Central Bank Watch – FOMC Minutes, Canada, Peru and Korea Monetary Policy Meetings

Heading into Easter four central banks, RBA, RBNZ, RBI and BCCh delivered policy decisions with implications more for regional markets than global market conditions. We had two surprises the RBNZ rising more than expected and the RBI keeping rates unchanged. The RBA and BCCh acted as expected. In the week ahead we have key monetary policy meetings from Bank of Canada, Peru’s central bank and the Bank of Korea. Attention will also be on FOMC minutes that could materially inform next steps for the Federal Reserve.

Central Bank Weekly Analysis and Outlook – Banker dynamics are complex. There are myriad facets to analyze and contemplate.

Central bank monetary policy decisions and market activity interest rate decisions can have a dominant effect on financial markets, fiscal policy and geopolitics. We keep an eye on key banker developments, what they mean and what is ahead.

To say central bankers, have issues is an understatement. Already grappling with the quickest inflation in decades they now have these decisions to make, forcefully raise borrowing costs to defend currencies and risk hurting growth, spend reserves that took years to build to intervene in foreign exchange markets, or simply stand aside and let the market play out.

In the week ahead

We have key monetary policy meetings from Bank of Canada, Peru’s central bank and the Bank of Korea. Attention will also be on FOMC minutes that could materially inform next steps for the Federal Reserve.

Central Bank Highlights This Past Week:

Most of the G10 central banks may complete their rate hike cycles around the middle of the year or earlier, the unwinding of central bank balance sheets may continue longer, depending on the damage done.

This week’s central bank main events included:

  • Reserve Bank of Australia kept interest rates steady in April after they raised them for the tenth consecutive time in March to the highest level since May 2012. The move was largely in line with the consensus.
  • Reserve Bank of New Zealand aggressive hiking cycle continues. It raised its Official Cash Rate by another 50 bps to 5.25%, as expected. Consensus almost unanimously expected another 25bps hike.
  • Chile central bank (BCCh) kept the benchmark rate unchanged at 11.25% and maintained the neutral bias regarding future movements of the rate, indicating that it will keep the rate at its current level until the process of inflation convergence to 3% is consolidated.
  • Reserve Bank of India kept rates steady against expectations for a 25bps hike. Guidance was hawkish as Governor Shaktikanta Das said “our job is not yet finished and the war against inflation has to continue” but markets nevertheless drove a bull steepener across the Indian rates curve.

Eyes on the Bond Market

U.S. Treasuries yields continue to respond to risk on/off pressures intraday in the short tenors and further out the curve to recessionary risks. This was highlighted Friday in a thin market by the two-year note, which is highly sensitive to monetary policy expectations. With stocks closed and bonds open for a shortened session for Good Friday moves were exaggerated, The U.S. March jobs report showed a cooling but still strong labor market. The 10-year U.S. Treasury yield jumped to 3.379%, from 3.288% the prior day. The yield on the two-year note rose to 3.948% from 3.818%. Both yields have plunged in recent weeks as bond prices have climbed.

Yield Watch


  • Three-month Treasury bill rates ended the week at 4.635%.
  • Two-year government yields declined four bps this week to 3.98% (down 45bps y-t-d).
  • Five-year T-note yields dropped eight bps to 3.50% (down 51bps).
  • Ten-year Treasury yields fell eight bps to 3.39% (down 49bps).
  • Long bond yields declined four bps to 3.61% (down 35bps).
  • Benchmark Fannie Mae MBS yields rose three bps to 5.08% (down 31bps).

Highlights – Federal Reserve

  • Federal Reserve Credit dropped $96.9bn last week to $8.599 TN.
  • Fed Credit was down $301bn from the June 22nd peak.
  • Over the past 185 weeks, Fed Credit expanded $4.873 TN, or 131%.
  • Fed Credit inflated $5.788 Trillion, or 206%, over the past 543 weeks.
  • Fed holdings for foreign owners of Treasury, Agency Debt rose $25.3bn last week to $3.319 TN.
  • “Custody holdings” were down $140bn, or 4.0%, y-o-y.

Markets began the year pricing 38 bps of rate cuts between the May 3rd and December 13th FOMC meetings. By March 8th, this had shifted to 20 bps of additional tightening. A week later (March 15), markets were pricing 106 bps of rate cuts. By quarter end, expectations were for rates to drop 39 bps.

Fed 2023 Bank Stress Tests.

Update: This got more interesting with the three bank failures in a week. Silicon Valley Bank (SVB) was the largest failure since Washington Mutual’s September 2008 collapse. It was also the second largest in U.S. history.

SVB is the dominant financier for Silicon Valley startups. SVB ended 2022 with a $120 billion securities portfolio, the vast majority mortgage securities (MBS and CMOs). SVB’s spectacular collapse will have a major negative impact on its $74 billion loan portfolio.

Silvergate Capital Corp. plans to wind down operations and liquidate its bank after the crypto industry’s meltdown. Silvergate collapsed amid scrutiny from regulators and a criminal investigation by the Justice Department’s fraud unit into dealings with fallen crypto giants FTX and Alameda Research. Silvergate’s woes deepened as the bank sold off assets at a loss and shut its flagship payments network, which it called “the heart” of its group of services for crypto clients.

The Federal Reserve last month released the hypothetical scenarios for its annual bank stress tests. This year, 23 banks will be tested against a severe global recession with heightened stress in both commercial and residential real estate markets, as well as in corporate debt markets. Last year the Fed found all 34 large banks tested remained well above their risk-based minimum capital requirements, and the Fed announced no restrictions relating to dividends and buybacks.

Central Bank Week Ahead:

This Week’s Interest Rate Announcements (Time E.T.)

In the week ahead we get three central banks delivering policy decisions.

  • Bank of Korea (Tuesday). Expected to have no change but the risk of a hike cannot be fully ruled out. The prior meeting in February revealed a policy hold but a Board consensus to raise another 25bps in future. The OPEC+ impact on higher oil prices may add to inflationary concerns, yet the latest core inflation reading was in line with a typical month of March in m/m NSA terms.
  • Bank of Canada (Wednesday). The statement and Monetary Policy Report including updated forecasts land at 10amET. Governor Macklem and SDG Rogers will host a press conference at 11amET. Governor Macklem returns the next day at 9:30amET to participate in a 30 minute moderated Q&A session at the IMF’s Spring Meetings in Washington). Nobody expects a policy rate change at this meeting.
  • Banco Central de Reserva del Peru (Thursday): Expected to remain on hold again at a policy reference rate of 7.75%. It’s premature for easing expectations after March CPI at 1.25% m/m NSA was one of the hottest months of March over the past couple of decades.

We also get:

  • FOMC Minutes (Wednesday): Minutes to the March 21st – 22nd FOMC meeting. Recall that they hiked by 25bps, left QT plans unchanged, and issued a dot plot that was little changed from the one in December.

Monday, April 10, 2023

  • 21:00 Bank of Korea Interest Rate Decision

Wednesday, April 12, 2023

  • 10:00 BoC Monetary Policy Report & Interest Rate Decision

Thursday, April 13, 2023

  • 19:00 Peru Interest Rate Decision

This Week’s Central Bank Speeches, Meetings (Time E.T.)

Monday, April 10, 2023

  • 16:15 Federal Reserve Bank of New York President John Williams participates in moderated discussion organized by the Economics Review at NYU No text. Moderated Q&A expected. Livestream available. https://docs.google.com/forms/d/e/1FAIpQLSfPwwqDntku9iejiUr9xagcu9C7Z7ztn_vpMZtmGQlBAAomEg/viewform
  • 21:00 Bank of Korea Interest Rate Decision

Tuesday, April 11, 2023

  • 13:30 Federal Reserve Bank of Chicago President Austan Goolsbee speaks before hybrid Economic Club of Chicago Forum Luncheon. Moderated Q&A expected. Embargoed text available. No media scrum. Eden_Erickson//www.chicagofed.org/publications/speeches/2023/april-11-economic-club-chicago
  • 18:00 Federal Reserve Bank of Philadelphia President Patrick Harker speaks on the economic outlook before the Wharton Initiative on Financial Policy and Regulation, Livestream and text available. Audience Q&A expected. No media Q&A.
  • 19:30 Federal Reserve Bank of Minneapolis President Neel Kashkari participates in moderated town-hall event before the Montana State University College of Business and Entrepreneurship Town Hall, Audience Q&A expected. No media Q&A. Livestream at minneapolisfed.org/live.

Wednesday, April 12, 2023

  • 00:45 RBA Assist Gov Bullock Speaks
  • 08:30 ECB’s De Guindos Speaks
  • 09:00 BoE Gov Bailey Speaks
  • 09:00 Federal Reserve Bank of Richmond President Thomas Barkin speaks on “Bringing Talent to Small Towns” before the Investing in Rural America 2023 hosted by the Federal Reserve Bank of Richmond . No livestream. Embargoed text available. No audience Q&A. No media Q&A.
  • 10:00 BoC Monetary Policy Report & Interest Rate Decision
  • 11:00 BOC Press Conference
  • 14:00 FOMC Meeting Minutes
  • 15:15 BoE Gov Bailey Speaks

Thursday, April 13, 2023

  • 01:45 German Buba President Nagel Speaks
  • 01:45 German Buba Vice President Buch Speaks
  • 04:30 BOE Credit Conditions Survey
  • 07:45 German Buba President Nagel Speaks
  • 09:00 BoE MPC Member Pill Speaks
  • 09:00 BoC Gov Macklem Speaks
  • 14:00 German Buba President Nagel Speaks
  • 19:00 Peru Interest Rate Decision

Friday, April 14, 2023

  • 08:45 Federal Reserve Board Governor Christopher Waller speaks on the economic outlook before the Graybar National Training Conference, 0745 CDT/0845 EDT/1245 GMT. Text available. Q&A from moderator. Webcast at https://www.youtube.com/channel/UC8FioQE3Zzh4eZXSXgxQtwg/live.
  • 11:30 MPC Member Tenreyro Speaks
  • 14:15 German Buba President Nagel Speaks

Federal Reserve FOMC Schedule 2023

The Fed with a Strong US Dollar

The strong dollar is likely to negatively affect the US economic outlook and could alter the Federal Reserve terminal interest rate, economists surveyed by Bloomberg said. Just 28% saw the currency strength as unlikely to have any impact.

The survey of 40 economists was conducted Oct. 21-26.

  • 44% said they believed the Fed could fully complete its aggressive rate tightening despite possible stresses.
  • 38% said the policy makers would be forced to cut rates earlier than expected and
  • 18% said the Fed would not be able to raise rates as much as planned.
  • Survey respondents expect rates to peak at 5% early next year and a majority of the economists now expect a US and global recession.

The Fed as expected raised another 50 basis-points last meeting. The median estimate for the terminal rate in 2023 had been raised to 5.10% versus the September projection of 4.60%. The value of the dollar is an important component to lowering inflation. A stronger dollar tends to dampen inflation by reducing the costs of imports and lowering domestic production as it raises export prices.

“Usually the trade deficit would balloon when the dollar appreciated as much as we had seen since last year. But that effect has been curiously absent so far, even as we are already about five quarters into the appreciation process. One possible explanation is that US is increasing its exports in energy products. The fact that this tightening channel of dollar is absent means that the dollar appreciation is less contractionary to the economy than historically.”

Anna Wong (Bloomberg chief US economist)

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