Friday, May 13, 2011

Monetary Policy Week in Review - 14 May 2011

The past week saw monetary policy decisions announced by 12 different central banks around the world.  Those that increased interest rates were: Azerbaijan +25bps to 5.25% Poland +25bps to 4.25% Norway +25bps to 2.25% Peru +25bps to 4.25% and Chile +50bps to 5.00%.  Meanwhile Ghana was the only country that eased policy, cutting rates 50bps to 13.00%.  Those that held rates unchanged were: Indonesia 6.75% South Africa 5.50% Latvia 3.50% and South Korea 3.00%.  Besides interest rate changes two economies lifted reserve requirements: Uruguay lifted its required reserve ratios 300bps to 15%, while China increase its RRR by 50 basis points to an average 21% for large banks.

Thus the theme of emerging market monetary policy tightening continued, as did the theme of the gradual start of developed market monetary policy tightening; or more appropriately, monetary policy normalization.  The rate hikes in Norway and Poland show that policy tightening or normalization is becoming a Euro region-wide phenomenon, as inflation pressures begin to rise due to rising inflation expectations and improving economic conditions.  Meanwhile the outlier of Ghana shows that when commodity prices start to ease it will give central banks the luxury of being able to ease policy somewhat, which will be helpful for economic growth, but of course it depends on how much of an impact the short-medium term commodity price spike will have on broader inflation conditions.

Next week there are monetary policy decisions due from the Magyar Nemzeti Bank of Hungary (16th May), and the Bank of Japan (20th May).  Also the Bank of England will release the meeting minutes from its previous monetary policy decision (18th May),  as will the US Federal Open Market Committee (18th May).


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