Central banks in 2022 | Hellenic expedition news around the world



Federal Reserve

This may seem odd given the emergence of the Omicron Covid variant, but Fed Chairman Jerome Powell has acknowledged it is time to remove the ‘transient’ description of inflation and is now considering the possibility. an earlier conclusion of the easing of quantitative easing which would also open the door to early interest rate hikes. There are significant uncertainties presented by Omicron that could weigh on growth, job creation and inflation, so we narrowly favor the Fed pending the January 27 FOMC meeting before accelerating it to 30. billion dollars per month.

Nonetheless, it is clearly possible that the announcement will come in December if scientific evidence suggests we are not entering a darker time for the pandemic. Right now we’re sticking to our call for two 25bp hikes for the second half of 2022, but if the green light is sounded we would imagine three hikes are much more likely.

European Central Bank

The fourth wave and the Omicron variant have complicated the life of the ECB and more particularly its path towards the exit of the emergency measures. However, we expect the ECB to resist this time its old reflex to continue or even intensify emergency measures, and to replace its emergency pandemic purchasing program with a new one. transitional from April 2022. As a result, monthly asset purchases will be gradually reduced. and ended before the end of 2022 as high inflation rates are indeed transient but medium-term forecasts point to inflation rates of around or above 2%. These will be the ideal conditions to start talking about a first rate hike to be delivered in early 2023.

bank of england

We now expect the BoE to suspend a rate hike in December, assuming the uncertainty surrounding Omicron has not significantly lifted before the next meeting. But unless the new variant dramatically changes the economic outlook, a rate hike in February looks likely. In November, policymakers hinted they wanted to be sure that the end of the holiday in September had not triggered a serious increase in layoffs – and all the data so far suggests that is not the case. . However, the markets, which still set the discount rate at 1% next year, are still likely to overstate the pace of tightening in 2022.

We anticipate a rate hike in February and August, which would imply that the bank also begins to reduce the size of its balance sheet by ending reinvestments. A third move – raising the discount rate to 0.75% – is possible in 2022. Keep in mind, however, that if policymakers are divided over whether to raise rates now, it is unlikely. there is a consensus on the sharp adjustment in interest rates that the markets have been waiting for a long time.

People’s Bank of China

The PBoC failed to reduce the reserve requirement ratio when the real estate sector’s defaults sparked a liquidation in the financial markets. The government recently calmed down its rhetoric on policy, but note that debt reform continues. As the political tone returns to normal, we expect the central bank to refrain from changes in interest rates, for example the loan prime rate and the 7D reverse repo. If the government changes direction in favor of growth, the PBoC could reduce the RRR by 0.5 percentage point. We expect a 25bp rate hike in 4Q23 when deleveraging reform is expected to end and economic growth is stronger.

Bank of Japan

The Bank of Japan remains locked in an endless loop of low rates and asset purchases that do nothing particularly useful, but could pose a risk to the market if they were to be pulled. This situation has been going on for years and is expected to persist for years to come, or at least until the end of Governor Kuroda’s term in April 2023. Some BoJ members have recently expressed greater confidence in the trajectory of the government. inflation. But with core inflation excluding food and energy falling 0.7% year-on-year in October, we don’t share that confidence.

Bank of Canada

The Bank of Canada decided to end quantitative easing in October and advanced its forecast for the timing of the first rate hike in mid-2022. The economy is growing strongly and inflation will soon exceed 5%. At the same time, Canada has been far more successful in creating jobs than the United States with jobs already above pre-Covid levels. Given less spare capacity than most other economies, we immediately moved on to forecasting four 25bp rate hikes in 2022. We are reluctant to make changes to this view at this time given the uncertainty about Omicron, but the obvious risk is that the BoC will end up delaying the first hike until Q2 if consumer caution is triggered in the face of Covid anxiety.

Reserve Bank of Australia

The RBA has relaxed its insistence that rates will not be raised until 2024, and this is now complemented by various caveats and scenarios that suggest they are working on a way to move their base scenario to 2023. The recent shock Omicron may postpone an announcement of any changes, but markets have already built in a very aggressive tightening schedule, which probably goes the other way too far. While wage growth remains fairly subdued and inflation is still not an issue in Australia, the RBA can continue to maintain its dovish stance. But we think the first rate hike won’t come too long after the Fed takes off, so 1Q23, with the possibility of a hike at the end of 2022.

Swedish Riksbank

The Riksbank will not join the others in raising rates in 2022, although it has come a little closer to tightening in recent weeks. Policymakers have raised their published interest rate projections for the first time, albeit for 4Q 2024. In practice, the first rate hike is expected to come much earlier, perhaps towards the end of 2023.

Where the Riksbank differs from the rest is that, like the Bank of England, it has started talking about reducing its balance sheet. While details are scarce, it seems likely that policymakers will begin to reduce the pool of covered bonds accumulated during the Covid-19 crisis as part of quantitative easing, most likely in 2023. The result is that a Quantitative tightening, as this process is sometimes known, could come long before the first rate hike.

Norges Bank (Norway)

Norway has already hiked rates once and hinted at another move in December. That’s a bit more uncertain given the drop in oil prices fueled by Omicron and the sharp rise in Covid-19 cases nationwide. For now, we believe policymakers will continue to apply the planned rate hike, not least because the November statement more or less indicated that this was well established. Norges Bank is forecasting three more rate hikes next year and we’re not inclined to doubt that, unless of course Omicron turns out to be a big problem for the global economy.

Swiss National Bank

We do not expect any change in the SNB’s monetary policy; it will continue to intervene in the foreign exchange market when it deems it necessary to combat an excessive appreciation of the Swiss franc. The more inflationary context makes it less worried about deflation and should allow it to tolerate slightly higher franc levels than in the past, but in a moderate way in order to maintain its credibility. The expected tightening of monetary policy around the world should provide some relief for the SNB, but not enough to consider starting to tighten.
Source: ING



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