Fed Debate Intensifies, 3 Central Banks Raise Rates, 2 Cut

July 22nd, 2014
in econ_news

Monetary Policy Week in Review 14-18 July 2014

by Peter Nielsen, Central Bank News

Last week in global monetary policy, three central banks raised policy rates (South Africa, Egypt and Ukraine) while two banks (Turkey and Chile) cut their rates as the debate over the U.S. Federal Reserve's eventual interest rate rise intensified.

Follow up:

There were three developments surrounding Fed policy that stood last week. First, the Fed's statement in its latest Monetary Policy Report that the share prices of social media and biotech firms appeared "substantially stretched."

Second, a series of news stories with major investors and Wall Street financiers calling for the Fed to start to normalize monetary policy and think about rate rises.

Third, Fed Chair Janet Yellen's testimony to a Senate committee that included the statement that rates could be raised sooner if the labour market improves more quickly than anticipated.

While Yellen's reflections on the labor markets and investors' views of Fed policy are part of the normal evolution of a policy consensus in a democratic society, the Fed's mention of the share prices of two specific stock sectors was a surprise.

Economists and central bankers have for years debated how monetary policy should react to booms in asset prices and the risk of financial instability, a debate that most recently hit the headlines following the annual report by the Bank for International Settlements (BIS).

The Fed's statement about the stock prices of social media and biotech firms is thus an example of how central banks initially will react when they perceive that certain assets are inflated. LIST OF LAST WEEK'S CENTRAL BANK DECISIONS:

TABLE WITH LAST WEEK'S MONETARY POLICY DECISIONS:

COUNTRY MSCI NEW RATE OLD RATE 1 YEAR AGO
SRI LANKA FM 6.50% 6.50% 7.00%
MAURITIUS FM 4.65% 4.65% 4.65%
JAPAN DM N/A N/A N/A
CHILE EM 3.75% 4.00% 5.00%
CANADA DM 1.00% 1.00% 1.00%
UKRAINE FM 12.50% 9.50% 7.00%
BRAZIL EM 11.00% 11.00% 8.50%
TURKEY EM 8.25% 8.75% 4.50%
EGYPT EM 9.25% 8.25% 9.75%
SOUTH AFRICA EM 5.75% 5.50% 5.00%
PAKISTAN FM 10.00% 10.00% 9.00%

This week (Week 30) five central banks will decide on monetary policy, comprising the countries of Nigeria, Hungary, New Zealand, Russia and Trinidad and Tobago. TABLE WITH THIS WEEK'S MONETARY POLICY DECISIONS:

COUNTRY MSCI DATE CURRENT RATE 1 YEAR AGO
NIGERIA FM 22-Jul 12.00% 12.00%
HUNGARY EM 22-Jul 2.30% 4.00%
NEW ZEALAND DM 24-Jul 3.25% 2.50%
RUSSIA EM 25-Jul 7.50% 8.25%
TRINIDAD AND TOBAGO 25-Jul 2.75% 2.75%

www.CentralBankNews.info









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