Interest rate week! – 18/03/2016 by Michela Jaccarini

Good morning! Another important week is coming to an end. This week there have been 6 interest rate decisions coming from Japan, the U.S, Switzerland, Norway, Indonesia and the U.K.

On Tuesday the Bank of Japan announced its decision to keep interest rates unchanged at -0.10%. In January it shocked the market and cut interest rates into negative territory so speculators were not expecting an interest rate change in this month’s meeting; however they are expecting further stimulus throughout this year. The benchmark Nikkei stock index traded down by 0.4% following the announcement, while the Yen was little changed at 113 per dollar. In order to reach its 2% inflation target, the BoJ did not play down the possibility of using additional easing resources.

On Wednesday, as many market analysts expected, the FED left interest rates unchanged at 0.50%, however indicated the probability of two rate hikes this year instead of the 4 previously anticipated. During the meeting, the world’s most powerful central bank adopted a dovish approach stemming from global uncertainty in the financial markets and its current weak inflation. Energy prices are a factor in weak inflation however moderate growth in the economy and labour market is expected to be achieved. June is the next major policy meeting with an accompanying press conference. Most analysts who expect two rate hikes this year think the first will come this summer.

On Thursday the Swiss National Bank kept rates at -0.75%, in line with market expectations. The Bank stated that it would remain active in the foreign exchange market as the Swiss Franc is still said to be fairly overvalued. After the announcement, the Swiss franc changed only slightly against its major rivals. In a separate meeting, the Swiss government explained that it does not expect a quick acceleration in Swiss economic growth in the coming quarters.

On Thursday, Norway’s Central Bank cut interest rates by 25 basis points to record lows of 0.5% and hinted that it could cut rates further, even into negative territory, in the bid to revive the country’s economy after the crash in oil prices. Growth prospects for the country have weakened and inflation is expected to continue in this way. The Norwegian Krona rose by 0.6% against the euro following the decision. Norway’s counterparts in Sweden and Denmark have already cut rates below zero in the hope of preventing an appreciation of the currency and stoke inflation.

Also on Thursday, the Bank of Indonesia cut rates by 25 basis points to 6.75% as expected. This was the Bank’s third adjustment in a row, signifying the need to support the country’s weak economy. This lower rate is expected to strengthen domestic demand to increase economic growth while maintain macroeconomic stability.

Finally for Thursday, all nine members of the Bank of England’s Monetary Policy Committee (MPC) voted to keep rates at their record low of 0.50%, a place they have been at for the past 7 years. The decision to keep rates unchanged is stemmed from the worries of global growth and uncertainty with regards to the EU referendum. This uncertainty has hit sterling and there are growing fears that economic growth could slow down. The Bank said that interest rate hikes will be put on hold for a while and that when they do eventually happen, they will occur in a gradual manner.