Monday January 19, 2009 - 18:52:41 GMT
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FX Blog- Two Weeks Ahead Central Bank Policy Outlook for January 19, 2009
Central Bank Policy Outlook -- Key Interest Rates
Global Interest Rates
January 19, 2009
Monetary Policy Forecasts for Major Economies
The Global-View.com Monetary Policy Outlook is prepared weekly by the trading professionals at GVI Forex. For information on the GVI Forex Service Click HereUpcoming Decisions
Most major central banks have moved to or are about to embark on a quantitative easing (QE) policy. A policy of QE means that instead of targeting an interest or inflation rate that the bank targets an amount of reserves in the banking system. The goal of QE is to inject reserves in the system sufficient to make credit available to all potential borrowers.
Bank of Canada- Tuesday January 20, 2009
Market expects a -50bps rate cut to 1.00%
Energy economy hit hard by slowing U.S. economy.
BOC being pushed into a Quantitative Easing posture.
Inflation no issue.
Bank of Japan- Thursday January 22, 2009
BOJ target rate (0.10%) already virtually at zero. No rate cut is possible.
Japan invented Quantitative Easing.
Deflation a potential issue for Japan again.
Reserve Bank of New Zealand- Tuesday January 27, 2009
Market expects a -50 to 150bps cut in the 5.0% Cash rate target.
Economy hit by slowing global demand.
Inflation no issue.
U.S. Federal Reserve- Wednesday January 28, 2009
No change likely in 0-0.25% Fed Funds target.
Fed effectively running ZIRP (zero interest rate policy.
Bank using every tool at its disposal to stimulate growth.
Inflation no concern.
GVI Bank of Canada Policy Meeting Preview
- Decision: January 20, 2008 at 14:00 GMT.
- BOC Overnight Target Rate: 1.50%
- Expected Decision: -50bps.
- The Bank of Canada continues to participate in policy ease. An additional -50bp rate cut on January 20 is probable.
BANK OF CANADA Policy Objective: The Bank of Canada aims to keep inflation at the 2 per cent target, the midpoint of the 1 to 3 per cent inflation-control target range. This target is expressed in terms of total CPI inflation, but the Bank uses a measure of core inflation as an operational guide. Core inflation provides a better measure of the underlying trend of inflation and tends to be a better predictor of future changes in the total CPI.
The chart above shows year/year CPI-X (core CPI) and the target of 2% for this price index.
The chart above shows the current three month Banker Acceptance rate, the current BOC overnight rate target and where the futures markets are currently trading three month rates for the specified periods in the future. The chart also includes comparisons of where these futures rates were trading most recently, a week ago and four weeks ago. The chart provides a view on where the markets feel Canadian interest rates are headed.
The chart above shows the Canadian overnight rate target, three month Bankers Acceptance, and two- and ten-year bond yields over the past twelve months.
GVI BOJ Policy Meeting Preview
- Decision: January 22, 2009
- Current Overnight Target Rate: 0.10%
- Expected decision: unch
- Japanese interest rates virtually hit their theoretical 0% floor (0.10%). The central bank surprised many on December 22 by taking a page from the Fed's playbook and throwing everything but the kitchen sink at its weakening economy and an overvalued currency.
BANK OF JAPAN Policy Objective: The Bank of Japan Law states that the Bank's monetary policy should be "aimed at, through the pursuit of price stability, contributing to the sound development of the national economy."
The chart above shows year/year core nationwide CPI and the reported BOJ goal of between 0% and 2% for this price index.
The chart above shows the current three month libor rate, the current BOJ overnight rate target and where the futures markets are currently trading three month rates for the specified periods in the future. The chart also includes comparisons of where these futures rates were trading most recently, a week ago and four weeks ago. The chart provides a view on where the markets feel Japanese interest rates are headed.
The chart above shows the Japanese overnight rate target, three month libor, and two- and ten-year bond yields over the past twelve months.
GVI U.S. Feberal Reserve Bank Policy Meeting Preview
- Decision: January 28 at 19:15 GMT.
- Fed Funds rate: 0 to 25%
- Expected Decision: no change
- The Fed cut rates virtually to zero on December 16. It also threw in the kitchen sink with easing measures. A ZIRP (Zero Interest Rate Policy) and quantitative ease (QE) has arrived.
FEDERAL RESERVE Policy Objective: The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.
The chart above shows year/year core PCE for the U.S. relative to its its reported "comfort zone for this key price index. Headline and Core CPI figures are also shown.
The above monthly U.S. employment chart is included because its the most closely followed data release each month, and because one of the objectives of the Fed is to maximize employment.
The chart above shows the current three month libor rate, the current Fed funds target and where the futures markets are currently trading three month rates for the specified periods in the future. The chart also includes comparisons of where these futures rates were trading most recently, a week ago and four weeks ago. The chart provides a view on where the markets feel U.S. interest rates are headed.
The chart above shows the U.S. Fed Funds rate target, three month libor, and two- and ten-year bond yields over the past twelve months.
John M. Bland is a co-founder and partner of Global-View.com. Prior to Global-View.com, he was a Vice-President and senior dealer in a forex inter-bank and futures trading arm of a subsidiary (ContiCurrency) of the Continental Grain Company in NYC. Previous to that, he was one of the early members of the Chemical Bank corporate advisory service in NYC, and also worked in international liability management for that bank. John holds an MBA from the Hass School at the University of California at Berkeley and a bachelors degree in International Economics from Berkeley.
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