A Quiet Week in Central Banking | Macrocast

  • Monday, August 8, 2016

Welcome to The Signal’s “Macrocast.” Each week, we provide analysis and forecasting on the most important upcoming central bank communications.

Prattle scores

Reserve Bank of India
Forecast: Likely to hold rates
Analysis: With slightly declining sentiment* in recent weeks, the Reserve Bank of India (RBI) is heading into its August 9 policy meeting with a momentum of -0.06**. Many investors have speculated that reduced concerns about inflation will allow the RBI to lower rates, but the relatively flat sentiment trend suggests otherwise. We expect a rate hold this week, particularly after RBI Governor Rajan’s July 26 speech not only made a case against the need for a rate cut but received a hawkish residual score of 1.00. This is Rajan’s last monetary policy meeting after spending the bulk of his three-year term fighting inflation, and he is extremely unlikely to counteract those measures at this juncture.


Reserve Bank of New Zealand
Forecast: Likely to hold rates
Analysis: Although the Reserve Bank of New Zealand’s sentiment trend has declined slightly in recent weeks, it is not enough to clearly signify a rate cut at the bank’s August 10 monetary policy meeting.

Bank of Korea
Forecast: Likely to hold rates
Analysis: The Bank of Korea will use its August 10 policy meeting to hold rates at record lows and continue to see how the market responds to the surprise cut in June.

Bank of Israel
Forecast: Minutes to address Brexit pressures
Analysis: The minutes of the Bank of Israel’s July 25 meeting will be released on August 8. These minutes will likely highlight the conflicting downward pressures of Brexit headwinds coupled with low inflation against the bubble threat of Israel’s hot housing market.

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The Signal Team

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* Prattle’s models are based on the historical relationship between central bank language and market reaction, which is used as basis of evaluation for future communications. The scores are normalized around zero and range between -2 and 2, negative numbers indicating dovishness and positive numbers indicating hawkishness.

** The momentum is the average of the last ten residual scores. Residual scores represent the tone of a communication compared to the rolling, 12-month average for that individual communication type or speaker. Raw scores represent the tone of a communication compared to the average of all communications.