Friday, September 9, 2011

Monetary Policy Week in Review - 10 September 2011

The past week in central banking saw interest rate announcements from 17 central banks around the world.  Just 4 of those central banks announced changes to interest rates: Armenia cut by -50bps to 8.00%, Tunisia cut by -50bps to 3.50%, and Serbia cut by -50bps to 11.25%, while Uganda increased by +200bps to 16.00%.  Meanwhile those that held interest rates unchanged were: Australia 4.75%, Sweden 2.00%, Canada 1.00%, Japan 0-0.1%, ECOWAS 4.25%, Poland 4.50%, South Korea 3.25%, Indonesia 6.75%, Philippines 4.50%, Malaysia 3.00%, Peru 4.25%, United Kingdom 0.50%, and the European Union 1.50%.  The other big news in central banking was the Swiss National Bank's move to set the EURCHF exchange rate floor of a minimum 1.20.  Also making headlines was key ECB official, Jürgen Stark, announcing his resignation.

Many central banks found themselves holding and waiting as uncertainty and financial market volatility levels remained heightened.  Indeed virtually all central banks noted the weakening growth outlook in developed markets as a key risk area.  Most cited the weakening higher frequency data and leading indicators in the US as signaling a slowdown in activity.  Arguably some banks may have continued tightening monetary policy if external conditions were more benign.

Some of the key quotes from the monetary policy press releases are listed below:
  • Bank of Uganda (increased +200bps to 16.00%): "BoU is raising interest rates in order to curb the growth in bank credit, which has expanded rapidly over the last 12 months, to encourage higher levels of saving and to provide more support to the exchange rate." and further added that "If the inflation outlook deteriorates in the next few months, the BoU will implement further increases in the CBR."
  • Central Bank of Tunisia (decreased -50bps to 3.50%): "To boost economic activity and the implementation of investment plans by limiting the financial burden on businesses, the Council decided to reduce, again, the rate of the BCT half a percentage point to bring it back to 3.5 percent,". 
  • National Bank of Serbia (decreased -50bps to 11.75%): "The decision on further relaxation of monetary policy was adopted to ensure that inflation returns to the target, without major volatility. The Executive Board expects that inflation will continue to decline until the end of the year and that it will enter the target tolerance band in the first half of the next year. Future path of the key policy rate will depend on the materialisation of risks, primarily in the international environment, and those relating to fiscal policy at home."
  • Bank of Canada (held rate at 1.00%): "In light of slowing global economic momentum and heightened financial uncertainty, the need to withdraw monetary policy stimulus has diminished.  The Bank will continue to monitor carefully economic and financial developments in the Canadian and global economies, together with the evolution of risks, and set monetary policy consistent with achieving the 2 per cent inflation target over the medium term."
  • Bank of Japan (held rate at 0-0.10%): "The Bank commits itself to continuing the virtually zero interest rate policy until it judges that price stability is in sight on the basis of the "understanding of medium- to long-term price stability."  In order for Japan's economy to overcome deflation and return to a sustainable growth path with price stability, the Bank will continue to consistently make contributions as the central bank by pursuing powerful monetary easing through the comprehensive monetary easing measures..., ensuring financial market stability, and providing support to strengthen the foundations for economic growth."
  • Bank Indonesia (held rate at 6.75%): "The decision was taken by considering the importance of maintaining macroeconomic stability amid the heighten uncertainty in the global financial system triggered by the US and Euro area debt. Although the impacts of uncertainty in the global economy on domestic economy are so far limited, Bank Indonesia continues to monitor the developments and assess their impacts on Indonesian economic performance going forward."
  • Bank Negara Malaysia (held rate at 3.00%): "In the MPC's assessment, while inflation remains a concern, the increased uncertainties on the global and domestic economic growth prospects and their potential consequences could have a moderating impact on inflation."
  • European Central Bank (held rate at 1.50%): "Looking ahead, we expect the euro area economy to grow moderately, subject to particularly high uncertainty and intensified downside risks. At the same time, short-term interest rates are low. While our monetary policy stance remains accommodative, some financing conditions have tightened. It remains essential for monetary policy to focus on its mandate of maintaining price stability over the medium term, thereby ensuring that recent price developments do not give rise to broad-based inflationary pressures."
  • Central Reserve Bank of Peru (held rate at 4.25%): "decision takes into account the slowdown observed in economic activity and the intensification of international financial risks. Should these trends continue, the Central Bank will change its monetary policy stance."  The Bank further noted: "Some current and advanced indicators of activity show a lower pace of growth than in the first semester. Furthermore, indicators of global activity show a lower growth and increased uncertainty continues to be observed in international financial markets."
  • Central Bank of West African States (held rate at 4.25%): "During this session, the Committee considered the economic, financial and monetary recent West African Monetary Union, including the risks to price stability and economic growth prospects in the EU. In this regard, the Committee noted a trend toward slower pace of price growth."

Looking at the central bank calendar, next week will be relatively quiet with just three major central banks scheduled to review monetary policy settings.  Also on the calendar is the Bank of Japan's monetary policy meeting minutes on Monday from the 4-5th August meeting, and the ECB's monthly bulletin on Thursday.
  • NZD - New Zealand (RBNZ) - expected to hold at 2.50% on the 15th of Sep
  • CHF - Switzerland (Swiss National Bank) - expected to hold at 0-0.25% on the 16th of Sep
  • INR - India (Reserve Bank of India) - expected to hold at 8.00% on the 16th of Sep


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