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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