Central Banks: Quiet Week to Start 2014

Monetary Policy Week in Review – Dec 30-Jan 3, 2014: ‘Year of the Taper’ starts quiet, two banks maintain rates

by Peter Nielsen, Central Bank News

Global monetary policy was quiet last week with most of the world celebrating Christmas and the start to 2014 – already nicknamed ‘Year of the Taper’ – with only the central banks of Sri Lanka, Uganda and Uzbekistan taking policy decisions. Both Sri Lanka and Uganda maintained their policy rates but Sri Lanka added some spice by rejigging its policy framework. Uzbekistan’s central bank captured the honor of being the first central bank to change rates in 2014, cutting its refinancing rate by 200 basis points to 10.0 percent to boost economic growth as it expects inflation to slow.

The Central Bank of Sri Lanka replaced its previous rate corridor with a Standing Rate Corridor (SCR) with the Standing Deposit Facility Rate (SDFR) setting the floor and replacing the current repurchase rate as a benchmark. The ceiling in the corridor will be known as the Standing Lending Facility Rate (SLFR) and determines the rate for the central bank’s provision of overnight funds to the banking system. The central bank took advantage of the opportunity to narrow the width of the corridor to 150 basis points from 200 basis points by cutting the SLFR by 50 basis points to 8.0 percent and keeping the SDFR steady at 6.50 percent. The Bank of Uganda held its policy rate steady at 11.5 percent but sent a distinctly hawkish message, saying it “shall take appropriate action to ensure that annual core inflation remains around the policy target of 5 percent in the medium term.” While expecting inflation to slow in coming months, the central bank expects it to accelerate later this year, mainly due to an improving economy, with the rise in inflation depending on the exchange rate and changes in commodity prices, always a critical component of inflation in emerging and frontier markets.

LAST WEEK’S (WEEK 1) STORIES ON POLICY DECISIONS: Sri Lanka rejigs policy framework, sees higher growth Uganda holds rate steady, to ensure inflation around target Uzbekistan cuts rate 200 bps to 10.0 % (Central Bank of the Republic of Uzbekistan)

LAST WEEK’S MONETARY POLICY DECISIONS:

This week (Week 2) monetary policy will be in focus right away as the U.S. Senate is set to vote on Monday afternoon on Federal Reserve Vice Chair Janet Yellen’s nomination as successor to Fed Chairman Ben Bernanke who will be leaving at the end of this month after eight years as the world’s leading central banker. Seven central banks will decide on their monetary policy stance this week, including those from Romania, Poland, South Korea, Indonesia, United Kingdom, the European Central Bank and Peru.

www.CentralBankNews.info