Friday, June 10, 2011

Monetary Policy Week in Review - 11 June 2011

The past week in central banking saw monetary policy decisions announced by 14 central banks around the world.  Those that increased interest rates were:  Poland +25bps to 4.50%, Brazil +25bps to 12.25%, and South Korea +25bps to 3.25%.  While those that decreased interest rates were: The Bahamas -75bps to 4.50%, and Serbia -50bps to 12.00%.  Meanwhile those that held rates unchanged were: Australia 4.75%, Armenia 8.50%, Croatia 6.00%, New Zealand 2.50%, Indonesia 6.75%, the European Union 1.25%, the United Kingdom 0.50%, Egypt 8.25%, and Peru 4.25%.  While Croatia held its main policy rate at 6.00%, it also cut its discount rate -200bps to 7.00%.

The week saw more watching and waiting from developed markets, with Australia, New Zealand, the EU and UK all holding on to relatively stimulatory monetary policy settings as the macroeconomic situation continues to unfold.  Meanwhile in emerging markets two themes were present: 1. the existing theme of emerging market tightening e.g. the BRIC economy, Brazil, driven by rising inflation from strong aggregate demand and economic activity but also rising commodity prices; and 2. the emerging theme of peaking inflation in certain emerging market economies, this theme was behind the rate cuts in Serbia and the Bahamas, as well as the pause in rate rises in Peru and Indonesia.

The following central banks are due to announce monetary policy decisions next week: Bank of Japan - 14 June (expected to hold at 0.10%), Central Bank of Chile - 14 June (expected to raise 25bps from current 5.00%), Central Bank of Iceland - 15 June (expected to hold at 4.25%), Central Bank of Philippines - 16 June (expected to raise 25bps from current 4.50%), Reserve Bank of India - 16 June (expected to raise 25bps from current 7.25%), and The Swiss National bank - 16 June (expected to hold at 0.25%).  Also on the radar, China announces its inflation figures next week (14th), which are expected to show 5.5% inflation in May, compared to 5.3% in April; this may coincide with a monetary policy action from the People's Bank of China.


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