Since last year, a number of developing countries have been tightening their monetary policies. While the Fed’s FOMC meeting on April 27 marked another period of easy monetary policy in the United States, central banks of other developed countries set their monetary policies differently.
After a series of debates, the European Central Bank (ECB) finally decided to raise the interest rate by a quarter per cent in the Euro area. The Euro appreciated under the anticipation of further rate hikes. The anticipation was then eased as the ECB announced no change to monetary policy today (May 5).
The decision must be very difficult for ECB officials as there has to be a well balance between the wealthy and not so wealthy countries in the single currency area. On one hand the Germans are complaining about inflation and on the other hand Greece, Ireland and Portugal are still in debt trouble. President Jean-Claude Trichet said on May 5 that “We are never pre-committed and we can increase rates whenever we judge it appropriate”. And analysts interpreted that as an adjournment for further rate hike decision beyond July.
The yield on 1-year Germany government bond is currently 1.34%
Bank of England released monetary policy decision today (May 5) stating no change to the interest rate of pound sterling and the amount in asset purchasing programme. The interest rate has been kept at 0.5% since March 2009.
Since the UK economy is still showing very slow, if any growth, the central bankers have not shown any signs of tightening money supply.
The yield on 1-year UK government bond is currently 0.66%
The Australian economy achieved fast growth in the past two years, and the benchmark cash rate was raised to 4.75% in November last year, following a series of rate hikes started in October 2009, when the rate was 3.0%. The monetary policy has not been changed during the past half year.
In the monetary policy decision just released on May 3, the central bank believe inflation is due to “effects of production losses due to the floods and Cyclone Yasi.” And
“as the temporary price shocks dissipate over the coming quarters, CPI inflation will be close to target over the year ahead.”
In addition, the monthly report also stated that ““The rising exchange rate will be helping to hold down prices for some consumer products over the coming few quarters, over the longer term, inflation can be expected to increase somewhat if economic conditions evolve broadly as expected.”, which analysts find hawkish.
The yield on 1-year Australian government bond is currently 4.95%
The Canadian economy has recovered fast from the financial crisis. Bank rate in Canada was raised from 0.50% to 1.25% in summer 2010 and has been kept unchanged since September 2010.
The currency has been trading above par with the US dollars since the beginning of this year and is still strong. The Bank of Canada officials have not given any signal of policy changes so far. But many expect a rate hike in this summer. In addition, a majority government was the result of the federal election just ended three days ago. This government is pro business and has a strong dollar policy.
The yield on 1-year Canadian government bond is currently 1.35%