The tightening of global monetary policy picked up speed last week as another nine central banks – from Asia through Europe, Africa and then to the Americas – raised interest rates to dampen buoyant demand and prevent rising inflation from boosting inflation expectations further.
In the first five weeks of 2022, central banks from 51 countries have examined their monetary policy stance, with more than half of those – 27 to be exact – concluding their policy was too loose, with 24 of those banks then raising interest rates.
Last week alone, nine central banks – Kyrgyzstan, Dominican Republic, Australia, Armenia, Lesotho, Brazil, United Kingdom, the European Central Bank and the Czech Republic – tightened their monetary policy stance by either raising interest rates or stopping the injection of liquidity into financial markets by scrapping further purchases of government bonds.
In comparison, only three central banks have raised interest rates this year, resulting in a net tightening of global monetary policy by 24 central banks so far this year compared with a net tightening in the entire year of 2021 by 23 central banks.
The tightening of global monetary policy, which began in earnest in October 2021, comes after 256 rate cuts by 93 central banks in 2020 and 17 rate cuts by 12 central banks in 2021.
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Decisions by central banks aimed at tightening monetary policy – which includes rate hikes along with reduced asset purchases – account for 91 percent of all changes to monetary policy year-to-date, up from 88 percent in the previous week and up from 87 percent in 2021
Central Bank News, which tracks the monetary policy stance of 104 central banks, publishes Global Monetary Policy Changes (GMPC), a country-by-country overview of changes to monetary policy.
GMPC aims to capture changes to a wide range of monetary policy instruments, not just key interests rates but also changes to reserve requirements, bond purchases or foreign exchange rates to understand whether the monetary conditions become tighter of easier.
GMPC complements Central Bank News’ other products, such as the Global Interest Rate Monitor (GIRM), which tracks official policy rates, and Global Monetary Policy Highlights (GMPH), which summarizes interest changes each month.
GMPC includes an alphabetical list of countries with changes to their monetary policy.
CHANGES TO POLICY RATE YEAR TO DATE
During the past week – week 5 of 2022 – 16 central banks took monetary policy decisions, resulting in 7 changes to policy interest rates with rates raised 7 times.
Year-to-date central banks worldwide have taken 51 monetary policy decisions, with the policy rate lowered 3 times, the rate increased 24 times and the rate left unchanged 24 times.
Cuts to interest rates thus account for 11.1% of the 27 changes to the policy rate year-to-date, down from 15.0% from the previous week.
Rate increases account for 88.9% of all changes to the policy rate year-to-date, up from from 85.0% the previous week.
LIST OF 3 RATE CUTS IN 2022 BY 3 CENTRAL BANKS:
Democratic Republic of Congo, South Sudan and China.
LIST OF 24 RATE RISES in 2022 BY 24 CENTRAL BANKS:
Poland, Uruguay, Argentina, Peru, Romania, Moldova, South Korea, Sri Lanka, Ukraine, Paraguay, Kazakhstan, Hungary, Chile, Costa Rica, South Africa, Azerbaijan, Colombia, Kyrgyzstan, Dominican Republic, Armenia, Lesotho, Brazil, United Kingdom and Czech Republic.
EASING VS TIGHTENING
In addition to raising or lowering the policy rate, central banks also change their monetary policy stance by other tools, such as raising or lowering banks’ reserve requirements, asset purchases or changing foreign exchange rates.
Last week (week 5 of 2022) central banks made 10 changes to their overall policy stance, including the 7 changes to the policy rate.
Year-to-date central banks have made 35 changes to their monetary policy stance, with 3 moves aimed at easing the policy stance, or 8.6% of all changes, down from 12% in the previous week.
In comparison, in 2021 central banks took 50 steps toward easing their monetary policy stance, which accounted for 24.9% of all changes to monetary policy, whereas in 2020 monetary easing steps accounted for 96.3% of all changes to monetary policy.
Rate cuts account for 8.6% of all changes to the monetary policy stance in 2022, down from 12% the previous week and compared with 8.5% in 2021.
Central banks have taken 27 steps so far this year to tighten monetary policy, which means 91.4% of all changes to monetary policy so far in 2022 have ended in tightening, up from 88.0% in the previous week and up from 87% in 2021.
Interest rate increases account for 68.6% of all changes to monetary policy year-to-date, up from 68.0% in the previous week and up from 61.7% in 2021.
CUMULATIVE SIZE OF RATE CUTS 2022: 410 basis points
CUMULATIVE SIZE OF RATE RISES 2022: 1,650 basis points
NET CHANGE IN RATES 2022: +1,240 basis points
GLOBAL MONETARY POLICY RATE: 5.63%, up 12 basis point since start of 2022.
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EASIER VS TIGHTER COMPARED WTH EARLIER YEARS
2022: 27 central banks have tightened monetary policy year-to-date and 3 have eased, global net tightening by 24 central banks.
2021: 50 central banks tightened monetary policy and 27 eased, global net tightening by 23 central banks.
2020: 10 central banks tightened monetary policy and 93 eased, global net easing by 83 central banks.
2019: 17 central banks tightened monetary policy and 67 eased, global net easing by 50 banks
2018: 43 central banks tightened monetary policy and 32 eased, global net tightening by 11 banks
2017: 28 central banks tightened monetary policy and 34 eased, global net easing by 6 banks
2016: 29 central banks tightened monetary policy and 46 eased, global net easing by 17 banks
2015: 48 central banks tightened monetary policy and 34 eased, global net tightening by 14 banks
2022 MONETARY POLICY CHANGES BY MONTH:
FEBRUARY:
EASING: None
TIGHTENING: Armenia, Lesotho, Brazil, United Kingdom and Czech Republic raise rates. Australia ends bond purchases and ECB ends asset purchases under pandemic emergency purchase program.
JANUARY:
EASING: Congo, South Sudan and China cut rates.
TIGHTENING: Poland, Uruguay, Argentina, Peru, Romania, Moldova, South Korea, Sri Lanka, Ukraine, Paraguay, Kazakhstan, Hungary, Chile, Costa Rica, South Africa, Azerbaijan, Colombia, Kyrgyzstan and Dominican Republic raise rates.
Indonesia to raise reserve requirements in 3 steps, Kazakhstan withdraws from stimulus measures, Singapore raises slightly rate of appreciation of Singapore dollar band and Australia ends bond purchases.
2022 MONETARY POLICY RATE CHANGES BY MARKETS:
DEVELOPED MARKETS: Central banks in developed markets have decided on monetary policy 5 times in 2022, with 1 central bank (the Bank of England) raising its rate and the other 4 decisions ending in unchanged rates.
EMERGING MARKETS: Central banks in emerging markets have decided on monetary policy 14 times in 2022, with 9 decisions ending in rate hikes: Poland, Peru, South Korea, Hungary, Chile, South Africa, Colombia, Brazil and Czech Republic.
One decision, by China, ended in a rate cut and 4 decisions ending in unchanged rates.
FRONTIER MARKETS: Central banks in frontier markets have decided on monetary policy 5 times in 2022, with 4 decisions resulting in rate hikes: Romania, Sri Lanka, Ukraine and Kazkhstan.
One decision ended with interest rates being maintained.
OTHER MARKETS: Central banks in other markets have decided on monetary policy 12 times in 2022.
10 central banks have raised rates: Uruguay, Argentina, Moldova, Paraguay, Costa Rica, Azerbaijan, Kyrgyzstan, Dominican Republic, Armenia and Lesotho.
2 central banks have cut rates: Congo and South Sudan.
2022 GMPC
ARGENTINA
Jan 6: benchmark 28-day Leliq rate raised 200 bps to 40.0% as part of a redesign of monetary policy instruments to meet the 2022 goal of setting interest rates that result in a positive real return on investments in pesos, and preserve monetary and exchange rate stability.
ARMENIA
Feb 1: refinancing rate raised 25 bps to 8.0% as the risks of inflation deviating from its projected trajectory are mainly upwards and if these risks materialize, the Bank will respond accordingly and ensure the goal of price stability.
AUSTRALIA
Feb 1: further purchases under the bond purchase program to be ended, with the final purchases to take place on Feb. 10. Ceasing bond purchases does not imply a near-term increase in interest rates and while inflation has picked up, it is too early to conclude it is sustainably within the target band
AZERBAIJAN
Jan 28: discount rate raised 25 bps to 7.50% as inflationary pressures have continued to rise.
BRAZIL
Feb 2: Selic rate raised 150 bps to 10.75% and while monetary tightening will persist until inflation decelerates and inflation expectations anchor around the target, the size of rate increases will be reduced in future policy decisions.
CHILE
Jan 26: monetary policy rate raised 150 bps to 5.50% as there are still significant risks of higher inflation as recent data on economic activity and inflation are above latest forecast at the same time inflationary pressures from abroad have risen.
CHINA
Jan 20: Loan Prime Rate (LPR) cut 10 bps to 3.70%, the same week the rate on the medium-term lending facility (MLF) was cut by 10 bps to 2.85%.
COLOMBIA
Jan 28: interest rate raised 100 bps to 4.0% due to higher-than-expected inflation and a significant increase in inflation expectations.
CONGO
Jan 2: key interest rate cut 100 bps to 7.50%, helping strengthen the financing of the economy in Congolese francs and thus support de-dollarization of the economy amid greater control of inflation.
COSTA RICA
Jan 26: policy rate raised 50 bps to 1.75% as risks to inflation remain tilted to the upside and Bank expects to continue to raise the rate gradually to reach a neutral monetary policy stance.
CZECH REPUBLIC
Feb 3: 2-week repurchase rate raised 75 bps to 4.50% to push inflation down to the target and anchor firms’ and households’ inflation expectations. Future monetary policy steps will depend on incoming new information and forecasts.
DOMINICAN REPUBLIC
Jan 31: monetary policy rate raised 50 bps to 5.0% as part of the normalization of monetary policy aimed at moderating shocks on prices and help inflation converge toward the target range.
EURO AREA
Feb. 3: asset purchases under the pandemic emergency purchase program (PEPP) to be ended at the end of March, as decided in December 2021, while monthly asset purchases under the Asset Purchase Program (APP) will be increased in the second and third quarters to 40 billion euros and 30 billion, respectively, before returning to the previous monthly pace of 20 billion.
HUNGARY
Jan 25: base rate raised 50 bps to 2.90% and Bank will continue the cycle of interest hikes until the outlook for inflation stabilizes around the target and inflation risks become evenly balanced.
INDONESIA
Jan 20: To normalize the loose liquidity conditions the rupiah reserve requirement for conventional banks will be gradually raised in three steps. As of March 1, the reserve requirement will be raised 150 bps to 5.0%, then on June 1 it will be raised 100 bps to 6.0% and on Sept. 1 the requirement will be raised 50 bps to 6.5%. BI will provide reserve requirement remuneration of 1.5%.
KAZAKHSTAN
Jan 24: Base rate raised 50 bps to 10.25% to reduce inflation expectations and bring inflation back to the target range by the end of 2022.
KYRGYZ REPUBLIC
Jan 31: discount rate raised 50 bps to 8.50% to curb high inflationary pressures
LESOTHO
Feb 1: CBL rate raised 25 bps to 4.0% to ensure the domestic cost of funds remains aligned with the rest of the region.
MOLDOVA
Jan 13: interest rate on short-term monetary policy operations raised 200 bps to 8.50% and ratio on required reserves on leu by 200 bps to 28.0% to temper inflationary pressures and the effects of shocks on the economy.
PARAGUAY
Jan 21: monetary policy rate raised 25 bps to 5.50% but pace of tightening slowed due to a weaker economic outlook from drought and the latest wave of COVID-19 pandemic.
PERU
Jan 6: reference rate raised 50 bps to 3.0% and board expects to continue normalizing monetary policy stance in coming months based on current information.
POLAND
Jan. 4: reference rate raised 50 bps to 2.25% to reduce inflation to its target, with extent of monetary tightening needed to reach goal to depend on new information about inflation, economic growth and the labour market.
ROMANIA
Jan 10: monetary policy rate raised 25 bps to 2.0% as monetary policy is gradually normalizes amid a worsening outlook for inflation in the near term while economic activity came to a standstill in the fourth quarter of 2021 due to a fourth wave of the pandemic, supply bottlenecks and the energy crises.
SINGAPORE
Jan 25: raises rate of appreciation of Singapore dollar against basket of currencies as inflation outlook had shifted further upward amid confluence of recovering global demand and persistent supply-side frictions.
SOUTH AFRICA
Jan 27: repurchase rate raised 25 bps to 4.0%, with gradual rise in interest rates sufficient to keep inflation expectations well anchored, and thus moderate the future path of rates given the expected trajectory of inflation and upside risks.
SOUTH KOREA
Jan 14: base rate raised 25 bps to 1.25% and degree of monetary policy accommodation will be appropriately adjusted as Korean economy is expected to continue its sound growth and inflation to run above the target for a considerable time.
SOUTH SUDAN
Jan 11: central bank rate cut 300 bps to 12.0% and minimum reserve requirement on local deposits 500 bps to 15.0% to achieve 1.0% economic growth in fiscal 2021/22, maintain inflation in single digits at 8.0%, plus/minus 1 percentage points, boost lending to the private sector and increase international reserves.
SRI LANKA
Jan 20: Standing Deposit Facility Rate (SDFR) and Standing Lending Facility Rate (SLFR) raised 50 bps each to 5.50% and 6.50% respectively, and further measures taken to boost foreign exchange reserves to curtail the possible build-up of underlying demand pressures in the economy, which will also help ease pressures in the external sector.
UKRAINE
Jan 20: discount rate raised 100 bps to 10.0% and central bank will continue the cycle of strengthening monetary policy and is ready to act decisively in the event of further implementation of pro-inflationary factors, such as an escalation of the conflict with Russia or further spikes in prices.
UNITED KINGDOM
Feb 3: bank rate raised 25 bps to 0.50% and stock of government and corporate bonds will be reduced as the economy is expected to bounce back quickly after a soft spell and inflation continues to rise.
URUGUAY
Jan 5: reference rate raised 75 bps to 6.50% and rate expected to be raised by the same magnitude at the next two monetary policy meetings so the rate reaches a neutral level by the beginning of the second quarter.
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