It will be a decisive week, as there will be signals about the normalization of policies, which is going at different speeds according to the urgency of their domestic conditions ”.
Although there are 13 central banks that will make their last monetary decision of the year this week, most will have to adjust their announcement according to the position that “the four largest” will take, which are the United States Federal Reserve, the European Central Bank ( ECB), the Bank of Japan (BoJ) and the Bank of England (BoE).
Barclays analysts believe that “it will be a decisive week, as there will be signals about the normalization of monetary policies, which is going at different speeds depending on the urgency of their domestic conditions.” The Big Four are scheduled to run their announcement between Thursday and Friday.
In the case of Banco de México, its Governing Board will rule on Thursday, in the last decision in which Governor Alejandro Díaz de León will participate, and that same day the central banks of England, the ECB, Bank of Norway, Bank of Switzerland, Bank of Taiwan, Bank of Turkey, Bank of Indonesia, and Central Bank of the Philippines.
By Friday 17, they will be the National Bank of Colombia, the Bank of Japan and the Bank of Russia.
According to Christian Keller, an economist at Barclays, the announcement of the Federal Open Market Committee of the Fed, scheduled for this December 15, could include the notice of an acceleration in the pace of the withdrawal of asset purchases, the so-called tapering.
If completed, as expected, they will finish collecting the liquidity injected into the health emergency in mid-March 2022.
Barclays experts anticipate that the Committee members’ expectations graph, the so-called dot plots, will show two increases in the US rate over the next year and three more in 2023. A contrast from the September publication, when they expected a single increase for next year.
Banco de México, a quarter point
For the latest announcement by Banco de México, the BNP Paribas economist for Mexico, Pamela Díaz, anticipates an increase in the rate of 25 basis points given the persistent divergence in the vote of the Governing Board and the departure of Díaz de León .
“Increasing the rate of increase in rates implies committing forward. It seems complicated to me that the increase is 50 basis points because the signal would be of more uncertainty about the normalization cycle given the new composition of the Governing Board, which was released in the February announcement ”.
The director of economic analysis at Banco Base, Gabriela Siller, agrees that Mexico’s rate will close the year at 5.25% after an increase of a quarter of a point. Although the desirable thing would be a rise of 50 basis points that gives some kind of anchor to expectations.
From Switzerland, economists at the investment bank Julius Baer warn that the increase in inflation expectations as well as the nervousness of the market as a result of the normalization of the Fed’s monetary policy earlier than expected, “would generate difficulties for Mexico”, hence the relevance of the monetary decision.
Standardization in progress
According to analysts at Barclays, this week’s monetary announcements will be like this: The Fed’s FOMC will leave the rate unchanged between 0 and 0.25% but will give progress on normalization.
Regarding the decision of the ECB, chaired by Christine Lagarde, signs are expected to shorten the time to cut asset purchases in 2022, and the confirmation that the rate will remain at 0% also during the coming year.
For the BoE, they expect a unanimous decision to leave rates unchanged at 0.10% given the uncertainty due to the impact of the new Omicron variant.
For the BoJ, they expect a majority decision to leave the rate unchanged at 0%, as well as the extension of the coverage period of the financial support program for companies in the face of Covid-19.
The Bank of Switzerland, which without having a systemic impact, does have an advanced economy, would leave the rate unchanged at negative 0.75%.
And that of Norway, would increase by a quarter of a point, to 0.50 percent.
For emerging central banks, Barclays experts estimate that rate hike driven by inflationary pressure and the US normalization will continue.
The Bank of Hungary would increase its rate to 3.30% from 2.10% where it currently stands.
For the central banks of Taiwan, Indonesia and the Philippines, they anticipate that they will leave rates unchanged at 1.12, 2 and 3.50%, respectively.
Against the tide, Barclays expects the central bank of Turkey to make a new cut in the rate, now of two points, which would leave the revenue they pay at 13%, from 15% where it is currently.
For Mexico they anticipate a rise of 25 basis points with a more hawkish / hard tone in the statement.
And they anticipate for Russia a new increase of 100 basis points, which will leave its rate at 8.50 percent.
Inflation and Ómicron, a duo that exerts pressure
Rampant inflation and the arrival of the Covid-19 Omicron variant has put the world’s central banks under scrutiny.
Neither Christine Lagarde, president of the European Central Bank (ECB), nor Jerome Powell, president of the United States Federal Reserve (Fed), nor any of their counterparts expected the rebound in inflation or Omicron, and that places them before the challenge of tackling the withdrawal of stimuli without jeopardizing the economic recovery.
The central bank of the United States will open the week of monetary decisions with its two-day meeting that begins today, and on Thursday it will be the turn of the ECB and the Bank of England. Just one day later, on Friday, it will be the turn of the Bank of Japan.
In this way, a dizzying week is coming for global monetary policy.
Christian Scherrmann, an economist at DWS, believes that the Fed meeting “could become a turning point,” he told Spanish media El Mundo.
The United States Federal Reserve is guided by the dual mandate of controlling the rise in prices and promoting full employment and, in Scherrmann’s view, it is likely that for now it will focus on the first of these “because price stability is now considers it a necessary condition to reach maximum employment ”, he commented.
His forecasts call for the Fed to increase the pace of stimulus reduction to $ 30 billion a month from the current $ 15 billion, “which implies that the program will conclude at the end of the first quarter of next year. In addition, we expect the members of the organization to carry out at least two rate hikes amid higher inflation levels by 2022 and 2023, “he added.
The firm Imantia Capital agreed: “We will see a faster tapering than expected by the Fed, together with two rate hikes from 0.25 to 0.50%.” While for the ECB it forecasts the elimination of the Pandemic Emergency Purchase Program in March, as well as a progressive reduction in purchases, without touching interest rates until 2023.
Christine Lagarde, president of the organization, has insisted that inflation is a transitory effect and is the product of the economic reactivation after the sanitary restrictions imposed by the pandemic. Attention next Thursday will be on whether he changes his message, as Jerome Powell did.
After months of defending the hypothesis of transience, the US official acknowledged to legislators that inflation could be a longer-lasting effect than they expected.
“The European Central Bank will have to improve its inflation projections and members of the Governing Council are increasingly emphasizing upside risks, with second-round effects being a key signal to watch out for. A rate hike in 2022 is still very unlikely, but our base hypothesis that there will be no changes in rates in 2023 is getting closer and closer, ”Martin Wolburg, Senior Economist at Generali Investments, told the Spanish media. (Agencies)
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