{"id":23165,"date":"2011-08-12T23:44:00","date_gmt":"2011-08-13T03:44:00","guid":{"rendered":"http:\/\/countingpips.com\/fx\/?guid=d7923f577cd15532c16c596da121e4fd"},"modified":"2011-08-12T23:44:00","modified_gmt":"2011-08-13T03:44:00","slug":"monetary-policy-week-in-review-13-august-2011","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/fx\/2011\/08\/12\/monetary-policy-week-in-review-13-august-2011\/","title":{"rendered":"Monetary Policy Week in Review – 13 August 2011"},"content":{"rendered":"

The past week in monetary policy was rocked by the turmoil in global sentiment in the wake of the US sovereign credit rating downgrade<\/a>, and heightened concerns about contagion in the European sovereign debt crisis.  In all, 11 central banks reviewed monetary policy rates, with the following banks adjusting rates: Qatar -50bps to 4.50%, Mozambique -50bps to 16.00%, and Belarus +200bps to 22.00%.  Meanwhile the following central banks held interest rates unchanged: Rwanda 6.00%, Indonesia 6.75%, US 0.25%, Hong Kong 0.50%, Norway 2.25%, Serbia 11.75%, South Korea 3.25%, and Peru 4.25%.
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A<\/span>side from interest rate adjustments the week saw further moves from the Swiss National Bank to attempt to cap gains in the Swiss franc<\/a>, which saw heavy safe-haven buying earlier in the week as panic gripped the market.  Similarly the Central Bank of Turkey<\/a> also announced a set of moves to support the Turkish Lira.  Elsewhere, the US Federal Reserve issued a statement following the Standard & Poor’s credit rating downgrade, and the European Central Bank issued a statement following disruptive activity in the European bond markets, essentially saying that it would expand its SMP<\/a> to include Spanish and Italian bonds.<\/span><\/span><\/p>\n

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Indeed, the US sovereign rating downgrade and ensuing financial market panic was mentioned in virtually all of the central bank monetary policy statements through the week, causing central banks to act with caution, and take a more reserved stance.  While largely a symbolic move, the credit rating downgrade was seen largely as a rebuke of US politicians, rather than capacity to meet debt obligations.  Aside from Standard & Poor’s, Moody’s affirmed it’s AAA rating for the US, and Fitch<\/a><\/span> Ratings said it expects to finish its review of US sovereign credit ratings by the end of August.
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Even though the downgrade was largely symbolic, the immediate flow-on effects were a widespread, yet short-lived panic; however that panic was largely limited to equities, as US treasuries actually rallied during the week due to investor flight-to-safety.  The European sovereign debt crisis developments were perhaps the greater, and more tangible risk area that was highlighted during the week.  For now, it appears the ECB has the capacity and the willingness to help prevent any further contagion of the sovereign debt crisis, and should prove instrumental in the transition to the implementation of the EFSF, as countries prepare and implement longer-term fiscal sustainability plans.
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Aside from those two key risk areas, central banks were also worried about the usual things such as inflation and economic growth.  Some of the key quotes and sound-bites from the central banks that made announcements over the past week are listed below:<\/span><\/span><\/p>\n