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Monetary Policy Week in Review - 25 February 2012

February 26, 2012 by CentralBankNews   Comments (0)

The past week in monetary policy saw two central banks changing their main interest rates; Colombia +25bps to 5.25%, and Belarus -500bps to 38.00%, while two held their rates unchanged; Namibia at 6.00%, and Turkey at 5.75%.  Turkey did however cut some of its other interest rates (see the update for details).  Also making headlines was the People's Bank of China announcing a 50 basis point cut to the Required Reserve Ratio, an important move towards more growth focused policy settings.

Looking at the central bank calendar, the week ahead features a handful of emerging/frontier market central bank meetings; with decisions due from Israel, Hungary, and the Philippines. The main event of the next week in central banking though will be the European Central Bank's second LTRO. Also of note is US Federal Reserve Chairman, Ben Bernanke, testifying before the House and Senate on Thursday and Friday.

  • ILS - Israel (Bank of Israel) expected to hold at 2.75%% on the 27th of Feb
  • HUF - Hungary (Magyar Nemzeti Bank)  expected to hold at 7.00% on the 28th of Feb
  • PHP - Philippines (Bangko Sentral ng Pilipinas) expected to hold at 4.25%% on the 1st of March
Also during the past week Central Bank News released data, extending back to January 2000, for the Global Monetary Policy Rate Index - Emerging Markets.

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National Bank of Belarus Drops Rate 500bps to 38.00%

February 26, 2012 by CentralBankNews   Comments (0)

The National Bank of the Republic of Belarus cut its refinancing rate by 500 basis points to 38.00% from 43.00%, effective 1 March, reversing a string of aggressive rate hikes.  The Bank said [translated]: "in recent months, there is a significant slowdown in inflation. Thus, the consumer price index for December 2011 amounted to 102.3 percent for January 2012 - 101.9 per cent, for two weeks of February - 100,9 percent. As a result, interest rates in real terms on deposits from January 2012 confidently anchored in a positive value at a sufficiently high level. The dynamics of time deposits reflects the increased savings of the population processes in the economy and the growth of confidence in the banking system."

The bank also dropped the rate by 200 basis points earlier this month, and last hiked the rate by 500 basis point for the third time in a row in December last year.  The bank increased the rate a total of 3450 basis points in 2011.  Belarus reported consumer price inflation at hyperinflationary levels of 109.7% in January this year, up from 92.3% in October, up from 79.6% in September, and 36.2% in the year to June, according to the National Statistic Committee.  

Senior Bank officials have previously noted a desire to reduce the rate to around 20% this year.  The USD-Belarussian ruble (BYR) exchange rate has doubled on the black market, rising to as much as 7,000 per dollar (approx. 6,000 in July), and currently trades around 8140 (5350 in September) against the US dollar, according to quotes from Yahoo Finance.

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Central Bank of Colombia Hikes Rate 25bps to 5.25%

February 26, 2012 by CentralBankNews   Comments (0)

The Central Bank of Colombia hiked its monetary policy interest rate another 25 basis points to 5.25% from 5.00%.  The Bank said [translated]: "The latest information suggests that in the fourth quarter of 2011 the Colombian economy continued to show strong momentum and that this performance has continued in early 2012. Both exports and imports of capital goods continued to grow at high rates in December. In the same month, the index of industrial confidence remained at high levels and retail sales grew at a good pace. In January, the index of consumer confidence rose for the third consecutive month and reached historically high levels. Credit growth remains high although recent data suggest a slight slowdown. However, the consumer credit behavior suggests that households have significantly higher level of indebtedness. With recent increases in interest rates intervention are expected to approximate market rates more quickly to their average historical levels."

The Central Bank of Colombia last hiked the rate 25 basis points at its January meeting this year, while its previous change was an increase of the interest rate by 25 basis points to 4.50% at its July monetary policy meeting, following a 25bp increase in June last year.  Colombia reported annual inflation of 3.6% in December, 3.96% in November, 3.73% in September, 3.27% in August, 3.42% in July, 3.23% in June, 3.02% in May, and 2.84% in April; which compares to the Bank's inflation target of 3% (+/- 1%).

Colombia reported a spike in annual GDP growth to 7.7% in the September quarter of 2011, compared to 4.8% in the June quarter and 5.1% in the March quarter, while the bank previously said the 2011 full year forecast of 4.5% - 6.5% is highly probable.  The Colombian peso (COP) has gained about 7% against the US dollar over the past year, while the USDCOP exchange rate last traded around 1,772

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Namibian Central Bank Keeps Rate at 6.00%

February 26, 2012 by CentralBankNews   Comments (0)

The Bank of Namibia kept its benchmark interest rate, the repurchase rate, unchanged at 6.00%, for the 7th consecutive meeting.  Bank of Namibia Governor Ipumbu Shiimi said: "In view of the need to ensure a sustained growth in the domestic economy, the MPC is of the view that a tightening of the monetary policy stance at this stage might be premature and thus detrimental to the growth prospects."

The Namibian central bank also held its interest rate unchanged at its December meeting, after dropping the rate 75 basis points in December 2010.  Namibia reported annual inflation of 7.2% in December, up from 6.1% on October, 5.3% in September, compared to 5.4% the previous month, 4.8% in July, 5.4% in June, 5.2% in May, and 4.8% in April.  Namibia's currency is fixed against neighboring South Africa's rand (ZAR), thus the Namibian central bank tends to follow the monetary policy decisions of the South African Reserve Bank.

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Central Bank of Turkey Keeps Benchmark Rate at 5.75%

February 26, 2012 by CentralBankNews   Comments (0)

The Central Bank of the Republic of Turkey kept its benchmark 1-week repo rate unchanged at 5.75%.  The Bank cut the lending rate 100bps to 11.50% and the interest rate on borrowing facilities for primary dealers 100bps to 11.00%, and lending rate on late liquidity 100bps to 14.50%.  The Bank said: "Recent data releases confirm that the rebalancing between the domestic and external demand is ongoing as envisaged. Final domestic demand is decelerating while the contribution of net external demand to growth is increasing. Accordingly, the rebalancing process and the improvement in the current account deficit will continue in the forthcoming period."

The Turkish central bank last cut the benchmark rate by 50 basis points when it held an emergency meeting in early August, the bank also cut its benchmark interest rate by 25 basis points to 6.25% in January last year.  The Turkish central bank also adjusted required reserves in late July.  Turkey reported annual consumer price inflation of 10.45% in December, up from 7.7% in October, 6.7% in August, 6.3% in July, 6.2% in June, 7.2% in May, 4.26% in April, and 3.99% in March, and above the Bank's full year inflation target of 5.5%.  

Turkey's economy grew 1.7% in Q3 (1.2% in Q2), placing the Turkish economy up 8.2% on an annual basis (8.8% in Q2).  The Turkish Lira (TRY) has weakened by about 9 percent against the USD over the past year, and last traded around 1.75 against the US dollar.

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Emerging Markets Monetary Policy Rate Indicator

February 26, 2012 by CentralBankNews   Comments (0)

Adding to the stable of the Global Monetary Policy Rate Index, we introduce the Emerging Markets sub-index; a GDP weighted composite interest rate indicator for 21 emerging markets.  The Index has been built out to January 2000. In addition to the Emerging Markets sub-index, we will also look at the Emerging Markets (EM) + Developed Markets (DM) composite index; providing a virtually global indicator of monetary policy rates. The use of DM and EM indexes are also of interest in terms of spreads and relative movements, as will be explained.

First of all, as noted the emerging markets index (which contains the same countries as the MSCI Emerging Markets Index; however is constructed using annual IMF GDP weights; phased monthly using a 5 year moving average) has been extended back to January 2000.  A quick look at the index shows the battle that many emerging markets were fighting with hyperinflation around the turn of the century, followed by a subsequent moderation of interest rates. The final stage is the financial crisis fallout; with a broad-based cutting of rates; followed by a broad hiking of rates in response to stimulus driven rises in commodity prices and aspects of demand driven inflation following the financial crisis response.

Moving on to the next chart, we have also prepared a new index which provides a composite view (using the same GDP weighting methodology) of emerging and developed market monetary policy interest rates. The average across the life of the index is about 4.6%, which is probably close to the neutral rate (but perhaps a bit higher due to the upward skew of the emerging markets hyperinflation effect). The chart shows that while there had been the start of a normalization in global rates, the normalization has been paused as global growth has slowed and the Euro crisis concerns have given cause for caution among central bankers.

Another angle of analysis now provided by the existence of the emerging markets and developed markets monetary policy rate indexes is to examine the spread between EM and DM interest rates.  While the spread between EM and DM rates has converged since 2000, spread has been tracking back toward the average level of about 6.1% which reflects the diverging economic prospects, and the Zero Interest Rate Policy pursued by a number of developed markets (e.g. Japan, US, Switzerland).  The course of these interest rate spreads is likely to have influence on growth differentials and relative market valuations between EM and DM.

In conclusion, the extension of the Developed markets and Emerging markets indexes back to January 2000 provides a unique and interesting new analytic tool for economic research, forecasting, and investment strategy. The data series for the EM, DM, and EMDM indexes can be found in the Google document linked to below, we encourage you to use the data in your analysis, and invite comments on the index; please also let us know if you publish any analysis articles using the indexes.

Access the index data here: Global Monetary Policy Rate Index - Data

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People's Bank of China Cuts RRR 50 basis points

February 26, 2012 by CentralBankNews   Comments (0)

The People's Bank of China (PBOC) announced a 50 basis point reduction in the required reserve ratios (RRR) for deposit taking financial institutions, effective 24th February 2012.  The new required reserve ratios will average 20.50% for large banks, and 18.50% for small banks.  The move is expected to add as much as 400 billion yuan of liquidity to the financial system.  The move marks a shift in the policy bias to loosening, with the PBOC previously being content to use open market operations to adjust liquidity, in contrast to the higher profile RRR.

The last reduction in the RRR was a 50 basis point cut in December last year, while the People's Bank of China last raised the reserve requirements by 50 basis points in June 2011 to peak at an average 21.50% for large banks, and 19.50% for small banks.  The PBC also adjusted the reserve requirement rules in August, effectively resulting in tightening of about 100bps.  Meanwhile the People's Bank of China last raised the benchmark interest rate 25bps to 6.56% in early July last year.  
China reported annual inflation of 4.5% in January, spiking due to seasonal effects from a low of 4.1% in December, but down from a high of 6.5% in July last year.  Meanwhile the Chinese economy grew an annual 8.9% in the December quarter (9.1% in Q3, 9.5% in Q2).  The Chinese Yuan (CNY) has appreciated by just over 4% against the US dollar over the past year, with the USDCNY exchange rate last trading around 6.30.

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Semantic Web Jobs: L-3

February 24, 2012 by Jenz514   Comments (0)

L-3 Communications is looking for an Enterprise Architect/Software Development Lead in Fort Belvoir, VA. The post states, “In this role you will Lead a team, in an agile development environment utilizing Java/J2EE and other open source tools to develop software products and applications. You will functionality provided by the tools include but is not limited to: data cleansing/reformatting to facilitate natural language processing, entity extraction from multiple data sources both structured and un-structured as part of a larger Intelligence Analytic Suite; and Geo-Spatial representation of entity resolution.” continued…


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The Risk Telescope — G20 Preview

February 24, 2012 by BCM International Regulatory Analytics   Comments (0)

Once upon a time, the G20’s ambitions were expansive.  The London, Pittsburgh, Toronto, and Seoul summits were premised on a belief that a second Bretton Woods moment had appeared.  Policymakers united in fear found consensus on reform measures relatively easily. How the world has change.  2012 opens with the world’s major economies increasingly on divergent pathways and with starkly different economic growth prospects. Consensus is harder to reach.  Implementation momentum is waning.


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OKF Receives Grant for Open Economics Working Group

February 24, 2012 by Jenz514   Comments (0)

OKF recently announced that  “ the Open Knowledge Foundation in partnership with the Centre for Intellectual Property and Information Law at the University of Cambridge has received a grant from the Alfred P. Sloan Foundation for the development of an Open Economics Working Group. The aim of the working group is to encourage more active and efficient collaboration between scholars and the dissemination of economic results to the wider society.” continued…


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