Regional Finance News: Bank of England - Negative Rates in Sweden

Regional Finance News Central Banks Turn Dovish?

Central banks from Frankfurt to Ottawa appear to be taking a lower gear on the road away from easy monetary policy amid signs some key economies are slowing.

On the eve of a Bank of Japan decision expected to endorse continued easing, the European Central Bank avoided any discussion of its next steps toward ending bond buying, and Sweden’s Riksbank pushed back a plan to raise interest rates for the first time in seven years. Just days earlier, the Bank of Canada governor said more work is needed to heal the scars of the crisis.

While the U.S. Federal Reserve has set the example in moving on from a decade of rock-bottom interest rates and quantitative easing, the preference elsewhere to be unhurried has been strengthened by weakening global growth prospects and threats of protectionism. Central banks have fought hard to restore inflation since the financial crisis, but there’s little hard evidence as yet that the battle is won. Full Story

Regional Finance News: The chance of May BoE rate hike down but not out

(Reuters) – Bank of England Governor Mark Carney surprised investors last week when he hinted that interest rates might not go up next month – but economists say it would be wrong to rule out an increase.

‘Forward guidance’ about central bank policy intentions was Carney’s signature policy when he arrived at the BoE from Canada in 2013. Yet even now, as he nears the end of his British sojourn, financial markets are still trying to figure him out.

“The Bank of England has been behaving like the Grand Old Duke of York,” said Lena Komileva, managing director of G+ Economics, likening Carney to the commander mocked in a British nursery rhyme for leading troops pointlessly up and down a hill.

Since the second half of last year, the BoE has warned that Britain’s economy is at risk of persistent inflation even as the approach of its exit from the European Union causes growth to lag that of other rich nations.

The BoE raised rates in November for the first time since 2007, and in February Carney and his fellow rate-setters said interest rates might need to rise slightly faster than the bank judged that markets were expecting. Full Story

Elusive Inflation Again Extends Era of Negative Rates in Sweden

Having held their key rate at minus 0.5 per cent, policymakers in Stockholm again pushed back a plan to raise interest rates for the first time in seven years, announcing on Thursday they don’t see a tightening until “towards the end of the year.” (That compares with an earlier assessment of “the second half of this year.”)

“Inflation has been somewhat lower than expected recently, which raises questions regarding the strength of the development in inflation,” the bank said. “If inflation is to remain close to the target going forward, continued support is needed from monetary policy.”

Inflation remains elusive in the largest Nordic economy, with the core price measure holding far below the 2 per cent target at the tail end of a growth boom. The step back is likely to raise even more questions about the bank’s extreme policies. Critics argue that the stewards of a small economy can do little to stand up against the global forces that have pressed down inflation and are instead jeopardizing the stability and debasing the currency. Full Story

ECB leaves interest rates unchanged

The European Central Bank on Thursday left interest rates unchanged, as expected, and repeated that it intended to continue its program of buying 30 billion euros ($36.6 billion) of assets a month until September, “or beyond, if necessary.” The central bank also repeated that it expects key interest rates to remain at present levels “for an extended period of time” and “well past” the planned end of its asset-buying program. ECB President Mario Draghi will hold a news conference at 2:30 p.m. Frankfurt time, or 8:30 a.m. Eastern. Full Story

New Zealand’s central bank happy to wait as inflation lags growth

New Zealand’s central bank plans to keep interest rates at a record low into next year, saying on Thursday that with inflation stuck in the low end of its target range policy needed to be accommodative even as the economy runs near capacity.

The Reserve Bank of New Zealand also signalled a relaxed stance on the recent strengthening of the local dollar but indicated that tone would change if it became an entrenched trend that effectively tightened monetary conditions.

Governor Grant Spencer said that while the wild swings in global equity markets over the past week looked to have been contained, for now, they were a warning that markets were very nervous about central banks tightening policy.

At its policy review earlier in the day, the RBNZ held its cash rate at 1.75 per cent, where it has been since November 2016, and lowered its forecasts for inflation out to 2020, suggesting investors need not fear the withdrawal of stimulus for a long time to come.

“What stood out in today’s statement was a slightly dovish set of forecasts, in particular, a CPI inflation track,” said Kiwibank senior economist Jeremy Couchman.

That dovish slant on the inflation outlook pushed the local dollar NZD= down more than half a U.S. cent to a one-month low of $0.7195. Full Story

Asian Central Banks Unlikely to Follow Fed Rate Hike

Most Asian central banks will stand pat for now, even with the Federal Reserve poised to raise borrowing costs this week.

While previous tightening cycles in the U.S. prompted many Asian nations to move in lockstep, things are different this time. Subdued inflation and healthy foreign reserves reduce the need to move quickly and the risk of a trade war gives policymakers another reason for pause.

China, Japan and Australia anchor the region’s bias to staying on hold, but there are important exceptions. India remains hawkish and economists also expect South Korea and Indonesia to raise rates this year.

Of course, the picture could change quickly if fund outflows from Asia jump, but right now this is how Asia’s major central banks are placed for another Fed rate hike. Full Story

The sheer number of articles referring to the dilemma central banker’s face in raising rates gives you an idea of how unsold they are on this economic miracle. Some nations might fare well in the long term, but not because of low rates but because of changes in economic policies. For example, the US could do well if corporations invest the money they are saving on taxes back into the business, but for the most part, the world economy is holding up because of the huge amounts of money being used to prop it up.

Regional Finance News: Bank of England – Negative Rates in Sweden