Central Banks delivered broadly as expected – Danske Bank

The Bank of England (BoE), central bank of Turkey (TCMB) and ECB delivered broadly as expected yesterday, according to analysts at Danske Bank.

Key Quotes

“First, the BoE announcement was a dull affair, with no new forecasts or policy signals. We still expect the BoE to hike around once a year and our base case is that the next hike will arrive in May 2019, after the UK formally leaves the EU.”

“Then more action was seen in Turkey: while Turkey's president Recep Erdogan was out rattling TRY markets ahead of the TCMB decision, the central bank managed to surprise markets by delivering a significant rate hike of 625bp for its one-week repo rate, sending it to 24.00%. The accompanying statement further stroked a hawkish tone promising more monetary tightening 'if needed'.”

“The decision fuelled a risk-on move across emerging market currencies and sent the TRY up more than 4% up against the USD from yesterday's open levels.”

“Finally, the ECB did not deliver new policy signals in a meeting that on the face of it was rather uneventful. However, Mario Draghi notably highlighted risks 'gaining more prominence' - albeit still seen as balanced for growth - and importantly the ECB's confidence in the inflation outlook prevailed.”

“Rates markets were trading broadly sideways through the press conference but EUR/USD jumped towards 1.17 lifted also by a weak US CPI. While the asset-purchase programme will end by New Year, we still do not see a first rate hike from the ECB until December 2019.”