The world’s main central banks face this week a intense agenda of monetary policy meetings in a especially complex contextmarked by the rebound in oil after the escalation of the conflict in the Middle East and by signs of economic slowdown in several regions. The calendar begins on Tuesday with the decision of Australia’s central bank. Wednesday will be the turn of the Federal Reserve (Fed)while Thursday will concentrate a good part of the appointments, with the decisions of the Bank of Japan, the Swiss National Bank, the Bank of England and the European Central Bank (ECB). The week will close on Friday with the announcement from the People’s Bank of China. According to Ipek Ozkardeskaya, senior analyst at Swissquote, monetary policymakers face a increasingly complicated dilemma: The surge in energy prices threatens to reignite inflation just as many economies begin to show signs of weakness.
«If it has to be summed up in one sentence, central banks around the world are likely to send more ‘hawkish’ signals»
«Globally, central banks will be divided between rising inflation caused by the rise in oil and gas and the risk of economic slowdown and increase in unemployment«he points out.
FROM THE FEDERAL RESERVE TO DECISIONS IN EUROPE
In the United States, the market expects the Federal Reserve keeps rates unchanged this week. The latest macroeconomic data have failed to dispel doubts about the evolution of inflation. US GDP for the fourth quarter was revised downwards to 0.7%, compared to 1.4% previously estimatedwhile the core PCE index—the Fed’s preferred measure of inflation— rose to 3.1% in January. In this context, Ozkardeskaya considers it unlikely that the US central bank will consider cuts in the short term. «There will be no rate cuts this week in the United States, and possibly not this year either if the war continues and keeps energy prices high,» he says. The rebound in debt yields reflects these expectations: the two-year US bond yield is at highs since August of last year. In Europe, the scenario has also become more uncertain. Just a few weeks ago, the market expected the ECB to keep rates unchanged, but rising oil prices have reopened the debate on whether the institution could be forced to tighten its policy again to avoid a spike in inflation similar to that experienced after the energy crisis resulting from the invasion of Ukraine. A similar situation faces the Bank of England. The consensus expected the British institution to begin cutting rates as inflation moderates, but the rebound in energy prices could delay that move. Furthermore, the UK economy showed stagnation in January, reflecting weak growth.
AUSTRALIA, JAPAN AND SWITZERLAND
Australia’s central bank will open the week with a decision that could set the tone for the global monetary agenda. The market waits an increase of 25 basis points, up to 4.10%which would represent the second consecutive increase. In Japan, rising energy prices and the depreciation of the yen could push the Bank of Japan to continue advancing in the normalization of its monetary policy.
For his part, the Swiss National Bank could keep rates unchangedsupported by the strength of the franc, which helps cushion the impact of the rise in oil on inflation. Overall, the Swissquote analyst anticipates a more restrictive tone by central banks. «If it has to be summed up in one sentence, central banks around the world are likely to send more ‘hawkish’ signals»he explains. That harsher tone could weigh on market sentiment if tensions in the Middle East are not reduced and energy prices continue to rise, which would further complicate the balance between controlling inflation and supporting economic growth.
