A spate of central banks are meeting this week to kick off 2014 and set monetary policy going forward.
Thursday morning, the European Central Bank will end its meeting, and analysts expect the bank to hold the rate at 0.25%.
England Korea will also meet. Societe Generale has a complete preview of the week. From their note:
England
In this first MPC meeting of 2014, the Committee will take stock of the radically improved state of the economy over the past year. Just over a year ago, in the November 2012 Inflation Report, the MPC predicted 2013 growth of 1.2% but then downgraded that to 0.9% in February 2013 but since then its 2013 forecast has been steadily increased to 1.6%. However, far more dramatic has been the increase in the 2014 forecast from 2.0% to 3.4% from November 2012 to November 2013. This states most eloquently just how much more optimistic the MPC has become about the outlook. But should that raise concerns about inflation pressures? Not in general - at the same time, the inflation performance has improved. The rate of inflation has fallen 2.1% yoy. This takes some of the pressure off the MPC to tighten policy.
European Central Bank
After much talk of the ECB’s remaining options, expectations have settled down following the December meeting. Unless we see outright deflation risks, we expect no major changes in standard policy measures in the short term. Instead, the focus is likely to be on liquidity supporting measures, with focus turning increasingly to the Comprehensive Assessment (CA). While significant gains are possible from breaking financial fragmentation, we are concerned with the latest proposals for the Resolution Mechanism, in particular the lack of capital backstops which ultimately may compromise the credibility of the CA. The risk of fragmentation continuing after 2014 thus remains high. The January Governing Council meeting is likely to take stock of these challenges, while keeping policy rates unchanged.
Korea
All the market participants, including ourselves, don’t expect any changes to the BoK’s policy rates or its current neutral policy stance at the Monetary Policy Committee (MPC) meeting on 9 January. The BoK reiterated its recent view on the Korean economy in the official 2014 Monetary Policy Directions released on 26 December 2013. It expects a sustained recovery in both exports and domestic demand, and anticipates a rise in inflation due to the narrowing deflationary output gap and the end of temporary impacts from welfare programmes.
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