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Economy

Central banks welcome 2015 with series of easing moves

TOKYO -- A wave of monetary relaxation has swept the world since the start of this year, involving not only the European Central Bank but central banks of various other countries as well.    

     The wave consists of two types. One type of credit easing takes advantage of slower inflation, while the other is aimed at addressing emerging deflationary concerns.

     As the first type, emerging economies that rely on imports for natural resources see wider leeway for monetary policy as inflation has been reined in thanks to falling crude oil prices.

     Egypt and Peru have joined the series of interest rate reductions. Egypt, which raised its key interest rate for monetary policy by one percentage point in July 2014, unexpectedly lowered the rate.

     The core rate of inflation in Egypt stood at 7.61% in December from a year earlier, marking the fourth consecutive monthly fall. Lower crude oil prices have curbed rises in import prices, an Egyptian monetary official said.

     In Peru, the rate of inflation, excluding food and energy prices, came to 2.51% in December. Expected inflation is within the target range, a central bank official said with pride.

     Inflationary pressure in India is easing, said Raghuram Rajan, governor of the Reserve Bank of India, which recently provided a positive surprise to financial markets by cutting its policy rate. The nation's inflation rate will fall below 6% by January next year, according to Rajan.

     Lower oil prices have expanded room for an additional easing of credit for India, an importer of natural resources.

     In January 2014, Brazil, India, Turkey and South Africa raised interest rates to stem a feared exodus of capital from them as a result of an end to quantitative easing by the U.S. Federal Reserve. The four countries and Indonesia were bundled as the "Fragile Five."

     The Fed exited from its quantitative easing policy in October 2014 and has now set its eyes on ending its zero interest rate policy. But confusion, like that which occurred last year, is being avoided because market players expect Fed chair Janet Yellen not to resort to heavy-handed measures.

Deflationary concerns

A typical example of the second type is the ECB embarking on quantitative easing.

     Romania cut its policy rate because of its close relationship with the eurozone economy. Switzerland and Denmark followed suit to prepare for the appreciation of their euro-linked currencies against the single currency as a result of the ECB's decision.     

      Rate cuts by Romania, Switzerland and Denmark suggest struggles small countries are faced with.

     Falling prices of oil and other international commodities are dealing a blow to Canada as natural resources and energy account for 30% of its total exports.

     In a surprise move, the Bank of Canada lowered its policy rate, saying in its statement, "The oil price shock increases both downside risks to the inflation profile and financial stability risks."

     Speculation is rife that Australia, as another exporter of natural resources, will also resort to a rate cut.

     China and South Korea, caught in noticeable economic slowdowns, have not joined the current series of rate reductions. While they will no doubt do so sooner or later, the adverse effects will be far-reaching if China fails to wipe out deflationary concerns.

     Emerging economies should not be bundled together as one and the same, especially this year.

     While monetary relaxation is prevailing around the world, Brazil has raised its key interest rate to battle inflation. Coupled with its policy shift to restoring of fiscal health, the decision is welcomed by market players.

     Although Turkey's central bank has lowered its policy rate in compliance with the government's demands, it has not changed its stance of keeping market rates steady due to concerns about inflation. Pressure from the administration of President Recep Tayyip Erdogan for an additional easing of credit is growing stronger.

     Despite the prevailing trends toward credit relaxation around the world, the monetary policy of each country is growing more oriented toward going their own way. Investors will be tested for their discernment.

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