Friday, August 26, 2011

Monetary Policy Week in Review - 27 August 2011

The past week in monetary policy saw 8 central banks reviewing interest rates and monetary policy settings.  Just one bank adjusted its main interest rate, with Thailand adding  +25bps to 3.50%.  Meanwhile the other central banks held interest rates unchanged: Turkey 5.75%, Hungary 6.00%, Namibia 6.00%, Egypt 8.25%, Sierra Leone 23.00%, Denmark 1.55%, and Mexico 4.50%.  Aside from interest rates, the much watched annual Jackson Hole Economic Policy Symposium kicked off, with Ben Bernanke presenting the keynote speech where he stopped short of signalling QE3 but noted that the FOMC is actively considering options, and also talked at length about the role of fiscal policy in maximizing sustainable long term economic growth.

Outlined below are some of the key quotes and comments from the central bankers that reviewed monetary policy settings in the past week:

  • Bank of Thailand (increased rate +25bps to 3.50%): "The MPC agreed that the slowdown in advanced economies would partially weigh on Thai exports.  However, expanding  intra-regional trade  in tandem with the continued growth of domestic demand  in Asian economies as well as export diversification to new markets will help mitigate the impact.  Domestic consumption and investment are expected to expand due to favorable employment conditions, improved confidence, robust growth in credit demand, and fiscal stimulus going forward."
  • Banco de Mexico (held rate at 4.50%): "productive activity in Mexico maintains a positive trend, although the rate of growth has lost some momentum,"... and "If the performance of the national economy and international financial markets results in an unnecessary tightening of monetary policy, the Governing Board will reflect on the appropriateness of adjusting it,"
  • Danmarks Nationalbank (held rate at 1.55%):  "The interest rate reduction follows Danmarks Nationalbank's purchase of foreign exchange in the market.  The short euro market rates have fallen and the spread to the equivalent Danish rates has tended to strengthen the Danish krone."
  • Magyar Nemzeti Bank (held rate at 6.00%): "Hungary has also been affected by the decline in global risk appetite due to the euro-area sovereign debt crisis and uncertainty surrounding the outlook for growth in developed countries.  The Monetary Council has decided to leave interest rates unchanged in light of the above considerations.  Over the period ahead, the Council's interest rate decisions may be influenced by the success of measures to solve the euro-area debt crisis, in addition to expected developments in domestic inflation." 
  • Central Bank of the Republic of Turkey (held rate at 5.75%): "The Committee has agreed that the measures taken at the interim meeting on August 4, 2011 have contained the downside risks for the economy for the time being, and thus decided to keep the policy instruments unchanged at this meeting.  However, given the uncertainties regarding the global economy, it is important to monitor all developments closely, and to deliver the required policy response in a timely manner.  The Committee has also reiterated that all policy instruments may be eased should global economic problems further intensify and the  slowdown in domestic economic activity becomes more pronounced."

Looking to the central bank calendar, next week should be relatively quiet on the monetary policy front with only two central banks scheduled to meet.  Elsewhere the US Federal Reserve will release the minutes from the 9th of August FOMC meeting on the 29th of August.
  • ILS - Israel (Bank of Israel) - expected to hold at 3.25% on the 29th of August
  • BRL - Brazil (Banco Central do Brasil) - expected to hold at 12.50% on the 31st of August


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