Friday, November 26, 2010

Monetary Policy Week in Review - 27 Nov 2010

The past week saw several emerging market economies review their interest rate settings. Among those reviewing monetary policy were Russia, Mexico, Georgia, Kenya, Poland, Nigeria, Angola, and Israel. The main standout was Angola, which slashed its benchmark rate -394 basis points to 18.00% as a new central bank governor took the helm. All the other banks held their policy rates, judging that conditions justified the current settings, e.g. to promote economic growth, and as an appropriate level for their various inflation targets. Another interesting point though was the normalization steps by Israel and Nigeria, with both banks adjusting the spread between borrowing and lending; Nigeria raised the borrowing rate 100bps to 4.25%, and Israel widened the spread around its policy rate of 2.00% to 50 basis points.

So it was very much a week of holding, with many of the banks seeing current rates as appropriate for their economies, but the justifications varied, for example Poland held at 3.50% because it viewed core inflation as stable, while Nigeria held at 6.25% as inflation remained high. There is always the problem for central bankers of balancing the risks of inflation and growth, and given current and recent global economic conditions, now more than ever this balance is a critical one to get right. Next week the European Central Bank meets to review monetary policy settings, that meeting will be an interesting one and we will be reviewing the press release closely given the recent issues around sovereign debt. There is also a handful of other banks meeting next week, so keep checking in on for the latest developments in monetary policy.



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