Hike rates

Most global central banks poised to hike rates as inflation bites; The vigilant ECB

The European Central Bank is unlikely to rush to new decisions this week as record inflation in the euro zone and a raging war just over its border leave officials navigating in a fog of uncertainty.

With the Board of Governors already accelerating a tapering of stimulus measures in March, investors will focus on how Chair Christine Lagarde and her colleagues assess the need for interest rate hikes later this year, also watching any indication of possible market turbulence. .

While the fastest inflation in euro history, fueled by energy costs, has galvanized officials into tightening, the dispute still leaves them in doubt about the impact. In March, one of them drew on the work of 20th-century American economist Frank Knight to describe the predicament.

“It has been suggested that under these conditions the ECB was grappling with ‘knightly uncertainty’, that is, a type of uncertainty that was not quantifiable. The fears and concerns associated with war could not be easily captured by standard models.

Differing answers

The relatively muted policy response from the ECB contrasts with the more aggressive response from central banks physically further away from the war. The US Federal Reserve has already hiked rates, New Zealand could hike again on Wednesday and a few hours later the Bank of Canada could even accelerate the tightening with a 50 basis point move.

For eurozone officials, however, their decision on Thursday will likely mark another moment of angst over a single shock that threatens both price stability and economic growth in a region still scarred by the ordeal of coronavirus. And in a stark reminder of how this problem persists, Lagarde said last week that she too had COVID-19.

“Lagarde signaled in March that the Board of Governors intends to maintain the course of monetary normalization, despite the war in Ukraine,” said David Powell, senior European economist.

Among other moves in the coming week, China’s central bank could cut rates while Israel’s could raise them. Elsewhere, data in the US and UK could show new highs for inflation.

United States and Canada

Tuesday’s data is expected to show that US inflation continued to accelerate in March. The closely watched consumer price index is expected to have risen 8.4% from a year ago, the most since the early 1980s, and 1.2% from the previous month. The monthly gain, which is expected to include higher energy costs, would be the largest since 2005.

The shortened holiday trading week will also include consumer demand numbers at the end of the first quarter. While higher gasoline prices likely helped lift the value of retail sales last month, a basic gauge is expected to see little change in March.

Charles Evans, Lael Brainard and Patrick Harker are among the Fed policymakers due to speak.

In Canada, meanwhile, inflation concerns are expected to push its central bank to become the first in the Group of Seven since the pandemic to go ahead with a half-percentage-point rate hike. Investors in overnight swaps estimate about three-quarters of the chance of such an outsized increase.

The Bank of Canada began its hike cycle last month, raising the key rate to 0.5% from an emergency low of 0.25%. Overnight swap trading suggests it will climb to nearly 3% over the next 12 months – a pace of tightening not seen in decades.

China

China starts the week with consumer and producer price readings on Monday which are expected to show a slight moderation in industrial inflation.

Credit and trade data follow, while the central bank will have an opportunity to cut borrowing costs when it sets rates on its medium-term lending facility at the end of the week.

New Zealand

The Reserve Bank of New Zealand is expected to hike rates by a quarter point on Wednesday as it continues to lead the frontrunner group of inflation-fighting policy tighteners in Asia-Pacific.

Korea

The Bank of Korea, another leader in the region, meets the next day and also has reason to rise again after price growth exceeded 4% for the first time in more than a decade. But with Rhee Chang-yong yet to be confirmed as the new BOK chief, a board without a governor could end up holding up again.

Japan

The Bank of Japan will again be watching the markets closely, with yields and the yen still near key pressure points. Governor Haruhiko Kuroda talks to his branch managers on Monday about the state of Japan’s economy.

Australia

Australia’s jobs figures on Thursday could further heighten speculation of a change in RBA policy if they show another improvement ahead of a federal election.

Singapore

On Thursday, Singapore is expected to tighten policy parameters further as it focuses on tackling imported inflationary pressures.

Sri Lanka

Talks between representatives of Sri Lanka and the IMF are expected to begin in Washington on Monday, which could give signals to bondholders on whether it is headed for default or debt restructuring.

Europe, Middle East, Africa

With the first round of the French elections on Sunday, the verdict on President Emmanuel Macron’s candidacy for a second term could dominate the news in the euro zone at the start of a week largely cut short across the region by Easter.

UK data reports begin with February gross domestic product on Monday and labor statistics on Tuesday. All economists polled on Wednesday’s inflation data predict a further acceleration. The median is 6.7%, with the highest forecast coming from Kallum Pickering in Berenberg anticipating 8%.

Elsewhere, the Bank of Israel is expected to raise rates for the first time in more than three years on Monday. Most analysts are predicting a 15 basis point rate hike, but some are expecting more aggressive action.

Same-day data from Egypt is expected to show inflation in urban centers accelerating in March, mainly due to seasonal food price hikes and a rise in tobacco prices. The ramifications of soaring global commodity prices and the recent devaluation of the pound should be more pronounced from April.

Turkey is expected to keep rates unchanged on Thursday despite a deteriorating outlook for inflation, which hit a new two-decade high in March.

Uganda’s central bank is expected to keep its benchmark rate unchanged for a fifth straight meeting to support economic growth as accelerating inflation lags most other countries and, at 3.7% , is well below its medium-term target of 5%. .

Latin America

Mexico starts the week with February manufacturing and industrial production results, followed by March comparable store sales. While analysts expect some improvement from this batch of readings, the accumulation of headwinds is prompting economists to revise growth forecasts for 2022 downwards.

Expect strong readings from Colombia for February, with the retreating omicron and the impact of Russia’s war on Ukraine yet to hit.

Retail sales, manufacturing and industrial production have reached historically high levels over the past year, in line with forecasts for 2022 GDP growth above 4%.

The minutes of the March 29 meeting of Chile’s central bank will be essential reading after policymakers signaled that the end of their aggressive tightening cycle may be near.

Argentina’s 22nd agreement with the International Monetary Fund sets an inflation target for 2022 of 38% to 48%. Early estimates for the March printout of the National Consumer Price Index see it hit 54%.

Brazil releases a slew of reports including retail sales, loans, current account, foreign direct investment and fiscal measures before closing the week with proxy GDP data.

Economic activity in January was weaker than expected and indications point to a further decline in February figures released on Thursday.