Who’s Easing Monetary Policy; Who’s Been Tightening

October 16, 2014

Central banks cut interest rates during the first half of October in South Korea and Poland.  Rates were cut in September in Romania, Sri Lanka, Chile, Peru, and Euroland, where the ECB Governing Council also  introduced several unconventional measures to loosen policy.  Between May and August, rates were cut in Sweden, Turkey, Hungary, Thailand, Israel, Serbia and Mexico.  Hungary ended a year-long rate-slashing program in July.  The Bank of Japan has pursued, but not intensified, an aggressive asset purchase program since April 2013.  Central banks in Switzerland and the Czech Republic have virtual zero interest rate policies and assymetric currency policies that cap the strength of their monies against the euro but would permit depreciation.

The Federal Reserve is the most notable central bank already tightening.  Quantitative easing will end this month.  Fed officials don’t consider this tapering to be tightening, but I do.  QE3 was introduced to stimulate the economy by depressing long-term interest rates.  It is not mere semantics to argue that removal of a stimulant constitutes tightening, because the announcement effect of this shift boosts the dollar and thus squeezes monetary conditions.

Some central banks that have raised interest rates in 2014 can be found in South Africa (July), the Philippines (July and September), New Zealand (March, April, June and July), Colombia (March, April, June and August), Russia (March, April, and July by a total of 250 basis points), Ukraine (300 bps in April), Brazil (April), and Malaysia (July).

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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