The past week in monetary policy saw interest rate decisions announced by 9 central banks around the world. Of those that changed interest rates (all dropping rates) were: Indonesia -50bps to 6.00%, Serbia -75bps to 10.00%, and Jamaica -50bps to 6.25%. Meanwhile those that held interest rates unchanged were: The UK 0.50%, South Africa 5.50%, South Korea 3.25%, Poland 4.50%, Malaysia 3.00%, and Peru 4.25%.
Some of the key themes and trends emerging through the week included an increasing bias towards easing monetary policy settings. Indonesia surprised the markets with a 50 basis point cut in its rate, Serbia did likewise, as the external risks and slowing global growth has put pressure on central banks to put in place preventative measures to support their economies. For other central banks the already loose monetary policy settings, and inflationary pressures have been among the only things stopping a wider adoption of emergency/preventative policy loosening and stimulus measures.
Following are some of the key soundbites from the central bank monetary policy media releases:
Looking at the central bank calendar, of the major central banks, next week there's just the Bank of Japan scheduled to meet to review monetary policy settings. Elsewhere, the Reserve Bank of Australia will release the minutes on Tuesday of its last meeting where it cut rates 25bps.
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The Bank of Jamaica reduced its policy rate by a cumulative 50 basis points to 6.25% in the September quarter. The Bank said in it's quarterly report: "The Bank's policy rate, the interest rate payable on 30-day certificates of deposit, was reduced on two occasions by a cumulative 50 basis points. Accordingly, at the end of September the policy rate was 6.25 per cent. The Bank's action was informed by an improved outlook for inflation for the rest of the fiscal year, a protracted period of stability in the exchange rate, adequate net international reserves and weak but improving domestic demand conditions."
The Central Reserve Bank of Peru held its monetary policy reference rate unchanged at 4.25%. The Bank said: "This decision takes into account the lower growth being recorded by some components of expenditure, as well as the intensification of international financial risks. Should these trends continue, the Central Bank will change its monetary policy stance."
Peru's central bank also held the interest rate at 4.25% at its September meeting, while the bank last raised the monetary policy reference rate by 25 basis points to 4.25% in May this year. Peru reported annual inflation of 4.2% in October, up from 3.73% in September, 3.35% in August and July, and compared to 2.9% in June, 3.07% in May, 3.34% in April, and above the Bank's 1-3% inflation target.
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The National Bank of Serbia cut its 2-week repo rate by 75 basis points to 10.00% from 10.75% previously. The Bank said: "Inflation continued down, in accordance with the NBS projection from the August Inflation Report. It is expected to decline further in the coming period. The key disinflationary factors will be weaker cost-push pressure on food prices, low aggregate demand and slower growth in administered prices. The process of disinflation will also be aided by the continued drop in inflation expectations."
The Bank also cut the interest rate by 50bps in October, and 50bps in September, after pausing in August, while previously the Bank reduced the 2-week repo rate by 25 basis points to 11.75% at its July meeting, and cutting the rate 50 basis points at its June meeting to 12.00%. Serbia reported inflation of 10.5% in August, compared to 12.1% in July, 12.7% in June, 13.4% in May, 14.7% in April, and above the bank's inflation target range of 3-6%.
The Bank Negara Malaysia held its Overnight Policy Rate (OPR) unchanged at 3.00%, and held the floor and ceiling rates of the corridor for the OPR at 2.75 percent and 3.25 percent respectively. The Bank said: "The domestic economy improved in the third quarter, due primarily to stronger domestic demand. Export performance also improved, reflecting firm regional demand and the normalisation of trade flows from supply chain disruptions. Looking ahead, the weaker external environment could, however, impact the overall growth prospects. Domestic demand will continue to be the anchor of growth, supported by private consumption and investment and reinforced by public sector spending and investment activity. Employment conditions are also expected to remain stable."
The Narodowy Bank Polski's Monetary Policy Council kept the benchmark 7-day interest rate unchanged at 4.50%. The Bank said: "the medium term inflation will be curbed by somewhat lower domestic economic growth amidst fiscal tightening, including reduced public investment spending, and interest rate increases implemented in the first half of 2011, as well as the expected global economic slowdown. Such an assessment is also supported by the November projection of inflation and GDP. The impact of the situation in the global financial markets on zloty exchange rate continues to be an upside risk to domestic price developments"
The Bank also kept the following interest rates unchanged: the rediscount rate at 4.75%, the Lombard rate at 6.00%, and the deposit rate at 3.00%. The Bank last raised the interest rate by 25 basis points to 4.50% in June this year, and held the interest rate unchanged at its previous meeting.
Poland reported annual headline inflation of 3.9% in September, compared to 4.3% in August, 4.1% in July, with previous readings of 4.2% in June, 5% in May, 4.5% in April, 4.3% in March, and just higher than the Bank's official inflation target of 2.5% +/- 1%.
The IMF recently reduced its forecast for Poland's 2011 economic growth rate to 3.8% from 4% previously. The Polish Zloty (PLN) has weakened by about 10% against the US dollar so far this year; the USDPLN exchange rate last traded around 3.19.
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The Bank of Korea maintained its 7-day repurchase rate unchanged at 3.25%. The Bank said: "domestic demand has faltered but exports have continued to grow strongly. The trend of improvement in employment conditions has been sustained, led by the private sector. The Committee anticipates that the domestic economy will keep up its long-term trend of growth going forward, but recognizes the situation to be one in which downside risks to growth remain high due to the impact of external risk factors."
At its October meeting this year the Bank of Korea also held the interest rate unchanged at 3.25%, after increasing the 7-day repurchase rate by 25 basis points to 3.25% at its June meeting. South Korea reported a slight moderation in annual consumer price inflation of 3.9% in October, 4.3% in September, 5.3% in August, 4.7% in July 4.4% in June, 4.1% in May, and 4.2% in April.
The inflation rate is currently just above the Bank's inflation target of 2%-4% through 2012. The South Korean economy grew 0.7% in Q3 (0.9% in Q2), placing annual GDP growth at 3.4% (3.4% in Q2). The South Korean Won (KRW) has weakened by about 1% so far this year, while the USDKRW exchange rate last traded around 1,127.
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