Colombia's central bank maintained its benchmark intervention rate at 4.5 percent, as expected, and did not renew its program of buying U.S. dollars in light of adequate international reserves and "recent changes in the exchange market conditions."
The Central Bank of Colombia, which raised its rate by 125 basis points from April thorough August, added that the drop in oil and rising international prices of some relevant foods had led to a deterioration in the country's terms of trade with a negative impact on the growth of national income.
Oil accounts for about half of Colombia's exports. The central bank has been buying U.S. dollars since 2012, including more than $4 billion this year and $6.8 billion in 2013.
Colombia's peso currency has depreciated since July and this has pushed up inflation but the central bank said it did not expect "significant effects on inflation expectations" as long as the depreciation is moderate.
The peso has been declining since July with the depreciation picking up speed in November. But part of the decline was reversed in the last two days. Today the peso was quoted at 2,300 to the U.S. dollar, a depreciation of 16 percent since the start of this year.
Colombia's headline inflation rate rose to 3.65 percent in November from 3.29 percent in October, but the central bank said the deviation from its 3.0 percent midpoint target was temporary and mainly due to temporary factors. It added that core inflation was below 3.0 percent and headline inflation is expected to converge to that level.
Colombia's core inflation rate rose to 3.09 percent in November from 3.02 percent.
Colombia's Gross Domestic Product expanded by 0.6 percent in the third quarter from the second quarter for annual growth of 4.2 percent, down from 4.3 percent, and below the central bank's expectations of 4.6 percent.
But the bank said consumer confidence, retail trade, car sales and consumer credit suggest that domestic demand "remains dynamic."
The Central Bank of Colombia issued the following statement (translation by Google):
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Albania's central bank maintained its key interest rate at 2.25 percent and expects to maintain an expansionary monetary policy as the balance of risks remain to the downside and said any worsening of risk scenarios "may require further revisions of the monetary policy stance."
The Bank of Albania, which has cut its rate by 75 basis points this year, most recently in November, said the rise in November inflation was in line with expectations and inflation should rise gradually in coming months despite weak inflationary pressures.
Albania's headline inflation rate rose to 1.7 percent in November from October's 1.4 percent due to higher prices of unprocessed food, medicine and rentals.
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Japan's central bank maintained its aggressive easing stance with the aim of boosting the monetary base by an annual 80 trillion yen but sounded optimistic about the recovery of demand following the recent slump in reaction to a tax increase in April.
The Bank of Japan (BOJ), which in October raised its target for the monetary base by 10-20 trillion yen to prevent deflationary expectations from taking root, said the decline in demand following front-loaded increases prior to the tax rise had been "waning on the whole" - a more optimistic view in comparison to November when the bank merely said demand remained weak.
Describing Japan's exports, the BOJ was clearly more upbeat, saying exports "have show signs of picking up," compared with November's statement when it said exports were flat.
Addressing housing investment, the BOJ was also more optimistic, saying the decline following the front-loaded increase prior to April "has recently started to bottom out," a slightly more optimistic view than in November when its had there were "signs of bottoming out."
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EconMatters has been critical of Fed's new found dovishness. Judging from the FOMC statement released on Wednesday Dec. 17, Fed made a concerted effort keeping a spot for that infamous "considerable time" language. However, technically speaking, the phrase is actually a reference of timing, not exactly part of FOMC current policy statement. Below is the exact language:
Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. The Committee sees this guidance as consistent with its previous statement 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 in October, 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.
In the Q&A session of the press conference, Chairwoman Yellen said "The committee considers it unlikely to begin the normalization process for at least the next couple of meetings.” So the general consensus interpretation is that Fed is in no hurry to raise rates till at least April of 2015 unless the economic condition takes a drastic turn (better or worse).
Nevertheless, Fed is running out of excuse to keep rates at near zero beyond 8 years. Employment is up, inflation is moderate (enhanced by the recent lower oil/fuel prices), and corporate profits are up.
Council on Foreign Relations (CFR) published an interesting graph (see below) just before this Dec. FOMC meeting comparing various inflation and unemployment measures in 2004 (Greenspan era) and 2014. CFR at the time predicted that Yellen would drop the "considerable time" language from the policy statement, just like Greenspan did in Jan. 2004, and it looks like CFR was right.
|Source: Council on Foreign Relations, Dec. 16, 2014|
Now the more intriguing question for markets is when the Yellen Fed will start raising rates? The Greenspan Fed started gradually raising rate in June 2004, roughly 5 months after dropping the "considerable time" language in Jan. 2004. So if we continue the train of thought by CFR, we probably could expect a rate raise somewhere in Q2 of 2015.
Greenspan was criticized by some for keeping the loose monetary policy far too long leading to the housing bubble, which was a main contributing factor to the 2008 financial crisis. When it comes to the Federal Reserves, past performance could have more relevance to future results. Ms. Yellen would be prudent to learn from history and not to repeat the similar missteps.
The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.
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The Swiss central bank imposed a negative interest rate of minus 0.25 percent on large bank deposits with the aim of pushing its benchmark three-month Libor interest rate on Swiss francs into a negative range of -0.75 to 0.25 percent.
The Swiss National Bank (SNB) said the introduction of negative rates, which makes it less attractive for banks and major investors to hold Swiss franc investments, should help it support its exchange rate target of a maximum 1.20 francs to the euro.
The negative interest rate would be imposed on banks' sight deposit balances at the SNB that exceed 10 million Swiss francs.
The SNB said the cap on the franc's exchange rate, which was imposed at the height of the euro area's sovereign debt crises in September 2011, remained its main instrument to avoid a "undesirable tightening of monetary conditions resulting from a Swiss franc appreciation."
The SNB reaffirmed its commitment to this exchange rate cap and repeated that it would "continue to enforce it with the utmost determination" and was prepared to purchase foreign currency in unlimited quantities and to take further measures, if needed.
"Over the past few days, a number of factors have prompted increased demand for safe investments," the SNB.
Since mid-November the Swiss franc has been trading marginally above 1.20 to the euro, quoted at 1.2009 on Wednesday. Following the SNB's decision to introduce negative rates, it immediately weakened to 1.208 before settling around 1.204.
The franc has come under renewed upward pressure against the euro since the European Central Bank (ECB) began a more aggressive easing campaign to avoid deflation and economic stagnation, including a September cut to its repo rate to technically zero of 0.05 percent.
The ECB is also expected to expand its asset purchase program to include sovereign bonds early next year.
In June the ECB introduced a negative deposit rate of minus 0.10 percent and then lowered it further to minus 0.20 percent in September in an attempt to make it more profitable for banks to lend money out than park it at the central bank.
The Swiss National Bank issued the following statement:
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The U.S. Federal Reserve maintained its benchmark federal funds rate at zero to 0.25 percent, as widely expected, and said it "can be patient in beginning to normalize the stance of monetary policy," a new guidance that is consistent with its previous statement that its policy rate would be maintained for "a considerable time" following the conclusion of quantitative easing in October.
The Federal Reserve, the central bank of the United States, has held its fed funds rate at the current level since December 2008 but is slowly taking steps toward its first rate rise - expected around the middle of 2015 - in light of the continuing strengthening of the U.S. economy.
Along with cutting its rate to essentially zero, the Fed has undertaken three major installments of asset purchases to hold down long term interest rates. The third installment, which included purchases of U.S. Treasuries and housing-related debt and known as QE 3, started in September 2012 and concluded in October with the final asset purchases of $15 billion.
The next step for the Fed in normalizing its policy is to prepare financial markets for its first rate hike by adjusting the language in its guidance. Since September the Fed has been considering replacing the phrase "considerable time" - which it began to use in September 2012 - with another description that conveys the message that the Fed will not jeopardize the economic recovery and yet respond appropriately to the improving economy.
Financial markets have recently turned volatile in response to the near 50 percent fall in crude oil prices since June and economists have questioned whether the Fed would be worried over whether this would have a lasting impact on its inflation projections.
But the Fed said it still expects inflation to rise gradually toward its 2 percent target "as the labor market improves further and the transitory effects of lower energy factors and other factors dissipate."
In its latest economic forecast, the Fed cut its 2014 forecast for its preferred inflation gauge - personal consumption expenditures - to 1.2-1.3 percent from September's forecast of 1.5-1.7 percent.
For 2015 the inflation forecast was cut to 1.0-1.6 percent from 1.6-1.9 percent while the 2016 forecast was maintained at 1.7-2.0 percent and the 2017 forecast was trimmed to 1.8-2.0 percent from 1.9-2.0 percent.
Economic growth has been stronger than the Fed forecast in September, with the forecast for 2014 Gross Domestic Product revised up to 2.3-2.4 percent from 2.0-2.2 percent. The 2015 forecast was maintained at 2.6-3.0 percent and the 2016 forecast revised to 2.5-3.0 percent from 2.6-2.9 percent. For 2017 the forecast was maintained at 2.3-2.5 percent.
As part of its economic forecast, the Fed also shows when the 12 members of its policy-setting body, the Federal Open Market Committee (FOMC), expect the first rate rise to take place.
Fifteeen FOMC members expect the first rate rise to take place at some point next year while only two expect the first policy tightening to occur in 2016.
In September one FOMC member had expected the first rate rise to take place this year, 14 that it would happen in 2015 and two in 2016.
In contrast with the FOMC's meeting in September when only Narayana Kocherlakota voted against the committee's statement, two further members voted against today's statement. Richard Fisher and Charles Plosser joined Kocherlakota in opposing today's statement.
The Federal Reserve issued the following statement:
Voting against the action were Richard W. Fisher, who believed that, while the Committee should be patient in beginning to normalize monetary policy, improvement in the U.S. economic performance since October has moved forward, further than the majority of the Committee envisions, the date when it will likely be appropriate to increase the federal funds rate; Narayana Kocherlakota, who believed that the Committee's decision, in the context of ongoing low inflation and falling market-based measures of longer-term inflation expectations, created undue downside risk to the credibility of the 2 percent inflation target; and Charles I. Plosser, who believed that the statement should not stress the importance of the passage of time as a key element of its forward guidance and, given the improvement in economic conditions, should not emphasize the consistency of the current forward guidance with previous statements."
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The Thai central bank maintained its policy rate of 2.0 percent, as expected, but said two of the members of its policy committee voted to cut the rate by 25 basis points to provide further support to the economy, which is expected to expand at slower pace in 2015 than projected.
The Bank of Thailand (BOT), which cut its rate by 25 basis points in March, said headline inflation had trended downward due to energy prices and was projected to remain subdued for some period while core inflation decelerated due to lower demand.
Thailand's Gross Domestic Product expanded by 1.1 percent in the third quarter from the second quarter for annual growth of 0.6 percent, slightly up from 0.4 percent in the second quarter.
The BOT said domestic private spending was the main driver of growth while less-than-expected government spending was weighing on private investment as most businesses were waiting for public investment plans to proceed. In addition, exports are held back by the uncertain global outlook.
"Going forward, members agreed that monetary policy should remain accommodative in order to reinforce the momentum of economic recovery," the BOT said.
Thailand's headline inflation rate fell to 1.26 percent in November from 1.48 percent in October while core inflation eased to 1.6 percent from 1.67 percent. The BOT targets core inflation of 0.5-3.0 percent.
The Bank of Thailand issued the following statement:
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Georgia's central bank maintained its policy rate at 4.0 percent, saying it was still considering a gradual withdrawal of its expansionary monetary policy while assessing the negative impact on foreign demand from the "complicated situation in the region" and its impact on economic growth.
The National Bank of Georgia (NBG), which started tightening policy is February but then stopped the process due to the increase in geopolitical risks, said it was still expecting a "significant strengthening of inflationary pressure" and to reach its target of 5 percent inflation in the second half of 2015.
Georgia's headline inflation rate eased to 2.8 percent in November from 3.4 percent in October.
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