Central Bank Watch – Governor Ueda’s First BoJ Rate Decision, RBA Fit for The Future

The big event for Central Banks was the release of an independent review on the Reserve Bank of Australia, An RBA fit for the future. Uruguay’s central bank surprised with a quarter-point reduction in its key rate and Bank Indonesia kept its benchmark interest rate unchanged. FOMC voters, Philadelphia Fed President Harker, Fed President Williams and Cleveland Fed President Mester all said Fed needs to do more to get inflation back down to target. This week is Governor Ueda’s first decision at the BoJ. Sweden’s Riksbank is widely expected to deliver another 50bps hike.

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

This week is Governor Ueda’s first decision at the BoJ as the key event. The BoC will deliver its Summary of Deliberations. Sweden’s central bank is widely expected to deliver another 50bps hike on Wednesday. Colombia’s central bank is expected to hold its overnight lending rate at 13% on Friday. Several markets will offer updated inflation and growth readings over the course of the week on the path to another monthly round of central bank decisions.

We have the black period for Fed Speakers ahead of the FOMC on May 3rd, the ECB the next day, the RBA on May 2nd and the Bank of England on May 11th.

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:

  • The release of an independent review on the Reserve Bank of Australia, An RBA fit for the future is the biggest clean up, if not revolutionary change for the RBA since inflation targeting and formal independence was established in the 1990s. 
  • Uruguay’s central bank surprised economists with a quarter-point reduction in its key rate to 11.25%, highlighting the gradual decline in inflation since the September peak (from 9.95% to 7.33% last month) as well as the lowest rate of core inflation in five years. The BCU is the first among the major Latam central banks to reduce rates in the current cycle, beating the BCCh and the BCB to the punch.
  • Bank Indonesia kept its benchmark interest rate unchanged at 5.75% on Tuesday, as expected for a third straight month on the back of a stronger currency and fading price pressures.
  • The Bank of Japan’s semi-annual financial system report noted that Japan’s financial system has been maintaining stability.
  • Rate hike expectations climbed a bit this week with the implied likelihood of a 25-bps increase in May climbing to 85.4% from 78.0% a week ago.
  • New York Fed President Williams (FOMC voter) signaling support for another rate hike at the May FOMC meeting
  • Cleveland Fed President Mester’s remarks that policy needs to move somewhat further into tightening territory with the fed funds rate above 5.00%.
  • St. Louis Fed President Bullard (not an FOMC voter) acknowledged the need to raise rates further since inflation remains persistently high
  • Atlanta Fed President Bostic (not an FOMC voter) said in an interview that he thinks the Fed should hike rates one more time and hold rates there “for quite some time.”

Eyes on the Bond Market

U.S. Treasuries fell further Friday, widening this week’s losses in all tenors. Treasury yields responding to an increase in year-ahead inflation expectations seen in the preliminary University of Michigan Consumer Sentiment Index for April and Fed Governor Waller (FOMC voter) saying that the central bank has not made much progress on inflation. Fed Rate hike expectations climbed today, with the implied likelihood of a 25-bps increase on May 3 rising to 74.5% from 67.0% yesterday and 71.2% a week ago. The U.S. Dollar Index climbed 0.5% to 101.56.

Yield Watch


  • 2-yr: -1 bp to 4.16% (+6 bps for the week)
  • 3-yr: +3 bps to 3.90% (+6 bps for the week)
  • 5-yr: +2 bps to 3.66% (+5 bps for the week)
  • 10-yr: +3 bps to 3.57% (+5 bps for the week)
  • 30-yr: +3 bps to 3.78% (+4 bps for the week)

Highlights – Federal Reserve

  • Federal Reserve Credit declined $15.5bn last week to $8.571 TN.
  • Fed Credit was down $330bn from the June 22nd peak.
  • Over the past 187 weeks, Fed Credit expanded $4.844 TN, or 130%.
  • Fed Credit inflated $5.760 Trillion, or 205%, over the past 545 weeks.
  • Fed holdings for foreign owners of Treasury, Agency Debt gained $6.7bn last week to $3.338 TN.
  • “Custody holdings” were down $108bn, or 3.1%, y-o-y.

 Rate hike expectations climbed a bit this week with the implied likelihood of a 25-bps increase in May climbing to 85.4% from 78.0% a week ago.

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 four central banks delivering policy decisions.

Wednesday, April 26, 2023

  • 03:30 Riksbank Interest Rate Decision

Thursday, April 27, 2023

  • 23:00 BoJ Monetary Policy Statement

Friday, April 28, 2023

  • 05:30 Russia Interest Rate Decision
  • 14:00 Columbia Interest Rate Decision

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

Monday, April 24, 2023

  • 05:00 ECB’s Panetta Speaks
  • 06:00 German Buba Monthly Report
  • 09:30 ECB’s Panetta Speaks

Tuesday, April 25, 2023

  • 04:00 ECB’s Enria Speaks
  • 05:00 BoE MPC Member Broadbent Speaks
  • 12:00 SARB Monetary Policy Review

Wednesday, April 26, 2023

  • 03:30 Riksbank Interest Rate Decision
  • 03:30 ECB’s Enria Speaks
  • 05:20 ECB’s Supervisory Board Member Jochnick Speaks
  • 08:00 ECB’s De Guindos Speaks
  • 09:45 ECB Supervisory Board Member Tuominen Speaks
  • 13:30 BOC Summary of Deliberations

Thursday, April 27, 2023

  • 23:00 BoJ Monetary Policy Statement
  • 23:00 BoJ Outlook Report (YoY)

Friday, April 28, 2023

  • 01:00 BoJ Press Conference
  • 04:00 SNB Chairman Thomas Jordan speaks
  • 05:30 Russia Interest Rate Decision
  • 08:30 German Buba Wuermeling Speaks
  • 14:00 Columbia Interest Rate Decision

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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