Central Bank Rate Hike Expectations – Who is Expected to Ease

Central banks have been particularly vocal since the beginning of the year, either by expressing their skepticism or satisfaction with the easing of credit conditions and incoming economic data. For some countries, this has changed rate hike expectations, for others it simply confirms existing views. As you may know, central bank rate hike expectations change often but here’s the latest. Find out which central banks are expected to keep monetary policy unchanged in the coming year and which ones are expected to ease below!

Federal Reserve – No Changes in 2012 (surprise, surprise)

European Central Bank – No more Rate Cuts in 2012 – upgrade from the pricing in of 25bp of easing in Jan

Bank of England – No Changes in 2012

Bank of Canada
– No Changes in 2012

Reserve Bank of Australia
– Mkt was pricing in 75bp of easing this yr back in Jan, now only 50bp expected

Reserve Bank of New Zealand – No Changes in 2012

And here are the details!

What Investors Expect Central Banks to Do in 2011 and 2012

Central Bank Interest Rate Expectations can and do change based upon economic and market developments. The last time I provided updated CB expectations was in July (yes, I apologize for being tardy) but since then we have seen major changes in investors expect central banks to do this year and next.

Here are the cliff notes

FED – Nada for 2011 and 2012

ECB – 25bp rate cut by Dec?! (In July no rate hike or cut was expected for 2011 and 1H2012)

BOE – Nada for 2011 and 2012 but slight shift to dovish bias

BOC – Rate Cuts now expected in 2012, down from rate hike by April

RBA – Major Rate Cuts Expected – 100bp by year end?!

RBNZ – No Major Changes, Rate Hike Expected March 2012

And here are the details:

Counting down to BoJ Meeting

Before you know it, the Bank of Japan will be delivering their monetary policy announcement. Far less attention has been paid to the BoJ announcement than last’s ECB or RBNZ meetings and for good reason. For the past few years, the central bank has been more reactive than proactive and never one to opt for surprises. The following table shows how economic data has fared since the last meeting and its clearly been mixed. Given the lack of clarity on the state of the economy, there is very little reason for the central bank to act. However the economy is improving which will reduce pressure on the central bank to increase stimulus. A stronger recovery is possible in the coming months as production returns to normal levels – therefore we would not preclude the possibility of optimistic comments from the BoJ

Fed: Data Shows Mkt Pricing in Q2 Rate Hike?

It has been a while since I provided updated numbers for the market’s rate hike expectations and I will chalk it up to my travels! Rate expectations are always changing and a lot has happened over the past month. Its always important to keep track of them because they reflect what investors are pricing in!

Here are the latest numbers and highlights (compared to March)

Fed – One 25bp rate hike expected by Q2 2012 > Compared to Q1 rate hike before
BoE – First Rate hike expected in Jan > compared to prior forecast for 50bp rate hike in 2011
ECB – 50bp of additional tightening expected > compared to 75bp after April hike
RBA – Close to one 25bp rate hike by years end > significant upgrade from March expectations
RBNZ – One rate hike in Jan 2012 > bumped up from March
BoC – 25bp rate hike in Oct > slight downgrade in rate hike expectations