Friday is here! And not any kind of Friday, but the highly talked about Friday’s the 13th. While some cultures are terrified of the potential bad luck this day could bring to them (especially if you happen to see a black cat ) in the Jewish tradition, 13 is actually considered a lucky day, and Friday is Shabbat which is the weekly “Jewish Thanksgiving Day when you sit down with family and eat as much as you can.)
Pair that with the fact that it’s also my cute nephew’s birthday so I’m actually expecting to have a splendid Friday the 13th this month! If you fail to appreciate February’s Friday the 13th, don’t worry. We have another coming up on March. What are the odds?!
Anyways, back on the forex dance floor, Mr. Euro is having a confusing Friday the 13th, with the German whole sale price index coming out worse than last month’s -0.1, at -0.4, followed by good news about Eurozone’s Flash GDP which came out better than expected.
Yesterday’s big surprises in EU came two fold. One from Sweden, who cut their benchmark rate into negative territory, to -0.1%. The Riksbank is actually the first bank to change the main repo rate to a negative, with other central banks choosing to leave the main rate north of zero and only have their own overnight deposit facility rates below. On top of the rate cut, Sweden added about €1 billion worth of asset purchases to the bank’s mandate – a token gesture, but something that sets the precedent for further stimulus.
The Bank of England was the second surprise. It wasn’t the admission that inflation is likely to fall below zero in the near future, it was comment that the Bank would be willing to cut interest rates further if it looked like the threat to the economy was significant. Interestingly enough, BoE’s Governor Carney suggested that deflation might actually be good for the U.K. economy since this would encourage more spending. He clarified that there has been no sign of negative effects from weak inflation yet, which usually involves consumers delaying their purchases in anticipation of much lower prices later on.
Both central banks reacting to deflation in such a way is a worrying sign that they are running out of conventional monetary policy options and the unconventional routes are becoming more of the norm, for ‘non-crisis’ economies.