There are some extremely interesting points in today’s FOMC minutes which provide more forward-looking policy signals than any others I can remember recently.
No taper of QE2
The signal here could not be more clear. The New York Fed “indicated that the greater depth and liquidity of the Treasury securities market suggested that it would not be necessary to taper purchases in this market”.
Fed officials are not persuaded that there is any monetary policy value in sending a signal through a taper so a request from the markets desk was the only remaining uncertainty on this point.
“In light of the Manager’s report, almost all meeting participants indicated that they saw no need to taper the pace of the Committee’s purchases of Treasury securities when its current program of asset purchases approaches its end.” In other words, it’s not going to happen.
The International Monetary Fund has proposed its first ever guidelines for using controls on flows of speculative capital, legitimising a controversial tool that it once campaigned against.
The guidelines – which are not yet official Fund policy – say that countries can control capital inflows when their currency is not undervalued, when they already have enough foreign exchange reserves, and when they are unable to use monetary or fiscal policy instead.
Hawkish comments from Poland’s central bank have translated into a rate rise, a move largely expected by analysts. The quarter point rise leaves the key reference rate at 4 per cent.
Annual inflation was running at 3.3 per cent in the year to February, down from 3.5 per cent in the year to January but still above the Bank’s 2.5 per cent target. After many rumours to the contrary, rates were kept on hold at the last meeting though members did vote on a rate rise.
For the fourth time in less than six months, China has raised rates. The quarter point increase leaves the one-year deposit rate at 3.25 per cent and the one-year lending rate at 6.31 per cent, each a percentage point higher than October of last year. Inflation rose to 4.9 per cent in the year to February, driven higher by food price inflation.
Other tightening measures are being gradually but regularly applied, notably the reserve requirement, which has been raised seven times since October and now stands at 20 per cent for large banks, following the most recent increase in mid-March.