Central Banker Report Cards 2019: Return To Easing Street

A year ago, central bankers around the world were beginning to raise interest rates to more-normal levels after flooding the markets with liquidity in the wake of the 2008 financial crisis. Today, most are reversing course: once again lowering rates to support their economies in an environment of rising protectionism, slowing global growth and weak inflation.

Fitch Ratings recently created a new dispersion index that gives a bird’s eye view of the direction of global monetary policies, because “the extent to which changes in the direction of monetary policy are synchronized across countries can have important impact,” the company noted in August. The index shows a dramatic turnabout in every corner of the Earth in the last year. In December, a majority were tightening and just 3% were easing monetary policy. By midsummer, most were easing or holding steady. “The shift in the direction of global monetary policy in the last six months has been more broad-based across geographies than in any period since 2009,” Fitch commented.

Even so. US President Donald Trump has repeatedly criticized Federal Reserve Chair Jerome Powell for not cutting interest rates quickly enough. “If we had a Fed that would lower interest rates, we would be like a rocket ship,” he said in July. When the Fed lowered rates by a quarter point at the end of the month, Trump said, “Powell let us down.” Powell insisted that the cut was not due to political pressure. “We never take into account political considerations,” he said. “We also don’t conduct monetary policy in order to prove our independence.” Trump had previously attacked the European Central Bank and the People’s Bank of China (PBoC) for making the opposite move.

In August, the US Treasury took the unusual step of formally declaring China a “currency manipulator,” something it had not done since 1994. The move came hours after Trump criticized Beijing for allowing the renminbi to depreciate to more than 7 RMB to the dollar for the first time in 11 years. The PBoC contended that the depreciation was mainly a result of the trade war between the two countries. The fall in the renminbi came after Trump vowed to impose 10% tariffs on the remaining $300 billion of Chinese imports beginning on September 1. China’s central bank, for its part, accused the US of “wayward unilateralism and protectionist behavior that … will have a major impact on global economic finance.” Draghi similarly said trade disputes were making further stimulus necessary.

Global Finance has been grading central bankers for 25 years, based on inflation control, economic growth, currency stability and interest-rate management, among other criteria. Each central banker’s ability to protect independence in the face of political pressure, as well as skills and diligence in supervising financial institutions, are also taken into account. This year we rate 100 central bank governors with grades ranging from A for honors to F for failure. For the first time, we grade the governors of Cambodia, Gambia, Kyrgyzstan, Laos, Madagascar, Mauritania, Mauritius, Mongolia, Mozambique, Rwanda and Zimbabwe.

The Bank of Canada held its key policy rate at 1.75%—the highest level since 2008—in the first nine months of this year, despite growing concerns about global trade tensions and uncertainty over trade relations with the US. Meanwhile, the Canadian dollar fell to 75 US cents amid worries that the country’s commodity exports, including oil, could be harmed by a global slowdown.

The central bank said, following its July meeting, that it would continue to “pay particular attention to developments in the energy sector and the impact of trade conflicts” on Canada’s growth and inflation outlook. GDP growth is returning to potential after stalling late last year, while inflation remains near its 2% target. “However, the outlook is clouded by persistent trade tensions,” the central bank said in its July 10 statement.