{"id":40020,"date":"2013-07-13T17:40:54","date_gmt":"2013-07-13T21:40:54","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=40020"},"modified":"2013-07-13T17:40:54","modified_gmt":"2013-07-13T21:40:54","slug":"monetary-policy-week-in-review-jul-8-12-2013-2-major-banks-raise-rates-2-cut-as-markets-yo-yo-over-fed-policy","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/07\/13\/monetary-policy-week-in-review-jul-8-12-2013-2-major-banks-raise-rates-2-cut-as-markets-yo-yo-over-fed-policy\/","title":{"rendered":"Monetary Policy Week in Review \u2013 Jul 8-12, 2013: 2 major banks raise rates, 2 cut as markets yo-yo over Fed policy"},"content":{"rendered":"

By www.CentralBankNews.info<\/u><\/a>
    This week two major emerging market central banks raised rates while two minor banks cut rates as global financial markets continued to yo-yo in response to the U.S. Federal Reserve\u2019s valiant attempts to be transparent over its plan to normalize monetary policy and exit quantitative easing.
    It was always clear that the process of winding down asset purchases would be tricky, not only because financial markets have grown accustomed to the steady supply of free money but also because there is no road map for central banks to follow.
    But to observe Federal Reserve Chairman Ben Bernanke\u2019s heroic attempts to explain the difference between a \u201chighly accommodative\u201d policy stance (a reference to the exceptionally low federal funds rate) and \u201cincreased policy accommodation\u201d (a reference to asset purchases) is bordering on the surreal.
    While there are many benefits to investors and financial markets from central banks\u2019 move toward more open communication, greater asset price volatility seems to be one of the drawbacks when policy makers are navigating unchartered waters and basing decisions on real-time economic data.
    As a general rule, financial markets typically overreact to unexpected changes in central banks\u2019 policy so the sharp rise in bond yields in May and June \u2013 probably an excessive rise – was entirely rational as Bernanke\u2019s consistent message was that the days of ultra-easy U.S. monetary policy are on the wane.
    But to ensure that the rise in bond yields doesn\u2019t derail the economic recovery \u2013 a fear already voiced by the Bank of England and the European Central Bank \u2013 Bernanke then reminded markets that the \u201chighly accommodative monetary policy\u201d (i.e. short-term rates) will be needed for the foreseeable future, and the Fed would respond if financial conditions tighten too much \u2013 a clear reminder that the \u201cBernanke Put\u201d is still alive and well.
    The spillover from the change in U.S. monetary policy to emerging markets has been widespread since early May, triggering intervention in foreign exchange markets and contributing to at least one rate hike to dampen the outflow of capital and a sharp decline in currencies.
    This week the central banks of South Korea, Mexico<\/a> and Serbia \u2013 which all held their rates steady  – referred to the tapering of U.S. asset purchases as a downside risk to growth due to the rise in local bond yields and currency depreciation.
    But it was interesting that Mexico described the rise in bond yields and a decline in its currency as taking place in \u201corderly fashion\u201d and this would not lead to inflationary pressures due to the slack in the economy.
    By downplaying the impact of the fall in the peso in May and early June \u2013 the peso rebounded in late June – the Mexican central bank confirmed that the impact on emerging markets from an eventual tightening of U.S. monetary policy is unlikely to be as dramatic as in the 1980s and 1990s when financial crises followed.
    The Bank of Thailand<\/a>, which also held rates steady this week, looked at the other side of the coin of an expected tapering of U.S. asset purchases, noting improvements in the U.S. economy from better housing and labour market conditions.
    Another central bank to look at the bright side was the Bank of Japan<\/a>, which for the first time in two years used the word \u201crecovery\u201d to describe its economy. And while it is clear that the economy is strengthening, it is still early days and prices are still falling. The BOJ\u2019s confidence may be growing, but it still adds the adjective of \u201cmoderate\u201d to the describe the recovery.
    But while the U.S. and Japanese economies appear to be strengthening, the slowdown in China has hit economies worldwide. The Bank of Korea<\/a>, which also held rates steady, and Thailand specifically pointed to the negative impact of China while the central banks of Malaysia<\/a>, Chile<\/a> and Russia<\/a> \u2013 which also maintained their rates – merely referred to the weak global environment.
    The surprise of the week came from the Bank of Indonesi<\/a>a, which raised rates by 50 basis points \u2013 markets had expected a 25 point rise \u2013 signaling that it will go to great lengths to contain inflationary expectations and stop any second-round effects from the government\u2019s long-awaited rise in fuel prices.
    The Central Bank of Brazil<\/a> also hiked rates by 50 basis points, a move that was largely expected, illustrating the same determination to avoid a further rise in inflation, an even more present danger due to the recent depreciation of Brazil\u2019s real and Indonesia\u2019s rupiah.
    This week\u2019s two rate cuts came from Latvia and Tajikistan<\/a>, with both central banks taking advantage of low inflation to stimulate growth. Latvia<\/a>, which cut its rate by 50 basis points to 2.0 percent, also needs to slowly narrow the gap to the European Central Bank\u2019s 0.50 percent refinancing rate, before becoming the 18th nation to use the euro from January 1, 2014.
    Through the first 28 weeks<\/b> of this year, central bank policy rates have been cut 69 times, or 24.8 percent of the 274 policy decisions taken by the 90 central banks followed by Central Bank News, slightly down from 25.4 percent last week and 24.9 percent the previous week.
    While the global trend remains firmly toward lower policy rates, the number of rate rises has been inching up ever so slowly. Policy rates have been raised 14 times this year, accounting for 5.1 percent of all decisions, up from 4.6 percent last week.
     Last week 10 central banks maintained their rates, including the central banks of Thailand, Kenya<\/a>, Japan, Korea, Serbia<\/a>, Malaysia, Peru<\/a>, Mexico, Russia and Chile.<\/p>\n

    LAST WEEK\u2019S (WEEK 28) MONETARY POLICY DECISIONS<\/b>:<\/p>\n <\/p>\n<\/col>\n<\/col>\n<\/col>\n<\/col>\n<\/col>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
COUNTRY<\/td>\nMSCI<\/td>\n    NEW RATE  <\/td>\n        OLD RATE<\/td>\n       1 YEAR AGO<\/td>\n<\/tr>\n
THAILAND<\/td>\nEM<\/td>\n2.50%<\/td>\n2.50%<\/td>\n3.00%<\/td>\n<\/tr>\n
KENYA<\/td>\nFM<\/td>\n8.50%<\/td>\n8.50%<\/td>\n16.50%<\/td>\n<\/tr>\n
TAJIKISTAN<\/td>\n<\/td>\n6.10%<\/td>\n6.50%<\/td>\n6.80%<\/td>\n<\/tr>\n
BRAZIL<\/td>\nEM<\/td>\n8.50%<\/td>\n8.00%<\/td>\n8.00%<\/td>\n<\/tr>\n
JAPAN<\/td>\nDM<\/td>\n                N\/A<\/td>\n                N\/A<\/td>\n0.10%<\/td>\n<\/tr>\n
KOREA<\/td>\nEM<\/td>\n2.50%<\/td>\n2.50%<\/td>\n3.00%<\/td>\n<\/tr>\n
SERBIA<\/td>\nFM<\/td>\n11.00%<\/td>\n11.00%<\/td>\n10.25%<\/td>\n<\/tr>\n
INDONESIA<\/td>\nEM<\/td>\n6.50%<\/td>\n6.00%<\/td>\n5.75%<\/td>\n<\/tr>\n
MALAYSIA<\/td>\nEM<\/td>\n3.00%<\/td>\n3.00%<\/td>\n3.00%<\/td>\n<\/tr>\n
LATVIA<\/td>\n<\/td>\n2.00%<\/td>\n2.50%<\/td>\n3.00%<\/td>\n<\/tr>\n
PERU<\/td>\nEM<\/td>\n4.25%<\/td>\n4.25%<\/td>\n4.25%<\/td>\n<\/tr>\n
MEXICO<\/td>\nEM<\/td>\n4.00%<\/td>\n4.00%<\/td>\n4.50%<\/td>\n<\/tr>\n
RUSSIA<\/td>\nEM<\/td>\n8.25%<\/td>\n8.25%<\/td>\n8.00%<\/td>\n<\/tr>\n
CHILE<\/td>\nEM<\/td>\n5.00%<\/td>\n5.00%<\/td>\n5.00%<\/td>\n<\/tr>\n

<\/tbody>\n<\/table>\n

    Next week <\/b>(week 29) is quiet on the monetary policy front, with only two banks scheduled to hold policy meetings: Canada and South Africa. On Friday the 19th, finance and labor ministers from the Group of 20 meet in Moscow.<\/p>\n <\/p>\n<\/col>\n<\/col>\n<\/col>\n<\/col>\n<\/col>\n\n\n\n\n
COUNTRY<\/td>\nMSCI<\/td>\n             DATE<\/td>\n              RATE<\/td>\n       1 YEAR AGO<\/td>\n<\/tr>\n
CANADA<\/td>\nDM <\/td>\n17-Jul<\/td>\n1.00%<\/td>\n1.00%<\/td>\n<\/tr>\n
SOUTH AFRICA<\/td>\nEM<\/td>\n18-Jul<\/td>\n5.00%<\/td>\n5.00%<\/td>\n<\/tr>\n

<\/tbody>\n<\/table>\n

    www.CentralBankNews.info<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By www.CentralBankNews.info     This week two major emerging market central banks raised rates while two minor banks cut rates as global financial markets continued to yo-yo in response to the U.S. Federal Reserve\u2019s valiant attempts to be transparent over its plan to normalize monetary policy and exit quantitative easing.    It was always clear … <\/p>\n

Continue reading “Monetary Policy Week in Review \u2013 Jul 8-12, 2013: 2 major banks raise rates, 2 cut as markets yo-yo over Fed policy”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-40020","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/40020","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/comments?post=40020"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/40020\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/media?parent=40020"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/categories?post=40020"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/tags?post=40020"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}