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CENTRAL BANK WATCH
April 2017
Short-term bias
Policy rates: International
%
9
8
Canada
U.S.
U.K.
Euro Area
Aus tralia
New Zealand
BoC officials continue to push back against market pricing for
higher rates this year. Expect the upcoming MPR to balance the
positive trend in recent data with still-elevated uncertainty in the
outlook and indications that slack in the economy remains.
Forecast
7
6
5
4
The Fed’s March ‘dot plot’ was less hawkish than expected but
nonetheless indicated a growing consensus to continue scaling
back accommodation this year. We look for the next rate hike
in June.
3
2
1
0
-1
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
The BoE’s patience might be tested by rising inflation (indeed,
one MPC member already voted for a hike) but we expect
signs of a slowdown in the UK economy will keep policymakers on the sidelines this year as Brexit negotiations get underway.
Source: FRB, BoC, ECB, BoE, RBA, RBNZ, RBC Economics Research
Responding to expectations that stimulus might be scaled back
next year, the ECB has been keen to emphasize that monetary
policy will remain accommodative as long as underlying inflation remains subdued.
The RBA’s tone was a bit more balanced in April, noting
stronger growth but evidence of softer domestic conditions. We
think there is scope for one more rate cut in the current cycle
but not until Q4/17.
The RBNZ sounded a bit more positive on the economic outlook in March. We continue to see risk of further easing but
have shifted our forecast for a final rate cut to Q4/17.
Central Bank policy rates
Current
United States
Fed funds
Canada
Overnight rate
0.75-1.00
Last
0.50-0.75 March 15, 2017
0.50
0.75
July 15, 2015
United Kingdom Bank rate
0.25
0.50
August 4, 2016
Josh Nye
Eurozone
Deposit rate
-0.40
-0.30
March 10, 2016
Economist
(416) 974-3979
[email protected]
Australia
Cash rate
1.50
1.75
August 3, 2016
New Zealand
Cash rate
1.75
2.00
November 10, 2016
CENTRAL BANK WATCH | APRIL 2017
Bank of Canada
A stronger-than-expected 0.6% increase in January
GDP, built on solid gains in prior months, leading
us to boost our Q1/17 forecast to 3.8%. That would
make for a third consecutive quarter in which Canada’s economy has outperformed the US.
The upcoming MPR should acknowledge strength
in recent data and eroding economic slack, but we
don’t expect any hint of a tightening bias as the
Bank remains focused on external risks.
Canadian overnight rate
Canadian real GDP growth
%
Quarter-over-quarter annualized % change
7
8
Forecast
6
6
4
5
2
4
-2
3
-4
2
-6
1
-8
-10
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: Statistics Canada, RBC Economics Research
Forecasted values:
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: Bank of Canada, Federal Reserve Board, RBC Economics Research
Federal Reserve
US GDP growth likely slowed to 1.6% in Q1/17 as
consumer spending slowed. However, in the face
of solid employment gains, we think that dip will
prove temporary helping overall growth return to
an above-trend pace this year.
Notwithstanding a softer Q1, we expect an improving economic outlook will keep the Fed in tightening mode with two more rate hikes in 2017 and
tapering of reinvestment announced later this year.
U.S. target rate
U.S. real GDP growth
%
7
Quarter-over-quarter annualized % change
8
Forecast
6
6
4
5
2
4
-2
3
-4
2
-6
1
-8
-10
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Forecasted values:
Source: Bureau of Economics Analysis, RBC Economics Research
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: Bank of Canada, Federal Reserve Board, RBC Economics Research
European Central Bank
Improving PMI readings point to growing momentum in the euro area’s recovery; risks around our
forecast for another 0.4% gain in Q1/17 GDP are
tilted to the upside.
Growth is picking up and headline inflation readings are higher but there continue to be few signs
of underlying inflationary pressure. We see the
ECB remaining in easing mode with QE continuing through the end of this year.
ECB Deposit rate
Euro area GDP
%
% change, quarter-over-quarter
7
1.5
Forecast
1.0
6
0.5
5
0.0
4
-0.5
3
-1.0
-1.5
2
-2.0
1
-2.5
0
-3.0
-3.5
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: Eurostat, RBC Economics Research
Forecasted values:
-1
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: ECB, RBC Economics Research
Bank of England
After stronger-than-expected growth in H2/16,
growth appears to be moderating in early-2017.
Softer PMI reading support our forecast for a 0.4%
increase in Q1/17 GDP.
The BoE is balancing rising headline inflation with
expectations of softer growth as Brexit begins to
bite. We think the MPC will keep their options
open―ready to respond in either direction―before
shifting back to an easing bias later this year.
Australian and New Zealand
Higher commodity prices have helped boost income measures, but overall growth in Australia’s
economy remains subdued. With housing expected
to slow later this year―easing a key financial stability concern―we see scope for a final rate cut in
Q4/17.
A more positive tone from the RBNZ points to
monetary policy being held steady for now but we
expect an under-realization of the central bank’s
growth and inflation outlook will ultimately prompt
another cash rate cut later this year.
% change, quarter-over-quarter
U.K. real GDP growth
U.K. policy rate
%
1.5
7
1.0
6
0.5
5
Forecast
0.0
4
-0.5
3
-1.0
2
-1.5
1
-2.0
-2.5
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: Central Statistical Office, RBC Economics Research
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Forecasted values:
Source: Bank of England, RBC Economics Research
Australia and New Zealand inflation
Australia and New Zealand GDP growth
2.5
% change, quarter-over-quarter
7
% change, year-over-year
Forecast
2.0
6
1.5
Australia
New Zealand
Forecast
5
1.0
4
0.5
3
0.0
2
-0.5
Australia
New Zealand
-1.0
-1.5
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
1
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
*2016 Australia GDP is actual
Source: Australian Bureau of Statistics, Statistics New Zealand, RBC Economics Research
Source: Aus tralian Bureau of Statistics, Statistics New Zealand, RBC Economics Res earch
The material contained in this report is the property of Royal Bank of Canada and may not be reproduced in any way, in whole or in part, without express authorization of the copyright holder in writing. The statements and statistics contained herein have been prepared by RBC Economics Research based on information from
sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This publication is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.
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