Central banks have not stopped creating surprise as they act aggressively in opposition to global forces which threaten the global economic recovery and risk a lengthening of extensively low, probably negative, inflation.
Before two weeks, markets rebounded after strong signals that the ECB will again loosen up the monetary policy like before.
Next, the BOJ, Bank of Japan, eased up policy unexpectedly, shifting a major interest rate into the negative territory which had never been done before. Now it will charge a negative rate of interest to banks, for excessive deposits parked at the central bank. This action significantly stunned markets as well as initiated gains for commodity and stocks prices.
Its statement mentioned that the latest volatility in the financial market, further oil price falls, and uncertainty around the outlook over emerging economies as matters to be concerned about. According to the BOJ these factors, (a) increase the risk of a delay in the betterment of business confidence for Japanese firms and in the deflationary mindset’s conversion and (b) in turn may affect the trend, underlying in inflation.
The statement suggested that the Bank of Japan, if necessary, will take extra easing measures. Hence, it is prepared for relaxing the policy further, whenever necessary.
On the other side, the central bank of the US also conducted a policy meeting for the first time for 2016 in the previous week, which concluded without any change in the monetary policy.
This was according to market expectations because in December the Fed made an increase in interest rates for the 1st time after almost a decade.
The statement was in reference to the recent turbulence in the market and increased macro risks world-wide, while showing a concerning for the same. It mentioned the Fed’s close monitoring of the global financial and economic developments.
Under its current discussions, it is examining the conclusions of the above factors for the stability of the outlook’s risks and for the inflation and labour market.
The Fed’s warning could be seen in here as, during the previous year, it described the outlook risks as “balanced”. Their statement neither considered nor ignored a hike in rates letting the Fed keep its choices open. The markets do not expect the Fed to increase rates in near time.
The global easy attitude for the monetary policy has calmed down markets after one highly volatile primary trading month in 2016.
In January, Stock markets had a downfall of 5% - 7%, however the in the end of the month they were sufficiently over their lows.
In a similar way, commodity prices were balanced by the month’s end; though not up from the year’s starting.
Importantly, oil prices rose to around $35 per barrel, which had closed on a fall down to $26 once.
The markets for some period will likely remain volatile considering the uncertainty around the economic outlook.
The world-wide economy appears as momentum-less in the ending months of the previous year. However, markets seem to be floored in the last two weeks. To see the performance of economies, they will closely attend the data for the present year’s opening months. Central Banks appear to be trying their best to ensure a sustained recovery of the global economy.