There’s been a lot of talk in recent months about the Federal Reserve’s plan to tighten monetary policy by raising rates later this year. This would be a significant sign that the economy has finally moved away from the financial crisis.
But don’t be fooled into thinking there’s some global shift toward tighter monetary policy. In reality, there there are far more central banks cutting rates than hiking rates around the world. This, as policymakers do what they can to stimulate growth and stoke inflation in their local economies.
“The big story in 2015 — a full 7yrs after the Lehman event — remains that of central bank easing,” Bank of America Merrill Lynch’s Barnaby Martin writes. “Year-to-date, central banks across the globe have cut interest rates 49 times, with China and Serbia being the latest.”
Martin sums up global central bank rate hikes in the chart above.
“Extrapolating the trend suggests that we could see close to 140 rate cuts by year- end,” he continued. “This means that policy easing is now running at a more aggressive pace than was seen in 2011/12 during the Eurozone peripheral crisis. Add QE from the ECB this year, and the influence of central banks is dramatic.”
Morgan Stanley’s Andrew Sheets also has a chart capturing this dovish, or expansionary, bias among the world’s central banks. His chart, which he calls the Global Monetary Policy Spectrum, shows that most of the easing is coming from the emerging markets including China, India, and Russia.
The developed markets are probably closer to taking their feet off the easy money gas pedal. But even as they tighten, it will be a while before you could actually argue that they are implementing tight, or contractionary monetary policy.
“Bottom line: Despite some noteworthy differentiation in the direction of policy decisions, global monetary policy should remain very expansionary for 2015,” Sheets said.