Can you believe we’re already into the second month of the year?!
So, what exactly did they have to say? Here’s a quick rundown:
BOJ: “Inflation target is still WIP.”
As expected, the Bank of Japan (BOJ) kept its interest rates and pace of asset purchases steady for another month in February. What market players didn’t expect was that the BOJ would extend the deadlines for new applications of its other stimulus programs.
In addition to that, the BOJ also made adjustments to its forecasts. It upgraded its growth estimates thanks to improvements in exports, consumer spending, and capital expenditure. But it wasn’t as optimistic over its inflation targets, as members are concerned that Japan’s companies remain unwilling to lift wages, a key factor in boosting consumer prices.
Meanwhile, head honcho Haruhiko Kuroda has been busy defending the BOJ’s moves. He reiterated that he and his team aren’t targeting a level for the yen in his speeches this week. However, he also warned that the BOJ would pursue “powerful” monetary easing to achieve its 2.0% inflation target after describing its current levels as being halfway to hitting the goal.
Fed: “Nothing to see here.”
After pencilling in three interest rate hikes for 2017 in its last meeting, market players had hoped to see more hawkishness in the Fed’s February statement.
Instead, Yellen and her team merely recognized the improvements in consumer and business sentiment as well as the continued progress in job gains. Not only that, but it also dialed down its optimism over inflation, saying that “market-based measures of inflation compensation remain low” even as they’ve already factored in the short-term impact of declines in energy prices.
The lack of clear hawkishness and forward guidance as well as the Fed’s cautiousness regarding inflation growth did a number on the Greenback. The low-yielding currency fell across the board and didn’t find support until the next day.
BOE: “High inflation, don’t care.”
With inflation noticeably shooting higher in the last couple of months, analysts expected the Bank of England (BOE) to start considering raising rates to prevent the economy from overheating.
Instead, Carney and his gang said that they’d rather see higher inflation than deal with higher unemployment and possibly weaker growth that would come with tighter monetary policies. However, the BOE also repeated that “there are limits to the extent that above-target inflation would be tolerated.”
The BOE also raised its growth and employment forecasts from November while keeping its inflation estimates steady. Despite that, Carney is “sorry not sorry” about being too gloomy over Brexit. In fact, he still believes that the vote “is only the beginning,” and that “there will be twists and turns along the way.” Overall, the BOE seems pretty determined to keep its eyes on the prize and focus on wages and its impact on consumer spending.
Draghi: “Nope, not pulling the plug!”
The European Central Bank (ECB) might not have printed an official monetary policy decision lately, but top boss Mario Draghi sure didn’t shy away from making headlines. He repeated that recovery in the euro zone economy is picking up strength but still requires stimulus. After all, the latest upticks in inflation are mostly due to temporary surges in energy prices and that underlying inflation trends remain subdued.
The ECB Governor even threatened market players with additional stimulus, saying that the central bank is ready to increase the size and duration of the program if necessary. Last but not the least, Draghi also repeated that the ECB and Germany are not currency manipulators, as the central bank’s policies reflect the state of economic recovery and not a desire for a weak euro. Somebody holler at Trump!
RBA: “It’s all good in the hood.”
The Reserve Bank of Australia (RBA) kept its interest rates at 1.50% for a sixth month in a row in February after cutting it twice in 2016.
Apparently, Philip Lowe and his team are now pretty happy about the economy. Commodity prices are rising, China’s economy is showing strong growth, and the factors that pushed Q3 2016 to negative territory are “temporary” and that the economy is expected to return a “reasonable growth” in Q4 2016. The RBA is a teeny bit concerned about the Aussie’s strength though, saying that a high exchange rate would complicate its transition from the mining boom.
Though haters have doubts over the RBA’s slightly-too-optimistic-growth projections, the prospect of the RBA quitting its rate cut spree was enough to push the Aussie higher across the board. Well, at least until the U.S. session started.
RBNZ: “We’re like Switzerland, man. We’re neutral.”
Much like with the other major central banks, the pressure was on for the Reserve Bank of New Zealand (RBNZ) to tighten its policies following the recent strength in inflation reports.
But the RBNZ said “no thanks” and kept its rates at 1.75%. Apparently, tradables inflation remains weak and keeping rates low will help stimulate economic activity. The RBNZ also continued jawboning the Kiwi, saying that “a decline in the exchange rate is needed” to stimulate inflation in the tradables sector.
Overall, the RBNZ thinks that the risks around a rate hike or cut are “evenly balanced.” However, we might not see any rate hike action until 2019 when the RBNZ expects to hit its inflation targets. Of course, it also doesn’t help that geopolitical uncertainties *cough* Trump *cough* remain as legit concerns for investors.
P.S.: RBNZ Governor Graeme Wheeler also announced that he won’t pull a back-to-back term when his current term ends on September 26. Deputy Governor Grant Spencer is expected to serve a six-month term as acting Governor while they search for Wheeler’s successor. Maybe Wheeler got jealous of Obama’s vacation pics?