Friday, March 18, 2011

Monetary Policy Week in Review - 19 March 2011

The past week saw a lot of monetary policy announcements but only a few changes. Of those making changes, India increased +25bps to 6.75%, Chile increased +50bps to 4.00%, and Colombia increased +25bps to 3.50%. Meanwhile the rest held their rates steady (Latvia, Hong Kong, US, Iceland, Norway, Switzerland), but Japan - thought it held its rate unchanged - announced it would undertake further purchases as part of its asset purchase program to give its economy and financial markets a much needed boost following the earthquake and nuclear disaster. Another key story was China announcing a further +50 basis point hike to the required reserve ratio, bringing the total up to 20% for much of the largest banks.

So the theme of emerging market inflation is still running, with two key BRIC economies announcing tightening decisions in response to rising inflation. Of the tighteners this week India is probably facing the most substantial inflation problem, and some have queried whether the the RBI has done enough. Meanwhile Chile and Colombia are both seeing inflation come through from commodities and are acting primarily preemptively in terms of their monetary policy response. As for the others, both Norway and Switzerland hinted at policy removal in the medium term, as inflationary pressures start to build and the economy gets to the point where it can handle the removal of stimulus. But that also highlights that inflation is increasing all around the globe, spurred on primarily by rising commodity prices.

Next week there's no major central bank meetings scheduled, but the Bank of England will release the minutes of its recent monetary policy meeting, which will be useful to gain some insights into what they are thinking about the UK economy and monetary policy.


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