Monetary Policy Week in Review 25-29 August 2014
by Peter Nielsen, Central Bank News
Speculation over further monetary easing by the European Central Bank (ECB) dominated global monetary policy last week as financial markets continued to digest the implication of Mario Draghi’s speech in Jackson Hole.
In his speech on Friday Aug. 22 ECB President Draghi said he will use “all the available instruments needed to ensure price stability” and is “ready to adjust the policy stance further.” In addition, Draghi went beyond his normal language about the need for fiscal discipline and called on euro area policymakers to loosen the fiscal strings and get serious about structural reforms that can improve the area’s global competitiveness.
Whether Draghi and the ECB will embark on full-blown quantitative easing this week following another decline in inflation in August is one of the major factors that will influence sentiment in global financial markets, increasingly rattled by unsettling news from the Ukraine and the Mideast.
Underscoring the economic toll from fighting in Gaza, Israel last week cut its policy rate for the third time this year to 0.25 percent in response to slowing economic growth, falling inflation and a decline in its shekel currency.
Whether the Bank of Israel (BOI) was thinking about the ECB was not clear, but in its statement the BOI predicted continued accommodative monetary policy by major central banks for an extended period of time, a comment that may be prescient given that both the Federal Reserve and the Bank of England are currently shifting toward monetary tightening.
The Central Bank of Colombia was the only other central bank that changed its rates last week, raising its intervention rate for the fifth consecutive time to curb inflation.
But the Colombian central bank signaled that it may be getting close to pausing in its tightening cycle, changing its guidance to include the comment that it hopes the latest rate rise would keep inflation expectations close to its 3.0 percent target and economic activity at its potential level. The other four central banks that held monetary policy meetings last week maintained their policy rates, including the National Bank of Hungary, which as promised froze rates after 24 consecutive rate reductions.
And while the Central Bank of the Republic of Turkey maintained its benchmark repo rate at 8.25 percent, it again nudged down its rate corridor by trimming the overnight lending rate – the corridor’s ceiling – by 75 basis points to 11.25 percent while it kept the borrowing rate – the floor – steady at 7.50 percent. LIST OF LAST WEEK’S CENTRAL BANK DECISIONS:
- Israel cuts rate 25 bsp to 0.25%, 3rd cut this year
- Hungary maintains rate at 2.10 percent, as signaled
- Turkey holds repo rate, cuts overnight funds rate 75 bps
- Egypt pushes back policy meeting to Monday, Sept. 1
- Angola maintains rates on stable inflation
- Colombia raises rate for 5th time, may now pause
TABLE WITH LAST WEEK’S MONETARY POLICY DECISIONS:
| COUNTRY | MSCI | NEW RATE | OLD RATE | 1 YEAR AGO |
| ISRAEL | DM | 0.25% | 0.50% | 1.25% |
| ANGOLA | 8.75% | 8.75% | 9.75% | |
| HUNGARY | 2.10% | 2.10% | 3.80% | |
| TURKEY | EM | 8.25% | 8.25% | 4.50% |
| ALBANIA | 2.50% | 2.50% | 3.50% | |
| COLOMBIA | EM | 4.50% | 4.25% | 3.25% |
This week (Week 36) nine central banks are scheduled to decide on monetary policy: Egypt (which was originally scheduled for last week), Australia, Brazil, Poland, Canada, Sweden, the euro area, the United Kingdom and Mexico.
| COUNTRY | MSCI | DATE | CURRENT RATE | 1 YEAR AGO |
| EGYPT | EM | 1-Sep | 9.25% | 9.25% |
| AUSTRALIA | DM | 2-Sep | 2.50% | 2.50% |
| BRAZIL | EM | 3-Sep | 11.00% | 9.00% |
| POLAND | EM | 3-Sep | 2.50% | 2.50% |
| CANADA | DM | 3-Sep | 1.00% | 1.00% |
| SWEDEN | DM | 4-Sep | 0.25% | 1.00% |
| EURO AREA | 4-Sep | 0.15% | 0.50% | |
| UNITED KINGDOM | DM | 4-Sep | 0.50% | 0.50% |
| MEXICO | EM | 5-Sep | 3.00% | 3.75% |
