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  • Monetary Policy Week In Review – Aug 18-22, 2014: ECB's Draghi Calls On Euro Area To Prime Fiscal Pumps

    The split in global monetary policy between the world's major central banks was thrown into sharp relief last week as it once again became clear that U.S. and U.K. monetary policy will soon be tightened while the European Central Bank (ECB) launched an impassioned plea for euro area governments to step up to the plate and use fiscal policy to boost faltering demand.
    With growth improving and unemployment falling, last week's minutes from both the U.S. Federal Reserve and the Bank of England (NYSE:BOE), along with the message from Fed Chair Janet Yellen at Jackson Hole, showed that the two banks are inching closer to the point of raising rates for the first time since July 2006 and July 2007, respectively.
    While most of the media attention was focused on Yellen's inaugural speech at the two-day Jackson Hole Economic Symposium - which essentially mirrored the Fed's July minutes released last Wednesday - it was Mario Draghi, ECB president, who really broke new ground.
    Draghi, who in the past has applauded euro zone governments for reducing budget deficits, appeared to have had a change of heart and laid out a case for fiscal policy to help demand now that the ECB has cut rates to close to zero and launched an aggressive package of stimulative measures.
    Although the measures have yet to take effect, Draghi also stressed that the ECB remains ready to adjust its policy stance further, a sign that additional measures are being prepared.
    Since the sovereign debt crises in 2010, which threatened and shook the euro zone to its core, fiscal policy has been "less available and effective, especially compared with other large advanced economies," Draghi said, adding euro area debt in aggregate is not higher than the U.S. and Japan.
    "Thus, it would be helpful for the overall stance of policy if fiscal policy could play a greater role alongside monetary policy, and I believe there is scope for this," Draghi told fellow central bankers during his luncheon address on Friday in Jackson Hole.
    While acknowledging the limits on deficits that are embedded in the euro area's Stability and Growth Pact, Draghi said flexibility within those rules could be used to make room for the cost of urgently needed structural reforms to help boost competitiveness.
    In addition, Draghi said government taxes and expenses should be cut, a move that would help business confidence and private investment in the short term.
    Another initiative is for euro area governments to coordinate their fiscal stance - a sensitive topic especially for German politicians - to "allow us to achieve a more growth-friendly overall fiscal stance for the euro area."
    Finally, Draghi called on a large public investment program on a EU-wide level, backing proposals by the incoming president of the European Commission, the European Union executive.

    LIST OF LAST WEEK'S CENTRAL BANK DECISIONS:

     


    OTHER STORIES LAST WEEK:

     

    TABLE WITH LAST WEEK'S MONETARY POLICY DECISIONS:

    COUNTRYMSCINEW RATEOLD RATE1 YEAR AGO
    NAMIBIA 6.00%5.75%5.50%
    ICELAND 6.00%6.00%6.00%

    This week (Week 35) eight central banks are scheduled to decide on monetary policy: Israel, Angola, Hungary, Turkey, Albania, Fiji, Egypt and Colombia.

    TABLE WITH THIS WEEK'S MONETARY POLICY DECISIONS:

    COUNTRYMSCIDATECURRENT RATE1 YEAR AGO
    ISRAELDM25-Aug0.50%1.25%
    ANGOLA 25-Aug8.75%9.75%
    HUNGARY 26-Aug2.10%3.80%
    TURKEYEM27-Aug8.25%4.50%
    ALBANIA 27-Aug2.50%3.50%
    FIJI 28-Aug0.50%0.50%
    EGYPTEM28-Aug9.25%9.25%
    COLOMBIAEM29-Aug4.25%3.25%

    www.CentralBankNews.info

    Aug 25 1:16 AM | Link | Comment!
  • Monetary Policy Week In Review – Aug 11-15, 2014: 3 Banks Cut As Geopolitical Uncertainty Gnaws At Sentiment

    Last week in global monetary policy three central banks (South Korea, Chile and Armenia) cut their key rates to shore up economic growth amidst deep concern over geopolitical stability, a theme that is now reverberating through financial markets.
    Four of the nine central banks that issued policy statements last week specifically referred to geopolitical developments with the National Bank of Georgia again noting that domestic and external demand had already been impacted and this would further delay what it described as a necessary exit from accommodative monetary policy.
    The impact of international tensions in Ukraine and the Mideast on monetary policy was also referred to by Mark Carney, Bank of England (NYSE:BOE) governor, in his press conference last Wednesday, though at this point it has not had any affect on U.K. policy.
    "I would say it's early days, but it's something we obviously have to monitor and if it becomes an important determinant obviously we'll talk more directly to it," Carney said, adding that geopolitical events can evolve rapidly.
    In addition to Georgia, South Korea, Armenia and Uganda's central banks also referred to geopolitical uncertainties in their policy statements.
    "Financial and commodity markets also remain vulnerable to instability as geopolitical risks remain elevated," the Bank of Uganda said.
    The other recurring theme among central banks was the coming shift in monetary policy in the United States and the U.K., with emerging market central banks continuing to position themselves to avoid a repeat of last summer's "taper tantrum" when global capital reversed course and started flowing out of emerging markets and back to advanced economies.
    "Looking ahead, there are a number of global risks that we need to be wary of, among other things, the normalization of Fed policy and the Bank of England, and the risk of spillovers and spillback from the weakening economy of emerging markets," Bank Indonesia (BI) said.
    Indonesia, along with Turkey, India and South Africa, were among those countries that were most seriously affected by the outflow of capital, with their central banks forced to raise interest rates to project their currencies and rein in accelerating inflation.
    South Korea was less affected by the last year's shift in capital flows, but is still aware of the potential disruptions to global financial markets and economic growth from geopolitical tensions and the coming tightening in U.S. monetary policy.
    "The Committee forecasts that the global economy will sustain its modest recovery going forward, centering around advanced economies, but judges that the possibility exists of its being affected by the changes in global financial market conditions stemming from the shift in the US Federal Reserve's monetary policy stance, by the weakening of economic growth in some emerging market countries and by geopolitical risks," the Bank of Korea (BOK) said last week.

    Boosted by last week's three rate cuts, the 90 central banks followed by Central Bank News have now cut their policy rates 44 times through the first 33 weeks of this year. Fourteen percent of this year's 312 policy decisions have favored rate cuts, up from 12 percent at the end of the first half and 12 percent at the end of the first quarter.
    But the trend toward higher global rates continues to simmer under the surface, with policy rates so far this year raised 33 times, or 10.6 percent of the decisions taken, up from 9.3 percent at the end of June and 8.7 percent at the end of March.

    LIST OF LAST WEEK'S CENTRAL BANK DECISIONS:

     


    TABLE WITH LAST WEEK'S MONETARY POLICY DECISIONS:

    COUNTRYMSCINEW RATEOLD RATE1 YEAR AGO
    ARMENIA 6.75%7.00%8.50%
    GEORGIA 4.00%4.00%3.75%
    MOZAMBIQUE 8.25%8.25%8.75%
    SOUTH KOREAEM2.25%2.50%2.50%
    INDONESIAEM7.50%7.50%7.00%
    UGANDA 11.00%11.00%11.00%
    CHILEEM3.50%3.75%5.00%
    SRI LANKAFM6.50%6.50%7.00%
    BOTSWANA 7.50%7.50%8.00%

    This week (Week 34) only two central banks are scheduled to decide on monetary policy: Namibia and Iceland.

    TABLE WITH THIS WEEK'S MONETARY POLICY DECISIONS:

    COUNTRYMSCIDATECURRENT RATE1 YEAR AGO
    NAMIBIA 20-Aug5.75%5.50%
    ICELAND 20-Aug6.00%6.00%

    www.CentralBankNews.info

    Aug 17 11:31 PM | Link | Comment!
  • Monetary Policy Week In Review – Aug 4-8, 2014: Romania Cuts Rate, Gambia Raises As Uncertainty Looms

    Last week in global monetary policy Romania returned to its easing cycle while Gambia raised rates for the first time this year as central banks worldwide continued to position themselves in an increasingly uncertain international environment.
    In addition to the pending shift in monetary policy in the United States and the United Kingdom, growing tensions in Ukraine and the Middle East now seem to be weighing on investors' mood, with commentators questioning whether the bull market in major stock markets is coming to an end.
    After hitting 5-year lows in early July, the VIX - seen as a proxy for the global financial cycle - is moving higher, potentially foreshadowing a return of volatility in global financial markets.
    Central banks have for months warned that investors may suddenly turn risk adverse and last week the central banks of Romania, India and Serbia joined the chorus.
    The National Bank of Romania, which cut its policy rate by 25 basis points, said the main risks to its outlook stemmed from an increase in the volatility of capital flows in connection with a worsening of investors' risk aversion to emerging market economies from geopolitical tensions, the ongoing cross-border deleveraging and restructuring of some of Europe's banks, "as well as in the context of uncertainty surrounding the impact of possible monetary policy stance adjustments by major central banks worldwide."
    The National Bank of Serbia, which maintained its rate, said this policy decision "took into account the persistent uncertainties emanating from the international environment, which may negatively impact the country's risk premium and foreign capital flows."

    Raghuram Rajan, the respected governor of the Reserve Bank of India which maintained its rates, noted that capital flows into emerging markets had been rising recently.

    "This implies, however, that EMEs remain vulnerable to changes in investor risk appetite driven by any reassessment of the future path of US monetary policy or possible escalation of geopolitical tensions," said Rajan.
    In addition to his warning in RBI's policy statement, Rajan in an interview returned to one of his favourite themes: The lack of international cooperation in monetary policy.
    Speaking with the Central Banking Journal, Rajan said the global economy bears an increasing resemblance to the 1930s when economies tried to pull out of recession at each other's expense.
    But instead of competitive currency devaluations, countries are now using competitive monetary policy easing in a game that he says is bound to end in disaster.
    Now, as then, "demand shifting" has taken the place of "demand creation." As in the 1930s, this lack of coordination is producing spillovers that may be difficult to control and the world's financial system may soon face fresh turbulence with a sudden shift in asset prices.

    LIST OF LAST WEEK'S CENTRAL BANK DECISIONS:

     

    TABLE WITH LAST WEEK'S MONETARY POLICY DECISIONS:

    COUNTRYMSCINEW RATEOLD RATE1 YEAR AGO
    ROMANIAFM3.25%3.50%4.50%
    AUSTRALIADM2.50%2.50%2.50%
    INDIAEM8.00%8.00%7.25%
    THAILANDEM2.00%2.00%2.50%
    UNITED KINGDOMDM0.50%0.50%0.50%
    EURO AREADM0.15%0.15%0.50%
    SERBIAFM8.50%8.50%11.00%
    PERUEM3.75%3.75%4.25%
    ZAMBIA 12.00%12.00%9.75%
    JAPANDMN/AN/AN/A
    GAMBIA 22.00%20.00%18.00%

    This week (Week 33) seven central banks will decide on monetary policy, comprising the countries and jurisdictions of Armenia, Georgia, Mozambique, South Korea, Indonesia, Uganda and Sri Lanka.

    TABLE WITH THIS WEEK'S MONETARY POLICY DECISIONS:

    COUNTRYMSCIDATECURRENT RATE1 YEAR AGO
    ARMENIA 12-Aug7.00%8.50%
    GEORGIA 13-Aug4.00%3.75%
    MOZAMBIQUE 13-Aug8.25%8.75%
    SOUTH KOREAEM14-Aug2.50%2.50%
    INDONESIAEM14-Aug7.50%7.00%
    UGANDA 14-Aug11.00%11.00%
    SRI LANKAFM15-Aug6.50%7.00%

    www.CentralBankNews.info

    Aug 09 11:00 PM | Link | Comment!
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