In the next week or so, borrowing costs will be set for seven of the world’s 10 most-traded currencies — including the dollar and the euro — with a picture of prolonged policy constriction set to emerge.
No matter what option President Christine Lagarde and her colleagues go for, an arguably tougher challenge will be to convince financial markets that they will keep policy tight as long as needed to tame prices even as economic growth falters.She can build on foundations French Governing Council member Francois Villeroy de Galhau started laying as early as January, when he argued that the time that rates remain high matters “at least as much” as the actual level.
The message has shifted to lower for longer, with chief economist Huw Pill using South Africa’s flat-topped Table Mountain rather than the sharp peak and descent of Everest as an analogy for the future rate trajectory. Governor Andrew Bailey said last week that rates were “near the top of the cycle.”Compared to many of its peers the Swiss National Bank is in a much more comfortable position. With inflation below its 2% ceiling, it may not be forced to raise rates next Thursday.
While that may not lead to a policy change at the Sept. 22 meeting, the last remaining negative rate among major economies appears to be an endangered species.Canada and Australia — both resource-dependent economies — have already had their September decisions and both now appear set for a period of steady rates, even as they signal a willingness to hike again if needed.
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