Central Bank News Link List - March 1, 2013: Hungary's PM puts ally at top of central bank in place of critic

Here's today's Central Bank News link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don't miss any important news.

• Hungary's PM puts ally at top of central bank in place of critic (Reuters)
• Brazil central bank likely to hold selic rate, change statement (dow jones)
• No honeymoon for Japan's new central banker (Bloomberg)
• Eurozone inflation down, interest rate cut to follow? (euronews)
• Chile central bank only considered hold in Feb-minutes (Reuters)
• Singapore avoids stimulus as minister acts to curb bubble risk (Bloomberg)
• Evans says Fed must sustain stimulus amid fragile rebound (Bloomberg)
• Mersch: ELA risks fragmenting monetary policy (MNI)
• Bair says regulators lack spine to name systemic firms (Bloomberg)
• www.CentralBankNews.info

Dominican Republic holds rate steady, inflation on target

    The Central Bank of the Dominican Republic (CBDR) kept its Monetary Policy Reference (MPR) rate steady at 5.0 percent as inflation is forecast to be within the bank's target this year and next and economic growth is also in line with expectations.
    The CBDR, which cut its rate by 175 basis points in 2012 but also left the rate unchanged last month, said the domestic economy expanded by 3.9 percent last year, higher than the average in Latin America and liquidity in international financial markets was good, which could help the flow of capital to emerging economies. In 2011 the Dominican Republic's economy grew by 4.5 percent.
    "Credit to the private sector in the national currency continues to show a recovery and projections suggest that by the end of the year the funding would grow faster than nominal GDP," the central bank said, adding that higher credit would allow faster recovery in consumption and private investment.
    Inflation in the Dominican Republic rose to by a monthly 1.26 percent in January to an annual rate of 4.76 percent, up from December's 3.9 percent, due to the impact of tax reform, the bank said.
    The CBDR targets inflation of 5.0 percent, plus/minus one percentage point in 2013 and 4.5 percent, plus/minus one percentage point, in 2014.
    www.CentralBankNews.info

Trinidad & Tobago keeps rate steady on contained inflation

    The central bank of Trinidad and Tobago held its benchmark repo rate steady at 2.75 percent, saying its current accommodative policy stance was appropriate in light of contained inflationary pressures and the expectation that economic activity will improve in 2013.
    The Central Bank of Trinidad & Tobago, which cut its rate by 25 basis points in 2012, said headline inflation rose by 7.3 percent in January, slightly above December's 7.2 percent with food inflation up an annual 13.8 percent from 12.7 percent due to faster price increases for most food and vegetables.
    The core inflation rate eased to a 2.2 percent rate in January from December's 3.1 percent.
    Private sector credit slowed down unexpectedly towards the end of 2012 after a slow but steady rise earlier in the year with the growth rate down to 2.1 percent in December from 3.8 percent in November and a 0.8 percent fall in business lending following a 2.6 percent rise in November.
    "With underlying inflationary pressures still well contained and continuing expectation for a turnaround in economic activity in 2013, the Bank views its present accommodative monetary stance as appropriate," the central bank said.
    Last month the governor of the central bank said he was cautiously optimistic for 2013 and forecast economic growth of 2.5 percent.

Central Bank News Link List - Feb. 28, 2013: BOJ seen spiking punchbowl in April under new Governor Kuroda

Here's today's Central Bank News link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don't miss any important news.

• BOJ seen spiking punchbowl in April under new Governor Kuroda (Bloomberg)
• RBA says up to 34 central banks holding Australian dollars (Bloomberg)
• EU clinches deal to cap bankers' bonuses (Reuters)
• BOJ Kiuchi: Downside risks to Japan economy high (MNI)
• Central banks spewing cash must plan exit timing, (Denmark's) Rohde says (Bloomberg)
• Vietnam says bad debt trimmed, interest rate cut ahead (Reuters)
• Kenyan, Ugandan inflation point to interest rates on hold (Reuters)
• www.CentralBankNews.info

Zambia holds rate steady, sees inflation risks moderating

    Zambia's central bank held its policy rate steady at 9.25 percent, saying in a brief statement that it had  noted the moderation in inflationary risks to inflation in March "mainly due to continued improvement in the supply of maize to millers by the Food Reserve Agency coupled with the expected increase in fish supply follow the lifting of annual fishing ban."
    The Bank of Zambia, which raised its policy rate by 25 basis points in 2012, also said a stable supply of vegetables was expected to moderate inflationary pressures.
    "This is in spite of some inflationary risks associated with the cost push pressures arising from lagged pass-through effects of the deprecation of the Kwacha," the bank said in a statement.
    The kwacha was rebased on January 1 and the central bank has been selling dollars in recent months to support the local currency.
     Zambia's inflation rate eased to 7.0 percent in January from 7.3 percent in December
   
    www.CentralBankNews.info

Central Bank News Link List - Feb. 27, 2013:China needs tighter monetary policy, state research agency says

Here's today's Central Bank News link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don't miss any important news.

• China needs tighter monetary policy, state research agency says (Bloomberg)
• Likely BOJ nominee Iwata: monetary policy needed to fill output gap - media (Reuters)
• Investors fret that Italy may undermine ECB backstop (Reuters)
• Brazil central bank will soon turn more hawkish (emerging markets)
• Mexico central bank deputy governor sees no case for rate cut (Bloomberg)
• BoE's Bean: negative rates are "blue sky thinking", not a plan (Reuters)
• Cyprus central bank turns to Russia, London to rescue banks (financialmirror)
• Russian central bank raises independence concerns - agency (Reuters)
• EU eyes March 22 deadline for Basel law to avoid delays (Bloomberg)
• New tools for (RBNZ) central bank by mid-2013 - English (tvnz)
• UAE central bank governor says new mortgage law may eased (Bloomberg)
• Swedish household borrowing holds after interest rate cuts (Bloomberg)
• Wary BoB (Botswana) opent to interest rate cut (mmegi)
• www.CentralBankNews.info

Hungary to cut rates again if inflation remains on target

    Hungary's central bank, which earlier today cut its base rate for the seventh time in a row, said it would consider cutting rates further if the outlook for inflation remains in line with its 3.0 percent target and the improvement in financial market sentiment is sustained.
    The forward guidance by the National Bank of Hungary is exactly the same as in previous months. Since August 2012, the central bank has cut rates by 175 basis points with the rate now at 5.25 percent.
    "In the Monetary Council's judgement, the economic data becoming available in the past month suggest that weak demand continues to exert a strong disinflationary impact on prices, and therefore companies will have limited ability to pass on higher production costs into prices," the bank said.
    In addition, favorable financial market conditions may lead to a sustained fall in Hungarian asset prices which means that the bank's inflation target can be met with looser monetary conditions.
    Hungary's economy contracted by more than expected in the fourth quarter of 2012, the bank said, adding that it expects growth to resume this year, helped by better exports.
    "However, external, and domestic demand factors in particular, point to only modest growth in the period ahead," the bank added.
    Hungary's Gross Domestic Product contracted by 0.9 percent in the fourth quarter from the third, the fourth quarterly contraction in a row, for an annual drop of 2.7 percent, up from the third quarter's annual decline of 1.5 percent.
   

Jamaica cuts rate 50 bps as government cuts deficit

    Jamaica's central bank cut its policy rate by 50 basis points to 5.75 percent, effective Feb. 25, saying the move was in light of the "generally weak economic conditions" and the government's recent approval of debt reduction measures.
    "These factors will have a dampening effect on inflationary impulses," the Bank of Jamaica said in a statement from Feb. 22.
    The cut in the policy rate - the rate payable on the Bank of Jamaica's 30-day Certificates of Deposit -  is in line with the reduction in the rate on government securities on the National Debt Exchange.
    "These actions have occurred against the background of a staff level agreement between the Government and the International Monetary Fund on a medium- term economic programme," the central bank said.
    Earlier this month the IMF and Jamaica reached a staff-level agreement on a $175 million economic reform program aimed at cutting Jamaica's "unsustainable debt burden, which has undermined confidence and elevated risks to economic stability," the IMF said on Feb. 15.
    The IMF's executive board will take a final decision on the agreement by the end of March, subject to the Jamaican government carrying out some of the agreed measures, including a debt exchange that involves private investors, fiscal tightening and structural reform.

Central Bank News Link List - Feb. 26, 2013: Bernanke says Fed stimulus benefits clear, budget cuts a risk

Here's today's Central Bank News link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don't miss any important news.

• Bernanke says Fed stimulus benefits clear, budget cuts a risk (Reuters)
• Currency veteran Kuroda offers BOJ credibility on reflation (Bloomberg)
• RBA opens door to another interest rate cut to offset strong dollar (ibtimes)
• BOE Tucker: No-one on MPC thinks QE at end of road (MNI)
• China's loose monetary policy ending, newspaper says (dow jones)
• Russia says central bank independence not at risk (Reuters)
• Russia central banker: monetary easing now would only fuel inflation (dow jones)
• Fed's Lockhart backs QE at least into second half (MarketWatch)
• Mervyn King says QE should be kept as a tool for local economy (Evening Standard)
• The right man to head China's central bank is already there (Reuters/the National)
• Riksbank minutes lay bare board divisions on monetary policy (dow jones)
• Gender parity prevails as Sweden central bank cuts rates (Bloomberg)
• www.CentralBankNews.info

Hungary cuts base rate for 7th time to 5.25%

    Hungary's central bank cut its base rate by another 25 basis points to 5.25 percent, the bank's seventh rate reduction since last August.
    The National Bank of Hungary, which has cut rates by 175 basis points since August 2012, said the new rate would take effect from Feb. 27.
    Last month the central bank said it would only consider further rate cuts if the outlook for inflation was in line with the bank's inflation target and the improved sentiment in financial markets was sustained.
    The bank's president, Andras Simor, who will be stepping down at the end of this month, has consistently opposed rate cuts but has been outvoted each month since August by members of the monetary council that were appointed by the ruling political party.
    One of Simor's deputies will also be leaving next month and another in July, reinforcing expectations that rates will continue to be cut.
    Hungary's Gross Domestic Product contracted by 0.9 percent in the fourth quarter from the third, the fourth quarterly contraction in a row, for an annual drop of 2.7 percent, up from the third quarter's annual decline of 1.5 percent.
    The inflation rate fell to 3.7 percent in January, down from December's 5.0 percent but still above the central bank's 3.0 percent target.

    www.CentralBankNews.info

Angola keeps base rate steady as inflation trends lower

    Angola's central bank kept its base rate, the BNA rate, steady at 10.0 percent, saying inflation is continuing its declining trend while credit extended to the economy fell by 2.63 percent in January, reversing the trend seen in previous months.
    The National Bank of Angola (BNA), which cut it rate by 25 basis points in January following a 25  point cut in 2012, said the inflation rate eased to 8.9 percent in January, down from December's 9.02 percent, setting a new low in the country's recent history.
    The central bank worked for many years to push inflation down into single digits and in August last year inflation finally fell below 10 percent and it has since stayed there.
    The BNA said the average exchange reference rate of the kwanza to the U.S. dollar was 95.94 at the end of January, compared to 95.826 at the end of December, "maintaining exchange rate stability in the primary market."

    www.CentralBankNews.info

   
   

Era of 'benign neglect' of long-term rates over - BIS paper

    Central banks typically target short-term interest rates to control inflation and economic activity and have relied on financial markets to take care of long-term rates to stabilize the economic cycle.
    But this framework – described as ‘benign neglect’ by Philip Turner of the Bank for International Settlements (BIS) – is now over as central banks in most advanced economies have loaded up with government bonds since the Global Financial Crises, driving down real rates to negative in an effort to stimulate economic growth.
    “Yet given high government debt and the size of central bank holdings the question of what should be the policy framework for the long-term interest rate is bound to become more prominent,” writes Turner in the latest working paper from Swiss-based BIS entitled “Benign neglect of the long-term interest rate.”
    There are clear advantages to low long-term rates, including stimulating borrowing, repaying debt, making the financial system more resilient to shocks and allowing emerging economies to finance their infrastructure and housing needs more safely.
    “But an extended period of very low long rates and high public debt creates financial stability risks,” writes Turner, adding that banks and some institutional investors face growing interest rate risks and central banks now hold a high portion of their own government bonds, most of which have failed to stop the rise in the debt-to-GDP ratio.
    Illustrated by last week’s reaction in financial markets to the Federal Reserve’s January minutes, central banks’ exit strategy from their large holdings of government bonds will be controversial, complex and without precedence for markets to rely on.
    “With massive government debt and uncertain fiscal prospects, it is very difficult for the private sector to know what to expect in the next few years. The extraordinary expansion in the balance sheets of central banks, which averted the danger of global depression, causes additional perplexity,” said Turner.
    In his topical paper, Turner helps prepare the ground for the brewing debate over how long-term rates and government bonds should figure in central banks’ framework.
    The latest installment of the debate will come in March, when the Federal Reserve’s policy body is set to review its asset purchase program followed by Federal Reserve Chairman Ben Bernanke's scheduled press conference March 20.
   “Could a crisis force the authorities into sub-optimal choices? They will not be able to assume, as they had in the decade or so before the crisis, that the long- term rate will just take care of itself,” wrote Turner.

    www.CentralBankNews.info
   

Israel holds rate, too soon to tell if economy has turned

    Israel's central bank held its policy rate steady at 1.75 percent, as expected, saying it is too early to tell whether the economy has turned the corner though it seems clear that the risk of a deterioration in the global economy has declined.
    The Bank of Israel (BOI), which cut rates by 100 basis points in 2012, said inflation still looks to remain slightly below the bank's target range over the next 12 months but cautioned that the rate of increase in home prices has continued to rise and hopefully new guidelines should "moderate the pressure in the housing market to a certain extent."
    Indicators of economic activity in Israel have been mixed, the bank said, noting better expectations and the possibility of an improvement in January.
   However, the BOI said the fourth quarter growth rate was 2.5 percent, below previous quarters, reflecting lower exports and imports and slower growth in consumption and investments, apparently affected by Operation Pillar of Defense.
   "It is therefore too early to assess whether this represents a turnaround in economic activity," the BOI said. In the third quarter of 2012, Israel's Gross Domestic Product grew by a rate of 3.1 percent.

Central Bank News Link List - Feb. 25, 2013: Abe to nominate ADB chief Kuroda as BOJ chief, Iwata as deputy

Here's today's Central Bank News link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don't miss any important news.

• Abe to nominate ADB chief Kuroda as next BOJ chief, Iwata deputy (Kyodo)
• Bernanke's challenge: prime markets for policy turn (Reuters)
• Hungary yields drop to six-week low before central bank meeting (Bloomberg)
• Belka says Polish rebound 'probably' underway, sales up (Bloomberg)
• Brazil's bank prioritizes inflation fight (WSJ)
• Indonesia finance minister stresses inflation management (dow jones)
• Indonesia central bank choice elicits mixed view (Bloomberg)
• Analysis: China central bank takes lead in economic reform push (Reuters)
• Fed Offl: U.S. banks now well placed to finance econ recovery (MNI)
• Serbia's central bank postpones rate-setting meeting to March 12 (Bloomberg)
• No one wants Glazyev at central bank (The Moscow Times)
• Singapore central bank to limit auto loans (Reuters)
• www.CentralBankNews.info

Monetary Policy Week in Review – Feb. 23, 2013: Global policy still loose as 2 of 4 ease, but shift to neutral nearing

    Last week four central banks took monetary policy decisions with two banks (Turkey and Colombia) taking further steps to ease their stance while the other two (Thailand and Namibia) kept rates on hold, illustrating how monetary policy on a global scale remains accommodative despite fresh signs that the cycle of loose policy is nearing its end.

    Ultra-low interest rates in advanced economies continues to push funds toward higher yielding yet safe currencies, such as Turkey and Thailand, with Turkey’s central bank drawing on its arsenal to prevent capital inflows from boosting its currency and domestic assets while the economy is weak.

    But the main focus of last week was the Federal Reserve’s minutes from its January meeting that showcased the intensifying debate over how and when the Fed should exit from quantitative easing.

    While there is no doubt of the Fed’s commitment to easy money and questions over the economic impact of its latest asset purchase program, global financial markets are hyper-sensitive to any sign the program is coming to an end.

    The strong reaction of markets for the second month in a row to a debate over when to rein in quantitative easing illustrates the intense pressure on the Fed to choose its exit route carefully so it doesn’t destroy markets’ and consumers’ fragile confidence and derail the economic recovery.

    China’s move to drain funds from markets for the first time in eight months also served to remind financial markets of just how accommodative global monetary policy is - and has been for the last five years - and how the global shift to a more neutral policy is likely to be a recurring theme.

   

  Through the first eight weeks of this year, 77 percent of this year’s 69 policy decisions among the 90 central banks followed by Central Bank News have favoured unchanged rates compared with 19 percent of decisions favouring rate cuts. This ratio is steady from last week.

    While the overall global economy remains sluggish, the contrast between Colombia and Thailand shows how growth in Asia is continuing to pick up speed while the slowdown in most of South America has yet to ease its grip.

    Colombia’s central bank cut its key rate for the sixth time since it embarked on an easing cycle last July and is concerned that low inflationary expectations could become entrenched amid a weakening economy, a sign that further rate cuts are likely.

    The Bank of Thailand is facing the opposite situation with its economy growing faster than expected and growing inflationary pressures. It is among the handful of Asian central banks that may raise rates later this year to curtail inflation from a combination of strong domestic demand, growing exports and capital inflow that is pushing up its currency and adding further fuel to asset prices.

    Turkey’s creative and flexible monetary policy was once again on display this week as the bank tries to find the right balance between stimulating economic growth yet discouraging hot money from flowing into the country to take advantage of the relatively high interest rates.

    While the Central Bank of the Republic of Turkey eased its policy stance by cutting short-term rates, it combined this with a “measured tightening” of reserve requirements – a macroprudential measure - to limit capital inflows and excessive bank lending. Meanwhile, the benchmark interest rate, seen as a more heavy-handed tool, was left unchanged.

    The immediate effect was that the Turkish lira fell, showing that its nimble and multi-pronged policy is still paying off.

 LAST WEEK’S (WEEK 8) MONETARY POLICY DECISIONS:

COUNTRY	MSCI	NEW RATE	OLD RATE	1 YEAR AGO
TURKEY	EM	5.50%	5.50%	5.75%
THAILAND	EM	2.75%	2.75%	3.00%
NAMIBIA		5.50%	5.50%	6.00%
COLOMBIA	EM	3.75%	4.00%	5.25%

    NEXT WEEK (week 9) features only four scheduled central bank meetings, including Angola, Israel, Hungary and Trinidad & Tobago.

    Other events that financial markets will closely follow include Italy’s general election on Sunday and Monday and Federal Reserve Chairman Ben Bernanke’s scheduled testimony on Tuesday and Wednesday to the Senate Banking Committee.

COUNTRY	MSCI	MEETING	RATE	1 YEAR AGO
ANGOLA		25-Feb	10.00%	10.25%
ISRAEL	DM	25-Feb	1.75%	2.50%
HUNGARY	EM	26-Feb	5.50%	7.00%
TRINIDAD & TOBAGO		28-Feb	2.75%	3.00%

    www.CentralBankNews.info