On July 4 it will be the Bank of England monetary policy meeting which will attract more market attention than that of the ECB, as it will be chaired for the first time by the new governor Mark Carney. Meanwhile, the ECB is not expected to make any significant moves.
“I expect Draghi to again underline the variety of options available to the ECB without actually committing to any at this meeting,” suggests Phil McHugh, who rejects the possibility of the central bank introducing negative deposit rates in July. Adam Narczewski agrees, saying that such a move would be “too drastic”. Instead, the analysts polled for the forecast report believe that market attention will mainly be focused on the ECB president’s rhetoric during the subsequent press conference. “A worried Draghi could send the euro lower, while another confident appearance could help it,” Yohay Elam speculates.
The Bank of England’s Monetary Policy Committee meeting will most probably attract more attention as it will be the first attended by new governor Mark Carney. Market experts believe however that he will not make any sudden moves just yet and that he will “focus mostly on setting the path the Bank will follow from now on,” as Valeria Bednarik puts it. In the light of the recent improvements in UK data, a further expansion of the asset purchase program does not seem to be so urgent but “the door remains open for imminent changes from the BoE indeed,” signalizes Layalee Ramahi.
The BoE and the ECB will announce their monetary policy decisions on July 4 at 11:00 and 11:45 GMT, respectively. Below you will find the full forecasts of the contributing economists.
Adam Narczewski – Financial Analyst at X-Trade Brokers, XTB:
“The introduction of negative deposit rates remains a possibility the ECB might consider but I believe it would be a too drastic move. With the Fed signaling it will start reducing QE this year (which implies an improving condition of the U.S economy) the ECB will be reluctant to ease monetary policy even more at this moment in the Eurozone. I expect statements the ECB is ready to take any measures if the situation suddenly worsens. Recently macro data from the Eurozone improved (including PMI reports) so I expect Draghi to stay on hold with any moves.”
BoE:
“We are all waiting for Mark Carney and his first decisions as BoE Governor.In July though, I do not expect an expansion of the QE program. A couple ofmonths ago the chance for it was much higher. Now, macro data has been showingimprovement and inflation in the U.K has increased. Also, I do not seeCarney making any sudden decision on its first monetary policy meeting. “
Yohay Elam – Analyst at Forex Crunch:
BoE:
“This decision will probably trigger more action in the markets than previous ones, as it is Carney’s first and expectations are high. However, it is unlikely that he will announce new QE at this time: inflation is rising and there are some signs of a return to more steady growth. In addition, the meeting minutes of recent decisions have shown there is opposition to more QE within the MPC. And while the members might want to be in line with the new governor, he will probably not choose to lead new policy at this time. The pound could leap on no change in policy and slide a bit on new QE.”
Phil McHugh – Senior Analyst at Currencies Direct:
“I do not believe negative interest rates will be introduced at the July meeting. I expect Draghi to again underline the variety of options available to the ECB without actually committing to any at this meeting. In fact, euro area data has looked more upbeat and should if anything look to remove the contentious option of negative interest rates from the table. However, Draghi is likely to keep the perception that all options remain open while continuing to sit on his hands whilst underlying euro area data is steady.”
BoE:
“The market is expecting a change of tact from Mark Carney as he assumes his role with the expectation that he will shake things up. However, at his first meeting it will be very surprising if we have a vote for more QE as he needs to settle in and align the committee with his objectives, and this will not happen overnight. He may introduce a statement at the end of each monthly meeting which will be a change in protocol for the Bank and will present an opportunity for him to feedback on his plans. I expect to see Carney try to engage the committee to take a more aggressive approach to monetary policy with a flexible attitude to inflation-targeting. It will be in the August quarterly inflation outlook that I expect to see the tone being set for future Bank Of England policy, and not July’s meeting.”
Layalee Ramahi – Strategic Manager at ICN.com:
ECB
“Draghi cannot be any more persistent; we are still accommodative; we are ready to act; and will contain any unwarranted side effects of new measures. The rhetoric is shifting from crisis management to more of tactical maneuvering to get the economy to tick back to life. So far with the Fed already keeping the euro in check and offering a good advantage sought after for growth Draghi might just settle for this supportive tone before they act this meeting with a new move and especially negative deposit rates. I see his rhetoric is more directed towards banks rather than markets to stimulate their lending to businesses and consumers, a signal to them to act before the ECB has to step up to steer their actions to that direction. The status quo will remain and more monetary easing remains on the table as far as recessionary economic conditions continue to worsen the euro’s outlook.”
BoE:
“Welcome aboard Mark Carney! It is surely interesting to see any change in rhetoric from the BoE in the coming period, but a welcoming meeting surprise is rather not in the books for the BoE this month, especially that the reluctance for more easing is more of a broad MPC view than the governor as King advocated for more QE! For Carney it will be a welcome meeting before he can start the structural changes, which he tried himself to tone down after he reflected a strong dovish impression that usually does not go well in UK! It is another month on hold for UK yet the door remains open for imminent changes from the BoE indeed.”
Steve Ruffley – Chief Market Strategist at InterTrader.com:
“I suspect there will be no movement from the ECB in the July meeting. Having been last to the table in cutting rates there are only now the scraps left for the ECB to feast on with the regards to the stimulus issues. Draghi may have indicated that negative deposit rates were a consideration but this is a long way from signalling they would actually use them. I think it would be a huge gamble to do this and for one think it would do a lot more harm good for the Euro and member states in the short term, and also do damage to the already shaky respect the ECB now has on the world stage.
As I have said in previous reports Draghi has not shown the aggression nor the ECB solidarity the FED has, each laboured and hesitant measure has shown that the fragility of the Euro Zone and how increasingly close it is to a breaking point. I still remain bearish the Euro and the DAX and expect 7447/7220 to be broken by the time this report is out.”
BoE:
“I will be trading the BoE MPC live on Fxstreet.com. Carney will want to make an impression but at the same time not want to cause unease with his new and very foreign colleges at the BoE. He needs to set his stall out and be clear how he intends to lead, his long term aim with the clear short term goals from the outset. There will be no easy ride for Carney in his term in office.
Unlike the Eurozone and the US, I have a feeling that the UK is in the unenviable position of having to tackle the inflation question first. It has been clear that the markets have only been focusing on the ‘growth’ figures in the last few years. As a nation and as a global economy we can only sustain these inflationary pressures for so long and I feel it is time that the inevitable rate rise is addressed. The CPI and PPI data out of the UK has been mixed, and with many people relying on low interest rates to service their debt it will not be an easy decision to make. It is a decision however that needs to be tackled and who better to make these calls than the ‘new guy’.”
Clemente De Lucia – Economist at BNP Paribas:
“We do not expect any relevant action at next week Governing Council meeting ; However, given the poor state of the economy, a refi rate cut might be delivered before the end of Q3. As regards a Negative deposit rate, the ECB has fixed the bar relatively high to cut it into negative territory. However, renewed tensions in financial markets, or a prolonged phase of disappointing growth and declining inflation (with rising risks of detaching inflation expectations), or a sudden appreciation of the exchange rate might induce the ECB to act.”
Bill Hubard – Chief Economist at Markets.com:
“King’s cautious outlook came as he made his last appearance at the UK Parliament’s Treasury Select Committee before he retires at the end of the month. He will be replaced by Mark Carney on 1 July. Separately, the TSC published a paper by the BOE on negative interest rates, which it requested after the Monetary Policy Committee discussed the possibility of further rate cuts earlier this year. In the paper, the BOE said while a negative rates remains an option, QE and credit-boosting programs are ‘more reliable tools for stimulating aggregate demand.’ The benchmark interest rate has been at a record-low 0.5% since March 2009, while the BoE has bought £375bn of government bonds since then. It added that a cut in its benchmark rate remains an option that the MPC ‘will keep under review lest circumstances change in the future.’”
Ilian Yotov – FX Strategist and Founder at AllThingsForex:
“Conditions in Germany may be getting better in the last few months, but unfortunately, the 17-nation euro-zone is still struggling with record high unemployment and a prolonged recession. In this economic backdrop, the European Central Bank is not going to be willing to tighten monetary policy. Moreover, in an effort to spur economic growth, the ECB might need to consider additional unconventional monetary policy easing measures. The USD could find further strength against the EUR as the Fed gets ready to take the first step towards monetary policy tightening while the European Central Bank remains in an easing mode.”
BoE:
“The first meeting with the new Bank of England Governor Mark Carney in charge is not very likely to bring any sudden changes in the central bank’s monetary policy course. Recent data from the U.K. has shown signs of improvement and there is no need for policy makers to rush to increase the size of the Asset Purchase Program. With the bank expected to start offering forward guidance, future QE expansion will be dependent on the state of the U.K. economy. As long as the Bank of England remains on the QE sidelines, the pound should remain as a viable alternative to currencies whose central banks are committed to aggressive monetary policy easing.”
Valeria Bednarik – Chief Analyst with FXstreet.com:
“I’m actually not expecting much action from the ECB this month, despite the fact that Mario Draghi stated that the Central Bank is ‘now technically ready’ for negative interest rates early June. However, the measure seems way too poor to boost current situation, not to mention the chaos it will generate among financial institutions. I would be inclined to think that before introducing negative rates, the ECB will prefer using another ‘non-standard’ measure, such as easing collateral rules and stimulating the market for asset-backed securities.”
BoE:
“At his first meeting as BoE governor, I would expect Carney to keep economic policy unchanged, and focus mostly on setting the path the Bank will follow from now on. There is however a small chance of an extension of the assets purchase program, as the BoE needs to preserve the fragile economic stability.”
Alberto Muñoz, Ph.D. – Forex Analyst at FXstreet.com:
“At its last meeting on June ECB President Mario Draghi pointed out that recent improvement of economic data confirmed the central bank’s forecast of a gradual recovery later this year, thus providing no immediate trigger for such action. Thus it looks like the ECB still has many weapons in its arsenal but it won’t use it unless credit conditions across Europe worsen, which is not the case as risk premiums between the peripheral countries and Germany keep improving. Also inflation remains under control so at this moment it looks like there’s no need to make any move.”
BoE:
“Despite the great expectations surrounding Mr. Carney, we have to bear in mind that, unlike the Bank of Canada, where the governor makes the final decisions on monetary policy, the Bank of England decisions are made by a nine-member committee. Therefore many new ideas that could bring Carney could be outvoted. The most likely outcome I would expect it’s a change in the BoE rethoric in order to distance from the previous governor.”
ECB to stay on hold in July; New BoE Governor not expected to change policy
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