Global interest rates declined further in February as six central banks cut rates by a total of 150 basis points, pushing the average global monetary policy rate down to 5.86 percent from January’s 5.88 percent and December’s 5.92 percent.
The pace of rate cuts cooled from January when the 90 central banks followed by Central Bank News trimmed rates by a total of 342 basis points, as many central banks start to shift towards a more neutral stance to gauge the impact of last year’s rate cuts, U.S. budget cuts and Europe’s recession.
Only one central bank raised rates in February: Serbia, which has now raised rates by 50 basis points this year, continuing its dogged fight against inflation.
Apart from Denmark, which raised its rate in January for exchange rate reasons, Serbia is the only central bank worldwide to have tightened policy this year, illustrating how weak global demand is keeping inflation at bay and allowing central banks to cut interest rates to stimulate growth.
Declining inflation rates and subdued upward pressure was specifically cited by five of this month’s rate cutters (Georgia, Azerbaijan, Poland, Hungary and Colombia) in their policy statements.
Nevertheless, some central banks are starting to voice concern over inflationary pressures, especially Brazil, Russia and Malaysia, while China has been draining funds from the banking system to temper the rise in inflation.
While there are still major risks to the global economic recovery, the overall picture of the global economy is one of brightening prospects, with the U.S., China and emerging markets growing stronger while Europe is weakening.
The Reserve Bank of Australia (RBA) and the Bank of Israel (BOI) typify those central banks that are in a holding pattern. After last year’s sizable rate cuts, their economies are adjusting with the RBA saying the full impact of “significant easing” is yet to come while the BOI notes it’s too early to tell whether the economy has reached a turning point.
Asia remains the hub for global growth, with a pickup in China’s economic activity cited by both Indonesia and far-away Chile as helping their exports. South Korea, Thailand, Japan and Sweden also noted improving exports.
New Zealand, whose strong currency is helping curtain inflation, is also more upbeat about its economic prospects and keeping a close eye on house prices for any signs of overheating.
INTEREST RATE CUTS, YEAR-TO-DATE IN BASIS POINTS, FEBRUARY 2013:
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