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  • Monetary Policy Week in Review - 1 October 2011
    The past week in monetary policy was relatively quiet with just 4 central banks announcing interest rate decisions.  Israel cut its rate by 25bps to 3.00%, while Romania held at 6.25%, Taiwan held at 1.875%, and Colombia held at 4.50%.  Also making news in central banking and monetary policy was the announcement from the central bank of Angola, where it said it would launch a new benchmark interest rate.  Elsewhere, Vietnam announced deposit interest rate caps, and Denmark announced a set of emergency bank liquidity provisioning measures.

    Following are some of the key quotes from the central banks that announced monetary policy decisions over the past week:
    • Bank of Israel (cut rate 25bps to 3.00%): "The decision to reduce the interest rate for October to 3 percent is based mainly on the negative turnaround in the global economy, is consistent with the return of inflation to within the target range of price stability, and is intended to support growth while preserving financial stability."
    • Banca Nationala a Romaniei (held rate at 6.25%): "Disinflation is expected to continue in the period ahead, so that annual inflation rate will near the target. The faster disinflation while keeping the monetary policy rate unchanged and amid a moderate leu exchange rate volatility translate into a tightening of real broad monetary conditions aimed at supporting the convergence of inflation towards the medium-term objectives."
    • Central Bank of the Republic of China [Taiwan] (held rate at 1.875%): "A global slowdown and consumer prices stabilizing led to the decision,"... "Taiwan's imported inflation will cool as global prices ease in the next three months after peaking in the third quarter."
    • Central Bank of Colombia (held rate at 4.50%): "The international environment has deteriorated in the weeks after the last Board (meeting). Concerns about sovereign debt problems have grown and growth forecasts in the U.S. and Europe in 2011 and 2012 have been revised downwards. In some of the economies of Asia and Latin America, new information points to a moderation in growth. International prices of commodities have fallen but remain at high levels."

    Looking at the central bank calendar, next week there are eight central banks scheduled to announce monetary policy decisions. The big one will be the ECB, with some speculation on a rate cut - but the more likely outcome being further liquidity measures, also, this will be Jean-Claude Trichet's last meeting before Mario Draghi takes over as ECB president. Attention will also be paid as to whether the Bank of England or Bank of Japan announce further quantitative easing.
      • PEN - Peru (Banco Central de Reserva del Peru) expected to hold at 4.25% on the 3rd of Oct
      • AUD - Australia (Reserve Bank of Australia) - expected to hold at 4.75% on the 4th of Oct
      • PLN - Poland (National Bank of Poland) - expected to hold at 4.50% on the 5th of Oct
      • KES - Kenya (Central Bank of Kenya) - expected to on hold at 7.00% the 5th of Oct
      • RSD - Serbia (National Bank of Serbia) - expected to hold at 11.25% on the 5th of Oct
      • GBP - United Kingdom (Bank of England) - expected to hold at 0.50% on the 6th of Oct
      • EUR - EU (European Central Bank) - expected to hold at 1.50% on the 6th of Oct
      • JPY - Japan (Bank of Japan) - expected to hold at 0.10% on the 7th of Oct

    Oct 01 4:36 AM | Link | Comment!
  • Top 10 Most Extreme Monetary Policy Moves of 2011
    Here's a listing of the top ten most extreme monetary policy moves in the year to date of 2011 (as judged by Central Bank News).  To be sure, there's still another quarter of the year to go, and with heightened concerns about global growth and the ongoing European debt crisis the list could yet be expanded.  But for now, let's look over some of the most extreme moves in the year so far in monetary policy:
    1. Belarus Financial Crisis
      The National Bank of the Republic of Belarus has surely set the record for interest rate increases this year, upping its rate a total of 1950 basis points this year to 30% and devaluing the Belarussian ruble, as the country dealt with an economic, financial, credit, and currency crisis.
    2. The Twist
      One of the most anticipated moves of the year was the US Federal Reserve's $400B twistto its quantitative easing program where it plans to sell $400B of shorter term maturities and buy $400B of longer term securities to push down longer term interest rates.
    3. Swiss Franc Floor
      After a series of interventions and serious jawboning the Swiss National Bank finally announced a hard floor on the EUR/CHF exchange rate at 1.20 - the exchange rate moved over 1000 "pips" (basis points) following the announcement.
    4. ECB SMP and the Confidence Crisis
      In the wake of the US downgrade a confidence crisis began to grip markets, the ECB was rumored to be buying the debt of Greece, Portugal and Ireland, but not Spain or Italy. The ECB subsequently capitulated and signaled an expansion of its SMP (Securities Market Program) to include those countries and immediately bought record amounts (EUR 22B that week).
    5. Bank of Japan Earthquake Response
      Following the devastating earthquake and tsunami in Tōhoku, Japan, the Bank of Japan announced an initial 5 trillion yen expansion to its asset purchase program, and launched a 1 trillion loan program for financial insitutions affected by the quake. The Bank expanded the asset purchase program another 10 trillion yen in August to help sustain the recovery.
    6. Vietnamese Hyperinflation
      Vietnam has seen inflation surge past 20 percent this year (22.16% in July), and has announced a string of monetary policy moves to try reign in run-away prices, including 500 basis point increase in the refinancing rate (now 14.00%), reserve ratio hikes, and currency related adjustments.
    7. Brazilian Rate Reversal
      After raising the Selic rate 5 times this year by a total of 175 basis points to 12.50%, the Banco Central do Brasil's Copom dropped the rate by 50 basis points back to 12.00%. This has lead some to speculate the trend of emerging market policy tightening may be starting to turn.
    8. Kiwi Earthquake Insurance
      Following the fatal earthquake in New Zealand's 3rd largest city, the RBNZ "acted pre-emptively" by dropping the OCR by 50 basis points to 2.50%. It made reference to removing the "insurance [interest rate] cut" at its July meeting, however that was contingent on the global financial outlook and exchange rate...
    9. Joint Liquidity Operations
      In a brief statement, the ECB announced joint USD liquidity operations with the US Federal Reserve, Bank of England, Bank of Japan, and Swiss National Bank. While it didn't explain why, most read it as a show of solidarity and cooperation, and an attempt to shore-up European bank liquidity.
    10. 'Chindia' Tightening
      Perhaps the most representative economies in the emerging market monetary policy tightening story were China and India - also two of the largest and most dynamic emerging markets. China chalked up 75 basis points of interest rate hikes, and 300 basis points in RRR hikes, while India upped its rate 200 basis points.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Sep 27 4:34 AM | Link | Comment!
  • Monetary Policy Week in Review - 24 September 2011
    The past week in monetary policy saw 10 central banks reviewing monetary policy settings, with just 1 (Nigeria +50bps to 9.25%) changing interest rates.  Those that held rates unchanged were: Morocco 3.25%, Turkey 5.75%, Hungary 6.00%, Norway 2.25%, USA 0.25%, Iceland 4.50%, Hong Kong 0.50%, South Africa 5.50%, and the Czech Republic 0.75%.  On required reserve ratios, Croatia increased its RRR by 100bps to 14.00%.  Of course the biggest news was the US Federal Reserve's FOMC announcing 'operation twist', where it adjusted itsquantitative easing program; switching $400B of shorter term maturities to $400B of longer term maturities.
    Monetary Policy Week in Review

    The theme of unusually high uncertainty and slowing global growth continued to weigh heavily on central bank interest rate decisions, and contributed to the large proportion of no-change decisions during the week. Following are some of the key quotes from the central banks' monetary policy media releases over the past week:

    • Central Bank of Nigeria (increased 50bps to 9.25%): "Concerns remain about sustaining the current inflation trend. The anticipated high liquidity in the near future would have a bearing on inflation in the near future," further noting "the fiscal stance continues to be expansionary. In addition there is the weight of structural factors such as the announced hikes in electricity tariffs and the expected removal of the petroleum subsidy."
    • US Federal Reserve (held interest rate, adjusted QE): "The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. This program should put downward pressure on longer-term interest ratesand help make broader financial conditions more accommodative."
    • Central Bank of Turkey (held interest rate at 5.75%): "The Committee has noted that core inflation may continue to rise in the short-term. However, due to the slowdown in economic activity, it is expected that the second round effects of exchange rate movements would be limited, and thus the increase in inflation would be temporary. Accordingly, the Committee has indicated that inflation outlook for the end of 2012 is consistent with the 5 percent target."
    • Magyar Nemzeti Bank (held interest rate at 6.00%): "In the Council's judgement, Hungarian economic growth is likely to remain subdued over the next two years, with the level of output remaining below its potential throughout the period. Medium-term upside risks to inflation have fallen due to weak domestic demand. Inflation may fall back to 3% by the beginning of 2013, as the effects of cost shocks and increases in indirect taxes wear off."
    • HKMA (held interest rate at 0.50%): "This time the Fed's new policies will not have any impact on Hong Kong's interbank (HIBOR) interest rate,"
    • South African Reserve Bank (held interest rate at 5.50%): "Recent data have confirmed the fragile and uneven nature of the domestic economic recovery, and unfavourable forward-looking indicators are consistent with a downward revision of the Bank's economic growth forecast. At the same time a number of exogenous factors have continued to put upward pressure on domestic inflation. This combination of declining growth and rising inflation poses a challenge to monetary policy going forward, and is a feature being experienced in a number of emerging markets."

    Looking at the central bank calendar, next week there are five central banks scheduled to announce monetary policy decisions:

      • ILS - Israel (Bank of Israel) - expected to hold at 3.25% on the 26th of Sep
      • RON - Romania (Banca Nationala a Romaniei) - expected to hold at 6.25% on the 29th of Sep
      • TWD - Taiwan (Central Bank of the Republic of China) - expected to hold at 1.875% on the 29th of Sep
      • MNT - Mongolia (Bank of Mongolia) - expected to hold at 11.75% on the 29th of Sep
      • COP - Colombia (Banco de la Republica de Colombia) - expected to hold at 4.50% on the 30th of Sep

    Sep 25 4:43 AM | Link | Comment!
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