Saturday, November 12, 2011

Monetary Policy Week in Review - 13 Nov 2011

The past week in monetary policy saw interest rate decisions announced by 9 central banks around the world.  Of those that changed interest rates (all dropping rates) were: Indonesia -50bps to 6.00%, Serbia -75bps to 10.00%, and Jamaica -50bps to 6.25%.  Meanwhile those that held interest rates unchanged were: The UK 0.50%, South Africa 5.50%, South Korea 3.25%, Poland 4.50%, Malaysia 3.00%, and Peru 4.25%.

Some of the key themes and trends emerging through the week included an increasing bias towards easing monetary policy settings. Indonesia surprised the markets with a 50 basis point cut in its rate, Serbia did likewise, as the external risks and slowing global growth has put pressure on central banks to put in place preventative measures to support their economies. For other central banks the already loose monetary policy settings, and inflationary pressures have been among the only things stopping a wider adoption of emergency/preventative policy loosening and stimulus measures.

Following are some of the key soundbites from the central bank monetary policy media releases:
  • Bank Indonesia (cut rate -50bps to 6.00%):"The decision to decrease BI Rate has been taken in line with the decreasing trend in inflation pressures and also as Bank Indonesia efforts to narrow the interest rate term structure. This decision is also intended to reduce the impacts of worsening global economic prospect on Indonesian economy. Production and consumption indicators in developed countries continue to show a slowing down while global financial markets remain volatile albeit there was a rebound."
  • National Bank of Serbia (cut rate -75bps to 10.00%): "Inflation continued down, in accordance with the NBS projection from the August Inflation Report. It is expected to decline further in the coming period. The key disinflationary factors will be weaker cost-push pressure on food prices, low aggregate demand and slower growth in administered prices. The process of disinflation will also be aided by the continued drop in inflation expectations."
  • Bank of Korea (held rate at 3.25%): "domestic demand has faltered but exports have continued to grow strongly. The trend of improvement in employment conditions has been sustained, led by the private sector. The Committee anticipates that the domestic economy will keep up its long-term trend of growth going forward, but recognizes the situation to be one in which downside risks to growth remain high due to the impact of external risk factors."
  • South African Reserve Bank (held rate at 5.50%): The Committee assesses the risks to the inflation outlook to be on the upside mainly due to cost push pressures. The exchange rate is also seen to pose some upside risk to the outlook, while downside risks are seen to come from possible contagion effects from the European crisis and associated slow growth. The committee is aware of the dangers of a disorderly resolution of the crisis and the systemic implications for the global and domestic economy, and remains ready to act appropriately should the need arise."
  • National Bank of Poland (held rate at 4.50%): "the medium term inflation will be curbed by somewhat lower domestic economic growth amidst fiscal tightening, including reduced public investment spending, and interest rate increases implemented in the first half of 2011, as well as the expected global economic slowdown. Such an assessment is also supported by the November projection of inflation and GDP. The impact of the situation in the global financial markets on zloty exchange rate continues to be an upside risk to domestic price developments"
  • Central Reserve Bank of Peru (held rate at 4.25%):"This decision takes into account the lower growth being recorded by some components of expenditure, as well as the intensification of international financial risks. Should these trends continue, the Central Bank will change its monetary policy stance."

Looking at the central bank calendar, of the major central banks, next week there's just the Bank of Japan scheduled to meet to review monetary policy settings.  Elsewhere, the Reserve Bank of Australia  will release the minutes on Tuesday of its last meeting where it cut rates 25bps.
  • JPY - Japan (Bank of Japan) expected to hold at 0-0.10% on the 16th of Nov


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