Filtered by Topic: Monetary Policy Use setting Monetary Policy
The fall in 10-year gilt yields from 2.60% in late June to 1.95% now has been in line with the global trend and shows that the markets are looking through the further near-term rises in inflation and interest rates and focussing more on the risks of …
29th July 2022
Nigeria’s budget woes Data published by Nigeria’s Budget Office this week highlighted that, despite what should be a favourable high oil price environment, the public finances are actually getting worse. The figures showed that the federal government …
GDP target RIP It turns out that GDP growth targets aren’t such a big deal after all. The Politburo yesterday said that only “provinces that are in a position to do so” need hit their targets this year. And it signalled that no major new stimulus measures …
Gazprom’s announcement this week that it is reducing the supply of gas through Nord Stream 1 to only a fifth of its normal capacity has pushed European natural gas prices up from €125/MWh to €190/MWh over the past week, and will further increase inflation …
A tournament to forgot for Nordic football fans Of course, Sweden measures up well against the UK in many ways, including on the economic and political fronts. After all, the estimated 1.4% q/q rise in Swedish GDP in Q2 (data released on Thursday) is in a …
New president backs “Build, Build, Build” In his first State of the Nation address, the president of the Philippines, Ferdinand “Bongbong” Marcos Jr., this week pledged to resume the “Build, Build, Build” infrastructure programme of his predecessor, …
Falling yields ease pressure on yield target Long-term government bond yields have retreated from their recent highs in both the US and Japan, with the yield on 10-year Japanese government bonds (JGB) now the lowest it has been since mid-March. (See Chart …
Gulf would benefit from possible OPEC+ policy shift Next week’s OPEC+ meeting may provide the first hints of the group’s production policy beyond September and if, as we expect, they opt to remove quotas, the Gulf stands to benefit most. On its current …
28th July 2022
Who would have thought that one of the most noteworthy parts of the news on the UK economy this week would be the government’s debt interest payments on its index-linked gilts? But with the battle to become the next Prime Minister reaching its final …
22nd July 2022
Fed officials may have briefly contemplated an even bigger hike following the news of the further surge in inflation in June but, with inflation expectations dropping back and the incoming news on activity softening, we expect another 75bp hike next week. …
Almost exactly ten years on from Mario Draghi’s “whatever it takes” speech, the ECB this week had another attempt at keeping a lid on peripheral bond spreads as it kicked off its first tightening cycle in more than a decade with a bigger-than-expected …
Tanzania, Kenya secure IMF funds The approval this week of an IMF package for Tanzania and the latest disbursement of a loan for Kenya will ease near-term balance of payments pressures. The Fund has pushed fiscal consolidation in both countries but, in …
Danish policymakers won’t be rushed Given that Denmark’s Nationalbank operates an exchange rate peg with the euro, it was no surprise to see it mirror the 50bp rate hike by the ECB on Thursday afternoon. If anything, the only surprise was that it took …
Remittances to support external position Remittances (money transferred by foreign workers back to their home countries) are an important and often underappreciated source of foreign currency for India. The RBI’s latest monthly bulletin released this week …
Further tightening over the coming months We published our latest Emerging Asia Economic Outlook this week, which contains our detailed forecasts. Here are three key calls from the report. Key Call 1: Growth will slow GDP figures due over the coming …
Mobility softening as virus cases surge New Covid-19 cases are now nearly twice as high as they were at the peak of the Omicron wave in February. The government has so far ruled out declaring another state of emergency, which makes sense as the number of …
The Bank of Canada justified its 100 bp interest rate hike on the basis that front-loading hikes has historically raised the chance of a “soft landing”. With the pace of house price declines already gathering pace ahead of that move, however, we are not …
15th July 2022
The bigger-than-expected rise in CPI inflation to 9.1% in June triggered speculation that the Fed might follow the Bank of Canada with a 100bp rate hike later this month. But the disappointing activity data and drop back in inflation expectations means …
Brazil’s ‘kamikaze’ social transfers Brazil’s fiscal rules took another blow this week after congress approved a constitutional amendment (the so-called ‘kamikaze’ amendment) that will expand social transfers. Spending will increase by 41bn reais, or 0.4% …
The latest population projections released by the UN this week reaffirm that demographics will support strong GDP growth in Sub-Saharan Africa in the long run. But similarly robust income convergence is likely to remain a pipe dream. Chart 1: Total …
Further tightening over the coming months Asian policymakers turned decidedly more hawkish this week, with the Bank of Korea raising interest rates by 50bp for the first time in its history on Wednesday. This was followed by unscheduled monetary …
Monday went from bad to worse in Norway Monday proved a day to forget for Norwegian economists and football fans, with another increase in core inflation in the morning compounded by an 8-nil drubbing by England in the evening. Admittedly, the increase in …
New forecasts We published our quarterly European Economic Outlook this week, which contains all of our latest forecasts for the euro-zone, its member states and the ECB. In this Weekly , we will highlight three of our key calls on the economic outlook. …
Tax revenues surging The Bank of Japan’s flow of funds figures show that the budget deficit was a still large 6.6% of GDP in the year to March. (See Chart 1.) In fact, we estimate that the deficit widened sharply in Q1 to around 10% of GDP in …
INR settlement unlikely to see widespread use The RBI announced earlier this week that it has put in place a mechanism for international trade to be settled directly in rupees “in order to promote growth of global trade” and “support the increasing …
Labour market tightening rapidly On balance, the economic data released this week are consistent with our view that the Reserve Bank of Australia will tighten policy more aggressively than most anticipate. Admittedly, the further slide in consumer …
With the June employment report suggesting fears of an imminent recession are misplaced, the Fed looks set to press ahead with aggressive rate hikes over the coming months. That said, recent sharp declines in commodity prices may, if sustained, soon give …
8th July 2022
Argentina: not budging on the peso The UK isn’t the only country suffering tumult sparked by a finance minister’s resignation. Earlier in the week, Argentina was thrown into crisis after Martin Gúzman, the architect of the country’s latest IMF deal, …
The falls in commodity prices this week point to some relief ahead for CPI inflation, but the Bank of Canada will be more focused on the rises in long-run inflation expectations and wage growth in the latest data, prompting a larger 75 bp interest rate …
MNB pulls out all of the stops to support the forint Hungary’s economy is now under substantial pressure. The forint has slumped and interest rates have been hiked aggressively. The only way through this is to accept the pain of a weak currency and …
25bp or 50bp? The Bank of Korea (BoK) has raised interest rates by 25bp five times so far this cycle, and further hikes looked nailed on for the central bank’s meeting on Wednesday. But whereas the consensus is expecting the BoK to step up the pace of …
Weak economy may lead to looser fiscal policy There are two reasons why whoever fills Boris Johnson’s shoes as Prime Minister after his resignation this week is unlikely to significantly change the path of policy or the economy. First, all PM hopefuls …
Trade tweaks to have offsetting impact… Following the reintroduction of the sovereign gold bond scheme in June, the government has further stepped up its attempts to reduce gold imports, with the Finance Ministry hiking the basic import tax on gold from …
Recent inflation figures out of the region and remarks from central bank officials point towards more, and potentially larger, interest rate hikes in most African economies over the coming months. A key exception is South Africa, where the latest …
1st July 2022
Petro picks a moderate The news that Colombia’s President-elect Gustavo Petro has chosen José Antonio Ocampo as his finance minister provides an early sign that Petro will govern as an economic moderate. Mr Ocampo is a well-respected economist, a former …
Surveys of pricing intentions suggest that firms are confident of being able to both make recent price rises stick and to follow them up with further big increases over the next year. So the news that consumers have a slightly smaller savings buffer than …
Riksbank eyeing a sharp but short tightening cycle The Grand Départ of the Tour de France from Copenhagen today is the first time that the race has started in a Nordic country. Fittingly, it comes in a week when the Riksbank shifted up a gear with its …
The world’s leading central bankers were in a hawkish mood when they gathered for the ECB’s conference in Sintra this week, and President Lagarde was no exception. In her most emphatic rejection of the transitory view so far, Lagarde said she doesn’t …
How will the BoK respond to the weaker won? The Korean won remains under downward pressure. The currency has fallen by 4.6% against the greenback over the past month alone, and is down 8.3% since the start of the year (see Chart 1), making it the worst …
PBOC survey reveals looser lending controls Although changes to interest rates and reserve requirements attract more attention, the main determinants of the pace of bank lending in China are quantitative controls such as loan quotas and window guidance. …
Petro gets a frosty reception Gustavo Petro’s win in Colombia’s presidential election has caused tremors in the country’s financial markets. The stock market has fallen by around 7% since the vote while the currency is down by 5% against the dollar. The …
24th June 2022
Election puts focus on inflation Campaigning for the 10 th July Upper House election has formally begun. There is little question that the LDP will win – the only question is by how much. The scale of victory could have a bearing on the outlook for policy …
The May CPI data showed that inflationary pressures remain acute across the economy, which reinforces our view that despite growing concerns about the housing market, the Bank of Canada will become a member of the “75bp club” in July. Inflation now the …
Chair Jerome Powell signalled this week that the Fed will press ahead with its planned series of aggressive interest rate hikes, even as evidence mounts that economic growth will be weak in the second half of the year. Powell reiterates Fed’s hard-line …
New ECB forecasts Fears about a possible US recession have prompted investors to revise their interest rate expectations down this week, but we have pushed ours up. We now forecast the deposit rate to peak at 2% next year. (See Chart 1.) Chart 1: ECB …
How will the MAS respond? There are growing signs that Singapore’s economy is overheating. Figures published this week put inflation at a 10-year high of 5.6% y/y in May. Food and fuel prices have been key factors behind the increase, but the strong …
Hello “faster rate rises”, Goodbye “gradual” Chart 1: Use of “Gradual” in Norges Bank’s Monetary Policy Assessment or Equivalent (Number) Sources: Norges Bank, Capital Economics All eyes were on Oslo on Thursday morning as the Norges Bank delivered a …
RBA review won’t change inflation target Treasurer Jim Chalmers butted heads with RBA Governor Phillip Lowe this week over who would lead the forthcoming review of monetary policy. Chalmers denied the Governor’s wish that the review be jointly led by the …
Ripple effects of tighter global financing conditions African financial markets are not insulated from the tightening of global external financing conditions, and recent currency weakness and rising sovereign bond yields in the region will only add to …
17th June 2022
Banxico set to follow the Fed Given the Fed’s hawkish shift and the recent sell-off in the Mexican peso, we now think that Banxico will step up the pace of tightening with a 75bp rate hike next week, to 7.75%. We argued a few weeks ago that the upcoming …
