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Chile holds rate steady at 4%, maintains easing bias

April 18, 2014 by CentralBankNews   Comments (0)

    Chile's central bank held its policy rate steady at 4.0 percent, as expected, and reiterated that it will "consider the possibility of making additional cuts to the policy rate in line with the evolution of domestic and external macroeconomic conditions and its implications on the inflationary outlook."
     The Central Bank of Chile, which last month cut its rate for the fourth time since October 2013 for total reduction of 100 basis points, added that recent data had confirmed the "low dynamism of output and demand," in line with the bank's projections from March.
    In its latest quarterly monetary policy report the central bank cut its 2014 growth forecast to between 3.0 and 4.0 percent from a previous 3.75 to 4.75 percent and yesterday the bank said its latest poll on bank credit showed that conditions for corporate loans became more restrictive in the first quarter and demand for consumer credit also tightened.
    Chile's Gross Domestic Product contracted by 0.1 percent in the fourth quarter of 2013 from the third quarter for annual growth of 2.7 percent, down from 5.0 percent in the third quarter. The unemployment rate rose marginally to 6.13 percent in February from 6.12 percent in January.
    The International Monetary Fund projects 2014 growth of 3.6 percent and 4.1 percent in 2015, down from 4.2 percent in 2013.
    Chile's inflation rate accelerated to 3.5 percent in March from 3.2 percent in February and 2.8 percent in January. The central bank attributed the March rise to higher prices of foods and fuel along with the depreciation of the peso, but inflation expectations remain around 3.0 percent.
    The central bank, which targets inflation of 3.0 percent, plus/minus one percentage point, has revised upwards its forecast for inflation to end 2014 around 3 percent, with a temporary rise to between 3.5 and 4.0 percent.
    In 2013 inflation averaged 1.8 percent and the IMF forecasts average 3.5 percent this year.
    The central bank said moderate growth in emerging markets is continuing, a point that is relevant for the prices of copper and other metals. Chile is the world's largest copper exporter and has been affected by a slowdown in global demand, especially from China.
    Chile's peso began depreciating in May last year, along with most other emerging market currencies, and continued to decline through early March. But since March 11 when it hit 575.5 to the U.S. dollar, it has rebounded, trading at 557.3 today. But for the year, the peso is still down 5.7 percent.

    www.CentralBankNews.info

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Central Bank News Link List - Apr 17, 2014 - Turkish central bank optimistic on growth, looser policy seen

April 17, 2014 by CentralBankNews   Comments (0)

Here's today's Central Bank News' link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don't miss any important news.

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Serbia holds rate, sees room for cuts on lower deficit

April 17, 2014 by CentralBankNews   Comments (0)

    Serbia's central bank maintained its policy rate at 9.5 percent but said plans to cut the government deficit "will open up the scope for monetary easing, which should have a positive effect on the sustainability of economic growth."
    The Bank of Serbia (NBS), which has been intervening in foreign exchange markets to limit the rise in the dinar currency since the Progressive Party won a parliamentary majority in last month's election, said its decision to keep the rate on hold was "guided by instability in international financial markets and heightened uncertainties surrounding the current geopolitical tensions."
    The central bank has maintained its rate since December despite a decline in inflation, citing the need to keep Serbian assets attractive to international investors.
    The instability in financial markets may affect Serbia through a drop in capital inflows and higher prices in global commodities markets, including energy and agriculture, the NBS said, warning that EU countries may experience lower economic growth, which would dampen demand for Serbian exports.
    The central bank has maintained its rate since December despite a decline in inflation, citing the need to keep Serbian assets attractive to international investors.

     In 2013 the NBS cut its rate by 175 basis points as inflation declined in response to the bank's 150-basis-point increase in rates in 2012. Inflation averaged 7.7 percent in 2013 but NBS expects it to fluctuate around the low end of its tolerance range of 2.5 to 5.5 percent in coming months.
    In March Serbia's headline inflation rate fell to 2.3 percent from 2.6 percent in February but the central bank expects inflation to rise in coming months due to higher administered prices and the one-off impact of higher valued-added tax on some goods in January.
    The central bank targets inflation at midpoint of 4.0 percent and the IMF has forecast inflation of4.0 percent this year, 2015 and 2016.
    "The expected stepping up of fiscal consolidation and structural reforms will contribute to stabilizing inflation at low levels and preserving price and financial stability over the medium term, and will also reduce the exposure of the domestic economy to the exogenous risk," the central bank said.
    Last week the Serbian central bank intervened for three consecutive days to limit the gains in the dinar against the euro, the sixth time it had intervened Prime Minister-elect Aleksandar Vucic won a majority in the parliament on March 16, according to dealers.
    On Wednesday Vucic, whose cabinet is expected to be confirmed on April 27, said he would cut spending by reducing public sector jobs and ending subsidies.
    The Serbian dinar has been relatively stable this year, trading at 115.5 to the euro today, down 0.8 percent since the start of the year.
    So far this year the central bank is reported to have spent a total of 70 million euros in managing the dinar and on March 31 the bank's governor, Jorgovanka Tabakovic, said the NBS had enough reserves to defend the currency, noting foreign exchange reserves at 10.6 billion euros.
    Serbia's economy has been improving in recent months after a recession in 2012. In 2013 Gross Domestic Product expanded by 2.5 percent and the central bank has forecasts growth of 1.5 percent this year. The IMF has forecast 1.0 percent growth this year, up to 1.5 percent in 2015.

    www.CentralBankNews.info

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Central Bank News Link List - Apr 16, 2014 - Yellen: Full employment in forecast; still 2 years away

April 17, 2014 by CentralBankNews   Comments (0)

Here's today's Central Bank News' link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don't miss any important news.

          www.CentralBankNews.info

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Mozambique holds rate, maintains "prudent" policy

April 16, 2014 by CentralBankNews   Comments (0)

     Mozambique's central bank maintained its benchmark standing facility rate at 8.25 percent and will intervene in markets to maintain the monetary base at 46.451 billion meticais in April, continuing what it described as "a prudent monetary policy" in an environment characterized by uncertainty about global economic growth along with domestic and international risks.
    The April target for Mozambique's monetary base is up 4 percent from the Bank of Mozambique's March target of 44.657 billion meticais and the February target of 44.994 billion. In 2013 the central bank cut cut its policy rate by 125 basis points.
    Inflation in Mozambique rose to 3.0 percent in March from 2.38 percent in February due to the impact of floods at the beginning of the year, the depreciation of the medical against the U.S. dollar and the South African rand and a general acceleration of prices in South Africa.
    After depreciating from mid-January through February, the metical has firmed slightly, but was still down 4 percent this year against the U.S. dollar, trading at 31.25 today.

    Provisional data showed that Mozambique's economy expanded by 7.0 percent in 2013, in line with the central bank's forecast, down from 7.3 percent in 2012, helped by an expansion of the services sector, which grew by 8.97 percent, the bank said. Mining, construction, transport and communications also grew last year.
      The International Monetary Fund has forecast growth in Mozambique's economy of 8.3 percent this year along with 5.6 percent inflation.

    www.CentralBankNews.info

   

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Canada holds rate, change depends on new information

April 16, 2014 by CentralBankNews   Comments (0)

    The Bank of Canada (BOC), maintained its policy rate at 1.0 percent, as widely expected, and reiterated that "the timing and direction of the next change to the policy rate will depend on how new information influences the balance of risks."
    The BOC also repeated its view from March that underlying inflation is expected to remain below its 2.0 percent target "for some time" so the downside risks to inflation remain important while at the same time the risks associated with household imbalances remain elevated.
    "In sum, the Bank continues to see a gradual strengthening in the fundamental drivers of growth an inflation in Canada," the BOC said, adding this view was based on a projected upturn in exports and investment.
    In its latest monetary policy report, the BOC trimmed its growth forecasts but raised the inflation forecasts slightly. On average, however, the BOC still sees growth averaging about 2.5 percent in 2014 and 2015 before easing to around the growth rate of the economy's potential of 2.0 percent in 2016.
    Annual growth in Canada's Gross Domestic Product is forecast at 2.3 percent in the first quarter of this year, unchanged from the January's forecast, then 2.4 percent in the second quarter and third quarters, down from a previous forecast of 2.5 percent, and 2.3 percent in the fourth quarter, down from 2.5 percent.

  

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Namibia keeps rate on "encouraging" 2014 prospects

April 16, 2014 by CentralBankNews   Comments (0)

    Namibia's central bank maintained its repo rate at 5.50 percent, saying the country's economy performed broadly satisfactory in the first two months of this year and "the prospects for 2014 are encouraging as economic growth is expected to continue and inflation will remain at sustainable levels."
    The Bank of Namibia, which last cut its rate in August 2012, maintained its forecast for the economy to expand by 5.3 percent in 2014, supported by a a continued expansion of construction activities and mining - mainly diamond mining - along with strong growth in consumer demand.
    In the fourth quarter of 2013 Namibia's Gross Domestic Product grew by 4.3 percent from the third quarter for annual growth of 5.1 percent, down from 13.6 percent in the third quarter. In 2013 growth averaged 4.3 percent and the International Monetary Fund forecasts 4.3 percent growth in 2014.
   Namibia's inflation rate rose to 5.3 percent in March from 5.13 percent the previous month, for average first quarter inflation of 5.1 percent, below 6.0 percent in the same 2013 quarter.
    "Inflation is anticipated to increase slightly in the second quarter of 2014, although it is expected to remain below 6 percent," the central bank said.

     In February the central bank said inflation this year was projected to rise to 6 percent from 5.6 percent in 2013, with upside risks mainly from a depreciation of the Namibian dollar.
     Annual growth rate in domestic private sector extension picked up to 15.6 percent in February from 14.3 percent in January and December, mainly due to higher growth in credit to the business sector, mainly overdraft and installment credit. Strong growth in household credit reflects high growth in mortgage loans.
    Namibia's international reserves were N$17.5 billion as of April 11, a level the central bank said was sufficient to maintain the fixed one-to-one exchange rate peg to South Africa's rand. At the end of January Namibia's reserves stood at N$18.2 billion.
    "Going forward, the rapid growth of imports and the sustained double-digit growth rate in installment credit may put pressure on reserves, thus warranting monitoring," the central bank said.
    In February the central bank also warned about strong growth in installment growth for individuals and said it had started targeted intervention to slow it down.
    With its fixed exchange rate regime, Namibia's dollar largely mirrors changes in South Africa's rand. Both currencies have depreciated against the U.S. dollar since early 2011 and last year the N$ fell 19 percent against the USD as capital flowed back to advanced economies in anticipation of the U.S. Federal Reserve's gradual withdrawal of asset purchases and stronger growth.
    The N$ continued to drop through January but since then it has rebounded as financial markets have calmed. For the year, the N$ is down less than 1 percent, trading at 10.47 to the U.S. dollar today.
   
    www.CentralBankNews.info

 

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Will US escape inflation that follows money printing?

April 15, 2014 by CentralBankNews   Comments (0)

   (Following article is written by Michael Lombardi of Profit Confidential for Central Bank News. Central Bank News will occasionally carry articles by guest contributors if they are of interest to our readers.)

  Is the Federal Reserve ignoring the very basic law of economics…the law of diminishing marginal utility? You remember that term from economics in high school. The law of diminishing marginal utility states that the more of something you have, the lesser its impact on you.
    The Fed has been printing money in hopes of stimulating growth in the U.S. economy. As the Fed printed more paper money, its balance sheet grew to over $4.0 trillion.
    Below, I’ve made a table that looks at gross domestic product (GDP) growth in the U.S. each year since 2009, and where the balance sheet of our central bank stood at the end of each year.

U.S. GDP Growth vs. Growth in Size of Fed Balance Sheet
Year
YOY Change
in GDP
Fed Balance Sheet (Trillions)
YOY Change in Balance Sheet
2009
-2.80%
$2.08
73.44%
2010
2.50%
$2.31
11.21%
2011
1.84%
$2.74
18.58%
2012
2.77%
$2.86
4.36%
2013
1.87%
$3.47
21.33%
Data source: Federal Reserve Bank of St. Louis web site,
 last accessed April 1, 2014.

 In the table above, you will notice something interesting; aside from 2009, there is no real correlation between the increases in the assets (paper money printed) on the Fed’s balance sheet and GDP growth. In fact, after all the money the Fed has printed, the U.S. economy grew last year at its slowest pace since 2011.
    The Federal Reserve predicts the U.S. GDP in 2014 will increase between 2.8% and three percent; that’s a jump of about 50% since 2013. (Source: Federal Reserve, March 19, 2014.) I believe this to be way too optimistic. (And as we have seen in the past, these projections are usually guided lower later in the year anyway.) 
    Since the beginning of 2014, we have been seeing dismal economic data suggesting the U.S. economy will not be growing as much as expected this year. The law of diminishing marginal utility is starting to become very evident; the money printing is not producing the positive effects on the economy like it did before.
    Examples of slow growth this year…
    Personal consumption, a big part of U.S. GDP, is soft, as U.S. retailers have been posting very soft sales increases this year.
    The number of new homes sold continues to decline, too. Existing-home sales are running this year at their lowest point since 2012.
    But in spite of the proof of slowing GDP growth, the failed policies of easy money continue to be the policy of choice. Recently, at the 2014 National Interagency Community Reinvestment Conference in Chicago, Illinois, Janet Yellen said, “…I think this extraordinary commitment is still needed and will be for some time, and I believe that view is widely shared by my fellow policymakers at the Fed.” (Source: “What the Federal Reserve Is Doing to Promote a Stronger Job Market,” Board of Governors of the Federal Reserve System web site, March 31, 2014.)
    No central bank in the history of mankind has printed as much new paper money as the Federal Reserve has over the past five years. And while economists and the Fed are not concerned with it today, my research shows that whenever this kind of money printing stopped in the past, the country printing the money subsequently encountered a very weak currency and rapid inflation. I don’t think the U.S. will escape this. In fact, I think inflation is already a big problem if we include the increase in food prices and energy prices that are excluded from the government’s official measure of inflation growth.

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Central Bank News Link List - Apr 15, 2014 - Japan PM talks with BOJ chief, does not push for easing

April 15, 2014 by CentralBankNews   Comments (0)

Here's today's Central Bank News' link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don't miss any important news.

          www.CentralBankNews.info

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