Sunday, December 21, 2014

Monetary Policy Week in Review – Dec 15-19, 2014: Russia rate hike, Swiss cut show impact of plunging oil

    Russia’s 650 basis points emergency rate hike and Switzerland’s imposition of negative rates last week were the latest consequences of the plunge in crude oil prices during the last six months.
    With safe-haven capital flows from Russia adding to the perennial upward pressure on the Swiss franc, the Swiss National Bank (SNB) last week joined the small, but select group of central banks - Sweden's Riksbank, Denmark's Nationalbank and the European Central Bank (ECB) - that have experimented with negative policy rates in the latest twist to global monetary policy
    Whether last week’s stabilization in oil prices is the first sign of a trend reversal is too early to tell but it’s clear that lower oil prices are exacerbating the deflationary trends in the euro zone and making it even tougher for Japan to escape the “deflationary mindset.”
    But for most oil-importing countries, and especially emerging and frontier markets, the decline in oil has been greeted with open arms as it helps compensate for inflationary pressures from the widespread currency depreciation against the U.S. dollar.

    Through the first 51 weeks of this year, the 90 central banks followed by Central Bank News have cut their policy rates 65 times, or 13.6 percent of this year’s 479 policy decisions, marginally higher than 13.5 percent at the end of the third quarter but up from 12 percent at the end of the first half, and 12 percent at the end of the first quarter.
    Meanwhile, rates have been raised 51 times, or 10.6 percent of all policy decisions, up from 10.2 percent at the end of September, 9.3 percent at the end of June and 8.7 percent at the end of March.
    With Russia’s rate rise, central banks in emerging markets have raised rates 24 times this year, almost equaling the 25 rate cuts, an illustration of how emerging markets have had to raise rates to offer competitive returns to global investors who are setting their sights on the first rate rise in the United States at some point in 2015.
    As a group, emerging markets have thus accounted for 47 percent of the world’s rate increases this year, easily outpacing the four rises by New Zealand, the only developed market central bank that has raised rates this year.
   Central banks in frontier markets have raised rates five times and cut them 14 times while central banks in other markets – which includes such diverse economies as Iceland, Albania and Ghana - have raised rates 17 times, the exact same number of times they have cut rates.
    The Global Monetary Policy Rate (GMPR) - the average rate of the 90 central banks followed by Central Bank News – jumped to 5.69 percent from 5.62 percent from the previous week, pushed upward by Russia’s rate hike.
    At the end of the third quarter GMPR was 5.54 percent, only slightly up from 5.53 percent at the end of the second quarter and first quarters.
    Russia has now raised its rate by a total of 1150 basis points, topping Ukraine's rate rise of 750 points and Ghana's 500 point hike to take the top spot among this year's rate-hikers.



COUNTRY MSCI      NEW RATE            OLD RATE         1 YEAR AGO
RUSSIA EM 17.00% 10.50% 5.50%
SWEDEN DM 0.00% 0.00% 0.75%
MOROCCO FM 2.50% 2.75% 3.00%
HUNGARY  EM 2.10% 2.10% 3.00%
CZECH REPUBLIC EM 0.05% 0.05% 0.05%
THAILAND  EM 2.00% 2.00% 2.25%
UNITED STATES DM 0.25% 0.25% 0.25%
GEORGIA 4.00% 4.00% 3.75%
ALBANIA 2.25% 2.25% 3.00%
SWITZERLAND DM -0.25% 0.25% 0.25%
JAPAN DM                  N/A                  N/A                  N/A
COLOMBIA EM 4.50% 4.50% 3.25%
    This week (Week 52) three central banks or monetary authorities are scheduled to decide on monetary policy:  Angola, Armenia and Turkey.


ANGOLA 22-Dec 9.00% 9.25%
ARMENIA 23-Dec 6.75% 7.75%
TURKEY EM 24-Dec 8.25% 4.50%


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