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27 Nov 2014
A snapshot of central bank thinking – MP
FXStreet (Barcelona) - Dean Popplewell, Director of Currency Analysis and Research at MarketPulse, notes that some of the main central banks continue to eye handcuffing investors to a low rate environment throughout the first half of 2015, while highlights the views of some of the major centralbanks.
Key Quotes
The People’s Bank of China’s Cautious Approach – “The coming year is shaping up to be a challenging one for Asian central bankers. They are confronted with a balancing act of supporting economic growth whilst guarding against potential volatility arising from the normalization of U.S. interest rates.”
The Bank of Japan’s Shock and Awe Play – “Tuesday’s meeting minutes from the Bank of Japan (BoJ) revealed that the central bank’s surprise move last month to expand its already massive stimulus program was about sending the message that it will do whatever it takes to “conquer deflation. The BoJ seems more optimistic than Prime Minister Shinzo Abe.”
The Reserve Bank of Australia Ponders a Rate Cut - “Aussie policymakers expect the AUD (A$0.8516) to drop in line with commodity export prices just as the currency plunged to a four-year low on November 25. Part of the reason for the AUD’s fall can be attributed to Reserve Bank of Australia (RBA) Deputy Governor Philip Lowe’s suggestion the RBA could cut interest rates next year if need be. The RBA believes that “if the exchange rate is to play its important stabilizing role, it needs to go down when the terms of trade and investment are declining.””
A Bank of England Rate Hike Will Come next Year – “The BoE was the original frontrunner to reignite a normal rate policy until the Fed has deposed them. Governor Mark Carney continues to speak of “heightened” external risks menacing the U.K. as weakening global economies and political tensions weigh on the BoE’s outlook. The BoE policymakers cut their economic forecasts earlier this month because of meager global expansion and the threat of stagnation in Europe.”
European Central Bank Credibility on the Line- “Already this November, ECB President Mario Draghi pointed to European flash purchasing managers’ index results to indicate that a strong recovery is unlikely in the coming months. His sense of urgency to lift inflation expectations “as soon as possible,” has a percentage of the market already anticipating the ECB will sweeten the terms of the TLTRO (targeted long-term refinancing operation) in December, while leaving the debate over balance sheet expectations until January.”
The Fed’s Game of Show and Tell – “The discussion at the Fed’s last meeting in October highlighted how much officials will rely on forward guidance in the future. After bond purchases ended last month, language may be the most practical option left to assure investors that policy won’t become overly restrictive if officials decide to take a stand against inflation seen as too low.”
Key Quotes
The People’s Bank of China’s Cautious Approach – “The coming year is shaping up to be a challenging one for Asian central bankers. They are confronted with a balancing act of supporting economic growth whilst guarding against potential volatility arising from the normalization of U.S. interest rates.”
The Bank of Japan’s Shock and Awe Play – “Tuesday’s meeting minutes from the Bank of Japan (BoJ) revealed that the central bank’s surprise move last month to expand its already massive stimulus program was about sending the message that it will do whatever it takes to “conquer deflation. The BoJ seems more optimistic than Prime Minister Shinzo Abe.”
The Reserve Bank of Australia Ponders a Rate Cut - “Aussie policymakers expect the AUD (A$0.8516) to drop in line with commodity export prices just as the currency plunged to a four-year low on November 25. Part of the reason for the AUD’s fall can be attributed to Reserve Bank of Australia (RBA) Deputy Governor Philip Lowe’s suggestion the RBA could cut interest rates next year if need be. The RBA believes that “if the exchange rate is to play its important stabilizing role, it needs to go down when the terms of trade and investment are declining.””
A Bank of England Rate Hike Will Come next Year – “The BoE was the original frontrunner to reignite a normal rate policy until the Fed has deposed them. Governor Mark Carney continues to speak of “heightened” external risks menacing the U.K. as weakening global economies and political tensions weigh on the BoE’s outlook. The BoE policymakers cut their economic forecasts earlier this month because of meager global expansion and the threat of stagnation in Europe.”
European Central Bank Credibility on the Line- “Already this November, ECB President Mario Draghi pointed to European flash purchasing managers’ index results to indicate that a strong recovery is unlikely in the coming months. His sense of urgency to lift inflation expectations “as soon as possible,” has a percentage of the market already anticipating the ECB will sweeten the terms of the TLTRO (targeted long-term refinancing operation) in December, while leaving the debate over balance sheet expectations until January.”
The Fed’s Game of Show and Tell – “The discussion at the Fed’s last meeting in October highlighted how much officials will rely on forward guidance in the future. After bond purchases ended last month, language may be the most practical option left to assure investors that policy won’t become overly restrictive if officials decide to take a stand against inflation seen as too low.”