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Week Ahead – Central Banks

Rate hikes expected as inflation keeps rising

It’s been another volatile week in financial markets with events in and around Ukraine continuing to dominate. Sentiment is still very headline-driven and an enormous amount of uncertainty remains around the outcome of talks between Ukraine and Russia and the sanctions being imposed on the latter by the West.

This in turn creates huge uncertainty around the global economic outlook, with soaring commodity prices a massive downside risk for growth and upside risk for inflation. Central banks were already between a rock and a hard place prior to the invasion as they sought to control inflation without negatively impacting the recovery from the pandemic. Soon they may be forced to choose between inflation and recession.

The ECB opted to proceed as planned and announced a tapering of asset purchases which could lay the groundwork for rate hikes later this year or next. The Fed and BoE are expected to do the same with rate hikes from both expected next week. The CBRT is expected to leave rates unchanged again, while the CBR is far more unclear after opting to more than double its key rate to 20% in response to Western sanctions a couple of weeks ago.


The Fed is expected to finally start fighting inflation by ending QE and delivering a quarter-point rate hike next week. Given the impact of the war in Ukraine, expectations are high that inflation will continue to heat up over the next couple of months and that should keep the pressure on the Fed to raise rates.

Investors will pay close attention to the February retail sales report that should show the consumer is still handling the current price surges.


Russian forces are intensifying their attacks on Ukraine even as negotiations continue between the two countries and Putin reports that progress is being made. The invasion remains the greatest risk to the economic outlook for the region, as the ECB alluded to this week.

It will start tapering its asset purchases though in order to get to grips with record levels of inflation. Markets are still pricing in 30-40 basis points of hikes this year. We’ll get an update on inflation next week as the final HICP data is released on Thursday. 


The Bank of England is widely expected to raise interest rates again on Thursday – the third consecutive 25 basis point increase – and will probably pave the way for at least one more at the following meeting. The risks to the outlook are clearly tilted to the downside but inflationary pressures are strong and the central bank is determined to get to grips with domestic forces before it’s too late.

Labour market data will also be released on Tuesday, with the earnings component probably the most important aspect given the central banks’ concerns about domestically generated inflation.


The CBR raised interest rates to 20% a couple of weeks ago, up from 9.5%, in response to the severe sanctions imposed by the West. Since then, the currency has continued to struggle and isn’t too far from its lows. The sanctions keep coming for Russia and the central bank may be left with little choice but to raise rates again, either next week or at any point in between meetings depending on how the situation evolves.

Putin has indicated that talks are moving in the right direction but attacks are being intensified so we can take his words with a pinch of salt.

South Africa

The rand has recovered some of its declines over recent days in line with reversals in risk appetite. It remains vulnerable to sharp dips again though, with events in and around Ukraine remaining a dominant force for the currency. Unemployment and retail sales data in focus next week.


The lira has been sensitive to risk appetite in the markets in recent weeks, with soaring commodity prices against the backdrop of already sky-high inflation naturally a major concern. It’s trading at its lowest level since mid-December against the dollar.

Next week the central bank decision will be the highlight. The CBRT obviously won’t reverse course and the direction of travel next will ultimately depend on its monetary policy review. Rates are expected to remain at 14% this month.


Chinese equities are under pressure as US-listed ADRs fall dramatically on US delisting fears and more regulatory headwinds at home. Complicating the picture is the huge jump in commodity and energy prices with the government urging state-owned refiners to halt April exports to preserve domestic supplies. With risk sentiment also challenged because of Ukraine, slowing economic activity, and a slow property market, Chinese equities remain vulnerable to further sell-off.

USD/CNY has remained anchored around 6.33 with authorities seemingly happy with yuan strength, perhaps with one eye on China’s soaring import bills.

China releases fixed asset investment, retail sales, and industrial production on Tuesday with soft data lifting negativity around a Chinese slowdown once again.

Watch also China’s Covid-19 caseload which has crept up to 1,000 cases a day. More big lockdowns could be on the way as it maintains Covid-zero.


India’s inflation rate due Monday has upside risks, and Tuesday’s balance of trade has downside risks as the Ukraine-induced turmoil in commodity markets threatens India’s recovery.

With Chinese equities sagging, it appears that the hot money has rotated into Indian equities once again, supporting both the stock and currency markets this past week.

The short-term market direction will be dominated by headlines from the Russia-Ukraine conflict.


The Australian dollar has held most of its gains recently, despite choppy trading, thanks to the huge jump in commodity prices. Sentiment flows have taken a back seat to the lucky country’s natural resources. Australia releases employment data on Thursday which is always good for some intraday volatility for AUD.

Apart from resources, equities remain at the mercy of the ebb and flow of Eastern Europe headlines.

New Zealand

New Zealand releases Q4 GDP and current account this week, but both are old news in the context of market developments.

NZD has, like AUD, endured choppy trading but is maintaining its gains as a commodity currency, albeit only agricultural ones. It remains more vulnerable than AUD to sentiment swings as a result.


Japan releases the Reuters Tankan, machinery orders, and inflation this week, but none will materially impact markets, with BOJ officials signalling that the conditions in the economy are not yet at the point where monetary stimulus can be reduced. That leaves USD/JPY at the mercy of the US/Japan rate differential which has widened sharply in the past week, pushing USD/JPY above 116.00.

Japanese equities, dominated by fast money retail flows, have had an ugly week, coat-tailing the direction of US markets almost exactly. They remain entirely at the mercy of sentiment swings, although fears of an import price recession would temper any gains anyway.

Economic Calendar

Monday, March 14

Economic Data/Events

  • India CPI
  • France trade
  • Russia trade
  • New Zealand home sales, net migration
  • India wholesale prices
  • BP’s annual energy outlook

Tuesday, March 15

Economic Data/Events

  • China industrial production, liquidity operations
  • Poland CPI
  • France CPI
  • Eurozone industrial production
  • India trade data
  • UK unemployment rate
  • South Africa unemployment rate
  • Canada existing home sales, housing starts
  • New Zealand performance services index
  • Australia consumer confidence, house price index
  • China property investment, retail sales YTD, surveyed jobless
  • Germany ZEW survey expectations
  • Mexico international reserves
  • U.S. cross-border investment, empire manufacturing, PPI

Wednesday, March 16

Economic Data/Events

  • FOMC Decision: Expected to raise interest rates by 25bps
  • US Retail Sales, business inventories
  • Release of RBA minutes
  • Canada CPI
  • UK Chancellor Sunak takes questions from MPs
  • Italy CPI
  • South Africa retail sales
  • New Zealand BoP
  • Australia leading index
  • China new home prices
  • Extraordinary meeting of NATO defence ministers
  • UK Treasury updates forecasts for the economy
  • Japan capacity utilisation, industrial production, trade, department store sales
  • EIA crude oil inventory Report

Thursday, March 17

Economic Data/Events

  • US housing starts, initial jobless claims, industrial production
  • Eurozone CPI
  • BOE Rate Decision: Expected to raise rates by 25bps to 0.75%
  • Turkey Central Bank (CBRT) Rate Decision: Expected to keep rates steady at 14.00%
  • Eurozone new car registrations
  • Australia unemployment
  • New Zealand GDP
  • Singapore electronic exports, non-oil domestic exports
  • Japan machinery orders, Bloomberg economic survey
  • Spain trade
  • ECB President Lagarde, Executive Board member Schnabel, Governing Council member Visco and Chief Economist Lane speak at Goethe University’s “ECB and Its Watchers” conference in Frankfurt.

Friday, March 18

Economic Data/Events

  • BOJ rate decision: Expected to keep policy unchanged
  • Russian Central Bank (CBR) is scheduled to meet: Expected to keep rates steady
  • US Conference Board leading index, existing home sales
  • Fed’s Barkin speaks at the Maryland Bankers Association First Friday Economic Outlook Forum
  • UK PM Johnson speaks at Conservative Party’s two-day spring conference
  • The US National Weather Service issues its spring flood assessment
  • Italy Trade
  • Canada retail sales
  • Japan tertiary index, CPI
  • Thailand forward contracts, foreign reserves, car sales

Sovereign Rating Updates

  • – Belgium (Fitch)
  • – Belgium (S&P)
  • – Spain (S&P)
  • – European Union (Moody’s)
  • – Greece (Moody’s)
  • – Greece, (DBRS)
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