Monetary Policy Week in Review - 1 Jan 2011

The past week was a relatively quiet week, but the central banks of Israel, Indonesia, Taiwan, and the Philippines announced monetary policy decisions. Israel held steady at 2%, the Philippines also held at 6%, and Indonesia kept its rate at 6.5% but announced plans to raise the minimum foreign currency reserve requirements for banks to 5% from the current 1% in March. Taiwan was the only one to change its rate, following the path of its counterpart on the mainland with an interest rate increase; lifting its key rates by 12.5 basis points, which will place the discount rate at 1.625%.

There are no major central bank meetings scheduled for next week, but the US Federal Reserve will release its FOMC meeting minutes from the 14th of December meeting, which may provide interesting reading. Finally, CentralBankNews.info would like to wish you all the very best for 2011, may it be a safe, prosperous and happy year for you.

Source: www.CentralBankNews.info

Article source: http://www.centralbanknews.info/2010/12/monetary-policy-week-in-review-1-jan.html

Monetary Policy Week in Review - 26 Dec 2010

The central banks of Hungary, Japan, Poland, the Czech Republic, Georgia, Uruguay, Russia, and China all announced monetary policy rate decisions in the past week. The main standout was the People's Bank of China, which raised interest rates 25bps, lifting the 1-year lending rate to 5.81% and the 1-year deposit rate to 2.75%. Another notable was Russia, which kept the refi rate at 7.75% but increased the overnight deposit rate by 25bps to 2.75%. Another interesting move was the Magyar Nemzeti Bank of Hungary which raised the benchmark 2-week interest rate 25bps to 5.75%, as a response to government policies - and to the protest of the government of Hungary, which is seeking to rein in the Bank. The other banks that announced decisions held steady for a range of reasons, taking a wait and see approach.

So in some sense the theme of the week was emerging markets tightening. China had already commenced tightening as inflation has recently spiked up (driven mostly by short term food price inflation), and the economy is rocketing along, Brazil and India have both been tightening too as the risks of overheating begin to outweigh the risks of maintaining growth. But Russia is the most recent one to join the tightening club in the emerging markets. So it will be interesting to watch over the next year how these large and powerful emerging markets manage monetary policy in the backdrop of rising inflation and strong growth; and there is a lot riding on them to get it right. There are no major central bank meetings scheduled for next week.

Source: www.CentralBankNews.info

Article source: http://www.centralbanknews.info/2010/12/monetary-policy-week-in-review-26-dec.html

Monetary Policy Week in Review - 18 Dec 2010

In the past week the central banks of Sri Lanka, US, Hong Kong, Norway, Namibia, Sweden, Botswana, Egypt, Switzerland, India, Poland, Turkey, Chile, Columbia all met to review monetary policy settings. There were a few movements in interest rates with those to tighten being: Sweden +25bps and Chile +25bps, while those that dropped rates were: Namibia -75bps, Botswana -50bps, and Turkey -50bps. While the rest held steady, and the US made no alterations to its quantitative easing program. Of those that made changes, Sweden and Chile were on the path to monetary policy normalization, while Namibia and Botswana dropped their rates to try and spur growth, and Turkey's motive was abating hot capital flows and exchange rate effects. With the US holding steady at 0.25% the Hong Kong Monetary Authority also held steady at 0.50% because the Hong Kong Dollar is fixed against the US dollar.

So it was quite a mixed picture on the monetary policy front in the past week, some held at high rates to control inflation, some held at low rates to spur growth, some raised to begin policy normalisation, some cut to spur growth and influence capital flows. And this is probably the theme for 2011 in monetary policy, i.e. a mixed picture as some economies emerge faster out of the crisis, and some emerge slower. Indeed, in emerging markets the threat of high inflation could see volatile monetary policy as policy setters look to tighten to stem inflation, but if tightening too far, could even be forced to reverse measures if it impacts on growth. Next week the only major bank to announce monetary policy will be the Bank of Japan, also the Bank of England will release the minutes of its last monetary policy meeting.

Source: www.CentralBankNews.info

Article source: http://www.centralbanknews.info/2010/12/monetary-policy-week-in-review-18-dec.html

Monetary Policy Week in Review - 11 Dec 2010

This week the central banks of Mauritius, Australia, Canada, Iceland, New Zealand, Serbia, Brazil, Ghana, Korea and the UK all meet to review their monetary policy settings. The only banks to alter rates were Iceland, dropping its key interest rate another -100bps, and Serbia; who raised their rates another +100bps. It was hold steady for all the other banks for reasons such as supporting growth (for the low rates) and holding off inflation (for those with the high rates). But of course another key monetary policy event took place on Friday, with the People's Bank of China deciding to raise the Required Reserve Ratio another 50bps, taking the rate to 18.50% from the 20th of December. Many have been picking that China may even raise interest rates again as inflationary pressures continue to rise, and the Chinese authorities have noted that 2011 will be a "prudent" monetary policy year.

Aside from the case of Serbia and Iceland, the hold steady approach has been dominating as uncertainty and risk balancing takes priority. Countries like New Zealand, Australia, and Canada who have been making some progress to monetary policy normalization have held-off because of global and domestic economic uncertainty, and because the progress of the economic recovery is relatively subdued. Looking forward, the major monetary policy event next week will be the US Federal Open Market Committee meeting, it is more or less a given that rates will remain at 0.25%, but it will be interesting to read their comments and note any remarks around quantitative easing.

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Monetary Policy Week in Review - 4 Dec 2010

This week saw interest rate reviews from a variety of economies, including some key emerging Asia economies, but also one of the biggest developed economic regions. Those that hiked rates included: Pakistan +50bps, Hungary +25bps, Thailand +25bps, and while it didn't review the Selic rate, the Banco Central do Brasil increased the reserve requirements on term deposits to 20% from 15%, and demand deposits to 12% from 8% in effort to address rising inflation and overheating risks. Meanwhile those that held rates included: Saudi Arabia, Vietnam, Congo, Indonesia, and the EU. The European Central Bank also noted in its announcement that it would slightly delay its exit from some of the extraordinary policy measures, and disappointed the markets by not deciding to initiate any asset purchase programs like that of the US federal reserve.

So in terms of themes, the trend of tightening of monetary policy in the fast growing emerging economies continued this week. There was even some criticism that Vietnam and Indonesia should have raised rates given the inflation challenges they face. But of course the emerging market central banks are also dealing with pressures around hot capital flows as their interest rates become more attractive relative to the one and the quarter percent's of the large developed economies. It is likely that emerging markets will continue to lead the developed markets on monetary policy tightening in the year ahead. Speaking of developed markets, next week will be a busy monetary policy week; the Reserve Bank of Australia, the Bank of Canada, the Reserve Bank of New Zealand, and the Bank of England all meet to review policy, with no changes expected.

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