The week ahead is loaded with central bank decisions from Canada to Japan to Australia. Central banks remain under pressure to combat inflation amid global economic turmoil and uncertainty.
The Bank of Canada was the first major central bank combating global inflation to declare its intentions to pause future hikes, following an entire year of aggressive monetary tightening. It is expected to be reported on March 8, 2023, with expectations to be held steady at 4.5% after raising rates to its highest levels in more than a decade.
"If economic developments evolve broadly in line with the Monetary Policy Report outlook, Governing Council expects to hold the policy rate at its current level while it assesses the impact of the cumulative interest rate increases," the Bank of Canada said in its official statement.
The inflation rate (annual CPI) has taken a downward trend since the beginning of the year, indicating the success of QT, recording 5.9% as seen in the below figure 1.
Figure 1: Canada's Annual CPI and interest rates (Jan21-Jan23)| Source: Bank of Canada, Statistics Canada
A GDP growth rate of 0% during Q4 2022 and the average weekly wage growth rate increasing to 3.4% (below the increase in prices) also reaffirms that the central bank will hold interest rate at its current rate. For employees, none of that is positive.
Yet analysts believe that these figures are sufficient to persuade the Bank of Canada to follow through on its pause and finally provide homeowners dealing with growing debt payments with a respite.
The Bank of Japan is also expected to announce its interest rate decision on the 10th of March at -0.1% and its target for the 10-year Japanese government bond yield at around zero at a cap of 0.5%. S&P Global ratings said that a rate hike would impact the country’s sovereign debt rating should businesses find it difficult to tolerate increased finance costs. The Bank of Japan’s new governor, Kazuo Ueda, emphasized the necessity for an ultra-loose policy to maintain the economy for the time being.
He stated that tighter policy would only occur when Japan's inflation trend accelerated substantially, currently at a 42-year high of 4.3%.
The market is anticipating a quick increase in interest rates, and the BOJ taking more measures to rectify market distortion brought on by its aggressive intervention in the bond market.
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