Central Banks: BOJ and ECB on Hold, but BOC May Hike Rates Soon
Tue, Sep 7, 11:31 AM ET, by ForexTraders.com
Last week saw neutral monetary policy decisions made by the Bank of Japan and the European Central Bank that had little impact on the forex market. Nevertheless, the Bank of Canada is currently widely expected to raise its benchmark interest rates at its Rate Decision announcement on Wednesday, September 8th. Japanese Central Bank adds to Loan ProgramOn Monday, the Bank of Japan left its benchmark Overnight Call Rate at 0.10% - as was widely expected. In addition to the rate decision, the central bank also held an emergency meeting to deal with the effects of the recently rising Yen. After the meeting, the BOJ revealed a new six month loan program featuring low interest rates and hiking the total loan amount made available to banks to ¥30 trillion from ¥20 trillion. The time frame of the loans was also extended from three months to six months in the bank's efforts to stimulate the Japanese economy further. In addition to that, the Japanese Prime Minister Haoto Kan announced that ¥920 billion would be added to the existing economic stimulus measures to help bring down the seemingly ever appreciating Yen. European Central Bank Leaves Rate UnchangedFor its part, the ECB also kept its benchmark Minimum Bid Rate at 1.00% for the 17th consecutive month last Thursday, also as was widely expected. Citing uncertainty in Europe's recovery, ECB President Jean Claude Trichet stated that: "Recent economic data for the euro area have been stronger than expected, partly owing to temporary factors. Looking ahead, the recovery should proceed at a moderate pace, with uncertainty still prevailing." The ECB President also stated that the ECB's "current monetary policy stance remains accommodative", i.e. seemingly implying that the central bank has no problem adding further stimulus measures, if warranted. In addition, Trichet extended the E.U.'s emergency lending program by offering banks unlimited one week and one month loans into 2011. This effectively keeps the E.U. operating in emergency mode as the ongoing economic weakness seen in the United States may still jeopardize the Eurozone's recovery. In addition to leaving rates unchanged, a European Commission document proposed new rules in relation to the naked short selling of securities in the European Union. The proposal - which is yet to be approved by being submitted to European Parliament - would bring the E.U. closer to Germany which banned naked short selling in May. Nevertheless, the rule would not apply to market makers. It would also require short sellers to disclose the source of the securities and to provide proof that the underlying securities can be borrowed before shorting takes place. Bank of Canada Expected to Hike Rates September 8th Despite some recent slowing in the Canadian economy, the Bank of Canada is now still expected to raise its benchmark interest rates at its next Rate Decision to be announced this coming Wednesday, September 8th. The anticipated rate hike would raise Canada's benchmark Overnight Rate by 25 basis points to 1.00% from its current 0.75% level. Although the probable rate hike is currently expected by most of Canada's primary securities dealers, another rate hike by the BOC does not now seem likely for the rest of the year due to an overall economic slowdown in other parts of North America. The upcoming Rate Decision comes soon after the recent release of Canadian GDP data on August 31st that came out in line with market expectations by showing 0.2% month on month growth, up from the 0.1% growth seen the previous month.
SDI Glossary: "Call" Definition
SDI Glossary: "GDP" Definition
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