March 18th, 2014
Monetary Policy Week in Review – 10-14 March 2014
by Peter Nielsen, Central Bank News
Last week in global monetary policy New Zealand raised its benchmark rate while Thailand and Chile cut their rates, illustrating how central banks are taking out insurance against a further weakening of the global economy from China's slowdown.
But the Reserve Bank of New Zealand's (RBNZ) rate rise also shows that the trend toward lower interest rates that dominated in 2012 and 2013 has effectively ended as the U.S. Federal Reserve's exit from quantitative easing and return to normal monetary policy is transmitted worldwide.
Policy rates have been raised 10 times so far this year, or 10 percent of the 100 policy decisions taken by the 90 central banks followed by Central Bank News, while rates have been cut 13 times in the first 11 weeks of this year. Six of the rate rises were by central banks in emerging markets.
In comparison, policy rates were raised 26 times in the 12 months of 2013, or 5.2 percent of last year's 499 policy decisions. Rates were cut 116 times, or nearly one-fourth of all policy decisions.
The 23 rate changes so far this year have resulted in a net increase of 875 basis points in policy rates with the Global Monetary Policy Rate (GMPR) - the average rate in the 90 central banks - now at 5.55 percent, up from 5.41 percent in December 2013.
New Zealand became the first developed market central bank, not including Denmark, to tighten its policy since July 2011, when the European Central Bank and Sweden's Riksbank raised their rates as a one-year monetary tightening cycle came to an end as the global economy was hit a range of negative shocks, ranging from Japan's Tsunami, political and social unrest in the Middle East and North Africa, the euro zone's shattering sovereign debt crises and political gridlock in the United States.
Denmark's Nationalbank, which raised its rate in January 2013, is unusual for a developed market central bank because its monetary policy is aimed at maintaining a peg to the euro so rate changes typically mirror ECB policy rather than reflect Denmark's economy.
LIST OF LAST WEEK'S CENTRAL BANK DECISIONS:
- BOJ holds policy, stronger investment, industrial output
- Thailand cuts rate on higher risks to growth from unrest
- New Zealand raises rate 25 bps to 2.75%
- Mozambique holds rate steady as floods destroy farmland
- Korea holds rate, inflation to remain low on good harvest
- Indonesia holds, inflation to hit target in '14, growth lower
- Chile cuts by 25 bps, to consider possible further cuts
- Peru maintains rate at 4.0% (Central Reserve Bank of Peru)
- Russia says doesn't intend to lower 7% rate for months
- Pakistan holds rate, outlook for lower inflation improving
LIST OF OTHER STORIES:
TABLE WITH LAST WEEK'S MONETARY POLICY DECISIONS:
|COUNTRY||MSCI||DATE||CURRENT RATE||1 YEAR AGO|
|RUSSIA||EM||7.00% (NEW)||7.00% (NEW)||8.25% (OLD)|
This week (Week 12) six central banks will be deciding on monetary policy, including Turkey, the United States, Iceland, Switzerland, Sri Lanka, Mexico and Colombia.