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  • Monetary Policy Week In Review – Oct 27-31, 2014: Japan And Sweden Ease As U.S., Russia Tighten Policy Stance

    The central banks of Japan and Sweden pulled rabbits out of their hats last week, surprising financial markets with their audacious moves to ease monetary policy, while the United States, Brazil and Russia tightened their policy stance, underscoring the precarious state of the global economy.
    The U.S. Federal Reserve stuck to its commitment to end its third round of asset purchases in the last six years, opening a new chapter in global monetary policy and starting the countdown to its first rate rise since June 2006.
    But just as the Fed gingerly steps into the world of post-QE (Quantitative Easing), the Bank of Japan (BOJ) delves deeper into QE, boosting its target for expanding the monetary base by 10-20 trillion yen to about 80 trillion.
    Despite months of denial that it would undertake additional easing, the BOJ decided it had to take firm action to avoid 15 years of "deflationary mindset" again grabbing hold of the Japanese psyche.
    The Riksbank is facing a similar challenge in pulling Sweden out of a deflationary grip - it forecast deflation of 0.2 percent this year - and cut its benchmark repurchase rate to zero percent and pledged to keep it there until mid-2016.
    But while Sweden and Japan are combating deflation - and have been criticized for being slow to counter the threat of deflation - Brazil and Russia are in the opposite camp, fighting inflation that continues to accelerate despite already very high interest rates.
    The Central Bank of Brazil raised its benchmark Selic rate by 25 basis points to 11.25 percent, restarting its tightening campaign that was paused in May after nine rate rises.
    The Bank of Russia, which is combating the twin challenges of international sanctions and falling oil prices, raised its policy rate by 150 basis points to 9.50 percent and now expects inflation to remain above 8 percent in the next several months while the economy is expected to stagnate in the current quarter and in the first quarter of next year.

    Through the first 44 weeks of this year, the 90 central banks followed by Central Bank News have cut their policy rates 54 times, or 13.4 percent of this year's 404 policy decisions, down from 13.5 percent at the end of the third quarter but 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 41 times, or 10.1 percent of all policy decisions, down from 10.2 percent at the end of September, but up from 9.3 percent at the end of June and 8.7 percent at the end of March.
    Boosted by last week's three rate rises, the Global Monetary Policy Rate - the average rate of the 90 central banks followed by Central Bank News - jumped to 5.56 percent, up from 5.54 percent at the end of the third quarter and 5.53 percent at the end of the second quarter and first quarters.

    LIST OF LAST WEEK'S CENTRAL BANK DECISIONS:

     


    TABLE WITH LAST WEEK'S MONETARY POLICY DECISIONS:

    COUNTRYMSCINEW RATEOLD RATE1 YEAR AGO
    ANGOLA 9.00%8.75%9.75%
    ISRAELDM0.25%0.25%1.00%
    MAURITIUSFM4.65%4.65%4.65%
    SWEDENDM0.00%0.25%1.00%
    HUNGARYEM2.10%2.10%3.40%
    UNITED STATESDM0.25%0.25%0.25%
    BRAZILEM11.25%11.00%9.50%
    ALBANIA 2.50%2.50%3.50%
    NEW ZEALANDDM3.50%3.50%2.50%
    FIJI 0.50%0.50%0.50%
    COLOMBIAEM4.50%4.50%3.25%
    JAPANDMN/AN/AN/A
    RUSSIAEM9.50%8.00%5.50%
    MEXICOEM3.00%3.00%3.50%

    This week (Week 45) 11 central banks or monetary authorities are scheduled to decide on monetary policy: Australia, Romania, Kenya, Thailand, Iceland, Poland, Malaysia, United Kingdom, euro area, Czech Republic and Zambia.

    TABLE WITH THIS WEEK'S MONETARY POLICY DECISIONS:

    COUNTRYMSCIDATECURRENT RATE1 YEAR AGO
    AUSTRALIADM4-Nov2.50%2.50%
    ROMANIAFM4-Nov3.00%4.00%
    KENYAFM4-Nov8.50%8.50%
    THAILANDEM5-Nov2.00%2.25%
    ICELAND 5-Nov6.00%6.00%
    POLANDEM5-Nov2.00%2.50%
    MALAYSIAEM6-Nov3.25%3.00%
    UNITED KINGDOMDM6-Nov0.50%0.50%
    EURO AREADM6-Nov0.05%0.25%
    CZECH REPUBLICEM6-Nov0.05%0.05%
    ZAMBIA 6-Nov12.00%9.75%

    www.CentralBankNews.info

    Nov 02 10:55 PM | Link | Comment!
  • Monetary Policy Week In Review – Oct 20-24, 2014: Canada Says Forward Guidance Only Useful During Crises

    Last week five central banks maintained their policy rates with the Bangko Sentral ng Pilipinas (NYSE:BSP) the latest monetary authority to drop a hawkish bias or ease policy in response to waning inflationary pressures from the drop in commodity prices, especially energy, since June.
    Canada and Norway's central banks also took note of the weaker global economy, with economists speculating Norges Bank in December will once again delay or weaken its plan to raise rates in 2016.

    The Bank of Canada's (BOC) policy statement was notable because it reflected the governor's decision to drop the use of forward guidance in more normal economic times and instead be fully transparent about the risks the central bank is weighing as part of its policy deliberation.
    In its September policy statement, the BOC said it was "neutral" with respect to its next rate change, with the timing and direction of future changes depending on the outlook.
    Last week's policy statement didn't change the essence of that guidance as the BOC's outlook for inflation hadn't shifted since its July forecast so the practical consequence on market rates of the BOC's new policy about forward guidance has yet to be seen.
    But the BOC's thoughts about forward guidance are likely to be scrutinized by other central banks because it broke new ground in April 2009 when it pledged to keep rates at what it considered to be zero through the second quarter of 2010 in order to provide additional stimulus in the depth of the global financial crises.
    In his speech on Oct. 15, BOC Governor Stephen Poloz argued that such guidance is useful in times of crises because it can help flatten the yield curve by reassuring markets about the horizon over which it expects to keep rates at zero, enhancing the economy's response to the bank's low policy rates.
    But the downside of such guidance is that it essentially gives markets a one-way bet, Poloz said.
    As major market participants use increasing amount of leverage the longer the guidance remains in place, volatility tends to surge when the central bank is suddenly seen changing this guidance.
    This was clearly the case in May 2013 when the U.S. Federal Reserve first announced it was considering scaling back quantitative easing, a move that unleashed a major shift in global capital away from emerging markets.
    The second downside for Poloz is that the forward guidance is inevitably conditional on assumptions and forecasts so central banks end up insert certain caveats into their guidance.
    This creates a fragile market equilibrium. Every new piece of economic data may be interpreted as a caveat so financial markets end up needing "repeated doses of reassurance."
    "In short, forward guidance can become addictive for markets if it is overly precise or heavily weighted with caveats," Poloz said.
    His conclusion is that forward guidance is a useful tool at the zero lower bound because it removes a key source of uncertainty for markets about future policy rates.
    But by dropping its guidance, the central bank is shifting some of the uncertainty about an economy's evolution back on the market, helping ensure a more balanced two-way market that is less vulnerable to unusual leverage and volatile shifts in sentiment.
    As witnessed by the scrutiny of the Federal Reserve's "dot" forecasts for the fed funds rate in recent months, Poloz said financial markets typically want central bankers to be specific in their forecasts and then expect any deviation in forecast from actual data to have a clear implication for monetary policy.
    But Poloz argued that central bankers always grapple with uncertainty in deciding on policy and this has only worsened in the aftermath of the global financial crises.
    The BOC is thus likely to become more transparent about the assumptions surrounding its forecasts and clearly point out the fundamental uncertainties and policy risks it is facing.
    "The idea is simply to inject a little more realism about uncertainty into the narrative, while trusting markets to wrestle with the data flow and deliver two-way trading," Poloz said.

    Through the first 43 weeks of this year, the 90 central banks followed by Central Bank News have cut their policy rates 53 times, or 13.6 percent of this year's 390 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 38 times, or 9.7 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
    NAMIBIA 6.00%6.00%5.50%
    CANADADM1.00%1.00%1.00%
    PHILIPPINESEM4.00%4.00%3.50%
    TURKEYEM8.25%8.25%4.50%
    NORWAYDM1.50%1.50%1.50%

    This week (Week 44) 13 central banks or monetary authorities are scheduled to decide on monetary policy: Angola, Israel, Mauritius, Sweden, Hungary, the United States, Brazil, Albania, New Zealand, Fiji, Russia, Mexico and the Eastern Caribbean Central Bank (ECCB).

    TABLE WITH THIS WEEK'S MONETARY POLICY DECISIONS:

    COUNTRYMSCIDATECURRENT RATE1 YEAR AGO
    ANGOLA 27-Oct8.75%9.75%
    ISRAELDM27-Oct0.25%1.00%
    MAURITIUSFM27-Oct4.65%4.65%
    SWEDENDM28-Oct0.25%1.00%
    HUNGARYEM28-Oct2.10%3.40%
    UNITED STATESDM29-Oct0.25%0.25%
    BRAZILEM29-Oct11.00%9.50%
    ALBANIA 29-Oct2.50%3.50%
    NEW ZEALANDDM30-Oct3.50%2.50%
    FIJI 30-Oct0.50%0.50%
    RUSSIAEM31-Oct8.00%5.50%
    MEXICOEM31-Oct3.00%3.50%
    EAST. CARRIB. C.BANK 31-Oct6.50%6.50%

    Oct 26 4:39 PM | Link | Comment!
  • 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!
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