Saturday, September 8, 2012

Monetary Policy Week in Review – Sept 8, 2012: ECB matures, Canada bullish, Sweden cuts, Mexico eyes inflation

    The past week in monetary policy saw interest rate decisions by 17 central banks, with 3 banks cutting rates (Sweden, Uganda and Kenya), while the remaining 14 (ECB, Australia, Canada, Poland, Thailand, UK, Malaysia, Peru, Serbia, Mexico, Zambia, Fiji, Egypt and West African States) kept rates unchanged.
     The common theme from central banks was of slower global growth, but solid domestic demand in some countries is helping compensate for lower exports. This includes Canada, Peru, Malaysia, Thailand, Fiji and Mexico, which even raised the prospect of higher rates if inflation continues to rise.
    Sweden surprised most economists by cutting its rate to prevent inflation falling further below the central bank’s target as exports and growth take a hit from Europe’s recession.
     But the main event of last week was the European Central Bank’s ambitious plan to buy an unlimited amount of bonds from any euro zone member state that finds itself in serious financial trouble. 
    Like an adolescent that takes time to grow up, the ECB is gradually maturing into a fully-fledged central bank that will draw on all its resources to protect its family, the 17-nation euro zone. 

AUSTRALIA 3.50% 3.50% 4.75%
CANADA 1.00% 1.00% 1.00%
POLAND 4.75% 4.75% 4.75%
THAILAND 3.00% 3.00% 3.50%
EURO ZONE 0.75% 0.75% 1.50%
SWEDEN 1.25% 1.50% 2.00%
UNITED KINGDOM 0.50% 0.50% 0.50%
MALAYSIA 3.00% 3.00% 3.00%
PERU 4.25% 4.25% 4.25%
SERBIA 10.50% 10.50% 11.25%
MEXICO 4.50% 4.50% 4.50%
UGANDA 15.00% 17.00% 16.00%
ZAMBIA 9.00% 9.00%                   N/A
KENYA 13.00% 16.50% 7.00%
FIJI 0.50% 0.50% 1.50%
EGYPT 9.25% 9.25% 8.25%
W. AFRICAN STATES 4.00% 4.00% 4.25%

    The central bank calendar for next week calls for 8 central banks to decide monetary policy, with the global focus squarely on the Federal Reserve's two-day meeting that ends on Thursday. Expectations are growing that some form of stimulus will be announced following Friday's weak jobs report.
   The other main event with a potential to rock financial markets is a decision on Wednesday by Germany’s constitutional court on the legality of the euro’s zone’s bailout funds. An unfavourable decision would throw a wrench in policy-makers’ plan to forge a stronger economic union.
    The only central bank that may change interest rates next week is South Korea, where growth is slowing and economists would not be surprised if the Bank of Korea cuts rates again following July’s surprise cut.
 COUNTRY              MEETING                              CURRENT RATE                  RATE 1 YEAR AGO
MOZAMBIQUE 12-Sep 11.50% 16.00%
UNITED STATES 13-Sep 0.25% 0.25%
NEW ZEALAND 13-Sep 2.50% 2.50%
THE PHILIPPINES 13-Sep 3.75% 4.50%
SWITZERLAND 13-Sep 0.25% 0.25%
INDONESIA 13-Sep 5.75% 6.75%
SOUTH KOREA 13-Sep 3.00% 3.25%
CHILE 13-Sep 5.00% 5.25%

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