The synchronous easing of monetary policy in 2020 to prevent the COVID-19 pandemic from triggering a global recession has now unambiguously been replaced by diverging policies as China this week cut its benchmark interest rate for the second consecutive month while another three banks raised rates as they continue to claw back the extraordinary stimulus and normalize policy.
During the third week of 2022, the central banks of Sri Lanka, Ukraine and Paraguay raised their interest rates again, boosting the number of rate hikes so far this year to 10, while Indonesia also began tightening its policy stance by raising the reserve requirement for banks in March, June and September.
And while Norway - the first developed market central bank to raise rates in 2021 - kept its rate steady this week, it confirmed it was still on track to raise rates for the third time in March as the economy continues to improve despite the Omicron variant of COVID-19 and persistent inflationary pressures.
But China, the first major economy to bounce back from the pandemic, this week lowered its Loan Prime Rate (LPR) for the second month in a row as authorities seek to strike the right balance between deflating a bubble in the property sector without causing a credit crunch and an economic downturn.
CHANGES TO POLICY RATE YEAR-TO-DATE
During the past week - week 3 of 2022 - 10 central banks took monetary policy decisions, resulting in 4 changes to policy interest rates as rates were raised three times and cut once.
Year-to-date central banks worldwide have taken 21 monetary policy decisions, with the policy rate lowered 3 times, the rate increased 10 times and the rate left unchanged 8 times.
Cuts to interest rates thus account for 23.1 percent of the 13 changes to the policy rate so far this year, up from 22.2 percent the previous week.
Rate increases account for 76.9 percent of all changes to the policy rate year-to-date, down from 77.8 percent in the previous week.
10 central banks have raised their rates so far this year while 3 have cut rates.
LIST OF 3 RATE CUTS IN 2022 BY 3 CENTRAL BANKS:
Democratic Republic of Congo, South Sudan and China.
LIST OF 10 RATE RISES BY 10 CENTRAL BANKS:
Poland, Uruguay, Argentina, Peru, Romania, Moldova, South Korea, Sri Lanka, Ukraine and Paraguay.
EASING VS TIGHTENING
In addition to raising or lowering the policy rate, central banks also change their monetary policy stance by other tools, such as raising or lowering banks' reserve requirements, asset purchases or changing foreign exchange rates.
Last week (week 3 of 2022) central banks made 8 changes to their overall policy stance, including 4 changes to the policy rate.
Year-to-date 14 central banks have made 18 changes to their monetary policy stance, with 3 moves aimed at easing the policy stance, or 16.7 percent of all changes, down from 20 percent of all changes.
In comparison, in 2021 central banks took 50 steps toward easing their monetary policy stance, which accounted for 24.9 percent of all changes to monetary policy, whereas in 2020 monetary easing steps accounted for 96.3 percent of all changes to monetary policy.
Rate cuts account for 20% of all changes to the monetary policy stance in 2022, compared with 8.5% in 2021.
Decisions aimed at tightening the monetary policy stance account for 83.3 percent of all changes to monetary policy in 2022, up from 80 percent in the previous week but down from 87.0 percent in 2021.
Interest rate increases account for 55.6 percent of all changes to monetary policy year-to -date, down from 70 percent in the previous week and down from 61.7% in 2021.
11 central banks have tightened their monetary policy stance year-to-date while 3 central banks have loosened their policy stance.
CUMULATIVE SIZE OF RATE CUTS 2022: 410 basis points
CUMULATIVE SIZE OF RATE RISES 2022: 800 basis points
NET CHANGE IN RATES 2022: +390 basis points
GLOBAL MONETARY POLICY RATE: 5.55%, up 4 basis point since start of 2022.
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EASIER VS TIGHTER IN PREVIOUS YEARS
2021: 50 central banks tightened monetary policy and 27 eased, global net tightening by 23 central banks.
2020: 10 central banks tightened monetary policy and 93 eased, global net easing by 83 central banks.
2019: 17 central banks tightened monetary policy and 67 eased, global net easing by 50 banks
2018: 43 central banks tightened monetary policy and 32 eased, global net tightening by 11 banks
2017: 28 central banks tightened monetary policy and 34 eased, global net easing by 6 banks
2016: 29 central banks tightened monetary policy and 46 eased, global net easing by 17 banks
2015: 48 central banks tightened monetary policy and 34 eased, global net tightening by 14 banks
2022 MONETARY POLICY CHANGES BY MONTH:
JANUARY:
EASING: Congo, South Sudan and China cut rates.
TIGHTENING: Poland, Uruguay, Argentina, Peru, Romania, Moldova, South Korea, Sri Lanka, Ukraine and Paraguay raise rates. Indonesia to raise reserve requirement in 3 steps.
2022 MONETARY POLICY RATE CHANGES BY MARKETS:
DEVELOPED MARKETS: Central banks in developed markets have decided on monetary policy 3 times in 2022, with all 3 decisions ending in unchanged rates.
EMERGING MARKETS: Central banks in emerging markets have decided on monetary policy 8 times in 2022, with 3 decisions by ending in rate hikes: Poland, Peru and South Korea.
One decision, by China, ended in a rate cut and 4 decisions resulted in unchanged rates.
FRONTIER MARKETS: Central banks in frontier markets have decided on monetary policy 4 times in 2022, with three decisions resulting in rate hikes: Romania, Sri Lanka and Ukraine.
One decision ended with interest rates being maintained.
OTHER MARKETS: Central banks in other markets have decided on monetary policy 6 times in 2022.
4 central banks have raised rates: Uruguay, Argentina, Moldova and Paraguay.
2 central banks have cut rates: Congo and South Sudan.
Central Bank News, which tracks the monetary policy stance of 104 central banks, publishes the following Global Monetary Policy Changes (GMPC), a country-by-country overview of changes to monetary policy.
GMPC aims to capture changes to a wide range of monetary policy instruments, not just key interests rates but also changes to reserve requirements, bond purchases or foreign exchange rates to understand whether the monetary conditions become tighter of easier. GMPC complements Central Bank News' other products, such as the Global Interest Rate Monitor (GIRM), which tracks official policy rates, and Global Monetary Policy Highlights (GMPH), which summarizes interest changes each month. GMPC includes an alphabetical list of countries with changes to their monetary policy.
2022 GMPC
ARGENTINA
Jan 6: benchmark 28-day Leliq rate raised 200 bps to 40.0% as part of a redesign of monetary policy instruments to meet the 2022 goal of setting interest rates that result in a positive real return on investments in pesos, and preserve monetary and exchange rate stability.
CHINA
Jan 20: Loan Prime Rate (LPR) cut 10 bps to 3.70%, the same week the rate on the medium-term lending facility (MLF) was cut by 10 bps to 2.85%.
CONGO
Jan 2: key interest rate cut 100 bps to 7.50%, helping strengthen the financing of the economy in Congolese francs and thus support de-dollarization of the economy amid greater control of inflation.
INDONESIA
Jan 20: To normalize the loose liquidity conditions the rupiah reserve requirement for conventional banks will be gradually raised in three steps. As of March 1, the reserve requirement will be raised 150 bps to 5.0%, then on June 1 it will be raised 100 bps to 6.0% and on Sept. 1 the requirement will be raised 50 bps to 6.5%. BI will provide reserve requirement remuneration of 1.5%.
MOLDOVA
Jan 13: interest rate on short-term monetary policy operations raised 200 bps to 8.50% and ratio on required reserves on leu by 200 bps to 28.0% to temper inflationary pressures and the effects of shocks on the economy.
PARAGUAY
Jan 21: monetary policy rate raised 25 bps to 5.50% but pace of tightening slowed due to a weaker economic outlook from drought and the latest wave of COVID-19 pandemic.
PERU
Jan 6: reference rate raised 50 bps to 3.0% and board expects to continue normalizing monetary policy stance in coming months based on current information.
POLAND
Jan. 4: reference rate raised 50 bps to 2.25% to reduce inflation to its target, with extent of monetary tightening needed to reach goal to depend on new information about inflation, economic growth and the labour market.
ROMANIA
Jan 10: monetary policy rate raised 25 bps to 2.0% as monetary policy is gradually normalizes amid a worsening outlook for inflation in the near term while economic activity came to a standstill in the fourth quarter of 2021 due to a fourth wave of the pandemic, supply bottlenecks and the energy crises.
SOUTH KOREA
Jan 14: base rate raised 25 bps to 1.25% and degree of monetary policy accommodation will be appropriately adjusted as Korean economy is expected to continue its sound growth and inflation to run above the target for a considerable time.
SOUTH SUDAN
Jan 11: central bank rate cut 300 bps to 12.0% and minimum reserve requirement on local deposits 500 bps to 15.0% to achieve 1.0% economic growth in fiscal 2021/22, maintain inflation in single digits at 8.0%, plus/minus 1 percentage points, boost lending to the private sector and increase international reserves.
SRI LANKA
Jan 20: Standing Deposit Facility Rate (SDFR) and Standing Lending Facility Rate (SLFR) raised 50 bps each to 5.50% and 6.50% respectively, and further measures taken to boost foreign exchange reserves to curtail the possible build-up of underlying demand pressures in the economy, which will also help ease pressures in the external sector.
UKRAINE
Jan 20: discount rate raised 100 bps to 10.0% and central bank will continue the cycle of strengthening monetary policy and is ready to act decisively in the event of further implementation of pro-inflationary factors, such as an escalation of the conflict with Russia or further spikes in prices.
URUGUAY
Jan 5: reference rate raised 75 bps to 6.50% and rate expected to be raised by the same magnitude at the next two monetary policy meetings so the rate reaches a neutral level by the beginning of the second quarter.
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