Föhrenbergkreis Finanzwirtschaft

Unkonventionelle Lösungen für eine zukunftsfähige Gesellschaft

Europe Set for Trio of Central Bank Decisions

Posted by hkarner - 14. September 2018

Date: 13-09-2018
Source: The Wall Street Journal

A primer on what to expect ahead of the ECB, Bank of England and Turkey’s central bank announcements

ECB President Mario Draghi

A trio of central banks, in the U.K., eurozone and Turkey, are set to announce policy decisions within an hour of each other on Thursday, between 7 a.m. and 8 a.m. Eastern. They are likely to underscore weaknesses and vulnerabilities that have weighed on the world economy and financial markets this year.

Europe’s two most prominent central banks—the European Central Bank and Bank of England—are expected to signal caution, reinforcing a policy lag behind the Federal Reserve. Turkey’s central bank, by contrast, could act vigorously to tame soaring inflation.

ECB officials will likely have an eye on risks emanating from both Turkey, where a number of eurozone banks do business, and the U.K., which is entering a sensitive period in its negotiations to leave the European Union.

Here are five issues to watch:

Bank of England: Every Vote Counts
The U.K. central bank nudged up its key interest rate to 0.75% last month, the highest level in almost a decade. Officials aren’t expected to raise rates again until well into next year, given Britain’s plans to leave the EU in March. Still, investors will look closely at the breakdown of votes on the nine-member Monetary Policy Committee, given that its most hawkish member left last month. That could give a sense of how a recent acceleration in economic growth and wages might affect the timing of the next rate increase.

New Eurozone Forecasts
The ECB’s latest quarterly staff forecasts of economic growth and inflation, to be published Thursday, will be closely watched because they could affect how quickly the central bank phases out easy money. The central bank expects to wind down its giant bond-buying program this year, and could start raising interest rates, currently minus 0.4%, a year from now. That could be delayed if inflation proves too weak, however.

Italian Debt
Italy’s borrowing costs have jumped this year as investors have fretted about the country’s new populist government. In particular, the government could spark a confrontation with EU authorities in Brussels over the bloc’s 3% budget-deficit limit. ECB President Mario Draghi will likely try to stay out of the dispute, but analysts say the central bank might be forced to react if troubles spread to Italy’s banks or other eurozone bond markets.

Catch a Falling Lira
In Turkey, the question isn’t whether the central bank will increase interest rates on Thursday, but by how much. The central bank pledged to act last week when August statistics showed inflation exceeded its main policy rate, which stands at 17.75%. The central bank is also under pressure to defend the country’s currency, the lira, which has lost more than 40% against the dollar this year.

How Independent?
Analysts and investors question how far Turkey’s central bank can go in defying President Recep Tayyip Erdogan’s demand to keep feeding the Turkish economy with cheap credit. Despite repeated assurances by the Turkish government that the institution is independent and focused on its mandate to fight inflation, such demands are likely to multiply, analysts say, as the Turkish economy slows down and possibly contracts in the second half of the year.

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