Japan and Sweden Ease as U.S., Russia Tighten Policy Stance

November 3rd, 2014
in econ_news

Monetary Policy Week in Review, 27-31 October 3024

by Peter Nielsen, Central Bank News

The central banks of Japan and Sweden pulled rabbits out of their hats last week, surprising financial markets with their audacious moves to ease monetary policy, while the United States, Brazil and Russia tightened their policy stance, underscoring the precarious state of the global economy.

Follow up:

The U.S. Federal Reserve stuck to its commitment to end its third round of asset purchases in the last six years, opening a new chapter in global monetary policy and starting the countdown to its first rate rise since June 2006.

But just as the Fed gingerly steps into the world of post-QE (Quantitative Easing), the Bank ofJapan (BOJ) delves deeper into QE, boosting its target for expanding the monetary base by 10-20 trillion yen to about 80 trillion.

Despite months of denial that it would undertake additional easing, the BOJ decided it had to take firm action to avoid 15 years of "deflationary mindset" again grabbing hold of the Japanese psyche.

The Riksbank is facing a similar challenge in pulling Sweden out of a deflationary grip - it forecast deflation of 0.2 percent this year - and cut its benchmark repurchase rate to zero percent and pledged to keep it there until mid-2016.

But while Sweden and Japan are combating deflation - and have been criticized for being slow to counter the threat of deflation - Brazil and Russia are in the opposite camp, fighting inflation that continues to accelerate despite already very high interest rates.

The Central Bank of Brazil raised its benchmark Selic rate by 25 basis points to 11.25 percent, restarting its tightening campaign that was paused in May after nine rate rises.

The Bank of Russia, which is combatting the twin challenges of international sanctions and falling oil prices, raised its policy rate by 150 basis points to 9.50 percent and now expects inflation to remain above 8 percent in the next several months while the economy is expected to stagnate in the current quarter and in the first quarter of next year. Through the first 44 weeks of this year, the 90 central banks followed by Central Bank News have cut their policy rates 54 times, or 13.4 percent of this year's 404 policy decisions, down from 13.5 percent at the end of the third quarter but up from 12 percent at the end of the first half and 12 percent at the end of the first quarter.

Meanwhile, rates have been raised 41 times, or 10.1 percent of all policy decisions, down from 10.2 percent at the end of September, but up from 9.3 percent at the end of June and 8.7 percent at the end of March.

Boosted by last week's three rate rises, the Global Monetary Policy Rate - the average rate of the 90 central banks followed by Central Bank News - jumped to 5.56 percent, up from 5.54 percent at the end of the third quarter and 5.53 percent at the end of the second quarter and first quarters.

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
ANGOLA 9.00% 8.75% 9.75%
ISRAEL DM 0.25% 0.25% 1.00%
MAURITIUS FM 4.65% 4.65% 4.65%
SWEDEN DM 0.00% 0.25% 1.00%
HUNGARY EM 2.10% 2.10% 3.40%
UNITED STATES DM 0.25% 0.25% 0.25%
BRAZIL EM 11.25% 11.00% 9.50%
ALBANIA 2.50% 2.50% 3.50%
NEW ZEALAND DM 3.50% 3.50% 2.50%
FIJI 0.50% 0.50% 0.50%
COLOMBIA EM 4.50% 4.50% 3.25%
JAPAN DM N/A N/A N/A
RUSSIA EM 9.50% 8.00% 5.50%
MEXICO EM 3.00% 3.00% 3.50%

This week (Week 45) 11 central banks or monetary authorities are scheduled to decide on monetary policy: Australia, Romania, Kenya, Thailand, Iceland, Poland, Malaysia, United Kingdom, euro area, Czech Republic and Zambia.

TABLE WITH THIS WEEK'S MONETARY POLICY DECISIONS:

COUNTRY MSCI DATE CURRENT RATE 1 YEAR AGO
AUSTRALIA DM 4-Nov 2.50% 2.50%
ROMANIA FM 4-Nov 3.00% 4.00%
KENYA FM 4-Nov 8.50% 8.50%
THAILAND EM 5-Nov 2.00% 2.25%
ICELAND 5-Nov 6.00% 6.00%
POLAND EM 5-Nov 2.00% 2.50%
MALAYSIA EM 6-Nov 3.25% 3.00%
UNITED KINGDOM DM 6-Nov 0.50% 0.50%
EURO AREA DM 6-Nov 0.05% 0.25%
CZECH REPUBLIC EM 6-Nov 0.05% 0.05%
ZAMBIA 6-Nov 12.00% 9.75%

www.CentralBankNews.info









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