This week we’re taking a look at the statements and biases of major central banks so far this year:
Reserve Bank of Australia (RBA)
- Interest rates remain at 1.50% in March
- Improvement in labour market had not yet translated to “definitive” wage growth
- Household balance sheets warrant “careful monitoring”
- Inflation expected between 2% – 3% over time
As expected, the RBA kept its rates steady at 1.50% in March. The central bank repeated its optimism on the economy, saying that it’s expected to grow “faster in 2018 than it did in 2017.” Members cited non-mining business investment, public infrastructure, and expected growth in exports as sources of upside risks.
The RBA is also a bit chirpier about the housing market, saying that conditions have continued to ease in the last few months. Ditto for inflation, which Governor Philip Lowe believes “will average between 2 and 3 per cent” over time.
What keeps RBA members from raising their rates is the outlook for household consumption. Specifically, they’re worried that the high debt levels, along with slow wage growth, will add to uncertainty in household consumption and maybe inflation.
Overall, nothing really new from Lowe and his team, which is why the Aussie has been reacting more to global trade-related news than updates from the RBA.
Reserve Bank of New Zealand (RBNZ)
- Interest rates steady at 1.75% as expected in March
- RBNZ officially adds “sustainable employment” to its mandates
- RBNZ to create policy decision committee in 2019
- Governor Adrian Orr begins his five-year term today
Much like the RBA, the RBNZ didn’t make any changes to its policies in March. The central bank talked about growth which was dragged lower by poor weather in Q4 2017.
The economy is expected to strengthen, though, as higher terms of trade, accommodative monetary policy, government spending, and tighter labour conditions all support growth.
The RBNZ isn’t as breezy about inflation. See, members expect consumer prices to “weaken further in the near term” as the economy adjusts to government charges and softer food and energy prices. Medium-term inflation is expected to rise towards the midpoint of RBNZ’s 1% – 3%, while longer-term inflation expectations “are well anchored at 2%.”
Given the “numerous uncertainties” surrounding growth and inflation trends, the RBNZ is likely to keep its policies steady for a while yet.
Of course, it also doesn’t help that there are changes at the helm. Not only is Adrian Orr taking over as top boss starting today, but the central bank also just received its new mandate this week.
That’s right! Yesterday Finance Minister Grant Robertson and Orr signed a new Policy Targets Agreement (PTA) that added “supporting maximum levels of sustainable employment” to the RBNZ’s mandate. If you recall, the central bank only had to target an inflation rate of around 1% to 3% in its previous mandate.
Over the next few months a Bill is expected to legislate the RBNZ’s dual mandate AND create a committee for making policy decisions instead of leaving all the decision up to the Governor. Exciting times!
Bank of Canada (BOC)
- Overnight rate remains at 1.25% in March
- Outlook warrants higher rates, but policy accommodation still needed
- Trade policy developments are “growing source of uncertainty”
After raising its rates twice last year and once this year, the BOC is now taking a chill pill. In its March statement, BOC shared that though economic outlook points to higher rates over time, continued policy accommodation is still needed to maintain momentum for inflation.
For starters, growth wasn’t too hot in Q4 2017 thanks to higher imports and slower-than-expected recovery in exports.
As for the jobs market, the BOC mentioned that “wage growth has firmed, but remains lower than would be typical in an economy with no labour market slack,” adding that temporary factors are causing inflation to fluctuate.
What really caught investors’ attention was the BOC’s apparent concern over trade policy developments *cough* Trump’s NAFTA and tariff plans *cough*. Specifically, the central bank has now acknowledged that they’re an “important and growing source of uncertainty for the global and Canadian outlooks.”
Even Stephen Poloz is causing some waves. In speeches that followed the official statement, the BOC Governor hinted that the economy can grow more and workers can have more wages without pushing inflation significantly higher. This basically means that the BOC has room to wait before it sees enough pressure to raise its rates some more.
Swiss National Bank (SNB)
- Libor rate maintained between -1.25% and -0.25%
- SNB’s currency intervention “remain essential”
As expected, the SNB kept its monetary policies steady for another month in March. And as in its previous statements, the central bank continued to keep the pressure on its local currency.
In its statement SNB cited the recent dollar weakness that pushed the franc higher and therefore kept it “highly valued.”
In SNB speak, this basically means that its negative interest rates and currency intervention “remain essential” to “keep the attractiveness of Swiss franc investments.”
SNB Chairman Thomas Jordan also weighed in on the global trade issue. In an interview after the statement, he said that risks such as protectionism and conflicts between Europe and Russia and U.S. and North Korea could boost safe havens like the Swiss franc and threaten the export-dependent economy.
That’s it for my recap today! Tomorrow we’ll review the latest biases of the ECB, BOE, BOJ, and the Fed. Stay tuned!