The U.S. Federal Reserve will reduce its purchases of Treasury bonds and mortgage backed securities by another $10 billion to a total of $15 billion next month and expects to conclude its asset purchase program at its next meeting.
However, the Fed repeated its guidance that it still expects to maintain its current federal funds rate of zero to 0.25 percent for "a considerable time after the asset purchase program ends," a statement that will surprise financial markets and economists that were expecting the Fed to alter its language.
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Thailand's central bank maintained its policy rate at 2.0 percent, as expected, saying the "current degree of monetary accommodation is still needed given an early stage of recovery, and does not pose risks to financial stability."
The Bank of Thailand (BOT), which cut its rate by 25 basis points in March, added that its monetary policy committee had unanimously agreed on the decision though two of its members did not attend the meeting.
The BOT said domestic demand is being shored up by improving private confidence and a rebound in private and public spending and this should help sustain economic momentum while tourism has slowly started to recover and inflation remains stable.
Nevertheless, low agricultural prices and supply-side limitations have affected exports, it added.
It was the third unanimous monetary policy decision by the BOT since the coup by the Thai army on May 22. Economists had widely expected the central bank to maintain rates as the economy is starting to heal after many months of political and social unrest prior to the army's coup.
Thailand's core inflation rate rose marginally to 1.83 percent in August from 1.81 percent in July, within the BOT's target of 0.5 to 3.0 percent core inflation. Headline inflation in August eased to 2.09 percent from 2.16 percent.
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Mozambique's central bank held its benchmark standing facility rate steady at 8.25 percent, noting the positive behavior of inflation in August as well short- and medium-term projections that are improving the prospects for inflation to meet the 6.0 percent target for the end of 2014.
The Bank of Mozambique, which has maintained its rate since October 2013, also took note of the risks of slowing global economic activity, volatility in international commodity prices that reflect the conflicts in Ukraine, Libya and the Middle East.
Mozambique's inflation rate eased to 2.64 percent in August from 2.95 percent in July, with low inflation in the last eight months due to increased supply of domestic fruit, vegetables and plants during the cool season along with the stability of the exchange rate of the metical currency that is supported by the greater availability of foreign exchange.
As of Aug. 31, the central bank said the metical was quoted at 30.51 to the U.S. dollar, an appreciation of 0.03 percent during last month, cumulative appreciation of 1.87 percent and annual increase of 2.21 percent.
Mozambique's Net International Reserves rose by US$ 4 million in August to $3.24 billion on the last day of August, representing 4.5 months of imports.
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This week (Sept. 15-19) seven central banks are scheduled to decide on monetary policy: Mozambique, the United States, Thailand, Malaysia, Norway, Switzerland and South Africa.
Following table includes name of the country, its MSCI classification, the date the policy decision will be announced, the current policy rate, and the rate one year ago.
|COUNTRY||MSCI||DATE||CURRENT RATE||1 YEAR AGO|
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Last week in global monetary policy the central banks of Chile and Peru continued their easing cycles while the Philippines ratcheted up rates further as geopolitical tensions, including the possible independence of Scotland, dominated sentiment in financial markets.
Amid the growing prospects of armed intervention by an international coalition in Syria and Iraq, there was uplifting news from the euro area where finance ministers last Friday showed their willingness to support the European Central Bank’s (ECB) plea for fiscal stimulus and structural reforms to help stimulate demand now that its rates are at rock bottom and asset purchases over the coming months will help enlarge its balance sheet.
Through the first 37 weeks of this year, the 90 central banks followed by Central Bank News have cut their policy rates 48 times, or 14.2 percent of all policy decisions, up from 12 percent at the end of the first half and 12 percent at the end of the first quarter.
Meanwhile, rates have been raised 36 times, or 10.6 percent of all policy decisions, up from 9.3 percent at the end of June and 8.7 percent at the end of March.
|COUNTRY||MSCI||NEW RATE||OLD RATE||1 YEAR AGO|
|COUNTRY||MSCI||DATE||CURRENT RATE||1 YEAR AGO|
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Solar energy has garnered quite a buzz lately as China is said to beef up its solar installation this year. Fundamentally, many energy forecast scenarios by numerous agencies suggest while renewable energy would enjoy a higher growth rate, fossil fuels would remain as a dominant global energy source. Nevertheless, as the old saying goes -- If you can't beat them, join them. This seems to be what's happening with at least one solar company.
CNBC reported that GlassPoint Solar landed a $53 million investment from Royal Dutch Shell and the sovereign investment fund of Oman for its enhanced oil recovery (EOR) technology. As the company's name suggests, GlassPoint's technology runs on solar power, which produces steam to help pump more fossil fuel from conventional crude oil plays.
According to CNBC, GlassPoint has been using this technique in Oman since 2012, and it helped the firm score more than double its initial funding. According to EIA data, Oman is the largest oil and natural gas producer in the Middle East that is not a member of OPEC, and that EOR techniques have helped Oman's oil production rebound from a multi-year decline in the early 2000s. Oman relies heavily on complex EOR process to extract more oil than traditional drilling—to boost production.
EOR is nothing new to the oil industry. With much of the world's 'easy oil' already recovered, more and more producers are turning to EOR for prospects of ultimately 30-60% more of the reservoir's original oil. CNBC quoted consulting firm Ernst and Young which estimated [oil] companies spend at least $5 billion annually on the [EOR] process, and the need for this type of methods to expand the efficiency of wells is particularly acute in places like Oman and Russia where oil fields are getting long in the tooth (see chart below also from CNBC).
|Graphic Source: CNBC.com|
According to CNBC, GlassPoint's CEO Rod MacGregor noted in an interview that "This application looks like the next step for solar." Take it at face value, this new niche solar technology indeed looks very promising as it could reduce oil projects environmental impact, replacing and conserving other energy source used in the EOR process. This could become a tremendous growth area for the solar industry, and for companies with the expertise. But before everyone gets overly excited, keep in mind that ultimately, like any new technologies and methods, it will need to pass the number crunching test.
The CNBC article made no mention of the cost factor. EOR is already a very cost-intensive process. So given that (1) The economics of solar and other renewable energy is still a much debated issue among experts, and (2) the intermittent nature of solar, I think the most likely scenario is that the new solar drilling technology would be become part of, but not replace the existing traditional methods. This would put a very different perspective on its growth prospect.
Before the jury is in, solar industry should have no problem getting funding from oil companies that are desperate to gain some kind of positive association with any renewable drilling project. Whether this niche technology sector within the solar industry could lose support from the environmental cause due to the involvement with oil drilling is yet to be seen as well.
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House prices in Australia, Belgium and France have declined recently while the rise in Canadian, Norwegian and Swedish home prices has moderated, according to data from the Bank for International Settlements (BIS) that can be used as an early warning indicator for financial instability.
Encouraged by the Group of 20 finance ministers and central bank governors, BIS has expanded its collection of data on comparable monthly residential property prices to span 55 countries to help policymakers and economists identify whether house prices are sustainable or whether they are exceeding historical averages.
"Leverage-fuelled housing booms that turn into busts have often been at the very heart of episodes of systemic stress," BIS wrote in its latest quarterly review that includes an article on how the residential price data are collected and can be used.
"Historical experience has demonstrated that the interactions between rapidly growing house prices and excessive credit expansion are a tell-tale sign of the build-up of vulnerabilities in the household sector and the source of future losses for banks," adds BIS in a reference to earlier work partly by Claudio Borio, the head of its monetary and economic department.
BIS started publishing monthly residential property prices in July 2010 and now publishes over 300 data series as there are several countries that cover sections of the market, such as new or existing dwellings, along with data that cover the entire market.
One of BIS' observations is that house prices have recently displayed greater diversity across countries than in the recent aftermath of the crises when they all fell.
While property prices, deflated by inflation, rose by 9.5 percent in the United States and 6 percent in the United Kingdom, they remain in negative territory in Japan (down by 2.6 percent) and were generally weak or negative in Continental Europe and have continued to fall in the southern part of Europe, such as Italy, Spain, Portugal and Greece.
House prices in emerging regions outside Europe have generally increased, with prices in China, for example, up by an annual 13 percent in the first quarter of 2014 while prices growth in Latin America were more moderate.
Please click on www.bis.org to read the BIS September quarterly review.
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