Central Bank Roundup: RBA, BOC, ECB, BOE, and SNB

We’re only into the first full trading week of the month and already we’ve heard from not one, not two, but FIVE major central bankers!

What did the RBA, BOC, ECB, BOE, and SNB have to say and how have their updates affected their local currencies?

RBA: “Nothing to see here.”

Aside from referencing its rate cuts in May and in August, the Reserve Bank of Australia (RBA) barely changed its statement from the previous month. It didn’t disappoint volatility hunters, though!

The central bank still believes that “overall growth is continuing, despite a very large decline in business investment, helped by growth in other areas of domestic demand and exports” and that low labor costs and weak global inflation will continue to keep Australia’s prices low for some time.

Forex players took the lack of dovishness as a sign that the RBA is waiting for the impact of its previous policy changes and won’t be hitting the rate cut button again anytime soon. Naturally, the Aussie ended the day higher against most of its counterparts.

BOC: “No rate cut but…”

The Bank of Canada (BOC) might have kept its rates at 0.50% as expected, but it sure didn’t shy away from dovish remarks! For starters, the central bank acknowledged that growth in the first half of the year is not as rosy as it had estimated in May. Economic growth in Q2 2016 is also expected to shrink, thanks to the fires in Alberta and a larger-than-expected drop in exports.

The BOC was a bit more generous regarding inflation, saying that it’s still “roughly” in line with its expectations. However, it also recognized that lower consumer energy prices have tilted inflation risks to the downside. Last but not the least, the BOC is expecting a rebound in Q3 2016 as oil production picks up, Alberta recovers from the fires, and consumer spending gets a boost.

Loonie traders didn’t buy the BOC’s optimism and instead focused on the dovish remarks. The oil-related currency dropped to new daily lows and barely saw intraday recoveries until the end of the day.

ECB: “Fresh stimulus? How about NO?”

Much like the RBA and BOC, the European Central Bank (ECB) has decided against any policy changes this month. This disappointed tons of traders who were expecting Draghi to go all Super Mario on them. The refinancing rate (0.00%), marginal lending rate (0.25%), deposit rate (-0.40%), and QE program (80B EUR), and heck, even the official statement all remain unchanged for another month.

The central bank’s new projections weren’t so hot either. Growth is now expected to reach 1.7% in 2016, up from its 1.6% estimates, but 2017 and 2018 GDP estimates are revised lower from 1.7% to 1.6%. Inflation forecasts are mixed, with 2016’s held steady at 0.2% and 2018’s still at 1.6% while 2017’s was cut from 1.3% to 1.2%.

What caught more attention was Draghi’s refusal to provide forward guidance on the QE program. The current set is scheduled to expire on March 2017 and, since inflation hasn’t ticked significantly higher, many are expecting an extension. Instead, Draghi defended their current policies, saying the prospect of extending the QE program wasn’t even up for discussion.

Market players were NOT impressed. Draghi’s “our program is effective and we should focus on its implementation” was taken as a sign that the ECB is running out of bullets to achieve its 2.0% inflation target. Still, the euro only lost its intraday gains against the dollar and the pound, and actually ended the day higher against its other counterparts.

BOE’s Mark Carney: “NO RAGRETS”

The Bank of England (BOE) is scheduled to print its policy decisions next week, but already Governor Mark Carney is making the headlines. In an inflation hearing yesterday, the BOE head honcho shrugged off claims that the central bank had cried wolf over the Brexit vote.

If you recall, a few months ago Carney and his team warned that a vote to exit the EU could lead to unemployment, growth slowdown, and even a recession. Fast forward to today when early post-Brexit business and consumer surveys are suggesting that Brexit hasn’t held the economy back as much as the BOE predicted.

Carney shrugged off the criticisms though, saying that he’s “absolutely serene” about the Monetary Policy Committee (MPC) and Fiscal Policy Committee (FPC)’s decisions so far. He even implied that the improvements in business sentiment and output in August can be attributed to the BOE’s recent policy changes.

SNB’s Thomas Jordan: ¯\_(ツ)_/¯

Swiss National Bank (SNB) Chairman Thomas Jordan joined the defending bandwagon in his speech at the University of Lucerne.

When asked how the central bank can help pension funds hurting from the SNB’s low interest rates, Jordan only acknowledged the difficulties before pointing out that “central bankers cannot solve these kinds of problems… With a monetary policy aimed at price stability, the central bank contributes to a situation that enables economic growth and prosperity.” Jordan declined to comment further on the SNB’s policies, saying we should stay tuned for more details on September 15 when he and his team release their statement .


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