World Central Banks' Decisions

Last week was a busy one in terms of the decisions made by central banks around the world. As expected, the American Federal Reserve increased its rates for the first time this year. However, the Bank of Japan (BoJ), the Swiss National Bank (SNB), and the Bank of England (BoE) did not alter their monetary policies, while earlier today, the Reserve Bank of New Zealand (RBNZ) also announced that no changes would be made to its key rates.

For the RBNZ, Uncertainties Remain Concerning the International Outlook

The RBNZ maintained its Official Cash Rate (OCR) at 1.75%, stating that global monetary policy should remain stimulatory, but less so going forward. The Governor of the RBNZ declared that further depreciation of the NDZ is needed to reach higher and more stable growth. Global geopolitical uncertainty remains high, with the potential to impact significantly on growth and trade between the most important economies.


The Fed is Planning Two Further Rate Increases This Year but Comments are Rather Dovish

The decision of the U.S. Fed to raise interest rates was the second such hike since the election of President Trump last November. The decision, widely seen as a reflection of growing confidence in the U.S. economy, means the federal funds rate will now fluctuate between 0.75% and 1%.

Fed officials confirmed this week that future rate hikes will be contingent on how President Trump’s policies affect inflation, growth and employment. the ‘aggressiveness’ of any further tightening of monetary policy will depending on President Trump’s ability to pass and efficiently implement major reforms. Comments from Chicago Fed President Charles Evans this week indicated that Fed members are still targeting 2 additional hikes this year.


The SNB Confirmed That it Could Intervene in the FOREX Market

The SNB kept its expansionary monetary policy unchanged with interest on sight deposits at –0.75%, and the target range for the 3-month Libor at between –1.25% and –0.25%.

The minutes of the last SNB meeting demonstrate that the SNB is still monitoring the overall currency situation, but confirm that the Swiss Franc is “still significantly overvalued.” For this reason, the SNB has announced that it is ready to intervene in the Forex market to support its currency in times of high volatility, as the Swiss Franc is one of the main safe-haven currencies.

The BoJ Doesn't Plan to Tighten its Monetary Policy Anytime Soon

Just after the Fed announcement, the BoJ decided to maintain its negative interest rate of -0.1% on the “Policy-Rate Balances” in current accounts held by financial institutions. This measure was introduced in January 2016 to strengthen bank lending and to weaken a strong Japanese Yen that was hampering exports.

One Vote for a Rate Hike at the BoE

The Bank of England (BoE) left its monetary policy unchanged at a rate of 0.25%, but surprisingly, the vote was not unanimous for the first time since July. This could be an important sign of divisions among BoE members, which could increase in the future. The BoE might increase interest rates soon, due to consumer prices increasing by 2.3%, marking the biggest annual increase in more than 3 years, according to the Office for National Statistics (ONS).