(14 DECEMBER 2017)DAILY MARKET BRIEF 1:Busy day for central banks but little action expected

The Federal Reserve opened the ball yesterday by raising borrowing costs. The central banks’ show will continue today with the SNB, Norges Bank, CBRT and ECB. As widely expected the Swiss National Bank didn’t change anything to its monetary policy set-up. Similarly, the Norges Bank left unchanged the key rate at 0.50%. However, the Norwegian central bank signalled it would start hiking rate in autumn 2018. The krone surge 1.20% against the US dollar with USD/NOK sliding to 8.2265. EUR/NOK fell 1.30% to 9.72.

In Turkey, the CBRT should leave unchanged its three key interest rate. However, the market expect that the central bank will increase the late liquidity lending rate by 1% to 13.25%, therefore charging Turkish banks more if they need to borrow just before the market close. Due to political interferences from the government, the central bank found another way to relieve the pressure on the TRY. The CBRT has the option not to provide any funding through its 1-week repurchase auction to local lenders, forcing them to borrow at a much higher rate through the late liquidity window.

In Europe, both the ECB and the BoE are holding their last meeting of the year. Given the fact that the former already trim by half its quantitative easing program back in October, Mario Draghi will most likely set back and relax. The situation is roughly the same the BoE as the central bank already increased borrowing costs back in November. Therefore, we expect little action as both central banks will not miss the opportunity to reiterate their cautious rhetoric regarding the inflation and growth outlook.

By Arnaud Masset