Monetary policy divergence of leading central banks is getting wider

Source: Dukascopy Bank SA
The divergence in monetary policy  of central banks is getting wider, as some central banks are about to start normalizing their monetary policy, others keep the policy intact or even embark on further stimulus measures to revive growth.
Mark Carney, the Bank of England Governor, hinted that the central bank may start raising interest rates next spring if the labour market continues to perform strongly. Carney said that if rates started to increase in spring 2015, inflation would be set to settle around the BoE's 2% goal in three years' time. Majority of investors expect the BOE to raise its benchmark interest rate from a 320-year low of 0.5% in the first quarter of 2015, but Carney stressed there was no concrete timetable.
Minutes of the latest Bank of Japan meeting revealed that policy makers expect the nation's economy to continue its moderate recovery, with the inflation expectations rising as the country continues to combat the deflationary pressures, which have plagued it for more than a decade. As widely expected the Bank of Japan kept its ultra-easy monetary policy unchanged and maintained its optimistic outlook of the economy despite a bigger than initially thought contraction in the second quarter. USD/JPY is approaching the supply area formed by the weekly and monthly R3 levels, which can throw the price back to 106. However, considering that on the weekly and monthly time-frames the indicators are mostly giving ‘buy' signals, the medium-term outlook will remain bullish as long as the up-trend at 105.50 is intact. Otherwise the bears may exploit a good opportunity to push the Dollar down to the July high 103.
The Reserve Bank of New Zealand has decided to keep rates unchanged and soften its stance on future rate hikes as it revised inflation outlook and reiterated that the nation's currency is too strong, sending the New Zealand Dollar to a seven-month low. Currently the official cash rate stands at 3.5%, which is among the highest in the developed world. The central bank said the New Zealand Dollar is likely to depreciate significantly at some point, especially as the U.S. starts to normalize its own interest rates.
In the Meantime, Mario Draghi, the European Central Bank President, has finally announced the bank's intention to embark on a form of quantitative QE through purchase of private sector credit, including asset-backed securities and covered bonds, along with a new cut in interest rates. The important question now is how effective the bank's plans will be, particularly taking into account lack of pro-growth structural reforms that Mario Draghi reiterated were missing from Eurozone governments. Critics came immediately after the announcement with former ECB chief economist Juergen Stark saying that the central banks is turning into a European "bad bank" and its record-low interest rates will not promote lending in the Euro zone. In contrast, ECB Executive Board member Sabine Lautenschlaeger said that the asset-backed securities market in the Euro bloc is big enough for the ECB's planned ABS buying programme to have an impact on bank lending.

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