Since the 2008 great recession, the actions by central banks have affected the markets more than ever. Despite bonds being the usual regime that gets affected, this time it had and having a much greater spillover effects on other asset classes like equities and currencies.

Markets are buzzing and volatility is set to rise as the central bankers are looking to wind up their extraordinary stimulus as the economic activity recovers. In this article, we have ranked central banks from hawkish to dovish based on their actions and communication. Since forward guidance is widely used as a tool by central bankers to control market expectations, we have also looked at relative credibility based on actions taken and communication.

1. US, Federal Reserve – High Credibility and extremely hawkish. Expected to raise rates by another 25 basis points before March 2018. Fed has forecasted a hike in December this year. Will also start reducing its $ 4.5 trillion balance sheet from this year, most likely after September meeting.
   
2. Canada, Bank of Canada – High credibility and pretty Hawkish. The current interest rate at 0.75 percent. It has already started reversing its course.
   
3. UK, Bank of England – Moderate credibility and reasonably hawkish. The current rate is maintained at 0.25 percent. Some of the members have started calling for rate hikes.
   
4. Australia, Reserve Bank of Australia – High credibility and Neutral. The current rate is at 1.5 percent. Maintaining wait and watch policy. No directional bias but the next move likely to be a hike.
   
5. New Zealand, Reserve Bank of New Zealand – Moderate credibility and mildly bearish. Maintaining the rates highest among the developed nation at 1.75 percent. Has lots of room if considers easing. Barking the Kiwi lower but maintaining rates.
   
6. Switzerland, Swiss National Bank – Lost credibility and bearish. Maintaining rates at -0.25 to -1.25 ranges. Bearish but lost credibility over sudden franc moves in January 2015. Likely to be the last central bank to hike rates but still can’t be considered as most dovish as no asset purchase is being conducted.
   
7. Euro zone, European Central Bank – Very high Credibility and extremely bearish. The current rate is at -0.4 percent. Still purchasing assets at €60 billion per month. Expected to reduce purchase pace when the current purchase program expires in December 2017.
   
8. Japan, Bank of Japan – Moderate credibility and extremely bearish. The current rate is -0.10 percent and asset purchase target of ¥ 80 trillion/annum ($733 billion approx.). It has not signaled any course change in monetary policy yet.

With the view of the central banks, Hawkish pares are expected to fare better compared to their dovish counterparts. Currency rates depend on other factors too so one should be cautious in betting just on the above.

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