Lately, we’ve been seeing a lot of action from the major central banks. Some have decided to lower interest rates while others have revisited their stimulus programs. Heck, we’ve even had our fair share of interventions! But so far, the only rate hikes we’ve seen have come from the Reserve Bank of Australia (RBA), the Reserve Bank of New Zealand (RBNZ), and the Bank of Canada (BOC).
We like to call this trio the Comdoll Banks (Yeah, we like coining our own terms. Cause you know, that’s just how we roll!). They have been the only major central banks aggressive and brave enough to enact multiple interest rate increases in 2010.
What have these guys been up to these days? Let’s check ’em out, shall we?
Reserve Bank of Australia
A few weeks ago, my homies at the Reserve Bank of Australia decided to keep rates steady at 4.50%. Now, this came as a surprise to many because the RBA was highly expected to bring rates to 4.75%. If you recall my old post, investors were very optimistic for a rate hike because Australia’s awesome economic figures were fresh on their minds. Recent reports revealed that not only was the employment situation improving, but Australia had just recorded its strongest quarterly GDP growth since 2007!
Nevertheless, the RBA gave itself a pat on the back for holding rates steady. In the minutes of the latest MPC meeting, it said its move was “finely balanced” to counteract tighter credit and the rising AUD. The minutes also noted the RBA’s wish to remain flexible in case any risks to growth materialize.
Still, there are those that say that the central bank’s decision to keep rates unchanged in October only increases the chances of a rate hike in November or December. After all, the inflation outlook seems to favor it. “It’s only a matter of time!” the bulls sneer.
Reserve Bank of New Zealand
Next up, let’s hop across the Tasman Sea and knock on the door of the Reserve Bank of New Zealand.
The last time the central bank hiked rates was in August, which brought New Zealand‘s Official Cash Rate to 3.00% from 2.75%. It wasn’t all rainbows and butterflies for the Kiwi on the charts though. Because despite the rate increase, RBNZ Governor Alan Bollard hinted that future hikes will probably be fewer than the bank had anticipated in June, partly because inflation had tamed.
However, we saw on Monday that inflation picked up during the third quarter by 1.1%. This got a few of our homeboys in the FX hood giddy as the consensus was just at 1.0%. In fact, some of them are so ecstatic about it, they’re eyeing inflation to hit 3.0% for the fourth quarter!
Where’s the optimism coming from? Well, analysts are hoping that the increases implemented by the government on taxes for goods and services (GST) and the prices of electricity and gasoline through the Emissions Trading Scheme (ETS) will be enough to cause inflation to hustle and convince Bollard to give a rate hike shout out.
Bank of Canada
Finally, we have the Bank of Canada. The BOC has also joined the rate hike party and has increased interest rates three times this year. But after yesterday’s decision to keep rates steady, it seems that BOC officials are having second thoughts about having a fourth shot of interest rate hike booze.
How can anyone blame them? Remember, the Canadian economy is highly dependent on the U.S. With the U.S. showing signs of weakness, as well some domestic problems (unemployment and retail sales) of its own, it’s no surprise that Governor Mark Carney and the rest of the BOC are taking a more cautious approach. In fact, the BOC even lowered its growth forecasts for 2011, indicating that the BOC may leave rates unchanged until after the 1st quarter of next year.
Let’s also not forget that with the Loonie treading near parity versus the dollar, Canada is in a similar predicament as Australia. Raising interest rates would spur demand for their currencies but at the expense of export demand. They would also run the risk of cutting back stimulus for the economy at a time when there is just too much uncertainty in the global markets. So, perhaps it would be wise to take a slow and steady approach as we near the end of the year.
With the comdoll economies hinting that rate hikes may resume sooner than later, it seems like the RBA, the RBNZ, and the BOC are just chillin’ like ice cream fillin’, waiting for the perfect timing to pull the trigger. But like that annoying teenage song goes, “we’re all in this together,” the comdoll banks also have to check out the up-and-abouts in the international economic arena.
And so, taking into consideration the uncertainty in the global economy which has gotten other central banks whispering the two words that send shivers down to every bull’s spine, quantitative easing, we see that these central bankers may have a harder time finding reasons to raise rates than we think.