Last week seven central banks
took monetary policy decisions with two banks (Hungary and Jamaica) cutting
rates and the remaining five banks (Angola, Israel, Trinidad & Tobago, the
Dominican Republic and Zambia) keeping rates on hold.
The main message from last
week’s policy statements was that the global economy continues to slowly
improve, risk appetite in financial markets is strengthening and inflationary
pressures are contained by weak demand.
But is the global economy
strong enough for central banks to shift from an accommodative stance toward a
more neutral stance without killing the recovery?
The Bank of Israel illustrates the
wait-and-see approach that currently characterizes global monetary policy. Last year’s threat of financial meltdown from
Europe’s debt crises has been averted by a combination of monetary easing and
astute policy guidance. The main issue for many central banks this year is how to nudge interest rates higher without undermining economic confidence.
The Israeli central bank, which
last year cut its rate by 100 basis points as the economy slowed, noted that recent economic indicators were mixed. While an improvement in activity was possible in
January, fourth quarter growth was below previous quarters.
"It is therefore too early to
assess whether this represents a turnaround in economic activity," the BOI
said.
Through the first nine weeks of the year, 76
percent of the policy decisions taken by the 90 banks followed by Central Bank
News have favored unchanged rates, down from last week’s
77 percent.
But 20 percent of decisions have lead to rate cuts,
slightly up from the 19 percent seen after the first eight weeks, showing that
the trend in global monetary policy is still toward more easing.
Emerging market central banks
remain the most active rate cutters, with 26 percent of their deliberations so
far this year leading to rate cuts compared with 22 percent of central banks in
frontier markets.
No central bank in developed
markets has cut rates this year but that is largely because some of the major
ones, such as the Federal Reserve, the Bank of Japan and the Bank of England,
years ago slashed their rates to effectively zero and then started using their balance
sheets to guide rates.
And though much attention is
focused on how the Bank of Japan and the European Central Bank can further stimulate
their economies, the Bank of Israel and the Federal Reserve illustrate that the
global trend is starting to shift toward a more neutral stance.
While Federal Reserve Chairman
Ben Bernanke last week assured financial markets of his commitment to easy
policy, his testimony and the minutes from the previous week were a stark
reminder that the days of quantitative easing are likely numbered.
Another topic in monetary policy last week
was the nomination of new central bank governors in Japan and Hungary, with
both decisions triggering a heated debate over central banks’ independence
along with expectations that the new governors will pursue aggressive
pro-growth policies.
In Tokyo Prime Minister Shinzo Abe
nominated Haruhiko Kuroda as successor to BOJ Governor Masaaki Shirakawa and in
Budapest Prime Minister Viktor Orban picked Gyorgy Matolcsy to replace Andras
Simor.
LAST
WEEK’S (WEEK 9) MONETARY POLICY DECISIONS
| COUNTRY | MSCI | NEW RATE | OLD RATE | 1 YEAR AGO |
| ANGOLA | 10.00% | 10.00% | 10.25% | |
| ISRAEL | DM | 1.75% | 1.75% | 2.50% |
| HUNGARY | EM | 5.25% | 5.50% | 7.00% |
| JAMAICA | 5.75% | 6.25% | 6.25% | |
| TRINIDAD & TOBAGO | 2.75% | 2.75% | 3.00% | |
| DOMINICAN REPUBLIC | 5.00% | 5.00% | 6.75% | |
| ZAMBIA | 9.25% | 9.25% | N/A * | |
* Note: The Bank of Zambia introduced a policy rate in April 2012, replacing money supply targeting.
NEXT WEEK (week
10) features 13 scheduled central bank meetings, including Mauritius,
Australia, Uganda, Poland, Brazil, Canada, Japan, Indonesia, Malaysia, the
European Central Bank, the Bank of England, Peru and Mexico.
| COUNTRY | MSCI | MEETING | RATE | 1 YEAR AGO |
| MAURITIUS | 4-Mar | 4.90% | 4.90% | |
| AUSTRALIA | DM | 5-Mar | 3.00% | 4.25% |
| UGANDA | 5-Mar | 12.00% | 21.00% | |
| POLAND | EM | 6-Mar | 4.00% | 4.50% |
| BRAZIL | EM | 6-Mar | 7.25% | 9.75% |
| CANADA | DM | 6-Mar | 1.00% | 1.00% |
| JAPAN | DM | 7-Mar | 0.10% | 0.10% |
| INDONESIA | EM | 7-Mar | 5.75% | 5.75% |
| MALAYSIA | EM | 7-Mar | 3.00% | 3.00% |
| EURO AREA | DM | 7-Mar | 0.75% | 1.00% |
| UNITED KINGDOM | DM | 7-Mar | 0.50% | 0.50% |
| PERU | EM | 7-Mar | 4.25% | 4.25% |
| MEXICO | EM | 8-Mar | 4.50% | 4.50% |
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