In addition to lowering their policy interest rates, central banks - especially in emerging markets - are drawing on other weapons in their arsenal, typically macroprudential measures, to respond to the twin challenge of slowing economic growth and capital inflows. Not only do capital inflows tend to push up the value of the currency and thus make exports more expensive, but they also boost local asset prices, such as property and equity prices above a sustainable level.
Thailand finds itself at the center of this issue, with a meeting last Monday between the Bank of Thailand's (BoT) monetary policy committee, government and private sector representatives to discuss an adequate response.
The meeting, which was only been scheduled the week before, lead to speculation that the BoT would cut rates, but this did not occur. The BoT's next scheduled meeting by its monetary policy committee is May 29.
Instead, the BoT has proposed four macroprudential measures to the Thai finance minister, according to press reports, including limiting foreign investors ability to buy some Thai bonds, imposing a fee of foreigners profiting from investing in bonds and compelling foreign investors to hedge their exchange rate risk.
Other ways to deter high capital inflows without raising policy rates and dampening economic activity includes Turkey's decision this week to raise the reserve requirement for foreign currency deposits.
The Philippines has also been experimenting with a similar move in recent months, cutting the rate on the central bank's Special Deposit Account (SDA) facility to make it less attractive for foreign funds to park their money there.

Through the first 20 weeks of this year, 25 percent (or 48) of the 195 policy decisions by the 90 central banks followed by Central Bank News have lead to rate cuts, another weekly increase from 24 percent after 19 weeks and 20 percent after the first 18 weeks.
This week's total rate cuts of 125 basis points boosted the cumulative decline in global policy rates to 2,251 basis points so far this year, pushing the average Global Monetary Policy Rate (GMPR) down to 5.64 percent from 5.66 percent last week and 6.2 percent at the end of 2012.
Most central banks still keep their rates on hold from week-to-week, but it is clear that there has been an acceleration in rate cuts in recent weeks. By the end of this week, 71 of all policy decisions have favoured keeping rates on hold, down from 72 percent last week and 75 percent after the first 16 weeks of this year.

LAST WEEK'S (WEEK 20) MONETARY POLICY DECISIONS:

NEXT WEEK (week 21) features five scheduled central bank policy meetings, including Nigeria, Ghana, Japan, South Africa and Trinidad and Tobago.

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Apart from Australia and Korea, the central banks of Kenya, Belarus, Poland, Georgia, Sri Lanka and Vietnam also cut rates this week. Seven banks held rates steady: Malawi, Norway, theUnited Kingdom, Malaysia, Peru, Egypt and Mozambique.
Gambia was the only central bank to raise rates this week. Four percent of all rate decisions this year have favored rate hikes, a largely stable ratio. It was Gambia's first rate rise this year, reversing two rate cuts in 2012, with the bank citing accelerating inflation, partly due to currency depreciation.

Since the BOJ announced its "new phase of monetary easing" on April 4, central banks' policy rates have tumbled by a cumulative 1,235 basis points, accounting for 58 percent of the total decline in rates so far this year.
Although the decline in policy rates accelerated this week, the total fall this year only amounts to 2,126 basis points, still a far cry from cuts totaling 6,475 in 2012 and 7,517 in 2011. However, the fall in rates does not reflect the true extent of global monetary easing as it doesn't take into account quantitative easing measures.
Through the first 19 weeks of this year, 24 percent of 186 policy decisions taken by the 90 central banks followed by Central Bank News have lead to rate cuts, a sharp increase from 20 percent after the first 18 weeks.
It was the highest number of rate cuts in one week so far this year, pushing down the average Global Monetary Policy Rate (GMPR) to 5.66 percent from 5.70 percent at the end of April and 6.2 percent at the end of 2012.
The majority of this year's policy decisions still favor unchanged rates, but the trend is declining. At the end of this week, 72 percent of all decisions this year were to keep rates steady, down from 77 percent after the first 14 weeks of this year and 75 percent after the first 16 weeks.

LAST WEEK'S (WEEK 19) MONETARY POLICY DECISIONS:

NEXT WEEK (Week 20) features five central bank policy decisions, including Serbia, Indonesia, Iceland, Latvia and Turkey.
On Monday Thailand's finance minister meets with the Bank of Thailand's monetary policy committee, government officials and the private sector to discuss the rise in the Thai baht. Markets are speculating the meeting will result in a rate cut. The next scheduled policy meeting by Bank of Thailand is on May 29.

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Through the first 17 weeks of this year, the overwhelming majority of the world's central banks have kept their rates on hold: 78 percent of the 156 policy decisions taken so far by the 90 central banks followed by Central Bank News have lead to unchanged rates, slightly up from 77 percent after 16 weeks.
Globally, 19 percent of policy decisions this year have lead to rate cuts - largely by central banks in emerging economies - unchanged from last week.
Rate rises are still rare - there have only been six so far this year - but this number is likely to rise in the second half of the year as global growth slowly strengthens and inflationary pressures rise, especially in Southeast Asia.

The only real sinkhole in global growth remains Europe and policy makers from around the world appear to be losing their patience with the euro zone's lack of progress in solving its problems.
Through the barrage of statements and communiques from the IMF and G20 meetings, it is clear that global policy makers have decided that Europe's experiment with harsh austerity has gone far enough. Recession, popular dissatisfaction and growing unemployment bear witness to the strategy's failure.
There was a remarkable confluence of criticism of austerity last week: The validity of the academic work used to underpin pro-austerity policies was questioned; the IMF stressed that fiscal tightening should only occur at a pace that economic recovery can handle - underlining the shift away from its traditional position as an advocate of austerity - while African finance ministers insisted euro zone politicians "work harder and faster" so growth in their own economies isn't undermined.
The bottom line is that the fragile global economic recovery may falter without growth in Europe and this year it's economy is set to contract for the second year in a row.
And the criticism, all too often shouted through the streets of Athens, Madrid, Rome and Lisbon, is finally being heard by a growing number of top policy makers.
Christine Lagarde, IMF managing director, talked of "adjustment fatigue" and growing tensions over the fairness of public policy, while European Commission President Jose Manuel Barroso said the combination of lower spending and higher taxes may have hit the limits of public acceptance and was now contributing to the recession.
But so far the austerity camp seems unbowed and one its leading proponents, German Chancellor Angela Merkel, even had the audacity to up the ante, saying the European Central Bank would have to raise interest rates if its policy was based purely on German conditions.
Although Germany is doing better than many of its euro zone brethren, it's economy is hardly in need of cooling. The German economy shrank by 0.6 percent in the fourth quarter of 2012 from the third quarter and is forecast to grow a mere 0.5 percent in 2013, it's inflation rate fell to 1.4 percent in March, below the ECB's target, and the unemployment rate is 5.4 percent.

LAST WEEK'S (WEEK 17) MONETARY POLICY DECISIONS:

Next week (week 18) features seven central bank policy decisions, including heavyweights the United States, the European Central Bank and India, plus Angola, the Czech Republic, Romania and Uganda.

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Brazil's 25 basis point rate hike - well-flagged and overdue - was significant because it illustrates that inflationary pressures are building in some emerging markets, specifically Asian countries, and central bankers will defend their inflation-fighting credentials.

Brazil's move was in contrast to decisions by Canada and Sweden to further push back the time frame for rate rises, showing how the euro area's severe crises is hampering economic recovery throughout advanced economies while growth in many emerging markets is accelerating.

While inflation remains an issue in many emerging countries, disinflation - or deflation in the case of Japan - haunts many advanced economies as long unemployment lines holds down wage pressure along with excess industrial capacity.

Sweden's Riksbank specifically cited the need to keep policy rates low for longer than forecast because inflation will take longer to return to target than expected. For 2013 inflation is forecast to average a mere 0.1 percent.

Weaker-than-expected growth is also holding back inflation in Canada, with the Bank of Canadanow first expecting inflation to return to target by mid-2015, at least six months later than it expected in January.

Turkey, which bounced back swiftly from the global financial crises but then was hit by slow growth last year, cut its rate by a larger-than-expected 50 basis points despite inflation above the central bank's target.

The latest central bank decisions came as policy makers gathered in Washington D.C. for the annual meeting of the International Monetary Fund.

While the IMF trimmed its 2013 global growth forecast, it also said the global economy was taking on the characteristics of a three-speed recovery. Growth in emerging and developing markets is still strong, the U.S. is getting back on its feet, but the euro area is continuing to contract with adverse feedback loops between weak banks, weak sovereigns and low economic activity reinforcing each other.

Through the first 16 weeks of this year, 77 percent of the 147 policy decisions taken by the 90 central banks followed by Central Bank News have lead to unchanged rates, the same ratio as after 15 weeks.

Globally, 19 percent of policy decisions this year have lead to rate cuts - largely by central banks in emerging economies - unchanged from last week and slightly down from 20 percent the week before then.

LAST WEEK'S (WEEK 16) MONETARY POLICY DECISIONS:

Next week (week 17) features eight central bank policy decisions, including Hungary, Namibia, New Zealand, Philippines, Fiji, Japan (including the economic outlook), Mexico and Trinidad and Tobago.

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Singapore's Monetary Authority, which uses the exchange rate rather than interest rates to control inflation, also left its monetary policy stance unchanged.

Global policy makers, such as the Federal Reserve's Ben Bernanke and Christine Lagarde of the International Monetary Fund, have generally welcomed the BOJ's expansionary move as a welcome contribution to global economic growth.

Stocks markets have also rejoiced while currency markets have pushed down the value of the yen further, a move that may cause friction among Japan's competitors, especially in Asia.

Some of the additional money being pumped into Japan's economy will also find its way into higher-yielding currencies, presenting central banks in those countries with the challenge of managing the inflows to avoid domestic asset bubbles and currency appreciation.

Central banks in South America, such as Peru and Brazil, have been tackling these challenges for some time now and at meeting in Rio de Janeiro 10 of the region's central banks said they were paying "special attention" to global liquidity.

In its statement this week, the Central Bank of Chile again referred to an appreciation of its peso but did not sharpen its language from last month. This was viewed as a signal by the central bank that it is concerned over the currency's level though not worried enough to start intervening, as it last did from January through December 2011.

In addition to Chile, which merely said Japan's quantitative easing was reflected in a depreciation of the yen, South Korea's Monetary Policy Committee didn't mince words, saying the weak yen would contribute to the country's negative output gap.

However, in its latest economic outlook, the Bank of Korea's staff was more balanced, referring to both pluses and minuses from Japan's move.

Posing an upside risk from Japan's move, the BOK outlook said economic growth could be stronger than expected while uncertainty surrounding the value of the yen - diplomatic words for depreciation - posed a downside risk to growth.

The BOK surprised many observers by holding rates steady last week despite the confidence-sapping, sabre-rattling by its northern neighbor and a cut in its growth forecasts. But the bank argued that it was keeping a close eye on the geopolitical risks and the economy was continuing to grow, albeit at a weak level.

Pakistan's central bank laid out its balancing act succinctly. A decline in inflation has given it room to cut rates except for the fact that a rate cut could encourage an outflow of "speculative" capital that is dearly needed to repay foreign loans, including to the International Monetary Fund.

Through the first 15 weeks of this year, 77 percent of the 141 policy decisions taken by the 90 central banks followed by Central Bank News have lead to unchanged rates, the same ratio as after the first 14 weeks.

In fact, this ratio has remained largely stable this year, illustrating how many central banks - excluding those in the major advanced economies - find themselves in a bit of a sweet spot: Economic activity is slowly strengthening while weak global demand is keeping inflation under control.

Globally, 19 percent of policy decisions this year have lead to rate cuts - largely by central banks in emerging economies and Japan as the first central bank in developed markets - down from 20 percent last week.

Of the 27 rate cuts worldwide so far this year, 37 percent have come from central banks in emerging markets, while banks in other unclassified markets, such as Mongolia last week and Georgia in the previous week, have accounted for 44 percent of the cuts.

LAST WEEK'S (WEEK 15) MONETARY POLICY DECISIONS:

NEXT WEEK (week 16) features five central bank policy decisions, including Sri Lanka's meeting that had been tentatively scheduled for last week, Turkey, Brazil, Sweden and Canada.

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The BOJ surprised on two fronts: The massive size of its asset purchases and the radical shift in its policy framework.
Over the next two years, the BOJ aims to purchase some 130 trillion yen of assets (US$1.33 trillion) including government bonds, exchange-traded-funds (ETFs) and real estate investment trusts (REITs), expanding its balance sheet to 290 trillion yen ($2.97 trillion) from 158 trillion at the end of 2012.
On a monthly basis, the BOJ plans to buy some 7 trillion yen ($72 billion) of mainly longer-term Japanese government bonds, which means it will be buying some 70 percent of new debt issued.
To put that into perspective, the U.S. Federal Reserve has bought some $2.5 trillion in mortgage and Treasuries over the last five years and is currently purchasing assets worth $85 billion a month. The Fed's balance sheet is currently $3.2 trillion.
However, the U.S. economy is three times the size of the Japanese economy.
The other novel aspect of the BOJ's "new phase of monetary easing both in terms of quantity and quality" was the change in its operational target.
Instead of focusing on the overnight call rate, it will now focus on the monetary base, a measure that includes coins and notes in circulation and banks' reserves at the BOJ.
The call rate has been largely symbolic since December 2008 when it was cut to 0.10 percent. In October 2010 it was then trimmed to between zero and 0.10 percent and now the BOJ is drawing the ultimate consequence of an impaired interest rate channel and scrapping it altogether.
It remains to be seen whether other central banks, notably the Bank of England, which has held rates at effectively zero for five years, will draw inspiration from the BOJ.
The BOE, which left rates and asset purchase targets unchanged this week, is currently considering introducing economic thresholds as part of its framework and may go even further once its new governor, Mark Carney, takes over in June.

Last week seven central banks took policy decisions with six banks (Australia, Russia, Thailand,Uganda, the United Kingdom and the euro area) keeping rates on hold.
Although Japan is no longer targeting the uncollateralized overnight call rate but rater the monetary base, it is being counted as having cut rates to zero from the previous 0-0.10 percent in order to capture its decision to ease its policy stance.
Through the first 14 weeks of the year, 77 percent of the 133 policy decisions taken by the 90 central banks followed by Central Bank News lead to unchanged rates, the same ratio as after the first 13 weeks.
Globally, 20 percent of policy decisions this year have lead to rate cuts - largely by central banks in emerging economies and now Japan as the first central bank in developed markets - up from 19.0 percent last week.
Of the 26 rate cuts worldwide so far this year, 38 percent have come from central banks in emerging markets, down from 42 percent last week.

LAST WEEK'S (WEEK 15) MONETARY POLICY DECISIONS:

NEXT WEEK (week 15) features six central bank policy decisions, including Sri Lanka's tentatively scheduled meeting, Barbados' first quarter review, and meetings by Poland, South Korea, Indonesia, Serbia, Peru, Chile and Singapore.

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