The State Of Monetary Policy In Every Major Economy In The World

Last week, the Federal Reserve shocked the world when it said that it has yet to begin tapering its large-scale asset purchase plan. Also known as quantitative easing (QE), this accommodative monetary policy involves the monthly purchases of $US85 billion worth of Treasury securities and mortgage-backed bonds.

However, the Fed is not the only central bank in the world keeping monetary policy easy in its effort to stimulate its economy.

At its Global Economics & Strategy Day last Friday, Morgan Stanley circulated a 97-page slide presentation that included this chart from Chief International Economist Joachim Fels.

It roughly shows where the world’s central banks stand on monetary policy, and the colours show where they intend to go.

As you can see, most central banks are in loose, expansionary mode with a bias toward easing.

The emerging markets, which have been struggling to bolster their currencies, have been a little be tighter with Brazil and Indonesia showing a bias toward further tightening.

Here are some points from Fels:

  • The Bank of Japan will probably have to extend its qualitative and quantitative easing beyond 2014.
  • The ECB should cut rates one more time.
  • In the UK, we are pushing back the first rate hike and additional easing is not completely off the table yet.
Monetary policy stanceMorgan StanleyColour corresponds to monetary bias, where ‘red’ stands for tightening bias, ‘orange’ for no bias and ‘green’ for easing.

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