Central Banks Watch: All Eyes on Fed as Tapering Set to End; BoJ, RBNZ, Sweden, Brazil, Hungary, Israel and Mexico to Set Rates

The last week of October is marked by the big event, the Fed rate decision, which is even more important this time as the US central bank is scheduled to end its quantitative easing programme.

The accompanying statement and remarks that could follow will be closely watched for any indications of the next move, which could be the first Fed rate hike since June 2006.

With the global liquidity heavily dependent on US interest rates, markets across the globe will be affected by any fresh rate indications from the world's largest economy. The impact on global forex markets will also be significant given that most currencies are traded against the US dollar.

The greenback has been on a rallying track since May and is now up more than 8% since then, showing the extent of market preparedness for the days of tighter dollar supply.

It was on 29 June, 2006 that the US Fed funds rate peaked at 5.25% following a 25 basis points hike and the next move was a 50 basis points cut on 18 September the same year.

Then in nine instalments, the rate was cut to 0-0.25% by December 2008 where it has stayed so far.

Other central banks in focus in this week are the Bank of Japan, Riksbank, the Reserve Bank of New Zealand, the Bank of Israel and the Central Bank of Brazil as well as their Mexican and Hungarian counterparts.

Results of the stress tests done by the European Central Bank on the region's banks will be published over the weekend which is also a major central bank event.

Brazil

The central bank of Brazil is on the verge of cutting rates as the Latin American major is scrambling to shore up growth but persistent inflation risks weigh on the possibility of a cut.

With the presidential elections going on, the market is mainly focused on that as a return of the incumbent Dilma Rousseff is not welcome for the markets.

The Brazilian real and Bovespa, the main stock index, have fallen to new lows recently after an opinion poll showed that Rousseff has overtaken her major opponent, the market favourite Aecio Neves.

Brazil will announce its policy on 30 October and the current rate is 11%.

Sweden, Israel and Hungary

The Riksbank and the MNB will decide the main policy rate on 28 October. The Swedish rate is now at a four-year low of 0.25% while its Hungarian counterpart has pegged it at 2.1%.

It was in July this year that the Riksbank made its latest rate move, a cut of 50 basis points.

The Bank of Israel is scheduled to set the main rate on 27 October and the market is not anticipating a move from the current level of 0.25% this time.

Japan, New Zealand and Mexico

The Reserve Bank of New Zealand will announce its monetary policy on Thursday and the Bank of Japan on Friday.

The RBNZ rate is now at 3.5% and both the Asian majors are unlikely to alter the rates at the meeting.

The press conference by the BoJ chief Haruhiko Kuroda after the policy announcement will be watched for the central bank's take on the extent of success in its aim to reach 2% inflation.

The Mexican central bank will announce its policy rate on Friday and the consensus is for no change from 3% currently.