Last week 14 central banks took monetary policy decisions, with six banks cutting rates (Hungary, Sweden, Turkey, Georgia, Colombia and Vietnam) and eight banks leaving rates on hold (India, Morocco, Norway, Taiwan, Czech Republic, Japan, Armenia and Trinidad & Tobago), accelerating the global trend toward easier monetary policy.
Like other central banks whose policy rates have hit the zero bound, the Bank of Japan pushed its foot further down on the quantitative easing accelerator by expanding its asset purchase program and then announced it would review its 1 percent inflation target next month, igniting speculation that it would listen to the incoming prime minister and raise the target to 2-3 percent.
The possibility of a higher inflation target in Japan follows on the heels of the Federal Reserve’s perceived softening of its inflation target, triggering speculation of a fundamental shift in central banks’ myopic obsession with inflation fighting.
It’s too soon to tell whether we are witnessing the start of a change to central banks’ mandates with a stronger emphasis on growth, but it seems clear that central banks' policy framework is changing.
Although most central banks are independent in their conduct of monetary policy, they have never operated in a political vacuum and have always been responsible and responsive to the wishes of governments and thus citizens.
As high unemployment and an unsettling degree of human suffering still haunt advanced economies five years after the outbreak of global financial crises, a debate over the goals that societies set for their central banks is long overdue.
NO INFLATIONARY PRESSURE
Year-to-date, policy rates have been cut 126 times by the 88 central banks followed by Central Bank News, more than four times the 30 times that rates have been raised.
Developed market central banks have cut rates 17 times this year, with not a single rate rise, while emerging market central banks have cut rates 38 times and raised them seven times.
In addition to the debate over monetary policy objectives, the main message from central banks last week was the absence of inflationary pressure, which allows for a further loosening of policy to stimulate growth.
All 14 central banks – both those that eased policy and those that kept rates steady - specifically mentioned the low levels of inflation, which in some cases was below banks’ target ranges.
And while global growth was weak in the fourth quarter, prospects for next year look more optimistic. Turkey and Colombia, which cut their rates, look forward to better times, Norway’s central bank kept its tightening bias and Taiwan said the global economy was stabilizing and the outlook for 2013 had improved.
LAST WEEK’S
(WEEK 51) MONETARY POLICY DECISIONS:
| COUNTRY | MSCI | NEW RATE | OLD RATE | 1 YEAR AGO |
| HUNGARY | EM | 5.75% | 6.00% | 7.00% |
| SWEDEN | DM | 1.00% | 1.25% | 1.75% |
| TURKEY | EM | 5.50% | 5.75% | 5.75% |
| INDIA | EM | 8.00% | 8.00% | 8.50% |
| MOROCCO | EM | 3.00% | 3.00% | 3.25% |
| GEORGIA | 5.25% | 5.50% | 6.75% | |
| NORWAY | DM | 1.50% | 1.50% | 1.99% |
| TAIWAN | EM | 1.88% | 1.88% | 1.88% |
| CZECH REPUBLIC | EM | 0.05% | 0.05% | 0.75% |
| JAPAN | DM | 0.10% | 0.10% | 0.10% |
| ARMENIA | 8.00% | 8.00% | 8.00% | |
| TRINIDAD & TOBAGO | 2.75% | 2.75% | 3.00% | |
| COLOMBIA | EM | 4.25% | 4.50% | 4.75% |
| VIETNAM | FM | 9.00% | 10.00% | 15.00% |
NEXT WEEK (WEEK 52) official holidays dominate the calendar and only three monetary policy committees are scheduled to meet: Israel, Albania and Angola.
| COUNTRY | MSCI | MEETING | RATE | 1 YEAR AGO |
| ISRAEL | DM | 24-Dec | 2.00% | 2.75% |
| ALBANIA | 26-Dec | 4.00% | 4.75% | |
| ANGOLA | 28-Dec | 10.25% | 10.50% |
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