Sunday, March 23, 2014

Monetary Policy Week in Review – Mar 17-21, 2014: Vietnam cuts rate, Yellen learns the power of her words

    Seven central banks maintained their policy rates last week while Vietnam cut its rate as Janet Yellen, the new chair of the U.S. Federal Reserve, learned how every single word she utters has the power to move markets via trigger-happy news media.
    As her predecessor Ben Bernanke learned after chatting to CNBC’s Maria Bartiromo three months after taking over from Alan Greenspan in 2006, every single word from a Fed chair has to be scrutinized and weighed for its potential impact on jittery financial markets. There is no room for subtle points or thinking out loud.
    Although Yellen on several occasions during her first press conference on Wednesday said the Fed’s new guidance did not “indicate any change in the Committee’s policy intentions,” this point went out the window when she tried to explain what the Fed meant by “a considerable period.”
    In its new guidance, the Fed, like the Bank of England last month, ditched unemployment as a simplistic threshold for changing policy in favor of a broader range of indicators that can give policymakers a fuller understanding of the slack in the labor market and inflationary or deflationary pressures.
    In its statement, the Fed’s policy-making body, the Federal Open Market Committee (FOMC), said the fed funds rate will likely be maintained at the current level for “a considerable time after the asset purchase program ends” especially if inflation is below the Fed's 2.0 percent goal.
    As any good journalist, a Reuters reporter quizzed Yellen on how long the gap could be between the ending of the Fed's asset purchase program sometime in the fall of 2014 and a rate rise.
    Yellen took the bait.
    “But, you know, (that) probably means something on the order of around six months or that type of thing,” Yellen said.
    It was a dream come true for journalists. The headline and the story was served on a silver platter. The message that the Fed was likely to raise rates in the first half of 2015 was instantaneously flashed to financial markets across the world.
    Yellen’s context for her statement and clarification that any decision to raise rates would depend on the condition of the labor market and inflation was lost in the shuffle as global stock and bond markets dropped in anticipation of a rate rise in April 2015, some three months earlier than expected.
    In the days following what will likely become known as Yellen’s rookie mistake, her Fed colleagues did their best to explain that financial markets overreacted to her statement and she was not signaling a more restrictive policy stance.
    Yellen has not spoken in public since the press conference.
    Through the first 12 weeks of this year, rates have been cut 14 times, or 13 percent of this year’s 108 monetary policy decisions by the 90 central banks followed by Central Bank News, steady from the previous week but down from 14 percent at the end of February.
    Rates have been raised 10 times, or 9.3 percent of this year’s policy decisions, down from 10 percent the previous week and 10 percent at the end of February.


VIETNAM  FM 6.50% 7.00% 8.00%
TURKEY EM 10.00% 10.00% 5.50%
UNITED STATES DM  0.25% 0.25% 0.25%
ICELAND  6.00% 6.00% 6.00%
SWITZERLAND DM 0.25% 0.25% 0.25%
SRI LANKA FM 6.50% 6.50% 7.50%
MEXICO  EM 3.50% 3.50% 4.00%
COLOMBIA EM 3.25% 3.25% 3.25%

    This week (Week 13) 16 central banks will be deciding on monetary policy, including Israel, Armenia, Morocco, Nigeria, Hungary, Albania, Georgia, Norway, Taiwan, the Philippines, Moldova, Fiji, South Africa, the Czech Republic, Romania and Trinidad and Tobago.

ISRAEL  DM 24-Mar 0.75% 1.75%
ARMENIA 25-Mar 7.50% 8.00%
MOROCCO EM 25-Mar 3.00% 3.00%
NIGERIA FM 25-Mar 12.00% 12.00%
HUNGARY EM 25-Mar 2.70% 5.00%
ALBANIA 26-Mar 2.75% 3.75%
GEORGIA 26-Mar 4.00% 4.50%
NORWAY DM 27-Mar 1.50% 1.50%
PHILIPPINES EM 27-Mar 3.50% 3.50%
TAIWAN EM 27-Mar 1.88% 1.88%
MOLDOVA 27-Mar 3.50% 4.50%
FIJI 27-Mar 0.50% 0.50%
SOUTH AFRICA EM 27-Mar 5.50% 5.00%
CZECH REPUBLIC EM 27-Mar 0.05% 0.05%
ROMANIA FM 28-Mar 3.50% 5.25%
TRINIDAD & TOBAGO 28-Mar 2.75% 2.75%


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