Monetary Policy Week in Review
by Peter Nielsen, Central Bank News
Last week 13 central banks took monetary policy decisions, with seven (Angola, Mongolia, Colombia, India, Hungary, Albania and Bulgaria) cutting key interest rates and six banks (Israel, United States, Malaysia, New Zealand, Dominican Republic and Egypt) keeping rates on hold.
With central banks still easing policy amid subdued inflation, last year’s global trend of declining interest rates continues unabated, with the average policy rate by the 90 central banks followed by Central Bank News down to 5.88 percent at the end of last week from 5.92 percent at the end of 2012.
Through the first five weeks of this year 41 central banks have taken policy decisions decided with nine banks, or 22 percent, cutting rates while 30 have kept rates steady and two have raised rates.
As expected, emerging market central banks have taken full advantage of their ability to cut relatively-high interest rates to stimulate growth, with four of this year’s nine rate cuts taking place in emerging markets while central banks in frontier market have accounted for two cuts.
Two main messages were delivered by central banks last week.
First, inflation is low and declining as there are few upward pressures due to weak global demand. Angola, for example, is experiencing its lowest inflation rate in recent history, while subdued inflationary pressures were cited by India, Colombia, Hungary Mongolia and Albania as reasons for rate cuts along with weak economic growth.
Second, the global economy remains sluggish but growth prospects are improving and central banks in Asia are starting to voice their concerns over how stronger growth may push up inflation. Despite all the recent talk about central banks revising policy frameworks to focus more on growth, there is little doubt that keeping inflation at bay will remain one of their core functions.
New Zealand illustrates this awareness of pending inflationary pressures. Although inflation is subdued due to its strong dollar, the Reserve Bank of New Zealand said it is keeping a close eye on house prices and household credit and looks forward to stronger economic growth.
Malaysia’s central bank, which also expects economic growth to improve, said it was still keeping interest rates low to support growth but only while inflation is contained, reinforcing market expectations that interest rates will rise later this year due to higher inflation.
The Reserve Bank of India summarized the current state of the global economy, saying sluggish economic conditions remain but prospects have improved even as significant risks remain.
The U.S. Federal Reserve lived up to market expectations, maintaining its $85 billion asset purchase program, but did not give any fresh clues to when it may stop these purchases, the first sign that it is returning to a more neutral policy stance.
NEXT WEEK (week 6) 10 central banks are scheduled to decide on monetary policy, including Australia, Uganda, Romania, Iceland, Poland, United Kingdom, the euro area, Serbia, Peru and the Philippines.
About the Author
Central Bank News (CBN) is published by Peter Nielsen, a financial journalist who worked for 20 years for Reuters news agency as a writer and editor. After graduating with a journalism degree (BS) from the University of Colorado, Boulder in 1983, Peter worked as a business writer and editor for two newspapers and then completed an economics degree (BA) in 1986.
Peter joined Reuters in London shortly before Black Monday in September 1987 and then worked as a correspondent in Bonn, Germany, during unification. In 1993 Peter moved to Zurich and began writing about global central banking. In 1998 he returned to Reuters’ headquarters in London before moving to Brussels in 2003. After two years in the capital of the European Union, Peter returned to London and retired from Reuters in 2007. In 2009 Peter returned to Boulder and in June, 2012 he took over as publisher of CBN.