Posts Tagged: interest rate

 

Reserve Bank of Australia has left rates on hold today

Full text of the governor’s statement, here: Statement by Glenn Stevens, Governor: Monetary Policy Decision

  • RBA says appropriate to hold rates steady for time being
  • Sees growth continuing at below trend pace
  • Sees domestic demand growth quite weak
  • Says further easing might be appropriate in future
  • Will assess case for easing at forthcoming meetings
  • Says subdued labor cost growth to keep overall inflation in target
  • Says further fall in A$ to be needed to balance growth

Note the final paragraph in the accompanying statement (bolding mine)

At today’s meeting the Board judged that, having eased monetary policy at the previous meeting, it was appropriate to hold interest rates steady for the time being. Further easing of policy may be appropriate over the period ahead, in order to foster sustainable growth in demand and inflation consistent with the target. The Board will further assess the case for such action at forthcoming meetings. 

 

India is witnessing an “avalanche” of capital flows as central banks around the world are reducing interest rates to very low levels but the RBI is unable to cut interest rates very quickly due to “high” inflation, Governor Raghuram Rajan said today.

To deal with the global financial crisis, many central banks around the world are printing money and reducing interest rates to very low levels. With countries like India offering high interest rates, significant foreign inflows have been witnessed in debt.

“A lot of that money is coming to us. We have got an avalanche of capital inflows.

“Our problem is: we also have high inflation, we cannot cut interest rates very quickly to the bone in order to tell those countries — don’t come here expecting high interest rates,” the RBI Governor said, addressing the students of Guru Nanak College in central Mumbai this morning. >> Read More

 

And then there were 21.

Hours ago on Saturday, the country whose currency is largely pegged to the dollar which itself is now anticipating a rate hike in the coming months, surprised the world by confirming its economic slowdown yet again following a recent rate cut just this past November when it lowered its benchmark rate by 40 bps, after it again cut benchmark lending and deposit rates by 25 bps starting on March 1. Specifically, the PBOC will lower the one-year lending rate to 5.35% from 5.6% and its one-year deposit rate to 2.5% from 2.75%. It also said it would raise the maximum interest rate on bank deposits to 130% of the benchmark rate from 120%.

From the PBOC announcement

People’s Bank of China decided to cut financial institutions RMB benchmark lending and deposit interest rates since March 1, 2015. The one-year benchmark lending rate by 0.25 percentage point to 5.35%; year benchmark deposit rate by 0.25 percentage points to 2.5%, while the combination of market-oriented reforms to promote the interest rate, the upper limit of the floating range of interest rates on deposits of financial institutions by the deposit base 1.2 times to 1.3 times the interest rate adjustment; adjusted lending rates and individual housing provident fund deposit and other deposit and lending rates.

As the WSJ notes, “the latest move took place just as China’s legislature, the National People’s Congress, prepared to gather Thursday for its annual meeting. The gathering is usually when China unveils its economic growth target for the year. Last year’s growth of 7.4% came in just below the 2014 target of about 7.5%. It was the lowest growth rate in nearly a quarter century.” >> Read More

 

Turkey’s central bank cut interest rates across the board on Tuesday as it sought to reconcile political pressure for lower rates and market concern about lack of independence.

The benchmark repo rate was cut to 7.5 per cent, down from 7.75 per cent and in line with economists’ expectations

The overnight lending rate was lowered somewhat more than expected, to 10.75 per cent, while the overnight borrowing rate was trimmed less than forecast, to 7.25 per cent.

While the cuts – particularly to the overnight rate – were in line with demands by President Recep Tayyip Erdogan, whose AK party faces general elections on June 7, it was far from clear whether they would satisfy him.

Ahmet Davutoglu, Turkey’s prime minister, immediately labelled the bank’s move as insufficient: >> Read More

 

RAGHUThe Reserve Bank of India (RBI) is getting tougher on extending unlimited credit to the country’s banks to try to ensure they push interest rate cuts through the financial system and to stop them from making what one official called a “mockery” of its operations.

India’s commercial banks readily borrow from the central bank at the policy rate but then lend that money out at a high rate, in what RBI Governor Raghuram Rajan describes as a culture of “lazy banking.”

The RBI argues this reduces the effectiveness of its monetary policy decisions and the cheap funding rates for banks are not passed on to retail and corporate borrowers at a time when the economy is only gradually recovering from a slowdown.

“They have made a mockery of our monetary policy transmission framework,” said one official familiar with the RBI’s thinking.

Another senior official with knowledge of the central bank’s views said the RBI wanted to end a “whenever you want, you come” mentality that many lenders had regarding funding.

“It is not actually the responsibility of the central bank to always keep the tap open,” he said. >> Read More

Hilsenrath on Minutes

19 February 2015 - 5:39 am
 

Jon Hilsenrath
Feb. 18, 2015 2:00 p.m. ET
0 COMMENTS

Federal Reserve officials held detailed discussions in January on the timing and pace of interest-rate increases and their strategy for communicating their next moves, though they stopped short of agreeing to specific plans, according to minutes of the meeting released Wednesday.

As part of these discussions, Fed staff gave a presentation that laid out the pros and cons of delay versus moving quickly, according to minutes of the Jan. 27-28 policy meeting.

Delay could lead to a buildup of inflation or financial-stability risks while moving quickly could choke off the recovery, officials noted, without specifying the time frame. During that discussion many Fed officials said they were inclined to wait, according to the minutes, though some officials noted the central bank had already waited a long time “and that it might be appropriate to begin policy firming in the near term.”

Fed officials also discussed with some trepidation how to remove from their policy statement an assurance that they would be patient before moving rates higher. Fed Chairwoman Janet Yellen has said that as long as the patient assurance is in the statement, the Fed doesn’t anticipate moving for the next two policy meetings. >> Read More

Fed’s January minutes: 5 Points to Watch

18 February 2015 - 20:10 pm
 

The beauty and frustration of the statements the Fed’s Open Market Committee release after their meetings is they run to little more than six paragraphs.

The minutes of those meetings, though, are much longer and the latest set from theJanuary 27-28 gathering will be closely watched. Here’s a brief look at what to watch for when they are published at 2pm New York time.

Why insert the word international?

Federal Reserve officials have so far welcomed or struck an unconcerned tone on the global economic backdrop.

In their eyes, cheaper oil is a good thing, the rising dollar is nothing to worry about and the weak eurozone economy is disappointing rather than disastrous.

So there was some surprise when officials used January’s statement to say they are monitoring “international developments.” The minutes should shed some light on whether officials are feeling less comfortable than they were.

Is the Fed getting more bullish on the labour market?

Its rate setters met before the release of January’s robust jobs report, but they were already striking an upbeat tone. Their statement said “Labor market conditions have improved further, with strong job gains and a lower unemployment rate.” >> Read More

 

Sweden’s central bank is bringing in a negative interest rate in an attempt to tackle falling prices, and has announced it will purchase government bonds in response to the European Central Bank’s quantitative easing programme.

The Riksbank has announced a cut in in its key rate – which was at zero – to -0.1 per cent.

The central bank has also said it will start an asset purchasing scheme, by buying nominal government bonds for a sum of SK10bn. The move follows the European Central Bank’s announcement last month of a €60bn a month quantitative easing programme.

The Swedish krone fell to a 2 month low against the euro immediately following the decision.

Explaining its move, the Riksbank said underlying inflation has “bottomed out” but “the situation abroad is now more uncertain and this increases the risk that inflation will not rise sufficiently fast”.
>> Read More

 

Bill Gross, the legendary bond investor, has theorised that the world’s major central banks are “distorting” capitalism by keeping interest rates ultra low and causing returns on investment to dwindle.

In Mr Gross’ latest monthly letter to investors, the Janus Capital fund manager likens the state of the global financial system to a twisted game of Monopoly where “cash is king at the game’s conclusion”.

Noting that central banks from Europe to Canada have been successively lowering borrowing costs to try and kickstart growth and make their currencies more competitive – while the yields on German and Swiss five-year bonds have turned negative – he argues that the squeeze on investment returns this situation creates will eventually deter investment.

Parts of his letter read:

In a new world, returns on real investment – ROI’s and ROE’s – become so low that the risk of a new project or the purchase of green hotels offer too little return for too much risk…cash accumulates in corporate coffers or is used to repurchase stock in the financial economy. Investment in plant and equipment is deferred.

individual sovereign countries and their respective central banks [are] pushing each other out of the way in a race to the bottom of interest rates – wherever that is – and a race to the bottom in terms of currency valuations.

>> Read More

 

Russia’s central bank is set to admit it made a mistake in hiking interest rates by 6.5 percentage points last month by slashing them.

Bank of Russia raised the country’s benchmark rate to 17pc on December 15, just days after raising it to 10.5pc, in a bid to stop a full-blown currency crisis.

However, the move has failed to curb rises in the euro and dollar, and has been met with anger by consumers and businesses after interest rates on bank loans soared.

The move has also failed to curb inflation, which jumped from 8.9pc at the end of November to 11.4pc at the end of December. Economy Minister Alexei Ulyukayev said on Wednesday that he sees inflation reaching 13pc at the end of this month, or slightly higher.

In a statement, Elvira Nabiullina, governor of the Bank of Russia, said: “The board of directors of the Bank of Russia will take a decision on the key rate primarily based on the need to curb inflation, which in the current environment is a priority issue for people and for business.

>> Read More

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Baroda, India.