Rates unchanged at ECB

  • Rates left unchanged
  • Dovish forward guidance
  • Rates to be kept at current levels through 1H 2020

The ECB kept an expectedly dovish tone today after they kept the bank rate unchanged.

The main focus was on the TLTRO programme, and hence there was a rather hawkish tone, since they hinted that the TLTRO rate could be as low as the deposit rate + 10bps.

Draghi added they would like to keep rates on hold for “as long as necessary, to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.”

Draghi went further, saying that “the positive contribution of negative interest rates to the accommodative monetary policy stance, and to the sustained convergence of inflation, is not undermined by possible side effects on bank-based intermediation. However, we will continue to monitor carefully the bank-based transmission channel of monetary policy and the case for mitigating measures.”

Draghi said that, more recently, headwinds to Eurozone data have picked up which may affect inflation expectations.

Going further, Draghi said, “Looking ahead, the Governing Council is determined to act in case of adverse contingencies and also stands ready to adjust all of its instruments, as appropriate, to ensure that inflation continues to move towards the Governing Council’s inflation aim in a sustained manner.”

In concluding, Draghi stated that structural reforms are required from Euro area countries in order to coincide with conducive monetary policy.

Read the official statement here.

ECB: Possible change in guidance?

  • ECB likely to keep rates on hold
  • But there could be a slight change in guidance, putting pressure on yields and the Euro
  • Could be mention of TLTROs?

The Governing Committee meet today to discuss the monetary policy of the Eurozone going forward.

Mario Draghi is expected to keep rates on hold, as much of the ECB’s policy has been stated and solidified earlier in the year.

As far as the Targeted Long Term Refinancing Operarions (TLTROs) go, there could be some mention of that later today.

Eurozone inflation expectations are still in the doldrums so it is highly unlikely that there is going to be any hawkish case coming out of this meeting (as usual).

There is potential for the Euro to move to the upside over the next few months, however, as US rate cut expectations pick up, but the market is unlikely to take anything from this meeting as being anything significant.

BoE Inflation Report

  • BoE kept rates on hold, as the market expected
  • Bank keeps in line with long term inflation objective of 2%
  • ‘UK data could be volatile in the near term’

The Bank of England today kept its bank rate at 0.75% and adjusted to 1% at the end of the forecast period, which was lower than February’s forecast.

This path rate has been heavily influenced by forward rates of interest moving to the downside globally as global projections for growth have remained biased to downside revisions.

The MPC said that higher inventories due to firms wanting to hold more stock due to Brexit, have pushed GDP growth upwards so there is every chance of a mean reversion later in 2019.

However, Carney said that higher growth through 2020 and 2021 is likely to lead to higher interest rates as Brexit fears have stabilised.

“If something like the forecast comes to pass, it will require interest rate increases over that period [two years] and more frequent than financial markets currently expect,” said Carney.

Contrary to this statement, the MPC said that they would restrict rate hikes to a mere 25bp over the next two years.

The MPC said that unemployment is expected to fall to 3.5% whilst wages are likely to remain above inflation, but lower energy prices and a cheaper pound will keep inflation in check, restricting the need for further hikes in the mid term.

Although the UK has been the biggest recipient of investment out of all EU countries, the MPC said that the global economy will keep investment into the UK dampened until we are relieved of any global demand headwinds.

To see the official statement, click here.

Bank of England decisions later

  • BoE expected to keep rates unchanged at 0.75%
  • Bank is continually signalling a rate hike, however
  • Likely that hawkishness will remain subdued until global uncertainty is rectified

The Bank of England meet today to announce their latest interest rate decision and guidance going forward.

Due to the Bank’s on-going ‘wait and see’ approach to monetary policy, we are unlikely to see any kind of change upwards or downwards in the bank rate.

Although pre Brexit forecasts of downside movements in data were made, these forecasts have not come to fruition and the UK is in fact ‘heating up’ a lot more than other economies due to robust wage growth and low unemployment.

Brexit does still remain at the forefront of economic uncertainty, but we are unlikely to see anything changed from the previous meeting.

Powell talks patience

  • Fed keeps rates unchanged
  • ‘Labour market remains strong and that economic activity rose at a solid rate’
  • Powell says that the Committee will be ‘patient’

The FOMC kept rates unchanged today as Governor Jerome Powell said that the labour market remains strong and that economic activity rose at a solid rate during the first quarter of 2019.

Key however was an addition on the last statement of “inflation and inflation for items other than food and energy have declined and are running below 2 percent.”

The market took this as being quite a dovish statement, but relatively in line with expectations since the dollar didn’t have much follow through after the event.

See chart below.

Powell went further to state that the FOMC are still looking to maintain price stability and full employment:

“In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realised and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.”

Another key statement was with regards to their rolling over of Treasurys:

‘Effective May 2, 2019, the Committee directs the Desk to roll over at auction the amount of principal payments from the Federal Reserve’s holdings of Treasury securities maturing during each calendar month that exceeds $15 billion.’

To see the official statement, click here.

Fed funds rate to stay unchanged?

  • Rates likely to remain unchanged
  • Global central banks are now data dependent, including the Fed
  • GDP growth and strong non-farm payrolls data likely to feature in the Fed’s statement

Later today the Fed meets for their next FOMC meeting of the year, and after robust growth and strong employment data they are likely to remain unchanged on rates but will also have been thinking about some hawkish sentiment.

A mention of the word ‘patient’ is likely to be included due to the now data dependent nature of the Fed specifically, but also of other global central banks.

The March meeting showed some restraint of a rate change and this is likely to continue going forward since the China trade deal hasn’t been resolved as of yet and the recent jobs report was strong, but issues of job quality may be of some concern.

What’s more, the Fed is still likely to be looking at external factors such as Europe, Brexit and the deterioration in trade in south east Asia and China as factors to consider in their statement today.

As we know, the Fed have cornered September as being the month in which they stop the balance sheet run off, so they are likely to mention this as well.

BoJ: Kuroda Press Conference

Bank of Japan governor Kuroda spoke this morning and added to stance of persistent easing.

In the press conference, Kuroda added that Japanese prices remain somewhat weak but that a “virtuous economic cycle” is in place.

This comes after the BoJ kept rates on hold earlier this month at -0.1% and more buying of Japanese assets by the central bank. Kuroda added that prices are “tilted to the downside”.

Kuroda now expects CPI to pick up to the 2% inflation target gradually and that the BoJ will use all measures to attempt to achieve this.

The BoJ board member Katoaka opposed the assessment of prices in the economic outlook report, but Kuroda wanted to build trust in the BoJ by being transparent.

Finishing, Kuroda said that there is a low chance of achieving the 2% rate before fiscal 2021 and that forward guidance will persist for “a long time” but that the BoJ will remain data dependent.

ECB keeps rates unchanged

  • Rates kept unchanged
  • Key takeaway: Draghi questioning whether negative rates have had effect on European banks’ profits
  • EURJPY breaks key downside levels on extra dovish presser but ends flat on the day.

The ECB kept rates on hold today after Mario Draghi said that there was still downside risk in the Eurozone. EURJPY traded down 60 ticks during the presser from 125.40 to 124.80, but regained through the day to close just under flat.

Draghi said that the Governing Council (GC) did not discuss guidance in the last meeting, and that inflation is likely to bottom in September. This strikes an extremely dovish tone: the GC were also looking at whether bank profits were being affected by negative interest rates, which is most likely a response to the Deutsche Bank & Commerzbank merger talks and the apparent discussions being had over Unicredit wanting to take over Commerz.

He went further and said the main goal of the meeting was to ‘reassert readiness to act when needed’, a stance shown by their reintroduction of Targeted Long Term Refinancing Operations, which come into play again in September.

The Central Bank chief said that risks of recession in the Eurozone remain low and later in the day, some ECB members said that they believe the growth slowdown in the Eurozone has slowed.

EURUSD like EURJPY tested the lower range of the day, whilst bunds rallied 64 ticks to a session high of 166.00.

See the official statement here.



Today’s ECB: monetary policy and TLTROs

  • Draghi expected to keep rates on hold
  • TLTROs likely to be mentioned again
  • Expected that Brexit, China and potential slowdown in US employment are to be mentioned as risks

Today, ECB President Mario Draghi will speak on the monetary policy stance of the ECB going forward. With the Fed having turned dovish last month, it is likely that the ECB are also going to take a further dovish tone, but still keep rates on hold.

In the last meeting, Draghi mentioned introducing targeted longer-term refinancing operations (TLTROs) in December to try to invigorate bank lending again. However, with current ECB policy leaning towards turning firms into zombies, the market does not see this as being viable in terms of keeping banks healthy.

The interest rate decision is at noon and is followed by a press conference.

SARB Interest Rate decision

  • SARB keeps rates unchanged at 6.75%
  • “The overall risks to the inflation outlook are assessed to be more or less evenly balanced”
  • The MPC still assesses the growth forecast to be to the downside

Today, the South African Reserve Bank kept rates unchanged at 6.75%.

The central bank cited that electricity supply constraints and weak business confidence will likely limit near term production and investment prospects. The Committee remains of the view that current challenges facing the economy are primarily structural in nature. Given current economic vulnerabilities, prudent macroeconomic policies combined with structural
reforms that raise potential growth and lower the cost structure of the economy, have become even more urgent.

The SARB’s governor also mentioned that key upside risks are rising administered prices, including electricity and water tariffs, rising domestic food prices in the outer years and higher international oil prices. Downside risks include lower global inflation and an extended period of monetary accommodation in advanced economies.

The bank’s target remains to keep an anchor on inflation expectations at the midpoint although there is little evidence of demand side pressures in the economy.

This view is largely unchanged from the bank’s January statement.

Interestingly, the bank believes that there is a hike coming in 2019, stating, “the implied path of policy rates generated by the Quarterly Projection Model is for one hike of 25 basis points, reaching 7.0% by the end of 2019.”

This is likely to be dependent on global events and could be nullified if growth externally begins to mute further, and the SARB backs this view by stating, “As emphasised previously, the implied path remains a broad policy guide which could change in either direction from meeting to meeting in response to new developments and changing risks.”

You can read the official statement here.