Greetings, forex friends! The month will soon come to a close. And since most of the major central banks have already delivered their monetary policy statements, I thought that today would be a good day for a little central bank roundup.
Oh, do note that this will be a two-part series. And I’ll begin with the ECB, the BOE, the SNB, and the BOJ.
The European Central Bank (ECB)
- ECB maintained the current monetary policy
- ECB still has a tightening bias
- However, ECB reiterated that there will be no rate hikes “at least through the summer of 2019“
- ECB also downgraded GDP growth projections because of trade-related uncertainties
- Inflation projections remain unchanged, though
- ECB’s Draghi even sees a “relatively vigorous pick-up in underlying inflation“
The ECB announced no changes to its current monetary policy during the September 13 ECB Statement.
The refinancing rate, marginal lending rate, and deposit rate are therefore all unchanged at 0.00%, 0.25%, and -0.40% respectively.
The ECB also reaffirmed that after the month ends, its QE program will continue at a reduced pace of €15 billion per month (€30 billion originally) until the end of December 2018. And after December 2018, the ECB reaffirmed that “net purchases will then end.”
And with regard to interest rates, the ECB repeated its forward guidance that:
“[T]he key ECB interest rates [are] to remain at their present levels at least through the summer of 2019.”
Other than that, ECB President Draghi also said some rather positive things about the Euro Zone economy:
“The incoming information, including our new September 2018 staff projections, broadly confirms our previous assessment of an ongoing broad-based expansion of the euro area economy and gradually rising inflation.”
“The underlying strength of the economy continues to support our confidence that the sustained convergence of inflation to our aim will proceed and will be maintained even after a gradual winding-down of our net asset purchases.”
Despite all that praise, the ECB actually downgraded its 2018 and 2019 GDP growth projections. And according to Draghi, the downgrades basically reflect trade-related uncertainty because of rising protectionism (due to Trump’s actions).
“That [rising protectionism] is the major source of uncertainty which, by the way, is reflected in the current macroeconomic projections only to the extent of the measures that have been implemented already.”
The ECB’s inflation projections were unchanged, though, which is why the ECB still has a tightening bias.
Draghi even said during a September 24 speech that he sees a “relatively vigorous pick-up in underlying inflation.”
ECB Chief Economist Peter Praet would later try to downplay Draghi’s comments during a September 25 presser, saying that “There was nothing new” to Draghi’s views.
That didn’t stop market players from fully pricing in a September 2019 ECB rate hike, though. And remember, the ECB’s forward guidance that there will be no rate hikes “at least through the summer of 2019” was generally thought to mean no rate hikes until the October 2019 ECB meeting (at the earliest).
Bank of England (BOE)
- The BOE maintained the current monetary policy
- BOE judges that the British economy is evolving as expected
- The BOE still has a hiking bias
- Future rate hikes “likely to be at a gradual pace and to a limited extent“
- BOE expressed some concern about Brexit
- However, BOE still assumes that a deal can be hammered out
Back on September 13, members of the BOE’s Monetary Policy Committee (MPC) voted unanimously to maintain the current monetary policy.
The Bank Rate was therefore steady at 0.75%, while the stock of purchased government bonds and corporate bonds are unchanged at £435 billion and £10 billion respectively.
However, the BOE also thinks that “The MPC’s August projections appeared to be broadly on track.” In other words, the British economy is evolving as expected, which is why the BOE stated that it still has a hiking bias when it noted that (emphasis mine):
“[W]ere the economy to continue to develop broadly in line with the August Inflation Report projections, an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to the 2% target at a conventional horizon.”
The BOE did stress that “Any future increases in Bank Rate were likely to be at a gradual pace and to a limited extent.”
In addition, the BOE also expressed some concern about the current state of Brexit negotiations.
But as clarified by BOE MPC Member Gertjan Vlieghe during a September 25 presser, the BOE does not yet see a need to change its baseline scenario that the U.K. will leave the E.U. with a proper Brexit deal.
Vleighe did note, however, that the BOE is ready to change its view if Brexit negotiations deteriorate.
Swiss National Bank (SNB)
- No plans to end expansionary monetary policy yet
- SNB’s Jordan partly blames Swissy’s strength for SNB’s monetary policy stance
- Still threatening to “remain active” in the forex market
- Still thinks that CHF is “highly valued“
- SNB downgraded its inflation projections again
- SNB blamed downgrades on Swissy’s recent appreciation
As usual, the SNB announced no changes to its monetary policy during the September 20 SNB statement.
The target range for the Libor rate is therefore still between -1.25% and -0.25%, while interest rate on sight deposits are still at -0.75%.
The SNB also noted (with implied disappointment) that “the Swiss franc has appreciated noticeably, against the major currencies as well as against emerging market currencies.”
And since the Swissy is “highligh valued,” the SNB repeated its mantra that the SNB will “remain active in the foreign exchange market as necessary.”
Also as usual, the SNB repeated its justification for the negative rates and for manipulating its currency, er, I mean “remain active in the foreign exchange market” by saying that these measures “keep the attractiveness of Swiss franc investments low and thus ease pressure on the currency.”
Other than that, the SNB also downgraded its 2019 and 2020 inflation forecasts. And the SNB unabashedly blamed the Swissy for the downgrades when it noted that
“[T]he new conditional [inflation] forecast lies below the June forecast as a result of the appreciation in the Swiss franc.”
And in an interview shortly after the SNB statemnent, SNB Chair Thomas Jordan took things a step further by blaming the SNB’s unchanging loose monetary policy partly on the Swissy’s recent appreciation when he said that:
“The franc has appreciated, which has also led to a tightening of monetary conditions.”
“That is also the main reason why our monetary policy must remain expansive.”
Bank of Japan (BOJ)
- BOJ announced no changes to monetary policy
- “QQE With Yield Curve Control” framework still in place
- No plans yet for exiting ultra-loose monetary policy
- However, BOJ does want to tighten monetary policy
The BOJ announced that it was keeping the current monetary policy during the September 19 BOJ statement.
The overnight call rate is therefore still at -0.10% while purchases of exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) will continue so that their amounts outstanding will increase at an annual pace of about ¥6 trillion and about ¥90 billion respectively.
The BOJ’s so-called “QQE With Yield Curve Control” framework is also still in place, so the BOJ renewed its pledge to buy up 10-year Japanese Government Bonds (JGBs) as needed in order to keep bond yields “at around zero percent.”
As usual, the BOJ did not set a purchase amount for JGBs, but the BOJ did state that “the Bank will conduct purchases in a flexible manner so that their amount outstanding will increase at an annual pace of about 80 trillion yen.”
As for forward guidance, the BOJ only had these to say, which aren’t very helpful:
“The Bank will continue with “Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control,” aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner.”
“The Bank intends to maintain the current extremely low levels of short- and long-term interest rates for an extended period of time.”
BOJ Governor Kuroda was asked to clarify during the presser, but Kuroda only said that:
“We [the BOJ] must maintain our powerful monetary easing given it will take time to achieve our inflation target.”
However, Kuroda did say that the BOJ does want to exit its super loose monetary policy.
“If we achieve our 2 percent inflation target, there’s no need to continue with our massive monetary easing, so we’ll obviously head toward an exit. But that doesn’t mean we should not continue monetary easing now.”
Kuroda would later reiterate that the BOJ has a tightening bias when he said during a September 25 speech that:
“We hope to achieve 2 percent inflation at the earliest date possible by maintaining our powerful monetary easing, so that we can begin normalizing monetary policy.”