Saturday, November 3, 2012

Monetary Policy Week in Review – Nov. 3, 2012: 7 of 11 central banks ease policy, Czechs join zero-bound club

    Last week in monetary policy saw interest rate decisions by 11 central banks, with four cutting rates (Israel, Hungary, Czech Republic and Uganda), six (Angola, India, Japan, Norway, Tunisia and Romania) keeping rates unchanged and Zambia the lone central bank to raise rates.
    But the stance of global monetary policy stance eased much more than indicated by the number of rate cuts, with two of the banks that held rates - Japan and India - loosening their policy further. Japan, which faces the zero bound dilemma, again boosted the size of its asset purchase program and India cut its Cash Reserve Ratio further to add liquidity to the banking system.
    Norway also found itself in the easing camp by deferring future interest rate rises to 2013 from this year by changing its forward rate path.
    Including these three banks, seven of the 11 banks that took policy decisions last week, or 64 percent, effectively eased their policy stance to counter the weak global economy.
    The Czech Republic had the dubious honor of joining the U.S., Japan and UK in cutting its rate to essentially zero and now faces the challenge of finding other tools to stimulate the economy if needed.
     The Bank of Japan, the pioneer in the use of quantitative easing, not only boosted its asset purchase program by another 11 trillion yen, but also seemed to draw inspiration from the Bank of England and set up a new lending framework to encourage banks to lend more aggressively. It must be noted, however, that Japan’s plan has unlimited funds compared with UK's capped funding scheme.
     Another move that emerged from BOJ's policy meeting was a joint statement with Japan’s government that underlined deep concern over deflation and the need to boost growth to get inflation back up to 1 percent. While the statement could herald new initiatives to stimulate growth, it also triggered some concern over the government's influence over the BOJ.
WEEK 44:
ANGOLA 10.25% 10.25% 10.50%
ISRAEL DM 2.00% 2.25% 3.00%
JAPAN DM 0.10% 0.10% 0.10%
INDIA EM 8.00% 8.00% 8.50%
HUNGARY EM 6.25% 6.50% 6.00%
NORWAY DM 1.50% 1.50% 2.25%
TUNISIA FM 3.75% 3.75% 3.50%
ZAMBIA 9.25% 9.00% N/A
CZECH REPUBLIC EM 0.05% 0.25% 0.75%
ROMANIA FM 5.25% 5.25% 6.25%
UGANDA 12.50% 13.00% 20.00%

NEXT WEEK another 12 central banks are scheduled to decide monetary policy, with the week kicking off with Australia, then shifting to Iceland, Poland, Kenya, South Korea, Sri Lanka, Indonesia and Malaysia, concluding with the ECB, the UK, Serbia and Peru.
Over the weekend, Group of 20 finance minsters and central bank governors will also gather for their second and final meeting in Mexico, but hopes for major initiatives has been dampened as neither U.S. Treasury Secretary Timothy Geithner nor European Central Bank President Mario Draghi will attend.
AUSTRALIA DM 6-Nov 3.25% 4.50%
ICELAND 7-Nov 5.75% 4.75%
POLAND EM 7-Nov 4.75% 4.75%
KENYA FM 7-Nov 13.00% 16.50%
SOUTH KOREA EM 8-Nov 2.75% 3.25%
SRI LANKA FM 8-Nov 7.75% 7.00%
INDONESIA EM 8-Nov 5.75% 6.00%
MALAYSIA EM 8-Nov 3.00% 3.00%
EURO ZONE DM 8-Nov 0.75% 1.25%
UNITED KINGDOM DM 8-Nov 0.50% 0.50%
PERU 8-Nov 4.25% 4.25%
SERBIA FM 8-Nov 10.75% 10.00%


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