Friday, November 5, 2010

Monetary Policy Week in Review - 6 Nov 2010

This week saw Monetary Policy decisions from the central banks of Azerbaijan, Australia, India, Romania, Iceland, US, Japan, Egypt, UK, EU, Vietnam, Czech Republic, Indonesia, and Latvia. The main event was the announcement from the US FOMC to commence a US $600 billion asset purchase program (aka QE2 or the second round of quantitative easing), the Fed will implement the plan at a pace of $75 billion per month. On the interest rate front the standouts were tightening of monetary policy rates in Azerbaijan (100bps), Vietnam (100bps), Australia (25bps), and India (25bps), and loosening of monetary policy rates in Iceland (75bps), and Latvia (12.5bps). Meanwhile other banks held rates due to low inflationary pressures and a desire to keep stimulatory monetary policy conditions to aid the economic recovery e.g. US, EU, UK, Japan.

So the period of synchronicity in monetary policy was short lived (and amounted to the mass loosening at the height of the crisis). Increasingly monetary policy decisions are being driven by the individual circumstances of each country (which is what it should be doing). Those that are facing greater risks to inflation than growth are tightening and those with greater risk to growth are loosening or holding at record low levels. Next week is set to be relatively more quiet with much of the world's central banks having announced their regular decisions.



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