.59 percent, but this was partly due to higher food prices from the impact of severe drought in southern Brazil.
    And although the central bank has already raised its 2014 inflation forecast to 6.1 percent from 5.6 percent as a result, inflation is still within the central bank's tolerance range of 2.5 to 6.5 percent and the economy is clearly in need of stimulation.




    FIJI 0.50%0.50%0.50%
    ANGOLA 9.25%9.25%10.00%
    UGANDA 11.50%11.50%12.00%
    GHANA 18.00%18.00%15.00%
    EURO AREADM0.25%0.25%0.75%

    This week (Week 15) eight central banks will be deciding on monetary policy, including Japan, Indonesia, Croatia, Sweden, Poland, United Kingdom, South Korea and Peru.

    UNITED KINGDOMDM10-Apr50%50%
    SOUTH KOREAEM10-Apr2.50%2.75%

    Apr 06 10:46 PM | Link | Comment!
  • Monetary Policy Week In Review – Mar 24-28, 2014: Zambia Raises As Global Trend Shifts Toward Tightening

    Seventeen central banks took policy decisions last week, with Hungary wrapping up its easing cycle, Zambia raising its rate, and the Philippines and Nigeria raising reserve requirements, underlining the shift toward tightening in global monetary policy.
    The transition from five years of ultra-easy global monetary policy is spearheaded by the U.S. Federal Reserve which began unwinding its asset purchases in January. This has helped trigger 11 rate rises so far this year, including those by central banks in Turkey, South Africa, India, Ghana and Zambia in an effort to protect their currencies and retain foreign investment
    While there is still a lingering debate over what Fed Chair Janet Yellen really meant to signal on March 19, other central banks and financial markets have taken her words - and those of other members of the Federal Open Market Committee - to heart and expect the Fed to raise rates earlier than expected.
    In their statements last week the Bank of Israel noted that "the interest rate path expected by FOMC members increased compared with the previous meeting," the South African Reserve Bank (SARB) said "financial markets now believe that the first interest rate increases may occur earlier in 2015 than previously expected," and the Central Bank of Trinidad and Tobago said the Fed gave guidance that "policy interest rates could increase even faster than initially anticipated."

    The shift in the direction of global capital away from emerging and frontier markets to advanced economies has gone through several bouts of volatility since May last year and central banks are eager to avoid fanning the flames and cause any sudden shift in risk sentiment.
    But as William Dudley, president of the New York Fed, said last week, emerging markets are much better positioned than in the past "to weather those times in the cycle when the external environment turns from welcoming to wary" due to a raft of reforms and changes, including more coherent monetary policy frameworks, the absence of fixed exchange rates, larger foreign exchange reserves, moderate debt and stronger banking systems.
    South Africa, Nigeria and the Philippines' central banks illustrate Dudley's point. Most emerging market central banks are keenly aware of the challenges they are facing from the well-publicized shift in Fed policy and are responding in a disciplined and predictable manner.
    Last week SARB said it remains in a tightening cycle but added that this doesn't mean rates have to be changed at every meeting. SARB maintained its rate after raising it by 50 basis points in January in response to capital outflows and a plunge in the rand.
    The recent improvement in global sentiment towards emerging markets had boosted the rand and thus improved the inflationary outlook, giving the central bank breathing space as it seeks to solve the dilemma of sluggish growth and inflationary pressures.
    Like SARB, the Central Bank of Nigeria (CBN) also maintained its policy rate, but tightened policy by raising the cash reserve requirement on private sector deposits - in January it had raised the CRR on public sector deposits - saying the need to safeguard stability "required firm and bold measures."
    "Thus, prudent monetary stance would also facilitate better reserve and exchange rate management in an environment where Fed tapering increases pressure on emerging economies' financial markets," CBN said, showing a steady hand amid a challenging international and domestic environment.
    Bangko Sentral ng Pilipinas (BSP) also kept its policy rate steady but raised the reserve requirement to curb liquidity in a move that was signaled by the central bank's governor last week after he said an early and gradual adjustment of monetary policy rather than discreet movements would be less disruptive to businesses.
    The Philippine central bank added that it would "consider further adjustments in its policy tools to safeguard price and financial stability" and "buoyant domestic growth prospects allow some scope for a measured adjustment in the BSP's policy instruments amid the ongoing normalization of monetary policy overseas."
    The annexation of Crimea by Russia from Ukraine added a new dimension to the global risk spectrum, but the National Bank of Georgia responded in a calm and measured manner.
    The central bank of Georgia - on the eastern border of the Black Sea in the Caucasus region - said it still believed that monetary stimulus should be withdrawn but put off any rate rise, citing the potential threat from geopolitical factors and uncertainty that could undermine investors' mood, demand for its exports and remittances from workers abroad.

    Through the first 13 weeks of this year, rates have been raised 11 times, or 9 percent of this year's 125 policy decisions by the 90 central banks followed by Central Bank News, down from 10 percent at the end of February.
    But the Global Monetary Policy Rate (GMPR) - the average policy rate - rose to 5.56 percent this week from 5.53 percent at the end of January, helped by Zambia's 175 basis-point rate rise.
    Rates have been cut 15 times so far this year, or 12 percent of this year's policy decisions, down from 14 percent at the end of February, as central banks still seek to shore up growth while inflationary pressures worldwide are kept at bay from sluggish global demand.




    ARMENIA 7.50%7.50%8.00%
    RWANDA 7.00%7.00%7.50%
    GEORGIA 4.00%4.00%4.50%
    MOLDOVA 3.50%3.50%4.50%
    ALBANIA 2.75%2.75%3.75%
    SOUTH AFRICAEM5.50%5.50%5.00%
    CZECH REPUBLICEM0.05%0.05%0.05%
    ZAMBIA 12.00%10.25%9.25%

    This week (Week 14) six central banks will be deciding on monetary policy, including Australia, India, Brazil, Uganda, Ghana and the European Central Bank.

    UGANDA 2-Apr11.50%12.00%
    GHANA 2-Apr18.00%15.00%
    EURO AREADM3-Apr0.25%0.75%

    Mar 30 5:32 PM | Link | Comment!
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