The final week of 2021 ended with another central bank raising its interest rate, boosting the number of rate hikes to 124 - a sharp contrast to 2020s 13 rate hikes and 256 rate cuts - as central banks in 41 countries tightened monetary policy to ensure inflationary pressures, ignited by an economic recovery amidst bottlenecks in global supply chains, remain under control.
The central bank of the Dominican Republic in the Caribbean took the honor as the final monetary authority to raise its rate in 2021, illustrating how universal the trend toward monetary tightening was.
During 2021 central banks took 557 monetary policy decisions, with only 12 percent of all decisions that ended in a change to interest rates leading to a rate cut. (17 rate cuts)
In contrast, 89 percent of all rate changes resulted in rate increases as central banks from Mozambique in Southern Africa to Norway and Iceland in Northern Europe began to unwind the monetary stimulus unleashed in 2020 during the initial waves of the COVID-19 pandemic.
One of the distinguishing features of central banks' response to the pandemic was the use of a vast array of monetary tools - including asset purchases, reserve requirements or low cost loans in addition to rate cuts - to prevent financial and banking systems from freezing up.
But with economies worldwide bouncing back, central banks are now gradually normalizing their monetary policy stance by rolling back these easing measures. But the process is slow and fraught as financial markets have become accustomed to easy monetary conditions.
The global monetary policy rate, or the average interest rate of 104 central banks, ended the year at 5.51 percent, up 1.3 percentage point from end-2020, but remains below 5.69 percent at the end of 2019 and 6.42 percent at the end of 2018.
Below is an overview of monetary policy changes, month-by month, in 2021 followed by changes to monetary policy as carried out by central banks in developed markets, emerging markets, frontier markets, and other markets:
MONETARY POLICY CHANGES BY MONTH:
DECEMBER:
EASING: China cuts reserve requirement, main interest rate and offers low-cost green loans, Taiwan rolls over special credit facility for banks by 6 months,Turkey cuts rate, ECB to increase monthly asset purchases in Q2 and Q3, 2022, Japan extends special Covid-19 financing 6 months, UAE extends several economic support measures and Saudi Arabia extends deferred payment program.
TIGHTENING: Moldova, Georgia, Poland, Brazil, Ukraine, Poland, Pakistan, Armenia, Hungary, Chile, Costa Rica, Norway, United Kingdom, Mexico, Azerbaijan, Russia, Colombia, Jamaica, Paraguay, Czech Republic, Sierra Leone and Dominican Republic raise rates.
USA to reduce asset purchases by $30 billion a month, ECB to end pandemic asset purchases in March 2022 and Japan to end additional purchases of CP and corporate bonds end March, 2022, as scheduled.
NOVEMBER:
EASING: Turkey cuts rate.
TIGHTENING: Australia discontinues yield target on 3-year government bond, the US begins to reduce monthly asset purchases by $15 billion, Hungary ceases using FX swaps to provide forint liquidity and to use new discount bills to help sterilize liquidity, and makes interest rate corridor asymmetric by raising overnight deposit, lending and one-week lending rates.
The following 18 banks raise rates: Poland, Czech Republic, Romania, Mexico, Uruguay, Peru, Jamaica, Hungary, Iceland, South Africa, Pakistan, Ghana, Paraguay, Lesotho, New Zealand, Zambia, Dominican Republic, South Korea and Kyrgyzstan raise rates.
OCTOBER:
EASING: Uganda lets credit relief measures expire but continues with interventions for those sectors that remain under lockdown and liquidity assistance maintained, and Turkey cuts rate.
TIGHTENING: Romania, Moldova, Uruguay, New Zealand, Iceland, Poland, Peru, Chile, Hungary, Paraguay, Russia, Tajikistan, Kazakhstan, Brazil, Zimbabwe, Azerbaijan and Colombia raise rates. Serbia raises rate on reverse repo auctions and cancels repo auctions, Kuwait starts unwinding crises measures, Singapore raises slope of S$ policy band and Canada ends quantitative easing.
SEPTEMBER:
EASING: Australia extends weekly bond purchases of $4B by 3 months, Mozambique lowers reserve requirement, Saudi Arabia extends deferred payment program, and Turkey and Denmark cut rates.
TIGHTENING: Moldova, Ukraine, Peru, Russia, Kazakhstan, Armenia, Azerbaijan, Pakistan, Hungary, Paraguay, Brazil, Norway, Czech Republic, Mexico, Jamaica and Colombia raise rates, ECB reduces asset purchases in Q4 moderately, UAE starts gradual and well-calibrated withdrawal of extraordinary stimulus measures, Iceland raises countercyclical capital buffer and caps debt service-to-income ratios and Dominican Republic starts normalization of monetary policy.
AUGUST:
EASING: Liberia
TIGHTENING: Armenia, Georgia, Brazil, Czech Republic, Uruguay, Mexico, Peru, Sri Lanka, Paraguay, Hungary, Iceland, South Korea and Chile raise rates. Czech Republic also raises countercyclical capital buffer.
JULY:
EASING: China cuts required reserve ratio for all banks, Fiji increases size of disaster and rehabilitations containment facility and Seychelles cuts minimum reserve requirement.
TIGHTENING: Angola, Chile, Belarus, Ukraine, Russia, Kazakhstan, Kyrgyzstan, Hungary, Tajikistan and Moldova raise rates, Israel ends business loan program, Australia trims weekly bond purchases from September, New Zealand ends asset purchases, and Canada trims weekly bond purchases.
JUNE:
EASING: ECB to purchase assets under PEPP at significantly higher pace in Q3 that in first months of year, Japan extends COVID-19 special financing program 6 months until end-March, 2022, Uganda, Democratic Republic of Congo and Seychelles cut rates, Saudi Arabia extends Covid-19 financing support program for micro, small and medium enterprises and Fiji lowers interest rate on disaster and rehabilitation containment facility.
TIGHTENING: Russia, Armenia and Brazil raise rates, Ukraine phases out Covid-19 crises measures, Hungary raises rate and closes crises lending program Funding for Growth Go!, and Czech Republic and Mexico raise rates.
MAY:
EASING: India provides liquidity to health sector, including vaccine and oxygen producers, and launches a second round of government bond purchases in Q2 FY22 and Ghana cuts rate.
TIGHTENING: Armenia, Brazil and Iceland raise rates, Kyrgyzstan reduces excess liquidity in banking system to limit inflationary pressures, Czech Republic raises countercyclical capital buffer, and US Fed winds down corporate bond portfolio.
APRIL:
EASING: Congo and UAE extends pandemic loan program, and Moldova cuts reserve requirements (twice)
TIGHTENING: Belarus, Ukraine, Russia, Kyrgyzstan, Georgia and Tajikistan raise rates and Canada reduces asset purchases.
MARCH:
EASING: United States extends Paycheck Protection Program 3 months, Moldova cuts reserve requirement, Brazil extends temporary cut in reserve requirement, ECB to purchase assets under PEPP at significantly higher pace in Q2, Congo and North Macedonia cuts rates and Mongolia adds further longer-term refinancing.
TIGHTENING: Ukraine raises key rate, Belarus suspends permanent liquidity facility to strengthen control of monetary base and money supply to limit inflation, Georgia raises key rate, United States to cease regular purchases of agency commercial mortgage-backed securities, Brazil raises rate, Turkey raises rate, Russia raises rate and Angola raises rate on liquidity absorption facility.
FEBRUARY:
EASING: Australia boosts purchases of government bonds $100 billion, Mexico cuts its key interest rate, Uganda extends credit relief and liquidity measures and Indonesia cuts its rate.
TIGHTENING: Armenia raises policy rate, Tajikistan raises policy rate and reserve requirements that were cut temporarily last year from April 1 to Dec. 31, 2020, Zambia raises rate, Zimbabwe raises rate, Kyrgyz Republic raises rate and Turkey raises reserve requirement.
JANUARY:
EASING: Romania cut its key rate, Israel announced how much foreign exchange it would purchase in 2021 to deal with the rise in the shekel and thus support the economy while Costa Rica increased the size of its special medium-term lending facility.
TIGHTENING: Mozambique raised its key interest rate due to rising inflation while Angola's central bank began to levy a fee on banks' excess liquidity as it begins to implement a more restrictive monetary policy.
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MONETARY POLICY RATE CHANGES BY MARKETS:
DEVELOPED MARKETS: Central banks in developed markets decided on monetary policy 84 times in 2021, with 4 banks raising rates 6 times: Denmark raised its rate in a technical adjustment while Norway (twice), New Zealand (twice) and United Kingdom raised rates to tighten policy stance. Australia discontinued its bond yield target.
One bank, Denmark, also cuts its rate to defend the peg with the euro.
The other 77 decisions have ended with unchanged rates.
EMERGING MARKETS: Central banks in emerging markets decided on monetary policy 181 times in 2021, with 53 decisions by 13 central banks ending in rate hikes: Turkey (four times) Brazil (seven), Russia (seven), Hungary (seven), Czech Republic (five), Mexico (five), Chile (four), Peru (five), South Korea (twice), Pakistan (three), Colombia (three), Poland (three) and South Africa.
Seven decisions ended in rate cuts (Mexico, Indonesia, Turkey (four) and China), and 121 decisions ended in unchanged rates.
FRONTIER MARKETS: Central banks in frontier markets decided on monetary policy 77 times in 2021, with 2 banks cutting rates (Romania and Ghana) and 5 banks raising rates 12 times: Ukraine (five times), Kazakhstan (three), Sri Lanka, Romania (twice) and Ghana.
The other 63 decisions resulted in unchanged rates.
OTHER MARKETS: Central banks in other markets decided on monetary policy 213 times in 2021, with 19 banks raising rates a total of 53 times: Mozambique, Angola, Armenia (six times),Tajikistan (four), Zambia (twice), Zimbabwe (twice), Kyrgyzstan (four), Belarus (twice), Georgia (four), Iceland (four), Moldova (four), Uruguay (three), Paraguay (five), Azerbaijan (three), Jamaica (three), Lesotho, Dominican Republic (twice), Costa Rica and Sierra Leone.
Rates have been cut 7 times by 5 banks: Congo (three times), North Macedonia, Uganda, Seychelles, and Liberia.
The other 153 decisions resulted in unchanged rates.
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