RBA Makes Surprise Cut, BOE Likely to Hold Rates | Weekly Review and Preview

  • Monday, May 9, 2016

Welcome to Prattle’s “Weekly Review and Preview.” Each week, we analyze the most important communications from the previous week and give our thoughts on upcoming releases.

  • Review

Reserve Bank of Australia
In brief: Cut rates by 25bps
Analysis: The Reserve Bank of Australia surprised many market analysts last week by releasing a dovish statement and announcing a 25bps rate cut. Using our central bank sentiment data, Prattle forecasted the rate cut the day before in last week’s Weekly Review and Preview.  


Federal Reserve
In brief: Divided over June hike
Analysis: Fed speakers last week displayed tepid support for a June rate hike with moderates Lockhart and Bullard both wanting to see more data before espousing a clear view. The somewhat more dovish Dudley expressed concern about the Fed’s ability to help the economy absorb another adverse shock.

European Central Bank
In brief: Defended policy decisions
Analysis: Last week’s ECB speeches focused on defending the bank’s recent policy decisions, first and foremost its current negative interest rate policy (NIRP) against German detractors. Policymakers also made speeches in defence of their abolishment of the 500 Euro note.

Bank of England
In brief: Avoiding discussion of Brexit
Analysis: BOE policymakers made several speeches last week, notably avoiding the elephant in the room: Brexit. Speakers simply addressed macroprudential regulation and risk in a more general sense.

Bank of Mexico
In brief: Held rates
Analysis: Although Mexico held rates last week, they hinted at as many as four rate hikes in the near future.

Bank of Israel
In brief: Future stimulus imminent
Analysis: Dovish minutes released from Israel’s recent monetary policy meeting, coupled with other recent dovish sentiment, indicate that future stimulative actions may be in the cards.

  • Preview

Bank of England
Forecast: Likely to hold rates
Analysis: The BOE is likely to hold policy steady at this week’s meeting due to BOE officials’ decision to basically put all policy movements on hold until after the Brexit vote. Due to recent neutral sentiment from the bank, we expect policymakers to release a dramatically downgraded new forecast reflecting the risks of Brexit and the economic impact of that uncertainty.


Bank of Korea
Forecast: Likely to hold rates
Analysis: Sentiment from the Central Bank of Korea continues to trend relatively neutral, despite some increased dovishness in recent communications. We expect the BOK to hold rates steady and continue testing the waters with quantitative easing policies that increase the role of the BOK in financing corporate restructuring and, consequently, Korean economic growth.

Norges Bank
Forecast: Likely to hold rates
Analysis: The Norges Bank appears poised to hold rates steady at this week’s monetary policy meeting due to recent hawkish sentiment, likely in reaction to rising oil prices. Although the bank could cut rates to boost oil exports, given their recent sentiment, we expect that policymakers will skip the rate cut this week.

Federal Reserve
Forecast: Speakers likely to identify policy stances
Analysis: With at least five regional Fed bank presidents speaking this week, we expect speakers to begin self-identifying their policy stance with regard to a June hike. We expect that Evans and Rosengren will espouse cautious optimism over two hikes this year, while George may push for more hikes; Kashkari will likely talk about “too big to fail”; and Williams will be the one to watch for clear policy cues.

The Prattle Team

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