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Three rate decisions in the week ahead

Three rate decisions in the week ahead

We have a busy week ahead with three major central banks–the Royal Bank of Australia (RBA), the Bank of England (BOE) and the European Central Bank (ECB) – all announcing their rate decisions.

Here is a summary of what the market expects from them:

RBA, Tuesday at 5:30 am
Previously the RBA surprised the markets by cutting rates to 2.75% from 3.00%. This saw a significant rise in the GBP/AUD rate. According to Governor Glenn Stevens, the central bank chose to cut rates to encourage sustainable growth in the economy. The aussie inflation rate was low enough to give them room to cut rates. Although this would never be confirmed officially, many experts suspected they were also motivated to weaken the strong AUD which was hurting exports.

Hints at more rate cuts in the future could cause GBP/AUD to move towards 1.60.

BOE, Thursday at 12:00 Midday
At the last meeting the minutes showed that the UK had returned to growth in Q1 2013 and the BOE had a relatively optimistic tone.

However recent data has demonstrated the inflation rate is actually below forecast, giving room for further easing once incumbent BOE Governor Mervyn King gets replaced by Mark Carney.

The upcoming rate decision will be Mervyn King’s last one. As such, many economists simply expect him to set the stage for a smooth transition to Mark Carney. Any suggestion that further easing is possible due to the weak inflation figures will likely be bearish for the pound.

ECB, Thursday at 12:45 pm
The euro took a huge hit after the ECB’s most recent rate statement. After months of speculation, policymakers finally decided to increase support for the euro zone economy by cutting the main refinancing rate to 0.50% from 0.75%. It wasn’t completely unexpected, as over 50% of Bloomberg economists had predicted it.

Another cut is not expected. However there are calls for the ECB to implement some new unconventional measures to truly jumpstart the economy.

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