NOTE TO OUR READERS: Central Bank News is introducing a new regular feature: Global Monetary Policy Highlights (GMPH).
GMPH provides readers with a chronological list of key events in global monetary policy, such as new policy initiatives, a switch in policy bias, key rate changes or important speeches and papers.
Today’s version of GMPH provides a list of significant events in 2013.
In the future, GMPH will be updated and published as soon as important events in global monetary policy take place. The aim is to give readers a guide to the evolution of global monetary policy as practiced by the 90 central banks covered by Central Bank News.
GMPH also includes a summary of each month’s total rate cuts and rate rises with a list of the central banks that changed rates that month plus the global monetary policy rate (GMPR), the average policy rate by the 90 central banks followed by Central Bank News.
GMPH can be viewed in conjunction with Central Bank News’ other regular features: the Global Interest Rate Monitor (GIRM), Monetary Policy Week in Review and the monthly Global Monetary Policy Rates (GMPR).
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The latest update of GMPH can be found on the homepage of Central Bank News under Highlights.
2013:
JANUARY
TOTAL RATE CUTS: 400 basis points.
RATE CUTS: The central banks of Albania, Angola, Colombia, Hungary, India, Kenya, Macedonia, Mongolia and Poland
TOTAL RATE RISES: 35 basis points.
RATE RISES: The central banks of Denmark and Serbia,
GLOBAL MONETARY POLICY RATE (GMPR): 5.85 percent
KEY EVENTS:
Minutes from the Federal Reserve’s Federal Open Market Committee (FOMC) meeting in December released on Jan. 3 reveal growing concern over the benefits of ongoing asset purchases with some committee members considering a slowing or halt to purchases well before end-2013.
The Central Bank of Mexico on Jan. 18 changes course and says it may have to cut interest rates in light of lower growth and inflation. The central bank had warned for months that it could raise rates if inflation accelerates but is now forecasting falling inflation.
TheBank of Japan on Jan. 21 adopts a formal 2.0 percent inflation “target” to replace its previous “goal” of 1.0 percent inflation with the hope that it will raise inflationary expectations and thus wrest the country from almost two decades of deflation. The BOJ’s adoption of the inflation target was widely expected following intense pressure from Japan’s new government under Prime Minister Shinzo Abe. The BOJ underlines that the new inflation target is flexible and will take into account financial imbalances, a policy that is increasingly adopted by central banks worldwide in the wake of the global financial crises.
TheBank of Canada on Jan. 23 starts to soften its tightening bias from April 2012, saying a withdrawal of it monetary stimulus “is less imminent than previously anticipated” due to a weaker-than-expected global economic outlook, a more muted outlook for inflation and slower growth in household credit.
TheNational Bank of Denmark on Jan. 24 raises its benchmark lending rate by 10 basis points to 0.30 percent and the rate on certificates of deposit to minus 0.10 percent, a sign of the waning appeal of Denmark as a safe haven for jittery euro zone investors. Denmark entered uncharted monetary policy territory in July 2012 when it cut the rate on CDs to negative to weaken the demand for the krone currency after inflows pushed the currency above the central bank’s peg to the euro.
Bank of IsraelGovernor Stanley Fischer announces on Jan. 29 that he will step down on June 30, two years earlier than expected. Fischer, who was appointed in 2005, was widely credited with steering Israel’s economy through the global financial crises relatively unscathed. Previously, Fischer was chief economist at the World Bank, International Monetary Fund first deputy managing director. At the Massachusetts Institute of Technology, Fischer’s students included Federal Reserve Chairman Ben Bernanke and European Central Bank President Mario Draghi.
FEBRUARY
TOTAL RATE CUTS: 200 basis points
RATE CUTS: The central banks of Azerbaijan, Bulgaria, Colombia, Georgia, Hungary, India and Poland.
TOTAL RATE RISES: 25 basis points
RATE CUTS: The central bank of Serbia.
GLOBAL MONETARY POLICY RATE (GMPR): 5.83 percent
KEY EVENTS:
Minutes from the Federal Reserve’sFederal Open Market Committee (FOMC) meeting in January released on Feb. 20reveal intense debate over asset purchases, with some members suggesting that purchases should be varied in response to changes in the economic outlook and others proposing that purchases may be tapered before the outlook for the labor market improves. Another issue is how the Fed should communicate a commitment to a highly accommodative policy, for example by holding securities for a longer period than envisoned in the Fed’s exit principles that were outlined in June 2011 FOMC.
TheBank of England (BOE) on Feb. 7 publishes an unusually lengthy statement, saying it would look through the ”temporary, albeit protracted, period of above-target inflation” and maintain, or even provide additional monetary stimulus, if warranted by the outlook. The statement illustrates the widespread commitment by central banks to “flexible inflation targeting.”
MARCH
TOTAL RATE CUTS: 500 basis points
RATE CUTS: The central banks of Belarus, Colombia, Georgia, Hungary, India, Mexico, Poland, Vietnam and West African States.
TOTAL RATE RISES: 75 basis points
RATE RISES: The central banks of Egypt and Tunisia,
GLOBAL MONETARY POLICY RATE (GMPR): 5.78 percent
KEY EVENTS:
Haruhiko Kuroda, nominated as the next Bank of Japan governor, says on March 3that it would be “natural for the BOJ to buy longer-dated government bonds in huge amounts.”
The Central Bank of Brazil on March 7 omits its guidance from November 2012 that stable monetary conditions for a prolonged period was appropriate, foreshadowing future rate hikes to combat rising inflation.
The Bank of Mexico on March 8 cuts its benchmark rate by a larger-than-expected 50 basis points, its first rate cut since July 2009, due to weak economic global growth. The bank says it is not embarking on new cycle of easing.
Russian President Vladimir Putin on March 13 picks Elvira Nabiullina, former economy minister and aide to Putin, as new chairman of the Bank of Russia. She becomes the first woman to head at Group of Eight (G8) central bank.
Norges Bank, Norway’s central bank, on March 14 further delays any rate rise until the first half of 2014 after it pushed back a planned rate rise by end-2012 to 2013 in October 2012. The central bank decides to impose an extra cushion of capital - known as a countercyclical capital buffer - that banks should build up during good economic times so they can draw on that reserve if the event of losses during an economic downturn.
The South African Reserve Bank on March 20 maintains interest rates but points to European policy makers decision to impose an unprecedented tax on bank deposits in Cyprus as having the “potential to reignite the banking and sovereign debt crises and undermine growth prospects further.” The levy on Cyprus bank deposits was part of a rescue package worth 10 billion euros and revived speculation of a breakup of the euro area.
TheBank of England on March 20 is given a new remit from the UK government that formalizes the flexible inflation target and includes the ability to “deploy explicit forward guidance.” The 2 percent inflation target was also restated.
The Central Bank of Egypt on March 21 becomes the first emerging market central bank to raise rates in 2013, increasing the overnight deposit rate by 50 basis points and saying inflationary expectations are more harmful to an economy than the weak outlook for economic growth.
APRIL
TOTAL RATE CUTS: 776 basis points
RATE CUTS: The central banks of Belarus, Botswana, Hungary, Moldova, Mongolia, Sierra Leone and Turkey.
TOTAL RATE RISES: 25 basis points
RATE RISES: The central bank of Brazil.
GLOBAL MONETARY POLICY RATE (GMPR): 5.75 percent
KEY EVENTS:
TheBank of Japan (BOJ) on April 4 launches a "new phase of monetary easing" aimed at reaching the 2.0 percent inflation target "at the earliest possible time, with a time horizon of about two years.” The objective is to rid the country of 15 years of deflation. Only two weeks after taking over as governor, Haruhiko Kuroda replaces the BOJ’s asset purchase program with "quantitative and qualitative monetary easing," (known as QQE) under which the BOJ will no longer target the overnight call rate, which has been at effectively zero since December 2008, but the monetary base, or bank reserves at the central bank plus cash in circulation. The BOJ aims to double the monetary base by 60-70 trillion yen annually by end-2014 and push down interest rates across all maturities by buying government bonds at an annual pace of about 50 trillion yen. The BOJ will no longer focus its purchases on shorter maturities but include 40-year bonds so the average remaining maturity of its new bond purchases will extend to about seven years from less than three years.
The BOJ will also boost its annual purchases of Exchange Traded Funds (ETFs) and real estate investment trusts, so-called J-REITs, by an annual 1.0 trillion and 30 billion yen, respectively. It will also purchase commercial paper and corporate bonds until their outstanding amounts reach 22 trillion and 3.2 trillion yen, respectively.
The BOJ is one of the pioneers in using its balance sheet to stimulate economic activity and launched its first attempt at quantitative easing in March 2001 by raising the target for banks’ current account balances (CAB) at the BOJ in excess of their required reserve levels. The BOJ raised the target for CAB nine more times before exiting quantitative easing in March 2006 amid signs the economy was emerging from deflation. In October 2010, following the Global Financial Crises, the BOJ introduced Comprehensive Monetary Easing (CME), mainly purchasing government securities but also private assets. CME, which aimed at purchasing assets worth 101 trillion yen by 2014, was absorbed into QQE.
The Central Bank of Barbados (CBB) on April 5 starts guiding interest rates by intervening directly in the market for Treasury bills instead of using the minimum deposit rate. The rationale behind the new policy was unveiled in a CBB working paper from March that set out the limitations of using interest rates to control inflation in a country like Barbados where 80 percent of inflation is imported. In a small, open economy like Barbados, the policy of targeting a deposit rate to guide the local availability of credit is weak because banks, firms and households go abroad for funds. Banks will be free to set all rates except for a minimum savings rate, which is set by the CBB, to insulate small savers and non-profit organizations against inflation. The CBB also realizes that interest rates have to be kept in line with international rates to avoid “destabilizing inflows and outflows of capital."
The Central Bank of Brazil on April 17kicks off its widely-expected tightening campaign, raising rates by 25 basis points after inflation exceeds the central bank’s upper tolerance level for the first time since November 2011. The benchmark Selic rate had been frozen at 7.25 percent since November 2012 after 10 consecutive rate reductions from August 2011.
Sweden’s Riksbank on April 17 keeps rates steady, but pushes back a planned hike in interest rates by around a year to the second half of 2014 as it will take longer time for inflation to start to rise toward the bank’s target. The Riksbank says inflation is low due to weak demand, the strong value of the Swedish krone and a difficulty of companies in passing on higher costs to consumers.
After seven rate cuts totaling 200 basis points, the Central Bank of Colombia on April 26 holds rates steady, saying its past easing and proposed fiscal measures should help strengthen economic growth push up inflation toward its target.
The Bank of Thailand on April 30 voices its concern over the rapid rise in the value of its baht currency and pledges to take action when needed. There are fears the baht will continue to rise in response to the BOJ’s aggressive easing, with money seeking higher yield in other countries, such as Thailand and South Korea.
MAY
TOTAL RATE CUTS: 885 basis points
RATE CUTS: The central banks of Australia, Belarus, Denmark, Dominican Republic, Eurosystem, Georgia, Hungary, India, Israel, Kenya, Poland, Serbia, South Korea, Sri Lanka, Thailand, Turkey and Vietnam
TOTAL RATE RISES: 350 basis points
RATE RISES: The central banks of Brazil, Bulgaria, Gambia and Ghana,
GLOBAL MONETARY POLICY RATE (GMPR): 5.72 percent
KEY EVENTS:
The European Central Bank (ECB) on May 2 cuts benchmark refinancing rate by 25 basis points and says it will provide banks with all they money they need for as long as necessary. ECB President Mario Draghi pledges that the “monetary policy stance will remain accommodative for as long as needed.”
The Reserve Bank of Australia on May 6 resumes its easing cycle by cutting its benchmark rate by 25 basis points, saying lower-than-expected inflation had given it scope to encourage growth. The RBA, which is striving to counter the dampening effects of lower mining investments, embarked on an easing cycle in October 2011 and last cut rates in November 2012 before pausing to let the impact of the rate cuts take effect. The RBA says the A$ exchange rate is “at a historically high level” and the Aussie dollar falls sharply following the rate cut.
The Bank of Korea on May 9 cuts its base rate by 25 basis, citing considerable downside risks to global growth and its latest forecast that “the domestic economy will show a negative output gap for a considerable time, due mostly to the slow recovery of the global economy, to the influence of the Japanese yen weakening, and to the geopolitical risk in Korea."
The Bank of Israel on May 13 cuts its policy rate by 25 basis points after an unscheduled meeting of its monetary policy committee and says it will buy some $2.1 billion of foreign exchange in 2013 to hold back the appreciating shekel. The shekel has risen due to external demand for its natural gas, low interest rates in major economies and an expected slowing of global growth.
The National Bank of Serbia on May 14 cuts its policy rate by 50 basis points due to “significantly lower inflationary pressure.” The central bank raised rates eight consecutive times from June 2012 to February 2013 in response to accelerating inflation but then paused in March and April before starting its current easing cycle.
Federal Reserve Chairman Ben Bernanke on May 22 tells a U.S. Congressional committee that the Fed could “in the next few meetings take a step down in our pace of purchases,” of $85 billion of Treasury bonds and housing-related securities. Bernanke says monetary policy has helped offset “incipient deflationary pressures and kept inflation from falling even further below the 2 percent longer-run objective” and repeats that the Fed is prepared to either increase or decrease the pace of its asset purchases depending on economic conditions.
TheBank of Israel on May 27 cuts its policy rate for the second time in May to “to "narrow the gaps between the Bank of Israel's interest rate and the rates in major economies worldwide, in order to weaken the forces for appreciation of the shekel."
The Bank of Thailand (BOT) on May 29 cuts rate by 25 basis points, citing growing downside economic risks and says it is “ready to take appropriate action as warranted” in light of the risks to financial stability from capital flows. Referring to exchange rate volatility, the BOT says Thai exports could be affected by slower growth in China and Asian economies while Japan’s economy is starting to benefit from stimulus measures. The Bank of Japan’s launch of monetary easing in April has led to a sharp fall in the yen and fears of capital inflows to higher-yielding currencies, such as the Thai baht. The BOT and Thai finance ministry are considering measures to weaken the baht.
JUNE
TOTAL RATE CUTS: 926 basis points
RATE CUTS: The central banks of Belarus, Botswana, Bulgaria, Georgia, Hungary, Mauritius, Mongolia, Mozambique, Pakistan, Poland, Rwanda, Serbia, Sierra Leone, Uganda and Ukraine.
TOTAL RATE RISES: 450 basis points
RATE RISES: The central banks of Gambia, Indonesia and Zambia.
GLOBAL MONETARY POLICY RATE (GMPR): 5.63 percent
KEY EVENTS:
Bank Indonesia on June 13 raises benchmark rate by 25 basis points in what it described as a pre-emptive move to "rising inflation expectations and to maintain macroeconomic stability and financial system stability amid increasing uncertainty in global financial markets." The rate hike, under the central bank’s new governor Agus Martowardojo, follows a 25 basis point increase in the overnight deposit rate on June 11, underlining authorities' determination to defend and stabilize the rupiah. The rupiah, along with other emerging market currencies, have come under pressure along as investors start to shift funds toward advanced economies with improving growth prospects and an expected reduction in asset purchases by the U.S. Federal Reserve.
Federal Reserve Chairman Ben Bernanke on June 19 firms up his comments from May 22 and says after a meeting of the Federal Open Market Committee (FOMC) that asset purchases would be slowly reduced later this year and then wound up by mid-2014, assuming the economy continues to expand. "The Committee currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year; and if the subsequent data remain broadly aligned with our current expectations for the economy, we would continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around midyear," Bernanke says. He adds, however, that the Fed is not fixed on any dates and if "conditions improve faster than expected, the pace of asset purchases could be reduced more quickly." Conversely, if the economic outlook deteriorates, the reductions in purchases could be delayed.
Norges Bank on June 20 drops its tightening bias from March and says the policy rate will remain at the current level, or somewhat lower, in the year ahead" as inflation will take longer to rise and economic activity is lower than expected. At its previous meeting in March, the Norwegian central bank said it expected to maintain rates until the spring of 2014 and then raise the rate. It omits any mention of rate rises.
Jaime Caruana, general manager of the Bank for International Settlements (BIS) on June 23 says major central banks will decide how and when to exit from extraordinary easy monetary policy with much less certainty that they probably will like but they cannot afford to wait for irrefutable evidence. Caruana tells the annual BIS meeting that nobody really knows “how central banks will exit, or what they will exit into” and major central banks will need to draw on all their communication skills to make the exit from such policy as smooth as possible. "And they will have to take decisions with much less certainty than they would probably like - waiting for irrefutable evidence may complicate exit and prove costly," Caruana says, adding:. "The bigger the scale and scope of their interventions, the more difficult it will be to reduce them."
The Bank for International Settlements (BIS) warns in its annual report on June 23 that a sharp rise in interest rates from major central banks’ exit from extraordinary accommodative policy could raise the risk of stress in the financial system as banks hold large portfolios of long-dated fixed income assets that will fall in value. While central banks have more tools at their disposal, are more transparent and experienced in managing expectations that in 1994 - when a tightening of U.S. monetary policy lead to turbulence in global bond markets - BIS said the situation now is much more complex with the exit requiring “a sequencing of both interest rate increases and the unwinding of balance sheet policies. Central banks’ will be exiting at a time of very high levels of debt with much issued at record low levels, raising the risk of public and government anger over higher interest payments and losses. A rise in U.S. Treasury yields by 300 basis points, for example, would result in losses to holders of those securities that exceed $1 trillion, or almost 8 percent of U.S. GDP. While yields are not likely to jump that much overnight, BIS noted that yields in 1994 rose some 200 basis points during one year in a number of countries, illustrating that “a big upward move can happen relatively fast.”
The Bank for International Settlements (BIS) says in its annual report on June 23 that central banks should stop influencing overall financial conditions and return to their traditional role of controlling short-term rates now that the global financial crises is receding. In response to extreme pressure on financial markets during the height of the crises, central banks in advanced economies expanded their operations and influence on markets; accepting a wider range of collateral, engaging in large-scale asset purchases and creating special lending schemes. But the BIS says such tools were most suitable for exceptional circumstances and central banks should now return to influencing short-term policy rates only as a way to affect monetary conditions. Since late 2007, central banks’ total assets have roughly doubled to over $20.5 trillion, up from $18 trillion last year, accounting for just over 30 percent of global Gross Domestic Product (GDP), double the ratio of a decade ago.
JULY
TOTAL RATE CUTS: 190 basis points
RATE CUTS: The central banks of Albania, Hungary, Latvia, Poland, Romania and Tajikistan,
TOTAL RATE RISES: 126 basis points
RATE RISES: The central banks of Brazil, Bulgaria, Indonesia and Zambia.
GLOBAL MONETARY POLICY RATE (GMPR): 5.62 percent
KEY EVENTS:
The National Bank of Poland (NBP) on July 3 says its latest rate cut ends its cycle of easing. The NBP started cutting rates in November 2012 - a move that was criticized as too late to cushion the economy from the euro area's recession – but then froze rates in April before cutting again in May and June.
The Bank of England (BOE) on July 4, in a rare statement accompanying its rate decision, says the rise in market interest rates will have a negative impact on its outlook for economic growth and inflation, and it does consider the implied rise in its policy rate to be warranted by economic developments. The BOE's Monetary Policy Committee, chaired for the first time by Governor Mark Carney after he arrived from the Bank of Canada, says recent data have been consistent with the BOE’s outlook and inflation is expected to slowly fall back towards the bank's 2.0 percent target though it may rise further in the near term. "The significant upward movement in market interest rates would, however, weigh on that outlook; in the Committee's view, the implied rise in the expected future path of Bank Rate was not warranted by the recent developments in the domestic economy," the BOE says. Yields on government bond yields in the U.K. and U.S. have risen in recent weeks following better economic data and the Federal Reserve’s statement on June 19 that the U.S. central bank is considering slowing down its asset purchases later this year.
The European Central Bank (ECB) on July 4 broke with tradition and adopted a form of forward guidance to counter a rise in global interest rates, saying it will maintain an easy monetary policy stance for "as long as necessary" and may even cut rates further. The ECB said the risks surrounding its economic outlook remain on the downside and the recent rise in global bond yields "may have the potential to negatively affect economic conditions." "The Governing Council expects the key ECB interest rates to remain at present or lower levels for an extended period of time," ECB President Mario Draghi says. Long-term interest rates rose worldwide following the Federal Reserve's decision on June 19 to start winding up its asset purchase program later this year as long as the economy continues to recover.
Bank Indonesia on July 11 raises benchmark BI rate by higher-than-expected 50 basis points to "ensure that inflation will return to its target path after the fuel price hike." Indonesia's government cut fuel subsidies on June 22 to reduce budget deficits and the BI had forecast this would trigger higher inflation. The central bank, which cuts its 2013 economic growth forecast, also says it will provide adequate liquidity to the foreign exchange market to maintain a stable exchange rate.
The Reserve Bank of India (RBI) on July 15 raises its marginal standing facility (MSF) rate by 200 basis points to 10.25 percent to “restore stability to the foreign exchange market.”
TheCentral Bank of the Republic of Turkey on July 23 raises overnight lending rate by a sharp 75 basis points and says it will tighten monetary policy further if necessary to support financial stability. The central bank says recent developments have an adverse affect on inflation, including a surge in unprocessed food prices and rising oil prices, and the increased exchange rate volatility may continue to adversely impact inflation in the short term. "Although the Committee sees these developments as temporary to a large extent, a measured tightening is deemed necessary in order to contain a deterioration in the pricing behaviour," the central bank says, adding: "Capital flows have weakened since May due to increasing uncertainty regarding the global monetary policies," and tighter policy would help support financial stability.
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