A second-quarter update for 25 economies
Fed Chairwoman Janet Yellen will consider whether to raise
short-term interest rates for the first time in nearly a decade.
KEVIN WOLF/ASSOCIATED PRESS
The action among global central banks in the first quarter was in Europe and Asia, where the European Central Bank, People's Bank of China
and many other central banks took aggressive new steps to ease monetary
policy to boost lagging economies and low inflation. Now in the second
quarter the world's attention will shift to the U.S. Federal Reserve, where the world's most influential central bank is contemplating a move in the opposite direction.
Fed officials will consider at their June policy meeting whether to raise short-term interest rates for the first time in nearly a decade. Low U.S inflation and slow growth could lead them to hold off, but the mere fact they'll be discussing it could be a landmark event for markets in 2015. Many other central bankers are watching and waiting for fallout.
The Fed hasn't moved in a different direction from European central banks and the Bank of Japan since the 1990s, when the U.S. economy was ascendant and Europe and Japan were struggling with structural issues. Then, as now, the dollar strengthened. Unlike then, however, today many economists doubt the U.S. economy can serve as an engine of consumption for the rest of the world.
Read below for a global roundup of how the second quarter could play out for central banks around the world.
Fed officials will consider at their June policy meeting whether to raise short-term interest rates for the first time in nearly a decade. Low U.S inflation and slow growth could lead them to hold off, but the mere fact they'll be discussing it could be a landmark event for markets in 2015. Many other central bankers are watching and waiting for fallout.
The Fed hasn't moved in a different direction from European central banks and the Bank of Japan since the 1990s, when the U.S. economy was ascendant and Europe and Japan were struggling with structural issues. Then, as now, the dollar strengthened. Unlike then, however, today many economists doubt the U.S. economy can serve as an engine of consumption for the rest of the world.
Read below for a global roundup of how the second quarter could play out for central banks around the world.
Americas
| Bank Name | Main Policy Rate | Last-Quarter Rate | Current Rate | Outlook |
|---|---|---|---|---|
| U.S. Federal Reserve | Federal Funds Rate | 0.00%-0.25%Jan. 5, 2015 | 0.00%-0.25%April 2, 2015 | Uncertain |
| Central Bank of Brazil | Selic | 11.75%Jan. 5, 2015 | 12.75%April 2, 2015 | Up |
| Bank of Canada | Overnight Rate | 1.00%Jan. 5, 2015 | 0.75%April 2, 2015 | Hold |
| Bank of Mexico | Overnight Lending Rate Target | 3.00%Jan. 5, 2015 | 3.00%April 2, 2015 | Hold |
Asia
| Bank Name | Main Policy Rate | Last-Quarter Rate | Current Rate | Outlook |
|---|---|---|---|---|
| People’s Bank of China | 1-Year Loan Rate | 5.60%Jan. 5, 2015 | 5.35%April 2, 2015 | Down |
| People’s Bank of China | 1-Year Deposit Rate | 2.75%Jan. 5, 2015 | 2.50%April 2, 2015 | Down |
| Bank of Japan | Doesn't Target a Rate | |||
| Reserve Bank of Australia | Cash Rate | 2.50%Jan. 5, 2015 | 2.25%April 2, 2015 | Down |
| Reserve Bank of India | Repo Rate | 8.00%Jan. 5, 2015 | 7.50%April 2, 2015 | Down |
| Bank of Indonesia | BI Rate | 7.75%Jan. 5, 2015 | 7.50%April 2, 2015 | Hold |
| Bank of Korea | 7-Day Repurchase Rate | 2.00%Jan. 5, 2015 | 1.75%April 2, 2015 | Hold |
| Reserve Bank of New Zealand | Official Cash Rate | 3.50%Jan. 5, 2015 | 3.50%April 2, 2015 | Hold |
| Bank of Thailand | 1-Day Repurchase Rate | 2.00%Jan. 5, 2015 | 1.75%April 2, 2015 | Hold |
Europe/Middle East/Africa
| Bank Name | Main Policy Rate | Last-Quarter Rate | Current Rate | Outlook |
|---|---|---|---|---|
| European Central Bank | Deposit Rate | -0.20%Jan. 5, 2015 | -0.20%April 2, 2015 | Hold |
| European Central Bank | Main Lending Rate | 0.05%Jan. 5, 2015 | 0.05%April 2, 2015 | Hold |
| Bank of England | Bank Rate | 0.50%Jan. 5, 2015 | 0.50%April 2, 2015 | Hold |
| Czech National Bank | 2-Week Repo Rate | 0.05%Jan. 5, 2015 | 0.05%April 2, 2015 | Hold |
| Denmark's Central Bank | Deposit Rate | -0.05%Jan. 5, 2015 | -0.75%April 2, 2015 | Uncertain |
| Denmark's Central Bank | Main Lending Rate | 0.20%Jan. 5, 2015 | 0.05%April 2, 2015 | Hold |
| National Bank of Hungary | Main Policy Rate | 2.10%Jan. 5, 2015 | 1.95%April 2, 2015 | Down |
| Bank of Israel | Main Policy Rate | 0.25%Jan. 5, 2015 | 0.10%April 2, 2015 | Hold |
| Norway's Central Bank | Main Rate | 1.25%Jan. 5, 2015 | 1.25%April 2, 2015 | Down |
| Central Bank of Poland | Reference Rate | 2.00%Jan. 5, 2015 | 1.50%April 2, 2015 | Hold |
| Bank of Russia | Key Rate | 17.00%Jan. 5, 2015 | 14%April 2, 2015 | Down |
| South African Reserve Bank | Main Rate | 5.75%Jan. 5, 2015 | 5.75%April 2, 2015 | Hold |
| Sweden's Riksbank | Main Rate | 0.00%Jan. 5, 2015 | -0.25%April 2, 2015 | Down |
| Swiss National Bank | Deposit Rate | -0.25%Jan. 5, 2015 | -0.75%April 2, 2015 | Hold |
| Central Bank of Turkey | 1-Week Repo Rate | 8.25%Jan. 5, 2015 | 7.50%April 2, 2015 | Uncertain |
There is a calm in central banking in the Americas before a potential storm later this year. The Federal Reserve could push up short-term interest rates by June, but many investors believe Fed officials will wait until September.
Whether they act depends on how the economy performs in the next three months. Growth appears to have disappointed in the first quarter and inflation keeps running below the Fed's 2% target. That could prompt the Fed to wait, but if the next few months of data show the U.S. economy is gaining traction then a first rate increase in nearly a decade could happen at the Fed's June policy meeting.
While the Fed assesses the landscape, the Bank of Mexico is on hold, waiting to see how markets and the Mexican economy respond to the Fed's lead. The Bank of Canada also appears to be on hold for now after a surprise rate reduction in the first quarter.
Meantime, the Central Bank of Brazil is nearing the end of a rate increase cycle and confronts the twin dilemmas of an economy flirting with recession and high inflation.
The next step is the Fed's. Then the rest of the Americas will follow.
Whether they act depends on how the economy performs in the next three months. Growth appears to have disappointed in the first quarter and inflation keeps running below the Fed's 2% target. That could prompt the Fed to wait, but if the next few months of data show the U.S. economy is gaining traction then a first rate increase in nearly a decade could happen at the Fed's June policy meeting.
While the Fed assesses the landscape, the Bank of Mexico is on hold, waiting to see how markets and the Mexican economy respond to the Fed's lead. The Bank of Canada also appears to be on hold for now after a surprise rate reduction in the first quarter.
Meantime, the Central Bank of Brazil is nearing the end of a rate increase cycle and confronts the twin dilemmas of an economy flirting with recession and high inflation.
The next step is the Fed's. Then the rest of the Americas will follow.
| Main Policy Rate | Last-Quarter Rate | Current Rate | Outlook | ||||
|---|---|---|---|---|---|---|---|
| Federal Funds Rate | 0.00%-0.25%Jan. 5, 2015 | 0.00%-0.25%April 2, 2015 | Uncertain |
It will be a big deal when the Federal Reserve starts raising interest rates because it has been so long since it last happened.
Short-term U.S. interest rates have been pinned near zero for 76 straight months. The Fed hasn’t raised its benchmark federal funds interest rate since June 2006—106 months ago—when it pushed it from 5% to 5.25%. That was at the end of a rate-increase cycle. The Fed hasn’t started a series of interest rate increases since June 2004. That was 130 months ago, when Barack Obama was still a state senator from Illinois.
Fed officials say liftoff might come as soon as June. Interest rate futures markets suggest investors see September as a more likely date for a move. Whether it is June or September, forecasts released by the Fed in March showed officials expect the benchmark rate to be 0.625% by the end of the year, which implies two quarter-percentage-point increases before year-end.
Between now and then, the evolution of the Fed’s economic forecasts will drive its policy decisions.
The Fed has said officials want to be “reasonably confident” that inflation is on course to return to 2% before raising short-term interest rates. Inflation has run below their goal for 34 straight months. If officials revise down their inflation forecasts, that will be a sign their confidence is waning. Fed Chairwoman Janet Yellen also has said she won’t want to raise short-term rates if she sees new signs that inflation and wages are softening further, developments that would undermine confidence. U.S. inflation measures firmed by the end of the first quarter after tumbling due to falling oil prices late last year.
Downward revisions to the Fed’s growth forecasts could further undermine its confidence about inflation. Such revisions are possible after what looks like a dim first quarter for the U.S. economy. Many analysts estimate the economy grew at an annual rate of just 1% or less in the first three months of the year.
On the other hand, further gains in the job market, and downward revisions to Fed unemployment rate forecasts, would help convince officials that slack in the labor market is diminishing and that the time to act is approaching.
The Fed will update its economic forecasts at its June policy meeting. Until then, the world will be watching and waiting.
Short-term U.S. interest rates have been pinned near zero for 76 straight months. The Fed hasn’t raised its benchmark federal funds interest rate since June 2006—106 months ago—when it pushed it from 5% to 5.25%. That was at the end of a rate-increase cycle. The Fed hasn’t started a series of interest rate increases since June 2004. That was 130 months ago, when Barack Obama was still a state senator from Illinois.
Fed officials say liftoff might come as soon as June. Interest rate futures markets suggest investors see September as a more likely date for a move. Whether it is June or September, forecasts released by the Fed in March showed officials expect the benchmark rate to be 0.625% by the end of the year, which implies two quarter-percentage-point increases before year-end.
Between now and then, the evolution of the Fed’s economic forecasts will drive its policy decisions.
The Fed has said officials want to be “reasonably confident” that inflation is on course to return to 2% before raising short-term interest rates. Inflation has run below their goal for 34 straight months. If officials revise down their inflation forecasts, that will be a sign their confidence is waning. Fed Chairwoman Janet Yellen also has said she won’t want to raise short-term rates if she sees new signs that inflation and wages are softening further, developments that would undermine confidence. U.S. inflation measures firmed by the end of the first quarter after tumbling due to falling oil prices late last year.
Downward revisions to the Fed’s growth forecasts could further undermine its confidence about inflation. Such revisions are possible after what looks like a dim first quarter for the U.S. economy. Many analysts estimate the economy grew at an annual rate of just 1% or less in the first three months of the year.
On the other hand, further gains in the job market, and downward revisions to Fed unemployment rate forecasts, would help convince officials that slack in the labor market is diminishing and that the time to act is approaching.
The Fed will update its economic forecasts at its June policy meeting. Until then, the world will be watching and waiting.
| Main Policy Rate | Last-Quarter Rate | Current Rate | Outlook |
|---|---|---|---|
| Selic | 11.75%Jan. 5, 2015 | 12.75%April 2, 2015 | Up |
Brazil is in a long struggle with inflation
that is far from over, with annual price increases close to 8%. But
economists say the central bank can’t do much more than it has already
done, as the economy grinds to a halt.
With borrowing costs already high and gross domestic product likely to contract this year, it is now up to the government to get rid of a strong inflationary force by balancing its own accounts, economists say.
“The government has played with reality for four years,” said Luiz Fernando Figueiredo, a former central-bank director, now partner at investment firm Mauá Sekular, in São Paulo.
“Now it is in a phase of realism,” he said, in which the central bank “is just a supporting actor.”
Many economists say Brazil is flirting with recession—if it’s not already in one.
New Finance Minister Joaquim Levy gave the green light to rises in government-controlled prices, including gasoline and utilities. These prices had been repressed to keep inflation within target.
The Brazilian real has lost value versus the greenback and was trading in late March around 3.20 per dollar, up from 2.35 per dollar a year ago, making imports more expensive.
The consumer-price index IPCA reached 7.7% in February. The government’s inflation target is 4.5% with a two-point tolerance range.
The IPCA was at the ceiling of that range, 6.5%, when the bank’s monetary-policy team, known as COPOM, began tightening in April 2013. It has raised the benchmark Selic interest rate from 7.25% then to 12.75% now.
Economists say the Selic will close the year anywhere between 13% and 13.50%, and prices will cool down next year and inflation will reach target by late 2016 or, more likely, in 2017.
With borrowing costs already high and gross domestic product likely to contract this year, it is now up to the government to get rid of a strong inflationary force by balancing its own accounts, economists say.
“The government has played with reality for four years,” said Luiz Fernando Figueiredo, a former central-bank director, now partner at investment firm Mauá Sekular, in São Paulo.
“Now it is in a phase of realism,” he said, in which the central bank “is just a supporting actor.”
Many economists say Brazil is flirting with recession—if it’s not already in one.
New Finance Minister Joaquim Levy gave the green light to rises in government-controlled prices, including gasoline and utilities. These prices had been repressed to keep inflation within target.
The Brazilian real has lost value versus the greenback and was trading in late March around 3.20 per dollar, up from 2.35 per dollar a year ago, making imports more expensive.
The consumer-price index IPCA reached 7.7% in February. The government’s inflation target is 4.5% with a two-point tolerance range.
The IPCA was at the ceiling of that range, 6.5%, when the bank’s monetary-policy team, known as COPOM, began tightening in April 2013. It has raised the benchmark Selic interest rate from 7.25% then to 12.75% now.
Economists say the Selic will close the year anywhere between 13% and 13.50%, and prices will cool down next year and inflation will reach target by late 2016 or, more likely, in 2017.
| Main Policy Rate | Last-Quarter Rate | Current Rate | Outlook |
|---|---|---|---|
| Overnight Rate | 1.00%Jan. 5, 2015 | 0.75%April 2, 2015 | Hold |
After some unexpected shifts in policy this year, economists say the Bank of Canada is likely to keep its benchmark interest rate steady at 0.75% in its next policy announcement April 15.
Gov. Stephen Poloz reinforced that view on March 26, saying he believes the surprise quarter-percentage-point rate cut he delivered on Jan. 21 will provide enough insurance against the blow to Canada's economy from the sharp drop in the price for oil, the country’s largest export.
Lower oil prices have a number of consequences for the Canadian economy, but most agree the net impact will be negative. The central bank says the detrimental impacts—including job losses and a sharp cutback in capital spending in the energy industry—are expected to come before the more positive ones, including increased consumer spending as gasoline prices decline.
The January rate cut surprised markets and exacerbated the weakness in the Canadian dollar that had accompanied lower oil prices. Then, at its March 4 policy date, the Bank of Canada held its key rate steady at 0.75%, shortly after Mr. Poloz suggested the rate cut had given the central bank greater confidence the economy would strengthen.
The abrupt shifts in tone—from its unexpected rate cut in January back to a neutral policy position in March—had some observers worried that Mr. Poloz wasn't communicating clearly with financial markets. He had already indicated that he believed the need for explicit "forward guidance" about monetary policy was ebbing as the Canadian economy moved away from the crisis mentality of recent years.
That, combined with an approach to monetary policy that emphasizes risk management and providing "insurance" against those risks, has made it harder for economists to anticipate the central bank’s moves.
On March 26, Mr. Poloz reiterated that the January rate cut had bought some time for central bankers to assess the impacts of lower oil. His tone, and comments in keeping with recent statements, went some way toward reassuring markets about the central bank’s intentions.
Gov. Stephen Poloz reinforced that view on March 26, saying he believes the surprise quarter-percentage-point rate cut he delivered on Jan. 21 will provide enough insurance against the blow to Canada's economy from the sharp drop in the price for oil, the country’s largest export.
Lower oil prices have a number of consequences for the Canadian economy, but most agree the net impact will be negative. The central bank says the detrimental impacts—including job losses and a sharp cutback in capital spending in the energy industry—are expected to come before the more positive ones, including increased consumer spending as gasoline prices decline.
The January rate cut surprised markets and exacerbated the weakness in the Canadian dollar that had accompanied lower oil prices. Then, at its March 4 policy date, the Bank of Canada held its key rate steady at 0.75%, shortly after Mr. Poloz suggested the rate cut had given the central bank greater confidence the economy would strengthen.
The abrupt shifts in tone—from its unexpected rate cut in January back to a neutral policy position in March—had some observers worried that Mr. Poloz wasn't communicating clearly with financial markets. He had already indicated that he believed the need for explicit "forward guidance" about monetary policy was ebbing as the Canadian economy moved away from the crisis mentality of recent years.
That, combined with an approach to monetary policy that emphasizes risk management and providing "insurance" against those risks, has made it harder for economists to anticipate the central bank’s moves.
On March 26, Mr. Poloz reiterated that the January rate cut had bought some time for central bankers to assess the impacts of lower oil. His tone, and comments in keeping with recent statements, went some way toward reassuring markets about the central bank’s intentions.
| Main Policy Rate | Last-Quarter Rate | Current Rate | Outlook | |
|---|---|---|---|---|
| Overnight Lending Rate Target | 3.00%Jan. 5, 2015 | 3.00%April 2, 2015 | Hold |
The Bank of Mexico is widely
expected to stay on hold in the second quarter and, barring any major
upheaval in local markets, wait to see what action the U.S. Federal Reserve takes before changing its own benchmark interest rate from the current record-low 3%.
The Mexican central bank’s March 26 statement was less hawkish than many had anticipated, and nipped in the bud some expectations of a preemptive move.
“The emphasis was more on the slack in the economy, inflation, and inflation expectations, which so far don’t seem affected by the weakness of the peso,” Nomura strategist Benito Berber said in a note. “Clearly, there is no rush on the part of Banxico [Bank of Mexico] to hike the policy rate, in our view.”
With inflation now near the Bank of Mexico’s 3% target, and economic growth still somewhat subdued, the bank has focused more in recent months on the implications of an imminent Fed tightening cycle for the peso and local bond yields.
The bank noted that local markets calmed down after the Fed’s most recent statement, but warned that a renewed bout of volatility can’t be ruled out.
The peso slid in early March to its weakest-ever level against the U.S. dollar, prompting the central bank to expand its dollar-auction program to include sales of $52 million a day for three months through early June. Those auctions are in addition to the $200 million the bank offers on days when the peso weakens 1.5% from the previous session.
After years of above-target inflation, the Bank of Mexico is keen to keep the annual rate around 3%, hence its heightened concerns about the exchange rate and a possible impact on prices.
Of the 25 banks polled March 20 by Citi unit Banamex, eight expected a first interest rate increase in September, five in October, six in June and four in July.
The Mexican central bank’s March 26 statement was less hawkish than many had anticipated, and nipped in the bud some expectations of a preemptive move.
“The emphasis was more on the slack in the economy, inflation, and inflation expectations, which so far don’t seem affected by the weakness of the peso,” Nomura strategist Benito Berber said in a note. “Clearly, there is no rush on the part of Banxico [Bank of Mexico] to hike the policy rate, in our view.”
With inflation now near the Bank of Mexico’s 3% target, and economic growth still somewhat subdued, the bank has focused more in recent months on the implications of an imminent Fed tightening cycle for the peso and local bond yields.
The bank noted that local markets calmed down after the Fed’s most recent statement, but warned that a renewed bout of volatility can’t be ruled out.
The peso slid in early March to its weakest-ever level against the U.S. dollar, prompting the central bank to expand its dollar-auction program to include sales of $52 million a day for three months through early June. Those auctions are in addition to the $200 million the bank offers on days when the peso weakens 1.5% from the previous session.
After years of above-target inflation, the Bank of Mexico is keen to keep the annual rate around 3%, hence its heightened concerns about the exchange rate and a possible impact on prices.
Of the 25 banks polled March 20 by Citi unit Banamex, eight expected a first interest rate increase in September, five in October, six in June and four in July.
Central banks across Asia were surprisingly
aggressive with interest rate cuts early this year, and face mounting
pressure to do still more this spring. But their policy path is
complicated by growing worries about risks as well as rewards to further
monetary easing.
The region's two largest economies—China and Japan—both seem to be slowing more than anticipated, putting new pressure on policy makers to offer more stimulus in the coming weeks.
But some People's Bank of China officials also worry that cutting rates to spur growth would fuel more debt and tempt policy makers to put off painful economic restructuring needed to put economy on a sounder long-term footing.
The Bank of Japan faces concerns—both inside its policy board, as well as from politicians and business executives—about whether further easing would do more harm than good. Many critics feel that one main result of its stimulus, a weaker yen, pinches consumers and small companies by forcing up import prices, while having done surprisingly little to lift exports.
Others fear distortions to Japan's sovereign debt market as it grows increasingly dependent on central bank purchases. With its main policy rate already at zero, the BOJ's chief stimulus tool isn't cutting rates, it’s buying government bonds.
In the region's emerging economies—including India, Indonesia and Thailand—policy makers fret that more rate cuts could trigger harmful currency volatility as investors pull money out in search of higher returns elsewhere. Such risks would be heightened if the U.S. Federal Reserve goes ahead with expected rate increases this year.
In a March visit to Mumbai, International Monetary Fund head Christine Lagarde warned of a repeat of the 2013 "taper tantrum" that roiled the region when the Fed started hinting about policy tightening. "We cannot rule out volatile capital flows," David Lipton, the fund's No. 2, told Southeast Asian finance ministers in Malaysia the same week. "Countries will have to be careful to think through how their monetary policy and exchange-rate policies work."
The region's two largest economies—China and Japan—both seem to be slowing more than anticipated, putting new pressure on policy makers to offer more stimulus in the coming weeks.
But some People's Bank of China officials also worry that cutting rates to spur growth would fuel more debt and tempt policy makers to put off painful economic restructuring needed to put economy on a sounder long-term footing.
The Bank of Japan faces concerns—both inside its policy board, as well as from politicians and business executives—about whether further easing would do more harm than good. Many critics feel that one main result of its stimulus, a weaker yen, pinches consumers and small companies by forcing up import prices, while having done surprisingly little to lift exports.
Others fear distortions to Japan's sovereign debt market as it grows increasingly dependent on central bank purchases. With its main policy rate already at zero, the BOJ's chief stimulus tool isn't cutting rates, it’s buying government bonds.
In the region's emerging economies—including India, Indonesia and Thailand—policy makers fret that more rate cuts could trigger harmful currency volatility as investors pull money out in search of higher returns elsewhere. Such risks would be heightened if the U.S. Federal Reserve goes ahead with expected rate increases this year.
In a March visit to Mumbai, International Monetary Fund head Christine Lagarde warned of a repeat of the 2013 "taper tantrum" that roiled the region when the Fed started hinting about policy tightening. "We cannot rule out volatile capital flows," David Lipton, the fund's No. 2, told Southeast Asian finance ministers in Malaysia the same week. "Countries will have to be careful to think through how their monetary policy and exchange-rate policies work."
| Main Policy Rate | Last-Quarter Rate | Current Rate | Outlook |
|---|---|---|---|
| 1-Year Loan Rate | 5.60%Jan. 5, 2015 | 5.35%April 2, 2015 | Down |
| 1-Year Deposit Rate | 2.75%Jan. 5, 2015 | 2.50%April 2, 2015 | Down |
For China’s central bank, the issue for the
second quarter isn’t whether to ease but how soon and how often in an
effort to arrest a slowdown in the world’s second-largest economy.
Latest data show economic activity decelerated across the board in the first three months, with factories churning out fewer products and housing prices still swooning. At the same time, businesses and investors increasingly are taking money out of the country, leaving liquidity tighter than usual at home. Prices are barely rising and in some cases are falling, which means that the "real" interest rate, adjusted for inflation, on loans remains high despite two reductions in benchmark rates by the central bank since November.
Given that backdrop, the People's Bank of China is expected to free up more funds for banks to make loans, and to cut its benchmark rates further. “Monetary easing is fully justified to stabilize economic growth,” says China economist Haibin Zhu at JPMorgan Chase & Co.
Mr. Zhu projects that the PBOC likely will reduce the amount of reserves commercial banks are required to hold at the central bank, known as the reserve-requirement ratio, by half a percentage point as early as April. The central bank would then lower the benchmark rates by a quarter percentage point, he estimates.
Still, central bank officials remain wary of too much easing, for fear that relaxing credit too aggressively would add to the country’s debt problems and put the economy at greater risk. That’s why the central bank so far has maintained a “prudent” monetary stance in public statements, according to PBOC advisers.
In reality, however, the PBOC, which isn’t independent of government leaders, is finding itself with little choice but to keep easing. The Chinese leadership has made it a financial priority to bring down financing costs for business and government borrowers alike.
To spur economic activity, “we still have more tools in our toolbox,” China’s Premier Li Keqiang said in March.
Latest data show economic activity decelerated across the board in the first three months, with factories churning out fewer products and housing prices still swooning. At the same time, businesses and investors increasingly are taking money out of the country, leaving liquidity tighter than usual at home. Prices are barely rising and in some cases are falling, which means that the "real" interest rate, adjusted for inflation, on loans remains high despite two reductions in benchmark rates by the central bank since November.
Given that backdrop, the People's Bank of China is expected to free up more funds for banks to make loans, and to cut its benchmark rates further. “Monetary easing is fully justified to stabilize economic growth,” says China economist Haibin Zhu at JPMorgan Chase & Co.
Mr. Zhu projects that the PBOC likely will reduce the amount of reserves commercial banks are required to hold at the central bank, known as the reserve-requirement ratio, by half a percentage point as early as April. The central bank would then lower the benchmark rates by a quarter percentage point, he estimates.
Still, central bank officials remain wary of too much easing, for fear that relaxing credit too aggressively would add to the country’s debt problems and put the economy at greater risk. That’s why the central bank so far has maintained a “prudent” monetary stance in public statements, according to PBOC advisers.
In reality, however, the PBOC, which isn’t independent of government leaders, is finding itself with little choice but to keep easing. The Chinese leadership has made it a financial priority to bring down financing costs for business and government borrowers alike.
To spur economic activity, “we still have more tools in our toolbox,” China’s Premier Li Keqiang said in March.
| Main Policy Rate | Last-Quarter Rate | Current Rate | Outlook | |
|---|---|---|---|---|
| Doesn't Target a Rate |
The Bank of Japan will mark on
April 4 the second anniversary of its bold pledge to stoke 2% inflation
in two years, following more than a decade of deflation. Rather than
celebrating victory, however, policy makers this quarter will be
struggling to find a way to claim they're somehow still on track to the
keep their promise, while maintaining the credibility needed to do so.
The uncomfortable reality is that Japan's central bank remains far from its target and its timetable, and inflation is heading in the wrong direction. After some quick early progress in pushing the most closely watched version of the consumer-price index above a 1% annual rate last spring, the BOJ has seen the number decelerate sharply, slipping back to zero in February, the most recent data available. It was the first time the rate hadn’t increased since May 2013. After the March 17 monetary policy meeting, Gov. Haruhiko Kuroda acknowledged that the rate could slip, at least temporarily, back into negative—i.e., deflation—territory.
The March 17 policy board statement acknowledged that "CPI is likely to be about 0 percent for the time being," suggesting officials are braced for a return, at least temporarily, to deflation.
Policy makers insist that's a temporary setback, the result of the plunge in oil prices, and that they see inflation accelerating back toward their goal by the end of the year. They say that's at least broadly consistent with the "2% in two years" vow.
But a key, difficult moment will come April 30, when the monetary policy committee issues a new semiannual "Outlook Report." The last time they did so, on Oct. 31, Mr. Kuroda pushed through a surprise increase in his monetary stimulus program, trying to persuade fellow board members against cutting their inflation forecasts, and to keep the public's inflation expectations from eroding.
Despite that extra easing, growth and inflation have remained weak. Many analysts expect yet another expansion of the asset-buying program as soon as that late April session.
The uncomfortable reality is that Japan's central bank remains far from its target and its timetable, and inflation is heading in the wrong direction. After some quick early progress in pushing the most closely watched version of the consumer-price index above a 1% annual rate last spring, the BOJ has seen the number decelerate sharply, slipping back to zero in February, the most recent data available. It was the first time the rate hadn’t increased since May 2013. After the March 17 monetary policy meeting, Gov. Haruhiko Kuroda acknowledged that the rate could slip, at least temporarily, back into negative—i.e., deflation—territory.
The March 17 policy board statement acknowledged that "CPI is likely to be about 0 percent for the time being," suggesting officials are braced for a return, at least temporarily, to deflation.
Policy makers insist that's a temporary setback, the result of the plunge in oil prices, and that they see inflation accelerating back toward their goal by the end of the year. They say that's at least broadly consistent with the "2% in two years" vow.
But a key, difficult moment will come April 30, when the monetary policy committee issues a new semiannual "Outlook Report." The last time they did so, on Oct. 31, Mr. Kuroda pushed through a surprise increase in his monetary stimulus program, trying to persuade fellow board members against cutting their inflation forecasts, and to keep the public's inflation expectations from eroding.
Despite that extra easing, growth and inflation have remained weak. Many analysts expect yet another expansion of the asset-buying program as soon as that late April session.
| Main Policy Rate | Last-Quarter Rate | Current Rate | Outlook |
|---|---|---|---|
| Cash Rate | 2.50%Jan. 5, 2015 | 2.25%April 2, 2015 | Down |
Evidence of any meaningful transition in
Australia’s economy away from mining remains scant. That’s supporting
bets the central bank will cut interest rates to a fresh record low in
coming months, perhaps as soon as early April. It may even go further
than that.
The Reserve Bank of Australia came off the sidelines in February for the first time in 18 months and cut its overnight cash rate to 2.25% from 2.5%, driven by concern that Australia’s resource-rich economy was facing another year of below-average growth. It was also under pressure to follow its counterparts abroad in cutting rates to prevent a bounce higher in the Australian dollar—which would make Australian exports less competitive overseas.
That pressure is unrelenting with many Asian central banks lowering rates through February and March. As China's economy slows, expectations are increasing that the region's largest economy will announce further stimulus measures soon.
Recent commentary from Australia’s central bank points to a lack of confidence about the pace of economic recovery, rising unemployment and the impact of falling prices for key exports like iron ore and coal. Central bank board member John Edwards told The Wall Street Journal in a recent interview that growth of 2.5% through 2014 was well below the mark needed to reverse rising unemployment.
The bank’s Deputy Gov. Philip Lowe said in a recent speech that the rebalancing of the economy in the wake of a decadelong mining investment boom was yet to materialize meaningfully, adding that despite falling to its lowest levels since early 2009, the Australian dollar continues to be a brake on growth.
Still, while the stage is set for a further rate cut, possibly two more this year, according to market pricing, the central bank is likely to move cautiously. An unwanted side effect of the record-low rate settings is an increasingly frothy housing market, a potential source of instability for the economy.
The Reserve Bank of Australia came off the sidelines in February for the first time in 18 months and cut its overnight cash rate to 2.25% from 2.5%, driven by concern that Australia’s resource-rich economy was facing another year of below-average growth. It was also under pressure to follow its counterparts abroad in cutting rates to prevent a bounce higher in the Australian dollar—which would make Australian exports less competitive overseas.
That pressure is unrelenting with many Asian central banks lowering rates through February and March. As China's economy slows, expectations are increasing that the region's largest economy will announce further stimulus measures soon.
Recent commentary from Australia’s central bank points to a lack of confidence about the pace of economic recovery, rising unemployment and the impact of falling prices for key exports like iron ore and coal. Central bank board member John Edwards told The Wall Street Journal in a recent interview that growth of 2.5% through 2014 was well below the mark needed to reverse rising unemployment.
The bank’s Deputy Gov. Philip Lowe said in a recent speech that the rebalancing of the economy in the wake of a decadelong mining investment boom was yet to materialize meaningfully, adding that despite falling to its lowest levels since early 2009, the Australian dollar continues to be a brake on growth.
Still, while the stage is set for a further rate cut, possibly two more this year, according to market pricing, the central bank is likely to move cautiously. An unwanted side effect of the record-low rate settings is an increasingly frothy housing market, a potential source of instability for the economy.
| Main Policy Rate | Last-Quarter Rate | Current Rate | Outlook |
|---|---|---|---|
| Repo Rate | 8.00%Jan. 5, 2015 | 7.50%April 2, 2015 | Down |
Reserve Bank of India Gov. Raghuram Rajan
started the year with a bang. With inflation falling, he delivered two
surprise interest-rate cuts, lowering the central bank’s benchmark short-term rate to 7.5%. Many economists predict just another quarter-percentage-point cut before December.
Inflation has eased considerably from the double-digit peak it reached 18 months ago, and slowed in February to 5.4% on the back of lower global commodity prices. But the recent gains in oil prices and the possibility of domestic food price increases are likely to make the RBI’s plan to keep inflation at 6%—the target set for next January—an arduous task.
After a recent revision in gross domestic product statistics, which showed that the Indian economy has grown at a faster pace than previously thought, the RBI is also looking at a data conundrum. When Mr. Rajan last cut rates on March 4, he mentioned the “weak state” of certain sectors of the economy, and many noticed the statement is at odds with the revised 7.4% expansion rate of Indian GDP, one of the highest in the world.
And while keeping abreast of domestic developments, Mr. Rajan is sure to look attentively at the U.S. Federal Reserve. As she passed through Mumbai recently, Christine Lagarde, the head of the International Monetary Fund, said the volatility that hit emerging markets after the Fed’s 2013 announcement that it was preparing to tighten monetary policy could return when the Fed actually starts raising rates. Economists expect that to happen this year.
Inflation has eased considerably from the double-digit peak it reached 18 months ago, and slowed in February to 5.4% on the back of lower global commodity prices. But the recent gains in oil prices and the possibility of domestic food price increases are likely to make the RBI’s plan to keep inflation at 6%—the target set for next January—an arduous task.
After a recent revision in gross domestic product statistics, which showed that the Indian economy has grown at a faster pace than previously thought, the RBI is also looking at a data conundrum. When Mr. Rajan last cut rates on March 4, he mentioned the “weak state” of certain sectors of the economy, and many noticed the statement is at odds with the revised 7.4% expansion rate of Indian GDP, one of the highest in the world.
And while keeping abreast of domestic developments, Mr. Rajan is sure to look attentively at the U.S. Federal Reserve. As she passed through Mumbai recently, Christine Lagarde, the head of the International Monetary Fund, said the volatility that hit emerging markets after the Fed’s 2013 announcement that it was preparing to tighten monetary policy could return when the Fed actually starts raising rates. Economists expect that to happen this year.
| Main Policy Rate | Last-Quarter Rate | Current Rate | Outlook |
|---|---|---|---|
| BI Rate | 7.75%Jan. 5, 2015 | 7.50%April 2, 2015 | Hold |
Indonesia’s central bank is expected to hold
interest rates steady in the second quarter, after displeasing investors
with a surprise cut in February.
Bank Indonesia lowered the benchmark BI rate then to 7.50% from 7.75%.
The move, combined with expectations the U.S. Federal Reserve will raise interest rates this year, sent the rupiah to its lowest level in 17 years.
The country depends on foreign capital inflows, making the prospect of cutting interest rates unattractive.
The central bank opted to keep interest rates unchanged in March to avoid further pressures on the local currency that could stoke inflation, and hurt companies with large dollar borrowings that rely heavily on imports.
Bank Indonesia Gov. Agus Martowardojo said recently the central bank will remain cautious and maintain its tight monetary stance.
Indonesia is running a sizable current-account deficit due to the slump in global commodity prices that hurt its exports. And while the gap was narrowed by a drop in imports in the past three months, economists expect imports will pick up later this year and foreign companies will repatriate profits. That scenario would likely keep the deficit at around 3% of gross domestic product this year.
Moreover, inflationary pressures may heat up again, reflecting the 6% drop in the rupiah so far this year and recovery in global oil prices.
Bank Indonesia lowered the benchmark BI rate then to 7.50% from 7.75%.
The move, combined with expectations the U.S. Federal Reserve will raise interest rates this year, sent the rupiah to its lowest level in 17 years.
The country depends on foreign capital inflows, making the prospect of cutting interest rates unattractive.
The central bank opted to keep interest rates unchanged in March to avoid further pressures on the local currency that could stoke inflation, and hurt companies with large dollar borrowings that rely heavily on imports.
Bank Indonesia Gov. Agus Martowardojo said recently the central bank will remain cautious and maintain its tight monetary stance.
Indonesia is running a sizable current-account deficit due to the slump in global commodity prices that hurt its exports. And while the gap was narrowed by a drop in imports in the past three months, economists expect imports will pick up later this year and foreign companies will repatriate profits. That scenario would likely keep the deficit at around 3% of gross domestic product this year.
Moreover, inflationary pressures may heat up again, reflecting the 6% drop in the rupiah so far this year and recovery in global oil prices.
| Main Policy Rate | Last-Quarter Rate | Current Rate | Outlook |
|---|---|---|---|
| 7-Day Repurchase Rate | 2.00%Jan. 5, 2015 | 1.75%April 2, 2015 | Hold |
South Korea’s central bank is likely to hold its benchmark interest rate steady for the rest of this year after a surprise rate cut in March, according to most of the economists surveyed recently by The Wall Street Journal.
The poll found 18 of 23 economists expect the Bank of Korea to stand pat through the end of 2015. Three expect another rate cut and two forecast a rate increase towards the end of the year.
The central bank surprised most observers in March with a quarter-percentage-point cut in its seven-day repurchase rate to a record low of 1.75%. The action followed two rate cuts last year.
Economists say the Bank of Korea will be wary of further inflating the country's already high levels of household debt by lowering borrowing costs. They also note that additional rate cuts could leave South Korea exposed to capital outflows if the U.S. Federal Reserve raises its own benchmark short-term interest rate later this year, as widely expected.
Some of those who anticipate further easing in South Korea expect the central bank to revise down its growth and inflation forecasts in a quarterly outlook due in April. They also point to expectations that the Bank of Japan may expand its stimulus program in April, a move that would likely further weaken the yen, which could hurt Korean exporters that compete with Japanese companies.
The poll found 18 of 23 economists expect the Bank of Korea to stand pat through the end of 2015. Three expect another rate cut and two forecast a rate increase towards the end of the year.
The central bank surprised most observers in March with a quarter-percentage-point cut in its seven-day repurchase rate to a record low of 1.75%. The action followed two rate cuts last year.
Economists say the Bank of Korea will be wary of further inflating the country's already high levels of household debt by lowering borrowing costs. They also note that additional rate cuts could leave South Korea exposed to capital outflows if the U.S. Federal Reserve raises its own benchmark short-term interest rate later this year, as widely expected.
Some of those who anticipate further easing in South Korea expect the central bank to revise down its growth and inflation forecasts in a quarterly outlook due in April. They also point to expectations that the Bank of Japan may expand its stimulus program in April, a move that would likely further weaken the yen, which could hurt Korean exporters that compete with Japanese companies.
| Main Policy Rate | Last-Quarter Rate | Current Rate | Outlook |
|---|---|---|---|
| Official Cash Rate | 3.50%Jan. 5, 2015 | 3.50%April 2, 2015 | Hold |
New Zealand’s central bank kept interest rates on hold through the first quarter, and it’s likely to stay that way for a while yet—making it something of an outlier in the region.
Among the first in the world to begin raising rates last year, the Reserve Bank of New Zealand had been confident the economy had passed the worst of the global financial crisis. Four rate increases in the first half of 2014 took the official cash rate to 3.5%–and put a rocket under the New Zealand dollar.
However, the picture now is looking a little murkier.
New Zealand’s agriculture-rich economy has been supported in recent years by surging demand from Asia’s rising middle classes for its dairy exports, and by a construction boom following a series of devastating earthquakes.
Global dairy prices have been under significant pressure lately, however, falling around 50% in 2014. The strong Kiwi dollar, meanwhile, is hurting exporters, especially as it trades at historic highs near parity with the Australian dollar—a major trade partner. Inflation is running at the bottom of the central bank’s 1% to 3% target range, giving the central bank room to cut rates if necessary.
To be sure, the economy is on strong footing, expanding by 3.5% in the fourth quarter last year from a year earlier. But it looks like the bank wants to play safe for now given the uncertain global backdrop, including weakness in Europe and China, New Zealand’s biggest trade partner.
“Future interest-rate adjustments either up or down, will depend on the emerging flow of economic data,” Reserve Bank Gov. Graeme Wheeler said recently.
Most economists still expect the next move to be up, but not until mid to-late-2016.
The Reserve Bank is unusual among central banks globally in that it essentially spells out the future trajectory for rates through its 90-day bill rate forecasts. Estimates published alongside its latest policy decision on Mar. 12 show rates are likely to remain on hold for even longer—at least until 2017.
Among the first in the world to begin raising rates last year, the Reserve Bank of New Zealand had been confident the economy had passed the worst of the global financial crisis. Four rate increases in the first half of 2014 took the official cash rate to 3.5%–and put a rocket under the New Zealand dollar.
However, the picture now is looking a little murkier.
New Zealand’s agriculture-rich economy has been supported in recent years by surging demand from Asia’s rising middle classes for its dairy exports, and by a construction boom following a series of devastating earthquakes.
Global dairy prices have been under significant pressure lately, however, falling around 50% in 2014. The strong Kiwi dollar, meanwhile, is hurting exporters, especially as it trades at historic highs near parity with the Australian dollar—a major trade partner. Inflation is running at the bottom of the central bank’s 1% to 3% target range, giving the central bank room to cut rates if necessary.
To be sure, the economy is on strong footing, expanding by 3.5% in the fourth quarter last year from a year earlier. But it looks like the bank wants to play safe for now given the uncertain global backdrop, including weakness in Europe and China, New Zealand’s biggest trade partner.
“Future interest-rate adjustments either up or down, will depend on the emerging flow of economic data,” Reserve Bank Gov. Graeme Wheeler said recently.
Most economists still expect the next move to be up, but not until mid to-late-2016.
The Reserve Bank is unusual among central banks globally in that it essentially spells out the future trajectory for rates through its 90-day bill rate forecasts. Estimates published alongside its latest policy decision on Mar. 12 show rates are likely to remain on hold for even longer—at least until 2017.
| Main Policy Rate | Last-Quarter Rate | Current Rate | Outlook |
|---|---|---|---|
| 1-Day Repurchase Rate | 2.00%Jan. 5, 2015 | 1.75%April 2, 2015 | Hold |
The Bank of Thailand is expected to leave its benchmark rate unchanged at 1.75% in the second quarter, after a surprising move to cut it by a quarter percentage point in early March.
Central bank Gov. Prasarn Trairatvorakul signaled Parliament after the cut not to expect more reductions to the one-day repurchase rate anytime soon, though the bank left open the possibility for changes if needed.
“The monetary policy does have limitations when it comes to its effect and must be implemented carefully and at the right time,” Mr. Prasarn said. “And like the Monetary Policy Committee has always said, there must be other measures to help boost the economy.”
Thailand’s economy grew just 0.7% in 2014, and the central bank recently lowered its 2015 growth forecast to 3.8% from 4.0%.
The BOT cited the slower-than-hoped-for recovery as a reason for cutting the benchmark rate.
Many economists believe the central bank won’t be in a hurry to ease further: It doesn’t want to encourage borrowing, given the high household debt level in the country, and wants to preserve the option of further cuts if needed.
Warapong Wongwachara, an economist from TMB Analytics, said the small rate-cut shows the bank is comfortable with the current rate and that it will keep it steady. The bank would only cut rates further, he said, if the economic situation worsens significantly.
The BOT may change its mind and lower the rate further if Thailand’s private consumption and exports fail to pick up markedly soon and if public investment remains sluggish.
In its postdecision statement, the central bank appeared to leave cutting the rate as an option, saying it will “closely monitor developments of the Thai economy” and “pursue appropriate policy to sustain” recovery.
Central bank Gov. Prasarn Trairatvorakul signaled Parliament after the cut not to expect more reductions to the one-day repurchase rate anytime soon, though the bank left open the possibility for changes if needed.
“The monetary policy does have limitations when it comes to its effect and must be implemented carefully and at the right time,” Mr. Prasarn said. “And like the Monetary Policy Committee has always said, there must be other measures to help boost the economy.”
Thailand’s economy grew just 0.7% in 2014, and the central bank recently lowered its 2015 growth forecast to 3.8% from 4.0%.
The BOT cited the slower-than-hoped-for recovery as a reason for cutting the benchmark rate.
Many economists believe the central bank won’t be in a hurry to ease further: It doesn’t want to encourage borrowing, given the high household debt level in the country, and wants to preserve the option of further cuts if needed.
Warapong Wongwachara, an economist from TMB Analytics, said the small rate-cut shows the bank is comfortable with the current rate and that it will keep it steady. The bank would only cut rates further, he said, if the economic situation worsens significantly.
The BOT may change its mind and lower the rate further if Thailand’s private consumption and exports fail to pick up markedly soon and if public investment remains sluggish.
In its postdecision statement, the central bank appeared to leave cutting the rate as an option, saying it will “closely monitor developments of the Thai economy” and “pursue appropriate policy to sustain” recovery.
Europe’s central banks were by far the most
active in the world during the first quarter, with stimulus efforts
ranging from a new €1.1 trillion bond-buying program by the European Central Bank, to negative interest rates in Switzerland, Denmark and Sweden, to easing in Poland.
Officials won’t be nearly as active this quarter as they let the dust settle from the ECB’s so-called quantitative-easing program, which was announced in January and launched in March, and its aftershocks. The ECB is now largely on autopilot as it makes bond purchases in €60 billion monthly installments.
But the ripples from the ECB’s move—which led to a steep drop of the euro against other currencies inside and outside Europe—will keep the region’s central banks on high alert.
Switzerland, Denmark and Sweden may come under added pressure to cut rates to keep their currencies from rising against the euro, threatening their exports. Norway, which held back on easing policy last quarter, may be forced to join the parade.
Officials across Europe may also have to grapple with the side effects of their policies: volatile currencies and superlow, even negative, bond yields that could create risks for financial stability down the road.
The reason: Though the region is dominated by the ECB, it actually comprises about 10 more central banks governing economies and financial markets that are tightly interconnected. What affects one typically affects others, too, particularly when the jolt comes from the 19-member eurozone, the world’s second-biggest economy.
That was the storyline from January to March and will remain the case in the second quarter, too, albeit with a little less drama.
Officials won’t be nearly as active this quarter as they let the dust settle from the ECB’s so-called quantitative-easing program, which was announced in January and launched in March, and its aftershocks. The ECB is now largely on autopilot as it makes bond purchases in €60 billion monthly installments.
But the ripples from the ECB’s move—which led to a steep drop of the euro against other currencies inside and outside Europe—will keep the region’s central banks on high alert.
Switzerland, Denmark and Sweden may come under added pressure to cut rates to keep their currencies from rising against the euro, threatening their exports. Norway, which held back on easing policy last quarter, may be forced to join the parade.
Officials across Europe may also have to grapple with the side effects of their policies: volatile currencies and superlow, even negative, bond yields that could create risks for financial stability down the road.
The reason: Though the region is dominated by the ECB, it actually comprises about 10 more central banks governing economies and financial markets that are tightly interconnected. What affects one typically affects others, too, particularly when the jolt comes from the 19-member eurozone, the world’s second-biggest economy.
That was the storyline from January to March and will remain the case in the second quarter, too, albeit with a little less drama.
| Main Policy Rate | Last-Quarter Rate | Current Rate | Outlook |
|---|---|---|---|
| Deposit Rate | -0.20%Jan. 5, 2015 | -0.20%April 2, 2015 | Hold |
| Main Lending Rate | 0.05%Jan. 5, 2015 | 0.05%April 2, 2015 | Hold |
After a first quarter that was all about shock and awe, the European Central Bank’s focus for the next few months will be on implementation and reassurance.
That should keep the bank mostly on cruise control with its monetary policies as it executes a €60 billion monthly bond-purchase plan that it announced in January and launched in March.
ECB officials have said the program will stretch at least through September 2016, sending more than €1 trillion in newly created money sloshing around financial markets and, hopefully, the economy.
The ECB’s task in coming weeks will be to convince investors that it will continue to stimulate the economy aggressively despite negative bond yields in many parts of Europe that have led to some doubts in markets as to whether there will be enough assets for the ECB to buy.
Officials have already sought to dispel these fears. “At this point in time we see no signs that there will not be enough bonds for us to purchase,” ECB President Mario Draghi said March 23.
Mr. Draghi’s other task will be to reassure financial markets that the ECB will keep its foot on the accelerator as the eurozone economy shows signs of healing.
That will be trickier to pull off. Officials have said their quantitative easing program is open-ended, stressing that it could go beyond September next year. But open-ended cuts two ways, and if growth accelerates while core inflation creeps higher, Mr. Draghi will inevitably face questions about an early stimulus exit.
“If you get to the back half of this year” and the economy is still improving, “I don’t think they’ll be able to keep that discussion under wraps,” said RBS economist Richard Barwell. “That could scare the horses about rate hikes.”
In a sense, that would be a good problem to have—after all, the eurozone last year narrowly avoided its third recession in six years—and is far better than pumping money into an economy that isn’t responding to the stimulus.
But much of the positive vibe in Europe is built on expectations that the bond-buying program will run at least another 18 months, which has already led to a steep slide in the euro—potentially boosting exports—and easier financing conditions for the private sector.
Any hint of an early exit or gradual reduction in monthly bond buys could upend those favorable trends.
For that reason, look for Mr. Draghi to strenuously avoid any exit talk during the second quarter. But he won’t be able to put off that conversation indefinitely.
That should keep the bank mostly on cruise control with its monetary policies as it executes a €60 billion monthly bond-purchase plan that it announced in January and launched in March.
ECB officials have said the program will stretch at least through September 2016, sending more than €1 trillion in newly created money sloshing around financial markets and, hopefully, the economy.
The ECB’s task in coming weeks will be to convince investors that it will continue to stimulate the economy aggressively despite negative bond yields in many parts of Europe that have led to some doubts in markets as to whether there will be enough assets for the ECB to buy.
Officials have already sought to dispel these fears. “At this point in time we see no signs that there will not be enough bonds for us to purchase,” ECB President Mario Draghi said March 23.
Mr. Draghi’s other task will be to reassure financial markets that the ECB will keep its foot on the accelerator as the eurozone economy shows signs of healing.
That will be trickier to pull off. Officials have said their quantitative easing program is open-ended, stressing that it could go beyond September next year. But open-ended cuts two ways, and if growth accelerates while core inflation creeps higher, Mr. Draghi will inevitably face questions about an early stimulus exit.
“If you get to the back half of this year” and the economy is still improving, “I don’t think they’ll be able to keep that discussion under wraps,” said RBS economist Richard Barwell. “That could scare the horses about rate hikes.”
In a sense, that would be a good problem to have—after all, the eurozone last year narrowly avoided its third recession in six years—and is far better than pumping money into an economy that isn’t responding to the stimulus.
But much of the positive vibe in Europe is built on expectations that the bond-buying program will run at least another 18 months, which has already led to a steep slide in the euro—potentially boosting exports—and easier financing conditions for the private sector.
Any hint of an early exit or gradual reduction in monthly bond buys could upend those favorable trends.
For that reason, look for Mr. Draghi to strenuously avoid any exit talk during the second quarter. But he won’t be able to put off that conversation indefinitely.
| Main Policy Rate | Last-Quarter Rate | Current Rate | Outlook |
|---|---|---|---|
| Bank Rate | 0.50%Jan. 5, 2015 | 0.50%April 2, 2015 | Hold |
The Bank of England is almost certain to finish the second quarter of 2015 where it began the first, with the U.K.'s benchmark interest rate held firmly at a record low of 0.5%. But this inaction masks an intensifying debate among policy makers over the central bank's likely next steps.
Annual U.K. inflation has cooled sharply following the slump in oil prices and was zero in February, its lowest level in 50 years. Officials led by Gov. Mark Carney have told Britons to expect weak inflation to persist in the months ahead before price pressures start to reassert themselves later this year.
The economy, meantime, continues to gain strength. Unemployment is falling and the International Monetary Fund expects U.K. output to expand 2.7% in 2015, one of the fastest growth rates the fund is forecasting for the world's advanced economies.
Markets for interest-rate derivatives imply investors believe the BOE is on course to raise rates early next year. Yet even though the nine-member Monetary Policy Committee's recent votes have been unanimously in favor of holding policy steady, cracks are beginning to show.
Officials agree that future increases in interest rates are likely to be slow and steady, but there are increasing signs they may disagree over when to get started.
Two members of the panel—Ian McCafferty and Martin Weale—have signaled that a further run of decent labor market data may prompt them to push for a rate rise sooner rather than later. One member—BOE Chief Economist Andy Haldane—has said he sees a possible need for a rate cut if low inflation proves more persistent than expected. The majority of the panel, Mr. Carney included, seems content to wait and see how things pan out, though some members sound more upbeat on the economy's prospects than others.
Two specific risks are clouding the outlook further. One is the strength of sterling, which Mr. Carney has signaled may persuade officials to delay tightening, echoing some Federal Reserve officials' concerns about the surging dollar. The second is May's U.K. general election. The outcome of this year's poll is unusually hard to call, raising the prospect of some political instability ahead.
Annual U.K. inflation has cooled sharply following the slump in oil prices and was zero in February, its lowest level in 50 years. Officials led by Gov. Mark Carney have told Britons to expect weak inflation to persist in the months ahead before price pressures start to reassert themselves later this year.
The economy, meantime, continues to gain strength. Unemployment is falling and the International Monetary Fund expects U.K. output to expand 2.7% in 2015, one of the fastest growth rates the fund is forecasting for the world's advanced economies.
Markets for interest-rate derivatives imply investors believe the BOE is on course to raise rates early next year. Yet even though the nine-member Monetary Policy Committee's recent votes have been unanimously in favor of holding policy steady, cracks are beginning to show.
Officials agree that future increases in interest rates are likely to be slow and steady, but there are increasing signs they may disagree over when to get started.
Two members of the panel—Ian McCafferty and Martin Weale—have signaled that a further run of decent labor market data may prompt them to push for a rate rise sooner rather than later. One member—BOE Chief Economist Andy Haldane—has said he sees a possible need for a rate cut if low inflation proves more persistent than expected. The majority of the panel, Mr. Carney included, seems content to wait and see how things pan out, though some members sound more upbeat on the economy's prospects than others.
Two specific risks are clouding the outlook further. One is the strength of sterling, which Mr. Carney has signaled may persuade officials to delay tightening, echoing some Federal Reserve officials' concerns about the surging dollar. The second is May's U.K. general election. The outcome of this year's poll is unusually hard to call, raising the prospect of some political instability ahead.
| Main Policy Rate | Last-Quarter Rate | Current Rate | Outlook |
|---|---|---|---|
| 2-Week Repo Rate | 0.05%Jan. 5, 2015 | 0.05%April 2, 2015 | Hold |
Citing negligible inflationary pressures at home and elsewhere in Europe, the Czech National Bank is resolved to stick to its weak-koruna policy by maintaining the currency's exchange rate floor against the euro.
Since late 2012, policy makers have feared a slide into a deflationary spiral, in which falling prices lead to drops in output as households and businesses delay spending.
Three years ago, the central bank cut its benchmark interest rate to 0.05%, and in late 2013 it intervened on foreign exchange markets to weaken the koruna by about 6% against other currencies, and pledged to prevent it from firming above 27.00 to the euro.
The weaker koruna has helped the central bank push up Czech import prices and restart export-led economic growth last year, following two years of contraction through the end of 2013. Nevertheless, low global oil prices have kept the annual inflation rate unchanged at 0.1% for three consecutive months through February, well below the central bank's 2% target.
"Anti-inflationary risks prevail and the bank's board remains ready to move its exchange rate commitment [to weaker levels] if long-lasting deflationary pressures strengthen to levels driving down the domestic demand," Czech National Bank Gov. Miroslav Singer said after the bank's March policy meeting. Mr. Singer also repeated the CNB's resolve to maintain its current euro-koruna floor until at least the second half of 2016.
The central bank is also concerned about the effects of the European Central Bank's €1 trillion bond-buying program, known as quantitative easing, on Czech inflation.
"The increased level of uncertainty regarding the actual impact of [the ECB] measures on eurozone economies and the Czech economy still prevail," Mr. Singer said.
Since late 2012, policy makers have feared a slide into a deflationary spiral, in which falling prices lead to drops in output as households and businesses delay spending.
Three years ago, the central bank cut its benchmark interest rate to 0.05%, and in late 2013 it intervened on foreign exchange markets to weaken the koruna by about 6% against other currencies, and pledged to prevent it from firming above 27.00 to the euro.
The weaker koruna has helped the central bank push up Czech import prices and restart export-led economic growth last year, following two years of contraction through the end of 2013. Nevertheless, low global oil prices have kept the annual inflation rate unchanged at 0.1% for three consecutive months through February, well below the central bank's 2% target.
"Anti-inflationary risks prevail and the bank's board remains ready to move its exchange rate commitment [to weaker levels] if long-lasting deflationary pressures strengthen to levels driving down the domestic demand," Czech National Bank Gov. Miroslav Singer said after the bank's March policy meeting. Mr. Singer also repeated the CNB's resolve to maintain its current euro-koruna floor until at least the second half of 2016.
The central bank is also concerned about the effects of the European Central Bank's €1 trillion bond-buying program, known as quantitative easing, on Czech inflation.
"The increased level of uncertainty regarding the actual impact of [the ECB] measures on eurozone economies and the Czech economy still prevail," Mr. Singer said.
| Main Policy Rate | Last-Quarter Rate | Current Rate | Outlook |
|---|---|---|---|
| Deposit Rate | -0.05%Jan. 5, 2015 | -0.75%April 2, 2015 | Uncertain |
| Main Lending Rate | 0.20%Jan. 5, 2015 | 0.05%April 2, 2015 | Hold |
Denmark’s central bank has been under huge
pressure to defend the currency peg to the euro, its main policy aim,
but recent signs are that the storm could be passing.
In its most recent statement on its market activities, the central bank said it didn’t intervene in currency markets in the latter part of February after buying record amounts of foreign exchange in January and early February to sap demand for the Danish krone.
The central bank's main policy goal is to keep the euro's exchange rate within 2.25% above or below 7.46038 kroner to keep a lid on inflation and provide stability for domestic businesses that rely on the eurozone as a market.
That task was made harder earlier this year by Switzerland’s move to abandon its exchange-rate cap which got investors wondering whether Denmark could be next. Investors began buying up krone assets, pushing up its value, knowing that if the peg broke those assets would be worth more in euro terms.
The European Central Bank's bond-buying plan has also pushed down the value of the euro against the krone, forcing Denmark to cut interest rates four times and intervene extensively in currency markets to weaken its own currency.
With ECB asset-buying set to run for a protracted period, the Danish central bank will be on alert for moves higher in the krone’s value compared with the euro.
If the current period of calmer currency markets continues, analysts expect Nationalbanken to keep rates unchanged for a period before gradually raising the deposit rate back toward zero.
However, if the krone starts strengthening again, Nationalbanken has made clear it is ready to intervene in currency markets and cut interest rates as necessary to maintain the peg.
"We are able and we are willing to do whatever it takes to defend the peg," Gov. Lars Rohde said recently. "The peg is the cornerstone of economic policy in Denmark and has very broad based support."
In its most recent statement on its market activities, the central bank said it didn’t intervene in currency markets in the latter part of February after buying record amounts of foreign exchange in January and early February to sap demand for the Danish krone.
The central bank's main policy goal is to keep the euro's exchange rate within 2.25% above or below 7.46038 kroner to keep a lid on inflation and provide stability for domestic businesses that rely on the eurozone as a market.
That task was made harder earlier this year by Switzerland’s move to abandon its exchange-rate cap which got investors wondering whether Denmark could be next. Investors began buying up krone assets, pushing up its value, knowing that if the peg broke those assets would be worth more in euro terms.
The European Central Bank's bond-buying plan has also pushed down the value of the euro against the krone, forcing Denmark to cut interest rates four times and intervene extensively in currency markets to weaken its own currency.
With ECB asset-buying set to run for a protracted period, the Danish central bank will be on alert for moves higher in the krone’s value compared with the euro.
If the current period of calmer currency markets continues, analysts expect Nationalbanken to keep rates unchanged for a period before gradually raising the deposit rate back toward zero.
However, if the krone starts strengthening again, Nationalbanken has made clear it is ready to intervene in currency markets and cut interest rates as necessary to maintain the peg.
"We are able and we are willing to do whatever it takes to defend the peg," Gov. Lars Rohde said recently. "The peg is the cornerstone of economic policy in Denmark and has very broad based support."
| Main Policy Rate | Last-Quarter Rate | Current Rate | Outlook |
|---|---|---|---|
| Main Policy Rate | 2.10%Jan. 5, 2015 | 1.95%April 2, 2015 | Down |
Hungary will continue easing policy in the
coming months until its newly adjusted inflation target comes into
sight, its central bank pledged after cutting the main policy rate March 24 for the first time since July.
Hungary's central bank resumed interest rate cuts in March, reducing the main rate by 0.15 percentage point to a fresh record low of 1.95%.
It reaffirmed the country's 3% medium-term inflation target but introduced a plus or minus one percentage-point "tolerance band" around that, widening the allowable range to between 2% and 4%.
The band increases the rate panel's policy elbow room so that it doesn't need to immediately react to smaller shocks should forecasts point to inflation under or over the 3% inflation goal, the central bankers said.
Many economists expect the rate to go no lower than 1.5% during this series of cuts.
The rate cuts are aimed at propelling price growth, boosting economic growth and supporting the government's economic program, central bank Gov. Gyorgy Matolcsy said.
Consumer prices fell in February for the sixth month in a row and inflation is forecast to remain weak. The central bank slashed in March its inflation forecast for this year to zero from its earlier projection in December for 0.9% and cut the outlook for 2016 to 2.6% from the previously expected 2.9%.
Hungary's central bank resumed interest rate cuts in March, reducing the main rate by 0.15 percentage point to a fresh record low of 1.95%.
It reaffirmed the country's 3% medium-term inflation target but introduced a plus or minus one percentage-point "tolerance band" around that, widening the allowable range to between 2% and 4%.
The band increases the rate panel's policy elbow room so that it doesn't need to immediately react to smaller shocks should forecasts point to inflation under or over the 3% inflation goal, the central bankers said.
Many economists expect the rate to go no lower than 1.5% during this series of cuts.
The rate cuts are aimed at propelling price growth, boosting economic growth and supporting the government's economic program, central bank Gov. Gyorgy Matolcsy said.
Consumer prices fell in February for the sixth month in a row and inflation is forecast to remain weak. The central bank slashed in March its inflation forecast for this year to zero from its earlier projection in December for 0.9% and cut the outlook for 2016 to 2.6% from the previously expected 2.9%.
| Main Policy Rate | Last-Quarter Rate | Current Rate | Outlook |
|---|---|---|---|
| Main Policy Rate | 0.25%Jan. 5, 2015 | 0.10%April 2, 2015 | Hold |
The Bank of Israel surprised financial markets by cutting its benchmark lending rate for March from 0.25% to an all-time low of 0.1% to grapple with declining inflation.
After keeping the rate unchanged for April, analysts and the Bank of Israel’s research department itself expect that the central bank will keep the lending rate steady throughout the rest of the second quarter.
Forecasters surveyed predicted that Bank of Israel’s monetary policy committee would keep the rate unchanged for the rest of the year to spur faster economic growth and nudge inflation rate back into the central bank’s target range of 1% to 3%. For 2015, prices are forecast to fall by 0.1%.
Despite mild deflation, analysts don’t expect Bank of Israel Gov. Karnit Flug to cut interest rates again in the second quarter, because such a move would take the Israeli economy into the uncharted territory of negative interest rates.
“To opt for a negative interest rate…that is something that there isn’t so much experience with," said Alex Zabezhinsky, the chief economist at Dash Securities. "No one knows how the banks and how the customers will react. It’s a huge change in the system.”
After keeping the rate unchanged for April, analysts and the Bank of Israel’s research department itself expect that the central bank will keep the lending rate steady throughout the rest of the second quarter.
Forecasters surveyed predicted that Bank of Israel’s monetary policy committee would keep the rate unchanged for the rest of the year to spur faster economic growth and nudge inflation rate back into the central bank’s target range of 1% to 3%. For 2015, prices are forecast to fall by 0.1%.
Despite mild deflation, analysts don’t expect Bank of Israel Gov. Karnit Flug to cut interest rates again in the second quarter, because such a move would take the Israeli economy into the uncharted territory of negative interest rates.
“To opt for a negative interest rate…that is something that there isn’t so much experience with," said Alex Zabezhinsky, the chief economist at Dash Securities. "No one knows how the banks and how the customers will react. It’s a huge change in the system.”
| Main Policy Rate | Last-Quarter Rate | Current Rate | Outlook |
|---|---|---|---|
| Main Rate | 1.25%Jan. 5, 2015 | 1.25%April 2, 2015 | Down |
Norway’s central bank looks set to ease policy
later this year as slowing growth threatens to drag inflation below the
central bank’s 2.5% inflation target.
The bank surprised markets by not lowering rates at its March meeting, with some observers suggesting it was “kicking the can down the road.” Analysts had expected a darkening economic outlook to push the central bank to act before a slowdown began to weigh on consumer prices.
The bank chose to flag a high likelihood of rate cuts later this year rather than lowering borrowing costs in March.
Some of the reluctance to act comes from worries that lower interest rates could trigger an asset-price bubble.
Norway, an oil exporter, has seen its currency weaken because of falling crude prices. This has also taken some of the pressure off the central bank to act now.
Analysts have moved their focus to the central bank’s next meeting in early May, when the signs of an economic downturn should be more pronounced and could trigger monetary policy easing.
At his March press conference, the central bank governor flagged a number of factors that could weigh on inflation and prompt a rate cut.
These included a continuation of lower oil prices, lower interest rates abroad and slower than expected wage growth in Norway.
The bank surprised markets by not lowering rates at its March meeting, with some observers suggesting it was “kicking the can down the road.” Analysts had expected a darkening economic outlook to push the central bank to act before a slowdown began to weigh on consumer prices.
The bank chose to flag a high likelihood of rate cuts later this year rather than lowering borrowing costs in March.
Some of the reluctance to act comes from worries that lower interest rates could trigger an asset-price bubble.
Norway, an oil exporter, has seen its currency weaken because of falling crude prices. This has also taken some of the pressure off the central bank to act now.
Analysts have moved their focus to the central bank’s next meeting in early May, when the signs of an economic downturn should be more pronounced and could trigger monetary policy easing.
At his March press conference, the central bank governor flagged a number of factors that could weigh on inflation and prompt a rate cut.
These included a continuation of lower oil prices, lower interest rates abroad and slower than expected wage growth in Norway.
| Main Policy Rate | Last-Quarter Rate | Current Rate | Outlook |
|---|---|---|---|
| Reference Rate | 2.00%Jan. 5, 2015 | 1.50%April 2, 2015 | Hold |
The Polish central bank is widely expected to
keep interest rates steady over the coming three months, while closely
watching the local currency for fallout from the European Central Bank's quantitative easing drive.
The Polish central bank surprised financial markets by cutting its benchmark interest rate aggressively in March—by half a percentage point to an all-time low of 1.5%—and almost entirely shutting the door to more easing in the near future.
As in many other parts of Europe, consumer prices have been falling in Poland. But the rate of decline seems to have peaked in February at an annual pace of 1.6%. Since the economy is growing robustly at around 3% annually, the only development that is likely to trigger a change in policy is a sharp appreciation of the zloty against the euro.
The central bank’s rate-setting panel worries that by strengthening the zloty, a flood of capital into Poland in search of higher returns than those available in the eurozone could lead to even larger declines in prices, while hurting exports and hampering growth.
The Polish central bank surprised financial markets by cutting its benchmark interest rate aggressively in March—by half a percentage point to an all-time low of 1.5%—and almost entirely shutting the door to more easing in the near future.
As in many other parts of Europe, consumer prices have been falling in Poland. But the rate of decline seems to have peaked in February at an annual pace of 1.6%. Since the economy is growing robustly at around 3% annually, the only development that is likely to trigger a change in policy is a sharp appreciation of the zloty against the euro.
The central bank’s rate-setting panel worries that by strengthening the zloty, a flood of capital into Poland in search of higher returns than those available in the eurozone could lead to even larger declines in prices, while hurting exports and hampering growth.
| Main Policy Rate | Last-Quarter Rate | Current Rate | Outlook |
|---|---|---|---|
| Key Rate | 17.00%Jan. 5, 2015 | 14%April 2, 2015 | Down |
The Bank of Russia is expected
to continue cutting its benchmark interest rate this year to counter an
economic contraction as inflation gradually subsides.
With the ruble hitting new all-time lows almost daily, the central bank took emergency action in December, raising the benchmark rate to 17%. But then it surprised financial markets with a rate cut of two percentage points in January, followed by a percentage-point reduction in March, when it also hinted it was ready for further easing.
Dmitry Tulin, the first deputy chairman, has said the current key rate of 14% is still "very high," and is hurting lending in the battered economy.
The central bank has said this year it won't go to any length to fight stubbornly high inflation, since the country's rapid economic slowdown is a more immediate concern.
The annual inflation rate reached around 17% in February on the back of the ruble's depreciation. But it may have peaked and is seen by officials slowing toward 12% by the end of the year. The central bank expects inflation to fall to its target of 4% next year, and the benchmark interest rate is likely to track that slowdown.
The ruble firmed in the second part of March thanks to local tax payments that usually prompt export-focused companies to convert their dollar and euro revenues locally. Some stabilization on the global oil market also helped the ruble regain ground. The central bank has not intervened in the currency market and has not sold dollars or euros since early February.
However, a possible decline in oil prices or an increase in tensions between Russia and the U.S. and the European Union over Ukraine's future could bring fresh turmoil to the country's financial markets, and force the central bank to change tack.
With the ruble hitting new all-time lows almost daily, the central bank took emergency action in December, raising the benchmark rate to 17%. But then it surprised financial markets with a rate cut of two percentage points in January, followed by a percentage-point reduction in March, when it also hinted it was ready for further easing.
Dmitry Tulin, the first deputy chairman, has said the current key rate of 14% is still "very high," and is hurting lending in the battered economy.
The central bank has said this year it won't go to any length to fight stubbornly high inflation, since the country's rapid economic slowdown is a more immediate concern.
The annual inflation rate reached around 17% in February on the back of the ruble's depreciation. But it may have peaked and is seen by officials slowing toward 12% by the end of the year. The central bank expects inflation to fall to its target of 4% next year, and the benchmark interest rate is likely to track that slowdown.
The ruble firmed in the second part of March thanks to local tax payments that usually prompt export-focused companies to convert their dollar and euro revenues locally. Some stabilization on the global oil market also helped the ruble regain ground. The central bank has not intervened in the currency market and has not sold dollars or euros since early February.
However, a possible decline in oil prices or an increase in tensions between Russia and the U.S. and the European Union over Ukraine's future could bring fresh turmoil to the country's financial markets, and force the central bank to change tack.
| Main Policy Rate | Last-Quarter Rate | Current Rate | Outlook |
|---|---|---|---|
| Main Rate | 5.75%Jan. 5, 2015 | 5.75%April 2, 2015 | Hold |
South African Reserve Bank Gov. Lesetja Kganyago wants to raise interest rates. The global economy just won’t give him a shot at it.
Mr. Kganyago took over the bank in November and pledged allegiance to his predecessor’s promise to raise its main policy rate above its current level of 5.75%, near a four-decade low. Then South Africa’s annual inflation rate tanked, to 3.9% in February from 5.9% when he took over.
That dents his rationale for a rate increase, even with the rand currency tumbling to 13-year lows against the dollar. With South Africa’s economy veering toward a third consecutive year growing at below a 2% annual rate, many businesses will cheer the reprieve.
Many economists think the bank will follow through on its vows to raise rates, with as much as 1.75 percentage points worth of increases over the next few years.
Mr. Kganyago took over the bank in November and pledged allegiance to his predecessor’s promise to raise its main policy rate above its current level of 5.75%, near a four-decade low. Then South Africa’s annual inflation rate tanked, to 3.9% in February from 5.9% when he took over.
That dents his rationale for a rate increase, even with the rand currency tumbling to 13-year lows against the dollar. With South Africa’s economy veering toward a third consecutive year growing at below a 2% annual rate, many businesses will cheer the reprieve.
Many economists think the bank will follow through on its vows to raise rates, with as much as 1.75 percentage points worth of increases over the next few years.
| Main Policy Rate | Last-Quarter Rate | Current Rate | Outlook |
|---|---|---|---|
| Main Rate | 0.00%Jan. 5, 2015 | -0.25%April 2, 2015 | Down |
The Riksbank’s battle to raise
Sweden’s very low level of inflation is set to continue in the second
quarter as the central bank seeks to keep the Swedish currency weak to
counteract the effect of disinflationary factors such as lower fuel
prices.
The world’s oldest central bank launched a bond-buying program and lowered its main interest rate twice in the early part of the year with the second reduction coming at an unscheduled policy meeting, something which is highly unusual here.
The Riksbank Gov. Stefan Ingves has made clear that he and his policy board colleagues are willing to do more to push inflation from current levels around zero closer to the central bank’s 2% target.
They have a close eye on the currency, the krona, and have signaled they will loosen policy if they see it strengthening.
Mr. Ingves has said lower interest rates, a further expansion of bond buying or direct interventions in the currency market are all options he is ready to use to push inflation higher.
The National Institute for Economic Research, an influential Swedish government think tank, said it expects the Riksbank to lower the policy rate to minus 0.4% from minus 0.25% in April.
The world’s oldest central bank launched a bond-buying program and lowered its main interest rate twice in the early part of the year with the second reduction coming at an unscheduled policy meeting, something which is highly unusual here.
The Riksbank Gov. Stefan Ingves has made clear that he and his policy board colleagues are willing to do more to push inflation from current levels around zero closer to the central bank’s 2% target.
They have a close eye on the currency, the krona, and have signaled they will loosen policy if they see it strengthening.
Mr. Ingves has said lower interest rates, a further expansion of bond buying or direct interventions in the currency market are all options he is ready to use to push inflation higher.
The National Institute for Economic Research, an influential Swedish government think tank, said it expects the Riksbank to lower the policy rate to minus 0.4% from minus 0.25% in April.
| Main Policy Rate | Last-Quarter Rate | Current Rate | Outlook |
|---|---|---|---|
| Deposit Rate | -0.25%Jan. 5, 2015 | -0.75%April 2, 2015 | Hold |
The Swiss franc will remain the main focus for
Switzerland's central bank as it assesses the impact of negative rates
on dampening demand for its currency, still a cherished haven for global
investors.
The Swiss National Bank startled global markets as well as local politicians and exporters in January when it allowed the franc to float free of its 3 1/2-year link to the euro, and imposed a charge of 0.75% on bank deposits, the first time ever it has pushed its reference rate into negative territory.
SNB President Thomas Jordan on March 19 reiterated the franc remains overvalued and said while he expects it to weaken over time, he is banking on the threat of intervention and negative rates to deter foreign demand.
Analysts reckon the SNB is more likely to use its intervention weapon than rates should the franc strengthen toward parity with the euro, the currency of Switzerland's key export market.
"They are more likely to step into the currency market than push rates down further, as this could lead to cash-hoarding by small savers, something the SNB would want to avoid," said Bernd Aumann, an economist with UBS.
The SNB imposed negative interest rates as part of its effort to weaken the franc, and said last month it would "remain active in the foreign exchange market, as necessary."
Analysts reckon the current level of 1.05 to 1.07 per euro is a range the Swiss economy and the SNB can tolerate, although much will depend on how quickly the ECB's new bond-purchase stimulus program will kick-start the sluggish eurozone economy.
"The SNB in recent years has been a hostage to developments in the eurozone, and that scenario is unlikely to change in the foreseeable future," said Alessandro Bee, an analyst with J. Safra Sarasin.
The Swiss National Bank startled global markets as well as local politicians and exporters in January when it allowed the franc to float free of its 3 1/2-year link to the euro, and imposed a charge of 0.75% on bank deposits, the first time ever it has pushed its reference rate into negative territory.
SNB President Thomas Jordan on March 19 reiterated the franc remains overvalued and said while he expects it to weaken over time, he is banking on the threat of intervention and negative rates to deter foreign demand.
Analysts reckon the SNB is more likely to use its intervention weapon than rates should the franc strengthen toward parity with the euro, the currency of Switzerland's key export market.
"They are more likely to step into the currency market than push rates down further, as this could lead to cash-hoarding by small savers, something the SNB would want to avoid," said Bernd Aumann, an economist with UBS.
The SNB imposed negative interest rates as part of its effort to weaken the franc, and said last month it would "remain active in the foreign exchange market, as necessary."
Analysts reckon the current level of 1.05 to 1.07 per euro is a range the Swiss economy and the SNB can tolerate, although much will depend on how quickly the ECB's new bond-purchase stimulus program will kick-start the sluggish eurozone economy.
"The SNB in recent years has been a hostage to developments in the eurozone, and that scenario is unlikely to change in the foreseeable future," said Alessandro Bee, an analyst with J. Safra Sarasin.
| Main Policy Rate | Last-Quarter Rate | Current Rate | Outlook |
|---|---|---|---|
| 1-Week Repo Rate | 8.25%Jan. 5, 2015 | 7.50%April 2, 2015 | Uncertain |
Turkey’s central bank will face government
demands to fuel stronger economic growth amid broad emerging-market
turmoil in the second quarter, bedeviling Gov. Erdem Basci as he seeks to cut interest rates without stoking financial volatility.
With critical June elections fast approaching, Turkey’s government and President Recep Tayyip Erdogan
have been pressuring Mr. Basci to quickly cut borrowing costs to
stimulate the $800 billion economy—forecast by analysts to grow about 3%
in 2015 after a 2.9% expansion in 2014, slower than 4.2% in 2013 and a
third of the pace in 2010-11.
The political pressure on Turkey’s central bank
has exacerbated the lira’s slump to record lows against the dollar. The
currency’s 14% drop from January through mid-March has been one of the
worst in emerging markets, amid an exodus of capital driven by
expectations the U.S. Federal Reserve will raise interest rates later this year.
“Turkey's buffers against potential volatility in global investor risk appetite remain relatively thin,” Fitch Ratings said, warning of selloff risks tied to a tightening in U.S. monetary policy.
Mr. Basci acquiesced to government demands in January and February,
reducing the benchmark one-week repo rate to 7.5% from 8.25% and
dropping the overnight lending rate to 10.75% from 11.25%.
The central bank held rates steady in March, with the Monetary Policy
Committee pledging to maintain a “cautious” stance as the lira’s
decline against the dollar threatens efforts to slow inflation toward
the 5% official target from 7.55% in February.
Analysts are split on whether policy makers will keep a tightening bias or resume reducing interest rates.
“The committee seems concerned about the uncertainty in global markets and elevated food prices,” said Finansbank AS
economists in Istanbul. “We see a very limited room for Turkey’s
central bank to deliver further rate cuts in the forthcoming months,
before reversing those with the Fed rate hikes.”
Source:http://graphics.wsj.com/central-banks-outlook/?q=2015Q2&utm_content=buffere4171&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer
This is great website and owner of this website is also great because he give help full information with us thanks for sharing great and wonderful information.
ReplyDeletetop forex brokers
This is an awesome article a debt of gratitude is in order for sharing this useful data. I will visit your web journal consistently for some most recent post.
ReplyDeletebest forex brokers in uk