Economic Outlook March 2016

Regional Analysis (March 30th, 2016)


At the December 2015 meeting the Federal Reserve increased interest rates to 0.375%. At the March 2016 meeting they expect them to be at 0.9% by the end of 2016. The members also further reduced growth, unemployment and inflation expectations.


At the March meeting, the ECB further lowered deposit interest rates to -0.4%, with expectations for it to remain at the present or lower levels for an extended period of time. Monthly asset purchases were expanded to €80bn/month, permitted purchases from individual organisations and banks issues were expanded to 50%, and
non-bank corporations are now included. Further a new long term lending facility to banks commenced. The growth expectations were reduced with risks to the downside.


Three main policies were decided at the January Bank of Japan Monetary Policy Meeting to achieve the price stability target of 2%. The introduction of a minus 0.1%% interest rates for bank deposits. An annual increase in the monetary base of 80 tr yen. Together with, annual purchases of: 80 tr yen of Japanese government bonds, 3 tr of exchange traded funds, 90 bn yen of real estate investment trusts, 2.2 tr yen of commercial paper and 3.2 tr yen of corporate bonds. Immigration controls need to be drastically relaxed to aid growth so taxes can reduce Government borrowing.


The People’s Bank of China sees economic downward pressure in the face of restructuring, they are attempting to moderate the expansion of aggregate demand, while supply-side structural reforms accelerate.. They continue to reduce loan and deposit rates and the reserve requirement ratio together with other policies, whilst foreign exchange balances are reduced. They also aim to eventually allow the market to decide the exchange rate, whilst also managing this transition.


The Bank of England maintained the Bank Rate at 0.5% and the stock of reserve financed purchased assets at £375bn. Drops in energy and food prices, global inflation and, domestic costs anchored domestic inflation below the 2% target. Private domestic demand, the labour market and productivity are all supportive of UK growth. The referendum on the UK membership of the EU was seen as an uncertainty for growth and financial stability.

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