Central Bank Views

BOE, SNB, Norges Bank On Hold After Fed's Rate Hike


Of the three major European central banks held monetary meeting on Thursday, all left their policy rates unchanged. Moreover, all pointed to higher uncertainty in the global economic outlook. BOE kept its Bank rate unchanged at a record low of 0.25%. The sizes of government and corporate bond purchases also stayed unchanged at435B pound and up to 10b pound, respectively, in December. Policymakers warned that the recent strength in sterling might cool inflation in the medium-term. SNB held deposit rate steady at -0.75%, while Norges bank left kept its deposit rate steady at 0.5%.

BOE: While leaving the monetary and QE measures unchanged, the members affirmed that 'monetary policy can respond, in either direction, to changes to the economic outlook as they unfold to ensure a sustainable return of inflation to the +2% target'. In the concluding paragraph, the central bank reiterated that it 'remains committed, as always, to taking whatever action is needed to ensure that inflation expectations remain well anchored, and that inflation returns to the target in a sustainable fashion'.

The members acknowledged the recent rally in longer-term interest rates, attributing it partly to US' new fiscal policy. The members noted that if the US loosens its fiscal policy, it 'will help to underpin the slightly greater momentum in the global economy evident in a range of data since the summer'. On exchange rate and inflation, BOE suggested that the +6% rally in trade-weighted sterling since the previous meeting, notwithstanding higher oil prices, would 'point to less of an overshoot in inflation relative to the target in the medium term, though month-to-month volatility was to be expected as market participants' views on the United Kingdom's future relationship with the European Union continued to evolve'.

On the global economic outlook, BOE warned that 'the global outlook has become more fragile, with risks in China, the Euro area and some emerging markets, and an increase in policy uncertainty'.

SNB: Also as widely anticipated, the deposit rate stayed unchanged at -0.75%. The target range for the three-month Libor steadied at between –1.25% and –0.25%. However, Governor Thomas Jordan left the door open for further easing, noting that 'we cannot rule out that a further step lower will become necessary'.

SNB welcomed FOMC’s rate hike decision, noting that it is a 'positive sign that the world is moving in that direction' and that the US economic conditions are improving. It also hoped that the Fed’s move would help normalize global monetary conditions. While USD strength should ease the appreciation pressure of Swiss franc, SNB reinstated that the franc remained 'significantly overvalued' and pledged 'willingness to intervene in the foreign exchange market are intended to make Swiss franc investments less attractive'.

The central bank warned that the world economy is subject 'considerable risks', in particular the 'multitude of political uncertainties' facing Europe.

Norges Bank: Surprisingly, the central bank kept the bottom of the rate path at 40 bps. This reflected the concerns over the increases I housing prices and financial stability. As Governor Oystein Olsen noted in the press conference, 'financial imbalances have been building up for quite some time related to the high growth of debt in the household sector and accelerating housing prices… That trend has continued recently, and forms part of the background for our decision on the interest rate'.