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 …
1st July 2022
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 …
GST hikes don’t signify tighter fiscal stance… The Finance Ministry’s announcement this week of hikes to the GST rate on products ranging from hang glider parts to LED lamps comes as something of a surprise. After all, it goes against the grain of the …
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. …
Industrial output slumping The activity data released this week suggest that output won’t rebound as rapidly as we had been anticipating and we’re lowering our estimate of Q2 GDP growth from 1.5% q/q to 0.5%. The 0.6% m/m rise in retail sales values was …
House prices are in free fall CoreLogic reported that seasonally adjusted house prices in the eight capital cities fell 0.6% m/m in June, following the 0.4% drop in May. That marks the sharpest fall since 2019, and the housing downturn is only just …
While the apparent contraction in GDP in May appears to have been partly due to temporary factors, it also reflects the impact of the surge in interest rates on housing. With the business surveys for June also showing a loss of broader momentum, the …
30th June 2022
Food security fears ease, but debt worries remain Financing from the World Bank this week will cover some of the extra cost to Egypt and Tunisia of wheat imports, but it will not fully alleviate balance sheet strains emanating from the war in Ukraine and …
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
Exposing corruption in South Africa The conclusion of a multi-year inquiry into corruption in South Africa and recent allegations of impropriety involving the president are likely to undermine his standing ahead of key party leadership elections, and also …
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 …
Israel and Bulgaria heading for elections (again!) Governments in Israel and Bulgaria collapsed this week, although the threat to Bulgaria’s economy is probably greater as political instability puts EU fund inflows and the ability to secure gas supplies …
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 …
This week’s economic news didn’t appear to satisfy the criteria of “indications of more persistent inflationary pressures” that the Monetary Policy Committee (MPC) said last week would prompt it to act “forcefully”. As a result, market interest rate …
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 …
SGBS may help at margin to reduce gold imports Among the reasons for gold's continued popularity with families in India is its use as an inflation hedge. So it’s unsurprising that the recent surge in inflation has coincided with a renewed jump in gold …
Getting back to normal China’s economy began to rebound in May as lockdowns were gradually lifted. But many consumers stayed home and activity remained depressed, especially in the service sector. There has been a more substantial improvement in mobility …
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 …
What will OPEC+ do from September? OPEC+ may drop some hints about the future for the group’s oil output beyond September at its meeting next Thursday. We think the group is likely to remove the shackles, and the Gulf stands to be a major beneficiary. …
23rd June 2022
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 …
50bp or 75bp in July Fed Chair Jerome Powell suggested that officials were split on whether to continue with another 75bp rate hike at the next meeting in late July, or to revert to 50bp increases. We have another super-sized increase pencilled in, mainly …
Assessing the risks from a more hawkish US Fed The 75bp interest rate hike by the US Fed this week and expectations for further large hikes in the coming months have caused turmoil in global markets and will have ripple effects across Emerging Europe. We …
The new CPI weights outlined this week mean that inflation will peak at more than 8% in June, which is higher than we previously expected. That further raises the chance of the Bank of Canada following the Federal Reserve with a 75 bp interest rate …
A shock, albeit with a small “s” It goes without saying that the FX market reaction to yesterday’s surprise 50bp rate hike by the SNB was far more muted than that in the days following the Frankenshock in 2015 (when the franc surged by about one-fifth …
The US Fed’s move to raise rates by 75 basis points (bps) this week to 1.50-1.75%, and the 50bps rises by a handful of other central banks, has inevitably led to questions about why the Bank of England raised rates by “only” 25bps on Thursday to 1.25%. In …
Words need to be followed by actions The ECB pulled off a neat trick this week: arresting the sell-off in peripheral bond markets without announcing very much at all. But there’s only so long that markets will be soothed by encouraging words about a …
RBI holds firm in defence of the rupee Data late last week showing a larger-than-expected rise in core inflation in the US in May, and the Fed’s hefty 75bp hike this week, have contributed to a broad-based sell-off in global financial markets with many EM …
Yen to hit 140 even if yield ceiling raised While Bank of Japan Governor Kuroda insisted today that Yield Curve Control has no limits, defending the 0.25% ceiling on 10-year yields with the kind of heavy JGB purchases seen this week is unsustainable over …
Employment at record levels The Korean labour market is continuing to heat up, increasing the chances that the central bank (BoK) will tighten monetary policy further over the coming months. Data published on Wednesday show that total employment reached a …
Unattainable even on paper China’s statistics office is adept at massaging GDP data. But it can’t perform surgery. In April and May combined, retail sales fell 8.9% y/y and industrial output and real exports both fell 1.1%. Even if growth returned in June …
Wage growth set to rise The 5.2% increase in the Australian minimum wage announced by the Fair Work Commission this week was even bigger than the 5.1% y/y rise in the CPI that Prime Minister Anthony Albanese had suggested the minimum wage should match. …
Two sides of the coin for MENA as Fed hikes by 75 Even though central banks in the Gulf have followed the US Fed in hiking interest rates, the early signs are that these economies have weathered the impact well so far. In contrast, the non-Gulf economies …
16th June 2022
Nigeria’s presidential race: an uninspiring choice Nigeria’s two main political parties have selected presidential contenders, setting the scene for a long campaign season ahead of elections in February 2023. Lots can happen until then, but with more …
10th June 2022
Governor Tiff Macklem’s hawkish comments this week, even as he presented a report warning of the risks of aggressive policy tightening, leave little doubt that the Bank of Canada is singularly focused on making up for keeping policy too loose for too …
Inventories still look lean Target’s admission this week, that its profits would take a hit as it tried to reduce unwanted inventory, led to claims that there was an economy-wide inventory glut. Some took that to mean higher prices and interest rates were …
Argentina-IMF: inflationary elephant in the room The staff-level agreement between the IMF and Argentina, for the first review of its $44bn deal, gave little assurance that the Fund will knuckle down on the country’s growing inflation and currency issues. …
Turkey: anything but rate hikes The Turkish lira remained under pressure this week and officials unveiled on Thursday a raft of measures aimed at tackling inflation and bolstering the currency. The Treasury revealed that it will issue lira-denominated …
New BSP governor signals further hikes The incoming central bank governor in the Philippines, Felipe Medalla, this week in a Bloomberg interview all but confirmed that interest rates would be raised at the central bank’s next two meetings in June and …
Less tech, more regulation The Ant IPO is back on, according to Bloomberg and Reuters. If confirmed, what would this signal about the regulatory crackdown? An IPO would be positive as a sign that tech firms and the regulators have found a way to get …
Farewell Stockholm, hello Basel It was announced this week that Cecilia Skingsley will up sticks from Stockholm to Basel in August and leave her role as First Deputy Governor of the Riksbank to head up the BIS’s Innovation Hub. It’s fair to say that Ms …
The ECB announcement yesterday that it intended to raise rates in July came as little surprise given the communications from ECB officials over the past few weeks or so. More interesting was the ECB’s strong suggestion that after the planned 25bp rate …
As former Prime Minister Harold Wilson once said, “a week is a long time in politics”. At the start of the week the current Prime Minister, Boris Johnson, was fighting for his political life with 41% of his own MPs voting to remove him as leader of the …
RBI frontloading continues The key event this week was of course the Reserve Bank’s policy announcement, in which the MPC stepped up the pace of tightening by hiking the repo rate by 50bps to 4.90%. We wrote about the decision here , and discussed it in …
Bank set to deliver 50bp hikes in July and August We argued two months ago that “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 …
Overtime hours surpass pre-virus levels In a dovish speech on Monday, Bank of Japan Governor Kuroda argued that the main reason why inflation in Japan remains much lower than elsewhere is the rigidity of services prices. In turn, he argued, that reflects …
