Growth vs. inflation debate sharpens

Fri Apr 20, 2012 6:02pm EDT
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By Richard Hubbard

LONDON (Reuters) - Two key central bank meetings and a string of big data releases in the coming week should sharpen the debate over slowing growth and rising inflation risks, and may shake the markets out of the doldrums which followed a bumper first quarter for asset prices.

The U.S. Federal Reserve's monetary policy committee will update its economic forecasts for the first time since January at its mid-week meeting, when no policy change is expected but where recent indicators have disappointed investors.

While the Bank of Japan is seen as likely to ease its policy further at a meeting on April 27 after coming under intense pressure to help support the still fragile economy.

The meetings come after two other central banks, the Bank of England and Bank of Canada, last week surprised markets with more hawkish statements suggesting it was less likely they would need any more monetary policy stimulus.

"We're at a point where the nexus of the risks between growth and inflation might get more interesting over the next couple of months," said Ned Rumpeltin, head of G10 FX strategy for Standard Chartered Bank.

After a wave of policy easing measures earlier this year led by the Federal Reserve and including a huge 1 trillion euro injection of liquidity by the European Central Bank, there are some signs that growth has stabilized leaving room for monetary authorities to give more weight to inflation risks.

Earlier this month Singapore said it will tighten monetary policy slightly because of persistent inflationary pressures, while Australia's central bank opened the door for a rate cut in May when it held rates steady.

The Reserve Bank of New Zealand holds its rate setting meeting on April 26 where rates are expected to remain unchanged but inflation concerns could feature in the accompanying statement.   Continued...

Traders work on the floor of the New York Stock Exchange April 20, 2012. REUTERS/Brendan McDermid