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Mexico's central bank maintained its benchmark target for its interbank overnight rate at 3.0 percent, as expected, saying the balance of risks for inflation and economic activity were unchanged from its previous monetary policy decision in September.
The Bank of Mexico, which surprised markets by cutting its rate by 50 basis points in June, said it still expects annual headline inflation to end this year around 4 percent and converge toward its 3.0 percent target by the middle of 2015.
Although the downside risks to global growth had intensified, the central bank said the balance of risks to Mexico's economy remained unchanged due to the prospects for the U.S. economy and the effects of the country's structural reforms that have recently been carried out.
And while global financial markets have been volatile recently, the bank said changes in Mexican financial markets had been of lower magnitude than in other emerging market, with only marginal increases in Mexican interest rates and orderly price movements.
However, the central bank said it would not rule out possible higher volatility in the future.
Mexico's headline inflation rate rose to 4.22 percent in September form 4.15 percent in August but the central bank said this was mainly due to higher prices for livestock products and some processed foods that use this as inputs.
Core inflation, however, has remained close to the 3 percent level, the bank said, and inflation expectations remain very close to 3 percent. Mexico's core inflation rate eased to 3.34 percent in September from 3.37 percent in August.
The Bank of Mexico issued the following statement: (translation by Google)
"The Governing Board of the Bank of Mexico has decided to keep the 3.0 percent target for the interbank interest rate overnight.
Recent developments in the global economy has shown new signs of weakness. While economic activity in the US continues to consolidate the recovery process after recording strong growth in the second quarter, the slowdown in the global economy and the appreciation of the dollar, among other factors, could moderate growth in 2015. this, together with the recent decline in inflation and prospects has led since our last statement at a market expectation of a postponement of the starting date of the elevation of the benchmark interest rate from the Federal Reserve, though persists uncertainty about it. In the euro area has been a marked slowdown in economic activity along with further reductions in inflation, which puts this well below the ECB target. This has led to a new round of monetary easing by the central bank said, although no apparent results, which has affected the expectations. Meanwhile, growth in several emerging economies continued to slow, highlighting what happened in China and Brazil. The balance of risks for growth in the global economy has deteriorated. While still an expectation that the difference between the monetary stances in major advanced economies will be accentuated in the medium term, it is expected that at the prospect of slower global growth, falling prices of basic commodities and low levels inflation, the monetary policy stance in most of the advanced and emerging economies will remain accommodative in the following quarters.
The described economic environment, coupled with the persistent geopolitical risks and the alarm caused by the evolution of the epidemic of Ebola has been reflected in a significant increase in volatility in international financial markets, significant declines in the prices of some raw materials and, in particular depreciation of the currencies of emerging economies. In the case of Mexico a moderate depreciation of the local currency against the US dollar, downward adjustment in the rate of the Mexican Stock Exchange, with marginal increases in interest rates was observed. So far these movements have occurred in an orderly manner, with appropriate levels of operations and liquidity. However, even when adjustments on financial variables in Mexico have been far lower magnitude than in most emerging economies, can not rule out the possibility of higher volatility in the future.
Economic activity in Mexico during the third quarter seems to have shown a modest recovery. This has been mainly contributed buoyant external demand, although domestic has also improved on its evolution in the first two quarters. They continue to observe conditions of slack in the economy, although it is expected that these conditions will continue to fall. No pressure on inflation perceived by the side of aggregate demand, or expected to be presented in the following quarters. Despite intensifying downside risks to growth in the world economy, the prospects for the evolution of the US economy, together with structural reforms recently enacted, makes the balance of risks to economic activity in Mexico remains the same from the previous monetary policy decision.
While the annual headline inflation has remained above 4 percent, the level is mainly explained by increases in the prices of livestock products and in some processed foods that use these as inputs. However, core inflation has remained at levels close to 3 percent. For their part, have remained stable inflation expectations for a medium- and long-term surveys from analysts and derivative market information, the latter being located very close to 3 percent.
As stated in the previous announcement of monetary policy, it is estimated that the annual headline inflation close around 4 percent in 2014, which at the beginning of 2015 present a significant decrease and converge to about 3 percent from mid last year. For core inflation is expected at the end of 2014 is close to 3 percent in 2015 and will be below that level. This forecast is based, among other factors, on the fading effect of the tax changes that took effect at the beginning of this year, at a lower rate of annual change in the price of gasoline, the impact of dilution changes mentioned in the previous paragraph relative prices and, of course, in the posture of monetary policy, which will ensure that changes in relative prices have no second order effects. While there are upside risks to the inflation trajectory, including the possibility of further currency depreciation as a result of volatility in international financial markets and increases in inflation above the minimum wage and increased productivity expected, there are also lower, and further declines in the prices of telecommunications services and the possibility of a less dynamic evolution of economic activity than expected if recent social developments in the country affecting the expectations of economic agents . However, it is estimated that the balance of risks for inflation remains unchanged from the previous decision.
Given the above, the Board of Governors decided to keep 3 percent target rate for overnight interbank rate, under which estimates the monetary stance is consistent with the efficient convergence of inflation to the target 3 percent. Going forward, it will remain attentive to the performance of all the determinants of inflation and expectations for a medium- and long-term. In particular, monitor the evolution of the degree of slack in the economy before the expected recovery, including the potential impact of implementing structural reforms and monetary stance relative to Mexico against the United States. All this in order to be able to reach the designated target inflation."
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Russia's central bank raised its key policy rate by a sharp 150 basis points to 9.50 percent, larger than expected by economists, to curb rising inflationary expectations after a fall in the value of the ruble and import restrictions due to international sanctions over Ukraine boosted inflation.
The Bank of Russia, which has now raised rates by 400 basis points this year, also said the expected decline inflation would be slower than it had expected and it would "continue to take measures aimed at stabilizing inflation expectations and slowing down consumer prices growth" to its target of 4.0 percent.
Russia's headline inflation rate was estimated to have risen by 8.4 percent as of Oct. 27, up from 8 percent in September and 7.6 percent in August due to an acceleration in food prices.
The central bank said it expects inflation to remain above 8 percent until the end of 2014 and in the first quarter of 2015, up from its September forecast that inflation would remain above 7 percent.
Russia's economy has been hit by growing external political uncertainty and lower oil prices with consumer demand cooling along with real wage growth and retail lending.
Russia's Gross Domestic Product expanded by only 0.2 percent in the third quarter from the same 2013 quarter, down from a rate of 0.8 percent in the second quarter, and the central bank estimates growth of close to zero in the fourth quarter of this year and the first quarter of 2015.
The Bank of Russia issued the following statement:
"On 31 October 2014 the Bank of Russia Board of Directors decided to raise the Bank of Russia key rate to 9.5 percent per annum. During September-October significant changes in external conditions have taken place: considerable fall in oil prices and stricter sanctions imposed by certain countries against several large Russian companies. As a result the ruble depreciated that together with restrictions on the import of certain food items imposed in August resulted in further acceleration in consumer prices growth. According to the Bank of Russia estimates, inflation will remain above 8% till the end of 2014 and in 2015 Q1. Continuing high growth of consumer price will result in persistent increase in inflation expectations creating additional inflation risks. The Bank of Russia will continue to take measures aimed at slowing down consumer prices growth to the target of 4% in the medium run. If the external conditions improve and inflation and inflation expectation show a stable downward trend, the Bank of Russia will be ready to start monetary policy easing.
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Japan's central bank raised its target for boosting the country's monetary base by 10-20 trillion yen to about 80 trillion yen to prevent growing deflationary expectations from taking root.
The Bank of Japan (BOJ), which embarked on quantitative and qualitative easing (QQE) in April 2013 by pledging to double the monetary base by buying 60-70 trillion yen of assets a year, said it would now purchase an additional 30 trillion yen worth of government bonds (JGBs) compared with the past "with a view to encouraging a decline in interest rates across the entire yield curve."
The BOJ will also triple its purchase of exchange-traded funds so the amount outstanding rises to an annual pace of about 3 trillion yen and triple the purchase of Japanese real estate trusts (J-REITs) so the amount outstanding rises by about 90 billion yen. In addition, the BOJ will make ETFs that track the Nikkei index eligible for purchase.
The central bank's target for purchasing commercial paper and corporate bonds will remain about 2.2 trillion yen and about 3.2 trillion yen, respectively.
In its statement, the BOJ said the expansion of QEE was decided by a 5-4 majority vote.
As in its previous statement from Oct.7, the BOJ said the country's economy was continuing to "recover moderately as a trend" but today it added that the economy was expected to continue growing at a pace that was above the economy's potential.
"However, on the price front, somewhat weak developments in demand following the consumption tax hike and a substantial decline in crude oil prices have been exerting downward pressure recently," the BOJ said.
The BOJ has targeted inflation of 2 percent but financial markets and economists have become increasingly skeptical that the bank would achieve this goal and were expecting the BOJ to expand its asset purchases before the end of the financial year in March.
Japan's headline inflation rate slowed to 3.2 percent in September from 3.3 percent in August but excluding the impact of the sales tax hike in April, core inflation (CPI excluding fresh food) was only 1 percent.
The BOJ's aggressive monetary easing campaign in April 2013 was launched with the aim of ending 15 years of deflation.
The government's increase in sales tax in April to help reduce its budget deficit has hit consumer demand but the BOJ said it was starting to bounce back and the decline in global crude prices would have a positive impact on economic activity in the long run and help push up prices.
"Nevertheless, if the current downward pressure on prices remains, albeit in the short term, there is a risk that conversion of deflationary mindset, which has so far been progressing steadily, might be delayed," the BOJ said, adding:
"To pre-empt manifestation of such risk and to maintain the improving momentum of expectation formation, the Bank judged it appropriate to expand the quantitative and qualitative easing (QQE)."
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Colombia's central bank maintained its benchmark intervention rate at 4.5 percent, as expected, and said its monetary policy stance would depend on new data while demand continues to show strong growth and inflation expectations remain around 3 percent.
But the Central Bank of Colombia, which has raised its rate by 125 basis points from April through August, added that the terms of trade were declining and there was increased uncertainty about the global economy, including the cost of external financing, which could impact aggregate demand and the exchange rate.
The central bank issued the following statement:
"The Board of the Central Bank in its meeting today decided to keep interest rates at 4.5% intervention. For this decision, the Board took into consideration mainly the following aspects:
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Fiji's central bank maintained its benchmark Overnight Policy Rate (OPR) at 0.5 percent and said its monetary policy stance would be "re-aligned if needed" after the government announces the 2015 fiscal budget.
The guidance by the Reserve Bank of Fiji (RBF), which has held the OPR steady since November 2011, compares with its guidance from its board meeting in September when it said its policy stance could remain accommodative for now to support growth.
The RBF also said that both its objectives of inflation and foreign reserves would remain within the bank's comfortable range over the medium term while the economy is poised for its fifth year of consecutive growth, driven largely by tourism, sugar, construction and financial services.
Fiji's economy expanded by 4.6 percent in 2013, above expected growth of 3.6 percent, and the RBF said in its September report that the economy is on track to achieve the forecast 3.8 percent growth this year.
The RBF issued the following statement:
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Brazil's central bank surprised financial markets and raised its benchmark Selic rate by 25 basis points to 11.25 percent to ensure that inflation starts to decline next year and 2016.
The Central Bank of Brazil, which last raised its rate in May after nine rate rises, added that six of the members of its policy committee, known as Copom, had voted for the increase - including Chairman Alexandre Tombini - while three had voted to maintain rates.
Economists had widely expected the central bank to keep rates steady until President Dilma Rousseff had time to announce her new key appointments following her narrow re-election.
But the central bank has also been under pressure to raise rates soon to slow consumption that has helped pushed inflation, along with the declining real currency, to 6.75 percent in September from 6.51 percent in August, above the central bank's upper limit of its 2.5 to 6.5 percent target.
The Central Bank of Brazil issued the following statement (translation by Google):
To the Committee since the last meeting, among other factors, the intensification of price adjustments for the economy became the balance of risks to inflation less favorable. In view of this, the Committee considered it appropriate to adjust monetary conditions to ensure, at a lower cost, the prevalence of a more benign outlook for inflation in 2015 and 2016.
Voted for raising the Selic rate to 11.25% pa The following members of the Committee: Alexandre Antonio Tombini (Chairman), Aldo Luiz Mendes, Anthero de Moraes Meirelles, Carlos Hamilton Vasconcelos Araújo and Sydney Correa Marques. Voted by the Selic rate at 11.00% pa The following members of the Committee: Altamir Lopes, Luiz Awazu Pereira da Silva and Luiz Edson FELTRIM."
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The Federal Reserve wrapped up its third program of asset purchases since the global financial crises due to "a substantial improvement in the outlook for the labor market," but repeated that it expected to maintain its fed funds rate at zero to 0.25 percent "for a considerable time" following the end of the quantitative easing (QE) program, especially if inflation remains below its target.
The Federal Reserve, the U.S. central bank, began its third installment of asset purchases, known as QE 3 in September 2012, purchasing $85 billion of U.S. Treasuries and housing-related debt, but began whittling down the purchases in January by $10 billion each month in light of the improving U.S. economy and falling unemployment.
The remaining purchases of $15 billion worth of Treasuries and mortgage-backed securities will be concluded by the end of October, marking the conclusion of three rounds of asset purchases that have tripled the Fed's balance sheet to $4.482 trillion as of Oct. 22 from $1.504 on Oct. 1, 2008, just prior to the launch of QE1 when the Fed starting buying housing related debt.
In its statement, the Federal Open Market Committee (FOMC), the Fed's policy-making body, acknowledged the improvement in U.S. labor markets, saying job gains had been "solid" and the "underutilization of labour resources is gradually diminishing," a strong shift in language since September when it said that the "remains significant underutilization of labor resources."
In September the U.S. unemployment rate dropped to a six-year low of 5.9 percent from 6.1 percent but growth in wages and thus inflationary pressures remains subdued, reducing the need for the Fed to hike its rates to curb headline inflation, which was stable in September at 1.7 percent, below the Fed's target of 2.0 percent.
The Fed, which has a dual mandate of maximum employment and price stability, issued the following statement:
"Information received since the Federal Open Market Committee met in September suggests that economic activity is expanding at a moderate pace. Labor market conditions improved somewhat further, with solid job gains and a lower unemployment rate. On balance, a range of labor market indicators suggests that underutilization of labor resources is gradually diminishing. Household spending is rising moderately and business fixed investment is advancing, while the recovery in the housing sector remains slow. Inflation has continued to run below the Committee's longer-run objective. Market-based measures of inflation compensation have declined somewhat; survey-based measures of longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators and inflation moving toward levels the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for economic activity and the labor market as nearly balanced. Although inflation in the near term will likely be held down by lower energy prices and other factors, the Committee judges that the likelihood of inflation running persistently below 2 percent has diminished somewhat since early this year.
The Committee judges that there has been a substantial improvement in the outlook for the labor market since the inception of its current asset purchase program. Moreover, the Committee continues to see sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment in a context of price stability. Accordingly, the Committee decided to conclude its asset purchase program this month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.
To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments.
The Committee anticipates, based on its current assessment, that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program this month, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored. However, if incoming information indicates faster progress toward the Committee's employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated.
When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.
Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Stanley Fischer; Richard W. Fisher; Loretta J. Mester; Charles I. Plosser; Jerome H. Powell; and Daniel K. Tarullo. Voting against the action was Narayana Kocherlakota, who believed that, in light of continued sluggishness in the inflation outlook and the recent slide in market-based measures of longer-term inflation expectations, the Committee should commit to keeping the current target range for the federal funds rate at least until the one-to-two-year ahead inflation outlook has returned to 2 percent and should continue the asset purchase program at its current level."
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