Global monetary policy was quiet last week with most of the world celebrating Christmas and the start to 2014 – already nicknamed ‘Year of the Taper’ – with only the central banks of Sri Lanka and Uganda taking policy decisions.
Both Sri Lanka and Uganda maintained their policy rates but Sri Lanka added some spice by rejigging its policy framework.
The Central Bank of Sri Lanka replaced its previous rate corridor with a Standing Rate Corridor (SCR) with the Standing Deposit Facility Rate (SDFR) setting the floor and replacing the current repurchase rate as a benchmark.
The ceiling in the corridor will be known as the Standing Lending Facility Rate (SLFR) and determines the rate for the central bank’s provision of overnight funds to the banking system.
The central bank took advantage of the opportunity to narrow the width of the corridor to 150 basis points from 200 basis points by cutting the SLFR by 50 basis points to 8.0 percent and keeping the SDFR steady at 6.50 percent.
The Bank of Uganda held its policy rate steady at 11.5 percent but sent a distinctly hawkish message, saying it “shall take appropriate action to ensure that annual core inflation remains around the policy target of 5 percent in the medium term.”
While expecting inflation to slow in coming months, the central bank expects it to accelerate later this year, mainly due to an improving economy, with the rise in inflation depending on the exchange rate and changes in commodity prices, always a critical component of inflation in emerging and frontier markets.
LAST WEEK’S (WEEK 1) STORIES ON POLICY DECISIONS:
LAST WEEK’S MONETARY POLICY DECISIONS:
| COUNTRY | MSCI | NEW RATE | OLD RATE | 1 YEAR AGO |
| UZBEKISTAN | 10.00% | 12.00% | 12.00% | |
| SRI LANKA | FM | 6.50% | 6.50% | 7.50% |
| UGANDA | 11.50% | 11.50% | 12.00% |
This week (Week 2) monetary policy will be in focus right away as the U.S. Senate is set to vote on Monday afternoon on Federal Reserve Vice Chair Janet Yellen’s nomination as successor to Fed Chairman Ben Bernanke who will be leaving at the end of this month after eight years as the world’s leading central banker.
Seven central banks will decide on their monetary policy stance this week, including those from Romania, Poland, South Korea, Indonesia, United Kingdom, the European Central Bank and Peru.
| COUNTRY | MSCI | DATE | CURRENT RATE | 1 YEAR AGO |
| ROMANIA | FM | 8-Jan | 4.00% | 5.25% |
| POLAND | EM | 8-Jan | 2.50% | 4.00% |
| SOUTH KOREA | EM | 9-Jan | 2.50% | 2.75% |
| INDONESIA | EM | 9-Jan | 7.50% | 5.75% |
| UNITED KINGDOM | DM | 9-Jan | 0.50% | 0.50% |
| EUROSYSTEM | DM | 9-Jan | 0.25% | 0.75% |
| PERU | EM | 9-Jan | 4.00% | 4.25% |
