March 18-22: Central Bank Decisions

Main central banks:

FOMC

The U.S Fed surprised everyone by signaling it will not raise rates again in 2019, stating that U.S economic growth has slowed. Fed officials also said they would end the drawdown of central bank bond holdings in September, a tad later than the market had expected. Fed Chair Powell said in a press conference that “it may be some time before the outlook for jobs and inflation calls clearly for a change in policy.”

It was a much more ‘dovish’ outcome than the street expected. With inflation low and stable, similar to other G10 central banks, there is no stress to do anything, and the FOMC members are united. The committee slashed its economic forecast to +2.1% for 2019 from +2.3% and +1.9% for 2020 from +2%. Slowing growth in Europe and China, worries over tariffs and past rate hikes are beginning to have an impact.

Bank of England (BoE)

The Bank of England (BoE) held its benchmark interest rate steady and said it still expects to begin gently nudging up borrowing costs if the U.K’s exit from the E.U goes smoothly, even as other G7 change course amid signs the global economy is losing steam. The MPC agreed 9-0 to leave the central bank’s main policy rate at +0.75% and the size of its bond portfolio unchanged at +£435B. Governor Carney has indicated that mounting inflationary pressure and a healthy labor market mean it expects to gently raise interest rates over the next two to three years if Britain’s EU exit goes smoothly.

In the case of a Brexit deal or a long extension, the consensus believes a summer rate hike is a possibility. The BoE staff now see the economy carrying more momentum and expect it to grow by +0.3% in Q1, up from +0.2% contained in the February Inflation Report. However, the possibility of a “no deal,” whose odds have shortened this week, could require the BoE to looking at easing policy.

Swiss National Bank (SNB)

The Swiss National Bank (SNB) kept its deposit rate at -0.75% as widely expected. Notably, it reduced its inflation forecasts for 2019 and 2020 to +0.3% and +0.6%, respectively, suggesting no end in sight to negative interest rates.

Norway’s central Bank (Norges Bank)

The outlier, Norway’s Norges bank, who bucked the trend among the major central banks by raising its key interest rate by +0.25% to +1.0% and flagging another increase before year-end. As western Europe’s biggest oil exporter, Norway is letting a rebound in crude prices steer monetary policy.

“Our current assessment of the outlook and balance of risks suggests that the policy rate will most likely be increased further in the course of the next half-year,” central bank Governor Oystein Olsen said in a statement on Thursday.

Other central banks:

Bank of Thailand (BoT)

The benchmark interest rate was kept at +1.75% for a second consecutive meeting. The decision was unanimous. Assistant Governor Titanun Mallikamas spoke of “many uncertainties within and outside the country.” For one, the nation goes to elections on March 24 and then there are risks from a global slowdown. Officials also lowered the outlook for economic growth this year to +3.8% from +4%, while there was no change to the headline inflation forecast for 2019.

Central Bank of Iceland

The Central Bank of Iceland kept their key interest rate steady at +4.5%. Governor Mar Gudmundsson stated that recent indicators of economic activity and the labour market suggest that demand pressures in the economy continue to subside. He says inflation is still likely to rise somewhat over most of the year, however, although actual developments will depend on the results of the ongoing wage negotiations. Also, the MPC reiterated that it has “both the will and the tools necessary to keep inflation and inflation expectations at target over the long term.”

Morocco Bank Al Maghrib

Morocco’s central bank kept interest rates unchanged at a record low of +2.25%, despite slashing 2019 projections for inflation and economic growth. Morocco is experiencing its first spell of deflation as Africa’s second-biggest energy importer in more than 12-months.

Central bank of Argentina (BCRA)

Argentina raised its monetary policy rate by +101 bps to +64.885% this week. Argentina has increased its short-term rate by over +20% since mid-February to stabilize the peso.

Central Bank of Brazil (BCB)

As widely expected, the Copom (MPC) held the Selic at +6.5%. Policy makers now view the balance of risks to inflation as ‘neutral.’ They also toned down their assessment of recent economic activity, which “came in below expectations,” while acknowledging “a gradual recovery path.” However, officials mentioned the need to evaluate the economy with no shocks and less uncertainty, an assessment that “should not be completed in the short run.”

Indonesia central bank (BI)

BI left its benchmark interest rate unchanged for a fourth consecutive month as the Fed shifts to a prolonged pause gives policy makers in Southeast Asia’s biggest economy room to support growth. The seven-day reverse repurchase rate was left at +6% as expected. Governor Warjiyoand has raised the rate by a total of +175 bps over the last year to “ward off a market rout in developing economies and a slump in the currency, triggered by a tighter Fed monetary policy.” Bank Indonesia remains cautious though, given concerns about the current-account deficit and the economy’s vulnerability to currency swings.

Philippine central bank (BSP)

BSP left its benchmark interest rate unchanged in Governor Diokno’s first policy meeting, as officials remained cautious even as inflation eases. They held the overnight reverse repurchase rate at +4.75%, in line with expectations. Inflation forecasts for this year and next were little changed at +3%. Governor Diokno took office this month and has indicated his willingness to cut rates or reduce the reserve ratio for banks.

Central Bank of the Republic of China (Taiwan)

The CBC kept the discount rate unchanged at +1.375% as expected.

Preview:

Central Bank of the Russian Federation (CBR)

The CBR is expected to hold rates steady on Friday (Mar 22), with the market instead watching closely for any hint from Governor Nabiullina that the inflation danger from a recent tax hike is over, paving the way for monetary easing. The CBR provided two surprise rate hikes late last year, however, with a spike in inflation likely to be softer than expected, the consensus has switched their bets from another hike to a cut before the end of 2019.

Colombia central bank (Banrep)

Market consensus expects Colombia’s central bank to keep its benchmark interest rate unchanged at +4.25% when it meets March 22.