Certainly, the most relevant national banks for us are the US Federal Reserve (FED) and the European Central Bank (ECB) , right after the policies of the Central Bank of Turkey.
Some national reserves, such as the FED, had increased interest rates during the time of weakest growth since the financial crisis before 2019 to make room for future softening. But the ECB, just like some other banks, found itself in a difficult position and was forced to lower the policy rate to below zero.
Bloomberg: Economic numbers are mixed
According to economists, who expect 2020 to be a quieter year for monetary policy, fiscal policies may play a more active role in supporting economies. The prospects for growth look brighter in 2020 but experts note the economic numbers are mostly mixed rather than positive and monetary policy makers still lean towards the dovish side (in the sense of implementing a loose monetary policy in the markets). According to experts, while major central banks are set to hold fire, others, especially those of emerging markets, are expected to cut interest rates again. All of these expectations and analyses were published forth in a quarterly review by Bloomberg Economics published for 23 leading central banks, which shape policies for about 90 percent of the global economy.
Here is what Bloomberg’s economists predict for some of the most relevant CEntral Banks for Turkey in 2020:
FED
Bloomberg’s guide on central banks states: “Fed Chairman Jerome Powell has left no doubt that interest rates are on prolonged hold, saying on 11 December the current stance ‘likely will remain appropriate’ unless the Fed’s favorable outlook for the economy sees a material reassessment. He spoke after policy makers kept interest rates steady in a 1.5% to 1.75% target range following three consecutive cuts, and published forecasts showing 13 of 17 officials projecting no change in rates through 2020. That would keep them on the sidelines during a presidential election year.
That said, the US central bank isn’t entirely fading into the background. Strain in money markets has pushed it to buy Treasury bills to restore ample reserves in the banking system. Some investors argue it will need to broaden the scope of those purchases to short-dated coupon-bearing securities. Powell said they were not ready to take such a step, but would do so if necessary.”
European Central Bank
For the ECB, Bloomberg’s guide predicts:“The ECB has pledged to step up stimulus again if needed, yet officials have publicly signaled that they favor a pause after Mario Dragh pushed through a contentious package in September to aid the slowing euro-zone economy.
Policy makers are increasingly pointing to the detrimental side effects of the institution’s negative deposit rate — such as squeezed bank profitability and risks to financial stability — and Christine Lagarde, Draghi’s successor at the helm of the institution, has promised to assess them as part of the first strategic review since 2003.
Economists and investors expect rates to stay on hold and QE to continue through the whole of 2020 and beyond. But the central bank may yet be tested again if the economy falters under trade uncertainties or the bloc’s manufacturing meltdown spreads to the services sector.”
Bank of England
The Bloomberg Central Bank Outlook report notes that the Bank of England will finally get a new governor in 2020, bringing to an end an often chaotic search for a successor to Mark Carney. The report continues: ”Boris Johnson’s decisive win in December’s election both cleared the way for his government to take the nation out of the European Union on Jan. 31, and also name the U.K.’s top regulator Andrew Bailey as the Canadian’s successor. Bailey, who starts on March 16, will have to cope with a global slowdown and a persistent dearth of investment. Most worryingly, another Brexit deadline is already looming, with the UK needing to secure a trade deal with the EU by the end of next year unless Johnson asks for an extension.”
For now, concern about the outlook means two of the BOE’s nine policy makers want to cut interest rates. All eyes will be on whether Johnson’s win, as well as Brexit developments, change the picture.”
Bank of China
Bloomberg’s report notes that analysts predicting the start of large-scale monetary easing by the People’s Bank of China in 2019 were persistently disappointed and continues:..” and Governor Yi Gang has indicated he intends to follow the modest, targeted path for stimulus in 2020. That said, if weakness in the world’s second-largest economy worsens, then economists expect the central bank to continue to release cash into the system via cuts to the reserve ratio, as has been a preferred method to shore up output this year.
The cautious approach to easing is determined by China’s current battle with a form of stagflation — consumer price gains driven beyond the PBOC’s target of 3% by food coupled with factory prices in decline. Economists currently forecast economic growth to slow below 6 percent next year, a development that Communist Party leaders seem comfortable with. A recent revision to 2018 GDP data means that the long-standing goal to double the size of the economy this decade is more easily in reach. That lifts some of the burden on the PBOC to artificially boost the expansion.”
Central Bank of Turkey
For Turkey, Bloomberg predicts that Turkey might find it hard to maintain low rates: “Turkey’s central bank may be about to find out the limits of its easing cycle next year, when President Recep Tayyip Erdogan says interest rates should fall to single digits while the inflation rate is expected to go up.
Emboldened by the currency’s stability in recent months, the bank’s Monetary Policy Committee reduced its key rate a total of 12 percentage points, exceeding all forecasts made six months ago. Now the return on the lira adjusted for inflation is barely on par with emerging market peers’ average. It may prove extremely difficult for Governor Murat Uysal to abide by his pledge to maintain a ‘reasonable’ rate of return without upsetting the president, who is adamant that inflation will continue to slow if the bank keeps slashing borrowing costs — something that goes against accepted central bank assumptions.”
