The central banks and all that we need to know.
As we know, it was a banking week with the central bank's interest rate decisions and monetary policy meeting in focus. During the week, central banks in the US, UK, EU, Japan, Russia, Turkey, Swiss, and some other European countries held their last meeting of 2021.
Just in Turkey, the central bank decreased the interest rate to have a bit more dovish policies because while other economies were decreasing the rates, they used to increase it up to 19.75% from 8.5% pre-pandemic. The wrong policies of the central bank killed the Turkish economy in the beginning, and now it is weakening the Turkish Lira. USD/TRY currently trading at its historical low of 16.45.
FED started the Giant's meetings. Wednesday and at the end of two days' monetary policy, the Hawkish tone of the FOMC announcement was not surprising for the market, as it was widely expected. Although increasing the tapering of the asset purchases up to $30B per month with a three rate hike anticipated, was a strict policy, it did not shock the markets at the beginning, even encouraging the bulls for the next day as well.
After FED, it was the BoE turn. The Bank of England also had a hawkish signal and announced a 15 basis point rate hike to 0.25%, to become the first G7 member that increased the rates, but kept the total scale of asset purchases unchanged at 895 billion pounds. Before meeting there were different ideas and comments that what they have to do, waiting to see the real effects of the Omicron variant or do something against increasing inflation. However, in the end, the MPC of the Bank of England concluded that with great economic recovery, developing the labor market (Expecting unemployment level is 4%), and 6% expected inflation, it is feasible to tighten the policy now.
On the same day with BoE, the European Central Bank also announced its policies. The European central bank has kept the three key interest rates unchanged but decided to slow down the Emergency Anti-epidemic Bond Purchase Program (PEPP), which is expected to end in March next year. Regarding economic expectations, the European Central Bank increased the GDP growth to be 5.1% from earlier 5.0% expectations for 2021, while expected GDP for 2022 also increased by 2.6% from 2.2%. In terms of inflation, it is expected to reach 2.6% and 3.2% in 2021 and 2022, compared with previous predictions of 2.2% and 1.7%. In this regard, the central bank expects that mid-term inflation will still be below the target level, and Governor Lagarde also emphasized that it is "not likely to raise interest rates in 2022."
And finally, we had the Japanese central bank meeting on Friday. The Bank of Japan left its monetary policy settings unchanged. The short-term rate target at -0.1% and 10-year bonds yields around 0% had no change in this meeting, however, BoJ decided to scale back the pandemic stimulus next March. The only surprise of meeting was the decreasing the stimulus, which somehow interpreted to a hawkish policy.
And finally, as a conclusion, I can say that wherever market reaction was at the first to any of these meetings, at the end they are hawkish policy and for now and in the short term, have to put the markets under pressure. On the other hand, in the long run, since the hawkish policies are because of the great economic condition, we have to wait for wonderful 2022 in the global stock markets.
