Central banks around the world are trying to figure out when is the right time to start normalizing monetary policy. Some are on the verge of being ready to raise rates, others are in the process of decreasing, and others have done nothing. With Norges Bank, BOE, FED, Riksbank, BOJ and SNB due to meet next week, changes could be coming. Below are 10 of the most popular central banks and their stance on monetary policy:
Norges Bank (Norway) – Hawkish
Norway’s Norges Bank kept rates unchanged at its August meeting, but reiterated that it expects a hike on September 23.rd Meet. Their latest inflation report showed the August CPI rose 3.5% year-on-year and the unemployed fell from 101,800 to 93,910 in August. Norges Bank is expected to be the first central bank in the developed world to raise rates.
RBNZ (New Zealand) – Hawkish
The RBNZ was ready to hike rates at its last meeting in August, but decided to delay after an episode of coronavirus cases caused instant lockdowns. After improving viral conditions and a second-quarter GDP boom this week, the RBNZ is almost certain to raise rates when they meet in October. It is even speculated that the central bank could raise its rates from 0% to 0.5%!
NZD / USD flag pattern indicates possible move to 2014 highs
Source: Tradingview, Pierre X
BOC (Canada) – Leaning Hawkish
The BOC left the pace of its bond purchases unchanged at C $ 2 billion per week on its September 9.e Meet. However, they gradually narrowed. The committee continues to see expansion through the second half of 2021, but once its quantitative easing program is over, it will wait to hike rates until its 2% inflation target is sustainably met. what he expects it to be in the second half of 2022.
BOE (United Kingdom) – Leaning Hawkish
The BOE has not cut its bond purchases since June, when it slashed the buying pace from £ 4.4bn per week to £ 3.4bn per week. At their last meeting in July, the powerhouse left the total amount of its quota easing program at £ 875 billion. However, they noted that they would start reducing the stock of bonds when rates hit 0.5% by not reinvesting the gains and that they would consider starting to sell bonds once rates hit 1%. BOE Governor Andrew Bailey last week said members were divided 4-4 on whether minimum the conditions are right for an increase in interest rates. The UK economy continues to grow after reopening, with better jobs data, higher inflation data this week. The BOE is meeting next week.
RBA (Australia) – Neutral
Australia’s central bank has slashed the pace of its bond purchases from A $ 5 billion a week to A $ 4 billion a week, as it announced at its July meeting. However, the RBA has also said it will maintain quantitative easing at this rate until at least mid-February 2022. Australia has been hit hard in recent months by the coronavirus, with the August job change showing 146,300 jobs have been lost. However, as vaccinations increase, members expect the economy to strengthen, albeit at a slower pace than initially expected. The central bank will maintain an accommodative monetary policy until inflation is within its target range of 2% to 3%, which it does not expect until 2024.
FED (United States) – Neutral
At the Jackson Hole Symposium in August, Fed Chairman Powell noted that the Fed may start shrinking by the end of the year. However, he also noted that there is no direct link between reducing bond purchases and increasing interest rates. The Fed currently buys $ 120 billion per month in Treasuries and MBS. Presidents Powell also noted that inflation targets have been met, but there is still “a long way to go” in terms of jobs. After readings of + 938,000 and + 1,053,000 for June and July respectively, the August impression was only + 235,000. At next week’s FOMC meeting, markets will be looking for more clues that the Fed will start to cut by the end of the year, although they are not expected to give specific dates or the pace of the cut. In addition, at the July FOMC meeting, more than half of members said they expected a rate hike by the end of 2022. See if the forecast for next week’s meeting echoed those feelings.
Market participants see 38.4% chance of Fed rate hike in February 2023
Source: CME, Pierre X
Riksbank (Sweden) – Neutral
At the July Riksbank meeting, members left rates unchanged at 0.0% and said they would continue their SEK 700 billion asset purchase program until it expired at the end. 2021. The Riksbank’s current forecast does not show that they will raise interest rates until the third quarter. , 2024. However, earlier in the week, inflation surprised to the upside as the CPIF (the Riksbank’s preferred inflation measure) for August was 2.4% versus 1.9% expected and 1, 7% in July. This is the highest level since April 2021. Some observers believe officials may draw attention to this point at their meeting next week.
ECB (Europe) – Neutral
At the ECB meeting last week, members said they would purchase assets under the Pandemic Emergency Purchase Program (PEPP) at a “moderately slower pace” than the 6 last months. They left the total amount of purchases under the PEPP unchanged at 1.85 trillion euros and said the program will expire in March 2022, as planned. Note that the ECB does not consider this “tapering”, as it has the option to purchase any amount of bonds at any time under the program, as long as the total amount is less than 1.85 trillion. ‘euros. At the July meeting, the ECB changed its guidance on inflation from a target “close to but below 2%” to “a symmetrical target of 2%”. They also noted that they expect inflation to rise to 3% by the end of the year, moderating to 2% over the medium term. The August Eurozone flash reading for the CPI was 3%. Note that the ECB currently has interest rates set at -0.5%
BOJ (Japan) – Dovish
Like other Asian countries, Japan has been hit hard by the coronavirus recently, with much of the country under a state of emergency for months. However, as vaccination rates increase, the economy is expected to start to recover. Even with an economic recovery, Japan will still need an accommodative monetary policy, as it has done over the past two decades. Kuroda has indicated that he is ready to provide more stimulus if needed, cutting interest rates which are currently at -0.1%. Kuroda said he expects inflation to hit 1% in 2023. The BOJ is currently targeting 0% for its 10-year JGB yields. With the resignation of Prime Minister Suga and new elections in October, the BOJ will likely remain on hold next week while waiting to see what new fiscal stimulus measures are put in place by the new prime minister.
BNS (Switzerland) – Dovish
The Swiss National Bank is as accommodating as it gets. They have the lowest interest rate in the world at -0.75% since 2015, and with the coronavirus pandemic lasting a year and a half, rates are unlikely to turn positive anytime soon. In addition, the central bank has stepped up its interventions in the foreign exchange market since the pandemic in order to prevent the value of the Swiss franc from appreciating. At its last meeting, the SNB raised the inflation forecast for 2021 to 0.4% and 0.6% for 2022 and 2023. When the central bank meets next week, don’t expect that ‘it changes its accommodative monetary policy a lot, if at all.
SNB interest rate over the past 25 years
Source: Trading economics, Stone X
With many central bank meetings next week, there is always room for surprises that could affect exchange rates. Be on the lookout for outcomes that differ from expectations and be prepared to deal with the possibility of volatility. As the world begins to take control of the coronavirus pandemic, watch central banks to continue to normalize monetary policy.