Central banks from Frankfurt to Ottawa appear to be taking a lower gear on the road away from easy monetary policy amid signs some key economies are slowing.
The European Central Bank (ECB) on Thursday avoided any discussion of its next steps toward ending bond buying and Sweden’s Riksbank pushed back a plan to raise interest rates for the first time in seven years. Just days earlier, the Bank of Canada governor said more work is needed to heal the scars of the crisis.
The Bank of Japan left its monetary stimulus program unchanged yesterday, as expected, but removed previous wording on reaching its 2 percent inflation by about fiscal 2019, underscoring just how much more time would be needed to reach its 2 percent target. Its overall inflation forecasts were largely unchanged.
While the US Federal Reserve has set the example in moving on from a decade of rock-bottom interest rates and quantitative easing, the preference elsewhere to be unhurried has been strengthened by weakening global growth prospects and threats of protectionism.
Central banks have fought hard to restore inflation since the financial crisis, but there is little hard evidence that the battle is won.
“The recent data create uncertainty and that, together with weak inflationary pressures, points to a very slow exit,” said Nick Kounis, an economist at ABN Amro Bank NV. “For the ECB, which was already having doubts even against the background of a strong economy, this is a reason to go slow.”
The strongest global expansion since 2011 is set to continue for another two years, but the IMF has warned that risks are mounting. A potential protectionist spiral, unstable geopolitics and the effect of the US fiscal stimulus will weigh on an upswing that might be running out of steam.
Following the Fed’s lead, most developed economies’ central banks are seeking to rein in the stimulus they deployed to counter the global crisis. Yet for some, the slowdown might complicate a tightening process that is still in its early stages.
“Tightening monetary conditions would be premature at this juncture and would risk unnecessarily jeopardizing the positive economic momentum that has been established,” Swiss National Bank President Thomas Jordan said yesterday.
ECB President Mario Draghi on Thursday said policymakers refrained from discussing the end of asset purchases or even the stronger euro as they focused on gauging the health of the region’s economy.
Momentum has waned since the start of the year and any pickup in underlying inflation appears to have stalled.
Do not expect the ECB to announce any changes until at least June, people familiar with the matter said.
“We didn’t discuss monetary policy per se. Incoming information since our meeting in early March points towards some moderation, while remaining consistent with a solid and broad-based expansion of the euro-area economy,” Draghi said.
Last week, Bank of Canada Governor Stephen Poloz said the job of escaping the financial crisis still is not done, while Bank of England Governor Mark Carney left a previously imminent interest-rate hike open to doubt.
The Fed, which is expected to leave policy on hold at a meeting next week, has led the way on policy tightening with six interest-rate increases since 2015. Officials still appear willing to let the economy heat up to ensure that inflation becomes embedded.
“There is no reason not to give numbers a second look, even for those central banks whose economies is running hotter,” Kounis said. “If they turn out to be noise, they will reassess the situation.”
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