Trinidad Joins Central Banks Adjusting Policy Pre-Fed Rise

September 29th, 2014
in econ_news

Monetary Policy Week in Review 22-16 September 2014

by Peter Nielsen, Central Bank News

Trinidad and Tobago's central bank became the latest to adjust its policy rate last week ahead of the looming change in U.S. monetary policy, raising its repo rate to prevent capital from seeking higher yields abroad, a move that would put pressure on its exchange rate and spark inflation.

Follow up:

The growing prospect of a hike in U.S. rates by mid-2015 was also the main feature of global financial markets last week, with volatility jumping, stock markets gyrating and the U.S. dollar extending its gains on the back of an upward revision of U.S. second quarter growth figures.

Major emerging markets, such as Turkey, India and South Africa, were hit by a change in the flow of global liquidity last summer and this January, and Trinidad's move this week serves as another reminder of how the Fed's policy stance reaches into every single crevice of global financial markets. The Central Bank of Trinidad and Tobago raised its benchmark repo rate by 25 basis points to 3.0 percent, its first change in rates since September 2012, "to pre-empt a potential rise in inflationary pressures and to mitigate higher portfolio outflows."

The central bank said the Fed's statement after the Sept. 17 meeting of its Federal Open Market Committee (FOMC) had altered market expectations about the start to higher U.S. rates as its communication suggested a change in policy stance would come sooner than anticipated, with a gradual increase in rates around mid-2015.

This had resulted in an immediate rise in U.S. Treasury yields that made U.S. dollar assets more attractive relative to Trinidad and Tobago assets.

Trinidad's central bank said:

"It has become necessary to enhance the appeal of TT dollar assets which have lower returns in relation to U.S. dollar assets, as returns on the latter will be bolstered the Fed's expected monetary policy actions are realized."

On Sept. 17 the FOMC had confirmed that it expected to conclude its asset purchase program at its next meeting in October and repeated its guidance that rates would be maintained for "a considerable time" after the asset purchase program ends.

However, the statement also showed an increase in the number of FOMC participants that expect the first rise in the fed funds rate in 2015 to 14 from 12 members in June. In addition, FOMC members' median estimate for the fed funds rate - illustrated by the now infamous but slightly confusing dot plot chart - rose to 1.375 percent end-2015 from June's estimate of 1.125 percent. In addition to Trinidad and Tobago, Morocco's central bank also changed its rate last week, cutting it by 25 basis points for the first time since March 2012, to boost growth while domestic inflation - just as global inflation - remains low, reflecting the recent decline in global commodity prices.

But the other 12 central banks that deliberated monetary policy last week retained their policy rates, with several pointing to the uneven pace of global economic growth, the escalation of geopolitical conflicts and the uncertainty surrounding the timing of Fed interest rate rises.

Through the first 39 weeks of this year, the 90 central banks followed by Central Bank News have cut their policy rates 49 times, or 13.5 percent of all policy decisions, up from 12 percent at the end of the first half and 12 percent at the end of the first quarter.

Meanwhile, rates have been raised 37 times, or 10.2 percent of all policy decisions, up from 9.3 percent at the end of June and 8.7 percent at the end of March. The Global Monetary Policy Rate (GMPR), the average nominal rate by 90 central banks, remained at 5.54 percent, up from 5.53 percent at the end of June and 5.53 percent end-March. LIST OF LAST WEEK'S CENTRAL BANK DECISIONS:

TABLE WITH LAST WEEK'S MONETARY POLICY DECISIONS:

COUNTRY MSCI NEW RATE OLD RATE 1 YEAR AGO
ISRAEL DM 0.25% 0.25% 1.00%
SRI LANKA FM 6.50% 6.50% 7.00%
ARMENIA 6.75% 6.75% 8.50%
HUNGARY EM 2.10% 2.10% 3.60%
MOROCCO FM 2.75% 3.00% 3.00%
ALBANIA 2.50% 2.50% 3.50%
GEORGIA 4.00% 4.00% 3.75%
TURKEY EM 8.25% 8.25% 4.50%
FIJI 0.50% 0.50% 0.50%
CZECH REPUBLIC EM 0.05% 0.05% 0.05%
TAIWAN EM 1.88% 1.88% 1.88%
BOTSWANA 7.50% 7.50% 8.00%
COLOMBIA EM 4.50% 4.50% 3.25%
TRINIDAD & TOBAGO 3.00% 2.75% 2.75%

This week (Week 40) five central banks are scheduled to decide on monetary policy: Angola, India, Romania, Iceland and the European Central Bank (ECB).

TABLE WITH THIS WEEK'S MONETARY POLICY DECISIONS:

COUNTRY MSCI DATE CURRENT RATE 1 YEAR AGO
ANGOLA 29-Sep 8.75% 9.75%
INDIA EM 30-Sep 8.00% 7.50%
ROMANIA FM 30-Sep 3.25% 4.25%
ICELAND 1-Oct 6.00% 6.00%
EURO AREA DM 2-Oct 0.05% 0.50%

www.CentralBankNews.info









Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.















 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2016 Econintersect LLC - all rights reserved