By www.CentralBankNews.info The European Central Bank (ECB) held its key refinancing rate steady at 0.75 percent, as expected, along with its other main rates, the rate on its marginal lending facility and the deposit rate at 1.50 percent and zero percent, respectively.
The ECB, which cut is refi rate by 25 basis points last year, said its president would comment on the bank’s decision at a press conference later today.
The euro area’s inflation rate fell to 1.8 percent in February from January’s 2.0 percent. The ECB targets inflation of below, but close to 2 percent.
The Gross Domestic Product of the 17-nations that make up the euro zone contracted by 0.6 percent in the fourth quarter, the fifth quarterly contraction in a row, for annual shrinkage of 0.9 percent.
BOE holds rate steady, maintains asset purchase target
By www.CentralBankNews.info The Bank of England (BOE) held its official Bank Rate paid on commercial bank reserves steady at 0.5 percent, as widely expected, and maintained its target for asset purchases at 375 billion pounds.
The BOE, which has not changed its benchmark interest rate since March 2009, did not make any further comments in its brief statement apart from saying that minutes of today’s meeting would be published on March 20.
The U.K. central bank had been expected by some economists to increase the size of its asset purchase program after three of it’s nine-member Monetary Policy Committee last month voted to raise the bond-buying program by 25 billion pounds.
Britain’s headline inflation rate was steady in January at 2.7 percent for the fourth month in a row, above the BOE’s 2.0 percent inflation target.
The country’s Gross Domestic Product contracted by 0.3 percent in the fourth quarter from the third quarter, for annual growth of 0.3 percent.
Last month the BOE said it expects the UK economy to slowly recover though risks are weighted to the downside due to the challenges facing the euro area.
Malaysia holds rate, sees modestly higher inflation
By www.CentralBankNews.info Malaysia’s central bank held its benchmark Overnight Policy Rate (OPR) steady at 3.0 percent, as expected, and said that even if inflation is expected to rise this year it is expected to remain modest.
Bank Negara Malaysia (BNM), which has held its policy rate steady since June 2011, said domestic investment activity remains robust and there is continued expansion in private consumption.
“Going forward, this trend is expected to continue,” the BNM said, adding that “the external sector is also expected to improve and provide additional support to the economy.”
Inflation in January rose to 1.3 percent from 1.2 percent in December and the central bank said higher global prices on some food and commodities, along with domestic factors, are expected to raise costs and contribute to higher prices.
However, modest global growth is expected to contain global commodity prices, it added.
“While inflation is expected to rise during the year, the expectation is for it to remain modest,” the central bank said.
Malaysia’s Gross Domestic Product rose by 2.9 percent in the fourth quarter from the third for annual growth of 6.4 percent, up from a rate of 5.3 percent in the third quarter. Malaysia’s economy is expected to expand by 4.5-5.5 percent in 2013.
The global economy is still confronted by uncertainties and there are still risks to sustained recovery.
“While global financial markets have broadly improved, markets remain vulnerable to setbacks and changes in sentiment,” the BNM said.
www.CentralBankNews.info
Central Bank News Link List – Mar 7, 2013: (China) interest rate hikes ‘cannot be ruled out’
By www.CentralBankNews.info Here’s today’s Central Bank News link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don’t miss any important news.
Real-Forex Market Update 7.3.2013
Forex Daily review brought to you by REAL FOREX | www.Real-forex.com
EUR-USD
Date: 06/03/2013 Time: 18:28 Price: 1.3000
Strategy: Short / Long
Graph 4 hours
Quote previous review:
The 1.3000 level of support, combining with the lower lip of the parallel descending channel (lower continuous red line), these two, are formatting a support level for the price movement, while the moving average of the Bollinger bands is being used now as resistance level, continuing its way upwards. A basing above the average price level and an opening of the Bollinger bands, will most likely attract the upper lip of the parallel channel to go down, at the first stage. On the other hand, a breaking of the 1.3000 level, is reasonable to take the price towards the next support level at 1.2892.
Current Review today:
The price got to the lower level than the previousrecord level and has dropped again to check the level of support at 1.3000. Breaking of this highlevel, it is reasonable to assume, will take the price towards the support level at1.2892. However, basing above the level of 1.3000 and a breakthrough level of 1.3100, might create a move in orderto fix the downtrend that has started at the level of 1.3711, between one third and two thirds of it by the Fibonacci bar.
You can see the graph here:
GBP-USD
Date: 06/03/2013 Time: 18:39 Price: 1.5053
Strategy: Short / Long
Graph 4 hours
Quote previous review:
The pair is being close to the increasing structure formation, while the level of 1.5219 is being its testing point level. An outbreak of this and a reasonable price structure, will continue towards the level of 1.5314, according to the Fibonacci correction level of 38.2% , and will move downwards (described by the black broken line). On the other hand, a breaking of the price level at 1.4986 and a continuousdownward movement might signal us about preserving the falling prices structure.
Current Review today:
The price was unsuccessful in its attempt to breakthrough the resistance level of 1.5219, when it creates a lower peak level, and now, it seems to be doing its last move towards the low level of 1.4986. This high levelisalmost proven to continue the downtrend. On the other hand, an increasing strength of the price above the level of 1.4986 and the 1.5219 break through level, might create arising pricestructure, when its first goal, is going to be the last level of 1.5314, which is also a Fibonacci correction level of 38.2% on thedownwards move described by the black broken line.
You can see the graph here:
Indonesia holds rate steady, economy on track in Q1
By www.CentralBankNews.info Indonesia’s central bank held its BI rate steady at 5.75 percent, as expected, saying this is consistent with the bank’s inflation target for this year and 2014, and the economy will expand as forecast in the first quarter.
Bank Indonesia (BI), which cut its rate by 25 basis points last year, said first quarter economic growth will reach a forecast 6.2 percent, mainly supported by strong domestic demand based on improved consumer confidence and purchasing power.
However, there are signs of continued moderation in investment activity that began in the fourth quarter, especially in non-construction.
“On the other hand, exports to many major trading partners, particularly China, the United States and India, is expected to improve,” the BI said in a statement.
For 2013, the central bank said it expects growth in the lower end of a 6.3-6.8 percent range.
Indonesia’s headline inflation rate rose to 5.31 percent in February from January’s 4.6 percent with core inflation at 4.29 percent. The central bank targets inflation of 4.5 percent, plus/minus 1 percentage point.
Indonesia’s Gross Domestic Product contracted by 1.45 percent in the fourth quarter from the third for annual growth of 6.1 percent, slightly down from the third quarter’s rate of 6.17 percent.
Japan holds rate steady at Shirakawa’s final meeting
By www.CentralBankNews.info The Bank of Japan (BOJ) kept its benchmark overnight call rate steady at 0 to 0.1 percent, as widely expected, and repeated that it would “pursue aggressive monetary easing” to meet its new 2.0 percent price stability target by keeping interest rates at virtually zero and buying financial assets.
It was the last BOJ meeting chaired by Governor Masaaki Shirakawa who is being replaced by Haruhiko Kuroda, expected to pursue a much more aggressive strategy to help defeat deflation which has dogged Japan for almost two decades.
In its statement, the BOJ said Japan’s economy had now stopped weakening and overseas economies showed signs of picking up even if they still remain in a phase of deceleration.
“With regard to the outlook, Japan’s economy is expected to level off more or less for the time being, and thereafter, it will return to a moderate recovery path mainly against the background that domestic demand remains resilient partly due to the effects of various economic measures and overseas economies gradually emerge from the deceleration phase,” the BOJ said.
Japan’s Gross Domestic Product contracted by 0.1 percent in the fourth quarter from the third, narrower than the third quarter’s 1.0 percent shrinkage, for an annual fall of 0.1 percent.
Inflation remained negative in January for the eighth month in a row with consumer prices falling by 0.3 percent.
www.CentralBankNews.info
Brazil holds, drops guidance of stable rates for long period
By www.CentralBankNews.info Brazil’s central bank held its benchmark Selic rate steady at 7.25 percent, as expected, and said it would “monitor the microeconomic scenario until its next meeting to then define the next steps in its monetary policy strategy,” omitting the previous guidance that stable monetary conditions for a prolonged period was appropriate.
Banco Central do Brasil also said in its very brief statement that the decision to hold the rate steady was without any bias and all members of the Copom committee had voted in favor of the decision.
In November the central bank froze rates for the first time after 10 consecutive cuts and introduced the statement that keeping rates steady for a “prolonged period” was the most appropriate strategy to ensure that inflation would return to the bank’s target.
This guidance was repeated at the bank’s previous meeting in January, but inflation has continued to accelerate and economic growth is improving, fueling expectations that rates may soon be raised.
Brazil’s inflation rate picked up to 6.15 percent in January from December’s 5.84 percent, the seventh month in a row with rising prices. The central bank targets annual inflation of 4.5 percent, plus/minus 2 percentage points.
Brazil’s Gross Domestic Product rose by 0.6 percent in the fourth quarter from the third for annual growth of 1.4 percent, up from 0.9 percent in the third quarter.
The central bank started cutting interest rates in August 2011 when economic growth began slowing, and slashed rates by a total of 525 basis points between then and November 2012.
Brazil’s economy grew 1.35% in 2012, says central bank
Source: XINHUA | 2013-2-21 | 
ONLINE EDITION
ONLINE EDITION
BRASILIA, Feb. 20 (Xinhua) — Brazil’s economy grew 1.35 percent in 2012, well above the market forecast of 1 percent, estimated the country’s central bank Wednesday.
The official figure will be released by the Brazilian Institute of Geography and Statistics (IBGE) on March 1.
While the central bank’s growth estimate is higher than the market prediction, it still falls short of the government’s 4 percent growth projection announced at the beginning of last year.
The country’s economic activity in December rose 0.26 percent compared with the previous month, lower than November’s 0.57 percent compared with October, indicating an economic slowdown towards the end of last year, according to the bank.
In 2012, the Brazilian government announced a series of measures to stimulate growth, including cutting the central bank’s overnight rate to a record-low 7.25 percent, reducing taxes for industries, increasing credits and lowering prices.
For 2013, the government forecasts a 4 percent gr
The official figure will be released by the Brazilian Institute of Geography and Statistics (IBGE) on March 1.
While the central bank’s growth estimate is higher than the market prediction, it still falls short of the government’s 4 percent growth projection announced at the beginning of last year.
The country’s economic activity in December rose 0.26 percent compared with the previous month, lower than November’s 0.57 percent compared with October, indicating an economic slowdown towards the end of last year, according to the bank.
In 2012, the Brazilian government announced a series of measures to stimulate growth, including cutting the central bank’s overnight rate to a record-low 7.25 percent, reducing taxes for industries, increasing credits and lowering prices.
For 2013, the government forecasts a 4 percent gr
Brazil’s Tombini: Interest Rate Will Be Adjusted as Needed
By Dow Jones Business News, February 19, 2013, 10:02:00 AM EDT
BRASILIA–Brazil’s central bank plans to maintain firm control of inflation and will adjust its interest-rate policy as necessary to do so, central bank president Alexandre Tombini said Tuesday.
Speaking at the unveiling of an administrative cost-cutting program, Mr. Tombini said that the bank remained poised to act on rising prices and that there was no risk
of uncontrolled inflation in Brazil’s economy.
of uncontrolled inflation in Brazil’s economy.“When necessary as determined by the outlook for inflation, the posture of the central bank in relation to monetary policy will be adjusted adequately,” he said.
Mr. Tombini, however, also said that he believed interest rates would tend to vary “within a lower range than in the past.”
Some analysts have speculated that the central bank could act to raise its base Selic interest rate as early as the second quarter of this year after the IPCA consumer-price index topped 6% in the 12 months through January. The inflation rate remains well above the 4.5% centerpoint of the country’s inflation target range.
The Selic rate currently stands at a record low of 7.25%.
Mr. Tombini’s comments Tuesday come after Brazilian Finance Minister Guido Mantega at a meeting of Group of 20 officials late last week said that the country planned to rely on monetary-policy measures rather than foreign-exchange policy measures to maintain inflation under control.
Minister Guido Mantega at a meeting of Group of 20 officials late last week said that the country planned to rely on monetary-policy measures rather than foreign-exchange policy measures to maintain inflation under control.Brazil Anticipates Higher Interest Rates To Control Inflation
BRASILIA, Feb 18 (BERNAMA-NNN- MERCOPRESS) – Brazil’s Finance minister Guido Mantega in Moscow for the G-20 meeting, said that inflation above the government’s target raises a yellow flag and that monetary policy, not the exchange rate, is the right tool to control prices.
“The interest rate isn’t fixed. If you have more worrying inflation, it can move, but this is up to the central bank to decide,” Mantega said in an interview from Moscow. “The government will do what it takes to keep inflation under control.” Inflation which has exceeded the 4.5% target in the past 29 months, quickened to 6.15% in January.
Mantega said the government will not allow the currency to over-appreciate in a bid to rein in consumer prices after the currency strengthened to a nine-month high last week. A stronger currency helps tame inflation by making imports cheaper.
Traders see a 50% chance of policy makers raising the Selic rate to 7.5% from 7.25% in April, Diego Donadio, Latin America strategist at Banco BNP Paribas Brasil SA, said in a telephone interview.
Brazil’s real appreciated 0.4% to 1.9582 per dollar last week, the strongest level since May 10, on speculation the government would allow the currency to appreciate to contain inflation. A drop in U.S. jobless claims also fostered demand for emerging-market assets.
“We will not allow for an over-appreciation of the Real,” Mantega said, adding that the government isn’t thinking of a specific level. “We won’t tolerate abnormal fluctuations”.
Speculation that Brazil was changing policy and seeking a stronger currency to help tame inflation started last month after the central bank surprised the markets with an intervention in swaps to prop up the Real.
The Real rallied to a level stronger than 2 per dollar on Jan. 28 for the first time since July after the central bank renewed US$1.85 billion of currency swaps about to expire, refraining from buying dollars to settle the contracts.
On Jan. 31, the government exempted foreigners from a tax on real-estate funds traded on the stock exchange, spurring speculation that inflows will help sustain the real.
The Brazilian central bank swung in 2012 between selling currency swaps to prevent the Real from falling too quickly and offering reverse currency swaps to protect exporters by keeping the Real from strengthening beyond US$2.
The central bank Monetary Policy Committee, Copom next meeting is scheduled for March 5/6.
WRAPUP-Brazil’s central bank points to new FX trading band
* Real initially rallies as gov’t seen favoring strong FX
* Central bank intervenes to halt currency gains
* Mantega suggests gov’t willing to accept stronger real
* Analysts see new trading band of 1.95-2.05 per dollar
By Walter Brandimarte
RIO DE JANEIRO, Feb 8 (Reuters) – Brazil’s central bank intervened to halt a currency rally on Friday, essentially setting the boundaries of a new informal trading band that government officials hope will help curb inflation without hurting exporters.
The intervention followed a week of intense volatility in the currency market as investors scrambled to figure out how policymakers were adjusting Brazil’s foreign exchange policy. The real, which stabilized around 1.97 per dollar in the afternoon, is now likely to enter the traditional Carnival lull that will halt Brazilian markets for most of next week.
The real was rallying for a second day early on Friday after comments by a number of policymakers, including Finance Minister Guido Mantega, suggested the government was ready to accept a stronger currency to cheapen the price of imported goods and put a lid on inflation.
In an interview with Reuters on Thursday night, Mantega said the real, which last week gained past the level of 2 per dollar for the first time in seven months, “has found a reasonable floating band.”
The minister, who has always defended a weaker real to support exporters, sounded more amenable to a stronger currency as he cited the 1.85-per-dollar threshold as an example of a level that would not be allowed.
His remark was interpreted as a green light for a stronger real, driving the currency more than 1 percent higher early on the day. It added to comments by central bank chief Alexandre Tombini, who on Thursday said he was worried about inflation in the short term.
The real had already gained about 0.8 percent on Thursday as investors speculated the government would use the exchange rate to curb inflation, which is dangerously close to the ceiling of a government target.
Brazil’s currency had lost nearly 30 percent against the dollar between July 2011 and last November, but gained about 8 percent since then.
TOO FAST?
Signs that the government was not happy about the speed of appreciation of the real in the past couple of days were already evident early on Friday, when a source on President Dilma Rousseff’s economic team told Reuters gains had been “somewhat exaggerated.”
After piercing the level of 2 per dollar last week, market analysts estimated the real’s informal trading range, which for months was set at 2.0 to 2.1 per dollar, was shifting to something around 1.95 to 2.05.
Investors, eager to test that theory, pushed the real to a nine-month high of 1.9510 per dollar this morning.
That was when the central bank intervened, offering to sell as much as 30,000 reverse currency swaps – derivative contracts that emulate the sale of dollars in the futures market and are often used by policymakers to weaken the currency.
“They seem to be doing two things: one is to try to slow down the appreciation of the real, but they also seem to be putting a boundary for the real at 1.95 per dollar, at least for now,” said Enrique Alvarez, chief of Latin America research at IDEAglobal in New York.
Further adding to the notion of a new trading band around the level of 2 per dollar, Development Minister Fernando Pimentel told Valor Economico newspaper that a real between 1.96 and 2.05 per dollar would be acceptable to industry.
UPDATE 4-Brazil inflation spike fans bets of interest rate hike
* IPCA index rises 0.86 percent in January
* Monthly inflation highest since April 2005
* Futures market bets on 100 bps hike this year
* Twelve-month inflation edges up to 6.15 percent
* Central bank says it is worried, uncomfortable
By Silvio Cascione
SAO PAULO, Feb 7 (Reuters) - Brazil's inflation accelerated
to the fastest rate in nearly eight years in January, raising
bets of an interest rate hike this year that could complicate
the government's drive to reignite a near-stagnant economy.
The Brazilian currency, the real , also jumped
on the news, hitting a 9-month high against the dollar after
central bank president Alexandre Tombini said he was worried
about inflation.
A central bank source told Reuters that 12-month inflation
will remain slightly above 6 percent through the first half of
2013, dangerously near the 6.5 percent ceiling of the government
target, but that a more stable exchange rate will help inflation
ease "a lot" in the second half of the year.
The country's benchmark IPCA consumer price index
rose 0.86 percent in January, the highest monthly
reading since April 2005, government data showed on Thursday.
In the 12 months through January, inflation
rose to 6.15 percent, the highest reading in a year. The
government targets inflation at 4.5 percent, with a tolerance
margin of plus or minus 2 percentage points.
Interest rate futures rose across the board in the
BM&FBovespa exchange, suggesting more bets that the central bank
would raise its benchmark interest rate by around 100 basis
points this year, according to traders. The rate has been cut to
an all-time low of 7.25 percent to stimulate economic growth.
Low interest rates and a depreciated currency are key
elements of President Dilma Rousseff's plans to boost investment
and output in Brazil's manufacturing industries. Taming
inflation has also been a top priority for her, but January's
number shows she just can't have it all.
"The central bank will tolerate a stronger real in an effort
to limit imported inflation, but this will come at the expense
of a further deterioration in Brazil's external competitiveness,
which will weigh on economic growth," wrote Neil Shearing, chief
emerging markets economist at Capital Economics in London.
In an interview posted on O Globo website, Tombini said he
is feeling uncomfortable.
"Inflation worries us in the short term. It's very
resilient, but it's not out of control," Tombini told O Globo
financial journalist Miriam Leitao.
Asked whether it was time for the central bank to adjust its
monetary policy, Tombini said he is "paying attention to
inflation.".
The Brazilian real strengthened about 1.1 percent to 1.965
reais to the dollar after the publication of Tombini's remarks.
A Reuters poll showed on Wednesday that analysts expected the
real to remain around 2 per dollar for the next 12 months.
Food and cigarettes were the main inflation drivers in
January, though analysts noted accelerating price rises for
nearly three of every four product categories. Core measures
were also stronger than in the same month a year ago, suggesting
the recent inflation spike is not likely to fade quickly.
"If inflation worsens in the next two or three months, that
can lead to a monetary tightening later," said Carlos Kawall,
chief economist at J.Safra in Sao Paulo.
Brazil is alone in its struggle against inflation among the
largest market-friendly Latin American economies. Inflation has
subsided elsewhere in the region, such as in Mexico and Chile,
as a spike in global food prices fades.
The central bank cut interest rates 10 straight times
through October 2012, saying Brazil no longer needed one of the
highest borrowing costs in the world to tame inflation. With low
interest rates as a top priority, the government has been trying
to use other tools to fight price rises, such as tax breaks.
A government-sponsored reduction in electricity power rates
prevented January inflation from reaching 1 percent, said Juan
Jensen, an economist with Tendencias Consultoria in Sao Paulo.
It should also limit the monthly price rise in February,
though annual inflation is expected to remain above 6 percent -
and possibly even breach the target ceiling - by at least
mid-year, economists said.
The government is also mulling tax cuts on food staples,
Rousseff and Finance Minister Guido Mantega said recently. Such
measures will probably force the government to miss a key budget
target this year.
The January IPCA index had been expected to rise 0.84
percent, from an increase of 0.79 percent in December, according
to the median forecast of 31 economists surveyed by Reuters.
Forecasts for the rise ranged from 0.78 to 0.90 percent.
Personal expenses rose 1.55 percent from December; the
category includes cigarettes, whose prices spiked 10.11 percent.
Food prices rose 1.99 percent.
UPDATE 2-Brazil central bank signals more interest rate cuts unlikely
By: Alonso Soto
Brazil Says Monetary Policy Not Best Tool to Lift Growth Now
Brazil’s central bank said additional monetary policy stimulus will fail to boost economic growth that is recovering more slowly than expected due to limited supply.
Policy makers, in the minutes to their Jan. 15-16 meeting published today, said the balance of risks for inflation has worsened and reiterated that the best policy for bringing consumer price increases to the 4.5 percent target is to keep rates at a record low for a “sufficiently prolonged period.”
While inflation is slowing in Mexico and Chile, price pressures are building in Brazil as demand remains robust amid record low interest rates and unemployment. At the same time, a contraction in investment and industrial output is offsetting President Dilma Rousseff’s efforts to revive the slowest growth in three years by stimulating consumption.
The central bank “considers that the recovery of domestic economic activity, which is slower than expected, is essentially due to supply limitations,” the minutes said. “Given their nature, these impediments cannot be addressed by monetary policy, which is by definition an instrument to control demand.”
Swap rates on the contract maturing in January 2015, the most traded in Sao Paulo today, rose five basis points, or 0.05 percentage point, to 7.91 percent at 9:42 a.m. local time. The real strengthened 0.3 percent to 2.0353 per U.S. dollar.
Improve Productivity
The central bank signaled in its minutes that it will stay put on rates and that the government needs to step up measures to improve productivity, said Neil Shearing, chief emerging markets economist at Capital Economics Ltd.
“The minutes reinforce the idea that rates are going nowhere for the time being,” Shearing said in a telephone interview from London. “This puts the ball back in the government’s court and says, ’We’ve done all we can. Your side of the bargain is to improve the supply side of the economy and productivity.’ That requires structural reform measures.”
The bank’s board, led by President Alexandre Tombini, voted unanimously in January to hold the benchmark Selic rate at 7.25 percent for the second straight meeting. While the bank estimates Brazil’s $2.5 trillion economy grew 1 percent last year, the slowest among major emerging markets, policy makers kept borrowing costs steady as food price shocks and consumer demand caused inflation to accelerate faster than economists’ forecasts for the seventh straight month through mid-January.
Fragile Investment
While investments remain fragile due to increased uncertainty and a slow recovery in confidence, domestic demand will continue to be fueled by low interest rates, moderate credit expansion, government social spending and a tight labor market, the central bank said in today’s minutes.
Rousseff today implemented energy price cuts to consumers and industry that were deeper and took effect earlier than expected in a move to increase competitiveness and tame inflation.
The government has also cut taxes on payrolls and consumer goods, eased reserve requirements for banks that provide credit for capital goods investment and announced plans to attract billions of reais in infrastructure investments. So far, the world’s sixth-largest economy has responded unevenly to the stimulus measures.
Retail sales in November increased for the sixth straight month and grew 8.4 percent over the same period last year, while industrial production in November fell for the second time in three months on lower capital goods investments. Analysts covering Brazil have cut their 2013 growth forecasts in 9 of the last 10 weeks, to 3.19 percent, according to the latest weekly central bank survey.
Inflation quickened to 6.02 percent through mid-January, the national statistics agency said yesterday. Annualized consumer price increases have exceeded the central bank’s target for the last 29 months.
To contact the reporters on this story: Matthew Malinowski in Brasilia at [email protected]; Raymond Colitt in Brasilia Newsroom at [email protected]
Brazil Central Bank Faces Credibility Test in Inflation Fight
–Brazil’s January mid-month IPCA-15 jumps on food, service-sector prices
–Rolling 12-month inflation rate tops 6%, above government’s 4.5% target
–Brazil Central Bank needs to tip market on strategy, economist says
By Jeff Fick
RIO DE JANEIRO–Brazil’s consumer price index showed a surprising surge in the first half of January, undermining the credibility of the country’s central bank as Latin America’s largest economy appeared stuck in stagflation.
The mid-month IPCA-15 consumer price index advanced a bigger-than-expected 0.88% through mid-January, up from a 0.69% gain through mid-December, the Brazilian Institute of Geography and Statistics, or IBGE, said Wednesday. More important, the rolling 12-month rate accelerated to 6.02%–rising further above the government’s 4.5% target but within the tolerance band of plus or minus two percentage points. Brazil ended 2012 with inflation of 5.84%, down from 6.5% the previous year.
The upswing in prices at the start of 2013 followed growing inflationary pressures in the second half of 2012 despite sluggish economic growth, raising concerns about whether the Brazilian Central Bank has allowed inflation to get out of control, economists said. The market is no longer buying the central bank’s explanation that temporary price shocks are behind inflationary pressures and a gloomy global economic scenario will drive inflation lower.
January’s inflation imprint “reinforces the perception that inflation is getting worse and worse,” Espirito Santo Investment Bank said in a research report. While food prices continued to climb in the first half of January, a jump in service-sector prices showed thatpressures were broad, the bank said.
Some relief is expected, but it will likely be temporary, economists said. Food prices typically stabilize, or even decline, as harvest season ramps up in the late first and early second quarters, and an expected reduction in electricity rates should shave about a half-percentage point off inflation. But that will only create “a false perception that inflation has improved quickly,” Espirito Santo said.
Complicating matters is a sluggish economy that has not yet responded to record-low interest rates and government stimulus measures. Brazil expected a rebound in the second half of 2012 that never materialized, with the economy expanding at an annualized rate of 2.4% in the third quarter–well below government and market forecasts. Brazil’s economy only grew by about 1% in 2012.
“Brazil is seeing stagflation,” said Tony Volpon, managing director at Nomura Securities International. “We all know stagflation is the worst possible situation for any central bank to be in, and this central bank has made the choice to react on the side of growth.”
The latest inflation figures will also increase the focus on Thursday’s release of minutes from last week’s central bank meeting, which included changes to the post-meeting statement.
The central bank held interest rates steady at a record-low 7.25%, pledging to leave rates at that level for a “sufficiently prolonged period.” But in a distinct change from previous statements, the bank signaled it may be more concerned about growth than inflation. While the bank recognized Brazil’s economic rebound has been “less intense than expected,” central bankers appeared to downplay inflation concerns by saying price risks have increased only “in the short term.”
While the central bank made a decision to act rather than “suffering from deer-in-the-headlights syndrome” when it embarked on a rate-cutting cycle in August 2011, Mr. Volpon said that tilting monetary policy toward growth has allowed inflation expectations to rise above the bank’s mandate of 4.5%. “The strategy has limits, and we’re seeing those limits,” Mr. Volpon said. “Inflation is getting worse and the economy is not going anywhere.”
Inflation expectations have become less important under the leadership of Central Bank President Alexandre Tombini compared with former president Henrique Meirelles. “And that’s a major mistake,” Mr. Volpon said. If the central bank wants to retain what little credibility it has left in the market, there has to be better communication, Mr. Volpon added.
“The central bank needs to tell us what their game plan is,” Mr. Volpon said. “They need to tell us that there is a limit to how far they are willing to let inflation go before they act.”
Nomura expects inflation to end 2013 at 6%, forcing the central bank to start raising interest rates to 8.25% by the end of the year.
BRASILIA: New projections by Brazil’s central bank show a slightly more benign outlook for inflation this year, a government source told Reuters on Tuesday, giving President Dilma Rousseff some breathing room as she tries to revive the sputtering economy.
The bank’s latest projections suggest that an upcoming 20 percent cut in electricity prices should shave a full percentage point off consumer inflation by the end of 2013, the source said, speaking on condition of anonymity.
The bank’s estimate of the electricity cuts’ disinflationary effect is about double that of many private analysts.
The more dovish forecast could make it easier for Rousseff to enact tax cuts and other stimulus measures without worrying about inflation breaching the bank’s target range this year.
Independent economists on average see the IPCA inflation index finishing 2013 at 5.65 percent.
The central bank declined comment.
The bank also anticipates that an imminent rise in gasoline prices will push the IPCA consumer price index about 0.3 of a percentage point higher in 2013, the source said.
That forecast is based on Rousseff’s government authorizing a roughly 7 percent increase in gasoline prices, although no final decision on the actual amount is expected until at least the beginning of February, the source said.
The central bank has declined to publicly release its forecast for the effect higher gasoline prices could have on inflation, because Rousseff has not made a decision yet.
Copyright Reuters, 2013
How to Survive the Coming Generational Storm
By Justice Litle – insideinvestingdaily.com
When you think about Florida what comes to mind?
For me it’s sunshine… golf courses… Lincolns, Buicks and
Cadillacs… big-box “senior living” centers… and, of course,
ubiquitous retirees.
We may make fun of Florida as one big old folks’ home. But by 2030 the average American will be older than the average Floridian is today.
That observation comes from Stan Druckenmiller, one of the most successful money managers of all time.
Now retired — and worth billions — Druckenmiller made a name for
himself running George Soros’ Quantum Fund, as well as his own Duquesne
Capital fund.
It was Druckenmiller, not Soros, who architected the famous sterling
short that “broke the bank of England” in 1992. (Soros was the one who
insisted on betting big on the trade and as the senior manager in the
fund got the media credit.)
Druckenmiller’s long-term track record is astounding. He made average returns of over 30% over more than 30 years. If you had given Druckenmiller $10,000 at the start of his career, it would have compounded to more than $26 million.
To deliver that kind of performance, Druckenmiller had to be skilled
at discerning future trends. And his latest prediction is not a pretty
one. Druckenmiller sees a generational storm coming. In his own words
(via a Bloomberg TV interview):
The seniors have a very, very
powerful lobby. They keep getting more and more transfer payments from
the youth. But the demographics storm is just starting now…
What’s going to happen is we now have
a working population — this is the way entitlements work — where the
current workforce is paying for the benefits of the seniors. Since 2000
we’ve had about 4.5 to 4.8 workers for every retiree. By 2050 that
number will drop to 2.4 workers per retiree…
Supporting retirees without enough workers is like scraping butter over too much bread. Soon enough you run out of butter.
The problem is that today’s seniors are using their political clout
to take more than that which can be reasonably given in the form of
“transfer payments.”
The final result? Disaster. Think of those bankrupt California cities on a nationwide scale.
Druckenmiller doesn’t mince words…
And let me just say one thing. I am
not against seniors, okay. I love seniors. Unfortunately I’m going to be
one in the not-too-distant future. What I am against is current
seniors… stealing from future seniors.
Many of today’s retirees will cry foul at this accusation. They will
point to their long history of faithfully paying into the system. They
will say it’s not their fault that the cupboard is bare. They will say
what is owed is owed.
But regardless of what’s fair and what’s not, Druckenmiller is right. A generational storm is coming. As
tens of millions of baby boomers hit retirement age, the system will
run out of funds with which to pay them what is contractually owed.
Retirees and retiring baby boomers will then cry havoc at the ballot
box. Demagogue politicians will respond. And all hell will break loose.
You need to prepare for this coming generational storm. It will impact every American, regardless of age, opinion or financial status.
Not all investment assets will withstand this storm when it hits full
force. Some areas will warrant avoiding at all costs. Others will do
extremely well.
One asset you definitely won’t want to be caught in, once the storm
hits full force, is U.S. Treasury bonds. When the realization sinks in
how aggressively politicians will be promising the world to boomer
seniors — without being able to pay for it — bonds could transition
from “attractive” to “radioactive.”
If you are heavily invested to the Treasury market, I strongly recommend you reduce your exposure before the coming storm hits.
Carpe Divitiae,
Justice
Editor’s note: I’m putting the final touches on my new advisory, Strategic Wealth Report.
In it I will follow powerful economic “mega trends” like the coming
generational storm in America. And I’ll recommend more concrete ways for
you to play these powerful market forces. The first issue of Strategic Wealth Report will come out in the coming weeks, so keep your eyes peeled…
Final Stages of The Advance on SP 500-The Wave Pattern
By David Banister – markettrendforecast.com
Over at our TheMarketTrendForecast.com service we have been projecting a potential rally pivot at 1552-1576 for many weeks now. The recent drop to 1485 although harrowing, was a normal fibonacci re-tracement of the last major rally leg to 1531 pivot highs. We believe that this 5 wave advance 1343 pivot lows is nearing an end based on mathematics and relationships to prior waves 1-3.
At 1569 the SP 500 would mark a perfect fibonacci relationships to waves 1-3 for this final 5th wave to the upside. In the big picture, we are still working higher off the 1010 pivot lows on the SP 500, and this rally takes 5 full waves to complete. We think we are near wave 3 highs, and wave 4 correction would be up next, followed by another thrust to highs if all goes well this year.
That all said, a multi-week correction and consolidation wave 4 pattern is likely once we pivot at 1552-1576. We should expect this correction to retrace anywhere from 80-100 points on the SP 500, but one week at a time.
See our updated pattern views below, and sign up for free reports or a 33% discount at www.markettrendforecast.com
By David Banister – markettrendforecast.com
