January 26, 2015
The European Central Bank’s (ECB) embrace of full-scale quantitative easing with the purchase of government bonds was the main feature of global monetary policy last week along with five rate cuts, including surprise cuts by Canada and Denmark.
Turkey and Pakistan’s rate cuts were largely expected while Brazil’s rate rise was also expected. Armenia continued its tightening cycles in response to the ongoing pressure on its dram currency due to the country’s close links with Russia.
Through the first five weeks of this year, the 90 central banks followed by Central Bank News have cut their policy rates 11 times, or 44 percent of this year’s 25 policy decisions, a clear indication of central banks’ bias toward cutting policy rates in the face of weakening global growth and falling inflation from lower oil prices.
Meanwhile, four central banks have raised rates this year – Belarus, Mongolia, Brazil and Armenia – amounting to 16 percent of this year’s policy decisions.
This means that 60 percent of this year’s monetary policy decisions have resulted in rate changes, showing how hyper-active central banks have been in adjusting their policy to the main drivers of global monetary policy so far this year: the ECB’s expanded stimulus, the crises in Russia, the pending policy tightening by the Federal Reserve, sluggish global growth and falling inflation.
In comparison, 24.3 percent of the 482 policy decisions in 2014 resulted in rate changes, with 13.5 percent of the decisions favoring rate cuts and 10.8 percent favoring rate increases.
Nine of the 65 rate cuts last year were taken by central banks in advanced economies compared with 25 from emerging market central banks, 14 from frontier markets and 17 from other central banks.
Four of the 52 rate increases in 2014 came from advanced economies – New Zealand accounted for all these rate hikes – while 24 rate rises were done by emerging market central banks, five from frontier market central banks and 19 by central banks in other markets.
Despite the large number of rate cuts, the Global Monetary Policy Rate (GMPR) – the average rate of the 90 central banks followed by Central Bank News – rose to 5.84 percent at the end of last week from 5.74 percent at the end of 2014.
This is partly due to a change in the central banks included in the coverage – the Kyrgyz Republic has been included while Samoa has been dropped – and the fact that central banks often raise rates in larger increments than when they cut rates.
The 500 basis point rate rise by Belarus on Jan. 8 is a case in point, with this rise larger than the combined rate cuts so far this month by Bulgaria, Uzbekistan, Romania, India, Switzerland, Egypt, Peru, Denmark, Canada and Pakistan.
LIST OF LAST WEEK’S CENTRAL BANK DECISIONS:
- Denmark cuts lending, deposit rates by 15 bps
- Turkey cuts rate 50 bps, changes to depend on inflation
- Nigeria holds rate, needs time for past hike to “crystalize”
- BOJ maintains QQE target and cuts inflation forecast
- Canada cuts rate 25 bps, lowers growth, inflation outlook
- Brazil unanimously raises rate by another 50 bps
- ECB maintains rates, further news at press conference
- ECB to boost asset purchases to 60 billion euros a month
- Armenia raises rate 100 bps, inflation expectations high
- Pakistan cuts rate 100 bps, revises down inflation f’cast
OTHER STORIES LAST WEEK:
TABLE WITH LAST WEEK’S MONETARY POLICY DECISIONS:
| COUNTRY | MSCI | NEW RATE | OLD RATE | 1 YEAR AGO |
| DENMARK | DM | 0.05% | 0.20% | 0.20% |
| TURKEY | EM | 7.75% | 8.25% | 10.00% |
| NIGERIA | FM | 13.00% | 13.00% | 12.00% |
| BRAZIL | EM | 12.25% | 11.75% | 10.50% |
| JAPAN | DM | N/A | N/A | N/A |
| CANADA | DM | 0.75% | 1.00% | 1.00% |
| EURO AREA | DM | 0.05% | 0.05% | 0.25% |
| DENMARK (DEPO RATE) | DM | -0.35% | -0.20% | -0.10% |
| ARMENIA | 9.50% | 8.50% | 7.75% | |
| EASTERN CARIBBEAN | 23-Jan | 6.50% | 6.50% | |
| PAKISTAN | FM | 8.50% | 9.50% | 10.00% |
This week (Week 5) central banks from 15 countries or jurisdictions are scheduled to decide on monetary policy: Israel, Kyrgyzstan, Angola, Sri Lanka, Hungary, Bangladesh, the United States, Thailand, Malaysia, South Africa, New Zealand, Mexico, Russia, Colombia and Trinidad and Tobago.
TABLE WITH THIS WEEK’S MONETARY POLICY DECISIONS:
| COUNTRY | MSCI | DATE | CURRENT RATE | 1 YEAR AGO |
| ISRAEL | DM | 0.25% | 0.25% | 1.00% |
| KYRGYZSTAN | 26-Jan | 10.50% | N/A | |
| ANGOLA | 26-Jan | 9.00% | 9.25% | |
| SRI LANKA | FM | 27-Jan | 6.50% | 6.50% |
| HUNGARY | EM | 27-Jan | 2.10% | 2.85% |
| BANGLADESH | FM | 28-Jan | 7.75% | 7.75% |
| UNITED STATES | DM | 28-Jan | 0.25% | 0.25% |
| THAILAND | EM | 28-Jan | 2.00% | 2.25% |
| MALAYSIA | EM | 28-Jan | 3.25% | 3.00% |
| SOUTH AFRICA | EM | 29-Jan | 5.75% | 5.50% |
| NEW ZEALAND | DM | 29-Jan | 3.50% | 2.50% |
| MEXICO | EM | 29-Jan | 3.00% | 3.50% |
| RUSSIA | EM | 30-Jan | 17.00% | 5.50% |
| COLOMBIA | EM | 30-Jan | 4.50% | 3.25% |
| TRINIDAD & TOBAGO | 30-Jan | 3.25% | 2.75% |
