Saturday, April 20, 2013

Monetary Policy Week in Review – Apr 20, 2013: One central bank raises rate, 1 cuts as inflation remains sticky

    Last week six central banks took policy decisions with two major banks in emerging markets (Turkey and Brazil) changing their rates in opposite direction while the other four central banks (Canada, Sweden, Mozambique and Sri Lanka) kept rates steady as inflation remains sticky despite weak global growth.
    Brazil’s 25 basis point rate hike - well-flagged and overdue - was significant because it illustrates that inflationary pressures are building in some emerging markets, specifically Asian countries, and central bankers will defend their inflation-fighting credentials.
    Brazil’s move was in contrast to decisions by Canada and Sweden to further push back the time frame for rate rises, showing how the euro area’s severe crises is hampering economic recovery throughout advanced economies while growth in many emerging markets is accelerating.
    While inflation remains an issue in many emerging countries, disinflation – or deflation in the case of Japan - haunts many advanced economies as long unemployment lines holds down wage pressure along with excess industrial capacity.
    Sweden’s Riksbank specifically cited the need to keep policy rates low for longer than forecast because inflation will take longer to return to target than expected. For 2013 inflation is forecast to average a mere 0.1 percent.
    Weaker-than-expected growth is also holding back inflation in Canada, with the Bank of Canada now first expecting inflation to return to target by mid-2015, at least six months later than it expected in January.
   Turkey, which bounced back swiftly from the global financial crises but then was hit by slow growth last year, cut its rate by a larger-than-expected 50 basis points despite inflation above the central bank’s target.
    The latest central bank decisions came as policy makers gathered in Washington D.C. for the annual meeting of the International Monetary Fund.
    While the IMF trimmed its 2013 global growth forecast, it also said the global economy was taking on the characteristics of a three-speed recovery. Growth in emerging and developing markets is still strong, the U.S. is getting back on its feet, but the euro area is continuing to contract with adverse feedback loops between weak banks, weak sovereigns and low economic activity reinforcing each other.
    Through the first 16 weeks of this year, 77 percent of the 147 policy decisions taken by the 90 central banks followed by Central Bank News have lead to unchanged rates, the same ratio as after 15 weeks.
    Globally, 19 percent of policy decisions this year have lead to rate cuts - largely by central banks in emerging economies – unchanged from last week and slightly down from 20 percent the week before then.

MOZAMBIQUE 9.50% 9.50% 13.50%
SRI LANKA FM 7.50% 7.50% 7.75%
TURKEY EM 5.00% 5.50% 5.75%
BRAZIL EM 7.50% 7.25% 9.00%
SWEDEN DM 1.00% 1.00% 1.50%
CANADA DM 1.00% 1.00% 1.00%

Next week (week 17) features nine central bank policy decisions, including Hungary, Namibia, New Zealand, Philippines, Fiji, Japan (including the economic outlook), Mexico, Colombia, and Trinidad and Tobago.

COUNTRY MSCI              DATE               RATE        1 YEAR AGO
HUNGARY EM 23-Apr 5.00% 7.00%
NAMIBIA 24-Apr 5.50% 6.00%
NEW ZEALAND DM 24-Apr 2.50% 2.50%
PHILIPPINES EM 25-Apr 3.50% 4.00%
FIJI 25-Apr 0.50% 0.50%
JAPAN DM 26-Apr 0.00% 0.10%
TRINIDAD & TOBAGO 26-Apr 2.75% 3.00%
MEXICO EM 26-Apr 4.00% 4.50%
COLOMBIA EM 26-Apr 3.25% 5.25%


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