Monetary Policy Week in Review – Nov. 17, 2012: Global uncertainty dominates, but domestic demand holding up

Last week in monetary policy seven central banks decided on interest rates with Mozambique cutting its rate, Iceland raising its rate and the other five central banks (Sri Lanka, Latvia, Chile, Ghana and Jamaica) keeping rates unchanged.

 Mozambique continued its aggressive rate cutting campaign, reducing rates for the sixth time this year as inflation drops, while Iceland raised its rate for the fourth time this year as inflation and inflationary expectations remain well above the central bank’s target.

  The main message from the five banks that held rates was that uncertainty and anxiety still dominates the global economic outlook but domestic demand remains solid in most countries, helping counter weaker exports.

  Sri Lanka’s central bank had an interesting comment, saying the global economy could slow further due to the absence of pro-active leadership in the euro area. The bank also raised the prospect of a joint U.S.-euro initiative to boost growth though it didn’t reveal any details and nothing along those lines has been mentioned by other policy makers.

LAST WEEK’S (WEEK 46) MONETARY POLICY DECISIONS:

COUNTRY	MSCI	NEW RATE	OLD RATE	1 YEAR AGO
SRI LANKA	FM	7.75%	7.75%	7.00%
ICELAND		6.00%	5.75%	4.75%
LATVIA		2.50%	2.50%	3.50%
MOZAMBIQUE		9.50%	10.50%	16.00%
CHILE	EM	5.00%	5.00%	5.25%
GHANA		15.00%	15.00%	12.50%
JAMAICA		6.25%	6.25%	6.25%

NEXT WEEK (WEEK 47) five central banks are scheduled to review monetary policy, including Japan, Turkey, Nigeria, Georgia and South Africa.