Stick around, you might learn something new. The ECB, which everyone thought was going to take some downtime to help decide what to do in September, is now calling next week’s monetary policy meeting “important” with some “interesting variations and changes”. For the record, we’re not looking for any drastic changes; if anything, perhaps a more engrained dovish tone.
Wait, what? What did he say? Three weeks ago, the assumption was that every member of the BoE’s Monetary Policy Committee was a dove, after the departure of Chief Economist Andy Haldane. He was the lone member to vote for a cut to gilt purchases by £50 bln during his final two meetings. Now, with a few weeks to go before the next policy meeting, somewhat out of the blue, two other policymakers, Dave Ramsden and Michael Saunders, began talking about the possibility of removing some stimulus. Oh, there’s more! What makes this even more intriguing (if that is possible), is that one of the other doves, Gertjan Vlieghe, who recently expressed his view that a rate hike could become appropriate “only well into next year”, is also leaving soon. He will be replaced by U.S. economist Catherine Mann at the September 23 meeting.
Shock and awe! The RBNZ announced that its NZ$100 bln Large Scale Asset Purchase (LSAP) programme will be wrapped up early, on July 23. Policymakers agreed that the “major downside risks of deflation and high unemployment have receded” and market conditions have “improved substantially”. Therefore, QE was “no longer necessary”. Could we see a rate hike before the end of this year?
What are you trying to say, exactly? The BoK has been dropping hints that something was brewing. In May, Governor Lee Ju-yeol said it was “natural that we should adjust these measures as appropriate if the economic situation improves”. A month later, mentioned timing… “There is the need to orderly normalize monetary policy within this year.” At this week’s monetary policy meeting, not only was there one dissenter opting for a 25 bp hike (and when one dissents, change will come), the statement said that the Board “will judge whether it is appropriate to adjust the degree of accommodation…”.
Yawn. The Bank of Japan stayed the course in July, to the surprise of no one. It will continue with its Quantitative and Qualitative Monetary Easing with Yield Curve Control (short-term rates at -0.1%, targetting the 10-year JGB at around 0%, buying ETFs and J-REITs and corporates with limits). It will support bank lending in fields related to climate change by offering 0% one-year loans. Growth forecasts were cut (from 4% to 3.8% for the current fiscal year) but boosted to 2.7% from 2.4% the year after.
There’s still a mysterious one that is difficult to figure out. Does the PBoC have an easing bias, or a tightening bias? Or neutral? Before last week, I would’ve said ‘slight tightening’ given that it told banks to cool lending back in April and it raised the FX reserve requirement ratio as of June 15. Then, in a startling move, the central bank cut reserve requirements for all banks by 50 bps last Friday, prompting concerns about what the Q2 and June data were going to show. But they were fine. Real GDP rose 1.3% in Q2 alone, faster than Q1’s 0.4% gain. Yes, the y/y trend decelerated considerably, from 18.3% in Q1 to 7.9% in Q2, but that is still admirable considering the base effects (2020Q2 had rebounded from the Q1 shutdown). So… it’s still not clear.
Any other banks? They’ve been busy. Let’s see, there was Brazil (already raised rates 3x this year, 75 bps each, with a 100 bp’er likely coming in August); Mexico (unexpected 25 bp hike in late June); Chile (+25 bps this week); Norway (September hike likely); and the RBA (will begin to taper in September).
The list of banks removing some accommodation is growing.