Filtered by Topic: Monetary Policy Use setting Monetary Policy
We held an online Drop-In yesterday to present our new financial conditions indices and discuss how conditions have evolved in the wake of SVB’s collapse. (See a recording here ). This Update addresses some of the questions we received, a couple of which …
21st April 2023
The recommendations by the RBA’s review panel unveiled today were broadly in line with what we had anticipated. While the 2-3% inflation target will be retained, sweeping changes to the Bank’s leadership structure are underway. And with a lot of the …
20th April 2023
Our dataset on inflation expectations across EMs shows some encouraging falls recently and supports our view that, with EM inflation likely to fall further, monetary easing cycles will start in the coming months. However, inflation expectations remain …
19th April 2023
We think investors’ expectations for the Fed funds rate will fall a little by the end of this year, which will push the 10-year Treasury yield a bit lower by end-2023. But we doubt lower “risk-free” rates would be enough to prevent a sharp drop in the S&P …
The Monetary Authority of Singapore (MAS) kept policy on hold today and with the economy set to struggle and inflation likely to fall sharply over the coming quarters we expect today’s decision to have marked an end to the tightening cycle. The MAS …
14th April 2023
The raft of EM CPI figures out this week show that headline inflation is, in aggregate, finally starting to fall significantly, and we expect it to decline further in the coming months. But core inflation is easing relatively slowly, and remains …
13th April 2023
The Bank of Canada delivered a mixed message today, noting that it is more confident inflation will decline in the next few months, but less confident that inflation will fall all the way to 2.0% as quickly as previously anticipated. Nonetheless, with the …
12th April 2023
The Bank of Korea left interest rates unchanged (at 3.5%) for a second consecutive meeting today, and attempted to push back against expectations of a rate cut this year. But with the economy struggling badly and inflation continuing to ease, we are …
11th April 2023
The RBI’s decision to keep the repo rate on hold at 6.50% today belied the central bank’s recent hawkish communications. The door remains ajar for hikes in the future but with headline inflation set to fall back to within the RBI’s 2-6% target range …
6th April 2023
The Monetary Policy Report released by Chile’s central bank today revealed that policymakers are more concerned about inflation risks than we’d thought. We still think that Chile’s central bank will be among the first to start loosening monetary policy, …
5th April 2023
The decision by the Reserve Bank of New Zealand to lift its official cash rate by 50bp, to 5.25%, came as an upside surprise, but we still think the end of the hiking cycle is approaching. In any case, the Bank’s aggressive tightening confirms our view …
Sri Lanka’s central bank (CBSL) left interest rates unchanged today and we expect rates to stay on hold for the rest of the year as policymakers look to strike a balance between clamping down on inflation, maintaining good relations with the IMF and …
4th April 2023
Note: Join our 6th April online briefing all about the risks to EMs from banking turmoil. Register now . Pakistan’s central bank (SBP) today raised its policy rate by a further 100bps (to 21.0%), but the tone of the statement was less hawkish than after …
The Reserve Bank of Australia kept open the possibility of further tightening when it decided to leave its cash rate unchanged at 3.60% today. As such, we do still expect the RBA to deliver one final 25bp rate hike in May before bringing its tightening …
Israel’s central bank (BoI) raised its policy rate by a smaller 25bp, to 4.50%, as expected today and its communications sounded slightly less hawkish than at its previous meeting. Inflation pressures are likely to remain strong this year, but the door …
3rd April 2023
Note: Join our 6th April online briefing all about the risks to EMs from banking turmoil. Register now . Vietnam’s central bank lowered its benchmark refinancing rate by 50bp, on Friday evening, citing the need to support the economy. The rate cut was in …
Join our 6 th April online briefing all about the risks to EMs from banking turmoil. Register now . The broad message from the recent spate of EM central bank meetings is that policymakers are still focussed on reining in inflation even as the global …
31st March 2023
Central banks in Mexico and Colombia both delivered 25bp hikes yesterday, and hinted that these could be the end of their cycles. But, on balance, we think that the strength of inflation will prompt policymakers in both countries to deliver a final 25bp …
The South African Reserve Bank (SARB) delivered a more-aggressive-than-expected 50bp interest rate hike, to 7.75%, today as hawks returned to the majority with a bang. But while the probability of another hike in May has increased, we think that easing …
30th March 2023
The flash PMIs for March suggest that not only did advanced economies avoid recession in Q1, but the outlook for activity has improved as well. However, we still think the hit from higher interest rates will intensify . And with services price pressures …
24th March 2023
The Bank of England followed the Fed’s example by forging ahead today with a 25 basis point (bps) interest rate hike, taking rates from 4.00% to 4.25%. This could prove to be the last hike of the tightening cycle. But if wage growth and CPI services …
23rd March 2023
This morning’s 50bp interest rate hike by the Swiss National Bank (SNB), to 1.50%, was in line with expectations and shows that, like the ECB and Fed, Swiss policymakers have not been distracted from their inflation-fighting task by problems in the …
In a surprise move, Taiwan’s central bank (CBC) today raised its main policy rate by 12.5bps (to 1.875%), but with the economy struggling badly and inflationary pressures set to ease further, we think this was the last hike of the tightening cycle. The …
The Norges Bank’s 25bp rate hike today was accompanied by new verbal guidance that it is likely to raise rates further in May. Together with the new, higher interest rate forecast, this supports our view that the policy rate will peak at 3.5% and stay …
The central bank of the Philippines (BSP) today slowed the pace of tightening as it raised its main policy rate by 25bps (to 6.25%), and hinted that the tightening cycle was now approaching an end. Although inflation has now started to fall, it remains …
The statement accompanying the Brazilian central bank’s decision to keep the Selic rate unchanged at 13.75% yesterday will have disappointed some (not least in the government) that thought global market turmoil and economic weakness might prompt a quicker …
The 25bp rate hike and new projections unveiled by the Fed today were towards the more dovish end of potential outcomes. Despite recent strong economic data, officials acknowledged the likely hit from the banking sector turmoil and left their end-year …
22nd March 2023
While the backdrop has shifted dramatically, we still think there’s a strong case for our existing forecasts of a further rally in long-dated bonds by the end of the year, and some near-term strength in the US dollar and weakness in equities. The Swiss …
17th March 2023
The People’s Bank (PBOC) has just announced a cut to the required reserve ratio (RRR). This will provide a bit of financial relief for China’s large and medium-sized banks. It may also help nudge down lending rates slightly. But given the wider signs of …
Investors have taken today’s 50bp rate hike by the ECB as dovish, and the peak deposit rate now priced into markets is between 3% and 3.25%. We think the risks are skewed towards rates going higher than this and the economy performing much worse than …
16th March 2023
Bank Indonesia (BI) today left interest rates unchanged (at 5.75%), and signalled that with inflation falling back more quickly than expected, rates would be left on hold over the coming months. In the event that the rupiah comes under sustained …
Vietnam’s central bank unexpectedly lowered interest rates late yesterday as it aims to support the struggling economy which has been hit hard by the downturn in global demand and problems in the property sector. We think the central bank will tread …
15th March 2023
This year’s Shunto should result in the strongest negotiated pay hikes in decades. But the average Japanese employee will have little to rejoice in. Weaker corporate profits as well as a likely loosening of labour market conditions on account of a …
At the time of writing, financial markets appear to be stabilising after the turmoil caused by the collapse of SVB. And it doesn’t look like EMs have suffered large capital outflows or strains in their banking sectors. If this relatively benign scenario …
14th March 2023
Given the large amount of uncertainty about how the fallout from SVB’s collapse will evolve, we have grouped possible outcomes into three broadbrush scenarios. Only in the worst scenario of financial problems spreading overseas will the global effects …
Even if the collapse of several mid-tier banks doesn’t develop into a full-blown systemic crisis, it will more than likely trigger a credit crunch. That raises the risk that the economy will suffer a harder landing, which would accelerate the needed …
13th March 2023
This Global Economics Update answers 5 key questions about the fallout from SVB’s collapse. While the situation remains in flux, there are good reasons to think that it does not call into question the solvency of the US or wider global financial system …
The circumstances of the Silicon Valley Bank (SVB) collapse are unique enough that it probably won’t trigger a widespread financial contagion. Nevertheless, it is a timely reminder that when the Fed is singularly focused on squeezing inflation by jacking …
10th March 2023
The Bank of Japan didn’t make any policy changes at Governor Kuroda’s last meeting today but we expect incoming Governor Ueda to abandon Yield Curve Control in April . While that decision was widely anticipated, we were among the few who predicted the …
The Fed is clearly trying to avoid a premature easing in financial conditions and a repeat of 1970s-style “stop-go” monetary policy. This Update discusses some lessons from that period for equity markets today. Equities have struggled over this week, …
9th March 2023
For most economies in Emerging Asia it will be local factors, not the actions of the US Fed, that determine the next moves by the region’s central banks. Given the poor outlook for economic growth in Asia, policymakers are unlikely to respond to a more …
Malaysia’s central bank (BNM) left its policy rate unchanged today (at 2.75%) and with the economy likely to remain weak and inflation set to fall back further over the coming months, we expect rates to stay on hold for the rest of the year. Today’s …
The Bank of Canada kept its policy rate unchanged at 4.5% today as expected but, with one eye on the strength of the recent US data and the Fed’s hawkish reaction to that, it sounded less confident that it could maintain the conditional pause in rates …
8th March 2023
The National Bank of Poland (NBP) left its main policy rate on hold as expected today, at 6.75%, and we don’t think policymakers will rule out further rate hikes just yet (today’s statement gave little away in terms of guidance). But with inflation likely …
Headline inflation in Mexico will continue to fall back over next couple of years, but strong wage growth means that it won’t return to Banxico’s 2-4% tolerance band until late-2024. Against that backdrop, we think the central bank will deliver two more …
Fed Chair Jerome Powell confirmed today that interest rates are set to rise higher than we previously anticipated. But with most evidence still pointing to economic weakness and markedly lower inflation this year, we still believe the Fed will begin …
7th March 2023
With much of the global economy holding up surprisingly well and inflation not coming down as quickly as expected, investors are weighing up the risk that policy rates remain elevated for much longer than previously thought. This Update discusses what …
3rd March 2023
The account of the ECB’s last meeting is consistent with our view that the ECB will raise its deposit rate to 3.0% a fortnight today and continue hiking beyond that. In light of the data released since the last meeting, there are growing upside risks to …
2nd March 2023
Pakistan’s central bank (SBP) raised its policy rate by 300bps (to 20.0%) today, and signalled monetary policy would remain tight as policymakers look to secure a loan deal with the IMF and tackle multi-decade high inflation. We expect a further 200bps …
Hungary’s central bank (MNB) reiterated the message that it’s unlikely to cut its base rate anytime soon, when it left that rate on hold again today (at 13.00%). That said, the MNB offered some signs that it may be close to phasing out its market …
28th February 2023
