Friday, June 24, 2011

Monetary Policy Week in Review - 25 June 2011

The past week in monetary policy saw interest rate decisions from 9 central banks around the world.  Of those reviewing policy settings, only Uruguay adjusted its interest rate, +50bps to 8.00%.  The other 8 banks held their interest rates unchanged, those were: Hungary 6.00%, the US 0.25%, Namibia 6.00%, Norway 2.25%, Hong Kong 0.50%, Turkey 6.25%, Czech Republic 0.75%, and Sierra Leone 23.00%.  Also of note was the US FOMC statement which referred to the completion of QEII (the second round of quantitative easing), and an intention to keep reinvesting principal payments.  Meanwhile the Bank of Uganda said it would start inflation targeting, and would shift focus to using interest rates rather than money supply to influence inflation.

So it was very much a week of policy inaction, as central banks continued to monitor their respective unfolding growth and inflation mixes. Most of the banks that released statements on monetary policy pointed to future action, and noted upside risks to inflation and downside risks to growth e.g. in the form of external shocks such as sovereign debt crises.

Following is some of the key soundbites from central banks that reviewed monetary policy settings over the past week:

  • Hungary central bank (held interest rate at 6.00%): "Inflation is likely to be above target in the short term, due to cost-push pressures stemming from the rise in commodity prices. However, owing to the disciplining effect on price and wage-setting of the persistent weakness in domestic demand and high unemployment, the 3% inflation target can be achieved at the end of 2012 by maintaining interest rates at their current level over a sustained period."
  • The US FOMC (held interest rate at 0-0.25%):  "The Committee continues to anticipate that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate for an extended period."
  • Bank of Namibia (held interest rate at 6.00%): "It is the view of the EC [Executive Committee] that the observed growth momentum at the beginning of the year that created an impression that [the] recovery was consolidating, was not firmly entrenched,"... "The EC also observed that inflation has increased, but still remains in tolerable levels, especially the underlying inflation,"
  • Norway (held interest rate at 2.25%): "Overall, the Executive Board is of the view that the key policy rate should gradually be raised through the latter half of 2011, against the background of the current outlook and balance of risks."
  • Czech National Bank (held interest rate at 0.75%): "Headline and monetary-policy relevant inflation will be close to the inflation target over the monetary policy horizon.  Consistent with the forecast is broad stability of market interest rates in the near future and a gradual rise in rates starting in 2011 Q4.  Risks to the forecast are balanced for monetary-policy relevant inflation."
  • Sierra Leone (held interest rate at 23.00%): "The underlying challenges remain containing the increase in consumer price inflation recently driven by food and fuel price increases,"... "recent improvements in the fiscal position underscore the need to maintain a neutral monetary policy stance."

Next week is set to be a relatively quiet week on the monetary policy front.  The Bank of Israel meets on the 27th of June (expected to increase 25bps to 3.25%), The National Bank of Romania meets on the 29th of June (expected to hold at 6.25%), and the Central Bank of the Republic of China (Taiwan) meets on the 30th of June (expected to increase 12.5bps to 1.875%).


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