Global Monetary Policy Rates - July: Average policy rate steady for 3rd month in row as 4 banks raise rates

    Global monetary policy in July was characterized by tightening by several major emerging market central banks as they responded to a fall in their currencies and a likely build up in inflationary pressures following the U.S. Federal Reserve’s plan to reduce asset purchases later this year.

    The rise in policy rates by Indonesia, Brazil Zambia and Bulgaria and other tightening measures by Turkey and India is unlikely to signal an immediate reversal of this year’s trend toward lower policy rates as global economic growth is still weak and inflation low, allowing for further rate cuts.

    However, it is clear that this year’s trend toward lower rates is slowing as global economic prospects look to be improving.  Europe, the global economy’s Achilles heel in recent years, appears to be turning the corner, the U.S. economy is continuing its slow but steady expansion, Japan may finally be putting two decades of stagnation behind it and China’s slowdown may be bottoming out.

    For the third month in a row the Global Monetary Policy Rate (GMPR) – the average policy rate of the 90 central banks followed by Central Bank News - was steady at 5.65 percent in July, the same as in June and May.

    This compares with a GMPR of 5.77 percent in April, 5.85 percent in January and a 2012 average policy rate of 6.2 percent.

    The initial effect of the outflow of capital from major emerging markets, which followed a reassessment of global risks, was to take rate cuts off the agenda for several emerging market central banks, especially those like India and Turkey that are struggling with current account deficits and weakening economic growth.

    Brazil, Indonesia and Zambia were already heading down the path of tightening so currency depreciation just added fuel to the fire. Brazil had already raised rates in April and May, Indonesia was expected to tighten due to inflationary pressures from a long-awaiting government move to scrap fuel subsidies, and Zambia had already raised rates in June to contain inflation.

     The four rate increases in July by Indonesia, Brazil, Zambia and Bulgaria totaled 126 basis points. This compares with rate cuts of 190 basis points by six central banks, the lowest number of monthly rate cuts so far this year. 

    In total, global policy rates were cut by a net 64 basis points in July, sharply below cuts of 476 points in June or 749 points in April, the highest in any month this year. The central banks that cut rates in July included Hungary, Poland, Albania, Latvia, Tajikistan and Romania.

    Other signs pointing to a coming trend reversal came from New Zealand’s central bank which surprisingly adopted a tightening bias, putting it on course to become the first developed market central bank to raise rates since early 2011.

   

                                        GLOBAL MONETARY POLICY RATES (GMPR) 

                                  (Changes in July 2013 and year-to-date, in basis points)

COUNTRY	MSCI	JULY	YTD
RATE CUTS:
BELARUS			-650
SIERRA LEONE			-500
MONGOLIA			-275
KENYA	FM		-250
VIETNAM	FM		-200
HUNGARY	EM	-25	-175
POLAND	EM	-25	-175
GEORGIA			-125
BOTSWANA			-100
COLOMBIA	EM		-100
MOLDOVA			-100
TURKEY	EM		-100
UGANDA			-100
INDIA	EM		-75
ALBANIA		-25	-50
ISRAEL	DM		-50
JAMAICA			-50
LATVIA		-50	-50
MEXICO	EM		-50
MOZAMBIQUE			-50
PAKISTAN	FM		-50
RWANDA			-50
SRI LANKA	FM		-50
UKRAINE	FM		-50
TAJIKISTAN		-40	-40
ANGOLA			-25
AUSTRALIA	DM		-25
AZERBAIJAN			-25
EURO AREA	DM		-25
MACEDONIA			-25
MAURITIUS	FM		-25
ROMANIA	FM	-25	-25
SERBIA	FM		-25
SOUTH KOREA	EM		-25
THAILAND	EM		-25
WEST AFRICAN STATES			-25
BULGARIA	FM	1	-1
SUM:		190	-3741
RATE INCREASES:
TUNISIA	FM		25
EGYPT	EM		50
ZAMBIA		25	50
INDONESIA	EM	50	75
GHANA			100
BRAZIL	EM	50	125
GAMBIA			600
SUM:		126	1025
NET CHANGE:		-64	-2716

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