Posts Tagged: interest rate

 

India’s GDP growth probably slowed to around 5 percent in the three months to September, slipping from 5.7 percent in the previous quarter, two senior finance ministry sources said, putting pressure on the Governor Raghuram Rajan-led Reserve Bank of India (RBI) to cut interest rates.

The sources said Finance Minister Arun Jaitley would argue forcefully for Reserve Bank of India (RBI) Governor Raghuram Rajan to lower interest rates when the two meet ahead of a decision on rates next Tuesday.

Six months after Prime Minister Narendra Modi swept to power with a promise that “better days are coming”, growth of 5 percent would be a serious slip back from the previous quarter and falls far short of the 8 percent that Asia’s third-largest economy needs to create enough jobs for its growing workforce.

Official GDP figures are due for release on Friday.

Indian finance ministers often “jawbone” the RBI on interest rates, but Jaitley’s calls have become unusually insistent of late. Aides say he will make the case for cuts forcefully when he meets Rajan.

“When Rajan meets the finance minister ahead of the policy review, he would be urged to cut the interest rates,” one senior finance ministry official with direct knowledge of the matter said. >> Read More

 

The divide is growing starker, forming a basic template for EM investors. Softer oil and commodity prices are subduing inflation in most countries, creating room for easier monetary conditions. Other countries, however, are still struggling with ideosyncratic frailties, preventing them from capitalising on the ebbing EM prices.

A Capital Economics note on Monday defined the EM monetary policy divide:

“Of the 56 EMs that we cover, 29 have autonomous control over monetary policy (the rest have fixed exchange rates). Since we last looked at the diffusion index in late June, of these 29 countries, 10 central banks have raised interest rates and nine have cut rates,” wrote Jason Tuvey, middle east economist.

This breakdown between those countries that have raised rates versus those that have lowered rates results in a slight bias toward overall tightening in the EM universe, as shown by the chart on the left.

Alongside China, the main other countries to have cut rates in recent months are Poland, Mexico and South Korea. >> Read More

 
  • Cuts 1 year lending rates by 0.4
  • Cuts 1 year deposit rates by 0.25 to 2.75%
  • Rate cut effective from 22 Nov

CHINA SLASHES RATES

In response to both a slowing domestic and global economy, the People’s Bank of China, the country’s central bank, has cut benchmark interest rates in the world’s second-largest economy for the first time in two years.

It has cut the one-year deposit rate by 25 basis points to 2.75 per cent and the one-year lending rate by 40 basis points to 5.6 per cent.

The rate will be effective from Saturday.

The Chinese central bank said it was also giving banks more freedom to set their interest rates, raising the ceiling for deposit rates to 1.2 times the benchmark rate from 1.1 times.

In additional comments, the PBOC said that economic growth, which slowed to a five-year low of 7.3 per cent last quarter, was still reasonable and that this move did not mean a change in monetary policy and that there was no need to apply a strong stimulus to the economy. It added it would, however, continue an orderly liberalisation of deposit rates.

The renminbi moved to 6.1242 to the dollar from 6.1283 on the news and S&P futures jumped 13.5 points, or 0.6 per cent, while European stock markets extended gains

It is the first cut in the benchmark rates since July 2012, when the one-year deposit rate was cut by 25 basis points and the one-year lending rate by 31 basis points

Overnight US Market

20 November 2014 - 5:06 am
 

Stocks ended lower Wednesday after briefly jumping up right after the release of the minutes from the Federal Reserve’s October meeting.

The major indexes retreated from record highs set in the previous session as the Dow Jones industrial average closed down a scant two points — 0.01% — to 17,685.73. Down by 0.2% was the S&P 500, which settled at 2048.72; the Nasdaq composite lost 0.6% to 4675.71.

The minutes showed that some Fed policymakers favored eliminating a pledge to keep interest rates near zero “for a considerable time” but others worried that such a move could prompt financial markets to push up rates prematurely.

Fed officials eventually agreed to keep the market friendly language on short-term interest rates but add that Fed moves would dependent on the pace of job growth and inflation.

 

The Swedish central bank’s top policymakers reckon they have done enough to get inflation rising back to 2 per cent – after flirting heavily with deflation over the past year – but hinted that they could start quantitative easing if slashing rates to zero last month proves insufficient.

The Riksbank’s governor Stefan Ingves and deputy governor Per Jansson are attending a hearing at the Swedish parliament’s finance committee this morning. The presentations are still underway, but Mr Jansson’s slides have been published on the central bank’s website.

In Mr Jansson’s presentation on monetary policy – Mr Ingves is talking more generally about the state of the Swedish economy – the deputy governor said that “monetary policy has reacted decisively”, and is “sufficient to get inflation to rise to 2 per cent. “But if it is not enough we have….”

  • Some further scope with regard to monetary policy.
  • The same tools for unconventional monetary policy as other central banks (a not-so-veiled hint at QE).

The Riksbank started to lift its benchmark interest rate from 0.25 per cent in 2010 to a peak of 2 per cent in late 2011 to “lean against the wind” of rising household indebtedness – to howls of protest from the former deputy governor Lars Svensson – but has had to admit defeat as inflation has continued to fall and slip into negative territory for much of the past year. >> Read More

 

The strong pitch by Corporate India on the need to cut interest rates notwithstanding, indications are that the Reserve Bank of India may not oblige in the near term.

The RBI which has already indicated that  “it is too early for celebrations” and that “inflation has a long way to go”, has been draining liquidity from the system through its open market operations. The RBI has already conducted five reverse repo auctions between October 29 and November 5 to enable banks park close to Rs 1,45,000 crore with the central bank. It has planned another Rs 25,000 crore reverse repo auction on Friday. Banks are sitting on excess liquidity, indicating that demand for credit has fallen.

This is even as consumer price inflation, which at 6.46 per cent in September, had slowed to its lowest level since the data was first published in January 2012. Local banks are awash with liquidity and the yield on the 10-year benchmark bonds declined to over one-year low levels of 8.20 per cent, contributing to the clamour for a rate cut. The RBI had hiked repo rate by 75 basis points to 8 per cent between September 2013 and January 2014. Since then, it has been maintaining the 8 per cent level to check inflation. >> Read More

 

Two central banks surprised the world last week with unexpected hikes in interest rates in the face of panicky financial markets. Raising rates a startling 150 basis points, the Central Bank of Russia was reacting sharply to yet another week of runs on the rouble. (It fell further this week nonetheless.)

The other, the Central Bank of Brazil, increased the cost of borrowing by a more modest 25 basis points. It seemed to be attempting to re-establish its independence credentials after the previous weekend’s presidential elections and subsequent worries that economic policy would tend towards the populist and the inflationary.

Yet just as with the advanced economies’ central banks – the Bank of Japan ramping up quantitative easing just as the Fed withdraws – monetary policy has diverged rather than unified in the big emerging economies.

Taking a selection – India, Brazil, South Africa and Turkey from the “fragile five” and Russia for variety – it is clear that the performance of central banks has varied considerably. Not only have interest rates been moved differently, but the very frameworks of monetary policy are evolving in contrasting ways, some improving and some regressing. >> Read More

 

The Bank of Japan will do “whatever it can” to hit its 2% inflation goal, Gov. Haruhiko Kuroda said Wednesday in his first speech since the central bank decided to further ease monetary policy on Oct. 31

The speech was a clear attempt by Kuroda — and the staff at BOJ’s Monetary Affairs Department who drafted it — to improve consumer sentiment and reassure market players. The main concern seemed to be preventing inflationary expectations from sagging further, with Kuroda using such metaphors as “medicine should be taken until the end” and “a half-baked medical treatment will only worsen the symptoms.”

Core threat

After the BOJ launched its massive monetary easing program in April 2013, Japan’s consumer price index rose steadily for a time and consumers appeared to have growing expectations that inflation was here to stay. But this spring, things began to change.

     The core CPI, excluding fresh food and the effect of the consumption tax hike, rose to 1.5% in April, but declined to 1.0% in September. This slowdown has been attributed to the slow recovery of Japan’s economy after the April tax hike and falling oil prices since summer. But if the trend continues, the public could slip back into a deflationary mindset. And that, Kuroda said, would threaten the core mechanism of the BOJ’s deflation-fighting strategy.

>> Read More

 

The Bank of England has kept the benchmark interest rate on hold at a record low of 0.5 per cent for the 68th month in a row, even as the buoyant economy raises pressure on policymakers to start thinking about the first hike in over seven years.

The UK central bank also kept its quantitative easing programme steady at £375bn at the November meeting. Both decisions were expected by every economist polled by Bloomberg.

Economic growth has cooled somewhat since the rapid expansion over the past year. While unemployment has dropped much faster than expected inflation has continued to abate and the BoE’s policymakers have focused increasingly on wage growth as a leading indicator of budding price pressures.

With salary growth still fairly subdued, that has given the central bank cover to keep rates on hold, and spurred economists to move out forecasts for when it will start lifting interest rates. RBS said in a note:

Although viewed in mid-year as one of the most likely months for the first rate hike, inflation and global growth have weakened since, giving the edge back to BoE doves…. Our UK economist expects the BoE to first hike rates in August 2015, raising Bank Rate to 1.5% by the end of 2016.

Nonetheless, two voting members of the Monetary Policy Committee have already started to vote for interest rate increases, and the decision is clearly becoming more finely tuned for the Bank as growth slows but remains solid. >> Read More

 


You can almost hear the great wheels of global monetary policy making turning: change is afoot in each leading central bank. The US Federal Re­serve has bought its last long-term bond. The Bank of England is talking down the prospect of rate rises (after talking it up not long ago). The Bank of Japan is speeding up money creation. Even the European Central Bank is creeping towards asset purchases.

This is not a bad time to assess how much we can demand from central banks. It is fashionable to say monetary policy is “overburdened” and only fiscal policy can help depressed economies out of their rut. I do not dispute the importance of using fiscal policy where there is room for manoeuvre (as in the eurozone as a whole, where the fiscal deficit is only 2.5 per cent of output). Structural reforms are needed, too. But we should take issue with the idea monetary policy has done as much as it can.

The notion that developed economies are in a “liquidity trap” – where printing money no longer has any effect – is treacherous. The problem is partly semantic but semantics can shape politics. A trap is hard to spot and difficult or impossible to escape. The implication is that monetary policy makers have done everything possible. In liquidity trap models of the economy, the central bank is impotent. Although it can create money at will, this power no longer provides influence over interest rates or the ability to give the economy a boost.
>> Read More

Reader Discretion & Risk Disclaimer

Our site is objectively in letter and spirit, based on pure Technical Analysis. All other content(s), viz., International News, Indian Business News, Investment Psychology, Cartoons, Caricatures, etc are all to give additional ambiance and make the reader more enlightening. As the markets are super dynamic by very nature, you are assumed to be exercising discretion and constraint as per your emotional, financial and other resources. This blog will never ever create rumors or have any intention for bad propaganda. We report rumors and hear-say but never create the same. This is for your information and assessment. For more information please read our Risk Disclaimer and Terms of Use.

Technically Yours,
Team ASR,
Baroda, India.