When Will Central Banks Raise Interest Rates?

In Australia, Canada, the Eurozone and the United Kingdom, after the four central bank monetary policy meetings were held, only the Reserve Bank of Australia lifted interest rates by 25 basis points to 4%. The rest of the central bank kept the benchmark interest rates unchanged. The global economy began to slow down the pace of the contraction policy. Who will continue to lead this round? This process has shown some new trends and characteristics. How will the rest of the world, out of China's policy change, seize the initiative?

Reserve Bank of Australia announced that it would raise rates by 25 basis points. It was pointed out that it means that the first wave of interest rates hike is over. On a broader point of view, since all countries from the end of 2008-2009 have started to expand fiscal policies substantially, they are now ready to withdraw the stimulus. Although the rate of interest increases in some regions, together with the effect, but the timetable for the withdrawal of country-specific or depend on their economic situation.

Australia is the world's first rate hike in the major economies. This was among its fourth consecutive five-month hike. It was mainly due to the strong economic recovery. The central bank had more confidence in raising interest rates. As Australia's financial sector by the United States market is less significant among the financial crisis, the overall economy has not been seriously affected. Starting from the end of 2007, including China, a number of countries have begun to implement economic stimulus plan, investment in infrastructure is a big one, requiring substantial iron and steel, which effectively stimulate Australia's iron ore exports. Its economy has significant positive impact.

Europe's situation would not be so good. Because of the impact of the debt crisis of Greece, the euro has recently seen some pressure. There has been a downward adjustment, which makes Europe's economic recovery slower. Despite the recent improvement in the German data, but in the present case, the inflation is not obvious. Therefore, the European Central Bank raising interest rates ahead of the need is not significant.

Global economic policy will ultimately to see the U.S. trend. While in mid-February, the Fed raised the discount rate by 25 basis points, we believe that the Fed fund rate hike should be at the end of the second half of this year or even next year. The Fed is now worried about is its labor market. The U.S. labor market is weak, economic recovery was largely export and inventory covering to replace, rather than the job market will lead to. In addition, the current level of inflation is very weak.

In the Asia Pacific region, China, India, Malaysia, Vietnam and other countries are ahead of exit and tightened. China's economy began to show signs of overheating. Inflation has started to recover, the situation is not optimistic. While January's CPI data have a number of callbacks, but the decision-makers are still concerned about inflation. It is worth noting that last year's bumper grain harvests. It does not appear in food prices continued to rise sharply. The current round of inflation emerged in China largely due to rising labor costs, especially in coastal provinces in the export where labor shortage is very serious. It will lead to wage increases, leading to price rise and inflation pressures, coupled with the existence of the phenomenon of excessive credit. Therefore, in China's currency policy, a gradual neutralization is necessary.

At this stage mainly relying on bank deposit reserve ratio and administrative means, they can effectively deal with inflation and asset bubbles. When will the first interest rate increase? It depends on how you define "effective." If the target set at CPI less than 3% -5%, I think it is feasible. Because inflation has inertia and will gradually ferment for some time, so it slowly exerting pressure, you can go to that critical point, and then use the interest rate instrument. Compared to other countries, some of their tools will be effective. Because they are now commercial banks follow the central bank's policy is basically very tight with the addition, they credit the amount of control forces are also high. In Western countries, to raise interest rates usually spend three to six months, but China looks at the loan amount of the central bank, and their monetary policy can take effect very quickly. However, this approach may result in waste of resources and market inefficiencies. The inflationary pressures in the second quarter will be relatively large. With a relatively small base last year, and higher labor wages, purchasing power and demand will increase, and the likelihood of interest rates hike is relatively large.