Global interest rates declined further in February as six central banks cut rates by a total of 150 basis points, pushing the average global monetary policy rate down to 5.86 percent from January’s 5.88 percent and December’s 5.92 percent.
The pace of rate cuts cooled from January when the 90 central banks followed by Central Bank News trimmed rates by a total of 342 basis points, as many central banks start to shift towards a more neutral stance to gauge the impact of last year’s rate cuts, U.S. budget cuts and Europe’s recession.
Only one central bank raised rates in February: Serbia, which has now raised rates by 50 basis points this year, continuing its dogged fight against inflation.
Apart from Denmark, which raised its rate in January for exchange rate reasons, Serbia is the only central bank worldwide to have tightened policy this year, illustrating how weak global demand is keeping inflation at bay and allowing central banks to cut interest rates to stimulate growth.
Declining inflation rates and subdued upward pressure was specifically cited by five of this month’s rate cutters (Georgia, Azerbaijan, Poland, Hungary and Colombia) in their policy statements.
Nevertheless, some central banks are starting to voice concern over inflationary pressures, especially Brazil, Russia and Malaysia, while China has been draining funds from the banking system to temper the rise in inflation.
While there are still major risks to the global economic recovery, the overall picture of the global economy is one of brightening prospects, with the U.S., China and emerging markets growing stronger while Europe is weakening.
The Reserve Bank of Australia (RBA) and the Bank of Israel (BOI) typify those central banks that are in a holding pattern. After last year’s sizable rate cuts, their economies are adjusting with the RBA saying the full impact of “significant easing” is yet to come while the BOI notes it’s too early to tell whether the economy has reached a turning point.
Asia remains the hub for global growth, with a pickup in China’s economic activity cited by both Indonesia and far-away Chile as helping their exports. South Korea, Thailand, Japan and Sweden also noted improving exports.
New Zealand, whose strong currency is helping curtain inflation, is also more upbeat about its economic prospects and keeping a close eye on house prices for any signs of overheating.
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The central bank of Mauritius kept its benchmark repo rate steady at 4.90 percent and said the upside risks to inflation are persisting while downside risks from weak and uncertain economic conditions in the country’s main export markets continue to weigh on the domestic growth outlook.
The Bank of Mauritius said its Monetary Policy Committee kept the rate steady in light of the “continued uncertainty on the global growth outlook,” but some committee members had “expressed strong concerns about the deteriorating inflaiton outlook” and “emphasised the need to normalise rates to encourage savings while containing speculative activities in some sectors.”
“The MPC maintains strong vigilance in monitoring economic and financial developments and stands ready to meet in between its regular meetings, if the need arises,” the bank said.
Mauritius’ inflation rate rose to 3.6 percent in February from January’s 2.9 percent, the bank said, noting the persistent upside risks to elevated global commodity prices, the impact of a recent PRB award to the public sector, a rise in retail petroleum prices and the expected second-round effect of these, as well as the projected rise in administered prices.
Based on no rate changes, the bank’s staff forecast a headline inflation forecast of 4.7-4.9 percent by December 2013 compared with an expectations survey from last month that put the annual headline inflation rate at 5.0 percent in December and 5.2 percent for December 2014.
The bank’s policy committee took note of fragile economic conditions among the developed economies of export interest to Mauritius while recovery is more robust among emerging economies.
Mauritius’ third quarter Gross Domestic Product rose 1.3 percent from the second quarter for annual growth of 3.9 percent, up from the second quarter’s 3.2 percent and the first quarter’s 3.0 percent.
The central bank said the output gap had narrowed a little but remained negative, but the underlying economic momentum is expected to remain positive.
The bank’s staff forecasts 2013 economic growth of 3.4-3.9 percent, up from projected 2012 growth of 3.3 percent. In 2011 Mauritius’ Gross Domestic Product rose a real 4.1 percent, the same as in 2010.