 By Prieur du Plessis, on December 19th, 2011 posted in: Interest Rates, Monetary Policy  The fascinating chart below comes courtesy of Bianco Research (via The Big Picture). A picture speaks a thousand words … 
Source: Bianco Research (via The Big Picture), December 16, 2011. And for good measure, also have a look at the long-term chart of 10-year Treasury Bond Yield. 
Source: Chart of the Day, December 16, 2011 Did you enjoy this post? If so, click here to subscribe to updates to Investment Postcards from Cape Town by e-mail.  |
By Prieur du Plessis, on October 31st, 2011 posted in: Economy, Monetary Policy The article below comes courtesy of Central Bank News, an authoritative source on monetary policy developments. The past week in monetary policy saw 15 central banks announce interest rate decisions. Those that increased interest rates were: India +25bps to 8.50%, and Mongolia +50bps to 12.25%, while those that decreased interest rates were: The Gambia -100bps to 14.00%, Sierra Leone -300bps to 20.00%, and Georgia -25bps to 7.25%. Also announced was Angola’s central bank setting its new benchmark interest rate at 10.50%. The central banks that held interest rates unchanged were: Israel 3.00%, Canada 1.00%, Hungary 6.00%, New Zealand 2.50%, Japan 0-0.10%, Russia 8.25%, Namibia 6.00%, Sweden 2.00%, and Colombia 4.50%. Also in the news was the Bank of Japan announcing a 5 trillion yen addition to its quantitative easing program. 
With just two months left in the year this week’s summary chart shows a good representation of monetary policy this year. The key word of course is diversity. On the one hand there is developed markets with unusually low interest rates (and low growth and low inflation pressures). While on the other hand is the emerging and developing markets with much higher interest rates (and relatively higher growth rates and inflationary pressures). Even within developing economies there is diversity in the trajectory of interest rates as some begin to feel the pinch of policy tightening, paired with the deteriorating outlook in western economies, and in particular the ongoing sovereign debt issues in Europe (short-term crisis-containment measures notwithstanding). Some of the key quotes from the monetary policy makers are included below: - Reserve Bank of India (increased rate 25bps to 8.50%): “both inflation and inflation expectations remain high. Inflation is broad-based, and is above the comfort level of the Reserve Bank. We expect these levels to persist for two more months. There are potential risks of expectations becoming unhinged in the event of a pre-mature change in the policy stance. However, reassuringly, momentum indicators, particularly the de-seasonalised quarter-on-quarter headline and core inflation measures, indicate moderation. This is consistent with the projection that inflation will decline beginning December 2011.”
- Bank of Japan (added 5 trillion to QE): “some more time will be needed to confirm that price stability is in sight and due attention is needed for the risk that the economic and price outlook will further deteriorate depending on developments in global financial markets and overseas economies. While steadily implementing its decision in August to enhance monetary easing, especially through the purchase of financial assets, the Bank deemed it necessary to further enhance monetary easing so as to ensure a successful transition to a sustainable growth path with price stability.”
- Central Bank of Russia (held rate at 8.25%): “Considering recent domestic and international macroeconomic developments and the effect of the monetary policy measures, implemented in recent months, the Bank of Russiajudged that the current level of money market interest rates is appropriate to balance the inflationary risks and the risks of economic growth slowdown in the nearest future”
- Bank of Mongolia (increased rate 50bps to 12.25%): “The rapid expansion of budget expense, cash hand-out from the Human Development Fund and the high increase in loans are contributing to higher demand. This sharp increase in demand builds the pressure on core inflation even the total supply and the real capacity of economy have not added on yet. The consecutive growth in prices of non-food products from the beginning of 2011 and the current stand in yoy 11.3% prove that the increase of total demand is bringing the growth of core price.”
- Riksbank (held rate at 2.00%): “The difficulties in resolving the public finance crisis in Europe has led to increased uncertainty regarding the future. In Sweden, growth is expected to be slightly weaker in the coming period. At the same time, inflationary pressure is low. The Executive Board of the Riksbank has therefore decided to hold the repo rate unchanged at 2 per cent and to wait to increase it until sometime next year.”
- Bank of Canada (held at 1.00%): “The global economy has slowed markedly as several downside risks to the projection outlined in the Bank’s July Monetary Policy Report (MPR) have been realized. Financial market volatility has increased and there has been a generalized retrenchment from risk-taking across global markets. The combination of ongoing deleveraging by banks and households, increased fiscal austerity and declining business and consumer confidence is expected to restrain growth across the advanced economies. The Bank now expects that the euro area—where these dynamics are most acute—will experience a brief recession.”
- Reserve Bank of New Zealand (held rate at 2.50%): “Given the ongoing global economic and financial risks, it remains prudent to continue to keep the OCR on hold at 2.5 percent for now. However, if global developments have only a mild impact on the New Zealand economy, it is likely that gradually increasing pressure on domestic resources will require future OCR increases.”
Looking at the central bank calendar, next week will be a very interesting week in central banking with the very important US Federal Reserve and European Central Bank both announcing monetary policy decisions. All eyes will be focused on whether the US FOMC announces or hints at any further quantitative easing; meanwhile people will be watching to see if the new ECB president, Mario Draghi, decides to cut the interest rate or provide any other supportive measures to aid the faltering Eurozone economies. - AUS – Australia (Reserve Bank of Australia) expected to hold at 4.75% on the 1st of Nov
- ISK – Iceland (Central Bank of Iceland) expected to hold at 4.50% on the 2nd of Nov
- USD – USA (Federal Reserve) expected to hold at 0-0.25% on the 2nd of Nov
- CZK – Czech Republic (Czech National Bank) expected to hold at 0.75% on the 3rd of Nov
- EUR – Eurozone (European Central Bank) expected to hold at 1.50% on the 3rd of Nov
Source: Central Bank News, October 29, 2011. Did you enjoy this post? If so, click here to subscribe to updates to Investment Postcards from Cape Town by e-mail. |
 By Prieur du Plessis, on October 22nd, 2011 posted in: Economy, Interest Rates, Monetary Policy The article below comes courtesy of Central Bank News, an authoritative source on monetary policy developments. The past week in monetary policy saw interest rate decisions announced by 7 central banks. The only bank to announce a change to its main monetary policy interest rate was the Banco Central do Brasil, which cut its interest rate by another 50 basis points to 11.50%. Meanwhile the other central banks held their key interest rates unchanged: Botswana 9.50%, Norway 2.25%, Thailand 3.50%, Ghana 12.50%, Philippines 4.50%, and Turkey 5.75%. A common theme mentioned by the central bankers was concern over signs of slowing global growth and the potential risks arising from the ongoing sovereign debt crisis in Europe. 
Some of the key quotes and soundbites from central bankers announcing monetary policy decisions during the past week are included below: - Banco Central do Brasil (cut rate -50bps to 11.50%): “Continuing the process of adjusting monetary conditions, the Committee decided unanimously to reduce the Selic rate to 11.50% pa, without bias. The Monetary Policy Committee believes that the timely mitigate the effects coming from a more restrictive global environment, a moderate adjustment in the level of the base rate is consistent with the scenario of convergence of inflation to the target in 2012.”
- Bank of Thailand (held rate at 3.50%): “The MPC deemed that the current level of the policy rate is appropriate in addressing upcoming inflationary pressure and supporting economic adjustments amidst heightened uncertainty in the global economy. Meanwhile, with the floods not yet over, their impact on the economy was not fully evident.”
- Central Bank of Turkey (held rate at 5.75%): “Recent data releases suggest that there will be a notable reduction in economic growth in the second half of the year. External demand remains weak, and domestic demand continues to slow down. The deceleration in credit growth and domestic demand combined with the exchange rate movements have been contributing to the rebalancing of domestic and external demand. Accordingly, the Committee expects a significant improvement in the current account balance in the forthcoming period.”
- Norges Bank (held rate at 2.25%): “The Executive Board is of the view that the outlook and the balance of risks now suggest that the key policy rate should be kept at the current level for some time ahead. If the economic unrest abroad intensifies, money market premiums remain high and the outlook for growth and inflation weakens further, the key rate may be reduced. If financial market turbulence subsides and there are prospects of higher growth and inflation, the key rate may rise.”
- Bank of Botswana (held rate at 9.50%): “While short-term price developments have resulted in inflation remaining above the objective range of 3 – 6 percent, the medium-term outlook for consumer prices is more encouraging. As a result, the Committee judged that maintaining the Bank Rate at the current level is consistent with inflation converging on the objective range in the medium term.”
- Bank of Ghana (held rate at 12.50%): “Looking ahead, wage pressures, payment arrears and recent depreciation of the exchange rate have increased the upside risks to inflation. In the short-term, the impact of these underlying inflationary pressures on the economy remains contained. The Bank’s inflation forecasts show that the end year target will be achieved. Movements in the exchange rate remain consistent with the delivery of the Bank’s inflation target.”
Looking at the central bank calendar, next week will be reasonably busy in monetary policy with 9 central banks scheduled to review monetary policy settings. Also on the radar is the ECB’s bank lending survey, due out on Wednesday (and of course the EU leaders are meeting this weekend to try and agree on a plan to stem contagion from the sovereign debt crisis). The key announcements to watch will be Canada, India, Japan, and Russia. - ILS – Israel (Bank of Israel) expected to hold at 3.00% on the 24th of Oct
- HUF – Hungary (Magyar Nemzeti Bank) expected to hold at 6.00% on the 25th of Oct
- CAD – Canada (Bank of Canada) expected to hold at 1.00% on the 25th of Oct
- INR – India (Reserve Bank of India) expected to hold at 8.25% on the 25th of Oct
- JPY – Japan (Bank of Japan) expected to hold at 0-0.10% on the 27th of Oct
- NZD – New Zealand (RBNZ) expected to hold at 2.50% on the 27th of Oct
- SEK – Sweden (Riksbank) expected to raise 25bps from 2.00% on the 27th of Oct
- COP – Colombia (Central Bank of Colombia) expected to hold at 4.50% on the 28th of Oct
- RUB – Russia (Bank Rossii) expected to hold at 8.25% on the 28th of Oct
Source: Central Bank News, October 21, 2011. Did you enjoy this post? If so, click here to subscribe to updates to Investment Postcards from Cape Town by e-mail. |
By Prieur du Plessis, on September 19th, 2011 posted in: Economy, Interest Rates, Monetary Policy The article below comes courtesy of Central Bank News, an authoritative source on monetary policy developments. The past week in monetary policy saw 13 central banks review interest rate levels and monetary policy settings. Those that changed rates were: Belarus +300bps to 30.00%, Kenya +75bps to 7.00%, and India +25bps to 8.25%. Russia and Denmark also adjusted the bands of their deposit and lending rates, while holding their main rates steady. The Banks that held rates unchanged were: Mauritius 5.50%, Mozambique 16.00%, Russia 8.25%, New Zealand 2.50%, Switzerland 0-0.25%, Georgia 7.50%, Latvia 3.50%, Denmark 1.55%, Sri Lanka 7.00%, and Chile 5.25%. Also making headlines in central banking was the announcement from the ECB of joint US dollar liquidity operations as a move to augment European banking system liquidity. 
Unsurprisingly, many central banks commented on the impact of global developments on their policy outlook; with the signs of slowing growth in the US and Europe and continued financial market volatility weighing on decisions. However many emerging markets are still experiencing relatively buoyant economic conditions, as indicated in central bank statements in the past week. A selection of key quotes from central bank monetary policy media releases are listed below: - Reserve Bank of India (increased 25bps to 8.25%): “The monetary tightening effected so far by the Reserve Bank has helped in containing inflation and anchoring inflationary expectations, though both remain at levels beyond the Reserve Bank’s comfort zone… a premature change in the policy stance could harden inflationary expectations, thereby diluting the impact of past policy actions. It is, therefore, imperative to persist with the current anti-inflationary stance. Going forward, the stance will be influenced by signs of downward movement in the inflation trajectory, to which the moderation in demand is expected to contribute, and the implications of global developments.”
- Central Bank of Kenya (increased 25bps to 7.00%): “The Committee observed that inflation, exchange rate and money market volatility continued to pose a challenge to the economy. Specifically, the debt crisis in Europe continues to have a significant impact on the economy through the exchange rate volatility. Events in the USA and Europe are expected to continue affecting the exchange rate, inflation and the economic recovery.”
- National Bank of Belarus (increased 300bps to 30.00%): “The consistent increase in the cost of borrowed money in the economy is intended to provide a further deterrent effect on customers’ demand for credit resources of banks for the period of release on a single course. At the same time, increasing the refinancing rate will be an additional factor in stimulating processes of savings in Belarusian rubles and reduce pressure on the exchange rate”
- Reserve Bank of New Zealand (held OCR at 2.50%): “If recent global developments have only a mild impact on the New Zealand economy, it is likely that the OCR will need to increase. For now, given the recent intensification in global economic and financial risks, it is prudent to continue to hold the OCR at 2.5 percent.”
- Swiss National Bank (held rate at 0-0.25%): “The Swiss National Bank will enforce the minimum exchange rate of CHF 1.20 per euro set on 6 September with the utmost determination. It is prepared to buy foreign currency in unlimited quantities. It continues to aim for a three-month Libor at zero and will maintain total sight deposits at the SNB at significantly above CHF 200 billion.”
- Banco Central de Chile (held rate at 5.25%): “Domestically, output and demand figures show signs of moderation, in line with projections in the Monetary Policy Report. Labor market conditions are still tight and faster growth in nominal wages is observed. CPI inflation indicators have hovered around 3% y‐o‐y, while core inflation measures remain contained. Inflation expectations are close to the target.”
- Central Bank of Russia (held refi rate at 8.25%): “The decision was supported by the assessment of inflation risks and risks to the sustainability of economic growth, including those associated with the uncertainty of the outlook for global economic activity, as well as of current money market conditions and the dynamics of the factors affecting banking sector liquidity. Implemented decision aimed at narrowing the gap between interest rates on the Bank of Russia liquidity provision and absorption operations should contribute to restrain money market interest rates volatility regarding the risks of the shortage of the rouble liquidity in the banking sector.”
- Danmarks Nationalbank (held rate at 1.55%): “The interest rate reduction follows Danmarks Nationalbank’s purchase of foreign exchange in the market. The short euro market rates have fallen and the spread to the equivalent Danish rates has tended to strengthen the Danish krone.”
Continue reading Monetary policy: Week in review (September 17, 2011) |
By Prieur du Plessis, on July 5th, 2011 posted in: Economy, Interest Rates, Monetary Policy The review below comes courtesy of Central Bank News, an authoritative source on monetary policy developments. This article reviews the monetary policy interest rate activity of the world’s central banks during the first half of 2011. The key takeaway is that monetary policy tightening has been the dominant game for most emerging market central banks in the first half of the year, however the majority of central banks are still in the no-change camp. Indeed of the 79 central banks that Central Bank News monitors, 33 made net increases to their interest rates, while 40 held their rates net unchanged, and only 6 made net reductions to their policy interest rates. Click here or on the image below for a larger table. 
Of the central banks that net increased their interest rates, the average increase was 111 basis points, but with many opting for 25 (8), or 50 (7) basis points. Meanwhile the outliers were Vietnam (600bps) and Belarus (550bps); the former dealing with hyperinflation, and the latter dealing with a number of economic worries. And it wasn’t only emerging markets that were net tighteners in the first half; Denmark, Norway, the EU, and Sweden were among those to tighten monetary policy settings. Click here or on the image below for a larger graph. 
As for those that loosened interest rates, it was much a case of being the outlier. New Zealand dropped its official cash rate earlier this year after an earthquake hit one of its cities. Meanwhile Iceland dropped rates in response to low inflation and continued economic challenges. Qatar dropped its policy rate to help the non-energy part of its economy, and Ghana dropped rates due to easing in domestic inflation pressures. 
So overall the first half of the year in monetary policy interest rates was characterised by inaction for most, tightening by many, with a few outliers reducing interest rates. Much of the policy tightening went on in emerging markets where inflation has been pushed above inflation targets due to rising global commodity prices and strong economic growth and activity levels (i.e. both demand pull and cost push). Going into the second half of the year the outlook is less certain, which in part explains inaction being the main stance for most of the monetary policy setters. On commodities, there has been a recent correction in broad commodity prices, and many commodities finished the past quarter with price falls. A stable or falling global commodity price environment could see less tightening, and perhaps pockets of loosening. Meanwhile the global economic growth outlook continues to be uncertain, with some economies e.g. the US making slow progress, and tail risks e.g. Greek sovereign debt default, having the potential to pull back the aggregate demand impulse. So out next review could well see more banks opting for no change or even net policy loosening. In any case, keep checking the website for monetary policy updates. Source: Central Bank News, July 1, 2011. Did you enjoy this post? If so, click here to subscribe to updates to Investment Postcards from Cape Town by e-mail. |
By Prieur du Plessis, on July 2nd, 2011 posted in: Economy, Interest Rates, Monetary Policy The article below comes courtesy of Central Bank News, an authoritative source on monetary policy developments. Over the past week there were six central banks announcing monetary policy decisions. Only Kenya (+175bps to 8.00%), and Taiwan (12.5bps to 1.875%) increased interest rates. Meanwhile the central banks of Israel (3.25%), Albania (5.25%), Romania (6.25%), and Russia (8.25%) all held monetary policy settings unchanged. Also of interest in central banking news was the announcement from the BIS (Bank for International Settlements) around increasing capital requirement regulations for globally systemically important banks. The BIS also featured in the news as it stressed the need for central banks around the world to normalize monetary policy in order to promote sustainable economic growth. 
Some of the common themes from the monetary policy statements included caution around the uncertain economic outlook, particularly within the global backdrop of heightened levels of sovereign debt risks. There was also mention of the recent trends in commodity prices, with several key commodities turning down over the past quarter. Another common concern was the growth outlook, both domestically, and globally; with the major economies of China and the US showing some weakness in recent economic indicators. Following is a selection of the key quotes and comments from the central banks mentioned above. - Bank of Israel (held interest rate at 3.25%): ”In the first half of the year the Bank of Israel raised the interest rate markedly. At the same time, steps were taken by the Bank of Israel and the Ministry of Finance in the housing market. In addition, the shekel appreciated over recent months and there was a decline in commodity prices. The impact on inflation of these items is expected to be felt in the future.”
- Bank of Albania (held interest rate at 5.25%): ”inflation will continue to be under the pressure of foreign prices in the coming period,”…”but, barring unexpected developments, the effect of the shocks of foreign prices will wane while the effect of administered prices will cease in the third quarter”.
- Central Bank of Kenya (increased interest rate 175bps to 8.00%): ”This further tightening of the monetary policy stance will curtail second-round effects arising from fuel and maize prices and exchange-rate volatility that have been fueling inflationary expectations,”.
- National Bank of Romania (held interest rate at 6.25%): ”The inflation outlook continues to feature significant risks. The developments in international commodity prices, the uncertainties related to the calendar and magnitude of administered price adjustments, the movements on global financial markets in the context of the evolution of the sovereign debt crisis, as well as the possible emergence of second-round effects from the supply-side shocks seen in the recent quarters remain a matter of concern.”
- Central Bank of the Republic of China (Taiwan) (increased interest rate 12.5bps to 1.875%): ”Although the nation’s inflation remains more stable than in most other countries, we have decided to maintain the pace in rate hikes to help control the public’s prospective attitude toward consumer prices,”.
- Central Bank of Russia (held refinancing rate at 8.25%): ”The decision was made following an assessment of inflation risks and risks for sustainable economic growth, including risks posed by the continued uncertainty over foreign market developments.”
Next week is set to be a reasonably busy week in monetary policy, with rate hikes expected from three of the following central banks that are scheduled to review policy settings: - Australia (Reserve Bank of Australia) – expected to hold at 4.75% on 5th July
- Sweden (Sveriges Riksbank) – possible 25bp increase from 1.75% on 5th July
- Poland (National Bank of Poland) - expected to hold at 4.50% on 6th July
- Malaysia (Bank Negara Malaysia) - likely 25bp increase from 3.00% on 7th July
- United Kingdom (Bank of England) expected to hold at 0.50% on 7th July
- Eurozone (European Central Bank) expect 25bp increase from 1.25% on 7th July
- Mexico (Banco de Mexico) expected to hold at 4.50% on 8th July
Source: Central Bank News, July 2, 2011. Did you enjoy this post? If so, click here to subscribe to updates to Investment Postcards from Cape Town by e-mail. |
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