Central Bank Watch – Week Ahead Focus BoJ, BoC, Norges, Turkey and ECB

It’s been a quiet start to the year for central bankers, the coming week brings them out confronted by a new round of developments such as the shipping crisis in the Middle East that injects further uncertainty into their plans. We have decisions from Bank of Japan (Tuesday), Bank of Canada, Bank Negara Malaysia (Wednesday), Norges Bank, South African Reserve Bank, Central Bank of Turkey and the European Central Bank (Thursday). Then we have the January 31st FOMC meeting and the Fed’s preferred PCE measure of inflation on January 26th. Nothing is expected from that statement-only outcome and markets have reduced punts for rate cuts at the March 20th and May 1st meetings.

Last week we had some surprise from People’s Bank of China (PBOC) as consensus was for the PBOC to cut but they held as is. Bank Indonesia (BI) and the Fed’s Biege Book, Fed speakers and ECB President Lagarde were on course.

The Treasury market continues to respond to hot geopolitical risk, inflation, greater supply and credit risk. Curve shapes are being bent as the US economy continues to grow much faster than the non-inflationary speed limit and is outpacing many other major industrialized economies.

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.

Spurred by slowing inflation and signs of a cooling growth, traders and investors have recently rushed headlong into US government debt, convinced that the Federal Reserve is done raising interest rates and will shift to cutting them by the middle of next year. That ended a six-month losing streak for Treasuries and pushed the market to a gain of 2.6% in November. It’s the biggest advance since March, when there were fears that a banking crisis would sink the economy.

In the Week Ahead

In the week ahead we have:

  • Bank of Japan with the usual caution that the BoJ seems to enjoy surprising markets, there is probably little reason to expect Governor Ueda to indicate a desire toward ending negative rates or tweaking yield curve control on Tuesday. Core inflation has weakened compared to the acceleration that was unfolding over 2022H2 into early 2023. It may well be that the effects of prior increases in oil prices and prior yen depreciation have worked through the CPI basket as temporary effects, leaving soft underlying pressures in their wake. If Ueda did not have the confidence to lift off and out of negative rates when core inflation was higher, he’s unlikely to have it now.
  • Bank of Canada’s full suite of communications on Wednesday. The policy statement, the Monetary Policy Report including fresh forecasts, and the Governor’s opening remarks to be delivered at his press conference will all arrive at 9:45amET. They will be followed by a press conference held by Governor Macklem and SDG Rogers at 10:30amET that will start with the Governor reading his statement and then move to Q&A with the press. No change is expected to the policy rate. Nothing is priced in markets and no one in consensus expects any change.
  • ECB President Lagarde already set the tone for what to expect in Thursday’s announcements and press conference. While attending Davos, she had this to say about market pricing for rate cuts: “It is not helping our fight against inflation if the anticipation is such that they are way too high compared with what’s likely to happen.” The emphasis should be placed upon ‘way too high’ expectations for nearer term easing. When asked directly about a summertime cut relative to earlier pricing she said “I would say it’s likely” while going on to stress that they are still data dependent. Also on their minds will be that measures of shipping costs to Europe are taking it particularly hard on the chin.
  • NORGES BANK— Norway’s central bank is widely expected to stay on hold at a deposit rate of 4.5% on Thursday. After delivering a surprise 25bps hike in December, Norges said “the policy rate will likely be kept at that level for some time ahead.” More important may be forward guidance in the context of market pricing for the first rate cut by June. In its December statement, Norges said that it would probably leave its policy rate unchanged “until autumn 2024 before gradually moving down.” There will not be another forecast update with explicit forward rate guidance until March.
  • BANK NEGARA—Malaysia’s central bank is widely expected to remain on hold at 3% again on Wednesday. Another inflation update at the start of the week is likely to continue to show CPI running at about a 1 ½% y/y clip with core inflation at about 2%. Low inflation is one thing. Risking currency instability is another and that is likely to be the dominant consideration. The ringgit has been mildly depreciating since the beginning of the year relative to the USD as market pricing for Fed rate hikes has been pushed out. Like many other central banks, the ability to cut the policy rate may rise as Fed rate cuts draw nearer but for now the easing is occurring through the local currency.
  • SARB—Consensus unanimously expects the South African Reserve Bank to hold its repo rate constant at 8.25% on Thursday. Another inflation report for December arrives the day before. At 5.2% y/y and 4.3% y/y for headline and core CPI respectively, inflation remains in the upper ranges of SARB’s 4.5% +/- 150bps inflation target range while global inflation risk may be pivoting higher.
  • CENTRAL BANK OF TURKEY— Turkey’s central bank is widely expected to deliver another hike on Thursday with consensus pegging the amount at +250bps. That would raise the one-week repo rate to 45%. The door remained open to another hike at the last meeting on December 21st when guidance was to “complete the tightening cycle as soon as possible.” The lira has depreciated by another 3½% to the USD since the December hike and the central bank has been fighting currency-motivated import price pressures all along. Because of the uncertainty over the direction of the currency, the central bank may resist shutting the door on additional tightening.

Central Bank Highlights This Past Week:

This week’s central bank main events included:

  • PBOC‘s decision to hold its 1-year Medium-Term Lending Facility Rate unchanged at 2.5%. Consensus had expected another 10bps cut given recent data and comments by policymakers. Inflation is perceived to be temporarily weighed down particularly by narrow driver and concern over yuan stability is driving what will probably be more of a focus upon easing lending conditions through other tools like required reserve ratios.
  • Bank Indonesia (BI) kept policy rates at 6% today despite pointing to a less upbeat outlook for the global economy. It retained its outlook for domestic growth, with GDP expected to expand between 4.7-5.5% year-on-year. The central bank also revised its forecast for Indonesia’s current account surplus to range between 0.1% to 0.5%, narrower than the previous estimate of 0.9% of GDP. Despite some lingering concerns about price pressures, Governor Perry Warjiyo still believes inflation will settle within BI’s 2024 target of 1.5-3.5%. Bank Indonesia likely kept policy rates untouched while keeping an eye on a potential inflation flare up and remaining aware of the need to maintain support for the IDR. The IDR remains pressured to open the year, down roughly 0.5% for the year.

Previews come from Scotiabank and other sources.

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.

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.

Eyes on the Bond Market

US Bond Watch

The bond market has thrown out a challenge to traders and Fed officials and ask themselves was last quarters rip your heads squeeze rally a head fake in an ongoing global bond bear market? Do they downplay the odds of a surprising stronger U.S. economy than forecast? Labor markets remain tight, while many politically motivated pundits call victory on what is in reality already elevated inflation above the 2% goal. We saw UK and Canada both report stronger-than-expected inflation. it was only three months ago global markets were leaving ‘bodies’ from spiking global yields.

Food for thought, what would a 2024 global yield spike do? We have multiple global flashpoints with clear inflation ramifications and risks. So far oil has avoided much higher, that said WTI is still over $72bbl. is not helpful for lower inflation. Crude oil approached its January high (75.25) but eventually slipped back below its 50-day moving average (73.71). Stay alert to possible bifurcations, global disasters can also lead to deflation and global trade destruction.

Yield Watch


  • 2-yr: +7 bps to 4.41% (+26 bps for the week)
  • 3-yr: +5 bps to 4.18% (+28 bps for the week)
  • 5-yr: +2 bps to 4.07% (+24 bps for the week)
  • 10-yr: UNCH at 4.15% (+20 bps for the week)
  • 30-yr: -2 bps to 4.35% (+15 bps for the week)

Highlights – Federal Reserve

  • Federal Reserve Credit increased $2.5bn last week to $7.650 TN.
  • Fed Credit was down $1.251 TN from the June 22nd, 2022, peak.
  • Over the past 227 weeks, Fed Credit expanded $3.923 TN, or 105%.
  • Fed Credit inflated $4.839 TN, or 172%, over the past 584 weeks.
  • Fed holdings for foreign owners of Treasury, Agency Debt declined $4.6bn last week to $3.379 TN.
  • “Custody holdings” were up $48.5bn, or 1.5%, y-o-y.

Fed 2023 Bank Stress Tests.

Busy Central Bank Week Ahead:

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

Sunday, January 21, 2024

20:15 China Loan Prime Rate 5Y
20:15 PBoC Loan Prime Rate

Monday, January 22, 2024

  • 21:30 BoJ Interest Rate Decision

Tuesday, January 23, 2024

  • None Seen

Wednesday, January 24, 2024

  • 02:00 Bank Negara Malaysia Interest Rate Decision
  • 10:00 BoC Interest Rate Decision

Thursday, January 25, 2024

  • 04:00 Norges Interest Rate Decision
  • 06:00 Central Bank of the Republic of Turkey’s (CBRT) Interest Rate Decision
  • 08:00 SARB Interest Rate Decision
  • 08:15 ECB Interest Rate Decision

Friday, December 26, 2023

  • None Seen

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

Monday, January 22, 2024

  • 09:00 ECB President Lagarde Speaks
  • 21:30 BoJ Interest Rate Decision
  • 22:00 JPY BoJ Outlook Report (YoY)

Tuesday, January 23, 2024

  • 01:30 BoJ Press Conference
  • 04:00 ECB Bank Lending Survey

Wednesday, January 24, 2024

  • 02:00 Bank Negara Malaysia Interest Rate Decision
  • 06:00 German Buba Monthly Report
  • 09:45 BoC Rate Statement
  • 10:00 BoC Interest Rate Decision
  • 11:30 BOC Press Conference
  • 19:30 RBA Bulletin

Thursday, January 25, 2024

  • 04:00 Norges Interest Rate Decision
  • 06:00 Central Bank of the Republic of Turkey’s (CBRT) Interest Rate Decision
  • 08:00 SARB Interest Rate Decision
  • 08:15 ECB Interest Rate Decision
  • 08:45 ECB Press Conference
  • 10:15 ECB President Lagarde Speaks
  • 11:00 ECB President Lagarde Speaks
  • 16:30 Fed’s Balance Sheet
  • 16:30 Reserve Balances with Federal Reserve Banks
  • 18:50 BoJ Monetary Policy Meeting Minutes

Friday, January 19, 2024

  • 09:00 Dallas Fed PCE (Dec)

Federal Reserve FOMC Schedule 2024

The Federal Open Market Committee on Friday announced its tentative meeting schedule for 2024:

  • January 30-31 (Tuesday-Wednesday)
  • March 19-20 (Tuesday-Wednesday)
  • April 30-May 1 (Tuesday-Wednesday)
  • June 11-12 (Tuesday-Wednesday)
  • July 30-31 (Tuesday-Wednesday)
  • September 17-18 (Tuesday-Wednesday)
  • November 6-7 (Wednesday-Thursday)
  • December 17-18 (Tuesday-Wednesday)
  • January 28-29, 2025 (Tuesday-Wednesday)

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.

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Sources: TC WSJ Bloomberg Scotia Bank

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