Vexed central banks brace for more damage to growth

Bloomberg

Resurgent coronavirus outbreaks will vex central bankers on five continents this week as they weigh the threat of more damage to growth against the hope that mass vaccinations will reopen economies.
Institutions meeting from Tokyo to Frankfurt to Ottawa are pondering the prospect of another lost quarter amid renewed lockdowns to contain the pandemic. Most are likely to maintain current ultra-loose policy settings without committing to more easing as they keep a wary eye on the path of the disease, while crossing fingers on its eventual eradication.
Like many of her counterparts, European Central Bank President Christine Lagarde put a brave face on the outlook last week, insisting that forecasts released in December are still “plausible.” She emphasized how previous uncertainties, such as the US elections, the Brexit trade deal and the start of vaccinations, have eased.
But with rates of infection spiraling higher, and new restrictions on activity being imposed throughout the world, Lagarde and her colleagues at global monetary authorities can only hope that the tantalizingly slow pace of global immunisations will pick up and finally start to dent the impact of the coronavirus.
That sentiment is likely to be shared throughout the plethora of central banks due to meet in the coming days. Aside from the ECB, they include institutions in Brazil, Canada, Indonesia, Japan, Malaysia, Norway, South Africa, Sri Lanka and Ukraine.
“Policymakers in Frankfurt will be feeling a strong sense of déjà vu — an upsurge in Covid-19 infections risks a fresh set of containment measures, potentially with dire economic consequences. Fortunately, as the euro area enters a third round of restrictions, financial markets already understand the ECB’s reaction function and that significantly reduces the need
for shock-and-awe action at its January 21 meeting.”
With much of Europe now in the grip of lockdowns as tough as the initial restrictions imposed at the onset of the coronavirus crisis, the ECB’s first meeting of 2021 will allow policy makers to assess the impact of their new round of stimulus unveiled in December.
Officials are trying to gauge if another economic contraction is imminent, and purchasing manager indexes due the day after their meeting will give them an initial clue. The reports due for manufacturing and services in January are predicted by economists to show another round of deterioration.
Central bankers in Norway and Ukraine are forecast to keep rates unchanged, as are their colleagues in South Africa, though some analysts project more easing to support the economy after the government announced stricter Covid-19 lockdown measures.
While the Bank of Japan is expected to keep its main policy on hold, Governor Haruhiko Kuroda could provide hints on what’s in store in a planned
policy review.