Filtered by Topic: Monetary Policy Use setting Monetary Policy
Nigeria’s government has turned to the central bank to plug ever larger budget deficits in recent years and policymakers are unlikely to kick their deficit monetisation habit, particularly if the fiscal position worsens next year (as we expect). This will …
14th June 2021
India’s ferocious second wave of COVID infections is likely to have caused the economy to contract by about 5% over Q2 as a whole. The good news is that the outbreak is quickly subsiding and activity appears to have bottomed out. But the recovery is …
3rd June 2021
We expect inflation to rise to the mid-point of the RBA’s target band over the next couple of years. The main driver is a continued tightening of the labour market and a pick-up in wage growth. By contrast, we think that the goods supply shortages …
2nd June 2021
With the economy rebounding strongly from the crisis, the Bank of Korea (BoK) is starting to shift its attention away from supporting growth and towards containing financial risks. We expect the BoK to begin raising interest rates at its meeting in …
31st May 2021
The ECB will make a big splash about climate change when it concludes its monetary strategy review this autumn. In practice, it is likely to make progress in addressing climate-related risks in the banking sector and it may also announce some limited …
18th May 2021
The Brazilian central bank’s 75bp hike in the Selic rate (to 2.75%) and hawkish statement point to a front-loaded tightening cycle in the coming months. We now expect a further 200bp of hikes (to 4.75%) over the next three meetings. But we think the cycle …
18th March 2021
Tunisia’s public finances have deteriorated further during the COVID-19 crisis and, with the government unlikely to be able to push through much-needed fiscal austerity, a debt restructuring looks increasingly likely in the coming years. Tunisia has been …
China’s new policy blueprint seeks above all to promote a large and hi-tech manufacturing sector, both as a defence against decoupling by the West and as a source of productivity gains. Policymakers are pinning their hopes on rapid domestic innovation to …
15th March 2021
The equilibrium level of real interest rates in the global economy may not remain quite as low as of late, but we expect any rise to be gradual and small. With policymakers at the same time taking a more tolerant attitude towards inflation, actual real …
24th February 2021
One legacy of the pandemic is a huge expansion in central banks’ balance sheets. Fears that this will automatically boost inflation are overdone. So, too, are worries that central banks will provoke a destabilising rise in bond yields by selling their …
17th February 2021
We now expect the RBNZ to tighten monetary policy in the years ahead as GDP growth, the labour market and inflation will be much stronger than the Bank has anticipated. We expect asset purchases to be wound down from this year before the Bank hikes rates …
26th January 2021
The distribution of an effective COVID-19 vaccine in India will brighten the economic outlook next year, but India’s recovery will still be one of the weakest among major economies. One consequence is that government bond yields will remain exceptionally …
16th December 2020
We think that inflation in Japan will remain subdued while the pandemic will result in a rise in US inflation to above the pre-virus pace. With both the Bank of Japan and Fed likely to remain inactive for some time, the resulting real interest rate …
13th November 2020
Large output gaps look set to keep inflation low in most emerging markets over the next few years. But further out, we think that worrying public debt trajectories in some places (Brazil and South Africa), and greater emphasis on growth over inflation by …
13th October 2020
If it is sustained for long enough, the policy stimulus being implemented in the euro-zone could eventually cause inflation to take off. However, we think it is more likely that policy is normalised as the crisis passes. The risk of an institutional slide …
17th September 2020
The neutral interest rate has become one of the hot topics in Russian monetary policy over the past year and the downward revision to the central bank’s estimate of the neutral rate in July marks the first step in the shift towards a new normal of lower …
26th August 2020
Russia’s central bank has lowered its policy rate to a post-Soviet low during the current crisis and, with the economy likely to recover slowly and inflation set to remain subdued, further monetary easing lies in store. We expect the policy rate to be …
16th July 2020
TARGET2 imbalances are set to rise to record levels over the year ahead on the back of the ECB’s planned wave of asset purchases. While this may be dismissed by some as a benign and technical side-effect of the ECB’s policies, it would indicate that, …
11th June 2020
The swift and significant response of the Bank of England to the coronavirus crisis has prevented a financial crisis, but we think the Bank will need to do much more than the markets currently expect to get the economy back on track. By this time next …
4th June 2020
Central banks are already facilitating fiscal packages in various ways. But with the fiscal costs of the coronavirus likely to rise much further, policymakers might consider explicitly financing them with a permanent expansion of central bank money – the …
24th March 2020
The profitability of Japan’s regional banks is likely to deteriorate further over the next few years. However, there’s little evidence of asset price bubbles and corporate balance sheets have continued to strengthen. In our view, even a shock akin to the …
19th February 2020
The downward trend in interest rates that began in the 1980s contributed to large falls in household saving rates in most advanced economies. But with larger proportions of people now nearing retirement, some consumers are being forced to respond to low …
30th January 2020
If President Donald Trump were to win a second term, we’d expect both fiscal and monetary policy to remain loose, amid a push to install a more dovish Fed Chair in 2022. There would also be an upside risk of a second, smaller round of deficit-financed tax …
23rd January 2020
We suspect that interest rates will neither go up nor down this year! But the markets may be caught out further ahead if, as we expect, a fiscal stimulus and easing in Brexit uncertainty results in interest rates rising above their current rate of 0.75% …
21st January 2020
The prevailing view that this will be the year when Brazil’s recovery finally shifts up a gear looks overly optimistic. We expect that GDP growth will come in at just 1.5% over 2020, which leaves us close to the bottom of the consensus range. ‘This year …
14th January 2020
Growth in Emerging Asia has struggled over the past year. While most economies should stage a modest recovery over the coming quarters on the back of looser fiscal and monetary policy, with China likely to slow, aggregate growth in the region is set to …
19th December 2019
There is little evidence that negative interest rates have succeeded in boosting economic growth or inflation expectations. But equally, they do not seem to have done much harm either – many of the criticisms levelled at them have been wide of the mark. …
9th December 2019
The recent strong performance of Central and Eastern Europe (CEE) will probably continue for a few more years as fiscal and monetary policy remain loose. But this is likely to cause some of the pressures and imbalances that have started to build up during …
28th November 2019
In our view, claims that the ECB’s negative deposit rate is weighing heavily on bank lending in the euro-zone are wide of the mark. In fact, we suspect that policymakers will cut the deposit rate even further below zero next year without having major …
19th November 2019
Our central scenario is that cutting interest rates to 0.5% will be enough to weather the economic slowdown in 2020. And if required, fiscal policy and macroprudential tools could be used to help stimulate demand. However, if the global economy slows more …
5th November 2019
As part of its forthcoming review under Christine Lagarde, the ECB is likely to change its inflation target and make its voting system more transparent. Further ahead, it will have bigger issues to resolve, including deciding which tools it could use in a …
29th October 2019
Underlying inflation was moored well below the lower end of the RBA’s 2-3% target band even as the housing market was booming and the labour market was tightening. With the unemployment rate set to rise to 5.5% next year and interest rate cuts …
21st October 2019
Weak economic growth and low inflation mean Emerging Asia’s rate cutting cycle has further to run. In contrast, the consensus and financial markets think the easing cycle will soon end in many countries. Having raised interest rates steadily throughout …
18th September 2019
Negative policy rates have had some positive effects in the economies where they apply and the direct adverse consequences have been small. But the policy has contributed to a fall in long-term interest rates which is doing greater damage to banks’ …
5th September 2019
Our central scenario is that cutting interest rates to 0.5% will be sufficient to restore growth and eventually return underlying inflation to the RBA’s target. If more stimulus were required, the government would probably remain reluctant to loosen …
17th July 2019
While it is recognised that political developments, such as a no deal Brexit and a Labour government, have the capacity to send the economy in different directions, it’s not as well known that three economic trends are in train regardless – looser fiscal …
11th July 2019
Recent comments by Mario Draghi suggest that the ECB will loosen policy sooner than we had anticipated. We now expect the Bank to strengthen its forward guidance in July and cut its deposit rate in September. Mr Draghi is then likely to go out with a bang …
26th June 2019
The domestic headwinds that have caused China’s economy to slow over the past year are abating thanks to the policy support that has put a floor under credit growth and fuelled local government spending. But policymakers are still concerned about credit …
24th May 2019
With the People’s Bank last week tweaking the interest rates on its open market operations, it seems timely to highlight some of the peculiarities of China’s monetary policy framework. One key one is that, as the People’s Bank has still not made a full …
21st December 2017
Evidence of a sharp turnaround in growth and policymakers’ success in preventing a destabilising slide in the renminbi have underpinned a dramatic shift in sentiment towards China. But there are good reasons to expect growth to slow again soon and for the …
28th March 2017
The People’s Bank has taken a major step towards a more orthodox approach to monetary policy by adopting a de facto target for the interbank rate. Although this shift has taken place with little fanfare, it has important implications for how monetary …
10th October 2016
A number of voices have begun loosely using the term “liquidity trap” to argue that stronger credit growth in China has failed to provide a greater boost to output because firms are hoarding cash rather than spending it. But the money supply data being …
2nd September 2016
The inept response by China’s policymakers to the pressures of the last few months has rightly diminished confidence in their ability to handle the structural transition China faces in the years ahead. But there is little evidence that the economy is …
17th February 2016
When the PBOC cut benchmark interest rates late last month, it also removed the regulatory ceiling on banks’ deposit rates. This final step in liberalising interest rates came sooner than many had anticipated. We take it as a sign that policymakers remain …
3rd November 2015
Cuts to benchmark interest rates could end up doing more harm than good to China’s economy. Policymakers worried about elevated financing costs in the corporate sector would do better to focus on improving access to credit for smaller, more productive …
4th August 2014
China’s cash crunch has shone a spotlight on its interbank market, which investors without a close interest in China’s banking and financial sector previously paid little attention to. In this month’s China Watch , we give a brief primer on the interbank …
27th June 2013
