Monetary Policy Week in Review – Sep 2-6, 2013: Mexico surprises as 3 central banks cut, 1 raises, 10 hold rates

    Last week in global monetary policy three central banks cut rates with Mexico once again taking markets by surprise while Sierra Leone and the West African Central Bank also cut rates. Meanwhile, Uganda raised its rate and 10 other central banks maintained their rates.

    The Bank of Mexico’s second rate cut of the year comes against a backdrop of pressure on the currencies of most emerging markets from capital outflows ahead of an expected turning point in U.S. monetary policy, either later this month or in a few months.

    Although Mexico’s peso started to weaken in May, along with other emerging market currencies, the depreciation has been much less than what has been experienced by India, Brazil, Turkey and Indonesia, illustrating that global investors are differentiating  between the underlying economic fundamentals of emerging markets.

    

    Through the first 36 weeks of this year, central banks have cut rates 85 times, or 24.6 percent, of the 345 policy decisions that have been taken by the 90 central banks followed by Central Bank News, marginally down from 24.7 percent the previous week.

    Central banks have raised policy rates 18 times, or 5.2 percent of this year’s policy decisions, up from 5.1 percent the previous week and 4.7 percent two weeks ago, illustrating that the trend in global monetary policy is slowly but surely moving away from lower rates.

    The major emerging markets of Brazil and Indonesia account for seven of this year’s 18 rate rises, Denmark for one rate rise and central banks in frontier and other markets for the remaining.

    Following are the headlines and the link to last week’s 14 stories about monetary policy decisions to give readers a quick recap of events during week 36: 

 - Australia holds rate, repeats will adjust to growth, inflation

 - Uganda raises rate 100 bps to curtail inflation expectations

 - Kenya holds rate, sees risks to economic outlook

 - Sierra Leone cuts rate 300 bps, sees lower inflation

 - Canada holds rate, repeats stimulus to remain in place

 - Poland holds rate, sees steady rate at least until end-2013

 - Japan holds QE target, upgrades economic view slightly

 - Bank of England maintains QE target, bank rate

 - Sweden holds rate, confirms steady rate till end-2014

 - Malaysia holds rate, cites uncertainties to growth, inflation

 - ECB confirms will keep rates low for extended period

 - Tunisia holds rate, says political crises threatens economy

 - W. African cuts by 25 bps, risk from commodity prices

 - Mexico cuts rate 25 bps on slower growth and inflation

LAST WEEK’S (WEEK 36) MONETARY POLICY DECISIONS:

COUNTRY	MSCI	NEW RATE	OLD RATE	1 YEAR AGO
AUSTRALIA	DM	2.50%	2.50%	3.50%
KENYA		8.50%	8.50%	13.00%
SIERRA LEONE		12.00%	15.00%	20.00%
UGANDA		12.00%	11.00%	15.00%
POLAND	EM	2.50%	2.50%	4.75%
CANADA	DM	1.00%	1.00%	1.00%
JAPAN	DM	N/A	N/A	0.10%
MALAYSIA	EM	3.00%	3.00%	3.00%
UNITED KINGDOM	DM	0.50%	0.50%	0.50%
EUROSYSTEM	DM	0.50%	0.50%	0.75%
SWEDEN	DM	1.00%	1.00%	1.25%
TUNISIA	FM	4.00%	4.00%	3.75%
W.AFRICAN STATES		3.50%	3.75%	4.00%
MEXICO	EM	3.75%	4.00%	4.50%

    This week (week 37) 11 central banks are scheduled to hold policy meetings, including those from Mozambique, Croatia, New Zealand Indonesia, South Korea, the Philippines, Serbia, Latvia, Peru, Pakistan and Russia.

COUNTRY	MSCI	DATE	RATE	1 YEAR AGO
MOZAMBIQUE		10-Sep	8.75%	10.50%
CROATIA	FM	11-Sep	6.25%	6.25%
NEW ZEALAND	DM	12-Sep	2.50%	2.50%
INDONESIA	EM	12-Sep	7.00%	5.75%
SOUTH KOREA	EM	12-Sep	2.50%	3.00%
PHILIPPINES	EM	12-Sep	3.50%	3.75%
SERBIA	FM	12-Sep	11.00%	10.50%
LATVIA		12-Sep	2.00%	2.50%
PERU	EM	12-Sep	4.25%	4.25%
RUSSIA	EM	13-Sep	8.25%	8.25%
PAKISTAN	FM	13-Sep	9.00%	10.50%

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