This week global monetary policy was characterized by heightened activity by smaller central banks, with four (Ukraine, Mozambique, Georgia and Botswana) cutting rates and Armenia raising its rates while the central banks of Indonesia, Chile and Sri Lanka left rates on hold.
Apart from the dominant trend of declining global policy rates, this year has been characterized by a high degree of monetary activism by smaller central banks from frontier markets and other markets with less developed financial sectors.
Of this year’s 80 rate cuts by the 90 central banks followed by Central Bank News, central banks in frontier markets and other smaller markets have accounted for 48 of those cuts, or 60 percent.
In comparison, central banks in emerging markets have accounted for 24 cuts, or 30 percent, of this year’s rate cuts and central banks in developed markets for the remaining 10 percent.
Central banks from frontier markets have taken 102 monetary policy decisions so far this year, with one-third of those decisions resulting in rate cuts, the exact same ratio as central banks from other markets, which took 42 policy decisions.
Worldwide, the 90 central banks followed by Central Bank News have taken 318 policy decisions through week 33 of this year, with 80 decisions resulting in rate cuts, or 25.2 percent, slightly up from 24.5 percent last week.
Policy rates have only been raised 15 times this year, or 4.7 percent.
This week’s policy decisions thus confirm the trend towards easier monetary policy though a growing number of central banks are tighten the reins, illustrated by Indonesia’s decision.
While Bank Indonesia held its benchmark BI rate steady this week, after raising it in June and July, the central bank again tightened policy via four macroprudential and supervisory measures, illustrating the growing number of tools that are available to central banks to carry out more targeted policy.
Bank Indonesia's main initiative this week was to reduce the ceiling on loan-to-deposit ratios (LDR) for commercial banks and increase the secondary reserve requirement in a move to absorb excess liquidity as part of its efforts to curb inflation, which has been fueled by a reduction in government fuel subsidies and a depreciation of the rupiah currency.
Meanwhile, Chile’s central bank also illustrated how the weak global economy continues to weigh on most countries, with the central bank warning for the second month in a row that it may cut rates in coming months if the current trend of weakening exports and demand continues.
LAST WEEK’S (WEEK 33) MONETARY POLICY DECISIONS:
| COUNTRY | MSCI | NEW RATE | OLD RATE | 1 YEAR AGO |
| UKRAINE | FM | 6.50% | 7.00% | 7.50% |
| MOZAMBIQUE | 8.75% | 9.00% | 11.50% | |
| ARMENIA | 8.50% | 8.00% | 8.00% | |
| CHILE | EM | 5.00% | 5.00% | 5.00% |
| GEORGIA | 3.75% | 4.00% | 5.75% | |
| BOTSWANA | 8.00% | 8.50% | 9.50% | |
| INDONESIA | EM | 6.50% | 6.50% | 5.75% |
| SRI LANKA | FM | 7.00% | 7.00% | 7.75% |
Next week (week 34) four central banks are scheduled to hold policy meetings, including Turkey, Namibia, Thailand and Iceland.
The Federal Reserve Bank of Kansas City hosts its annual symposium in Jackson Hole, Wyoming on Aug 22-24 that attracts central bankers and leading economists from around the world.
Traditionally, the symposium features important policy makers and last year speech by Federal Reserve Chairman Ben Bernanke’s helped lay the ground for the Fed’s third round of asset purchases.
But the 2012 symposium became more known for a speech by Professor Michael Woodford of Columbia University that spelled out the advantages of forward guidance – specific statements about the outlook for monetary policy – a tool that since then has been adopted by the Bank of England and the European Central Bank.
It became clear several months ago that Bernanke would not attend the symposium this year – the first year he hasn’t attended since becoming chairman in 2006 - but Janet Yellen, Fed vice chair and a leading contender to succeed Bernanke, will attend.
Other attendants, according to media reports, include Christine Lagarde, IMF managing director, Bank of Japan Governor Haruhiko Kuroda, Central Bank of Brazil Governor Alexandre Tombini and Bank of Mexico Governor Agustin Carstens.
| COUNTRY | MSCI | DATE | RATE | 1 YEAR AGO |
| TURKEY | EM | 20-Aug | 4.50% | 5.75% |
| NAMIBIA | 21-Aug | 5.50% | 5.50% | |
| THAILAND | EM | 21-Aug | 2.50% | 3.00% |
| ICELAND | 21-Aug | 6.00% | 5.75% |
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