Saturday, January 5, 2013

Monetary Policy Week in Review – Jan. 5, 2013: Two central banks hold rates, see positive impact of 2012 cuts

    Last week was quiet on the monetary policy front as only two central banks, the Dominican Republic and Uganda, took policy decisions. Both banks kept interest rates unchanged.
    The two central banks cut rates substantially last year and are now starting to see the positive economic impact of those cuts while inflationary pressures remain low - a pattern that is likely to become one of the main themes of 2013.
    The Dominican Republic’s central bank, which cut rates by 1.75 percentage points in 2012, expects growth in 2013 to remain below potential but noted that private credit has been expanding in response to lower rates and growth could top forecasts.
    Uganda’s central bank, 2012's second highest rate cutter worldwide with total rate reductions of 11 percentage points, turned more optimistic since its November meeting and is now looking ahead to economic recovery in the second half of this year. Citing the lag in the monetary transmission, the bank expects commercial lending rates to decline further,  boosting private sector credit and spending.
COUNTRY MSCI       NEW RATE           OLD RATE        1 YEAR AGO
DOMINICAN REP. 5.00% 5.00% 6.75%
UGANDA 12.00% 12.00% 23.00%

    NEXT WEEK (Week 2) financial markets and central bankers return from their holiday break with nine policy meetings scheduled, including four in emerging market countries, two in frontier markets and two in developed markets. 
    All but the Bank of England is starting the year with key interest rates lower than a year ago, but that is only because the UK central bank has held rates at close to zero since March 2009 and has used quantitative easing to stimulate growth.
    The other monetary policy meetings scheduled next week include two of last year’s largest rate cutters, Kenya and Mozambique. In addition, meetings are scheduled in Romania, Thailand, Poland, Indonesia, the European Central Bank and  South Korea.
COUNTRY MSCI          MEETING               RATE        1 YEAR AGO
ROMANIA FM 7-Jan 5.25% 5.75%
THAILAND EM 9-Jan 2.75% 3.00%
POLAND EM 9-Jan 4.25% 4.75%
INDONESIA EM 10-Jan 5.75% 6.00%
UNITED KINGDOM DM 10-Jan 0.50% 0.50%
EURO AREA DM 10-Jan 0.75% 1.00%
KENYA FM 10-Jan 11.00% 18.00%
SOUTH KOREA EM 11-Jan 2.75% 3.25%
MOZAMBIQUE 11-Jan 9.50% 15.00%


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