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  • Monetary Policy Week in Review - 14 Jan 2012
    The past week in monetary policy saw interest rate decisions announced by 11 central banks, with just one announcing a change in rates (Chile -25bps to 5.00%).  Those that held rates unchanged were: Sri Lanka 7.00%, Poland 4.50%, Kenya 18.00%, the EU 1.00%, UK 0.50%, Indonesia 6.00%, South Korea 3.25%, Mozambique 15.00%, Peru 4.25%, and Armenia 8.00%.  Also making the news during the week in central banking was reports that Iran's central bank had raised interest rates, and the resignation of Swiss National Bank Chairman, Philipp Hildebrand.

    Following are some of the key quotes from the central banks that announced monetary policy decisions over the past week:
    • European Central Bank (held rate at 1.00%): "Inflation is likely to stay above 2% for several months to come, before declining to below 2%. At the same time, the underlying pace of monetary expansion remains moderate. As expected, ongoing financial market tensions continue to dampen economic activity in the euro area, while, according to some recent survey indicators, there are tentative signs of a stabilisation in activity at low levels. The economic outlook remains subject to high uncertainty and substantial downside risks. In such an environment, cost, wage and price pressures in the euro area should remain modest and inflation rates should develop in line with price stability over the policy-relevant horizon."
    • Banco Central de Chile (dropped rate 25bps to 5.00%): "Domestically, output and demand have evolved in line with forecasts in the latest Monetary Policy Report. The labor market is still tight. The money market has normalized, while financing conditions for some agents are tighter than a few months ago. December's headline and core inflation was higher than expected due to the prices of perishables and other foods and the lagged incidence of the peso depreciation in the fourth quarter of 2011. Inflation expectations remain near the target."
    • Bank Indonesia (held rate at 6.00%):  "Board of Governors views that current BI rate is still consistent with inflation targets, financial system stability, and remains conducive to propel domestic economic expansion amidst global economic uncertainty. In 2011, Indonesian economy showed strong performance with low inflation, higher economic growth, stable exchange rate, and stable financial system. The achievement was supported by various policies implemented by Bank Indonesia and the government."
    • Bank of Korea (held rate at 3.25%): "In Korea, exports have kept up their steady increase, but domestic demand has been subdued with consumption and construction investment decreasing from the previous month. On the employment front, the number of persons employed has sustained its large scale of increase, led by the private sector. The Committee anticipates that domestic economic growth will gradually return to its long-term trend level going forward, after remaining subdued for some time due mostly to the impact of external risk factors."
    • National Bank of Poland (held rate at 4.50%): "In the opinion of the Council, in the medium term inflation will be curbed by gradually decelerating domestic demand amidst fiscal tightening, including reduced public investment spending, and interest rate increases implemented in the first half of 2011, as well as the expected global economic slowdown. The impact  of the situation in the global financial markets on zloty exchange rate together with a possible rise in commodity prices continues to be an upside risk to domestic price developments."

    Looking at the central bank calendar, the week ahead is largely dominated by emerging market central bank action. However it is likely that only Brazil will make a move, likely cutting another 50 basis points. But these banks will likely be wary of the external environment, particularly financial market stress emanating from the Eurozone. Elsewhere the European Central Bank will release its monthly report on Thursday.
      • CAD - Canada (Bank of Canada) expected to hold at 1.00% on the 17th of Jan
      • BRL - Brazil (Banco Central do Brasil) expected to cut 50bps from 11.00% on the 18th of Jan
      • PHP - Philippines (Central Bank of Philippines) expected to hold at 4.50% on the 19th of Jan
      • ZAR - South Africa (South African Reserve Bank) expected to hold at 5.50% on the 19th of Jan
      • MXN - Mexico (Banco de Mexico) expected to hold at 4.50% on the 20th of Jan

    Jan 13 3:50 PM | Link | Comment!
  • 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!
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