Central Bank News and Interest Rates

Interest Rates

Central BankInterest RateLast ChangeNext Meeting
Federal Reserve1.25 %Mar 15, 2017Sep 20, 18:00 GMT
European Central Bank0 %Mar 10, 2016Sep 7, 11:45 GMT
Bank of Japan-0.1 %Jan 29, 2016Sep 21, 02:00 GMT
Bank of England0.25 %Aug 4, 2016Aug 3, 11:00 GMT
Bank of Canada0.75 %Jul 12, 2017Sep 6, 14:00 GMT
Reserve Bank of Australia1.5 %Aug 2, 2016Aug 1, 04:30 GMT
Reserve Bank of New Zealand1.75 %Nov 10, 2016Aug 10, 21:00 GMT
Swiss National Bank-0.75 %Jan 15, 2015Sep 14, 07:30 GMT
Euro

ECB Policy Minutes: Concerns Over Possible Euro Over-Shoot

In the minutes from July’s ECB policy meeting, there were concerns over possible market over-shooting, especially in the currency markets.There were also comments that...
US Dollar

S&P 500 Futures Extend Winning Streak as FOMC Minutes Reveal Split Over Interest Rates

U.S. stocks pared gains on Wednesday amid signs that a fissure was developing on the Federal Reserve's policy-setting board.The S&P 500 Index rose 0.1%...
Japanese Yen

USD/JPY Slides Towards 110.00 Handle Following Fed Minutes

USD/JPY fell sharply lower in North American trading after several failed attempts at 110.91 resistance. The Federal Reserve meeting minutes triggered a broadly...
Euro Dollar EUR/USD

EUR/USD Jumps Higher Following FOMC Minutes

EUR/USD was under pressure in early European trading but reversed higher following the North American open and extended gains after the Federal Reserve's release...
USA FOMC

Federal Reserve Minutes: Inflation Divisions Intensify, Dollar Retreats

At the July Federal Reserve Open Market Committee (FOMC) meeting, interest rates were left unchanged with the Fed Funds range at 1.00-1.25%.The minutes stated...
gold

Dollar Gains Nudge Gold Prices Lower, Fed Minutes In Focus

A solid US dollar tone has undermined gold prices, although overall movement has been limited ahead of the Fed minutes with strong commodity currencies...

RBA Minutes Indicate that Housing Market Conditions “Warrant Careful Monitoring”

Australia's red-hot housing market warrants "careful monitoring" by policymakers, especially as household balance sheets continue to rise, the minutes of the August 1 Reserve...

Uncertainty Over Fed Dudley’s Inflation Remarks, Dollar Retreats

In comments on Thursday, New York Federal Reserve President Dudley was quoted by one newswire as stating that he did not expect inflation to...
USA

July US Non-Farm Payrolls (NFP) Rose 209,000, Data Backs Fed Normalisation

US non-farm payrolls increased 209,000 for July compared with expectations of a gain around 180,000 for the month.The June data was revised higher to...
us federal reserve
european central bank
bank of japan
bank of england
bank of canada
reserve bank of australia
reserve bank of new zealand
swiss national bank

What are Central Banks?

Central banks are responsible for the monetary system of their country. Through monetary policy, changes are made in lending, interest rates, reserve requirements and open market operations. Central banks have a monopoly over the money supply of their country and are able to print the national currency.

By controlling the money supply of its country, the central bank has a great deal of influence on the value of its currency. Monetary policy statements are provided by central banks at regular intervals to offer transparency in their actions, and market participants follow these statements to assist in the speculation of a country’s currency or equity market value.

Central Banks’ Goals and Objectives

Central banks have target mandates that usually relate to employment, price stability, and economic growth. Most central banks have similar targets for price stability, for example, a 2% inflation target is common among most banks. The method of economics used to achieve their targets can differ from one central bank to another.

The Federal Reserve, as an example, is focused on 2% inflation and maximum employment. Fed Chair Janet Yellen is a Keynesian economist who believes in the modern version of the Phillips curve. The model points out an inverse relationship between unemployment and inflation. The idea being that if an economy succeeds in reducing their unemployment rate, inflation levels should increase. Interest rates are then used to control inflation, to prevent the figure from going over the 2% objective.

The Federal Reserve cut their interest rates aggressively following the financial crisis. As the economy has improved, it would be appropriate to raise interest rates once again. But as the Fed’s target mandate is price stability, and maximum employment, they will not take any action that would contradict their mandate. While employment levels have improved, inflation has not reached the 2% level.

Central Banks and Interest Rates

Interest rates impact inflation levels through money supply. When a country raises their interest rate, the cost to borrow increases, resulting in a smaller money supply. When the availability of money decreases, the prices of goods and services either remain stagnant or decrease, hence downside pressure on inflation. For this reason, a central bank would have difficulty raising interest rates during times of low inflation, and inversely cutting interest rates during times of high inflation.

In the Phillips curve model, the inverse relationship pointed out between inflation and employment has resulted in the Fed focusing on employment, with the aim of increasing inflation, so that interest rates can be returned towards prior level.

Each central bank has its own challenges and focus. The Reserve Bank of India is on the opposite end of the spectrum. They have faced an extended period of high inflation, and therefore the interest rate is high, and the currency value is low. While the focus of the RBI is similar in that it pays importance to inflation and employment, their goals differ from the United States.

Central banks aim to deliver transparency in their actions. Their websites will often state their target mandate, as well as include minutes from prior monetary policy meeting minutes, which allow the public to know what the bank is doing.

The major central banks include:

Quantitative Easing (QE) and Open Market Operations

Following the financial crisis, several banks lowered their interest rates to aid the economy. Due to the severity of the crisis, further was action was needed, and Quantitative Easing (QE) measures were implemented in several economies. QE is an unconventional monetary policy that is often referred to as open market operations.

Open market operations allow the central bank a method of directly injecting money into the economy. It can be used as an alternative, or used together with interest rates to increase the money supply. Central banks will purchase government securities or other securities, in doing so the bank turns over its money into the economy while decreasing the supply of the security. These measures are used when there is a need for urgency in increasing the money supply. Timing plays a big role during a crisis, and adjusting interest rates can take time to filter through prior to increases in money supply being realized.

Conclusion

Central banks play a crucial role in the health of a country’s economy, and in the financial markets. The monetary policy action of a central bank carries a great deal of influence on that country’s currency and equity markets. If a central bank is concerned with a specific data set, then market participants will focus on that data and additional volatility is seen in the markets during the release of that data. The website of a central bank provides information on the health of the country’s economy and is a good indicator for market participants in speculating future value of the country’s currency and equity market.

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