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  • Banco Central Do Brasil Announces Further Measures to Cap Real Gains
    The Banco Central Do Brasil announced measures to discourage dollar shorting in order to cap a persistent rally of its currency, the Real.  The Bank will require that banks with short US dollar positions hold 60% of the value of short positions greater than $1 billion in non-interest bearing deposits at the central bank.  The Banco Central do Brasil had previously required banks to hold 60% of the value of short positions greater than $3 billion on deposit.  The Brazilian Real has appreciated 20% against the US dollar over the past two years.

    Brazil's central bank last increased the selic rate by 25 basis points to 12.25% in June this year.  Brazil's high interest rate is one of the factors keeping the Real strong as speculators chase the high interest rate differential.  Brazil last reported an annual inflation rate of 6.55%, compared to the official inflation target of 4.50%.  The Brazilian government is forecasting economic growth this year of 4.5-5%, compared to GDP growth of 7.5% during 2010.  The Brazilian Real last traded around 1.56-1.58 against the US dollar.

    Source: http://www.centralbanknews.info/2011/07/banco-central-do-brasil-announces.html
    Tags: BZL, BZF, BSBR, OIBR, BRAF, BRAZ, Brazil, Forex, Currencies, Emerging Markets, Central Banks
    Jul 12 2:04 AM | Link | Comment!
  • Inflation Targeting in a Rising Inflationary Environment
     This report outlines where inflation is tracking in countries where the central bank has an inflation target.  Central Bank News has compiled a table of countries/central banks that have publicly announced an official inflation target.  In some cases the target is a government target, but in many cases it is one of the central bank's key performance indicators.  Of the 32 countries that Central Bank News is monitoring, which have inflation targets; 24 last reported inflation above target, 1 had inflation below target, and 7 reported inflation within their target range. Note, the inflation figures in the table below are all on a headline, or gross, inflation basis.
     
    Of those that saw inflation above target, the standouts were Serbia (14.7% in April-11 vs target range 3.5-6.5%), Georgia (13.5% in April-11 vs target of 6%), Romania (8.4% in May-11 vs target range 2-4%), and Armenia (9% in May-11 vs target 5.5%).  Below target was Japan (0.3% in May-11 vs target 1%), which only just emerged from deflation on a headline inflation basis.  Of the 7 countries with inflation at target, or within their target range, 5 were also on target at the end of 2010, while 2 were above target.
     
    The chart below shows the change in inflation versus target, between the most recently reported inflation figures and the end of 2010 inflation figures (from the IMF).  Of the 32 countries, 23 saw inflation go above target, or go higher above target, 4 saw inflation falling closer to target (2 fell into target range), while 5 saw inflation staying within target. 
    So one of the key highlights of this report is that most countries saw inflation increasing compared to their target.  This is consistent with trends observed in another Central Bank News report on interest rate adjustments, where of 79 central banks covered, 32 made net increases to interest rates.  Central bankers in most countries have had to work harder this year to contain inflationary pressures. However there also remains a core of countries with low inflation pressures, which helps explain the 40 central banks that made no net changes to interest rates in the first half of the year.

    Much of the increase in inflationary pressures can be linked to the recent surge in commodity prices, with agricultural commodities driven up by structural pressures such as rising populations, and a string of adverse weather conditions which have impacted on supply.  Energy prices have also been surging as cyclical pressures and geopolitical tensions have impacted on oil prices.

    Another factor has been relatively strong aggregate demand in emerging markets, with 18 of the 24 countries with inflation above target being emerging markets.  Indeed most emerging markets have reported stronger GDP growth through the global economic recovery than their developed market counterparts, with many seeing the risk of overheating rising above the risk of maintaining growth.  One thing for certain is that the growth vs inflation balance will become more complex during the second half of the year.

    What is inflation targeting?
    Inflation targeting is an often cited goal of monetary policy, alongside other goals such as maximizing GDP growth, optimal employment, and financial stability.  While there is some debate about the merits of inflation targeting, the benefits often cited of explicit inflation targeting include greater certainty and transparency of central bank interest rate decisions, price stability, and ultimately a lower neutral interest rate, provided inflation can be contained within a reasonable range. See the Wikipedia entry on inflation targeting for a summary of the issues and debate on explicit inflation targeting in monetary policy.

    Source: www.CentralBankNews.info

    Article source:     http://www.centralbanknews.info/2011/07/inflation-targeting-in-rising.html
    Tags: CPI, GTIP, IMF, ITIP, ONEI, IPE, LTPZ, SCHP, Monetary Policy, Inflation, Inflation Targeting, Interest Rates, Currencies, Bonds, Forex, Economy, Global Economy, Macro View
    Jul 09 5:59 PM | Link | Comment!
  • Monetary Policy Week in Review - 9 July 2011
     The past week in monetary policy saw interest rate decisions from 14 central banks around the world, of which 7 made changes in their monetary policy settings.  Those that increased interest rates were: Sweden +25bps to 2.00%, China +25bps to 6.56%, the EU +25bps to 1.50%, and Denmark +25bps to 1.55%. While those that cut rates included Vietnam, which cut its OMO rate -100bps to 14.00%, and Ghana -50bps to 12.50%.  Those that held rates unchanged were: Australia 4.75%, Poland 4.50%, Malaysia 3.00%, the UK 0.50%, Sri Lanka 7.00%, Rwanda 6.00%, and Mexico 4.50%.  Also, setting monetary policy interest rates for the first time was the Bank of Uganda, which set its new monetary policy rate, the central bank rate, at 13.00%.

    One of the themes that stood out was additional monetary policy tightening, or more appropriately - monetary policy normalization, from developed market central banks e.g. Sweden, the ECB, and Denmark.  Meanwhile the actions of Vietnam and Ghana show that it's not a one-way street for emerging markets.  However the inflation-growth mix still remains a challenge for some key emerging markets, as made clear with China's additional interest rate hike.  But while some noted upside risks to inflation, many banks are seeing inflation tracking within their target ranges.

    Indeed listed below are some of the key quotes from central banks that met over the past week, particularly around their assessment of the domestic inflation outlook:

    • Reserve Bank of Australia (held interest rate at 4.75%): "Year-ended CPI inflation is likely to remain elevated in the near term due to the extreme weather events earlier in the year.  However, as the temporary price shocks dissipate, CPI inflation is expected to be close to target over the next 12 months."
    • Sweden's Riksbank (increased interest rate 25bps to 2.00%): "Consumer price inflation is high at present as a result of rising mortgage rates.  Underlying inflationary pressures remain low, but are expected to increase as economic activity strengthens." 
    • National Bank of Poland (held interest rate at 4.50%): "In the coming months, the annual CPI inflation rate will continue at an elevated level, mainly due to the strong growth in global commodity prices observed prior to the inflation increase."
    • The European Central Bank (increased interest rate 25bps to 1.50%): "The underlying pace of monetary expansion is continuing to gradually recover, while monetary liquidity remains ample with the potential to accommodate price pressures in the euro area. All in all, it is essential that the recent price developments do not give rise to broad-based inflationary pressures over the medium term."
    • Banco de Mexico (held interest rate at 4.50%): "The current levels of inflation are the result of several factors: the declining trend in costs of labor, the fading impact of tax changes last year, the favorable exchange rate (despite the recent episode of volatility in international financial markets) and a significant reduction in agricultural prices."
    • Bank of Ghana (reduced interest rate 25bps to 12.50%): "Inflation is going down and we don't see the banks responding (to lower interest rates)" and further noted that "the bank is confident that the annual inflation target of 9 percent is achievable".

    Next week is set to be dominated by Asian central banks, with monetary policy decisions due from the following central banks:
    • Japan (Bank of Japan) - expected to hold at 0.10% on the 12th of July
    • Indonesia (Bank Indonesia) - expected to hold at 6.75% on the 12th of July
    • Thailand (Bank of Thailand) - expected to hold at 3.00% on the 13th of July
    • South Korea (Bank of Korea) - expected to hold at 3.25% on the 14th of July

    Source:     www.CentralBankNews.info

    Article source:     http://www.centralbanknews.info/2011/07/monetary-policy-week-in-review-9-july.html
    Tags: JYN, EIDO, TF, EWY, CNY, ADE, EU, GBB, FXM, Monetary Policy, Central Banks, Interest Rates, Currencies, Global Macro, Macro View, Forex, Economy
    Jul 09 12:25 AM | Link | Comment!
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