Saturday, January 15, 2022

Another 3 central banks raise rates 2nd week of 2022

       Another three central banks raised their main interest rates in the past week, continuing the tightening of global monetary conditions that picked up speed up in the final quarter of 2021, boosting the number of rate hikes so far this year to seven.
      During week two of 2022, the central banks of South Korea and Romania raised their policy rates for the third time each while Moldova raised its rate for the fifth time, with all three banks citing the need to tighten monetary policy in the face of rising inflation and solid economic growth despite the uncertainty from the COVID-19 pandemic.
      In addition to last week's rate hikes by the central banks of South Korea, Romania and Moldova, the monetary policy makers of Poland, Uruguay, Argentina and Peru have raised their rates this year.
     So far this year, central banks worldwide have taken 11 monetary policy decisions, with 87.5 percent of all changes to interest rates going to rate hikes.
     After the massive injection of fiscal and monetary stimulus in 2020 to ensure the global economy didn't collapse following the shutdown of the global economy in the first half of 2020 in the wake of the pandemic, authorities began to slowly roll back stimulus last year.
     In the first quarter of 2021, for example, central banks raised their rates 12 times but this then rose to 16 times in the second quarter, 38 times in the third quarter and then 58 times in the fourth quarter for a total 124 rate hikes by 41 different central banks.
     In contrast, only 10 central banks raised their rates 13 times in 2020 while 93 central banks cut their rates 256 times.
      So far this year two central banks - the Democratic Republic of Congo and South Sudan - have lowered their interest rates to help boost economic activity as inflation has trended lower in those countries in response to a revamping of monetary and economic policy, which has boosted investors' confidence in the economic stewardship and supported exchange rates.
     Cuts to interest rates so far this year account for 12.5 percent of all rate changes.
     In addition to raising or lowering policy rates, central banks also change their monetary policy stance by other tools, such as raising or lowering banks' reserve requirements, purchasing or selling assets or changing foreign exchange rates.
     Moldova's central bank, for example, last week raised its required reserve requirements for commercial banks - which means banks can make fewer loans to businesses or consumers -  returning it to the level prior to a cut in April 2021.
     Including Moldova's move, central banks have changed their monetary policy stance 10 times so far this year, with tightening steps accounting for 80 percent of all changes.
     The two steps central banks have taken to ease the monetary policy stance so far this year account for the other 20 percent of all decisions that change policy. 
     In comparison, in 2021 central banks took 50 steps toward easing their monetary policy stance, which accounted for 24.9% of all changes to monetary policy, whereas in 2020 monetary easing steps accounted for 96.3% of all changes to monetary policy.
     Following is a summary of changes to monetary policy so far in 2022:
     Cumulative size of rate cuts in 2022: 400 basis points
     Cumulative amount of rate rises in 2022: 625 basis points.
     Net change in interest rates in 2022: + 225 basis points
     Global monetary policy rate: 5.52 percent, up 2 basis points since the start of 2022.

      Central Bank News, which tracks the monetary policy stance of 104 central banks, publishes the following Global Monetary Policy Changes (GMPC), a country-by-country overview of changes to monetary policy. 
      GMPC aims to capture changes to a wide range of monetary policy instruments, not just key interests rates but also changes to reserve requirements, bond purchases or foreign exchange rates to understand whether the monetary conditions become tighter of easier. 
     GMPC complements Central Bank News' other products, such as the Global Interest Rate Monitor (GIRM), which tracks official policy rates, and Global Monetary Policy Highlights (GMPH), which summarizes interest changes each month.
       GMPC includes an alphabetical list of countries with changes to their monetary policy.

      EASING: Congo and South Sudan cut rates.
      TIGHTENING: Poland, Uruguay, Argentina, Peru, Romania, Moldova and South Korea raise rates.



     EMERGING MARKETS: Central banks in emerging markets have decided on monetary policy 3 times in 2022, with 3 decisions by 3 central bank ending in rate hikes: Poland, Peru and South Korea.

     FRONTIER MARKETS: Central banks in frontier markets have decided on monetary policy once in 2022, with one decision resulting in a rate hike: Romania.
     OTHER MARKETS: Central banks in other markets have decided on monetary policy 5 times in 2022.
     3 central banks have raised rates: Uruguay, Argentina and Moldova.
     2 central bank have cut rates: Congo and South Sudan.

                                                             2022 GMPC


Jan 6: benchmark 28-day Leliq rate raised 200 bps to 40.0% as part of a redesign of monetary policy instruments to meet the 2022 goal of setting interest rates that result in a positive real return on investments in pesos, and preserve monetary and exchange rate stability.


Jan 2: key interest rate cut 100 bps to 7.50%, helping strengthen the financing of the economy in Congolese francs and thus support de-dollarization of the economy amid greater control of inflation.


Jan 13: interest rate on short-term monetary policy operations raised 200 bps to 8.50% and ratio on required reserves on leu by 200 bps to 28.0% to temper inflationary pressures and the effects of shocks on the economy.


Jan 6: reference rate raised 50 bps to 3.0% and board expects to continue normalizing monetary policy stance in coming months based on current information.


Jan. 4: reference rate raised 50 bps to 2.25% to reduce inflation to its target, with extent of monetary tightening needed to reach goal to depend on new information about inflation, economic growth and the labour market.


Jan 10: monetary policy rate raised 25 bps to 2.0% as monetary policy is gradually normalizes amid a worsening outlook for inflation in the near term while economic activity came to a standstill in the fourth quarter of 2021 due to a fourth wave of the pandemic, supply bottlenecks and the energy crises.


Jan 14: base rate raised 25 bps to 1.25% and degree of monetary policy accommodation will be appropriately adjusted as Korean economy is expected to continue its sound growth and inflation to run above the target for a considerable time.


Jan 11: central bank rate cut 300 bps to 12.0% and minimum reserve requirement on local deposits 500 bps to 15.0% to achieve 1.0% economic growth in fiscal 2021/22, maintain inflation in single digits at  8.0%, plus/minus 1 percentage points, boost lending to the private sector and increase international reserves.


Jan 5: reference rate raised 75 bps to 6.50% and rate expected to be raised by the same magnitude at the next two monetary policy meetings so the rate reaches a neutral level by the beginning of the second quarter.



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