Friday, April 8, 2011

Monetary Policy Week in Review - 9 April 2011

The past week in monetary policy was dominated by two of the world's most influential central banks: the People's Bank of China, and the European Central Bank. Of the banks to change policy settings were; China +25bps to 6.31%, Poland +25bps to 4.00%, Qatar -50bps to 1.00%, Serbia +25bps to 12.50%, the EU +25bps to 1.25%, Peru +25bps to 4.00%, and Denmark +25bps to 1.30%. Those that held rates unchanged were Australia at 4.75%, Japan at 0.10%, and the UK at 0.50%. 

As noted the most influential central bank moves were from the People's Bank of China, and the European Central Bank. The ECB's clearly signalled move to raise its policy rate by 25 basis points was mirrored across a few of the remaining Euro area central banks, with Poland, Serbia, and Denmark raising their policy rates by 25 basis points. The ECB move is also remarkable in that it signals a shift in developed market monetary policy as inflation becomes a challenge for developed markets and not just emerging markets.

On the China rate move, the world's second largest economy has shown high inflation driven by food prices and property prices. The move was the latest in a string of reserve requirement and interest rate increases, as well as some regulatory price control measures. But unlike developed markets, China is probably nearing the end of its tightening cycle with inflation expected to peak in the first half of this year. So a theme to watch could well be the passing of the monetary policy tightening torch to the developed markets. But of course there are still plenty of downside risks to the global economic recovery that could scuttle such plans.

Next week the only major central bank scheduled to announce its monetary policy decision is the Bank of Canada. The BOC is expected to hold its rate at 1.00% on Tuesday and will also release its monetary policy report the following day.


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