Last week in global monetary policy three central banks (South Korea, Chile and Armenia) cut their key rates to shore up economic growth amidst deep concern over geopolitical stability, a theme that is now reverberating through financial markets.
Four of the nine central banks that issued policy statements last week specifically referred to geopolitical developments with the National Bank of Georgia again noting that domestic and external demand had already been impacted and this would further delay what it described as a necessary exit from accommodative monetary policy.
The impact of international tensions in Ukraine and the Mideast on monetary policy was also referred to by Mark Carney, Bank of England (BOE) governor, in his press conference last Wednesday, though at this point it has not had any affect on U.K. policy.
“I would say it’s early days, but it’s something we obviously have to monitor and if it becomes an important determinant obviously we’ll talk more directly to it,” Carney said, adding that geopolitical events can evolve rapidly.
In addition to Georgia, South Korea, Armenia and Uganda’s central banks also referred to geopolitical uncertainties in their policy statements.
The Bank of Uganda said:
“Financial and commodity markets also remain vulnerable to instability as geopolitical risks remain elevated.“
The other recurring theme among central banks was the coming shift in monetary policy in the United States and the U.K., with emerging market central banks continuing to position themselves to avoid a repeat of last summer’s “taper tantrum” when global capital reversed course and started flowing out of emerging markets and back to advanced economies.
Bank Indonesia (BI) said:
“Looking ahead, there are a number of global risks that we need to be wary of, among other things, the normalization of Fed policy and the Bank of England, and the risk of spillovers and spillback from the weakening economy of emerging markets.”
