Thoughts

March 19, 2021 | 21:55

Central Bankers: Do the Words Get in the Way?

Economist

Senior Economist and Managing Director
Economics

Jennifer has been with BMO Capital Markets Economics for over two decades and is perhaps best known for her high... (Read more)

Jennifer Lee

Senior Economist and Managing Director
Economics

Jennifer has been with BMO Capital Markets Economics for over two decades and is perhaps best known for her high... (Read more)

Not this time. With apologies to Gloria Estefan for the title, but with the many central banks making policy announcements this week, I’m sure that blood pressures were running high, making extra careful to ensure that key messages were received clearly. Fed Chair Powell said he wants to see “substantial further progress” in labour markets before even considering tapering and “until we give a signal, you can assume we're not there yet.” The BoE “does not intend” to hike until it sees “clear evidence that significant progress” has been made on getting rid of spare capacity and achieving 2% inflation sustainably.

The RBA met a couple of weeks ago but Governor Lowe seems to be out there daily (slight exaggeration) stating that rate hikes are a 2024 story. Then there are those central banks that are tightening. It is crystal clear what they’re thinking. Brazil surprised markets with its bigger-than-expected 75-bp hike this week, and stated that unless things change “significantly”, then at the next meeting, expect “another adjustment, of the same magnitude, in the degree of monetary stimulus.” In other words, they’re going to do it all again. The Norges Bank stayed on the sidelines but look out… according to their current assessment, “the policy rate will most likely be raised in the latter half of 2021.” The BoJ was the last to announce this week and, unlike the others, the messaging was a little fuzzy. The key targets were unchanged, but it made some adjustments that did not fall into the easing camp. It is allowing 10-year JGB yields to fluctuate +/-0.25% around 0% (was never specific about the band) and will only buy equities when necessary (previously was described as “actively”), and up to a limit. And for ETFs, the Bank will only buy those that track the TOPIX. So the Bank is still easing (no argument there), but it seems as though it stuck its toe in other waters this week. And with one Policy Board member dissenting on these decisions, the overall intent of the Bank is not 100% clear. To this analyst, anyway.