The Global Monetary Policy Rate (GMPR) fell further in August despite rate hikes in two major emerging markets as 11 central banks cut rates in response to slower economic growth and weak inflationary pressure.
GMPR – the average policy rate of the 90 central banks followed by Central Bank News – fell to 5.56 percent in August, down from 5.62 percent in July, 5.85 percent in January and the 2012 average rate of 6.2 percent.
A major contributor to the 645-basis-point fall in August policy rates was Sierra Leone’s 300-point rate cut due to lower inflation, helping the West African nation leapfrog Belarus as the most aggressive rate cutter this year.
Australia also cut its rate in August as it attempts to find its footing with less contribution from investments in its mining sector that have fallen in response to China’s slowdown.
Egypt reversed a rate rise in March and cut its rate by 50 basis points in an attempt to boost the country’s beleaguered economy, battered by continued political unrest that is keeping tourists and foreign investors away.
The other eight rate cuts in August came from Hungary, Botswana, Georgia, Ukraine, Romania, Mozambique, Angola and Jordan.
The main theme in global monetary policy in August remained the coming shift in the direction of policy by the U.S. Federal Reserve with a reduction in asset purchases set to begin this month or in the next few months.
The prospect of stronger economic growth in advanced economies and a tempering of the fast pace of growth in some major emerging economies has triggered a reversal of capital flows, putting downward pressure on the currencies of some of the vulnerable economies.
Indonesia and Brazil, both with sizable current account deficits, responded with further rate hikes to prevent inflation from rising and ease the pressure on their currencies. Armenia was the third central bank to raise rates last moth.
Together Indonesia and Brazil have raised rates seven times this year for a combined increase of 300 basis points, accounting for 27 percent of the cumulative increase in worldwide rates in the first eight months of 1,125 basis points. Rates cuts in the same period totaled 4,336 basis points for a net decline in global policy rates of 3,211 points.
In August rate rises totaled 150 basis points, above July’s combined rate rise of 126 points but below June’s 450 points and May’s 350 points.
The total number of monthly central bank rate cuts from May through August averaged 3-1/2 compared with 1-1/2 in the first four months of the year, showing how the frequency of rate rises is rising, a sign that the trend toward higher global policy rates is slowly growing.
Another indication of this coming shift in the global trend is that the monthly average rise in total policy rates was 269 basis points in the May-August period compared with a monthly average of 40 basis points from January through April.
But rate cuts remain the overriding trend in global monetary policy with 12 central banks on average cutting rates every month from May through August compared with 8 from January through April.
Policy rates have been slashed by a total of 643 basis points every month on average in the last four months, up from the average reduction of 469 points in the first four months of the year as central banks responded to a weakening of the global growth momentum.
GLOBAL MONETARY POLICY RATES (GMPR)
(Changes in August 2013 and year-to-date, in basis points)
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