Last week 12 central banks took
monetary policy decisions with just one bank (Georgia) cutting rates while the
other 11 central banks kept rates unchanged (Mozambique, Indonesia, Russia, Ghana, Armenia, Sweden, Botswana, Japan, Korea, Sri Lanka and Chile), reinforcing this year’s trend
toward stable policy rates after last year’s hectic pace of monetary easing.
Through the first seven weeks
of this year, 77 percent of 65 policy decisions taken by the 90 banks covered
by Central Bank News have resulted in unchanged interest rates while 18 percent
have resulted in rate cuts.
This
compares with 73 percent of decisions in favor of steady rates after six weeks and
21 percent of decisions in favour of rate cuts.
The global economy, and thus
the prospect for exports, was seen as steadily improving by central banks in
Indonesia, Korea, Sweden, Chile and Japan. A recent rise in global
financial markets reflects a similar view of stronger growth.
But optimism is still tempered
by lingering uncertainty from the euro area’s fiscal and financial crises and
U.S. efforts to cut its deficit and debt.
The Bank of Japan, which has
been grappling with deflation and sluggish growth for almost 20 years, said its
economy appears to have stopped weakening but it will still have to pursue
aggressive monetary easing to boost activity and inflation.
A pickup in China’s economic
activity was specifically cited by both Indonesia and Chile as helping growth,
illustrating the importance of demand from China to exports from countries worldwide.
Interestingly, three of the 11
central banks that raised interest rates in 2012 took policy decisions last
week. Sri Lanka’s policy tightening appears to have paid off with credit growth
easing while growth prospects in Ghana are improving.
Russia, however, is still
grappling with inflation that is expected to continue last year’s trend and
remain above the bank’s target in the first half of this year. The Bank of Russia fears this could become entrenched in inflationary expectations, denting
its hard-won inflation fighting credibility.
Both Russia and Japan will be
appointing new central bank governors in coming weeks, decisions that will be
closely scrutinized by financial markets. Both central banks have been
criticized for dragging their feet and not doing enough to boost economic
growth.
Heavy rains in recent weeks affected
food production across many countries in the Southern Hemisphere, pushing up
inflation in Indonesia, Mozambique and Sri Lanka.
LAST WEEK’S
(WEEK 7) MONETARY POLICY DECISIONS:
| COUNTRY | MSCI | NEW RATE | OLD RATE | 1 YEAR AGO |
| MOZAMBIQUE | 9.50% | 9.50% | 15.00% | |
| INDONESIA | EM | 5.75% | 5.75% | 5.75% |
| RUSSIA | EM | 8.25% | 8.25% | 8.00% |
| GHANA | 15.00% | 15.00% | 13.50% | |
| GEORGIA | 4.75% | 5.25% | 6.50% | |
| ARMENIA | 8.00% | 8.00% | 8.00% | |
| SWEDEN | DM | 1.00% | 1.00% | 1.50% |
| BOTSWANA | 9.50% | 9.50% | 9.50% | |
| JAPAN | DM | 0.10% | 0.10% | 0.10% |
| SOUTH KOREA | EM | 2.75% | 2.75% | 3.25% |
| SRI LANKA | FM | 7.50% | 7.50% | 7.50% |
| CHILE | EM | 5.00% | 5.00% | 5.00% |
| COUNTRY | MSCI | MEETING | RATE | 1 YEAR AGO |
| TURKEY | EM | 19-Feb | 5.50% | 5.75% |
| THAILAND | EM | 20-Feb | 2.75% | 3.00% |
| COLOMBIA | EM | 22-Feb | 4.00% | 5.25% |
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