Central Bank Watch – Week Ahead Focus on Post Fed Follow Through and BoJ Monetary Policy

In the past week it was a central bank overload with over a dozen central banks including FOMC, BoK, BCB, BoE, ECB, SNB & Norges Bank Policy Announcements. The Fed was the lone major central bank with speculation on rate cuts this week which sent the bond and stock markets on fire, with the Dow hitting an all-time high Wednesday. The ECB and BoE pushed back while others offered mixed perspectives including Norges Bank’s surprise hike.

More central Bank action ahead, the big question is, will the BoJ be the next shock to markets? We also have monetary policy meetings with Columbia’s BanRep, Banco Central de Chile, Hungary’s Central Bank, Bank Indonesia and Central Bank of Turkey. We get big macro numbers including US core PCE, UK core CPI, Japan’s CPI post-BoJ, NZ to issue a mid-year fiscal update and Canadian core CPI.

The Treasury market continues to respond to hot geopolitical risk, hotter 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.

In the Week Ahead

In the week ahead we have:

  • Bank of Japan It’s probably too soon to expect the BoJ to raise its policy balance rate of -0.10% when it issues a fresh decision on Tuesday. Consensus, including Scotiabank Economics, expects a hold. Markets are more nervously leaning toward a hike as priced in OIS contracts. Volatile formal and informal guidance from the central bank appears to lean toward continuing stimulus efforts at least until it has further clarity toward the outcome of Spring wage negotiations. Bank of Japan guidance that was provided on December 7th sparked some of the market turmoil before anonymous officials tamped down the speculation by saying that markets were overreacting.
  • RBA Minutes The Reserve Bank of Australia releases minutes to the December 4th meeting when they held the cash rate target at 4.35% on Monday and retained data dependence in guiding future decisions.
  • Chinese Bank’s Lending Rates No Changes Expected after the PBOC left its 1-year Medium Term Lending Facility Rate unchanged at 2.5%, Chinese banks are likely to leave their 1-year and 5-year Loan Prime Rates unchanged at 3.45% and 4.2% respectively on Tuesday.
  • Banco Central de la Republica de Colombia BanRep faces a split consensus with some expecting a hold at an overnight lending rate of 13.25% and some expecting a cut of -25bps on Tuesday. It would be the commencement of BanRep’s easing cycle if so. At 10.2% y/y, inflation remains far above the 3% +/-1% target range and so the bar is set high against beginning an easing campaign just yet.
  • Banco Central de Chile Another 50bps cut is expected on Tuesday that would extend the easing cycle to a cumulative 300bps since it commenced in July. At 4.8% y/y in November, CPI inflation did not ebb as rapidly as expected and remains above the 3% target amid expectations for future declines.
  • Bank of Canada The Summary of Deliberations in the process that led up to the December 6th statement and decisions will arrive on Wednesday at 1:30pmET. The revealed discussion probably won’t add much but there could be added emphasis upon points made by DepGov Gravelle’s recent speech and Governor Macklem’s subsequent remarks. Gravelle said they don’t have enough evidence that inflation is cooling toward target, they then want to assess whether it is sustainable and only then will then discuss potential easing but that they aren’t even at this point.
  • Bank Indonesia BI is expected to leave its 7-day reverse repo rate unchanged at 6% for a second straight meeting on Thursday. The rupiah has been little changed since the last decision on November 23rd which indicates a period of financial stability while inflation is within range of the 1.5–3.5% target range even after mild upside to 2.9% y/y in November but with core holding at 1.9%.
  • Central Bank of Turkey After hiking its one-week repo rate by 500bps on November 23rd, does this central bank have further hikes in the tank when it weighs in again on Thursday? Language it used to describe its forward policy bias in the accompanying statement leaned toward further tightening but at a slower pace with the rate hike cycle to be over “in a short period of time.”

Central Bank Highlights This Past Week:

This week’s central bank main events included:

  • Federal Reserve The Federal Reserve kept rates unchanged in a target range of 5.25-5.50% in unanimous vote at their December FOMC, which was expected. The Fed’s move in the Summary of Economic Projections (SEP) quarterly “dot plot” however caught markets by surprise. The median federal funds rate for 2024 was lowered to 4.6%, down from 5.4% in 2023. That points to the prospect of three rate cuts next year versus only two that were projected at the time of the September SEP.
  • ECB kept key rates unchanged in its December monetary policy decision at 4.50% at multi-year highs for the second consecutive meeting, with the closely watched deposit facility rate to 4.00%, in line with markets thoughts. The ECB broke their record streak of rate hikes the prior month and markets are also convinced that they aren’t going to add any more considering the state of the economy at the moment
  • The Bank of England MPC at its December meeting Thursday kept the key bank rate at 5.25% as expected in a 6–3 split vote. The bank left guidance on time spent at the peak unchanged, effectively leaving the door left equally open to another hike if needed. In that outlook recent jobs and inflation data were largely discounted by the BoE.
  • PBoC left its 1-year Medium-Term Lending Facility Rate unchanged at 2.5% as widely expected. It increased liquidity and there was a slight relaxation of restrictions against home buying in some cities that also garnered attention. China macro data was mixed Friday. Industrial output accelerated by 6.6% y/y and was above consensus. Retail sales also picked up but by less than consensus. Fixed investment was soft.
  • SNB The Swiss National Bank kept its policy rate at 1.75% in its December meeting, it came after the Federal Reserve had signaled a pivot towards lowering rates in 2024 the day before. The SNB also lowered its inflation forecast for next year but warned that uncertainty was clouding the decision-making path ahead.
  • Banco de México is unanimously expected to hold its overnight rate unchanged at 11¼% on Thursday. Its last hike was back in March that ended 725bps of hikes. Mexico’s central bank is heavily influenced—but not straightjacketed—by what the Federal Reserve does and so, to a certain extent, what it decides to do into 2024 hinges in no small part upon whether markets are overly exuberant toward the prospect of Fed rate cuts as soon as Q1.
  • BANCO CENTRAL DE RESERVA DEL PERU (BCRP) is expected to cut its reference rate by another 25bps to 6 ¾% on Thursday evening (ET). Inflation has been falling from a peak of 8.81% last year to 3.6% y/y in the latest reading for November and with the core rate at 3.1%. Core inflation has been rapidly decelerating and not just because of year-ago base effects. Core pressures are soft at the margin as well
  • NORGES BANK Monetary Policy and Financial Stability Committee in a surprise decision raised rates by 25bps to 4.50% at its December Meeting. The bank has lifted to borrowing costs that are the highest level since December 2008 as it sought to combat persistent inflation.
  • BANCO CENTRAL DO BRASIL Brazil’s central bank is widely expected to cut its key Selic rate by another 50bps on Wednesday. Why? Because they said so! Governor Roberto Campos Neto recently said “We understand that the 50-basis point pace is adequate…and appropriate for the coming meetings.”
  • BANGKO SENTRAL NG PILIPINAS The central bank of the Philippines is widely expected to stay on hold at an overnight borrowing rate of 6.5% on Thursday. A small minority believe that it could hike again after tweaking its stance with a surprise off-cycle 25bps hike in October before holding flat in November. Guidance has pointed toward willingness to take further action but not decisively so.
  • CENTRAL BANK OF THE REPUBLIC OF CHINA (TAIWAN) CBCT is expected to leave its benchmark rate unchanged at 1.875% on Thursday. They’re a precise bunch of folks. They raised the policy rate by 12.5bps back in March and have been on hold since then. Inflation has pulled back to 2.9% y/y in November with core falling to 2.4% —its lowest rate since early 2022.
  • CENTRAL BANK OF THE RUSSIAN FEDERATION Russia’s Central Bank (CBR) in a fight to arrest inflation and the fall of the plummeting Rouble hiked 100bps Friday morning to 16 percent, for the fifth consecutive time since summer to fight accelerating inflation. The Russian economy has been smashed but is said to be recovering on impacts from the invasion of Ukraine by scarcity and falling currency pushing up prices paid.

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

U.S. Treasuries closed the week adversely impacted at the front of the curve after New York Fed President Williams (FOMC voter) seemingly contradicting Fed Chair Powell when he told CNBC the Fed hasn’t really talking about rate cuts right now. Powell at the FOMC presser Wednesday said the FOMC discussed when it would be appropriate to dial back policy restraint. Atlanta Fed President Bostic (2024 FOMC voter) told Reuters, meanwhile, that he expects two rate cuts in 2024, starting in the second half of the year. The fed funds futures market is pricing in six rate cuts beginning in March. Longer-dated tenors were supported by soft industrial production data for November, a dip in the preliminary S&P Global US Manufacturing PMI for December to 48.2 from the final reading of 49.4 for November.

Yield Watch


  • 2-yr: +6 bps to 4.46% (-28 bps for the week)
  • 3-yr: +6 bps to 4.15% (-31 bps for the week)
  • 5-yr: +3 bps to 3.93% (-31 bps for the week)
  • 10-yr: unch at 3.93% (-30 bps for the week)
  • 30-yr: -3 bps to 4.03% (-28 bps for the week)

Highlights – Federal Reserve

  • Federal Reserve Credit increased $4.5bn last week to $7.702 TN.
  • Fed Credit was down $1.999 TN from the June 22nd, 2022, peak.
  • Over the past 222 weeks, Fed Credit expanded $3.975 TN, or 107%.
  • Fed Credit inflated $4.891 TN, or 174%, over the past 579 weeks.
  • Fed holdings for foreign owners of Treasury, Agency Debt increased $2.5bn last week to $3.389 TN.
  • “Custody holdings” were up $80.1bn, or 2.4%, y-o-y.

Fed 2023 Bank Stress Tests.

Busy Central Bank Week Ahead:

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

Monday, December 18, 2023

  • 21:30 BoJ Interest Rate Decision

Tuesday, December 19, 2023

  • 08:00 Hungary Interest Rate Decision
  • 13:00 Columbia Interest Rate Decision
  • 16:00 Chile Interest Rate Decision
  • 20:15 China Loan Prime Rate 5Y
  • 20:15 PBoC Loan Prime Rate

Wednesday, December 13, 2023

  • None Seen

Thursday, December 14, 2023

  • 02:30 Indonesia Interest Rate Decision
  • 06:00 Turkey Interest Rate Decision

Friday, December 15, 2023

  • None Seen

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

Monday, December 18, 2023

  • 05:30 BoE MPC Member Broadbent Speaks
  • 06:00 German Buba Monthly Report
  • 08:30 ECB’s Schnabel Speaks
  • 10:00 EUR ECB’s Lane Speaks
  • 19:30 RBA Meeting Minutes
  • 20:00 Monetary Policy Board’s Policy Setting Meeting Dates
  • 21:30 BoJ Interest Rate Decision

Tuesday, December 19, 2023

  • 01:30 BoJ Press Conference
  • 04:00 ECB’s Elderson Speaks
  • 04:00 ECB’s Enria Speaks
  • 08:00 Hungary Interest Rate Decision
  • 08:00 BoE Breeden Speaks
  • 11:30 Atlanta Fed GDPNow (Q4)
  • 13:00 Columbia Interest Rate Decision
  • 16:00 Chile Interest Rate Decision
  • 20:15 China Loan Prime Rate 5Y
  • 20:15 PBoC Loan Prime Rate

Wednesday, December 20, 2023

  • 09:00 SNB Quarterly Bulletin
  • 09:00 ECB’s Lane Speaks
  • 13:30 BOC Summary of Deliberations

Thursday, December 21, 2023

02:30 Indonesia Interest Rate Decision

  • 06:00 Turkey Interest Rate Decision
  • 11:00 ECB’s Lane Speaks
  • 15:30 Fed’s Balance Sheet
  • 15:30 Reserve Balances with Federal Reserve Banks
  • 18:50 BoJ Monetary Policy Meeting Minutes

Friday, December 22, 2023

  • 06:30 RBI MPC Meeting Minutes
  • 11:30 Atlanta Fed GDPNow (Q4)

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.

Latest Key Central Bank Decisions, Reports Archive


Russian Central Bank Hikes Interest Rate to 16% as Wartime Inflation Pressures Mount

ECB Leaves Key Interest Rates Unchanged, Announce Early End to PEPP

Bank of England Maintains Interest Rates at 5.25%, Inflation Not Tamed Quickly Enough

Federal Reserve Kept Rates Unchanged, Surprises with Pivot Towards Rate Cuts

Reserve Bank of India Kept its Key Rate at 6.50%, BSE Sensex index Hits All Time High, Rupee All Time Low

Yen Rallies After Japan’s 10-year Government Bond Yield Surges on BOJ’s Ueda Comments

Bank of Canada Holds Rates at 5.00%, Economy No Longer in Excess Demand

Reserve Bank of Australia Leaves Rates Unchanged at 4.35%, Leans Dovish

Yen Falls After Bank of Japan Changes Language Around 1% 10yr JGB Cap BUT No 1.5% Extension


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Sources: TC WSJ Bloomberg Scotia Bank

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