Economic preview: RBA and ECB monetary policy in focus
By Neil Dennis
10:55, 3 September 2021
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Two major central banks announce monetary policy decisions next week: the Reserve Bank of Australia (RBA) is first up on Tuesday, followed by the European Central Bank (ECB) on Thursday.
While neither are expected to change their policy settings immediately, investors will be eager to note any hints of hawkishness, particularly from the RBA, as the Australian dollar has gained some ground in recent sessions.
Elsewhere, the data calendar is rather light on major US data – the dollar could struggle for want of supportive news, with GDP growth figures out in the eurozone, Japan and the UK.
RBA monetary policy meeting
While Australia's second-quarter gross domestic product (GDP) came in at a forecast-beating quarter-on-quarter rate of 0.7%, these figures didn't fully account for the COVID-19 developments since then, with partial lockdowns likely having a negative impact on growth in the current quarter.
At its last meeting on 3 August, the RBA maintained its main interest rate at 0.1% and continued its commitment to purchasing government securities at the rate of AUD5bn ($3.7bn) a month.
The RBA’s quantitative easing (QE) strategy sees the AUD5bn-a-week purchase programme trimmed in early September to AUD4bn per week, until at least mid-November.
Tuesday's meeting will see the board of governors decide whether this will be adhered to or, given any doubts about the economic impact of the latest wave of COVID infections - it should backpedal and continue the A$5bn-a-week purchases.
“The GDP data lend support to the RBA’s desire to begin tapering next week when QE3 begins,” said analysts at RBC Capital Markets.
They added: “Though the economy is tracking closer to the RBA’s downside scenario than base case, the key question remains whether it still expects a firmer 2022, which the current vaccination run rate suggests may well be the case.”
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ECB policy meeting
The ECB has taken a similar stance on inflation to the US Federal Reserve, saying it can withstand a “transitory” period above its 2% target as it expects the annual rate to return to this level over the medium term.
The central bank kept its main refinancing rate at zero at its monetary policy meeting on 22 July, and has continued its asset-purchase programme at a monthly pace of €20bn ($23.7bn), along with its pandemic emergency purchase programme (PEPP), at a total envelope of €1,850bn, with total monthly purchases of €80bn.
Analysts differ on their opinions of what will be announced at Thursday’s meeting regarding the PEPP scheme, given the rise in inflation to 3% in July.
Carsten Brzeski, global head of macro at ING, said there is unlikely to any announcement of tapering, however he added: “The question is whether the ECB wants to communicate a very hypothetical exit plan between the lines.”
Meanwhile, Andrew Kenningham, chief Europe economist at Capital Economics, believes that slower PEPP purchases may be announced.
He said: “The ECB could say purchases will be ‘somewhat lower’ than during the past three months, or that they will be at the same pace as they were in the first few months of the year – around €14bn per week, rather than €18bn since the March decision.”
Best of the rest
Ahead of the ECB meeting, second-quarter GDP data in the eurozone will be examined, which, as thought by several analysts, may prompt the central bank to revise its growth forecasts higher for the rest of the year. Growth data is also published in Japan and the UK.
Germany publishes a raft of data next week – including factory orders, industrial production and trade figures – which are likely to underline the ongoing supply-chain problems.
House prices came under scrutiny twice during the week in the UK, with the Halifax’s monthly survey and the Royal Institution of Chartered Surveyors’ (RICS’s) report. The UK also publishes the monthly construction purchasing managers’ index (PMI).
Economic analysis highlights for 6–10 September:
- Germany – factory orders, July
- UK – IHS Markit construction PMI, August
- UK – British Retail Consortium like-for-like retail sales, August
- China – trade, August
- Australia – interest rate decision
- UK – Halifax house price index, August
- Germany – industrial production, July
- Germany – Zentrum für Europäische Wirtschaftsforschung (ZEW) economic sentiment
- Eurozone – second-quarter GDP
- Japan – second-quarter GDP
- Japan – trade, July
- UK – RICS house price balance, August
- China – Consumer Price Index (CPI), inflation, August
- Germany – trade, July
- Eurozone – interest rate decision
- Japan – machinery orders, July
- UK – trade, July
- UK – manufacturing/industrial production, July
- UK – monthly GDP, July
- Germany – CPI, inflation, August
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