Friday, March 11, 2011

Monetary Policy Week in Review - 12 March 2011

The past week was another busy week in monetary policy, with seven interest rate changes announced around the world. Those that raised interest rates included: Thailand +25bps, Kazakhstan +50bps, Korea +25bps, Serbia +25bps, and Peru +25bps. Meanwhile New Zealand -50bps and Trinidad & Tobago -25bps reduced their main policy rates. Those that reviewed policy settings but held rates included: Sri Lanka, the United Kingdom, Malaysia, and Egypt. In terms of other monetary policy moves Malaysia raised its reserve requirements, while Vietnam increased a couple of its other interest rates. Thus it was a relatively diverse week in terms of the range of decisions and monetary policy settings, but also in the motivation behind the moves.

If there was a theme to all the decisions, it was diversity. But looking through the differences, most economies in question had been experiencing rising inflationary pressures. The key motive for those who increased interest rates was a desire to anchor inflation expectations and avoid the second round effects of rising commodity prices. Meanwhile Trinidad & Tobago and New Zealand were more exceptions; New Zealand dropped rates in response to the earthquake; in order to boost confidence and stimulate economic activity, while Trinidad & Tobago had seen some disinflation and weakening in its economy. The other standout, in the context of the ECB's statement in the previous week, was the UK. The Bank of England made no changes to its policy, in contrast to the ECB - which signaled it may raise rates as soon as April. However the Bank of England doesn't release its meeting minutes until the 23rd of March, so any more detailed analysis of the decision can't practically take place until then.

The major central bank meetings scheduled for next week include: the Bank of Japan, US Federal Reserve Open Market Committee, and the Swiss National Bank. All three are expected to hold policy steady, however there is a possibility that Japan may announce some form of symbolic move in response to the massive earthquake that just hit Japan. In terms of the US FOMC, the accompanying statement will attract a lot of attention as people search for clues on how and when the Fed will exit some of its monetary policy easing programs such as "QEII". So keep checking back here for updates.


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