December 11, 2012

Interest Rate Cuts Continue at Global Central Banks


    
    Global monetary policy interest rates were cut by 470 basis points during November to an average 5.91 percent from October’s 5.96 percent, strengthening this year’s trend of falling interest rates.

    Benchmark interest rates at the 88 central banks followed by Central Bank News have been declining steadily all year, from an average of 6.42 percent in the first quarter to 6.31 percent in the second and 6.11 percent in the third quarter of 2012.

    In the month of November, eight central banks cut policy rates compared with three banks (Iceland, Serbia and Bulgaria) that raised rates, boosting the number of rate cuts in the first 11 months of this year to 114 compared with 28 rate increases.

    November’s notable rate cuts were by the Czech Republic, Colombia, Poland and Mozambique.

    The Czech Republic joined the exclusive club of central banks that have cut rates to essentially zero; Colombia and Poland have now reversed earlier rate rises to bring rates below their level at the start of the year; Hungary cut further despite high inflation, and Mozambique cut for the sixth time this year but looks like it may have won its battle against inflation.

    More than half of the world’s central banks have cut rates this year, with 45 of the 88 banks followed by Central Bank News cutting in the January-November period compared with 11 central banks that have raised rates. Thirty-two central banks have left rates unchanged in the same period.

        Emerging market central banks were again the most active in loosening their policy in November, with four banks cutting rates while all developed market central banks kept rates on hold.

    The average policy rate in developed market central banks was 1.1 percent in November compared with the 4.8 percent average rate among emerging market central banks, illustrating the limited scope for further rate cuts by central banks in advanced economies.

   In the first 11 months of the year, emerging market central banks have cut rates by a total of 1,026 basis points compared with cuts of 325 basis points by developed market banks.  

    Two-thirds of all emerging markets central banks have cut rates this year while just under half of central banks in developed markets have cut.

    But the true extent of policy easing by developed markets central banks is not fully reflected in these figures as they do not capture the quantitative easing that major central banks have undertaken. Policy rates at the Federal Reserve, the Bank of Japan, and the Bank of England have been at effectively zero since 2009.

    Central banks in frontier markets have been the most aggressive in cutting rates this year, with policy rates cut by a total of 1,523 basis points in the first 11 months, lead by Kenya which cut by 200 basis points in November for a reduction of 700 basis points year-to-date.

    Countering the global policy easing are total rate rises of 1,570 basis points by all central banks in the first 11 months of this year. More than half of this increase is accounted for by Malawi’s total rate hike of 800 basis points – 400 basis points in November alone - as the country struggles with falling foreign exchange reserves and roaring inflation.

    In 2011 the average global monetary policy rate of the 88 central banks followed by Central Bank News was 6.0 percent. This compares with the 2010 average policy rate of 4.3 percent, 5.2 percent in 2009, 7.4 percent in 2008, 6.9 percent in 2007 and 6.2 percent in 2006.

 INTEREST RATE CUTS, YEAR-TO-DATE IN BASIS POINTS, NOVEMBER 2012:
COUNTRY     YTDCOUNTRY     YTDCOUNTRY     YTD
BELARUS-1500HUNGARY-100SOUTH AFRICA-50
UGANDA-1050LATVIA-100SOUTH KOREA-50
KENYA-700MONGOLIA-100SWEDEN-50
MOZAMBIQUE-550PHILIPPINES-100THAILAND-50
VIETNAM-500ALBANIA-75ANGOLA-25
MOLDOVA-400ISRAEL-75CHILE-25
BRAZIL-375ROMANIA-75COLOMBIA-25
TAJIKISTAN-330CZECH REPUBLIC-70EURO AREA-25
GAMBIA-200CHINA-56INDONESIA-25
KAZAKHSTAN-200DENMARK-50MACEDONIA-25
PAKISTAN-200INDIA-50MOROCCO-25
DOMINICAN REPUBLIC-175KUWAIT-50NORWAY-25
CAPE VERDE-150MAURITIUS-50T&T-25
GEORGIA-125NAMIBIA-50W. AFRICAN STS.-25
AUSTRALIA-100POLAND-50BULGARIA-18


About The AuthorCentral Bank News is dedicated to provide timely, and comprehensive global central banks news and policy developments (EconMatters author archive here.)

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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