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Central banks: doves still ruling the roost?

Tuesday, July 18, 2017 - 02:00

Economists polled by Reuters give their predictions for the big four central banks, with most seeing the Fed holding until Q4 before raising rates again and September as the most likely choice for the ECB to announce a tapering of its QE programme. David Pollard reports.

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Central bank guidance - and reality. Two sometimes very different concepts for economists polled by Reuters. Even when it comes to the Fed ... The latest poll shows many revising their forecasts - and pushing out expectations for a rate hike until Q4. If still predicting the Fed will announce a plan to shrink its $4 trillion balance sheet beforehand. SOUNDBITE (English) JAMES HUGHES, CHIEF MARKET ANALYST, GKFX, SAYING: We know the economic data is strong. We know that the economy could stand and continue to operate fully, if you do start to reduce that balance sheet. We expect the Fed to start doing that in September. The median forecast in the latest poll on the Bank of England sees rates held at their record low - until 2019. That at odds with financial markets - who at the time of the poll had fully priced in a hike by May of next year. Despite some readjustments as new data showed inflation softening to 2.6 per cent year on year. SOUNDBITE (English) JAMES HUGHES, CHIEF MARKET ANALYST, GKFX, SAYING: Wages are low and household debt is increasing. So you have an issue now if you start to raise, so that's the biggest problem at the moment, it's the U.K. That's where the biggest grey area lies. And prices likely to be the dominant thought for Haruhiko Kuroda when the Bank of Japan meets this week. It may revise up its forecast for growth - but is thought likely to delay its timing for hitting a two per cent inflation target. Currently pegged to the next fiscal year. Which leaves the ECB... SOUNDBITE (English) JAMES HUGHES, CHIEF MARKET ANALYST, GKFX, SAYING: Yes, on the face of it the economic data is better. We still have growing issues with the likes of Greece. We still have Italian debt. Problems in terms of the banks. There are still the same issues going on with the eurozone that were going on five years ago. Mario Draghi and his policymakers not seen raising rates until the fourth quarter of 2018. Though most of those polled see the ECB as ready to announce a tapering of its 60 billion euros of monthly asset purchases as early as September.

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Central banks: doves still ruling the roost?

Tuesday, July 18, 2017 - 02:00