- Bank of England Interest Rate Decision
- Bank of Japan Decides to Flex its Monetary Policy
- Inflation Concern in Global Markets
Bank of England Interest Rate Decision
The Bank of England has held interest rates at 0.1% and its bond-buying program at £895bn ($1,248.3 billion), thereby diminishing expectations of changes in the immediate future, with the next announcement not until 6 May. In the minutes of the Bank’s Monetary Policy Committee, it was stated that both decisions were taken unanimously by the board members.
The BoE said the outlook for the economy remained unusually uncertain and continues to depend on the evolution of the pandemic, the measures taken to protect public health, and how households, businesses and financial markets respond to these developments. However, it was stated that global economic growth expectations are relatively higher now compared to the previous MPC meeting, and the financial stimulus package in the USA is expected to have a significant positive impact on the global economic outlook.
“The bank seems relatively comfortable with the idea that the market moves reflect an improving growth and inflation outlook rather than an adverse and undesirable tightening in financial conditions,” said Luke Bartholomew, senior economist at Aberdeen Standard Investments.
In the minutes, it was stated that there has been a sharp increase in the yields of government bonds in developed economies due to the positive developments regarding the vaccination process, and it was reminded that risky assets continued to show resistance in this process.
Additionally, it was stated that there was a decrease in Covid-19 cases with the effect of the successful execution of the vaccination process, and it was stated that the restrictions in the country could be lifted faster than predicted in the previous meeting.
In the minutes, it was underlined that the Gross Domestic Product (GDP) in the UK contracted by 2.9% in January 2021, and it was stated that stronger growth could be seen in the second quarter of 2021, with the effect of the positive developments regarding the lifting of restrictions recently.
BoE noted that inflation is expected to slowly rise to the bank’s target level of 2% in the spring of 2021, and the economic outlook, especially during the exit from the epidemic, remains uncertain.
Some traders were hoping to see the BOE be slightly less dovish and to build on January’s comments that the central bank did not mean to imply that they would use negative rates. Instead, they hedged themselves by noting that they will do more ‘’if necessary’’. Their outlook continues to be dependent on the pandemic, pace of the rollout of vaccines, and how households and businesses respond.
Bank of Japan Decides to Flex its Monetary Policy
While the Bank of Japan (BoJ) did not change interest rates, it took decisions to further flex its monetary policy. The decisions taken at the BoJ’s monetary policy meeting, which started yesterday and ended today, were announced. At the meeting, BoJ, who comprehensively evaluated monetary policy for the first time since September 2016, did not change the policy rate and left it at minus 0.1%. The decision in question was taken by 8 votes to 1.
The bank expanded its target band for government bond yields from plus-minus 0.20% to plus-minus 0.25%. Removing the 6 trillion yen purchase target for the purchase of exchange-traded funds (ETF) from the text, the bank maintained the upper limit of approximately 12 trillion yen.
“Even if the coronavirus pandemic subsides, we might face another shock,” BOJ Governor Haruhiko Kuroda told a news conference. “We decided to maintain the 12-trillion-yen ceiling, and buy ETFs more flexibly and in a nimble fashion.”
In the statement of the decision, it was stated that based on the findings, the Bank judged that the following basic stance on monetary policy was important: with a view to achieving the price stability target of 2 percent, the Bank will continue with monetary easing in a sustainable manner and make nimble and effective responses without hesitation to counter changes in developments in economic activity and prices, as well as in financial conditions.
The Bank will continue with Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control, aiming to achieve the price stability target of 2%, as long as it is necessary for maintaining that target in a stable manner. It will continue expanding the monetary base until the year-on-year rate of increase in the observed consumer price index (CPI, all items less fresh food) exceeds 2% and stays above the target in a stable manner.
In order to conduct yield curve control flexibly during normal times, the Bank will make clear that the range of 10-year Japanese government bond (JGB) yield fluctuations would be between around plus and minus 0.25% from the target level. At the same time, it will introduce “fixed-rate purchase operations for consecutive days” as a powerful tool to set an upper limit on interest rates when necessary.
Analysts said the bank added more flexibility to its asset purchase program with this decision, adding that steps have been taken to address the side effects of excessive monetary expansion, such as market distortions and pressure on bank revenues.
Pointing out that the changes aim to make the enlargement policy more sustainable in the long term, analysts emphasized that the commitment to take risky assets if necessary is maintained.
Inflation Concern in Global Markets
Asian stock markets declined due to the USA, the rise in bond yields and inflation concerns, while the tense negotiations between the USA and China in Alaska on the Chinese stock markets also had a negative effect.
Inflation concern overpricing in stock markets once again came to the fore as the main theme. It was seen that the tense summit that started between the USA and China in the Asian markets was reflected in the pricing.
Despite the Fed’s promise of loose monetary policy in the medium term, with the inflation worries prevailing in the markets, sales of risky assets are accelerating.
On Thursday evening, US stocks fell hard, led by tech companies. Nasdaq closed the day with 3.1% and the S&P 500 down 1.5%. Futures of both indices entered the new trading day with limited gains.
In Asia, on the other hand, the US-China tension is felt along with the inflation worries. China Shanghai Composite fell by around 1%, while the loss in the Hong Kong Hang Seng index exceeded 1%.
A wave of sales is also observed in bonds. The US 10-year bond yield is 1.70%, close to the top of the last year. Australia’s 10-year bond yield also rose three basis points to 1.82%. The Bloomberg Dollar Index is horizontal at 1139.
In addition, in the USA, the first direct official contact of the Biden administration with China started with the meeting, which took place with harsh debates.
At the summit held in Alaska, both sides brought harsh criticism to each other in the fields of human rights, trade, and foreign policy. US Secretary of State Antony Blinken brought to the table the cyberattacks undertaken by the groups supported by China and the pressures of the Beijing administration against Muslim minorities. Blinken stated that China’s steps “threaten the global order based on rules”. In response, Mr. Yang accused Washington of using its military might and financial supremacy to suppress other countries.
Chinese Politburo Member Yang Jiechi replied to this accusation that “Western nations do not represent the global public opinion” and stated that the US is “the champion of cyberattacks. Interesting moments were also experienced at the summit. As the cameras were being taken out, Yang debuted to the US delegation, “Is this the way you hope to develop the dialogue?”
In a write-up of the exchange, published hours after it took place, Chinese state broadcaster CCTV said it was the US side that was “seriously exceeding the time limit” in their opening remarks and “provoking dispute” by launching “unreasonable attacks” on China’s domestic and foreign policies.