The Role of the Major Central Banks in the Forex Market

Setting Lending Rates

The discount rate is the base rate set by the central bank from which other types of lending rates
are calculated. This has a direct effect on the cost of funds to the end borrower.

Setting Monetary Policy

Monetary Policy is defined as the actions taken by a central bank to regulate the supply of its
currency.

Lender of Last Resort

The Major Central Banks around the World

U.S Federal Reserve ( The Fed )

• The Federal Reserve is considered to be the most influential central bank in the world.
• The Federal Reserve has a division within it, namely the Federal Open Market Committee (FOMC which is responsible for making interest rate decisions. The FOMC meets eight times per year.

Bank of England (BOE)

• The BOE aims to keep inflation at a 2% target per year. Any deviation from that, and they take measures to reach that target

European Central Bank (ECB)

• The European Central Bank was organized after the creation of the EURO in 1998.
• The committee which is primarily responsible for this is known as the Governing Council.

Swiss National Bank (SNB)

• The Swiss National Bank’s monetary committee meets quarterly.
• As of this writing, the key person within the committee is Jean-Pierre Roth, the Chairman of the SNB.

Bank of Japan (BOJ)

• Japan’s economy is highly dependent on exports, one of the major concerns of the BOJ committee is to ensure a relatively weak Yen.
• The BOJ is quite active in the Open Market to ensure this goal. The Bank of Japan typically meets once or twice a month.

Bank of Canada (BOC)

• The BOC has set an inflation target of 1-3% per year, and thus far has been successful in meeting that goal over the last 15 years.

Reserve Bank of Australia (RBA)

• The RBA has an inflation target rate of 2-3% per year.
• The committee meets eleven times per year to discuss and make monetary policy decisions.

Reserve Bank of New Zealand ( RBNZ )

• The Reserve Bank of New Zealand’s monetary policy decisions rests in the hands of the Central Bank Governor
• The RBNZ has an inflation target of 1.5% per year, and the current governor Alan Bollard, is responsible for meeting that objective.

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