BoE, BoJ, SNB and the Bank of Russia in focus this week - Rabobank

The BoE, BoJ, SNB and the Bank of Russia are due to meet this week which is likely to garner maximum investors’ attention suggests Jane Foley, Senior FX Strategist at Rabobank. 

Key Quotes

“Although the BoE’s Forbes is likely to repeat her hawkish position in this week policy meeting, the results of last week’s election have had a dovish impact on the UK money market and no BoE rate hike is projected until 2019.  The reasoning is echoed by a survey from the Institute of Directors which shows that business optimism plunged on the back of the election result.  Data from Visa released this morning indicates that UK consumers cut spending for the first time in nearly 4 years last month.  Official UK retail sales data have been trending lower since December.”

“The Bloomberg survey suggests that BoJ watchers are unanimous in their expectation for steady rates this week.  This morning Japanese April machine orders data disappointed with a 3.1% m/m drop.  Despite a better tone in economic data this year, this sends a poor signal regarding investment.  The fact that labour shortages have been forcing some Japanese businesses to close this year may offer a positive explanation if resources are being reserved for higher workers’ pay.  However, there is no firm evidence of this yet.”

“Steady policy is also expected from the SNB which will also release its quarterly policy assessment with fresh growth and inflation forecasts this week.”

“With inflation hovering just above the official target set at 4%, the Bank of Russia is set to trim its key interest rate further on Friday. Another valid reason to expect the central bank to ease monetary policy is sluggish domestic demand. The only question is whether it will be a 25bps or a 50bps cut. Given that inflation stalled at 4.1% y/y in May, after decelerating from 4.3% y/y in March (it stood at 7.3% y/y in May 2016), it is a very close call as the CBR could adopt more cautious approach. However, we expect a 50bps cut to reduce the risk of excessive capital inflows fuelled by demand for the ruble’s carry trade. We remain of the view that at this stage of economic recovery Russia would benefit from a stable rather than potentially excessively strong currency, which could undermine the competitiveness of Russian exporters.”