3 Mar 2016
Central Banks back in focus - BBH
Analysts at Brown Brothers Harriman explained that over the next fortnight the major central banks, including the ECB, BOJ, Fed and BOE will hold policy-making meetings.
Key Quotes:
"Of the four, expectations are the highest for the ECB to ease policy.
Given the poor economic data, including deflationary pressures, and the tightening of financial conditions, the BOJ could also adjust policy. However, after the G20 meeting, it seems as if the bar for fresh monetary easing is higher than it had previously appeared. This does not mean that the BOJ has reached peak easing; it appears that the near-term focus may shift back to fiscal policy.
The divergence of monetary policy that drives our medium-term dollar bullish view is predicated on diverging macroeconomic performances. It is not just about growth and employment, but it also includes inflation. Central bankers are concerned about inflation and inflation expectations.
One way to measure inflation expectations is to compare the yields of conventional bond and the inflation-linked instruments. These "breakevens" have been cited by numerous central bankers. For the purpose of this exercise, the accuracy of the "breakevens" to forecast future inflation is not particularly relevant. What matters is that monetary authorities take them seriously. "
Key Quotes:
"Of the four, expectations are the highest for the ECB to ease policy.
Given the poor economic data, including deflationary pressures, and the tightening of financial conditions, the BOJ could also adjust policy. However, after the G20 meeting, it seems as if the bar for fresh monetary easing is higher than it had previously appeared. This does not mean that the BOJ has reached peak easing; it appears that the near-term focus may shift back to fiscal policy.
The divergence of monetary policy that drives our medium-term dollar bullish view is predicated on diverging macroeconomic performances. It is not just about growth and employment, but it also includes inflation. Central bankers are concerned about inflation and inflation expectations.
One way to measure inflation expectations is to compare the yields of conventional bond and the inflation-linked instruments. These "breakevens" have been cited by numerous central bankers. For the purpose of this exercise, the accuracy of the "breakevens" to forecast future inflation is not particularly relevant. What matters is that monetary authorities take them seriously. "