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The past week in monetary policy saw just 6 central banks announcing interest rate decisions. Of those to change interest rates, Rwanda increased 50bps to 7.00%, while Belarus added 500bps to 40.00% as the country deals with hyperinflation. Those that held rates unchanged were: Japan 0-0.10%, Chile 5.25%, Sri Lanka 7.00%, and Latvia 3.50%. Elsewhere Argentina dropped dollar reserve requirements, and the World Gold Council announced record buying of gold by central banks.
Looking at the central bank calendar, there's just Turkey scheduled to meet next week to review monetary policy settings. However there are meeting minutes due from the Federal Open Market Committee (FOMC) on Tuesday (1-2 Nov meeting), Bank of Japan on Monday (Oct 27th meeting), and the Bank of England on Wednesday (10th Nov meeting); so it will be a good chance to see some of the key issues the central bankers are thinking and debating about.
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The National Bank of Rwanda increased its key repo rate 50bps to 7.00% from 6.50% previously, with the interbank interest rate corridor changing to 4.50-8.50% and the discount rate now 10.50%. Bank Governor, Claver Gatete, said: "Rwanda's macroeconomic stability. The financial sector is sound and resilient to external shocks, the inflation remains moderate, the currency is stable and this has contributed to high economic growth expected to reach 8.8% by the end of the year. However, there still exist risks in the global economy that may affect Rwanda. This includes: the persistent debt crisis in the euro zone, the global high food and fuel prices and increasing regional inflationary pressures. This calls for preventive action to mitigate any negative impact on the Rwandan economy."
At its October meeting, the Bank also increased the repo rate by 50 basis points to 6.50% from 6.00%, meanwhile the bank last reduced the interest rate 100bps to 6.00% in November last year. Rwanda has seen inflation pick up to 7.5% in August, compared to 5.82% in June, and just 1.09% in January this year. According to IMF data Rwanda saw annual GDP growth of 5.39% during 2010, meanwhile the IMF recently scaled down its growth estimate for Rwanda to 7% for 2011, from a previous forecast of 7.5%.
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Latvijas Banka held its main monetary policy interest rate, the refinancing rate, unchanged at 3.50%, and held its other interest rates unchanged. The Bank said: "As the global prices of energy resources and food are stabilizing and assuming that the Government will refrain from raising any taxes, a substantial drop in inflation can be predicted for next year. Domestic demand is growing slowly and represents no risk of rising prices; moreover it is becoming likely that economic growth in Latvia will be slower next year as the demand in external markets drops because of the global debt crisis."
Previously the Bank also kept monetary policy settings unchanged, leaving the refinancing rate at 3.50% at its September meeting. The Bank of Latvia last reduced the refinancing rate by 50bps to 3.50% in March 2010. Latvia reported annual inflation of 4.4% in October, down from 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 0.519 against the US dollar.
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The National Bank of the Republic of Belarus raised its refinancing rate by 500 basis points to 40.00% from 35.00%. The Bank said [translated]: "Another increase in the refinancing rate and interest rates on liquidity management operation is a sequential step to curb inflation and stabilize the economy and financial sector in general. Dunn's measure will also support renewed growth in recent months Urgent rubles deposits in banks and stabilize inflation expectations in the economy, and will become more factor to enhance the balance of payments surplus. National Bank and continues to conduct a balanced monetary policy, with the individual attention necessary to ensure price stability in the economy."
The latest move marks a continued string of aggressive rate increases, with the Bank previously raising the refinancing rate by 300bps to 30%, 500 basis points to 27% and 200 basis points to 22%. The total amount of increases since the start of the year is now 2950 basis points. Belarus reported consumer price inflation at hyperinflationary levels of 92.3% in October, up from 79.6% in September, and 36.2% in the year to June, according to the National Statistic Committee, meanwhile the government is forecasting 2011 inflation of as much as 39%.
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The Central Bank of Sri Lanka held its benchmark repurchase rate unchanged at 7.00%, and also kept the reverse repurchase rate at 8.50%, and the Statutory Reserve Ratio at 8%. The Bank said: "The outlook for Sri Lanka's economy remains positive with the economy continuing along the high growth trajectory", and "even though inflation and the inflation outlook remain benign, the Monetary Board is of the view that a change to the existing monetary policy stance is not warranted.
Sri Lanka's central bank also kept its monetary policy settings unchanged at its October meeting this year, while the Bank last cut its key interest rates in January this year. Sri Lanka reported an annual headline inflation rate of 6.4% in September, down from 7% in August, 7.5% in July, 7.1% in June, and 8.2% in May.
Sri Lanka is aiming for 8.5% GDP growth in 2011, after its economy expanded 8% in 2010, meanwhile inflation is expected to slow to 6% by the end of 2011. Sri Lanka reported 8.2% annual GDP growth in the second quarter (7.9% in Q1).
The Bank said broad money supply (M2) grew 20.6% year on year in August, while credit to the private sector grew 34.1%. The Sri Lankan Rupee (LKR) last traded around 110 against the US dollar. The Central Bank of Sri Lanka next meets on the 20th of December.
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