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  • Monetary Policy Week in Review - 7 Jan 2012
    The past week in central banking and monetary policy was relatively quiet, with just 5 central banks announcing interest rate decisions.  Those changing interest rate settings were: Romania -25bps to 5.75%, Bangladesh +50bps to 7.75%, and Cape Verde +150bps to 5.75%.  Those that held rates unchanged were Uganda at 23.00%, and Trinidad & Tobago at 3.00%.  Also making news was the signing into law of sanctions against Iran's central bank by the US, Chinese leaders commenting on the direction of monetary policy in 2012, and the ECB appointing Belgian, Peter Praet, as Chief Economist; replacing the outgoing Jurgen Stark.
    Following are some of the key quotes from the central bankers that announced decisions last week:
    • Romania (cut 25bps to 5.75%):  "The recovery of the Romanian economy has continued – underpinned by favourable dynamics of exports, as well as of industrial and farming output – whereas the growing uncertainties regarding global and European growth amid a worsened global risk appetite and heightened sovereign debt crisis in the euro zone are hindering the short-term outlook for the overall economic activity in Romania."
    • Uganda (held at 23.00%):  "I acknowledge the fact that the long-term solution to controlling inflation rests on addressing the structural constraints and improving productivity, but controlling inflation in the short to medium term is extremely crucial in stimulating this long-term economic growth."
    • Trinidad & Tobago (held at 3.00%):  "While there are signs that credit demand may be increasing, the basis for a sustained economic recovery is still to be established."  The Bank also noted "The increase in the headline inflation rate was mainly attributable to higher food prices. Core inflation, which excludes the impact of food prices, has been relatively well contained for most of 2011, indicative of the overall sluggish demand conditions in the economy."
    • Cape Verde (increased 150bps to 5.75%):  "The unfavorable balance of payments, the persistence of serious financial problems at the international level - in particular in the euro area - which could have impact on the evolution of the economy and domestic economic developments, require the making of monetary policy measures consistent with ensuring exchange rate stability and financial system."

    Looking at the central bank calendar, there's a few key central bank meetings scheduled in the week ahead.  The market will be closely watching the decisions from the Bank of England and ECB; while neither are expected to change policy settings just yet, the statement from the ECB will merit close study.  Also due in the week ahead is China's quarterly data dump, many are picking the PBOC will cut the RRR before Chinese Lunar New Year (23 Jan), and the data may (or may not) provide an additional excuse to move.  The Fed is also scheduled to release its Beige Book economic report on Wednesday.
      • PLN - Poland (National Bank of Poland) expected to hold at 4.50% on the 11th of Jan
      • GBP - UK (Bank of England) expected to hold at 0.50% on the 12th of Jan
      • EUR - EU (European Central Bank) expected to hold at 1.00% on the 12th of Jan
      • IDR - Indonesia (Bank Indonesia) expected to hold at 6.00% on the 12th of Jan

    Jan 06 4:08 PM | Link | Comment!
  • What Will 2012 Bring for Global Monetary Policy?
    The year of 2011 was an interesting and eventful year in monetary policy.  As the chart below shows, the GDP weighted average interest rate of central banks crept up in the first half of the year as commodity prices remained buoyant, economic recoveries showed signs of gaining momentum, and inflation was the key concern in emerging markets.  But this was then followed by a reversal in course in the later part of the year as the specter of the European debt crisis and slowing global growth raised downside risks for growth and price stability, spurring central bankers to cut rates and otherwise ease policy settings.
    So as we enter 2012, it is a worthy and formidable question to ask what will 2012 bring for global monetary policy? Will it be a one way road to lower interest rates as emerging markets like China start to loosen policy? Will there be more non-conventional policy moves like quantitative easing in the US or EU? Or will inflation and growth actually surprise to the upside and catch central bankers off guard?

    At this point we turn it over to our loyal readers to come up with their own predictions for monetary policy in 2012.  Please submit your top 5 predictions for monetary policy and central banking in 2012 in the comments below, or email them to us.  We will post a follow up article with the most popular and controversial predictions, with due attribution and links to blogs where appropriate (or no attribution for those who wish to remain anonymous).

    Dec 27 9:13 PM | Link | Comment!
  • Monetary Policy Week in Review - 24 Dec 2011
    The past week in monetary policy featured decisions from 8 central banks around the world from Europe to Africa.  Those that changed interest rates were; Sweden -25bps to 1.75%, Hungary +50bps to 7.00%, and Russia -25bps to 8.00%.  Meanwhile, those that announced no changed to interest rates were; Morocco 3.25%, Japan 0.10%, the Czech Republic 0.75%, Ghana 12.50%, and Turkey 5.75%.  Brazil also announced some fine tuning measures to the way it pays interest on reserves, effectively further loosening monetary policy settings.

    Many of the central banks which met over the past week made mention of and are particularly wary about the ongoing European sovereign debt crisis, and uncertainty on the global economic growth outlook.  Below are listed some of the key quotes from the central banks that announced monetary policy decisions:
    • Central Bank of Russia (cut rate 25bps to 8.00%):  "The said decision was made considering the assessment of inflation risks and risks to the sustainability of economic growth, including those associated with the global economic uncertainty. Narrowing of the gap between interest rates on the Bank of Russia liquidity providing and absorbing operations is neutral in terms of monetary policy stance. It should contribute to restraining money market rates volatility and strengthening of the interest rate channel of monetary policy transmission to inflation."
    • Hungary (increased rate 50bps to 7.00%):  "The Monetary Council decided to raise the base rate by 50 basis points in view of increased perceptions of the risks associated with the economy and upside risks to inflation. If risk perceptions and the outlook for inflation deteriorate significantly further, it may prove necessary to raise interest rates again."
    • Sweden (cut rate 25bps to 1.75%):  "There is still considerable uncertainty regarding the public-finance problems in, above all, the euro area and several euro countries are expected to implement more stringent fiscal tightening than was previously assumed. Growth in the euro area is therefore expected to be low in the period ahead. However, the global economy as a whole is growing at a relatively good rate."
    • Bank of Japan (held rate at 0-0.10%):  "The pick-up in Japan's economic activity has paused, mainly due to the effects of a slowdown in overseas economies and of the appreciation of the yen.  As for domestic demand, business fixed investment has been on a moderate increasing trend and private consumption has remained firm.  On the other hand, exports and production have remained more or less flat, due in part to the effects of the slowdown in overseas economies and of the yen's appreciation as well as of the flooding in Thailand.  Improvement in business sentiment has slowed on the whole despite steady improvement in domestic demand-oriented sectors."

    There is no major central bank activity scheduled for next week.  Happy holidays to all our loyal readers, and may the new year bring you prosperity and happiness.

    Dec 23 4:57 PM | Link | Comment!
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