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The past week in monetary policy saw interest rate decisions announced by 8 central banks, with 4 of those announcing interest rate cuts, reflecting the ongoing European sovereign debt crisis and slowing global growth. Those announcing interest rate cuts were Brazil -50bps to 10.50%, Georgia -25bps to 6.50%, Philippines -25bps to 4.25%, and Serbia -25bps to 9.50%. Meanwhile those that held rates unchanged were Canada 1.00%, South Africa 5.50%, Mexico 4.50%, and Latvia 3.50% (Latvia did however reduce its required reserve ratios 100bps). Also making headlines was a widening of the interest rate corridor, an effective easing, in Indonesia.
Looking at the central bank calendar, the week ahead has 8 central banks scheduled to review monetary policy settings. The one on many people's minds will be the US FOMC, which is unlikely to announce anything but people will be watching for clues of any further quantitative easing measures. The key emerging market economy, India, will also be closely watched, but with inflation still high is unlikely to move just yet. Other than that, the broad geography of banks on the calendar next week will provide a timely insight into the status of the global economy.
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The Banco de Mexico held its overnight interest rate target steady at 4.50%. The Bank said [Google Translated]: "the Governing Board believes that the current stance of monetary policy is conducive to achieving the goal of permanent 3% inflation, so has decided to maintain unchanged the target for the interbank interest rate. However, they remain attentive to the outlook for global economic growth and its possible implications for the Mexican economy, which in a context of strong monetary laxity in major advanced countries, in the end could make a suitable policy easing. Also, the Board will continue to closely monitor the behavior of all the determinants of inflation that might alert about widespread pressures on prices to adjust timely monetary stance, seeking at all times the convergence of inflation to its permanent objective of 3%."
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The South African Reserve Bank [SARB] held its monetary policy interest rate, the repo rate, unchanged at 5.50%. The Bank said: "The MPC remains of the view that inflation pressures are primarily of a cost-push nature, but is concerned that a persistent upward trend in inflation and prolonged breach of the inflation target could have an adverse effect on inflation expectations which could reinforce the upward inflation dynamics. However, the MPC is also cognisant of the slowing domestic economy and feels that given the lack of demand pressures, monetary tightening at this stage would not be appropriate. At the same time, the nominal policy rate is at a long term low and the real policy rate is slightly negative, indicating a monetary policy stance that is accommodative and supportive of the real economy."
Previously the SARB also held the repo rate unchanged at its November meeting last year, the Bank last cut the repo rate by 50bps to 5.50% in November 2010. South Africa reported annual inflation of 6.1% in December, compared to 5.7% in September, 5.3% in August and July, 5% in June, 4.6% in May, and 4.2% in April this year, compared to its official inflation target range of 3-6%.
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Latvijas Banka kept its main monetary policy interest rate, the refinancing rate, steady at 3.50%, and held its other interest rates unchanged, but reduced the reserve ratio for bank liabilities above two years to 2% from 3%, and for other liabilities to 4% from 5%. The Bank said: "By reducing the reserve ratio, additional financial resources are released for lending and more beneficial conditions for the availability of lending resources necessary for economic growth are created. A simultaneous reduction of the reserve requirement for liabilities of different maturities will promote a balanced impact on the availability of financing in the banking sector and will continue to maintain banks' motivation in attracting long-term financing."
Previously the Bank also kept monetary policy settings unchanged, leaving the refinancing rate at 3.50% at its November meeting. The Bank of Latvia last reduced the refinancing rate by 50bps to 3.50% in March 2010. Latvia reported annual inflation of 4% in December, down from 4.4% in October, 4.6% in September, and 4.7% in August. The Latvian economy expanded 5.6% on an annual basis in Q2, while GDP growth was reported as 3.5% in the previous quarter. The Latvian currency, the lat (LVL), last traded around 0.54 against the US dollar.
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