Central Bankers Hold Rates Steady On Inflation Concerns

Central bankers around the world took their foot off the loose monetary policy throttle Thursday and kept benchmark interest rates steady on inflation concerns and the lack of new threats to gross domestic product growth.

The European Central Bank's kept its benchmark rate at 1 percent, and the Bank of England held its key rate at 0.5 percent.

Poland's Narodowy Bank Polski and Serbia's Narodna Banka Srbije said they were keeping their national benchmark interest rates unchanged, stemming from increased inflation projections and, particularly in Serbia's case, to protect the currency from depreciation.

Any further cuts would trigger additional depreciation of the dinar and that's the bottom line, Ljiljana Grubic, chief analyst with Raiffeisenbank AD in Belgrade, told Bloomberg of the decision by Serbia's central bankers.

Indonesia, South Korea and New Zealand all said they would maintain current rates, as economists had expected. Malaysia is widely seen as following suit Friday.

Growth or inflation risks are not compelling enough to push central banks aggressively in any direction, Matt Hildebrandt, an economist at JPMorgan Chase & Co. in Singapore, told Reuters. On the whole, central banks have probably shifted from growth concerns to being neutral.

Canadian central bankers also joined the global trend, holding that country's benchmark lending rate at 1 percent.

The heightened uncertainty around the global economic outlook has decreased, the Bank of Canada said in a statement. With tentative signs of stabilization in European bank funding and sovereign debt markets, conditions in global financial markets have improved and risk aversion has decreased.

Against the Trend

Unchanged benchmark interest rates do not mean economists at national monetary policy institutions believe the world economy is doing fine and there is nothing further to be done. The ECB, for example, said it was reducing its euro zone GDP growth forecast for the year, seeing economic activity in the region growing no more than an anemic 0.3 percent this year. Previous forecasts had predicted 1 percent growth.

The Bank of Canada, in its own statement, noted the global economy is still expected to grow below its trend rate as the deleveraging process in advanced economies proceeds.

Though many central bankers kept rates steady to preempt inflation, others central bankers have different concerns.

Brazil, which reported official inflation of 6.5 percent last year, saidThursday it was cutting its benchmark interest rate to 9.75 percent, down 75 basis points, because of disappointing GDP growth.

Vietnam, which is barely off an annualized inflation peak of 23.03 percent in August last year, also cut rates, bringing its benchmark rate down 1 percentage point to 13 percent.

That move was meant to help to reduce the tensions caused by too high interest rates and by high prices of capital in our financial market, Vu Dinh Anh, deputy director of the state-backed Institute of Economy and Finance, told the AFP.

However, we should be cautious. We need to cut rates slowly as inflation is still quite high.