Forex Source

Central Bank Analysis

W/c 15th June 2020
Reserve Bank Of Australia
Governor: Philip Lowe Cash Rate: 0.25% Next Meeting: 7th July
Objective: The RBA's objectives are to contribute to (a) the stability of the currency; (b) the maintenance of
full employment; and (c) the economic prosperity and welfare of the people of Australia. Stability is widely
acknowledged through the RBA's inflation target of 2-3%.
As of Q1, inflation in Australia stands at 2.2%; while GDP printed at 1.4%Y/Y and -0.3% Q/Q. For April, the
Unemployment Rate ticked higher to 6.2% with Employment Change printing at -594.3K.

Situation: At their June meeting, the RBA kept policy unchanged with the Cash Rate remaining at a record
low of 0.25% and quantitative easing through yield curve control with the 3-year yield targeted at 0.25%.
In the accompanying statement, the RBA reiterated that they will not raise the Cash Rate until progress is
made towards their targets of full employment and inflation of 2-3%.
The RBA added that it's likely fiscal and monetary support will be required for some time and that they will
maintain an accommodative approach for as long as necessary; although they believe the depth of the
economic downturn will be less than previously anticipated.
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Bank Of Canada

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Governor: Tiff Macklem Overnight Rate: 0.25% Next Meeting: 15th July
Objective: The Bank of Canada Act 1985, requires the BoC's to regulate credit and currency, control and
protect the external value of the national monetary unit and to mitigate fluctuations in the general level of
production, trade, prices and employment within the scope of monetary action. Since 1991, upon the
adoption of inflation targeting, the BoC has also been required to keep inflation within a range of 1-3%.
As of April's report, inflation in Canada stands at -0.2% (from 0.9% prior); although Canada's core measures
all remain between 1.6% and 2.0%.

Situation: The BoC kept the Overnight Rate unchanged at 0.25% at their June meeting as was widely
expected; alongside reaffirming its commitment to maintaining large scale asset purchases until the
economic recovery is well underway. However, they did confirm they will be scaling back repo operations.
The BoC added that as market function improves and containment restrictions ease, their focus will shift to
supporting the resumption of growth in output and employment. Under their current assessment, the BoC
believes the economy has avoided the most severe scenario they presented in April's monetary policy
report.
Swiss National Bank
Chairman: Thomas Jordan Policy Rate: -0.75% Next Meeting: 18th June
Objective: Outlined in Switzerland's National Bank Act, the objective of the SNB is to ensure pricestability
and, in so doing, to take due account of economic developments. The SNB equates price stability with a rise in
consumer prices of less than 2% per annum. The SNB uses medium-term inflation forecasts as the main
indicator for monetary policy decisions.
As of April, inflation in Switzerland stands at -1.1%. Inflation in Switzerland has remained subdued since 2008.
Since then, inflation has ranged between a peak of 1.4% in 2010 and a trough of -1.4% in 2015.

Situation: As inflation in Switzerland remains stubbornly low, the SNB Policy Rate is likely to remain as the
worlds lowest interest rate at just -0.75% for the foreseeable future.
At their March meeting, the SNB kept rates unchanged, but amended their tiering system, stating they would
raise the exemption threshold on negative rates from 25 to 30 times the minimum reserve requirement from
April 1st. Additionally, the SNB revised its view of CHF from "highly valued" to "even more highly valued" and
have consequently increased their intervention in FX markets.

SNB Chairman Jordan added that they are examining the possibility of a relaxation of the countercyclical
buffer and they are in talks with the Swiss government but it's too early to give further details of next steps.
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European Central Bank

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President: Christine Lagarde Refinancing Rate: 0.00% Next Meeting: 16th July
Objective: Defined in the Treaty on the Functioning of the European Union, Article 127; the objective of the
ECB is to maintain price stability within the Euro zone. In 1998 the Governing Council defined price stability as
inflation, measured by HICP, close to but under 2%. Additionally, the ECB aims to support the general
economic policies of the Union; which includes full employment and balanced economic growth.
As of May, inflation in the Euro zone remains below the ECB's target at just 0.1% while the Unemployment
Rate for April stands at 7.3%. For Q1, according to Eurostat's revised GDP estimate, Europe's economy
contracted by 3.6% Q/Q and 3.1% Y/Y.

Situation: At their June meeting, the ECB kept all three key rates unchanged, but surprised markets with a
€600 billion increase in its Pandemic Emergency Purchase Programme (PEPP) to €1.35 trillion versus
consensus for an increase of only €500 billion. Additionally, the ECB extended the scheme to at least June
2021 and pledged to reinvest proceeds until at least the end of 2022.
In their latest economic projections, the ECB sees the economy contracting by 8.7% for 2020, followed by a
recovery in 2021 of 5.2% and further growth of 3.3% in 2022. For inflation, the ECB sees price growth of just
0.3% in 2020, 0.8% in 2021 and 1.3% in 2022.
Bank Of England
Governor: Andrew Bailey Official Bank Rate: 0.10% Next Meeting: 18th June
Objective: Through the Bank of England Act 1998, the responsibility for formulating monetary policy,
including the objective of stable prices defined by the government's inflation target of 2.0%, was delegated
to the BoE's Monetary Policy Committee (MPC).
As of April's report, inflation in the UK stands at 0.8% Y/Y, compared to March's 1.5% Y/Y.

Situation: The BoE kept its Official Cash Rate unchanged at an historic low of 0.10% at their April meeting,
alongside their asset purchase programme at £645 billion; although MPC members Saunders and Haskel
surprised markets, voting for an increase in QE of £100 billion.
The BoE stated they stand ready to take further action as needed, but noted that indicators on UK demand
have stabilised - albeit at very low levels - and that the bank expects a relatively rapid recovery in economic
activity with a rate hike and inflation returning to its 2% target by 2022.
It's worth noting the BoE's central scenario is based on the assumption that the UK is able to manage its
return to normalcy following the coronavirus pandemic effectively and that the UK leaves the EU at the end
of 2020 with a comprehensive free trade agreement.
Bank Of Japan
Governor: Haruhiko Kuroda Policy Rate: -0.10% Next Meeting: 16th June

Objective: Outlined in the Bank of Japan Act 1942, the purpose of the BoJ is to issue bank notes and to
carry out currency and monetary control. The Act defines monetary control through achieving price
stability, thereby contributing to the sound development of the national economy. As of 2013, the BoJ has
defined price stability as a 2% year-on-year rate of change in CPI.
As of April, inflation in Japan stands at just 0.1%. The BoJ have failed to reach their inflation target since
inflation plummeted to 0.6% from 2.3% in April 2015. Since then, Japan's highest reading was 1.5% in
February 2018.

Situation: At their unscheduled May meeting, the BoJ kept the Policy Rate unchanged at -0.10% and
maintained the long-term yield target at 0%, but introduced a new loan scheme aimed at boosting lending
for small and medium sized companies hit by the coronavirus with the programme worth ¥75 trillion.
The BoJ added that the loans are to be conducted from June and they are to actively purchase ETD and
REITS for the time being.
Reserve Bank Of New Zealand
Governor: Adrian Orr Official Cash Rate: 0.25% Next Meeting: 24th June
Objective: The Reserve Bank of New Zealand Act 1989 identifies the RBNZ's economic objective as
achieving and maintaining stability in the general level of prices over the medium term. In April 2019, the
Act was amended to also include supporting maximum sustainable employment. In 1990, the RBNZ became
the first central bank to formally adopt inflation targeting which as of 2012 is 1-3%.
As of Q1 2020, inflation in New Zealand stands at 2.5%, compared to 1.9% for Q4 2019. The Unemployment
Rate for Q1 2020 stands at 4.2%, compared to 4.0% for Q4 2019.

Situation: At their May meeting, the RBNZ left its Official Cash Rate unchanged at 0.25%, but announced
an increase in its large scale asset purchase (LSAP) programme to NZ$60 billion from NZ$33 billion; both of
which were in line with market expectations.
To the market's surprise, however, the RBNZ stated that negative rates would become an option in the
future and that they have told banks to be operationally ready for negative rates by year-end.
Governor Orr stated: "The real challenge for us is to make sure that all options are available. We will be
assessing the use of negative interest rates along with the other tools... One hopes we don't have to use all
options".
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Federal Reserve

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Chair: Jerome Powell Fed Funds Rate: 0.00-0.25% Next Meeting: 29th July
Objective: Since the Federal Reserve Reform Act 1977, congress has directed the Fed to conduct monetary
policy with the objective of (a) maximum sustainable employment, (b) stable prices, and (c) moderate long-
term interest rates. Objectives (a) and (b) are often referred to as the Fed's dual mandate. Since 2012,
the Fed has stated that inflation of 2%, measured by PCE, is most consistent with its statutory
mandate of price stability.
The Unemployment rate fell to 13.3% for May, compared to 14.7% for April. Inflation for April remained
below target with the PCE Price Index standing at just 0.5% Y/Y.

Situation: The FOMC left rates unchanged at their June meeting with the Fed Funds Rate remaining
0.00-0.25% as was widely expected. Additionally, the Fed refrained from implementing any form of yield
curve control, but they did formalise their QE programme, stating they would buy bonds across the curve
and at a minimum of the current pace with an approximate rate $80 billion per month in treasuries and $40
billion per month in mortgage-backed securities (MBS).
In their accompanying economic projections, the FOMC expect the economy to contract by 6.5% by the end
of 2020, followed by growth in 2021 and 2022 of 5.0% and 3.5% respectively. For employment, the Fed
expects the Unemployment Rate to stand at 9.3% by the end of 2020, and at 6.5% and 5.5% for 2021 and
2022 respectively. The Fed's dots show no member expects rates to turn negative over the forecast horizon.
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