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December 2011

China Central Bank to Create $300 Billion Investment Fund

December 10, 2011 by CentralBankNews   Comments (0)

The People's Bank of China announced that it plans to create an investment fund to manage $300 billion worth of foreign exchange reserves in more aggressive investments and largely internationally.  According to Reuters the fund would invest in the US via the Hua Mei fund, and Europe via the Hua Ou fund.  It is understood that the fund has been under development for some time, and will seek to invest in real assets and company shares, rather than government securities such as US treasuries.  

The fund will operate alongside the State Administration of Foreign Exchange (SAFE), and separately from China's sovereign wealth fund; China Investment Corp (CIC).  The recent IMF Financial System Stability Assessment provides an overview of China's key financial institutions and structure.

The People's Bank of China also made headlines earlier this month when it reduced the RRR by 50 basis points; the PBoC last raised the reserve requirements by 50 basis points in June this year.  Meanwhile the People's Bank of China last raised the benchmark interest rate 25bps to 6.56% in early July this year.  

The Bank for International Settlements recently published a paper on 'China's Evolving Reserve Requirements' which provides an interesting and detailed analysis of the People's Bank of China's use of the 
required reserve ratio as a tool for monetary policy.

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Serbia Central Bank Cuts Rate a Further 25bps to 9.75%

December 9, 2011 by CentralBankNews   Comments (0)

The National Bank of Serbia cut its 2-week repo rate by 25 basis points to 9.75% from 10.00% previously.  The Bank said: "The key disinflationary factors, both now and in the foreseeable future, will be weaker cost-push pressures arising from administered and food prices as well as low aggregate demand. The process of disinflation will be further aided by the continued drop in inflationary expectations. Inflation is expected to retreat within the target tolerance band in the first quarter of the next year."

The Bank also cut the interest rate by 75 basis points in November, 50bps in October, and 50bps in September, after pausing in August, while previously the Bank reduced the 2-week repo rate by 25 basis points to 11.75% at its July meeting, and cutting the rate 50 basis points at its June meeting to 12.00%.  Serbia reported inflation of 8.7% in October, down from 10.5% in August, compared to 12.1% in July, 12.7% in June, 13.4% in May, 14.7% in April, and above the bank's inflation target range of 3-6%.  

The IMF is forecasting 2011 GDP growth in Serbia of 2%, and 3% in 2012.  The Bank next meets on the 19th of January 2012.  The Serbian Dinar (RSD) last traded around 77.1 against the US dollar.

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Bank Indonesia Pauses Interest Rate at 6.00%

December 9, 2011 by CentralBankNews   Comments (0)

Indonesia's central bank, Bank Indonesia, held the BI reference rate unchanged at 6.00%.  Bank Indonesia Governor, Darmin Nasution, said: "This decision is based on overall assessment on recent economic condition, risk factors, and economic prospects. Board of Governors views that current BI Rate is still consistent with inflation targets, and remains conducive for financial stability and mitigating the impacts of worsening global economic outlook on Indonesian economy. The assessment on economic condition and outlook show that domestic economy remains strong and stable."

Previously the Bank cut the interest rate by 50 basis points at its November meeting, and also cut the key monetary policy rate (the BI Rate) by 25 basis points to 6.50% at its October meeting.  Previously the Bank raised the BI rate by 25 basis points to the current 6.75% in February 2011.  Indonesia reported annual inflation of 4.1% in November, down slightly from 4.61% in September, compared o 4.79% in August and July, 4.61% in June, 5.98% in May, 6.16% in April, and 6.65% in March, and just inside the inflation target of 5% +/-1% in 2011 (which changes to 4.5% +/-1% in 2012).  

Bank Governor Nasution previously said the Bank expects "inflation next year will be below 5%".  Bank Indonesia has previously forecast GDP growth of 6.3-6.8% in 2011 and 6.4-6.9% in 2012 for the Indonesian economy, meanwhile Indonesia reported annual GDP growth of 6.5% in the June quarter this year.  

The Indonesian Rupiah (IDR) has weakened by about 1% against the US dollar so far this year, and the USDIDR exchange rate last traded around 9045.

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Bank of Korea Keeps Interest Rate at 3.25%

December 9, 2011 by CentralBankNews   Comments (0)

The Bank of Korea maintained its 7-day repurchase rate unchanged at 3.25%.  The Bank said: "In Korea, exports have shown a steady increase, but consumption has remained at a level similar to that in the previous month and facilities investment has decreased sharply. The trend of improvement in employment conditions has been sustained, led by the private sector. The Committee anticipates that the domestic economy will not deviate significantly from its long-term trend of growth going forward, but recognizes the situation to be one in which downside risks to growth remain high due to the impact of external risk factors."

At its November meeting this year the Bank of Korea also held the interest rate unchanged at 3.25%, after increasing the 7-day repurchase rate by 25 basis points to 3.25% at its June meeting.  South Korea reported a steady consumer price inflation of 4.2% in November, compared to 3.9% in October, 4.3% in September, 5.3% in August, 4.7% in July 4.4% in June, 4.1% in May, and 4.2% in April. 

The inflation rate is currently just above the Bank's inflation target of 2%-4% through 2012.  The South Korean economy grew 0.7% in Q3 (0.9% in Q2), placing annual GDP growth at 3.4% (3.4% in Q2).  
The South Korean Won (KRW) has weakened by about 1% so far this year against the US dollar, while the USDKRW exchange rate last traded around 1,140.

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Peruvian Central Bank Holds Rate at 4.25%

December 9, 2011 by CentralBankNews   Comments (0)

The Central Reserve Bank of Peru held its monetary policy reference rate unchanged at 4.25%.  The Bank said: "This decision takes into account the lower growth being recorded by some components of expenditure, the current international financial risks, and the rise of inflation associated mainly with temporary supply factors. Future adjustments in the reference interest rate will depend on the evolution of inflation and its determinants."

Peru's central bank also held the interest rate at 4.25% at its November meeting, while the bank last raised the monetary policy reference rate by 25 basis points to 4.25% in May this year.  Peru reported annual inflation of 4.6% in November, 4.2% in October, up from 3.73% in September, 3.35% in August and July, and compared to 2.9% in June, 3.07% in May, 3.34% in April, and above the Bank's 1-3% inflation target.  

The Peruvian economy expanded 1.6% in the June quarter, placing annual GDP growth over 6%.  The Peruvian Nuevo Sol (PEN) last traded around 2.70 against the US dollar, with the PEN gaining approx. 3.5% year to date.

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Botswana Central Bank Keeps Interest Rate at 9.50%

December 9, 2011 by CentralBankNews   Comments (0)

The Bank of Botswana's Monetary Policy Committee kept its benchmark interest rate steady at 9.50%.  The Bank said: "Low growth in domestic demand and the forecast modest external inflationary pressures contribute to the positive inflation outlook in the medium term." also noting "However, in the short-term, inflation is expected to remain above the bank's objective range of 3 - 6 percent due to the impact of transient factors. These include the increase in fuel prices and public transport fares."

Previously the Bank also kept the 
bank rate unchanged at 9.50% during its October meeting, while the Bank last dropped the rate 50 basis points to 9.50% in December last year.  Botswana recorded annual price inflation of 8.8% in October, 8.6% in September, 7.8% in July, 7.9% in June, 8.3% in May, and 8.2% in April, and above the central bank's target range of 3-6%, according to the central bank.

The Bank said domestic output grew an estimated annual rate of 12.4% in the second quarter, driven largely by the 23.7% growth reported in the mining sector; with the non-mining sector growing just 7.4%.  Botswana's currency, the Botswana Pula (BWP), has weakened by over 10% against the US dollar so far this year, while the USDBWP exchange rate last traded around 7.45

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Bank of England Holds Bank Rate at 0.50%, APP at 275B

December 9, 2011 by CentralBankNews   Comments (0)

The Bank of England (BoE) maintained the Bank Rate at a record low stimulatory level of 0.50%, and continued with its Asset Purchase Program (Quantitative Easing) target of GBP 275 billion, after increasing it by 75 billion at its October meeting.  On its asset purchase program, the Bank said: "The Committee expects the announced programme to take another two months to complete. The scale of the programme will be kept under review."

The Bank also announced the introduction of the Extended Collateral Term Repo (
ECTR) Facility.  The Bank said: "This Facility is designed to mitigate risks to financial stability arising from a market-wide shortage of short-term sterling liquidity" and added "there is currently no shortage of short-term sterling liquidity in the market."

The Bank also held the official Bank Rate unchanged at 0.50% at its October meeting this year; the rate has remained on hold since March 2009, when the Bank reduced the interest rate by 50 basis points to 0.50%.  The United Kingdom reported annual consumer price inflation of 5.2% in September, 4.5% in August, and 4.4% in July, and still above the Bank's inflation target of 2.00%.  

The UK saw quarterly GDP growth of 0.5% in Q3 this year (0.1% in Q2, 0.5% in Q1), while annual economic growth was reported at 0.5% (0.7% in Q2, 1.6% in Q1).  The British pound (GBP) is up about 3% against the US dollar so far this year, while the USDGBP exchange rate last traded around 0.62.

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ECB Cuts Rate 25bps to 1.00% on Euro Crisis

December 8, 2011 by CentralBankNews   Comments (0)

The European Central Bank (ECB) cut its Main refinancing operations rate by 25 basis points to 1.00% from 1.25%.  Previously the ECB also cut the interest rate by 25 basis points at its November meeting.  The ECB last increased the interest rates by 25 basis points at its July meeting; pausing in May and June, after raising the rate by 25 basis points to 1.25% in April this year.  The Euro Area reported annual HICP inflation of 3% in November and October and September, 2.5% in August and July, 2.7% in June (same as May) and above the Bank's inflation target of maintaining inflation below, but close to, 2% over the medium term.  

The Euro Area reported quarterly GDP growth in the September quarter of 0.2% (1.4% y/y); the same as the June quarter of 0.2%, following a 0.8% increase in the March quarter, and a 0.3% increase in the December quarter of 2010.  The Euro (EUR) us basically flat against the US dollar so far this year, while the EURUSD exchange rate last traded around 1.34

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RBNZ Continues Hold on OCR at 2.50%

December 8, 2011 by CentralBankNews   Comments (0)

RBNZ keeps the OCR on hold at a record low 2.50%

The Reserve Bank of New Zealand kept the Official Cash Rate (OCR) on hold at 2.50%, noting the impact of global developments.  The Bank Said: "Domestically, economic activity continues to expand, though at a modest pace. Although off their peaks, export commodity prices remain elevated. In addition, the depreciation of the New Zealand dollar provides some support for the tradable sector of the economy. Over time, repairs and reconstruction in Canterbury will also provide a significant boost to demand for an extended period. Annual headline inflation is estimated to have returned within the Bank's 1 to 3 percent target band in the December quarter. Underlying inflation continues to sit close to 2 percent. In addition, wage and price setting pressures have remained contained."

Previously the Bank also held the OCR unchanged at 2.50%, while the Bank cut the rate by 50 basis points in March this year, following the Canterbury earthquake.  New Zealand reported consumer price inflation of 4.6% in Q3 this year, compared to 5.3% in Q2, 4.5% in Q1, and 4.0% in Q4 of 2010, and above the official inflation target of 1-3% as short term factors such as tax increases caused a spike in prices.  

The New Zealand economy grew 0.1% q/q in Q2 (0.9% in Q1), placing it up 1.5% (1.4% in Q1) on an annual basis.  The New Zealand dollar (NZD) is up about 1% against the US dollar so far this year, having touched all new highs close to 0.88 in July/August, meanwhile the NZDUSD last traded around 0.78.

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Bank of Namibia Holds Interest Rate at 6.00%

December 8, 2011 by CentralBankNews   Comments (0)

The Bank of Namibia held its benchmark interest rate, the repurchase rate, steady at 6.00%, for the 6th consecutive meeting.  Bank of Namibia Governor Ipumbu Shiimi said: "the MPC is of the view that global economic growth has slowed down noticeably. Global financial markets have shown increasing signs of stress, in both advanced and emerging market economies. The domestic economy continues to grow at a slow pace, particularly in the primary sector. MPC also noted the recent rise in inflation, which was brought about by the rise in prices in specific consumer goods and services."

The Namibian central bank also held its interest rate unchanged at its October meeting, after dropping the rate 75 basis points in December last year.  Namibia reported annual inflation of 6.1% on October, up from 5.3% in September, compared to 5.4% the previous month, 4.8% in July, 5.4% in June, 5.2% in May, and 4.8% in April.  Namibia's currency is fixed against neighboring South Africa's rand (ZAR), thus the Namibian central bank tends to follow the monetary policy decisions of the South African Reserve Bank.

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