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Colombia holds rate, no new dollar buying program

December 19, 2014 by CentralBankNews   Comments (0)

    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):
   

"The Board of the Central Bank at its meeting today decided to keep interest rates at 4.5% intervention. In this decision, the Board took into account mainly the following aspects:
  • International oil prices have fallen considerably and are at levels not seen since 2009. This decrease reflects increases in supply, lower demand and stronger dollar. Uncertainty about the future price of this basic good is high.
  • The drop in oil prices and rising international prices of some foods that matters Colombia have generated a deterioration in the terms of trade of the country. This negatively affects the growth of national income.
  • The currencies of several emerging countries continue to depreciate, country risk premiums have gone up and the price of financial assets has fallen. The exchange rate peso-dollar has risen considerably and showed a strong volatility.
  • The performance of the world economy remains weak. The US economy continues to recover while the euro area and Japan have low growth. Output growth in key emerging countries continues to slow or has historically low magnification. It is possible that the recovery of our trading partners in 2015 is, on average, weaker than estimated in previous months.
  • In Colombia, GDP growth in the third quarter of 2014 (4.2%) was lower than expected (4.6%). The results of consumer confidence, retail trade, car sales and consumer credit suggest that domestic demand remains dynamic.Moreover, other indicators by the supply side, such as industry and oil production, have low annual increases.
  • Inflation at the end of 2014 will be placed in the upper half of the target range. The deviation from the central point of 3% is temporary and is mainly explained by the correction of transient falls in some past price and temporary increases in others. Core inflation is below 3% and is expected to headline inflation converges to that value.
  • The depreciation of the peso has been partially transferred to tradable CPI excluding food and regulated. The volatility of the exchange rate and possible corrections may limit the level crossing. Additionally, if depreciation is moderated, it is expected that the transmission continues, but no significant effects on inflation expectations.
In short, domestic demand continues to show a healthy momentum in the near full utilization of productive capacity context. At the same time, inflation and expectations are placed slightly above 3%. This occurs in an environment of declining terms of trade, the depreciation of the peso and growing uncertainty about the recovery in global economic activity and the cost of external financing, factors that may influence future behavior of aggregate demand . Made assessing the balance of risks, the Board considered appropriate to maintain unchanged the benchmark interest rate.
The Board will continue to carefully monitor the behavior and projections of economic activity and inflation in the country, asset markets and the international situation. It reiterates that monetary policy will depend on the information available.
Finally, given the levels reached in several indicators of hedging external liquidity as well as recent changes in the exchange market conditions, the Board decided not to continue buying foreign reserves."

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Albania maintains rate, may cut further if risks worsen

December 19, 2014 by CentralBankNews   Comments (0)

    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.

    The Bank of Albania issued the following statement:

"Today, on 18 December 2014, the Supervisory Council of the Bank of Albania reviewed and approved the Monthly Monetary Policy Report. After scrutinizing the latest domestic economic and monetary developments, and following the discussions on their expected performance in the future, the Supervisory Council decided to maintain the key interest rate unchanged at 2.25%. The Supervisory Council evaluates that the current monetary policy stance and financial conditions support the return of the economy to its potential and the gradual return of inflation to target in the medium-term period.
***
Inflation was 1.7% in November, up from the previous month. Inflation rose due to the higher contribution from unprocessed foods, from medicaments and from rental prices.  The other items’ contribution to annual inflation remained relatively unchanged from the previous month.
The increase of the inflation rate was in line with Bank of Albania’s expectations, but its realised rate remained on the lower bound of projections. Inflation is expected to rise gradually during the subsequent months, but the overall balance of inflationary pressures remains weak. Our economic and monetary analyses show that the stable return of inflation to target will materialise in the medium-term period.
Low inflation rates over the last quarters reflect weak pressures from both the demand and the supply side. Although edging up, domestic demand appears insufficient to fully utilise production capacities in the economy. Unutilised resources in the labour and capital markets, as well as low inflation expectations have contributed to slow growth in wages, production costs and profit margins. This dynamic is reflected in the low core inflation rates. In parallel, inflation rates in Albania's trading partners appear moderate and the transmission to the domestic market is hampered by the cyclical weakness of demand. Lastly, the current monetary expansion and the liquidity situation in the economy are in line with low inflation levels.
The Bank of Albania expects a gradual improvement of the factors contributing to inflation. In particular, economic growth and the cyclical position of the economy are expected to improve, responding also to the stimulating monetary policy we have implemented.
The economic activity is evaluated to have improved in the second half of the year, upheld mainly by the recovery of domestic demand. Following the key interest rate cut by the Bank of Albania, lending standards appear improved and have supported the increase of consumption and private investment. 
The external economic environment has not supported the growth of Albanian exports during 2014. Coupled with some structural changes in export-oriented industries, this factor has been reflected in a progressive slowdown of growth rates of Albanian exports and in an expansion of Albania's trade deficit. In annual terms, the nominal trade deficit for goods expanded by 20.4% in October. In contrast to the first half of the year, the performance of goods exports gave a negative contribution to the trade deficit enlargement. On the other hand, imports continued the upward trend that had begun in the last quarter of the previous year.
Fiscal policy pursued an overall consolidating stance throughout 2014. Until October, the budget deficit was around 31% lower than in the same period in the previous year, reflecting the rise by 12.6% of fiscal revenues and the increase by 5.1% of public expenditures. The speed of fiscal consolidation decelerated in the second half of the year and the fiscal policy was stimulatory during this period. However, in the medium term, fiscal policy is expected to remain committed to reducing the public debt.
Projections for low inflationary pressures and below-potential economic growth have guided the progressive increase of the monetary stimulus. At the end of November, the key interest rate was cut down to 2.25%. This move is already reflected in short-term interest rates in the interbank market and is expected to be reflected also in other segments of the financial market. While interest rates remain at low historical levels and liquidity conditions are stable, risk aversion of businesses, households and of the banking system still prevails. Private sector credit was up 3.5% in annual terms in October, from 2.1% in the previous month. Despite the positive trend, credit recovery remains sluggish and is not supported by solid fundamentals. Credit demand is expected to grow steadily, in line with the expected positive performance of economic activity in Albania. On the other hand, lending is expected to be also supported by the adjustment of the banking system’s balance sheets from non-performing loans, and by the financial policies of banking groups that operate in Albania. These factors will determine the credit in the next year.
Our projections suggest an upward trajectory for the Albanian economy in 2014 and in the medium-term. The economy is expected to benefit from the stimulating macroeconomic policies, the improved confidence of economic agents, and the easing of financing conditions. Within the monetary policy’s timeline of impact, the Bank of Albania expects its stimulus to be reflected in both bringing financing costs down and stimulating demand for consumption and investments in the economy. Moreover, the rigorous commitment of the government for fiscal consolidation and the completion of structural reforms in the economy should help reduce risk premia and facilitate initiatives for foreign and domestic investments in the country. 
The above projections are consistent and will require maintaining the stimulating trend of the monetary policy in the future. On the other hand, the Bank of Albania judges that the balance of risks remains on the down side. Materialisation of risk scenarios or shift of our projections on the down side may require further revisions of the monetary policy stance.
***

After concluding the discussions, the Supervisory Council decided to maintain the key interest rate unchanged at 2.25%. The Supervisory Council assessed that the prevailing current monetary conditions are suitable to support price stability in the medium term. Judging from the projections in the base line scenario, the Supervisory Council assesses that, to achieve the inflation target in the medium term, it is necessary that the monetary policy stance remains expansionary for the upcoming quarters.  "


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Central Bank News Link List - Dec 19, 2014 - Coeure says ECB weighing how best to act, France wants policy shift

December 19, 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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BOJ maintains stance but strikes optimistic tone

December 19, 2014 by CentralBankNews   Comments (0)

    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."

    The Bank of Japan issued the following statement:

   

  1. At the Monetary Policy Meeting held today, the Policy Board of the Bank of Japan decided, by an 8-1 majority vote, to set the following guideline for money market operations for the intermeeting period:[Note 1]
    The Bank of Japan will conduct money market operations so that the monetary base will increase at an annual pace of about 80 trillion yen.
  2. With regard to the asset purchases, the Bank decided, by an 8-1 majority vote, to continue with the following guidelines:[Note 2]
    1. a)  The Bank will purchase Japanese government bonds (JGBs) so that their amount outstanding will increase at an annual pace of about 80 trillion yen. With a view to encouraging a decline in interest rates across the entire yield curve, the Bank will conduct purchases in a flexible manner in accordance with financial market conditions. The average remaining maturity of the Bank's JGB purchases will be about 7-10 years.
    2. b)  The Bank will purchase exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) so that their amounts outstanding will increase at annual paces of about 3 trillion yen and about 90 billion yen respectively.
    3. c)  As for CP and corporate bonds, the Bank will maintain their amounts outstanding at about 2.2 trillion yen and about 3.2 trillion yen respectively.
  3. Japan's economy has continued to recover moderately as a trend, and effects such as those of the decline in demand following the front-loaded increase prior to the consumption tax hike have been waning on the whole. Overseas economies -- mainly advanced economies -- have been recovering, albeit with a lackluster performance still seen in part. In this situation, exports have shown signs of picking up. Business fixed investment has been on a moderate increasing trend as corporate profits have improved. Public investment has more or less leveled off at a high level. Private consumption has remained resilient as a trend with the employment and income situation improving steadily, and the effects of the decline in demand following the front-loaded increase have been waning on the whole. Housing investment, which continued to decline following the front-loaded increase, has recently started to bottom out. Against the backdrop of these developments in demand both at home and abroad, industrial production has started to bottom out, due in part to the progress in inventory adjustments. Business sentiment has generally stayed at a favorable level, although some cautiousness has been observed. Meanwhile, financial conditions are accommodative. On the price front, the year-on-year rate of increase in the consumer price index (CPI, all items less fresh food), excluding the direct effects of the consumption tax hike, is around 1 percent. Inflation expectations appear to be rising on the whole from a somewhat longer-term perspective.
    1. With regard to the outlook, Japan's economy is expected to continue its moderate recovery trend, and the effects such as those of the decline in demand following the front-loaded increase prior to the consumption tax hike are expected to dissipate. The year-on-year rate of increase in the CPI is likely to be at around the current level for the time being.
    2. Risks to the outlook include developments in the emerging and commodity-exporting economies, the prospects regarding the debt problem and the risk of low inflation rates being protracted in Europe, and the pace of recovery in the U.S. economy.
    3. Quantitative and qualitative monetary easing (QQE) has been exerting its intended effects, and the Bank will continue with the QQE, aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner. It will examine both upside and downside risks to economic activity and prices, and make adjustments as appropriate."

      Voting for the action: Mr. H. Kuroda, Mr. K. Iwata, Mr. H. Nakaso, Mr. R. Miyao, Mr. Y. Morimoto, Ms. S. Shirai, Mr. K. Ishida, and Mr. T. Sato. Voting against the action: Mr. T. Kiuchi. The member voting against the action considered that the guideline for money market operations before the decision regarding the "Expansion of the Quantitative and Qualitative Monetary Easing" on October 31, 2014 was appropriate.
      [Note 2] Voting for the action: Mr. H. Kuroda, Mr. K. Iwata, Mr. H. Nakaso, Mr. R. Miyao, Mr. Y. Morimoto, Ms. S. Shirai, Mr. K. Ishida, and Mr. T. Sato. Voting against the action: Mr. T. Kiuchi. The member voting against the action considered that the guideline for asset purchases before the decision regarding the "Expansion of the Quantitative and Qualitative Monetary Easing" on October 31, 2014 was appropriate.
      [Note 3] Mr. T. Kiuchi proposed that the Bank will aim to achieve the price stability target of 2 percent in the medium to long term and designate the QQE as an intensive measure with a time frame of about two years. The proposal was defeated by an 8-1 majority vote. Voting for the proposal: Mr. T. Kiuchi. Voting against the proposal: Mr. H. Kuroda, Mr. K. Iwata, Mr. H. Nakaso, Mr. R. Miyao, Mr. Y. Morimoto, Ms. S. Shirai, Mr. K. Ishida, and Mr. T. Sato."

          www.CentralBankNews.info

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Fed Rate Decision: Learn from Greenspan?

December 18, 2014 by EconMatters   Comments (0)

By EconMatters

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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Swiss impose negative deposit rate, cut Libor target

December 18, 2014 by CentralBankNews   Comments (0)

    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:
 

"The Swiss National Bank (SNB) is imposing an interest rate of –0.25% on sight deposit account balances at the SNB, with the aim of taking the three-month Libor into negative territory. It is thus expanding the target range for the three-month Libor to –0.75% to 0.25% and extending it to its usual width of 1 percentage point. Negative interest will be levied on balances exceeding a given exemption threshold.
The SNB reaffirms its commitment to the minimum exchange rate of CHF 1.20 per euro, and will continue to enforce it with the utmost determination. It remains the key instrument to avoid an undesirable tightening of monetary conditions resulting from a Swiss franc appreciation. Over the past few days, a number of factors have prompted increased demand for safe investments. The introduction of negative interest rates makes it less attractive to hold Swiss franc investments, and thereby supports the minimum exchange rate. The SNB is prepared to purchase foreign currency in unlimited quantities and to take further measures, if required."

    www.CentralBankNews.info

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U.S. Fed holds rate, will be patient in normalizing policy

December 17, 2014 by CentralBankNews   Comments (0)

    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:

"Information received since the Federal Open Market Committee met in October suggests that economic activity is expanding at a moderate pace. Labor market conditions improved further, with solid job gains and a lower unemployment rate. On balance, a range of labor market indicators suggests that underutilization of labor resources continues to diminish. 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, partly reflecting declines in energy prices. Market-based measures of inflation compensation have declined somewhat further; 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 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. The Committee expects inflation to rise gradually toward 2 percent as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate. The Committee continues to monitor inflation developments closely.
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. 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. 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.
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.
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; Loretta J. Mester; Jerome H. Powell; and Daniel K. Tarullo.

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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Central Bank News Link List - Dec 17, 2014 - Fed likely to signal rate hike on track despite global woes

December 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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Thailand holds rate but 2 members vote to cut by 25 bps

December 17, 2014 by CentralBankNews   Comments (0)

    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:

"The committee voted 5 to 2 to maintain the policy rate at 2.00 percent per annum. Two members voted to reduce the policy rate by 0.25 percent per annum.
Key considerations for policy deliberation are as follows.
In the third quarter of 2014, the Thai economy expanded slowly as expected, with domestic private spending being the main growth driver. In 2015, the economy should continue to recover, albeit at a rate lower than formerly assessed. A less-than-expected government spending weighs on private investment as most businesses await the implementation of public investment plans. In addition, a recovery in exports of goods is subject to the more uncertain global economic outlook. Nevertheless, tourism is expected to turn more positive, but remains somewhat below the normal level.
Headline inflation trended downward due to energy prices, and is projected to remain subdued for some periods ahead, in line with global oil prices. Core inflation slightly decelerated in tandem with lower demand pressure as a result of slow economic recovery. Meanwhile, risks to financial stability from a period of low interest rates are contained.
In deliberating monetary policy, most members judged that the current policy stance remains sufficiently accommodative given a steady path of economic recovery in 2015, and is consistent with long-term financial stability objective. Nevertheless, two members assessed that against the backdrop of higher downside risks to global growth and low inflationary pressure, monetary policy should be eased in order to add more support to the weaker-than-expected recovery.
Going forward, members agreed that monetary policy should remain accommodative in order to reinforce the momentum of economic recovery. Another important factor would be for the government to ensure that the disbursement of public spending goes as planned."

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Georgia maintains rate, sees inflation at target H2 2015

December 17, 2014 by CentralBankNews   Comments (0)

    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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