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BOJ Hints at Rate Cut, SNB Ready to Intervene, BOE Warns About Brexit

James Hyerczyk

The U.S. Federal Reserve (Fed) and the European Central Bank (ECB) deemed it necessary to cut rates in September, but other major central banks decided to keep policy on hold. The Fed was unclear about further rate cuts, but the ECB hit the markets with enough stimulus to suggest it was out of bullets. Meanwhile, Swiss National Bank (SNB), Bank of England (BOE) and the Bank of Japan (BOJ) policymakers decided to sit on their hands and watch how their domestic economies unfold given the outside threat of a global economic slowdown.

The SNB left its key policy rate and expansionary monetary policy unchanged, but said it “remains willing to intervene in the foreign exchange market as necessary.” The BOE held its policy rate unchanged at 0.75% with a unanimous vote. The BOJ kept monetary policy on hold but hinted at possible action in October.

Swiss National Bank

The SNB left its base rate unchanged while cutting growth and inflation view. In doing so, it said it “remains willing to intervene in the foreign exchange market as necessary.”

The SNB also said, “Negative interest and the willingness to intervene are important in order to counteract the attractiveness of Swiss Franc investments and thus ease pressure on the currency. In this way, the SNB stabilizes price developments and supports economic activity.”

The SNB also lowered its conditional inflation forecast for the current year to 0.4% from 0.6% in the previous quarter, and its growth forecast was cut to between 0.5% and 1% for 2019 as a whole, compared to around 1.5% in June.

Bank of England

The BOE surprised no one when it held its policy rate unchanged at 0.75% in a unanimous vote. Its asset purchase facility remained steady at 435 billion British Pounds as well.

BOE policymakers also reiterated their view that leaving the EU without an exit deal would slow growth and raise rates. They also warned that another delay to Britain’s departure date could lead to further economic weakness.

“It is possible that political events could lead to a further period of entrenched uncertainty about the nature of, and the transition to, the United Kingdom’s eventual future trading relationship with the European Union,” the BOE said in a press release.

“The longer those uncertainties persist, particularly in an environment of weaker global growth, the more likely it is that demand growth will remain below potential, increasing excess supply.”

Bank of Japan

The BOJ kept monetary policy on hold but hinted at possible action in October. Policymakers held overnight interest rates at minus 0.1 percent, its target for 10-year bond yields at around zero percent, and the pace of its asset purchases at 80 trillion Yen ($740 billion) a year.

The BOJ’s board voted for the decision by a majority of 7-2, with the dissents coming from policymakers who wanted greater stimulus.

Central bankers also gave an explicit warning that it was concerned about risks to the economic recovery and promised a review at its next meeting, after Japan’s consumption tax rises from 8 percent to 10 percent at the end of this month.

“With the slowdown in overseas economies continuing and downside risks on the increase, we judged it’s becoming necessary to pay closer attention to the possibility of losing momentum towards our price stability goal,” said Haruhiko Kuroda, BOJ Governor, in a press conference after the decision.

“Bearing that in mind, we’ll re-examine trends in activity and prices at our next meeting, when we publish our economic outlook report.”

This article was originally posted on FX Empire

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