ECB to Inject Cash into Markets While Fed, BOE to Withdraw

September 8th, 2014
in econ_news

Monetary Policy Week in Review 01-05 September 2014

by Peter Nielsen, Central Bank News

Shaken by the loss of momentum in the euro area's economic recovery, the European Central Bank (ECB) pushed its benchmark refinancing rate to the lower bound and added fresh fuel to its June stimulus measures by buying asset-backed securities (ABS) and covered bonds.

The ECB's measures are aimed at easing the credit conditions for the euro zone's ailing banking sector which accounts for over 80 percent of all credit that is provided to businesses and households.

Follow up:

The ECB's decision to cut its refi rate to 0.05 percent and the deposit rate to minus 0.20 percent was triggered by news that growth in the second quarter stagnated from the first quarter while inflation in August fell further to 0.3 percent - the weakest since October 2009 - renewing fears that the euro zone may slipping into Japanese-style deflation.

The ECB's move to inject liquidity into financial markets may turn out to be opportune for the global economy.

Apart from the geopolitical risks from the Ukraine and Mideast, the global economy is continuing its moderate recovery and the Federal Reserve and the Bank of England (BOE) remain on track to raise rates at some point in 2015.

So just as investors could become jittery over the prospect of rate rises by the Fed and BOE, the ECB will start pumping money into financial markets.

The global economy may be not be firing on all cylinders but the ECB's action may ensure that financial markets remain on a smooth and steady path upwards.

With the ECB's rate cut, the 90 central banks followed by Central Bank News have now cut their policy rates 46 times through the first 36 weeks of this year compared with 35 rate rises.

Of this year's 331 policy decisions, 13.9 percent have favored rate cuts, up from 12 percent at the end of the first half and 12 percent at the end of the first quarter.

But the trend toward higher global rates, pushed by the Fed, remains alive, with 10.6 of decisions favoring rate rises, up from 9.3 percent at the end of June and 8.7 percent at the end of March.

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
EGYPT EM 9.25% 9.25% 9.25%
AUSTRALIA DM 2.50% 2.50% 2.50%
BRAZIL EM 11.00% 11.00% 9.00%
POLAND EM 2.50% 2.50% 2.50%
CANADA DM 1.00% 1.00% 1.00%
KENYA FM 8.50% 8.50% 8.50%
SWEDEN DM 0.25% 0.25% 1.00%
JAPAN DM N/A N/A N/A
EURO AREA DM 0.05% 0.15% 0.50%
UNITED KINGDOM DM 0.50% 0.50% 0.50%
MEXICO EM 3.00% 3.00% 3.75%

This week (Week 37) nine central banks are scheduled to decide on monetary policy: Croatia, New Zealand, the Philippines, Indonesia, Serbia, Chile, Peru, South Korea and Russia.

TABLE WITH THIS WEEK'S MONETARY POLICY DECISIONS:

COUNTRY MSCI DATE CURRENT RATE 1 YEAR AGO
CROATIA FM 10-Sep 5.00% 6.25%
NEW ZEALAND DM 11-Sep 3.50% 2.50%
PHILIPPINES EM 11-Sep 3.75% 3.50%
INDONESIA EM 11-Sep 7.50% 7.25%
SERBIA FM 11-Sep 8.50% 11.00%
CHILE EM 11-Sep 3.50% 5.00%
PERU EM 11-Sep 3.75% 4.25%
SOUTH KOREA EM 12-Sep 2.25% 2.50%
RUSSIA EM 12-Sep 8.00% 8.25%

www.CentralBankNews.info









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