Thailand cuts rate 25 bps, says ready to take further action - Central Bank News
Thailand's central bank cut its policy rate by 25 basis points to 2.50 percent due to continued concern over financial stability and said it was closely monitoring economic developments, financial stability risks and capital flows and "stands ready to take appropriate action as warranted."
The Bank of Thailand (BOT), on the front lines of the currency wars, said downside economic risks had increased from lower-than-expected growth in the first quarter and "as inflation remains well within the target, monetary policy has room to further cushion against downside risk to domestic demand."
Thailand's Gross Domestic Product contracted by 2.2 percent in the first quarter from the fourth for annual growth of 5.3 percent, sharply down from the fourth quarter's 19.1 percent expansion when growth was boosted by fiscal stimulus measures.
The BOT's rate cut was largely expected and follows a recent statement by the bank's governor that monetary policy could be eased if the economy was losing momentum. On Monday Thailand's finance minister said he hoped the BOT would cut the policy rate by more than 25 basis points.
The rate cut signals a sharp worsening in the BOT's outlook since its last regularly scheduled policy meeting on April 3 when it said inflationary pressures warranted monitoring though it was also concerned that a volatile exchange rate and capital flows could pose a risk to financial stability.
Thailand's headline inflation rate eased to 2.42 percent in April, down from 2.69 percent in March. The BOT, which targets inflation of 0.5-3.0 percent, has forecast inflation of 2.8 percent this year.
In 2012 the BOT cut its policy rate by 50 basis points and this is the first change in rates this year.
The BOT said it still expects the Thai economy to continue to expand, but the slowdown in the first quarter from "tepid domestic demand" could weigh on overall economic momentum, particularly if there are delays in the government's infrastructure investment that is expected to start later this year.
It added that exports were subject to downside risks from lower growth in regional economies, especially China, and inflationary pressures have eased due to lower production costs. Growth of private credit and household debt, however, remain elevated.
In April the BOT had said it expected exports to expand slowly, in line with global growth.
But global growth has been slower than expected with Chinese and Asian economies expanding less than expected and this could cause a delay in the recovery of Thai exports, the BOT said.
In added that the Japanese economy was starting to benefit from economic stimulus.
"Global financial markets remain volatile, leading to persistent capital flows into the region and exchange rate volatility," the BOT said after a meeting of its monetary policy committee.
In its statement, the BOT did not mention any initiatives to cushion the impact of the rise in the baht currency on the competitiveness of Thai exports.
The Thai central bank and the finance ministry are currently considering four measures to combat the strength of the baht, including limits on foreign investors ability to buy some Thai bonds, fees on the profits made by foreign investors from investing in bonds and mandatory hedging by foreign investors of their exchange rate risk.
The Bank of Japan's launch of aggressive monetary easing in early April has lead to a sharp fall in the value of the yen and triggered fears of large capital inflows into higher-yielding currencies, such as the Thai baht.
Until recently, the BOT had been reluctant to cut its interest rate in response to the rise in the baht, attributing its appreciation to foreign investors' confidence in the Thai economy and arguing that a rate cut would do little to affect capital flows.
But on April 30 the BOT met with government and private sector representatives to hammer out a plan to address the growing competitive pressures and voiced its concern over the rapid rise and volatility in the exchange rate.
The baht was largely stable against the U.S. dollar from 2010 through early 2012. But then it started to rise, hitting a high of 28.6 bath per U.S. dollar in late April from around 30-32 baht in 2010.
But since late April, the baht has eased, first on speculation that the BOT would intervene but later on news that the central bank is planning to take action to curb the rise in the baht.
news that the central bank is planning to take action to curb the rise in the baht.
Today the baht was trading just over 30 baht to the U.S. dollar.
www.CentralBankNews.info
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Showing posts with label capital inflows. Show all posts
Showing posts with label capital inflows. Show all posts
Thursday, 30 May 2013
Monday, 20 May 2013
Turkey Central Bankers cuts rates 50 bps last week
Turkey cuts rates 50 bps, raises FX reserve requirement - Central Bank News
Turkey's central bank cut its benchmark, short-term interest rates by 50 basis points, as expected, but also raised its reserve requirements for foreign currency deposits by the same amount in a move designed to stimulate the economy yet deter capital inflows than could threaten financial stability.
The Central Bank of the Republic of Turkey (CBRT) cut its benchmark, one-week repo rate to 4.5 percent from 5.0 percent and shifted its interest corridor further down by cutting the overnight borrowing rate, the ceiling in the corridor, for the first time this year to 3.5 percent and the lending rate, the corridor's floor, to 6.5 percent from 7 percent.
"Capital inflows remain strong and credit growth hovers above the reference rate," the central bank's monetary policy committee said in a statement, adding:
"The Committee indicated that, in order to balance the risks on financial stability, the proper policy would be to keep interest rates low while increasing foreign currency reserves via macroprudential measures."
Other short-term rates that were cut by the CBRT include the rate on borrowing by primary dealers via repo transactions, which was reduced to 6.0 percent from 6.5 percent and the lending rate on the late liquidity window was cut to 9.5 percent from 10 percent while the borrowing rate remained at zero.
The rate on reserve requirements for foreign currency deposits up to one year was raised 50 basis points to 13 percent, the requirement for one-year deposit was held at 9.0 percent while deposits of up to an including three years was raised to 11 percent from 10.5 percent.
Turkey's central bank has a history of using an array of policy instruments to tackle the challenge of boosting its domestic economy, which has been slowing down in tandem with the global economy, yet trying to avoid attracting foreign capital that can lead to a bubble in the price of assets and put upward pressure on its lira currency that makes Turkish exports less competitive internationally.
"Domestic demand follows a healthy recovery while exports slow down due to weak global economic activity," the central bank said, adding that a drop in commodity prices is helping limit the impact of increasing economic activity on the current account deficit.
It is the central bank's second cut this year in its main policy rate, the one-week repo rate, bringing this year's reduction to a total of 100 basis points, following a cut by 25 basis points in 2012.
The bank has been steadily shifting downward and narrowing its interest rate corridor since September last year. Rates within the corridor can vary daily as the central bank seeks to smooth out volatile foreign exchange rate movements.
Including the latest reduction, the overnight lending rate has now been cut by 250 basis points this year and the overnight lending rate by 150 basis points.
Turkey's short-term interest rates have been on a downward trajectory since 2002 when the borrowing rate was 57 percent and the lending rate 62 percent. Last year the CBRT started cutting the overnight lending rate from 12.5 percent but held the borrowing rate steady.
The central bank said global economic uncertainty and volatile capital flows "necessitate the monetary policy to remain flexible in both directions" and it would closely monitor the impact of its moves on credit, domestic demand and inflation expectations and adjust funding amounts in either direction, as needed.
Turkey's Gross Domestic Product stagnated in the fourth quarter of last year from the third quarter, with the annual growth rate falling to 1.4 percent from 1.6 percent, the lowest growth rate since the third quarter of 2009.
In 2012 economic growth slowed to 2.6 percent from 8.5 percent in 2011 but the central bank is expecting growth this year to strengthen to 4 percent or more.
"The Committee has indicated that the weak global demand and the commodity price outlook contain the upward pressures on inflation," the bank said.
Turkey's inflation rate eased to 6.13 percent in April, down from 7.29 percent in March, continuing the declining trend from last year's high of 10.78 percent in May.
The CBRT targets annual inflation of 5.0 percent this year, the same as in 2012 when inflation averaged 6.2 percent.
www.CentralBankNews.info
Turkey's central bank cut its benchmark, short-term interest rates by 50 basis points, as expected, but also raised its reserve requirements for foreign currency deposits by the same amount in a move designed to stimulate the economy yet deter capital inflows than could threaten financial stability.
The Central Bank of the Republic of Turkey (CBRT) cut its benchmark, one-week repo rate to 4.5 percent from 5.0 percent and shifted its interest corridor further down by cutting the overnight borrowing rate, the ceiling in the corridor, for the first time this year to 3.5 percent and the lending rate, the corridor's floor, to 6.5 percent from 7 percent.
"Capital inflows remain strong and credit growth hovers above the reference rate," the central bank's monetary policy committee said in a statement, adding:
"The Committee indicated that, in order to balance the risks on financial stability, the proper policy would be to keep interest rates low while increasing foreign currency reserves via macroprudential measures."
Other short-term rates that were cut by the CBRT include the rate on borrowing by primary dealers via repo transactions, which was reduced to 6.0 percent from 6.5 percent and the lending rate on the late liquidity window was cut to 9.5 percent from 10 percent while the borrowing rate remained at zero.
The rate on reserve requirements for foreign currency deposits up to one year was raised 50 basis points to 13 percent, the requirement for one-year deposit was held at 9.0 percent while deposits of up to an including three years was raised to 11 percent from 10.5 percent.
Turkey's central bank has a history of using an array of policy instruments to tackle the challenge of boosting its domestic economy, which has been slowing down in tandem with the global economy, yet trying to avoid attracting foreign capital that can lead to a bubble in the price of assets and put upward pressure on its lira currency that makes Turkish exports less competitive internationally.
"Domestic demand follows a healthy recovery while exports slow down due to weak global economic activity," the central bank said, adding that a drop in commodity prices is helping limit the impact of increasing economic activity on the current account deficit.
It is the central bank's second cut this year in its main policy rate, the one-week repo rate, bringing this year's reduction to a total of 100 basis points, following a cut by 25 basis points in 2012.
The bank has been steadily shifting downward and narrowing its interest rate corridor since September last year. Rates within the corridor can vary daily as the central bank seeks to smooth out volatile foreign exchange rate movements.
Including the latest reduction, the overnight lending rate has now been cut by 250 basis points this year and the overnight lending rate by 150 basis points.
Turkey's short-term interest rates have been on a downward trajectory since 2002 when the borrowing rate was 57 percent and the lending rate 62 percent. Last year the CBRT started cutting the overnight lending rate from 12.5 percent but held the borrowing rate steady.
The central bank said global economic uncertainty and volatile capital flows "necessitate the monetary policy to remain flexible in both directions" and it would closely monitor the impact of its moves on credit, domestic demand and inflation expectations and adjust funding amounts in either direction, as needed.
Turkey's Gross Domestic Product stagnated in the fourth quarter of last year from the third quarter, with the annual growth rate falling to 1.4 percent from 1.6 percent, the lowest growth rate since the third quarter of 2009.
In 2012 economic growth slowed to 2.6 percent from 8.5 percent in 2011 but the central bank is expecting growth this year to strengthen to 4 percent or more.
"The Committee has indicated that the weak global demand and the commodity price outlook contain the upward pressures on inflation," the bank said.
Turkey's inflation rate eased to 6.13 percent in April, down from 7.29 percent in March, continuing the declining trend from last year's high of 10.78 percent in May.
The CBRT targets annual inflation of 5.0 percent this year, the same as in 2012 when inflation averaged 6.2 percent.
www.CentralBankNews.info
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