Archives of “Forward guidance” tag

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Brazil central bank holds rates at 2.00%, says believes inflation is temporary

  
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Comments from Brazil’s central bank

  • Reaffirms forward guidance that it doesn’t intent to reduce monetary stimulus as long as specified conditions met
  • Latest readings in inflation were above expectations
  • Despite the expected cooling in food prices, inflation is still expected to be high
  • Inflation expectations and baseline forecasts remain below target for relevant policy horizon
  • Continues to monitor inflation developments carefully, in particular, underlying inflation
  • Soon the conditions for maintaining forward guidance may not be satisfied
  • Forward guidance removal doesn’t mean rate hike
The drop in BRL this year has certainly been inflationary and that’s unwinding now. At the same time, you can see the growing concerns about inflation.

Recap of the FOMC, “as expected” … but US Congress fiscal policy remains an unknown

  
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Via CIBC Research on Wednesday’s FOMC policy statement.

“Today’s FOMC announcement unfolded largely as expected, with policymakers commenting that economic activity and employment remain well below where they stood prior to the pandemic, despite picking up somewhat in recent months. Indeed, the outlook has become increasingly uncertain since the last meeting on account of the surge in virus cases and the re-tightening of social distancing in many states, with the Fed noting that the path forward for the economy depends significantly on the virus which is expected to weigh heavily on activity in the near term. While the Fed stands ready to do more to support the recovery, as shown by the extension in several credit facilities beyond their initial deadlines, the fiscal support package being discussed by Congress remains an unknown” 

“As a result, they appear to have opted to wait for the September meeting, when the next set of forecasts are due, to provide more concrete forward guidance on future rate hikes by perhaps tying them to the outcome of a macro variable. Tomorrow’s Q2 GDP report will provide a starting point for assessing the scale of the output gap” 

Bank of Canada holds rates at 0.25%, as expected

  
  Analysis
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Highlights of the Bank of Canada rate decision

  • Prior was 0.25% (this is the effective lower bound for Canada)
  • BOC pledges to keep rates at 0.25% until inflation target hit
  • BOC to continue $5B per week in QE; repeats buying will continue “until the recovery is well underway”
  • BOC stands ready to adjust its programs if market conditions warrant
  • Says economic decline “considerably less severe than the worst scenarios presented in the April MPR”
  • BOC sees 40% of activity recovered in Q3 but then “the Bank expects the economy’s recuperation to slow as the pandemic continues to affect confidence and consumer behaviour and as the economy works through structural challenges”
  • Central scenario in in MPR shows economy not likely to return to pre-COVID levels until 2022
  • Sees 2020 GDP down 7.8%, up 5.1% in 2021 and up 3.7% in 2022
  • Says Q2 activity estimated to have fallen about 15% below its level at the end of 2019, economy appears to have bottomed in April
  • Sees US GDP down 8.1% in 2020, up 3.4% in 2021 and up 4.3% in 2022
  • Global GDP forecast down 5.2% in 2020 and up 5.2% in 2021
  • The path for CPI in the next year largely reflects the influence of energy prices
The big news here is this line:
“The Governing Council will hold the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved.”
That’s forward guidance indicating no hikes until 2% inflation is ‘substantially achieved’. That last phrase leaves them some wiggle room but this is conditional forward guidance.
Macklem will hold a briefing at 1500 GMT (11 am ET)
Forecasts in the MPR:
BOC forecasts for developed world

BOJ minutes: Downside risks to overseas economies remained signficant

  
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Minutes of the Bank of Japan October 2019 monetary policy meeting.

  • most members shared view that there had been no further increase in the possibility that the momentum toward achieving the price stability target would be lost
  • most members shared view downside risks to overseas economies remained significant, must continue to pay close attention to chance inflation momentum would be lost
  • one member said given downside risks, BOJ should continue to examine whether additional monetary easing would be necessary
  • some members said BOJ must not hesitate to take additional easing measures if there was a greater possibility momentum toward achieving the price target would be lost
  •  important to enhance cooperation with government on economic policies

Headlines via Reuters

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