Friday, February 18, 2011

Monetary Policy Week in Review - 19 Feb 2011

Over the past week the central banks of Turkey, Japan, Sweden, Vietnam, Ghana, and Chile all announced monetary policy decisions. The major moves were all monetary policy tightening, with Sweden +25bps, Vietnam +200bps, and Chile +25bps deciding to increase interest rates. Meanwhile the others held steady, with Turkey surprising in pausing its relatively non-conventional monetary policy (i.e. reducing rates to try and weaken the Lira). For Sweden it was a case of monetary policy normalization, but for Vietnam and Chile, it was more about the emerging theme of emerging market inflation.

Indeed, emerging markets inflation is setting itself out as the major theme for 2011, especially as rising energy commodity prices, and a short-medium term spike in food prices is adding a supply-side/price push to inflation. Meanwhile relatively strong economic growth in these economies is also adding to inflationary pressures through rising aggregate demand. So there will likely be many more emerging market monetary policy moves to come this year. There are no major central bank meetings scheduled for next week, however the Bank of England is due to release its previous monetary policy meeting minutes, as is the Bank of Japan.


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