interest rate

It’s only five basis points but it’s the direction that matters. Federal reserve banks cut the seasonal discount rate at its last meeting to 0.2 per cent.

The seasonal discount rate is typically aimed at small banks in agricultural or tourist areas, where businesses’ and individuals’ borrowing needs are highly seasonal. The rate, as you can see, has gone lower, to 0.15 per cent. During talk of green shoots in mid-2010, the seasonal rate reached the heady heights of 0.35 per cent before heading down to a fortnight spell at 0.2 per cent in November. To give some context, the average since 1996 is 3.5 per cent.

Poland’s central bank will aim to keep annual inflation as close as possible to its target of 2.5 per cent, rather than targeting a range of 2.5 per cent ± 1 per cent.

The shift in emphasis was mentioned in an assumptions document in the Bank’s 2011 Monetary Policy Guidelines. “Monetary policy is clearly targeted at keeping inflation closest to the 2.5 percent target rather than inside the wider range (of 1.5-3.5 per cent),” reads the document according to a Reuters translation. “This solution allows for the anchoring of inflation expectations,” says the document (via Google Translate), “[which] are not yet anchored sufficiently low.”

Polish news agency PAP reports, via Business WeekRead more

Simone Baribeau

Capital Economics said in a note today that the Fed’s extended period language may be debated in its meeting next week, but the FOMC will not drop it. But, the group says, that doesn’t mean the meeting will be uneventful. There is a possibility that the Fed will continue to increase the discount rate over the fed funds rate. (Its first move toward discount rate normalisation came last month, when it raised the spread by 25bp to 0.75 per cent).

But Capital Economics said a change in the extended period language – that is, the language the Fed uses to signify that it won’t raise the federal funds rate for at least six months – would be premature given inflation and credit trends and also that the Fed will not want to make another significant change as it ends its asset purchasing programme.

Among the points Capital Economics make: Read more

Chris Giles

Three issues should dominate tomorrow’s Bank of England inflation report: changes to the Bank’s economic forecasts; the implications of these changes for monetary policy; and the degree to which the Bank is confident it can offset further fiscal tightening with looser monetary policy.

Will we get clear indications of the Bank’s thinking on these three areas? There is no good reason why not, but a lack of justification for obfuscation doesn’t usually prevent the practice. All three are related so I have used the following decision tree to help my thinking.

In the diagram negative numbers represent the degree of policy loosening implied relative to November, while positive numbers indicate a degree of policy tightening and:

 Read more

The MPC voted to keep the overnight deposit rate and overnight lending rate unchanged at 8.25 per cent and
9.75 per cent, respectively. The discount rate was also kept unchanged at 8.5 per cent.

The Bank of Thailand has agreed to keep the one-day repurchase rate unchanged at 1.25 per cent. The bank saw continued recovery ahead, driven by exports, tourism and consumption but noted that: “Asian economies are likely to recover sooner, giving rise to policy differentials which may lead to more volatile capital flows going forward.” The bank expects inflation to rise in 2010 although upward pressure from demand currently remains low.

The Philippine central bank is signalling a rise in the rates it charges lenders to borrow from the bank.

Bangko Sentral governor Amando Tetangco said he might raise the re-discounting interest rate, used to regulate liquidity by increasing or decreasing the amount of money lent to banks. Currently the rate appears to be at 3.5 per cent. Read more