This week there were several monetary policy meetings of some of the world’s most important central banks. Here are the main highlights from each meeting that took place this week.
The first major regulator to meet this week was the Bank of Canada. Canada is one of the countries that has experienced a steady recovery from the coronavirus pandemic, thanks to a successful vaccination campaign, less vaccine hesitancy than seen elsewhere, and a recovery in the value of crude oil, which is very important for the Canadian economy.
As a result, the Bank of Canada, like other regulators, expressed concerns over the rising inflation rates both domestically and internationally. Though it did not hike interest rates at this time (at 0.25%, they are a bit higher than in other countries), the Bank of Canada announced that it will be ending its bond buying program.
With asset purchases out of the way, investors now expect that we are going to see interest rate hikes in Canada in 2022, perhaps even in the first half of the year.
The situation was quite dissimilar in Japan, though it was also quite predictable. The Japanese central bank chose to continue its stimulus program and keep interest rates unchanged, as the economy is still in need of continued support.
Unlike other countries, Japan is not worried about rising inflation rates, because its economy has struggled with deflationary trends for many years. Even with all of this stimulus, inflation remains below 1%.
Like the Bank of Japan, the European Central Bank also chose to remain on the side of dovishness. ECB President Christina Lagarde once more iterated that the current spikes in inflation (up 4-5% across the eurozone, well above the target level of 2%) are due to season fuel price increases, not an actual reflection of an economic recovery and surging employment.
Thus, the ECB announced that it is not planning to hike interest rates anytime soon, definitely not next year, as many had hoped. However, President Lagarde did say that the current asset purchases program will end in March. Whether a new similar program will replace it will be decided in December.
Next week it will be the Bank of England’s turn to deliver its latest interpretation of monetary policy.
