This week eight central banks took policy decisions with three banks cutting rates (Israel, Serbia and Turkey) and five leaving rates on hold (Indonesia, Iceland, Russia, Latvia and Chile) as the Bank of Japan’s (BOJ) monetary easing continues to impact monetary policy decisions worldwide.
Last week 16 central banks took policy decisions with a record eight banks cutting rates by a total of 550 basis points as the Bank of Japan’s (BOJ) monetary easing looks to become a watershed event in global monetary policy by opening a new front in the currency wars.
Last week eight central banks took policy decisions with only one (Mongolia) cutting its rate while the other seven banks (Poland, South Korea, Indonesia, Serbia, Chile, Peru and Pakistan) kept rates on hold as markets continued to digest the Bank of Japan’s unprecedented monetary easing.
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The Bank of England (BOE) held its official Bank Rate paid on commercial bank reserves steady at 0.5 percent, as widely expected, and maintained its target for asset purchases at 375 billion pounds.
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Canada’s central bank kept its target for the benchmark overnight rate steady at 1.0 percent, as widely expected, and said the current “considerable monetary stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required.”
Three new chapters in the history of monetary policy were opened this week, showing that central bankers remain fearless, creative and willing to take bold steps to revive economic growth. The main example was the Bank of Japan’s embrace of large-scale asset purchases as a way to banish deflation. However, the Central Bank of Hungary’s effort to directly aid small businesses was also indicative of a willingness to think outside the box just as the Central Bank of Barbados showed a lack of dogmatic thinking by questioning its ability to control inflation through interest rates. It also became clear this week that the European Central Bank (ECB) is likely to join the growing list of banks that are employing new and creative policies to solve the issue of how to channel funds to private businesses when the banking system is ailing. At the core of these new policies is the lasting damage from the Global Financial Crises. The banking system, the traditional conduit between central banks and private businesses, is traumatized, saddled with debt and too little capital, reticent to lend to new business ventures. ECB President Mario Draghi said this week he was considering various instruments and tools to stimulate growth, including those used by central banks abroad, and was ready to act. Though the multinational structure of the ECB makes it less agile than other central banks, Draghi’s statement last July that the ECB was “ready to do whatever it takes to preserve the euro” showed the same boldness and fearlessness that the BOJ’s new governor displayed this week. The BOJ surprised on two fronts: The massive size of its asset purchases and the radical shift in its policy framework. Over the next two years, the BOJ aims to purchase some 130 trillion yen of assets (US$1.33 trillion) including government bonds, exchange-traded-funds (ETFs) and real estate investment trusts (REITs), expanding its balance sheet to 290 trillion yen ($2.97 trillion) from 158 trillion at the end of 2012. On a monthly basis, the BOJ plans to buy some 7 trillion yen ($72 billion) of mainly longer-term Japanese government bonds, which means it will be buying some 70 percent of new debt issued. To put that into perspective, the U.S. Federal Reserve has bought some $2.5 trillion in mortgage and Treasuries over the last five years and is currently purchasing assets worth $85 billion a month. The Fed’s balance sheet is currently $3.2 trillion. However, the U.S. economy is three times the size of the Japanese economy. The other novel aspect of the BOJ’s “new phase of monetary easing both in terms of quantity and quality” was the change in its operational target. Instead of focusing on the overnight call rate, it will now focus on the monetary base, a measure that includes coins and notes in circulation and banks’ reserves at the BOJ. The call rate has been largely symbolic since December 2008 when it was cut to 0.10 percent. In October 2010 it was then trimmed to between zero and 0.10 percent and now the BOJ is drawing the ultimate consequence of an impaired interest rate channel and scrapping it altogether. It remains to be seen whether other central banks, notably the Bank of England, which has held rates at effectively zero for five years, will draw inspiration from the BOJ. The BOE, which left rates and asset purchase targets unchanged this week, is currently considering introducing economic thresholds as part of its framework and may go even further once its new governor, Mark Carney, takes over in June. Last week seven central banks took policy decisions with six banks (Australia, Russia, Thailand, Uganda, the United Kingdom and the euro area) keeping rates on hold. Although Japan is no longer targeting the uncollateralized overnight call rate but rater the monetary base, it is being counted as having cut rates to zero from the previous 0-0.10 percent in order to capture its decision to ease its policy stance. Through the first 14 weeks of the year, 77 percent of the 133 policy decisions taken by the 90 central banks followed by Central Bank News lead to unchanged rates, the same ratio as after the first 13 weeks. Globally, 20 percent of policy decisions this year have lead to rate cuts – largely by central banks in emerging economies and now Japan as the first central bank in developed markets – up from 19.0 percent last week. Of the 26 rate cuts worldwide so far this year, 38 percent have come from central banks in emerging markets, down from 42 percent last week. LAST WEEK’S (WEEK 15) MONETARY POLICY DECISIONS: COUNTRY MSCI NEW RATE OLD RATE 1 YEAR AGO AUSTRALIA DM 3.00% 3.00% 4.25% RUSSIA EM 8.25% 8.25% 8.00% THAILAND EM 2.75% 2.75% 3.00% UGANDA 12.00% 12.00% 21.00% JAPAN DM 0.00% 0.10% 0.10% UNITED KINGDOM DM 0.50% 0.50% 0.50% EURO AREA DM 0.75% 0.75% 1.00% NEXT WEEK (week 15) features six central bank policy decisions, including Sri Lanka’s tentatively scheduled meeting, Barbados’ first quarter review, and meetings by Poland, South Korea, Indonesia, Serbia, Peru, Chile and Singapore. COUNTRY MSCI MEETING RATE 1 YEAR AGO SRI LANKA FM 9-Apr 7.50% 7.75% POLAND EM 10-Apr 3.25% 4.50% SOUTH KOREA EM 11-Apr 2.75% 3.25% INDONESIA EM 11-Apr 5.75% 5.75% SERBIA FM 11-Apr 11.75% 9.50% PERU EM 11-Apr 4.25% 4.25% CHILE EM 11-Apr 5.00% 5.00% SINGAPORE DM 12-Apr N/A N/A www.centralbanknews.info
The Bank of Canada (BOC) held its target for the benchmark overnight rate steady at 1.0 percent, as expected, but said a tightening of its policy stance was less imminent than previously expected due to a more muted outlook for inflation and slower growth in household credit.
Hurricane Sandy left a lot of things devastated. Many people are still going through the aftereffects, trying to recover from the slump. It caused a huge loss to the economy, ruining houses and industries. However, at the same time it taught a lot of lessons too. Given below are ten lessons the destructive hurricane taught me. 1. Save Money It is important to save money for the rainy days. You never know what could happen tomorrow. It is very important to plan carefully. Disaster management, fortunately, is not a taboo subject; however, many people think it is only the authority’s responsibility. Hurricane Sandy made me realize how important it is for everyone to take care of their own goods, and not leave everything on others. 2. Invest Money It is important to invest money, which only loses value for the time it is locked inside your safe. I, fortunately, had made a few investments that kept my money secure. I suggest you, too, follow the same path. 3. Do Not Put All Your Eggs in One Basket It is never a good idea to put all your eggs in one basket. Always invest your money carefully in different industries/fields. Natural disasters like hurricanes leave economies upside down. Everything, from currency rates to gold prices can be affected. This is why it is important to play it safe and put your money in different options, so that if one flutters you can always fall on another. 4. Look Abroad A lot of people are now considering this option due to its benefits. Disasters that hit the US economy will not affect other countries’ economies in the same way, which is why it becomes useful to invest money abroad. However, make sure you choose a country that has a flourishing economy so that your money is secured. 5. Insurance Standard insurance policy does not cover natural calamities. You will have to do a good amount of research and find an insurance provider who provides security against natural calamities. Insurance can stop mother nature from becoming your worst enemy. Simply, get your house, investment and property secured so that you are secured in case any such unfortunate event strikes. 6. Use Money Wisely Money is scarce and should be used wisely. You need to understand that your financial condition may change anytime, which is why it is important to be careful about your spending habits and use money wisely. Do not live under debt burden. It is easy to live on a credit card, but such thing can have long-term negative effects. You can learn more about credit card debt at Consolidated Credit. 7. Look for Opportunities Look if you can find any help in government policies. There are many clauses that you can use to save tax money if you live in an area hit by a natural disaster. Many organizations also provide aid in financial issues if you are in hot water. Make sure you look for such opportunities and cash in on them. 8. Nothing Lasts Forever One of the main lessons I learnt from hurricane Sandy is that nothing lasts forever. I saw my beautiful house getting ruined with nothing rubble there now. Huge towers and big shops got destroyed within a matter of seconds. It has to be understood that nothing is immortal and you need to plan everything accordingly. Whatever you have is never enough and you should continue to work hard to secure your future. 9. Debt is Never Good I am currently in a lot of debt, and finding it difficult to payback. Loans might look like an easy way out, but it is not always a good idea to depend on someone else’s money. This is one of the most important lessons I learned from the hurricane. Also, I came across Consolidated Credit during this time which helped me a lot with my credit card debts. 10.Others Lastly, I learnt that help is always there if you try to find it. When I was under debt, I turned to my best friend who helped me by offering an interest-free loan. If you also have such friends, you can turn to them and know that the bad phase will eventually wash away. These are the simple money lessons I learnt from Hurricane Sandy. Life, actually, teaches us something every day. About the Author Celina writes weekly columns for a daily. She lives in an area that is among the most widely affected areas by the disastrous hurricane Sandy. She is trying to bring things back to normal through her writings.