Top central banks go their own ways into 2022
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[December 16, 2021] By
Howard Schneider, William Schomberg and Balazs Koranyi
(Reuters) -Top central banks will on
Thursday unveil policy moves to steer their economies through rising
turbulence from the pandemic and high inflation, with some set to keep
money cheap into 2022 even as the U.S. Federal Reserve tightens.
The Fed on Wednesday doubled the pace at which it will cut bond
purchases, while forecasts from its policymakers signalled as many as
three interest rate increases next year.
Which of its peers are ready to follow will become clear in the next 24
hours, with a string of meetings at the Bank of England, European
Central Bank, the Bank of Japan and others.
Of those three, however, only the BoE is likely to take more than a baby
step in trimming the monumental support provided to its economy through
the pandemic.
That could set the stage for a choppy 2022, with the Fed determined to
end its asset purchases as fast as possible and kick off interest rate
rises soon after, and others more hesitant to shift so decisively in
that direction.
Earlier on Thursday the Swiss National Bank kept its ultra-loose stance
in place with a policy rate locked in at -0.75%. Swiss inflation - while
rising - is still seen much lower than elsewhere at just 1% next year,
falling to 0.6% in 2023.
"The SNB is maintaining its expansionary monetary policy," it said in a
statement. "It is thus ensuring price stability and supporting the Swiss
economy in its recovery from the impact of the coronavirus pandemic."
Norway's central bank, which had hiked in September on the back of an
economic rebound, went ahead with a further rise as expected and said
more were likely to follow.
Eyes now turn to the BoE, which at 1200 GMT could become the first of
the big central banks to raise interest rates. Yet the United Kingdom is
also where friction between the fast-spreading Omicron variant and
inflation is playing out most vividly.
UK daily coronavirus infections are at their highest since the earliest
days of the pandemic, forcing Prime Minister Boris Johnson this week to
impose new restrictions.
A first read-out of the Purchasing Managers' Index (PMI) for December on
Thursday showed Omicron had already hit British hospitality and travel
firms - a day after data showed consumer price inflation at a
decade-high
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A bird flies past The Bank of England in the City of London,
Britain, December 12, 2017. REUTERS/Clodagh Kilcoyne/File Photo
"There is now the real risk of inflation becoming entrenched ... but this is
balanced against the threat to the economic recovery from the new Omicron
variant," said Ellie Henderson, an economist at bank Investec.
CAUTION, MODESTY
Investors and economists are not expecting anything nearly as bold this week
from either the BOJ or ECB - the more so after the preliminary PMI for the euro
zone also showed business growth slipping in December.
The ECB, which has undershot its inflation target for most of the past decade,
is expected to be among the last to tighten policy and debate is focused instead
on how to structure a more modest dialling-back of overall stimulus.
The ECB's compromise is likely to be clarity on its policy framework in 2022,
with details to be filled in as policymakers gain confidence that inflation, now
running at more than twice the bank's 2% target level, comes down quickly in
2022.
What appears certain is that bond buys under a 1.85 trillion euro Pandemic
Emergency Purchase Programme will be reduced next quarter then wound down at the
end of March. A long-running Asset Purchase Programme, however, will be ramped
up, offsetting some of this lost stimulus.
In Japan, the consumer-level inflation that is tearing through other parts of
the globe remains largely absent. As such, only a marginal reduction in
corporate asset purchases is under discussion at Friday's BOJ meeting.
Even if the others are not hard on the Fed's heels, Powell and the Fed appear to
have set the agenda for a tumultuous 2022 as central bankers chart their ways to
the exits, albeit at dramatically different paces.
"You saw it in his congressional remarks that were more about tightening sooner
than it was about worrying about the health of the global economy," said Vincent
Reinhart, chief economist for Dreyfuss & Mellon. The Fed and other central banks
are "conveying a sense that they are heading for the exits. Modern central
banking is much about managing expectations and they do not want to be seen as
behind the curve."
(Additional reporting by Leika Kihara in Tokyo and Balazs Koranyi in Frankfurt;
Writing by Dan Burns and Mark John; Editing by Edwina Gibbs and Catherine Evans)
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