Central Bank Policies

18th April 2021

BOC PREVIEW (WED):In recent months, analysts have been speculating that the BoC will announce a tapering of its asset purchases at the April meeting. However, some of these expectations are being scaled-back after some regions, like Ontario, announced further COVID restrictions in the month. UBS lays out the dilemma for the central bank, stating that on one hand, BoC commentary on the strength of the economy in Q1 and rising household indebtedness call for a reduction of stimulus in April, but on the other hand, the recent increase in COVID cases and restrictions put the BoC in a difficult position; ultimately, UBS looks for the BoC to delay tapering on the back of new restrictions. If these restrictions are lifted by the end of April/early May, UBS expects the BoC will reduce its bond buying from CAD 4bln /week to CAD 3bln/week. But ahead, UBS makes the case that with lower restrictions and a lower chance of a substantial rise of restrictions given the acceleration in the vaccine rollout, the BoC will again see a lower need for accommodation in June. "If Covid restrictions are still substantial through mid-May though, there is again a risk that tapering may be delayed," however, "purchases would likely continue to decline at each meeting after that given the recent strength in the economy, the growth that we project for the rest of the year and the BoC's concerns on rising household indebtedness, we now expect the BoC to taper at every meeting after it begins to taper in June (instead of at each meeting with a MPR previously)." UBS thinks a reduction of CAD 1bln per meeting seems appropriate, and implies QE would end in October. Meanwhile, the BoC will also release an updated MPR report, where it is likely to raise its near-term growth projections.

ECB PREVIEW: Consensus looks for the ECB to stand pat on rates and to maintain bond purchases via the PEPP envelope at EUR 1.85trl until the end of March 2022. At the prior meeting, the Governing Council announced that purchases under the PEPP over the next quarter are to be conducted at a significantly higher pace than during the first months of 2021. At the follow-up press conference, President Lagarde refrained from providing a specific number to define "significant". However, prior to the past few weeks (which were distorted by the Easter holiday), PEPP purchases were running at a clip of EUR 19-21bln vs. ~EUR 12bln ahead of the March announcement. Since the prior meeting, headline Y/Y CPI rose to 1.3% in March from 0.9%, albeit messaging from the ECB continues to note that near-term price pressures are likely to be transitory. Survey data has held up relatively well thus far with the EZ Markit Composite reading back in expansionary territory. However, the upcoming April metrics are likely to encompass more of the recent fallout from tightening lockdown measures and rising case counts across the region. That said, an expected ramp up in vaccine deliveries in May could prompt some optimism on the Governing Council with ABN AMRO recently noting that the EU is on track to fully vaccinate 70% of the population by September. The upcoming meeting will likely pass with little in the way of fanfare with President Lagarde likely be questioned on how significant she deems the pick up in PEPP purchases to be and whether or not purchases will be ramped up further in the coming weeks and months. Financing conditions will likely be a key aspect of the ECB's messaging, on which, UBS observes that the ECB should draw comfort from the fact that the "imported tightening of financing conditions has stalled". Another area of interest will be how the Governing Council characterises risks regarding the yet-to-be passed EU Recovery Fund and the legal challenges it faces in the German constitutional court. Finally, the President will likely also be questioned about recent remarks from Netherland's Knot who suggested that the ECB can begin phasing out PEPP as of Q3 and conclude purchases in March 2022. Such talk is likely to be deemed as premature, however, any hints on what could prompt the conversation on the Governing Council will be of interest to market participants.

RBA MINUTES  PREEVIEW: Focus in the minutes will be on any color surrounding the strong upside surprises seen across domestic data heading into April's meeting. The April statement was relatively bland with no new substance, and the central bank is seemingly in wait-and-see mode. Desks note that, as always, these accounts do tend to be outdated. That being said, it could still elaborate on some themes, including uncertainty surrounding the economy adjusting to less fiscal stimulus, a delayed vaccine rollout and the stronger than expected global and domestic recovery

CBRT REVIEW : The Turkish Central Bank opted to stand pat on its rates, as forecast by a majority of analysts, whilst some outside bets called for cuts ranging between 50-200bps. The most notable change in the statement was the removal of the tightening bias. Desks note that this points to a more dovish reaction function, and thus there is a higher risk of premature easing. The central bank also pointed out that the policy rate will continue to be determined at a level above inflation to maintain a strong dis-inflationary effect until indicators point to a permanent fall in inflation and the medium-term 5% target is reached. Analysts at Goldman Sachs believe the CBRT does not have room to cut rates before Q4 2021. "We think that inflation is likely to rise towards 18% yoy in April and remain around 17-18% yoy until base effects kick in at the end of the year. Furthermore, the current account is likely to have widened towards US$4.0bn in March, and we expect it to come in at a similar level in April. A premature rate cut under these conditions could lead to renewed Lira volatility, which we think will be the main constraint to how early the TCMB eases."