Swiss franc's depreciation against Euro over the past few months has offered some reliefs to policymakers. At the quarterly SNB meeting in September, the members acknowledged the franc is not as overvalued as before. Yet, weak economic and inflation have led the members to remain cautious and maintain the monetary policy unchanged. SNB this month decided to keep the sight deposit rate unchanged at -0.75%, while the target range for the three-month Libor stayed at - –1.25% and –0.25%. The central bank also reiterated the pledge that it would intervene in the foreign exchange market if needed. But, SNB's sight deposit and FX reserve data indicate that less intervention has been adopted recently.
Investors viewed Fed Chair Janet Yellen's testimony before the Senate Banking Committee as modestly hawkish. As such, expectations for a March rate hike rose modestly while Treasury yields climbed higher. While reiterating that all meetings are 'live' for a rate hike, Yellen warned that waiting too long to remove accommodation would be unwise'. Meanwhile, she cautioned over the uncertainty over the economic policy under Donald Trump's administration. Yellen emphasized the Fed's monetary policy stance is not based on 'speculations' about fiscal policy. The economy's 'solid progress' is what is 'driving the policy decisions'.
While leaving the policy rates unchanged for another month and pledged to continue FX market intervention when needed, the SNB has turned less dovish in December. It has turned more upbeat over the economic recovery outlook and acknowledged the depreciation of Swiss franc and the euro and US dollar. the central bank revised modestly higher the inflation forecasts for this year and 2018, while leaving that for 2019 unchanged.
BOJ offered to buy 190B yen of JGBs with maturity of 10- 25 years, down 10B yen from the purchase made on December 28. It also reduced the purchase of JGBs with maturity of 25- 40 by the same amount to 90B yen. The move has heightened speculations that the central bank is preparing to trim its stimulus measures. The market reactions match with the speculations with USDJPY slipping -0.42% while EURJPY down -0.65% on Tuesday. Japanese longer- dated 20- and 40-year bond yields rose to their highest in a month. Longer- term US Treasuries were also affected by BOJ’s move with 10-year yields gaining +6 points to 2.546%. Of course, the movement of US Treasuries was also affected by the auctions this year.
FOMC raised the Fed funds rate, by +25 bps, to 2-2.25% in September. While the accompanying statement was largely dubbed from the previous meeting, the market has viewed the removal of the “accommodative” policy language has slightly dovish. This...
BOJ again voted 8-1 to leave the monetary policies unchanged in October. The targets for short- and long-term interest rates stay at -0.1% and around 0%, respectively while the guideline for JGB purchases remains at an annual pace of about 80 trillion yen. Again, BOJ revised lower its inflation forecasts for FY 2017 and FY 2018 but maintained that for FY 2019. The central bank upgraded the GDP growth outlook for FY 2017 while leaving others unadjusted. The new member was the lone dissent as he voted against the yield curve control measure for two meetings in a row. He judged that 'monetary easing effects gained from the current yield curve were not enough for 2% inflation to be achieved around fiscal 2019'. At the press conference, Governor Kuroda defended the yield curve control policy and the +2% target. As he suggested, the 'main objective is to achieve 2% inflation and stably maintain price growth at that level. There's no change to our view that monetary policy must be guided to achieve this objective' and there is no need to change the yield targets'.
Despite initial rally following the announcement of a Brexit transition deal, British pound has retraced much of its gains. Both UK and EU officials have hailed the agreement. While UK's Brexit negotiator Davis David noted that the deal contains...
As widely anticipated, RBA left the cash rate unchanged at 1.5% in November. As we await Friday' Statement of Monetary Policy, policymakers revealed at today' statement that the macroeconomic guidance has stayed largely unchanged. In short, policymakers remained upbeat about the growth outlook, although they expressed concerns over household spending and soft inflation. Despite recent weakness in the Australian dollar, RBA reiterated the warning that higher exchange rate would lead to slower growth and inflation. Given the overall unchanged tone of the central bank, we retain the view that RBA would keep the policy rate unchanged at least until 1H18.
ECB announced the plan to reduce asset purchase next year. In line with the majority of market participants had anticipated, the central bank would trim the size of buying by half, to 3B euro per month, in the first nine months of 2018, "or beyond, if necessary". It added that stimulus measures would be implemented "in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim". The single currency dropped after the announcement, on profit-taking. The policy rates stayed unchanged, with the main refinancing rate, the marginal lending rate and the deposit rate at 0%, 0.25% and -0.40% respectively.
The RBA minutes for the May meeting contained little news but reiterated policymakers' the importance of the property market and the labor market conditions in its policy decision. The stance to leave the monetary policy unchanged was obviously due to the perceived uncertain outlook in these two areas. As noted in the concluding statement in the minutes, 'the board continued to judge that developments in the labour and housing markets warranted careful monitoring'.
Stock markets rallied after Fed Chair Jerome Powell’s speech at the Economic Club, New York. Market players were thrilled amid their interpretation that Powell has turned dovish, probably succumbed to Trump’s endless criticism. We do not see an abrupt...
Recent weakness in Swiss franc against the euro has not yet boosted Switzerland's economic outlook in a meaningful way, evidenced by the disappointing KOF indicator and Credit Suisse (formerly conducted by ZEW) investor sentiment index for August. While, at the meeting on September 14, the SNB would certainly affirm the stance that the franc remains "overvalued" and the pledge the combat deflation, we are concerned that there would still be a long way to go for the country's economy to get back in shape, as the pass-through of exchange rate into inflation is subdued. Meanwhile, a recent study by the SNB suggests that its monetary policy would have to stay relatively more accommodative (than ECB's) for longer to push inflation higher. We believe this reinstates the central bank's commitment to leave the policy unchanged.