Citi call time on advanced economy monetary easing
Monetary policy will remain “accommodative” and barriers to actual tightening remain high BUT, from Citi’s Buiter et al, with our emphasis:...MUCH MORE
In 2016, the amount of incremental monetary easing already slowed when it comes to policy rates, with average AE interest rates roughly flat. Yet, the average AE policy rate ex-US still fell by 0.2pp in 2016 as seven out of the 11 AEs we track still lowered their policy rates (Australia, Euro area, Japan, New Zealand, Norway, Sweden, and the UK), with only Denmark in addition to the US raising policy rates. Furthermore, the euro area and the UK also announced large expansions in their asset purchase programmes.5 Indeed, average AE central bank balance sheets saw the largest increase relative to GDP since 2008 (they rose by roughly 4pp of GDP).
By contrast, in 2017, we expect only two AE central banks to cut policy rates (modestly, in New Zealand and Canada), while we expect one to (modestly) hike (the US; see Figure 4). We do not expect any major new asset purchase programmes to be announced in 2017. But the ECB on 8 December extended its asset purchase programme at a lower monthly pace (from €80bn/mth to €60bn/mth from Apr-17)....