The Transparent Effect of Foreign Interest Rates on Central Bank Decisions

FRANKFURT — The European Central Bank kept interest rates steady on Thursday and is likely to eschew dramatic action to help Italy or other eurozone countries, despite the threat of political turmoil in Rome reigniting the bloc’s debt crisis. At its monthly policy meeting, the ECB held its main refinancing rate at a record-low 0.75%, in line with what the majority of economists in a Reuters poll had expected. The attention turns now to a 8:30 a.m. news conference, held by ECB President Mario Draghi, himself an Italian.

OTTAWA • With the Bank of Canada stuck in a holding pattern for interest rates, expect that apparent lack of action by the central bank to be made up by sheer volume this week. Monetary policymakers will deliver a one-two punch on Wednesday, combining their latest interest-rate decision — though nothing is expected on that front — with the central bank’s latest quarterly outlook for the domestic and global economies.

Matteo Radaelli submits: The ECB decision to leave rates unchanged at 1% at the end of last week’s monetary policy meeting was widely expected.

By Forexyard: By Russell Glaser On Wednesday at 13:00 GMT the Norwegian central bank will meet. Markets have already priced in a 25 bp cut but there may be scope for further easing of monetary policy which would likely weigh on the NOK.

BUTTONWOOD objects to my argument that central banks were too constrained by the mindset of the typical inflation fighter to properly tackle the Great Recession:

By Forexyard: By Russell Glaser The SEK continues to trade higher after the Riksbank sounded more hawkish than expected and the German Constitutional Court Ruled in favor of the Greek bailout but said its ruling is no blank check for additional bailouts.

Trader Mark submits: