Sunday, September 25, 2011

Top 10 Most Extreme Monetary Policy Moves of 2011

Here's a listing of the top ten most extreme monetary policy moves in the year to date of 2011 (as judged by Central Bank News).  To be sure, there's still another quarter of the year to go, and with heightened concerns about global growth and the ongoing European debt crisis the list could yet be expanded.  But for now, let's look over some of the most extreme moves in the year so far in monetary policy:
  1. Belarus Financial Crisis
    The National Bank of the Republic of Belarus has surely set the record for interest rate increases this year, upping its rate a total of 1950 basis points this year to 30% and devaluing the Belarussian ruble, as the country dealt with an economic, financial, credit, and currency crisis.
  2. The Twist
    One of the most anticipated moves of the year was the US Federal Reserve's $400B twist to its quantitative easing program where it plans to sell $400B of shorter term maturities and buy $400B of longer term securities to push down longer term interest rates.
  3. Swiss Franc Floor
    After a series of interventions and serious jawboning the Swiss National Bank finally announced a hard floor on the EUR/CHF exchange rate at 1.20 - the exchange rate moved over 1000 "pips" (basis points) following the announcement.
  4. ECB SMP and the Confidence Crisis
    In the wake of the US downgrade a confidence crisis began to grip markets, the ECB was rumored to be buying the debt of Greece, Portugal and Ireland, but not Spain or Italy. The ECB subsequently capitulated and signaled an expansion of its SMP (Securities Market Program) to include those countries and immediately bought record amounts (EUR 22B that week).
  5. Bank of Japan Earthquake Response
    Following the devastating earthquake and tsunami in Tōhoku, Japan, the Bank of Japan announced an initial 5 trillion yen expansion to its asset purchase program, and launched a 1 trillion loan program for financial insitutions affected by the quake. The Bank expanded the asset purchase program another 10 trillion yen in August to help sustain the recovery.
  6. Vietnamese Hyperinflation
    Vietnam has seen inflation surge past 20 percent this year (22.16% in July), and has announced a string of monetary policy moves to try reign in run-away prices, including 500 basis point increase in the refinancing rate (now 14.00%), reserve ratio hikes, and currency related adjustments.
  7. Brazilian Rate Reversal
    After raising the Selic rate 5 times this year by a total of 175 basis points to 12.50%, the Banco Central do Brasil's Copom dropped the rate by 50 basis points back to 12.00%. This has lead some to speculate the trend of emerging market policy tightening may be starting to turn.
  8. Kiwi Earthquake Insurance
    Following the fatal earthquake in New Zealand's 3rd largest city, the RBNZ "acted pre-emptively" by dropping the OCR by 50 basis points to 2.50%. It made reference to removing the "insurance [interest rate] cut" at its July meeting, however that was contingent on the global financial outlook and exchange rate...
  9. Joint Liquidity Operations
    In a brief statement, the ECB announced joint USD liquidity operations with the US Federal Reserve, Bank of England, Bank of Japan, and Swiss National Bank. While it didn't explain why, most read it as a show of solidarity and cooperation, and an attempt to shore-up European bank liquidity.
  10. 'Chindia' Tightening
    Perhaps the most representative economies in the emerging market monetary policy tightening story were China and India - also two of the largest and most dynamic emerging markets. China chalked up 75 basis points of interest rate hikes, and 300 basis points in RRR hikes, while India upped its rate 200 basis points.


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