“Front load and strong extra financial tightening.”
By Wolf Richter for Wolf Street.
In a move of shock and awe, the Central Bank of Turkey today raised its policy rate, the one-week repo rate, by two percentage points, from 17% to 19%. Economists expected a half-rate increase in that intensity.
The Monetary Policy Committee said in its press release that in view of inflation growth – the inflation rate reached 15.6% in February – it has decided to “tighten the front-load and strong additional monetary tightening.”
And further increases are on the way: “Tight monetary policy stance will be maintained decisively, until strong indicators point to a permanent decline in inflation and price stability, given the final year 2021 forecast target.”
The hard lira – in the last five years, has plunged 60% against the US dollar, even after a 15% rise since the low point in November – hitting a 1.5% jump against the dollar today.
Turkey’s government and corporate sectors have borrowed heavily in foreign currencies, mainly in euros and dollars. It becomes difficult to serve with a debt sinking lira. For the past three years, Turkey has been on the brink of economic crisis.
Other developed economies are now facing similar variations: inflation is rising, their currency needs to be raised, and debt levels have spread from already high levels during the epidemic.
Brazil’s shock and awe rate increased yesterday.
Brazil’s central bank yesterday hammered down 0.75 percentage points, bringing its Celik rate to 2.75%. Rates were expected to rise, but not the Walker-type surprise monster.
And he said the second bigie of the “same dimension” is likely to be “at the next meeting.”
The primary theme in the statement issued by the Rate-Setting Committee (COM) was inflation, and the rate hike was designed to address it. Inflation rose to 2.2% in February from 6.6% in January.
“The steady rise in commodity prices, measured in local currency, affects current inflation and stimulates further increases in the inflation forecast for the coming month, especially through its effects on fuel prices,” he said.
“The various measures of internal inflation are at the level of consistent levels to meet the inflation target,” he said.
And it added that “the committee upholds the diagnosis that the current shock is temporary.” That’s exactly what the Fed has said when inflation figures become dismal in the next few months.
The Bank of Brazil is tightening its monetary policy – as it said it is “participating in the partial normalization process” – as stimulus is no longer needed, GDP will “grow strongly on margins” by the end of 2020, with expectations of inflation rising Aiming at the respective horizon, “and with inflation forecasts” near the upper limit of the 2021 target. “
The Central Bank of Russia meets on Friday: shock and awe for economists, who expect a rate hike?
As of March 19, the Central Bank of Russia is facing a rate of inflation that has risen to 5.7% in February from 5.2% in January, and from 3.7% six months ago – as expected by 27 of the 28 economists polled by Reuters. Is. The policy rate is 25.25%, but communicate in the markets that it will raise the rate soon.
Are these economists underestimating the willingness of the central banks of Turkey and Brazil to underestimate the will of the Bank of Russia to fight inflation? Are they in the treatment of another shock and awe?
Central Bank of Russia’s inflation target is %% and that target was hit in October and is now overshooted by 5..7%. When inflation figures were released on March 11, the Central Bank of Russia said in a statement that “moving forward monetary policy keeps annual inflation close to 4%.”
In this statement, there is nothing to be happy with the overshoot and allow the overshoot to overshoot more, as the Fed would say.
At its last meeting on February 12, Bank of Russia kept its policy rate at a record low of 25.25%, but the statement focused on inflation. “Prices continue to rise at an elevated pace,” he said. Amid calls for “faster and more sustainable stabilization than expected”, supply restrictions will “continue to increase pressure on prices.” And expectations of inflation by homes and businesses were “elevated”.
He further added that the rate hike is on the horizon: “If the situation develops in line with the basic forecast, the Bank of Russia will determine the timeline and pace of a return to neutral monetary policy …”
So what is a “neutral monetary policy”? It will be by% to %%, according to Alexei Zbotkin, deputy governor of the central bank, last week, citing Reuters, and said it became possible as soon as possible.
Following this statement, economists now expect that due to the rate hike at the pre-May or May meeting, on top of the pre-determined groundwork, the Bank of Russia will form an additional foundation at tomorrow’s meeting. So let’s see if Bank Russia f Russia meets those expectations or does it channel Turkey and Brazil and hit economists with a surprising rate hike.
All eyes are on Nigeria.
Food inflation is a particular issue because poor people spend disproportionate amounts of their income on food, and food inflation can be devastating for them.
In Nigeria, the inflation rate in February was 16.5% in January and 13.7% six months ago. Despite rising inflation, Nigeria’s central bank set its policy rate at 11.5% at its January meeting. Nigeria’s economy is currently stable and rising rates could hit the economy harder, but accelerating inflation could make it worse.
The most stringent measures are taken in the Indian markets in Asia. The RBI said no.
India’s inflation rate rose to 0.0% in February from 1.1% in January, with food inflation more than doubling to 9.9%.
At the January meeting, the Reserve Bank of India maintained its benchmark repo rate %%. RBI Governor Shaktikinta Das has stuck to Fed Chair Powell’s line to keep monetary policy right until then to support recovery. And so far, inflation remains in the RBI’s broad target range of 2% to 6%.
But markets are starting to rate extra prices. The three-month government bond yield has risen by about a quarter percentage point since the beginning of January to 3.32% today. Given the three-month period of maturity, the rate responds to the expected move in those three months.
According to Bloomberg, India’s five-year interest rate swap rate has crossed 63 basis points in February. On Wednesday, the five-year exchange rate closed at 5.38%, up from 4.5% in early January. According to Naveen Singh, head of fixed-income trading at Mumbai-based ICICI Securities Primary Dealership, quoted by Bloomberg, the swaps are expected to increase rates by about 1 percentage point next year, which would be the fastest tougher move. Country in Asia.
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