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  • Monetary Policy Week In Review – Jun 30-Jul 4, 2014: Financial Stability Takes On Growing Policy Importance

    The response of central banks to financial instability was front and center of global monetary policy last week, with Sweden's rate cut underscoring how the topic of financial stability has become an integral part of monetary policy since the global financial crises.
    Measures of credit and property prices are likely to become even more central to policy-making in coming years as threats to financial stability worldwide continues to grow unless policy makers start to tackle the ever-growing mountain of debt.
    The Bank for International Settlements (NASDAQ:BIS) threw down the gauntlet to central banks on Sunday, calling on monetary policy to be reoriented toward the slow-moving financial cycle and away from reacting to short-term fluctuations in inflation and economic output.
    One of the consequences of the BIS view is that central banks should be ready to tighten monetary policy when financial imbalances start building up, even if inflation appears to be under control.
    The BIS has for years pointed to the dangers from the growing reliance on debt as an engine of economic growth along with ultra-low interest rates and most observers saw the BIS' annual report as a direct challenge to the current policy stance of major central banks.
    The speech by Janet Yellen, chair of the U.S. Federal Reserve, only three days after the BIS annual meeting in Basel, Switzerland, therefore took on added significance.
    Most observers heard Yellen's speech as a rejection of the BIS view, referring to her statements that "monetary policy faces significant limitations as a tool to promote financial stability," and there is no need for "monetary policy to deviate from a primary focus on attaining price stability and maximum employment."
    But on a closer reading, Yellen agrees with many of the points argued by the BIS, an illustration of how the BIS annual report reflects much of the thinking in central banks worldwide.
    Monetary policy has changed since the 2007-2009 financial crises and the belief that central banks should focus narrowly on inflation and then clean up any mess from a financial crises is dead and buried.
    Tackling the threat to a country's financial stability, whether from domestic or global sources, is now an integral part of monetary policy discussions worldwide, including at the Fed, with central banks using a host of macroprudential measures as the first line of defense.
    But expanding the framework for taking policy decisions to include financial stability in addition to inflation and output takes time.
    "We have made considerable progress in implementing a macroprudential approach in the United States, and these changes have also had a significant effect on our monetary policy discussions," Yellen said.
    The question is not whether monetary policy should respond to treats to financial stability, the issue that faces policy makers is how to gauge these threats and what the optimal policy tool is.
    As Yellen said, "adjustments in monetary policy may, at times, be needed to curb risks to financial stability."
    Her current diagnosis is that the threat from growth in nonfinancial credit and leverage in the financial system is much reduced from past years and the reliance on short-term wholesale funding is significantly lower than before the crises.
    That said, Yellen acknowledged increased risk-taking across the financial system that could trigger more macroprudential measures and the importance of keeping an eye on credit creation, losses by borrowers and a worsening of leverage and liquidity.
    "It is therefore important that we monitor the degree to which the macroprudential steps we have taken have built sufficient resilience, and that we consider the deployment of other tools, including adjustments to the stance of monetary policy, as conditions change in potentially unexpected ways," Yellen said.

    Sweden's Riksbank has been one of the most active central banks in integrating financial stability and monetary policy decisions, with Yellen pointing to the fact that the Riksbank has acknowledged keeping its policy rate "slightly higher" due to financial stability concerns.
    But last week the Riksbank concluded that inflation had now fallen so much that it outweighed the threat from rising household debt and cut its rate by 50 basis points - twice the expected amount.
    As the Riksbank is no longer in charge of overall financial supervision and regulation, all it could do was to appeal to other policy makers to take steps to dampen households' demand for credit.

    LIST OF LAST WEEK'S CENTRAL BANK DECISIONS:

     


    TABLE WITH LAST WEEK'S MONETARY POLICY DECISIONS:

    COUNTRYMSCINEW RATEOLD RATE1 YEAR AGO
    AUSTRALIADM2.50%2.50%2.75%
    ROMANIAFM3.50%3.50%5.00%
    BULGARIAFM0.03%0.05%0.02%
    POLANDEM2.50%2.50%2.50%
    SWEDENDM0.25%0.75%1.00%
    EURO AREADM0.15%0.15%0.50%

    This week (Week 28) 10 central banks will decide on monetary policy, comprising the countries of Ghana, Croatia, Indonesia, Malaysia, South Korea, United Kingdom, Serbia, Peru, Mexico and Mozambique.

    TABLE WITH THIS WEEK'S MONETARY POLICY DECISIONS:

    COUNTRYMSCIDATECURRENT RATE1 YEAR AGO
    GHANA 9-Jul18.00%16.00%
    CROATIAFM9-Jul5.00%6.25%
    INDONESIAEM10-Jul7.50%6.50%
    MALAYSIAEM10-Jul3.00%3.00%
    SOUTH KOREAEM10-Jul2.50%2.50%
    UNITED KINGDOMDM10-Jul0.50%0.50%
    SERBIAFM10-Jul8.50%11.00%
    PERUEM10-Jul4.00%4.25%
    MEXICOEM11-Jul3.00%4.00%
    MOZAMBIQUE 11-Jul8.25%9.00%

    www.CentralBankNews.info

    Jul 06 6:07 PM | Link | Comment!
  • Monetary Policy Week In Review – Jun 16-20, 2014: 3 Central Banks Tighten Policy Amid Heavy Geopolitical Risks

    Last week in global monetary policy Colombia, Namibia and the Philippines tightened their policy stance while minutes from the Bank of England were viewed as hawkish and the U.S. Federal Reserve continued to rein back on its asset purchases.
    Nevertheless, central banks appear remain cautious and reluctant to raise benchmark interest rates out of fear of torpedoing a global economy that is still considered vulnerable to a setback.
    The global economy is at a delicate balancing point after the first half of 2014, with the expansionary forces not fully recovered after a stronger than expected winter chill in the first quarter and considerable geopolitical risks ranging from Iraq through Ukraine.

    Through the first 25 weeks of this year, central banks have now cut their policy rates 26 times while rates have been raised 22 times, illustrating the lack of synchronicity in the global economy.
    The 90 central banks followed by Central Bank News have taken 237 policy decisions so far this year, of which 10.9 percent have favored rate cuts while 9.3 percent have favored rate rises.
    But this year's global trend toward tighter monetary policy is unmistakable despite the recent easing by the European Central Bank (ECB) and the Bank of Japan's (BOJ) injection of liquidity.
    The global monetary policy rate (GMPR), the average rate of 90 central banks, rose to 5.54 percent at the end of last week, up from 5.53 percent at the end of the first quarter and 5.41 percent at the end of 2013.

    LIST OF LAST WEEK'S CENTRAL BANK DECISIONS:

     

    OTHER STORIES:

     

    TABLE WITH LAST WEEK'S MONETARY POLICY DECISIONS:

    COUNTRYMSCINEW RATEOLD RATE1 YEAR AGO
    RUSSIAEM7.50%7.50%8.25%
    BOTSWANA 7.50%7.50%8.50%
    MOROCCOFM3.00%3.00%3.00%
    SRI LANKAFM6.50%6.50%7.00%
    THAILANDEM2.00%2.00%2.50%
    UNITED STATESDM0.25%0.25%0.25%
    GEORGIA 4.00%4.00%4.00%
    NAMIBIA 5.75%5.50%5.50%
    PHILIPPINESEM3.50%3.50%3.50%
    SWITZERLANDDM0.25%0.25%0.25%
    NORWAYDM1.50%1.50%1.50%
    COLOMBIAEM4.00%3.75%3.25%

    This week (Week 26) eight central banks will decide on monetary policy, comprising the countries of Angola, Israel, Armenia, Turkey, Hungary, Albania, Fiji and the Czech Republic.

    The Bank for International Settlements (NASDAQ:BIS), known as the central bankers' bank, will be releasing its annual report on Sunday, June 29.

    TABLE WITH THIS WEEK'S MONETARY POLICY DECISIONS:

    COUNTRYMSCIDATECURRENT RATE1 YEAR AGO
    ANGOLA 23-Jun9.25%10.00%
    ISRAELDM23-Jun0.75%1.25%
    ARMENIA 24-Jun7.25%8.00%
    TURKEYEM24-Jun9.50%4.50%
    HUNGARYEM24-Jun2.40%4.25%
    ALBANIA 25-Jun2.50%3.75%
    FIJI 26-Jun0.50%0.50%
    CZECH REPUBLICEM26-Jun0.05%0.05%

    www.CentralBankNews.info

    Jun 22 5:12 PM | Link | Comment!
  • Monetary Policy Week In Review – Jun 9-13, 2014: Two Central Banks See Lower Global Risks From ECB Easing

    The European Central Bank's (ECB) move to cut rates and add liquidity reverberated through global financial markets last week, pushing down the euro's exchange rate and spurring expectations that it will extend investors' current appetite for international risk.

    The ECB's easing comes at delicate time for global markets.

    Fighting in Iraq is threatening the country's collapse and there are clear signs that U.K. rates will be raised sooner than expected. This has led to speculation that the Federal Reserve - which this week is expected to further reduce asset purchases - could also raise rates earlier than expected.

    Without a fresh dose of liquidity in global financial markets by the ECB, investors' nerves could be tested, with the Reserve Bank of New Zealand's rate rise last week serving as a timely reminder that the days of ultra-low interest rates ultimately will come to an end.

    But for now, the days of risk-on in global financial markets look to be extended, with the central banks of Serbia and Macedonia last week welcoming the ECB's move as helping reduce global risks.

    The Bank of Serbia, which cut its rate for the second time this year, said the ECB's easing "should have a positive impact on liquidity in the international capital markets."

    The National Bank of the Republic of Macedonia, which maintained its rate, said the ECB rate cut had increased the spread between its own currency and the euro, "raising the attractiveness of the domestic currency."

    Through the first 25 weeks of this year, central banks have now cut their policy rates 26 times, or 11.6 percent of this year's 225 decisions by the 90 central banks followed by Central Bank News.

    This is essentially unchanged from 11.7 percent the previous week but up from 10.6 percent at the end of May and 9.6 percent at the end of April, showing how the global trend has shifted toward lower rather than higher interest rates as the global economy has performed weaker than expected.

    The ECB's rate cut, and notably the negative deposit rate and other accommodative measures, is the latest confirmation of how central banks can still find ways to boost liquidity and lower market rates despite policy rates at essentially zero.

    But the ECB's easing, along with the Bank of Japan's (BOJ) continued quantitative easing, is merely postponing the inevitable tightening of global monetary policy.

    The United States continues to whittle down its asset purchases as it slowly moves toward a rate rise and the timeline for a rate rise in the United Kingdom has now pulled forward following Bank of England Governor Mark Carney's warning on Thursday that the first rate hike "could happen sooner than markets currently expect."

    New Zealand's central bank last week raised its rate for the third time in a row and surprised markets by signaling it would continue to tighten despite expectations that it would pause due to a fall in commodity prices and the strong New Zealand dollar.

    With New Zealand's rate rise, central banks in advanced economies now account for 3 of this year's 20 rate rises, or 15 percent. Emerging market central banks have raised rates 10 times, frontier market central banks only once and central banks in other markets 6 times.

    Rate rises account for 8.9 percent of this year's 225 policy decisions, down from 9.2 percent end-May and 10.8 percent end-April.

    LIST OF LAST WEEK'S CENTRAL BANK DECISIONS:

     

    TABLE WITH LAST WEEK'S MONETARY POLICY DECISIONS:

    COUNTRYMSCINEW RATEOLD RATE1 YEAR AGO
    ICELAND 6.00%6.00%6.00%
    CROATIAFM5.00%5.00%6.25%
    NEW ZEALANDDM3.25%3.00%2.50%
    MACEDONIA 3.25%3.25%3.50%
    SERBIAFM8.50%9.00%11.00%
    INDONESIAEM7.50%7.50%6.00%
    KOREAEM2.50%2.50%2.50%
    CHILEEM4.00%4.00%5.00%
    PERUEM4.00%4.00%4.25%
    JAPANDMN/AN/AN/A
    MOZAMBIQUE 8.25%8.25%9.00%

    This week (Week 25) 10 central banks will decide on monetary policy, comprising the countries of Russia, Morocco, Sri Lanka, Thailand, the United States, Georgia, Namibia, the Philippines, Switzerland and Norway.

    TABLE WITH THIS WEEK'S MONETARY POLICY DECISIONS:

    COUNTRYMSCIDATECURRENT RATE1 YEAR AGO
    RUSSIAEM16-Jun7.50%8.25%
    MOROCCOFM17-Jun3.00%3.00%
    SRI LANKAFM18-Jun6.50%7.00%
    THAILANDEM18-Jun2.00%2.50%
    UNITED STATESDM18-Jun0.25%0.25%
    GEORGIA 18-Jun4.00%4.00%
    NAMIBIA 18-Jun5.50%5.50%
    PHILIPPINESEM19-Jun3.50%3.50%
    SWITZERLANDDM19-Jun0.25%0.25%
    NORWAYDM19-Jun1.50%1.50%

    www.CentralBankNews.info

    Jun 15 7:50 PM | Link | Comment!
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