mint (WSJ)'s article on similar note of my recent post

Comparison between the two articles...

My post on Wednesday	Mint (WSJ)’s article in Thursday’s paper
The great recession 2007-08 is history now and world is in the brink of recovery (different opinions about shape of recovery) with different pace in different places. Now almost all central bankers (both developed and developing countries) are worried about the future course of monetary actions.Developed countries like US, UK, European Union and Japan have maintained their respective interest rate at very low levels almost equal to zero to avoid the depression. Since economy is now trying to recover from the crisis, these above mentioned country's central bankers are facing their own issues and are in dilemma whether to reverse the monetary stimulus or to go ahead with the present status for some more time? Coming to developing countries like BRIC (Brazil, Russia, India and China) are clearly under the tremendous inflation pressure. India and China's central bankers increased their respective interest rates almost on an average once in a two month (from more than a year) to control the inflation. Brazil is under the threat of "hot money" flow due to interest rate parity and threating its currency competency. Russians are facing bubble kind of formation in almost all asset class due to rapid increase in their valuation.	The European Central Bank and the U.S. Feder- al Reserve, facing similar challenges of fragile economic recoveries and surging com- modity prices, are charting dif- ferent courses.The world's major central banks “are in the post-traumat- ic stress clinic,“ says Willem Buiter, chief economist at Citi- group and a former member of the Bank of England's policy board. Interest rates are “ludi- crously low,“ he says. “This is clearly not the world central banks like to operate in.“ The central bank faces a deepening divide between its prosperous northern members of Germany, Austria and the Netherlands--where inflation is starting to take hold--and its weaker southern countries, plus Ireland, where unemploy- ment is high and economic growth sluggish. Managing the exit from easy- money policies could be more fraught than usual. Central banks have to decide both when to start the process, and how to do it. Minutes from the Fed's latest meeting in March, released Tuesday, gave hints of the brewing debate within the Fed about the economic out- look and its policy course.
US is getting mixed data from its economy as it Job data, and inflation data are on the positive side where as housing data is still under the pressure. UK is under the threat of Inflation and Japan is bombarded by Tsunami, nuclear crisis and 2 lost decades. European union is in dilemma as its different constituents are in very widely diverged due to countries like Germany and Ireland (or Greece) are like south and north poles in all aspects of economy.	The U.S. consumer price in- dex was up 2.1% in February from a year earlier, though an- other measure preferred by the Fed was slightly lower. Excluding the volatile food and energy sectors, the index was up 1.1%. Euro-zone inflation was 2.6% in the 12 months ended in March. It was up 1% for Febru- ary when food and energy pric- es were excluded. The Bank of Japan, shaken by natural disasters and a nu- clear crisis, is preparing for a meeting later Wednesday and Thursday at which it is consid- ering new easy-money meas- ures that would direct low-in- terest loans through banks to crisis-hit areas. The Fed, on the other hand, is betting it can afford to let a nascent U.S. recovery--still challenged by a slumping housing market, thrifty con- sumers and high unemploy- ment--run a while before try- ing to slow it down.
Yesterday, Tuesday, April 5th 2011 PBOC (People's Bank of China) has increased the lending and deposit rates by 25 basis points to from 6.06% to 6.31% and 3.0% to 3.25% respectively to curb the inflation. According to last available data China's CPI data for the month of February was 4.9% which is almost 1% higher than the PBOC's comfort (target) zone. But the problem PBOC might face in coming days is slower growth as it has forecast a lower GDP for coming years. Remember China spent massive amount (more than 4 trillion yuan) during the crisis times and its banks lent more than double the government spending/stimulus. So the base effect along with reverse the stimulus effect and lesser(than earlier) advantage of currency competence (due to international pressure to yuan pegging) may cause hindrance to Chinese.	The People's Bank of China on Tuesday raised its policy rate by a quarter percentage point, continuing a phase of interest- rate increases in the world's fast-growing emerging econo- mies that began earlier but that many economists say has been too timid.
Tomorrow, April 7th 2011 ECB (European Central Bank) is meeting and many analysts are expecting ECB to increase the interest rates to target the inflation. ECB might be worried about the December inflation of 2.2% which above its target of 2%, but what about Greece, Ireland and other debt ridden Euro zone countries growth! Will it start the process for other developed countries to follow?	The ECB, preparing for a pol- icy meeting Thursday, is poised to become the first central bank among the world's large, developed economies to raise interest rates since the world fell into deep recession in 2008. With the ECB moving toward tighter policy and the Fed stay- ing easy, the U.S. dollar could be heading for continued de- clines as investors seek higher- returning holdings elsewhere, said Bruce Kasman, chief glob- al economist for J.P. Morgan. The divergence among cen- tral banks is a test of their cred- ibility. The ECB is betting a rate increase now will prove its an- ti-inflation mettle and might help it avoid more draconian increases in borrowing costs later. ECB officials are expected to raise the bank's main lend- ing rate one-quarter percent- age point to 1.25% at the meet- ing Thursday. The euro hit five- month highs against the U.S. dollar this week.
MPC (Monetary Policy Committee) of Bank of England is in traction to take the first step to increase the interest rates from 0.5% to 0.75% to target the inflation, but question of the hour is when? According to latest available inflation data for February is increased to 4.4% (from 4%) above the Bank of England's comfort zone of 2%. So will it bite the bullet?	The Bank of England is ex- pected to hold short-term in- terest rates steady Thursday at 0.5%. The U.K.'s consumer price inflation, at 4.4%, is rela- tively high, but its economy contracted in the fourth quar- ter and shows scant signs of having recovered solidly in the first quarter. Reflecting the conflicting economic signals, the BOE policy board is divided three ways, with a majority be- hind steady rates, some mem- bers pressing for rate increases, and one backing more stimu- lus.
Now there is lot discussion is happening around the FED's possible about QE2 (Quantitative Easing 2), FED rate, Inflation (is 2.1% and FED's target is 2%). FED might be worried about its history of 1936-37 of recession after great depression in 1930. (In the course of 10 months between 1936-1937, FED doubled its interest rates by causing recession!). It also might be wondering about the consequences of premature stimulus exit.	The Fed decided to continue a $600 billion bond-buying program, known as quantita- tive easing, but “a few mem- bers“ thought the Fed might need to reduce the program. The minutes also showed Fed officials had an extended dis- cussion about the outlook for inflation, in which they tried to make sense of higher prices for oil, grains, metals and other commodities. Though Fed Chairman Ben Bernanke ex- pects the broader inflation im- pact of higher energy prices to be muted, some Fed officials are eager to start moving to contain it.
In almost all the cases of central bankers, everybody is targeting inflation and inflation, mainly increased due to spike in oil prices, high commodity price and higher primary food articles. And inflation in most of the cases is supply side issue also instead of just increase demand! Whether mere increase in interest rates (further more in the case of developing countries) will curb the inflation immediately, without derailing the growth prospects? Global economy may not be ready to face another credit crunch! At the same time, artificial asset boosting by keeping near zero interest rates is also not good for the longer term economy, as fast history is in front us!	The central banks' divergent policies will have enormous ef- fects on economic growth, in- flation and financial markets.The stakes are high for both banks. If the ECB is wrong in moving rates higher now, it could choke off economic growth in the euro zone. If the Fed is erring on the side of easy money, it could let U.S. infla- tion take off, damaging the do- mestic economy. This comes as other major central banks are pursuing their own varying approaches.
For my blog on this topic click here	For full mint article, click here