Rate normalisation continues in the Philippines, despite the Japanese earthquake. Key rates have been increased by a quarter of one per cent, with the overnight lending (repo) and borrowing (reverse repo) rates standing at 6.5 and 4.5 per cent, respectively. Manila started raising rates only recently: the last rate rise – a quarter point in March – was the first since 2008.

“In deciding to increase policy rates anew, the Monetary Board noted that the latest baseline inflation forecasts continue to suggest that the 3-5 percent inflation target for 2011 remains at risk, mainly as a result of expected pressures from oil prices,” said the Bank. Annual inflation in the year to April edged up to 4.5 per cent, within the government target but at the upper end.

With inflation reaching 17.5 per cent in the year to April, Vietnam’s central bank has again raised interest rates: one lending rate, the reverse repo rate, was raised today by a percentage point to stand at 14 per cent.

Two other rates, the refinancing and discount rates, were both raised by a percentage point on Friday, to stand at 14 and 13 per cent, respectively. Vietnamese authorities have raised several rates multiple times since the start of the year, which have also seen substantial devaluations of the country’s currency, the dong. Read more

India’s central bank has upped its campaign against inflation, raising rates by half a percentage point, twice previous rate rises. This is the first half point rate rise since 2008 (see chart).

The move comes despite “signs of moderating growth” in the economy, which shows how worried the Bank is about inflation. Strong consumer demand in the country has aggravated the global issue of rising commodity prices, adding to domestic inflationary pressures. That strong demand, in turn, has probably been encouraged by relatively low rates. Indeed, according to the Bank:

…demand has been strong enough to allow significant pass-through of input price increases.  Importantly, this is happening even as there are visible signs of moderating growth, particularly in capital goods production and investment spending, suggesting that cumulative monetary actions are beginning to have an impact on demand [emphasis ours]

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The Singapore dollar jumped to a record level against the US dollar on Thursday after the island state tightened monetary policy for the second time in six months to combat rising inflation. Economists said the move was likely to be followed by a round of interest rate rises across Asia as governments sought to curb inflation generated by rapid economic growth in the region and loose monetary policy in the west.

Singapore, which conducts its monetary policy through changes to the exchange rate, rather than through interest rates, said it was responding to faster than expected economic growth and a fall in commercial interest rates triggered by abundant global liquidity. The Monetary Authority of Singapore, the country’s central bank, said it had shifted its exchange rate policy band upwards to below the prevailing level of the Singapore dollar’s nominal effective exchange rate. Read more

To discourage volatile short-term capital flows, the Bank of Indonesia will extend the minimum holding period of its bank certificates, SBIs, from one month to six months, effective May 13. This means traders holding the notes will not be able to sell them in the secondary market until they have held them for six months.

The unexpected news builds upon previous measures aimed at slowing down investment in very short-term debt. For example, the Bank of Indonesia has already all but stopped issuing 3- and 6-month SBIs. A key risk for countries receiving increased capital inflows is that they might reverse, which could have sudden and unpredictable consequences, as the Bank of Japan has pointed out. The Bank of Israel’s Stanley Fischer has made the same argumentRead more

Reading the commentary, one would think the Bank of Korea had raised rates, but in fact they held, as expected.

Inflation was 4.7 per cent in the year to March, against the Bank’s target of 4 per cent, “due mostly to the rises in prices of petroleum products and personal services.” More than this, swift price rises are set to continue and inflation expectations are growing. The Bank said: “There is a growing possibility of this high rising price trend persisting in the coming months, driven largely by increased demand pressures from the economic upswing, by instability of international commodity prices, and by elevated inflation expectations.”

Typically, high and rising inflation would prompt a rate hike. Particularly since strong growth continues, and is expected to continue. “The committee Read more

Banks in the quake-affected north-east of Japan will soon be able to borrow longer term from a new scheme worth ¥1,000bn ($11.7bn), offering one-year loans at 0.1 per cent.

The scheme comes on top of ¥21,800bn ($265bn) liquidity made available immediately after the quake and a doubling of the Bank’s asset purchase programme from ¥5,000bn to ¥10,000bn ($121bn). Tokyo has also been involved in an internationally co-ordinated effort to prevent the yen appreciating too sharply. So far, though, the BoJ remains unwilling to buy government bonds, a measure adopted in several other countries since the crisis.

In addition to such measures, at today’s meeting, the Bank judged it necessary to introduce a funds-supplying operation that provides financial institutions in disaster areas with longer-term funds in order to support their initial response efforts to meet the future demand for funds for restoration and rebuilding.

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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-MarchRead more

The State Bank of Vietnam has raised two key rates by a full percentage point – a significant increase but still a slower pace than very large rate raises in February and March. The most recent move affects the refinancing and repurchase rates, taking both to 13 per cent.

The move comes less than a month after a five percentage point increase in the discount rate. In February, when the central bank added to inflationary pressure with a 9.3 per cent devaluation of the dong. Since then, the central bank has raised the refinancing rate by 2 percentage points and raised the reverse repo rate by a percentage point. Read more

Taiwan has raised rates 12.5 basis points, or an eighth of one per cent, sticking to its plan to normalise rates. The move was widely expected.

Consumer prices rose sharply between January and February – the first substantial increase since October last year. Since then prices have mostly fallen or been static. The less volatile annual rate is more modest, showing a 1.33 per cent gain on the year. The CBC forecasts inflation of 2 per cent for the year. Read more

Manila has raised its key policy rates quarter of a point – as signalled – to combat rising prices and manage inflation expectations. The overnight borrowing rate now stands at 4.25 per cent and the overnight lending rate at 6.25 per cent. The interest rates on term repos, reverse repos, and special deposit accounts were also raised accordingly.

Inflation is running at the high end of the 3-5 per cent target range, and deputy governor Diwa Guinigundo said it would have averaged 5.2 per cent this year without today’s interest rate move. The central bank indicated further upward inflation pressure lay ahead, and that appropriate policy action would be taken. Analysts expect another one or two such rate rises this year, though some observed that domestic interest rate rises would have limited impact on imported global food and energy inflation.

Hong Kong’s yuan market is set to receive a boost from China’s central bank. The People’s Bank of China plans to raise the territory’s yuan clearing rate and is considering an increase in deposit rate, too, Reuters reports. Rates in Hong Kong are significantly lower than they are on the mainland, and unnamed sources quoted by the news agency say the planned moves are unlikely to align rates in one step. 

An increase in deposit rates would encourage companies to leave yuan in Hong Kong rather than sending them back to the mainland. Analysts also expect an increase in the supply of yuan bonds as investors hope for higher yields on forthcoming issues. From Reuters: Read more

Large Chinese lenders will need to keep a fifth of their deposits with the central bank from March 25, after the People’s Bank of China announced an increase in reserve requirements. Individual banks that are lending too much might be targeted with further specific measures. Small-medium banks are probably now required to hold 16.5 per cent of loans, though, as ever, this is unclear from the Bank’s statement.

Tightening was expected – even overdue – but comments from the PBoC had suggested it might be a rate rise. This is the third rise in reserve requirements this year and follows a rate rise in February. The last raise in reserve requirements was also half a percentage point, and was announced a month ago, on February 18. Consumer price inflation held at 4.9 per cent in the year to February – the same as January, but above 4.6 per cent in December and also above forecasters’ February expectations of about 4.7 per cent. Read more

The Group of Seven industrialised nations have agreed to co-ordinated currency intervention for the first time in a decade to help Japan recover from its devastating earthquake, tsunami and nuclear crisis.

Authorities in Japan, the eurozone, the UK, Canada and the US agreed on Friday to help weaken the yen in a rolling intervention that began at 9am in Tokyo, which immediately pushed the yen down from above Y79 against the US dollar to below Y81. Read more

Turkey’s central bank stepped in again this week to clear confusion over the effects of its unorthodox monetary policy, after the release of data that appeared to contradict comments made by officials. The trouble was caused by balance of payments data: it showed portfolio inflows of $2.3bn in January, higher than a year earlier and at odds with official claims that some $10bn of “hot money” had left the country since December, when the central bank began “quantitative tightening” to deal with macroeconomic imbalances.

Two clarifications from the central bank have cleared up the discrepancy. The balance of payments data showed foreign investors had sold out of Turkish equities since November, while increasing their exposure to debt instruments. But the figures did not include money market transactions, mainly in the form of swap operations. Here, the central bank said, there had indeed been an outflow of $11.5bn since November. Read more

Nobody knows how much of Mrs Watanabe’s foreign stash she intends to bring home. But the choices made by this mythical Japanese housewife – astute, and hunting for a better return than she can find at home – could help to explain the rapidly strengthening yen.

It makes sense that the average Japanese investor would want to repatriate their money at the moment. The average Japanese investor, after all, lives in Tokyo. Many have lost homes and possessions, with 430,000 estimated to be living in temporary accommodation (and it is winter). Others will be trying to move away from the Fukushima atomic power station. Still more are facing food shortages or rationing. In all these cases, cash is king. Read more

High and rising inflation has prompted a quarter point rate rise from the Reserve Bank of India, effective immediately. The move was largely expected. Both the repo and reverse repo rates are affected, now standing at 6.75 and 5.75 per cent, respectively.

Annual inflation rose to 8.31 per cent in February, against a target of 4-4.5 per cent. “The underlying inflationary pressures have accentuated, even as risks to growth are emerging,” said the Bank in a statement. “Risks to inflation remain clearly on the upside.”

In addition to food and energy related price pressure, inflationary risks are heightened by growing demand. Read more

The Bank of Japan offered to pump ¥8,000bn ($98bn) into the banking system on Tuesday, following a record ¥15,000bn ($182bn) auction on Monday. The offer in same-day market operations drew bids of ¥5,400bn ($66bn).

But the Bank can do little directly to slow the rapidly falling stock market, which is reducing companies’ market capitalisation so significantly and so rapidly it imperils some companies’ survival and could lead to a credit crunch. Finance Minister
Yoshihiko Noda tried to counter this yesterday by saying the factors behind the fall were “temporary”.

The Bank is prohibited from buying shares directly. There are rumours that it might intervene in currency markets, however, to weaken the yen. (A strengthening yen necessarily reduces the number of yen per stock.) Yesterday there was at one point a spike in the dollar – apparently the result of a one-off trade. Mr Noda declined to comment. Read more

On top of the $265bn being made available to banks, the Bank of Japan has decided to double its asset purchase scheme to $122bn (¥10,000bn). The decision was made at the Bank’s scheduled monetary policy meeting, at which rates were kept at 0-0.1 per cent.

Of the $265bn (¥21,800bn) being made available to financial institutions, $182.3bn (¥15,000) is available immediately, and $82.6 (¥6,800) over the coming days.

Asset purchases
The Bank’s current Asset Purchase Programme is subject to a ceiling of $427bn (¥35,000bn). This splits into a maximum of $366bn (¥30,000bn) in loans, and a maximum of $61bn (¥5,000bn) stock of outstanding financial assets. It is this latter limit that is to be doubled to $122bn (¥10,000bn), effective today, with assets being bought by the end of June 2012.

Specific details are as follows: Read more

Interest rates are back in vogue at the People’s Bank: the concern over capital inflows shouldn’t reduce the case for using them, governor Zhou has said. He also said that raising banks’ reserve requirements, which reduces the amount available to lend, is a liquidity management tool that cannot necessarily replace other monetary tools. China has raised rates three times since October last year and raised the reserve requirement five times. There has been a relatively long gap since the last monetary tweak, on February 18.

These pro-interest rate comments are courtesy of SocGen research, taken from the PBoC press conference at China’s annual plenary session of the National People’s Congress. Read more