Friday, December 9, 2011

Monetary Policy Week in Review - 10 Dec 2011

The past week in monetary policy saw interest rate decisions announced by 14 central banks around the world.  Those changing interest rates were: Australia -25bps to 4.25%, EU -25bps to 1.00%, and Serbia -25bps to 9.75%.  Meanwhile those holding rates unchanged were: Canada 1.00%, Armenia 8.00%, Iceland 4.75%, Poland 4.50%, Namibia 6.00%, New Zealand 2.50%, UK 0.50%,  Botswana 9.50%, Peru 4.25%, Korea 3.25%, and Indonesia 6.00%. 

Following are some of the key quotes from the central banks that announced interest rate changes in the past week. Many of the banks made reference to the downside risks posed by the ongoing European sovereign debt crisis, and financial market disruption.  However more than a few also noted ongoing strength in their domestic economy, despite signs of slowing global growth.

  • ECB (cut rate 25bps to 1.00%): "The intensified financial market tensions are continuing to dampen economic activity in the euro area and the outlook remains subject to high uncertainty and substantial downside risks. In such an environment, cost, wage and price pressures in the euro area should remain modest over the policy-relevant horizon. At the same time, the underlying pace of monetary expansion remains moderate."
  • Reserve Bank of Australia (cut rate 25bps to 4.25%): "Overall, the Board concluded, on the basis of all the available information, that the inflation outlook afforded scope for a modest reduction in the cash rate. The Board will continue to set policy as needed to foster sustainable growth and low inflation over time."
  • Bank of Canada (held rate at 1.00%): "On balance, recent economic indicators in Canada suggest that growth in the second half of this year is slightly stronger than the Bank projected in October. Household expenditures have more momentum than had been expected and business investment remains solid. Going forward, the weaker external outlook is expected to dampen GDP growth in Canada through financial, confidence and trade channels. The economy also continues to face competitiveness challenges, including the persistent strength of the Canadian dollar."
  • Bank Indonesia (held rate at 6.00%): "This decision is based on overall assessment on recent economic condition, risk factors, and economic prospects. Board of Governors views that current BI Rate is still consistent with inflation targets, and remains conducive for financial stability and mitigating the impacts of worsening global economic outlook on Indonesian economy. The assessment on economic condition and outlook show that domestic economy remains strong and stable."
  • National Bank of Serbia (cut rate 25bps to 9.75%): "The key disinflationary factors, both now and in the foreseeable future, will be weaker cost-push pressures arising from administered and food prices as well as low aggregate demand. The process of disinflation will be further aided by the continued drop in inflationary expectations. Inflation is expected to retreat within the target tolerance band in the first quarter of the next year."
  • Bank of Korea (held rate at 3.25%): "In Korea, exports have shown a steady increase, but consumption has remained at a level similar to that in the previous month and facilities investment has decreased sharply. The trend of improvement in employment conditions has been sustained, led by the private sector. The Committee anticipates that the domestic economy will not deviate significantly from 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."
  • RBNZ (held rate at 2.50%): "Domestically, economic activity continues to expand, though at a modest pace. Although off their peaks, export commodity prices remain elevated. In addition, the depreciation of the New Zealand dollar provides some support for the tradable sector of the economy. Over time, repairs and reconstruction in Canterbury will also provide a significant boost to demand for an extended period. Annual headline inflation is estimated to have returned within the Bank's 1 to 3 percent target band in the December quarter. Underlying inflation continues to sit close to 2 percent. In addition, wage and price setting pressures have remained contained."

Looking at the central bank calendar, there's a handful of central banks meeting next week for the last time this year.  The most watched one will be the US FOMC, many will be looking for clues to any further quantitative easing or other measures, and of course a keen eye will be cast on the Fed's assessment of the US economy.  India will also be closely watched as a key emerging market.

  • USD - USA (US Federal Reserve) expected to hold at 0-0.25% on the 13th of Dec
  • NOK - Norway (Norges Bank) expected to hold at 2.25% on the 14th of Dec
  • CHF - Switzerland (Swiss National Bank) expected to hold at 0-0.25% on the 15th of Dec
  • INR - India (Reserve bank of India) expected to hold at 8.50% on the 16th of Dec

1 comment:

  1. I reckon the Fed will sit on its hands, there's not enough evidence of recession for another round of quantitative easing; if anything the US economy looks to be continuing, albeit somewhat stop-start, its economic recovery.