Central Bank Watch – Week Ahead Focus on Canada, Australia, Malaysia, Poland and Chile

In the past week we had just one bank rate meeting, where The Monetary Council of the National Bank of Hungary (MNB) lowered interest rates by 100 basis points. On Friday Cleveland Fed President (non-voter) Mester said that inflation remains too high, though some progress has been made. The People’s Bank of China said they will lower the foreign exchange reserve requirement ratio to 4.00% from 6.00%, effective September 15. The PBOC also confirmed speculation about rate cuts on some existing mortgages, effective September 25.

In the week ahead we have Bank of Canada, Reserve Bank of Australia and Bank Negara all expected to stay pat. Banco Central de Chile and Poland are both expected to cut rates. We also have the Fed’s Beige Book and speakers from the BoE, BoJ, RBA, ECB and Fed.

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.

In the Week Ahead

In the week ahead we have five central bank’s monetary policy meetings.

  • The RBA is expected to leave its cash rate target unchanged on Tuesday. Markets are priced for no change and consensus is unanimous that the rate will stay parked at 4.1%. It’s Governor Lowe’s last decision before Governor-designate Bullock takes over on September 18th. Bullock recently warned of the need for restrictive policy in her recent comments, but then CPI landed materially weaker than expected for the month of July.
  • Banco Central de Chile, Chile’s central bank is widely expected to cut its policy rate again on Tuesday. It had reduced the rate from a peak of 11.25% to 10.25% in July. Another 100bps cut is expected on Tuesday with a minority of economists expected a smaller 75bps reduction. Easing inflationary pressures and an outlook for further easing is providing room for less restrictive monetary policy.
  • The National Bank of Poland (NBP) expected to cut interest rates Wednesday despite double-digit inflation. CPI fell to 10.1% in August from 10.8% in July, Year-on-Year. It reflects lower food and energy prices.
  • The Bank of Canada delivers a statement-only decision Wednesday morning without a Monetary Policy Report or press conference. Governor Macklem will speak in Calgary the next day to deliver the customary Economic Progress Report that follows non-MPR decisions. He will also host a press conference.
  • Bank Negara, Malaysia’s central bank is forecast to hold its overnight rate at 3% again on Thursday. The ringgit has stabilized since the last decision on July 6th, but the central bank will be sensitive to doing anything that can destabilize it and thus pose financial stability concerns. Inflation came in weaker than expected at 2% y/y in July. The path toward easing may feature in forward guidance. via Scotiabank

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.

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 Monetary Council of the National Bank of Hungary (MNB) lowered interest rates by 100 basis points, in order to anchor inflation expectations, and ensure a sustainable path toward the inflation target. However, the base rate, a key benchmark, remained unchanged at 13.0 percent. This decision reflects a cautious stance amid global economic deceleration and potential inflationary pressures. Inflation decelerated in Hungary in July, with consumer prices rising by 17.6 percent on an annual basis, compared to June’s 20.1 percent. This was primarily attributed to the slowing price dynamics of processed foods and industrial products. Meanwhile, core inflation slowed across a broad range of products and services, with the indicator falling by 3.3 percentage points to 17.5 percent in July, the Monetary Council said.
  • European Central Bank President Lagarde said at the Jackson Hole Symposium that interest rates will be set as high as necessary to slow inflation and that price expectations must be anchored. Meanwhile, policymaker Kazaks said that there is no rush to declare an end to the ECB’s rate hike campaign.
  • European Central Bank policymaker Schnabel repeated her worries about underlying price pressures, adding that there is no target for a peak ECB interest rate.
  • Bank of England Chief Economist Pill said that policy should remain restrictive until core inflation slows.
  • The People’s Bank of China will lower the foreign exchange reserve requirement ratio to 4.00% from 6.00%, effective September 15.
  • The PBoC also confirmed speculation about rate cuts on some existing mortgages, effective September 25.
  • European Central Bank policymaker Villeroy de Galhau said that the interest rate peak is near, fueling additional speculation about a potential pause at the September meeting.
  • Cleveland Fed President (non-voter) Mester said that inflation remains too high, though some progress has been made.

Eyes on the Bond Market

In a week of mostly soft data U.S. Treasuries on Friday finished broadly lower lifting yields off their lowest levels in three weeks, though still stronger on the week mostly. U.S. Treasuries completed this week’s note auctions with strong demand with no issues. Post the Employment report for August the initial rally pressured yields to levels not seen since the first full week of August with the 5-yr yield slipping below its 50-day moving average (4.211%), but the market reversed swiftly with longer tenors leading the slide. What stands out to us is bonds are just not seeing much benefit from changes in Fed rate policy expectations.

This week’s action alleviated some more pressure on the 2s10s spread, expanding it by ten basis points to -71 bps. Crude oil climbed for the seventh day in a row, rising past $85.00/bbl, to a level not seen since mid-November. The U.S. Dollar Index reclaimed the remainder of this week’s loss. The Index rose 0.6% to 104.23 today, finishing the week unchanged.

Yield Watch

Friday/Week

  • 2-yr: +2 bps to 4.88% (-17 bps for the week)
  • 3-yr: +4 bps to 4.57% (-17 bps for the week)
  • 5-yr: +5 bps to 4.29% (-14 bps for the week)
  • 10-yr: +8 bps to 4.17% (-7 bps for the week)
  • 30-yr: +8 bps to 4.29% (UNCH for the week)

Highlights – Federal Reserve

  • Federal Reserve Credit declined $19.9bn last week to $8.087 TN.
  • Fed Credit was down $813bn from the June 22nd, 2022, peak.
  • Over the past 207 weeks, Fed Credit expanded $4.360 TN, or 117%.
  • Fed Credit inflated $5.277 TN, or 188%, over the past 564 weeks.
  • Fed holdings for foreign owners of Treasury, Agency Debt declined $4.5bn last week to a one-month low $3.436 TN.
  • “Custody holdings” were up $45bn, or 1.3%, y-o-y.

As of Tuesday, markets saw a 22% probability of a rate hike at the Fed’s September 20th meeting, with an additional 48% for the November 1st meeting. This 70% probability for one additional Fed increase had sunk to 38% by Friday’s close (7% for September and 31% November).

Fed 2023 Bank Stress Tests.

Busy Central Bank Week Ahead:


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

Sunday, September 3, 2023

  • none seen

Monday, September 4, 2023

  • none seen

Tuesday, September 5, 2023

  • 00:30 RBA Interest Rate Decision
  • 17:00 Chile Interest Rate Decision

Wednesday, September 6, 2023

  • 08:00 National Bank of Poland Interest Rate Decision
  • 10:00 BoC Interest Rate Decision

Thursday, September 7, 2023

  • 03:00 Malaysia Interest Rate Decision

Friday, September 8, 2023

  • none seen

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

Monday, September 4, 2023

  • All Day Holiday United States – Labor Day
  • All Day Holiday Canada – Labor Day
  • 09:00 German Buba President Nagel Speaks

Tuesday, September 5, 2023

  • 00:30 RBA Interest Rate Decision
  • 05:30 German Buba Wuermeling Speaks
  • 17:00 Chile Interest Rate Decision
  • 21:30 RBA Chart Pack Release

Wednesday, September 6, 2023

  • 08:00 National Bank of Poland Interest Rate Decision
  • 09:35 German Buba Wuermeling Speaks
  • 10:00 BoC Interest Rate Decision
  • 11:10 RBA Governor Lowe Speaks
  • 12:00 German Buba Balz Speaks
  • 14:00 Fed Beige Book
  • 15:00 Fed Logan Speaks
  • 21:30 BoJ Board Member Nakagawa Speaks
  • 23:10 RBA Governor Lowe Speaks

Thursday, September 7, 2023

  • 03:00 Malaysia Interest Rate Decision
  • 13:55 BoC Gov Macklem Speaks
  • 15:30 FOMC Member Williams Speaks
  • 16:30 Fed’s Balance Sheet 8,139B
  • 16:30 Reserve Balances with Federal Reserve Banks
  • 16:55 FOMC Member Bowman Speaks

Friday, September 8, 2023

  • 06:45 German Buba Wuermeling Speaks
  • 09:00 Fed Vice Chair for Supervision Barr 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.


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Sources: TC WSJ Bloomberg Scotia Bank

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