Publication date: 5 April 2015 | Covering: March 2015
Monthly Briefing
- FRESH — Fed March 17–18: Holds 0–0.25%; removes “patient”; cuts rate and growth projections; liftoff data-dependent (19 days ago)
- FRESH — ECB quantitative easing began March 9; €60 billion per month; euro near dollar parity (27 days ago)
- Greece: Syriza government reaches provisional extension agreement; substantive reform negotiations deadlocked
- US February payrolls 295,000: strong; dollar surges; 10-year Treasury 2.20%; March payrolls awaited
- Oil: Brent recovers toward US$60/barrel from January lows; rig count falling sharply
- Jamaica IMF EFF progress; BOJ easing; NHT J$6.5 million ceiling; rates 0, 2, 4 per cent
Fed Removes ‘Patient’; Projects Fewer Hikes
The Federal Open Market Committee held the federal funds rate at 0 to 0.25 per cent at its March 17 to 18 meeting, the decision that markets had been anticipating as the pivotal transition point toward normalisation. As widely expected, the Committee removed the word “patient” from its forward guidance, clearing the formal precondition for a rate increase at any future meeting. Chair Janet Yellen, however, was careful to stress that the removal of “patient” was not a signal that liftoff was imminent: the Fed remained “data dependent”, and the updated summary of economic projections showed a notable downward revision to the expected pace of tightening. The median FOMC participant now projected just two quarter-point increases in 2015, down from four projected at the December meeting, and the median long-run federal funds rate was trimmed to 3.75 per cent. The statement also acknowledged headwinds from international developments, net exports, and the strong dollar in a more explicit manner than previous statements. June remained technically live for liftoff but was widely regarded by markets as too soon given the softness in the first-quarter data, with September or December the more consensus expectation.
ECB Quantitative Easing Under Way; Euro Near Parity
The European Central Bank launched its government bond purchase programme on 9 March, buying €60 billion per month in sovereign bonds and agency securities in what was expected to be a programme running at minimum through September 2016. The launch of ECB QE had been the defining macro development in the first quarter of 2015: European equity markets surged, German Bund yields collapsed toward zero and into negative territory for short maturities, and the euro fell sharply against the dollar as the monetary policy divergence between a tightening Fed and an easing ECB became concrete policy reality rather than prospective guidance. The EUR/USD exchange rate fell below US$1.05 at points in March, bringing the pair tantalizingly close to the one-to-one parity level that had not been seen since the euro’s early years in 2000 and 2001. For Jamaica and other Caribbean economies that receive significant remittances from Europe, and for firms with European trade links, the euro’s depreciation was a meaningful development in external account calculations.
Greece Provisional Extension; Deadlock Continues
Greece and its creditors reached a provisional four-month programme extension agreement in late February, providing Athens with a stay of execution from the immediate cash crisis but failing to resolve the fundamental disagreements over the conditionality attached to continued bailout support. The SYRIZA government, having won the January 25 election on a platform of renegotiating the bailout terms, was under intense domestic political pressure not to accept the kind of pension reforms, labour market liberalisation, and primary surplus targets that the institutions — the IMF, ECB, and European Commission — regarded as non-negotiable. Negotiations through March made limited progress, and capital flight from Greek banks accelerated: deposit outflows reached €6 to €8 billion in February alone, and the ECB’s Emergency Liquidity Assistance to Greek banks was being raised incrementally. The next critical deadline was the submission of a reform list that could unlock the disbursement of the remaining bailout funds, without which Greece faced insolvency before the summer.
Jamaica Mortgage Market in March
Jamaica’s mortgage market entered the spring season with improving momentum. BOJ monetary easing had provided a sustained reduction in the domestic interest rate environment from the highs of 2012 to 2013, and the IMF EFF programme’s macroeconomic discipline was bearing fruit in lower inflation and a more stable exchange rate. The NHT’s J$6.5 million individual ceiling and tiered interest rates of 0, 2, and 4 per cent — with a two-applicant ceiling of J$13 million — continued to underpin the affordable housing finance segment. Commercial lenders were competing more actively for quality mortgage business as their own funding costs fell, and the range of mortgage products available to qualified borrowers had expanded since the tight market conditions of 2013. The spring season represented the strongest quarter for property transactions, and April application volumes were expected to be robust.
Looking Ahead
The April 28 to 29 FOMC meeting will be the next scheduled policy decision, though there is no press conference attached, making it a lower-probability vehicle for liftoff even if conditions warranted it. The strong February payrolls print of 295,000 supported the case for a September hike, but the March payrolls release — due later this week — will be watched closely given the evidence of first-quarter softness. For Greece, the substantive reform negotiations remain the critical risk event for European markets through the second quarter. For Jamaica, the next IMF programme review and BOJ rate decisions will frame domestic monetary conditions through mid-2015.
Mortgage & Housing Finance Disclaimer: This publication is for general information only and does not constitute mortgage, financial, legal or investment advice. Mortgage products, lending criteria, interest rates and borrowing costs vary between lenders and may change without notice. Readers should obtain independent advice from a qualified mortgage adviser, financial adviser or legal professional before making financial or property decisions.
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