Filtered by Topic: Monetary Policy Use setting Monetary Policy
Tighter monetary policy has had a big impact on financial conditions in the euro-zone, but we think its effect on activity is still in its early stages . Even if the region falls into a mild recession, it will be some time before policymakers are …
26th July 2023
Egyptian policymakers’ commitment (or lack of) to economic orthodoxy continues to provide cause for concern and, while we don’t share the view that sovereign default is a serious risk, the near-term economic outlook is challenging. Over a longer …
20th July 2023
The large macroeconomic imbalances that built up during Chile’s post-pandemic recovery have eased substantially, which is likely to prompt the central bank to deliver more rate cuts than almost any other EM central bank over the next couple of years. We …
17th July 2023
Note: We discussed the economic and policy risks around the ‘greedflation’ debate in a 20-minute online briefing on Thursday, 6 th July. Watch the recording here . The surge in inflation in advanced economies has not been driven by a widening of firms’ …
29th June 2023
As in other advanced economies, Australia’s neutral rate of interest rate will probably edge up a bit over the coming decades. That will result in higher borrowing costs, but Australia’s low public debt levels mean that the government will be able to …
23rd May 2023
The resilience of PCE core services ex-housing inflation is only partly due to the strength of labour market conditions, and other factors are likely to play an important role in driving it lower over the rest of this year. That should reinforce the …
15th May 2023
Note: We discussed our revamped FCIs and took your questions on global financial conditions in a 20-minute online briefing on Thursday, 20 th April . Watch the recording here . We have revamped our financial conditions indices (FCIs) for advanced …
18th April 2023
We think that most – perhaps two thirds – of the drag on activity from tighter monetary policy in advanced economies is still to come through in 2023. So, despite some surprisingly resilient data recently, we are sticking to our forecasts for advanced …
7th March 2023
Click here to view an online briefing with our team about China's economic plans. It was recorded on 6th March, 2023. The economic plans that have been detailed at the National People’s Congress are more cautious and restrained than had seemed likely …
6th March 2023
Labour markets look very tight in Central Europe and a handful of other EMs (particularly in Latin America), and we think that wage growth is unlikely to fall far enough in these countries to bring inflation back to target in the near future. One …
2nd March 2023
The near-term economic outlook for Korea is very poor, with falling real incomes, problems in the housing market and weak global demand all set to weigh on prospects this year. Our forecast is that the economy will grow by a below-consensus and …
21st February 2023
Q uantitative tightening and the repayment of TLTROs mean that the ECB’s assets are likely to decline by around one quarter by the end of 2024. We expect the repayment of TLTROs to have a negligible macroeconomic impact. QT should also proceed smoothly, …
20th February 2023
The slowdown that we expect in Brazil’s economy should take some steam out of the labour market, but it looks like it won’t be enough to stop wages from rising at a rapid pace. This appears to be a bigger risk to the inflation outlook than the fiscal …
1st February 2023
Inflation looks to have peaked across Emerging Asia, and is likely to fall back more sharply than most analysts expect over the coming year as fuel price inflation drops, the disruption from the pandemic eases and economic growth slows. With inflation …
26th January 2023
The shift away from variable towards fixed-rate mortgages in many European countries over the past 15 years means that it will take longer than in the past for interest rate hikes by the ECB to feed through to household interest expenditure. This …
23rd January 2023
Voters in Turkey head to the polls in 2023 and if the ruling People’s Alliance and President Erdogan cling on to power, the authorities are likely to double down on their “new economic model”, raising the threat of simultaneous currency, banking and …
21st November 2022
Next year will be characterised by falling headline inflation, which should help to prevent interest rate expectations and bond yields from rising much further. But we also expect core inflation to remain above 2% for some time. As a result, we think …
17th November 2022
Higher interest rates and larger private sector debt burdens mean that debt interest service ratios could rise to levels last seen in the 1990s in many EMs next year. This is unlikely to be a major problem in a handful of EMs such as South Africa, India …
Spillovers from the war in Ukraine and tighter external financing conditions have exacerbated strains in Egypt’s balance of payments and we think the pound needs to fall a lot further. This will add to inflation pressures, prompting further interest rate …
13th October 2022
The trend towards ever more “financial globalisation” has already decelerated and will probably slow further as the global economy fractures and policymakers favour resilience over efficiency. While a disorderly rupture of financial relations remains …
6th October 2022
The continued resilience of the economy means that the RBA will have to raise rates more sharply than most expect, which in turn will result in a more severe slowdown in activity than widely anticipated. However, the more benign nature of the recent …
14th September 2022
Hopes that policymakers can engineer a soft landing rest heavily on the belief that wage growth can be tamed without a surge in unemployment. This ‘Phillips curve’ relationship has changed recently, with G7 pay growth now higher than it was before 2020 …
6th September 2022
We think the euro-zone will soon fall into recession as high inflation, tighter monetary policy and weak global growth take their toll. While the economy should recover next year, the rebound will be held back by a lack of policy support. What’s more, we …
11th August 2022
We think that the economy is well-placed to handle higher interest rates and anticipate a period of weak economic growth rather than an outright recession: Rate-sensitive spending is a relatively small share of the economy right now, there are no …
11th July 2022
Equilibrium interest rates in advanced economies are probably still very low. However, there is still a lot of uncertainty about how far above this equilibrium interest rates will have to go in the near-term to quash inflation. Even if we are right in …
21st June 2022
The Bank of Korea (BoK) is almost certain to hike interest rates further this year, but with financial risks receding, economic growth likely to slow and inflation set to fall back to target by early next year, we think financial markets and the consensus …
9th June 2022
Policy tightening by the RBI is putting public finances stretched by the pandemic under further strain. While an increase in debt financing costs is inevitable, we expect the government and RBI to step up financial repression so that the full impact of …
1st June 2022
We expect the most aggressive policy tightening cycle in decades to cause a slowdown in global economic growth, not a severe downturn. The biggest risk is that inflation stays higher for much longer than we anticipate, causing central banks to raise …
Colombia’s upcoming presidential election could result in the country’s first left-wing government in recent decades, headed by Gustavo Petro. While he is unlikely to be as radical as many expect, Petro’s policies would lead to higher public debt, higher …
26th May 2022
The war in Ukraine will exacerbate two key macro risks in Central and Eastern Europe (CEE) this year: wage-price spirals (particularly in Poland) and widening current account deficits (particularly in Hungary and Romania). Monetary policy will do most of …
19th May 2022
We don’t expect the Bank of Japan to tighten monetary policy meaningfully but, with inflation about to breach 2%, what if we are wrong? The direct impact of higher interest rates on the corporate sector would be manageable, but a stronger yen would weigh …
18th May 2022
The trade-weighted US dollar has edged up to multi-decade highs as the Fed has started to raise its policy rate. In this Focus, we analyse past Fed tightening cycles and explain why we think the dollar will continue to appreciate over the course of the …
12th May 2022
We expect the Fed to reduce its asset holdings by more than $3trn over the next couple of years, enough to bring the balance sheet back in line with its pre-pandemic level as a share of GDP. That shouldn’t have a major impact on the economy but, with …
10th May 2022
We expect higher interest rates to cause a 10% fall in house prices over the next 12 months and an even steeper fall in residential investment. With the rest of the economy still recovering from the pandemic and benefitting from higher commodity prices, …
9th May 2022
Equilibrium real interest rates in the euro-zone appear to be below zero and lower than in most other advanced economies. We expect them to stay that way. While the ECB is likely to raise interest rates sooner and further than most economists expect, this …
3rd May 2022
Most analysts are overestimating the near-term negative impact of RBA rate hikes on household finances and are therefore underestimating the degree of tightening required to bring inflation under control. We now expect the RBA to hike rates to 2.5% by …
19th April 2022
In adapting to the threat of having its foreign exchange reserves frozen, the People’s Bank is likely to shift more of its portfolio into unconventional alternatives, including EM sovereign debt and real assets. But as long as the PBOC wants to continuing …
1st April 2022
We think that property markets are the weak link when it comes to the impact of tightening monetary policy. A modest rise in interest rates might only cause price falls in a few obvious candidates. But rates might have to rise only a bit further than we …
25th March 2022
For the most part, EMs are well placed to withstand rising US interest rates, but there are pockets of vulnerability where external financing needs are significant. Among the large EMs, Turkey (unsurprisingly) stands out, and current account risks are …
22nd March 2022
With equilibrium interest rates in developed markets probably still close to record lows, actual interest rates are likely to peak at a far lower level in this cycle than in most previous ones. The main risk to our forecasts is that cyclical inflationary …
16th February 2022
A perfect storm of surging house prices, a further worsening of supply shortages, and a pick-up in labour mobility would be needed to cause an inflation surge in Japan. Even if inflation did reach 2%, this wouldn’t necessarily trigger a policy response by …
8th February 2022
The “new economic model” adopted by Turkey’s government is likely to mean low real interest rates and a persistently weak lira, but it will come alongside a shift towards capital controls, ever higher inflation and growing fiscal and banking sector risks. …
18th January 2022
While the strength in New Zealand’s economy will cause the RBNZ to hike rates further this year, we think the RBNZ will end its hiking cycle earlier than the financial markets anticipate. What’s more, we think a housing downturn in 2022 will weigh on the …
12th January 2022
Inflation hasn’t emerged as a concern across Emerging Asia in the same way it has in the rest of the emerging world, in part because food price inflation in Asia is much lower, but also because the region has experienced much less disruption from the …
22nd November 2021
We expect the ECB to interpret a period of above-target inflation as “transient” even if it lasts for well over a year. Although it will end its emergency PEPP programme next March, we think the Bank will step up the pace of its conventional asset …
15th November 2021
A renewed tightening of the labour market next year means that wage growth will accelerate further. That pick-up will be underpinned by a stronger minimum wage hike, the lifting of caps on public sector wage growth and more employees switching jobs. And …
21st October 2021
We think a sustained period of inflation in the region of 3-4% over the coming years could be dealt with relatively easily by central banks. But if inflation were to rise much further than this, policymakers would have to raise rates more aggressively and …
23rd September 2021
This Focus has been updated to incorporate the latest publicly-available information on China’s eCNY project, including the PBOC White Paper published on 16 th July 2021. The original version of the Focus , published on 27 th May 2021, is here . In this …
21st July 2021
We expect some major central banks to issue digital currencies later this decade, with those in countries where cash is rarest proceeding the fastest. The first generation of central bank digital currencies (CBDCs) will be purposely designed not to shake …
6th July 2021
We think there’s a good chance that when the Bank of England’s Monetary Policy Committee (MPC) starts to tighten monetary policy it will do it by unwinding some quantitative easing (QE) before it raises interest rates. That would be consistent with the …
22nd June 2021
