Last week 12 central banks took monetary policy decisions with just one bank (Georgia) cutting rates while the other 11 central banks kept rates unchanged (Mozambique, Indonesia, Russia, Ghana, Armenia, Sweden, Botswana, Japan, Korea, Sri Lanka and Chile), reinforcing this year’s trend toward stable policy rates after last year’s hectic pace of monetary easing.
Through the first seven weeks of this year, 77 percent of 65 policy decisions taken by the 90 banks covered by Central Bank News have resulted in unchanged interest rates while 18 percent have resulted in rate cuts.
This compares with 73 percent of decisions in favor of steady rates after six weeks and 21 percent of decisions in favour of rate cuts.
The global economy, and thus the prospect for exports, was seen as steadily improving by central banks in Indonesia, Korea, Sweden, Chile and Japan. A recent rise in global financial markets reflects a similar view of stronger growth.
But optimism is still tempered by lingering uncertainty from the euro area’s fiscal and financial crises and U.S. efforts to cut its deficit and debt.
The Bank of Japan, which has been grappling with deflation and sluggish growth for almost 20 years, said its economy appears to have stopped weakening but it will still have to pursue aggressive monetary easing to boost activity and inflation.
A pickup in China’s economic activity was specifically cited by both Indonesia and Chile as helping growth, illustrating the importance of demand from China to exports from countries worldwide.
Interestingly, three of the 11 central banks that raised interest rates in 2012 took policy decisions last week. Sri Lanka’s policy tightening appears to have paid off with credit growth easing while growth prospects in Ghana are improving.
Russia, however, is still grappling with inflation that is expected to continue last year’s trend and remain above the bank’s target in the first half of this year. The Bank of Russia fears this could become entrenched in inflationary expectations, denting its hard-won inflation fighting credibility.
Both Russia and Japan will be appointing new central bank governors in coming weeks, decisions that will be closely scrutinized by financial markets. Both central banks have been criticized for dragging their feet and not doing enough to boost economic growth.
Heavy rains in recent weeks affected food production across many countries in the Southern Hemisphere, pushing up inflation in Indonesia, Mozambique and Sri Lanka.
LAST WEEK’S (WEEK 7) MONETARY POLICY DECISIONS:
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Next week (week 8) looks quiet, with only three emerging market central banks scheduled to meet: Turkey, Thailand and Colombia.
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