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This week (October 20 through October 24) five central banks are scheduled to decide on monetary policy: Namibia, Canada, the Philippines, Turkey and Norway.
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|
The era of ultra-easy monetary policy in the U.S. and U.K. may continue for longer than expected as central bankers on both sides of the Atlantic last week signaled to financial markets that Europe’s worsening growth prospects could lead to a delay in any tightening.
The first sign of a possible shift in U.S. monetary policy came on Oct. 11 when Fed Vice Chairman Stanley Fischer said weaker-than-expected foreign growth could lead to the Fed to remove accommodation more slowly than otherwise.
Fischer's comments were followed on Oct. 16 by James Bullard, president of the St. Louis Fed, who said the Fed may delay ending its asset purchases as planned later this month in response to declining inflation expectation in the U.S.
The reaction of financial markets to the comments by Bullard – who won't be voting on monetary policy until 2016 - were immediate, the latest reminder of just how addicted highly charged financial markets have become to central bank liquidity.
Talk of a “Yellen put” quickly resurfaced in media with Fischer and Bullard's remarks seen reflecting a more general view among members of the Federal Open Market Committee (FOMC).
A "Yellen put" is a reference to the belief that the Fed under its new chair will continue the policy known as the “Greenspan Put” and the “Bernanke Put” and ultimately intervene to put a floor under prices if markets suddenly go into freefall.
The next day, Oct. 17, it was the Bank of England’s (BOE) turn to reassure financial markets that it too was sensitive to “gloomier” global growth prospects, as its chief economist, Andrew Haldane, said in a speech and to the ITV television network.
Haldane said the downturn in global growth prospects and lack of inflationary pressures meant that he was now less likely to vote for a rate increase than three months ago and the BOE could wait longer before raising rates.
As in the U.S., financial markets immediately pushed back the time frame for when they expect the BOE to raise its rates for the first time July 2007.
U.K. rates are now broadly expected to be raised in September 2015 rather than May while the first hike in U.S. rates is now seen by markets in the fourth quarter of 2015 rather than around the middle of the year.
In Europe, the focal point of financial markets’ worry over slowing global growth, there were signs that politicians finally grasp the urgent need to help the European Central Bank (ECB) in reviving stalling economic growth.
German Finance Minister Wolfgang Schaeuble told the Welt am Sonntag newspaper that investments to improve competitiveness had to be increased quickly, echoing the International Monetary Fund’s appeal for advanced economies to boost potential growth, partly by investments in ageing infrastructure.
But Schaeuble also showed why it is so agonizingly difficult for the euro area to overcome “eurosclerosis” – a term created in the late 1970s to describe the excruciatingly slow pace of economic and political integration along with the sluggish pace of economic growth.
Schaeuble said any investments to improve Germany’s energy grid, roads or railways will not change the government’s promise to balance its budget next year for the first time since 1969, a commitment that severely limits its ability to stimulate demand.
The message from those central banks that deliberated policy last week echoed the concerns of the Fed and BOE, with inflation generally declining along with growing downside risks from the global economy.
As in recent months, central banks worldwide are closely following the possibility of increased volatility in global financial conditions from the shift in U.S. monetary policy, a factor that was particularly noted by the Bank of Korea, the Bank of Uganda, the National Bank of Serbia, the Central Bank of Egypt, the Bank of Chile and the Bank of Mozambique.
Last week also witnessed expected rate cuts by the central banks of Korea and Chile in response to weak economic activity.
Through the first 42 weeks of this year, the 90 central banks followed by Central Bank News have cut their policy rates 53 times, or 13.8 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.
Central banks in advanced economies have accounted for six of the rate reductions, with Israel cutting its rate three times, the European Central Bank twice and Sweden once.
Following last week’s rate cuts by Chile and South Korea, emerging market central banks have cut rates 24 times, just under half of all the rate cuts worldwide as the slowdown in Europe and China takes a bite out of their exports.
Meanwhile, rates have been raised 38 times, or 9.9 percent of all policy decisions, up from 9.3 percent at the end of June and 8.7 percent at the end of March.
Among advanced economies, only New Zealand has raised its rate four times while emerging market central banks have raised rates 18 times, frontier market central banks three times and other central banks 12 times.
|COUNTRY||MSCI||NEW RATE||OLD RATE||1 YEAR AGO|
|COUNTRY||MSCI||DATE||CURRENT RATE||1 YEAR AGO|
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Mozambique's central bank maintained its benchmark standing facility rate at 8.25 percent and said it was "confident" that its inflation target of 6.0 percent for the end of 2014 will be met in light of the favorable behavior of inflation in September and the short and medium-term outlook.
But the Bank of Mozambique, which has kept its rate steady since October 2013, also said it had noted the risk of a slowing global economic activity, the volatility in international commodity prices and the resulting impact on its balance of payments.
During October the central bank will also intervene in interbank markets to ensure that the monetary base hits the goal of 53.786 billion meticais, up from 52.846 billion in September.
Mozambique's inflation rate eased to 2.23 percent in September from 2.64 percent in August, with the decline in inflation in the last five months due to the greater availability of fruits, vegetables and the stability of the metical's exchange rate that is sustained by adequate foreign exchange reserves.
At its last meeting on Sept. 15, the central bank said the prospects for inflation to meet its 6.0 percent target was improving.
Mozambique's Net International Reserves eased by US$ 158.3 to $3.0925 billion at the end of September, the equivalent of 4.3 months of import cover.
Preliminary data showed that Mozambique's economy expanded by an annual 6.9 percent in the second quarter, the bank said, compared with an annual rate of 7.5 percent in the first quarter
Sri Lanka's central bank maintained its policy rates, as expected, and said the significant decline in international and domestic energy prices along with a continued deceleration in other key commodities is likely to result in inflation remaining at a lower rate than the previously forecast range of 4-5 percent in the period ahead.
The Central Bank of Sri Lanka, which has kept rates steady since October 2013, also said market rates are at historic low but there is room for these to fall in light of the low inflation environment.
Credit extended to the private sector by commercial banks rose by 47.7 billion Sri Lankan rupees in August, "indicating a turnaround in the behavior of bank credit," the central bank said, adding that credit disbursements should to the private sector from commercial banks should continue to grow given expanding economic activity and relatively low market interest rates.
Sri Lanka's headline inflation rate was steady at 3.5 percent in September while core inflation decelerated to 3.7 percent from 3.9 percent in August.
The central bank targets inflation of 4-6 percent this year and 3-5 percent in 2015 and 2016.
So far this year, the rupee has appreciated by 0.14 percent against the U.S. dollar, the central bank said, with gross official reserves at $US 8.7 billion as of Oct. 13, down from $9.2 billion on Aug. 8. The central bank's aim is to boost reserves to $10 billion by the end of this year.
The central bank held its Standing Deposit Facility Rate (SDFR), which has replaced the repo rate as a benchmark, steady at 6.50 percent and the Standing Lending Facility Rate (SLFR) at 8.0 percent.
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Chile's central bank cut its monetary policy rate by another 25 basis points to 3.0 percent, as expected, and said "any future changes in the monetary policy rate will depend on the implications of domestic and external macroeconomic conditions on the inflationary outlook."
The Central Bank of Chile, which has now cut its policy rate by 200 basis points since October 2013, also said data on output, demand and employment "continue to reveal the low dynamism of the Chilean economy, in line with forecasts."
"The prices of commodities, including copper, have declined, with a notorious drop in world fuel prices," the central bank added. Chile is the world's largest copper producer.
The central bank's guidance signals that it has now adopted a more neutral stance compared with its easing bias in September when it said it would consider further monetary stimulus.
Chile's headline inflation rate rose to 4.9 percent in September from 4.5 percent in August, the sixth consecutive month that it has remained above the central bank's 2 - 4 percent target range.
Gross Domestic product rose by 0.2 percent in the second quarter from the first for annual growth of 1.9 percent, down from 2.4 percent in the previous quarter.
Earlier this week Rodrigo Vergara, the central bank governor, said inflation would ease to the central bank's target levels by the second quarter of 2015
The Central Bank of Chile issued the following statement:
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Egypt's central bank maintained its benchmark overnight deposit rate at a 9.25 percent, as expected, and said investments in major domestic projects, such as the Suez Canal, should boost economic growth but risks to the global economy from the euro area and softening growth in emerging markets could pose downside risks to the country's economy.
The Central Bank of Egypt (CBE), which surprised markets by raising its rate by 100 basis points in July, also said higher than expected indirect and second round effects from a rise in state-regulated prices in July to curb the deficit posed an upside risk to inflation while the upside risks from imported inflation remain contained due to lower international food prices.
Last month the CBE also cautioned that an improving domestic economy could face challenges from the euro area's weak economy and slowing growth in some emerging markets.
Egypt's headline inflation rate eased to 11.12 percent in September from 11.49 percent in August while core inflation dropped to 9.15 percent from 10.07 percent due to a favorable base effect.
Egypt's Gross Domestic Product expanded by 3.7 percent in the second quarter from the same 2013 quarter, up from 2.5 percent in the first quarter.
Headline CPI inched up by 1.23 percent (m/m) in September, following an increase of 1.09 percent and 3.51 percent (m/m) in August and July, respectively. This brings the annual rate to 11.12 percent in September, after it increased to 11.49 percent in August up from 11.04 percent in July, on the back of the favorable base effect from the previous year. Effects of the regulated price adjustments implemented in July 2014 explain the bulk of the price developments during the quarter. Moreover, while the prices of food items decelerated in August, there was a seasonal pick up in September which coincided with Eid El-Adha. In the meantime, core CPI increased by 0.84 percent (m/m) in September compared to an inch up of 0.60 percent 1.79 percent (m/m) in August and July, respectively. The annual rate eased to 9.15 percent in September, after it increased to 10.07 percent in August up from 9.57 percent in July, also due to the favorable base effect from the previous year.
While higher than anticipated indirect and second round effects resulting from the July 2014 regulated price adjustments pose an upside risk to the inflation outlook, upside risks from imported inflation continue to be contained on the back of lower international food price forecasts in light of global developments.
Meanwhile, real GDP picked up significantly in 2013/2014 Q4, growing by 3.70 percent compared to 2.50 percent, 1.44 percent and 1.04 percent recorded in Q3, Q2 and Q1, respectively. This brought the annual growth rate for the whole FY2013/2014 to 2.2 percent following a similarly sluggish growth rate of 2.1 percent during FY2012/2013. The expansion in economic activity during 2013/2014 Q4 came on the back of the acceleration in manufacturing and real estate activities, along with a moderate growth in the construction sector. This occurred despite the continued contraction witnessed in the tourism and petroleum sectors. In the meantime, investment continues to be below historical levels despite the relative improvement witnessed in the annual growth rate during 2013/2014 Q3 and Q4, following six quarters of contraction.
Looking ahead, while investments in domestic mega projects such as the Suez Canal are expected to contribute to economic growth, the downside risks that surround the global recovery on the back of challenges facing the Euro Area and the softening growth in emerging markets could pose downside risks to domestic GDP.
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