Filtered by Topic: Monetary Policy Use setting Monetary Policy
After raising rates by 75bp today, the ECB laid the groundwork for a slower pace of tightening to come. But we still think that the deposit rate will reach 3% next year. And while the Bank will set out some “key principles” for QT in December, we doubt …
27th October 2022
The hawkish language in the statement accompanying the Brazilian central bank’s decision late yesterday, at which it left the Selic rate at 13.75%, reinforces our view that the sharp fall in inflation in the last few months won’t push Copom to cut …
Governor Tiff Macklem shifted his tone notably today, reassuring that the Bank was “trying to balance the risks of over- and under-tightening”, whereas previously the emphasis had stressed that it was better to tighten too much rather than too little. …
26th October 2022
Vietnam’s central bank (SBV) hiked its main policy rate by a further 100bp (to 6.0%) yesterday at an unscheduled meeting as it attempted to support the currency. With the dong likely to remain under downward pressure, further hikes are likely. …
25th October 2022
Although the energy crisis in Europe has dealt a blow to the EU’s near-term green ambitions, a combination of economic incentives, NextGenEU funding, and geopolitical expediency will cause the bloc to re-double its decarbonisation efforts. However, …
24th October 2022
Policymakers in Turkey have doubled down on their new economic model of “lira-isation” by pursuing more extreme de-dollarisation policies in recent months. These appear to be having an impact in terms of stemming lira depreciation. But the central bank …
20th October 2022
Bank Indonesia today raised its main policy rate by 50bp (to 4.75%), and further rate hikes are likely in the near term as the central bank looks to support the currency and clamp down on inflation. A rate hike today was always likely, the only question …
The continued strength in inflation will encourage the Reserve Bank of New Zealand to hike the overnight cash rate by 75bp in November and to 5.0% by mid-2023. And with the financial markets sharply repricing the peak in the cash rate, a further surge …
The Monetary Authority of Singapore (MAS) tightened policy today, in an attempt to contain elevated price pressures, but with inflation likely to fall in the coming quarters and the economy set to struggle, we expect this move to have marked an end to the …
14th October 2022
While the Fed isn’t likely to follow the Bank of England in pausing QT in response to upward pressure on long-term government bond yields, the reduction of the Fed’s balance sheet could end sooner and be significantly smaller than we had first thought. …
13th October 2022
Strictly speaking, recent measures by the Bank of England do not qualify as so-called “fiscal dominance”. But this could be the thin end of the wedge, and not just for the UK. While we are a long way off central banks in developed economies directly …
Chile’s central bank (BCCh) became the latest in the emerging world to end its tightening cycle yesterday. But with inflation only likely to fall back towards target in late-2023 and the external position in a fragile state, monetary policy will be kept …
The decision by the Bank of Korea to raise its policy rate by a further 50bp (to 3.0%) indicates the central bank’s near-term focus will remain on combating inflation. But with growth slowing and price pressures already having peaked, we think the …
12th October 2022
Central banks have the tools to deal with liquidity crises arising from rising interest rates and falling asset prices. Instead, the bigger threat is that higher interest rates produce large and simultaneous falls in asset prices that threaten the …
11th October 2022
Japanese firms’ holdings of interest-bearing assets have risen relative to their interest-bearing liabilities and some are suggesting that they benefit from rising interest rates as a result. But with domestic interest rates little changed as the Bank …
10th October 2022
With pr ic e pressures still strong, the looming global recession is unlikely to derail central banks’ tightening plans in the months ahead. While the RBA quoted the deteriorating global outlook when it recently decided to slow the pace of rate hikes in …
6th October 2022
Continued worries about inflation mean the central bank (BoK) in Korea still has further work to do, and we are sticking with our view that the BoK will raise interest rates by at least 50bp between now and the end of the year. But with inflation likely …
5th October 2022
The Reserve Bank of New Zealand hiked the overnight cash rate by 50bp to 3.5% as widely anticipated and the hawkish tone of the statement is consistent with our forecast that rates will peak at 4.5% by mid-2023. However, that aggressive tightening will …
The Reserve Bank of Australia slowed the pace of monetary tightening by delivering a smaller 25bp rate hike to 2.60% this month, but we still expect rates to peak a touch higher than most anticipate. And the financial markets are now coming round to our …
4th October 2022
Central banks in Mexico and Colombia delivered further large interest rates hikes yesterday, of 75bp and 100bp respectively, and the backdrop of strong inflation pressures and tighter external financing conditions means that a bit more tightening lies …
30th September 2022
The RBI hiked the repo rate by another 50bp (to 5.90%) today and the communications give a clear steer that the tightening cycle still has further to run. But with inflation set to slow, we think the central bank will now revert to hikes of 25bp …
Higher interest rates are already having an impact in CEE and a large part of the tightening of monetary conditions has yet to feed through. This will add to the headwinds facing growth in the coming quarters. Central banks have raised interest rates by …
29th September 2022
Bank Indonesia (BI) has been stepping up its efforts to support the rupiah in recent weeks, and we think further FX intervention and interest rate hikes are likely over the coming months as the central bank continues to try and defend the currency. …
The Bank of Thailand (BoT) hiked interest rates today by a further 25bp (to 1.0%) and appears committed to raising interest rates gradually over the coming months. But with inflation elevated and the currency coming under further downward pressure against …
28th September 2022
Although the latest sell-off in Gilts has been driven in part by expectations for higher interest rates, the accompanying fall in sterling suggests the risk premia attached to UK assets has risen. In our view, in the absence of a concerted attempt to …
27th September 2022
In response to the government’s loose fiscal plans and the resulting weakening in the pound, we now think that interest rates will rise from 2.25% now to a peak of 5.00% (4.00% previously). Rates at those levels make the housing market look very …
After raising its base rate by a larger-than-expected 125bp, to 13.00%, Hungary’s central bank (MNB) announced today that it has now ended its rate hiking cycle and we now forecast the base rate to be left on hold over the coming year. Even so, with …
The rise in market interest rates that has already happened will push up mortgage rates to at least 6% and reduce the size of loans that lenders can offer. The resulting drop in buying power makes a significant drop in house prices inevitable. Many …
The Central Bank of Nigeria (CBN) upped the pace of its tightening cycle today, increasing the benchmark rate by 150bp, to 15.50%, as officials have become increasingly concerned about sky-high inflation and mounting pressure on the currency. We now think …
It is now clear that central banks in advanced economies will raise interest rates even further than our above-consensus forecasts had implied, making the current tightening cycle the most aggressive in three decades. While this may be necessary to tame …
A strong US dollar is a threat to countries with lots of foreign currency debt and/or inflation problems, and is putting pressure on central banks across the region to raise interest rates more aggressively. We recently changed our policy rate …
Investors have revised up how far they expect the Bank of England to raise interest rates as they continue to digest the tax cuts announced on Friday. This Update examines what the impact on the housing market would be, and whether that could prevent …
Another month, another batch of PMIs pointing to Q3 GDP having fallen in major advanced economies. Yet despite the deterioration in real activity, as well as some further signs that pipeline price pressures are easing, September’s PMIs will do little to …
23rd September 2022
With the Fed still clearly in a hawkish mood, we have revised up our forecasts for the 10-year Treasury yield. We now expect it to be around its current level at the end of this year, in contrast with our previous forecast of a decline. But we still …
The strength and breadth of inflationary pressure in the euro-zone, together with policymakers’ determination to bring inflation down, has prompted us to revise our interest rate forecasts up. We now forecast the ECB’s deposit rate to peak at 3% even …
22nd September 2022
The hawkish 50 basis point (bps) hike in interest rates today, from 1.75% to 2.25%, was partly driven by the government’s plans to dramatically loosen fiscal policy and supports our view that the Bank of England will raise rates to a peak of 4.00% and …
Bank Indonesia (BI) today raised interest rates by a further 50bp (to 4.25%) and signalled that more tightening was likely as it aims to support the currency and clamp down on rising inflation. We are changing our policy rate forecasts, and now …
Following today’s 50bp increase, we think the Norges Bank is most likely to hike by 50bp again in November. But its tightening cycle will soon be over, with the policy rate peaking at around 3%. Today’s 50bp rate hike, taking the policy rate to a …
The Swiss National Bank is likely to follow today’s 75bp rate rise with further increases at its next couple of meetings to keep a lid on inflationary pressure. But we still think investors have got ahead of themselves in expecting the rate to peak at …
The central bank of the Philippines (BSP) today raised its main policy rate by another 50bp (to 4.25%), and signalled that more hikes were likely in the near term. While further tightening is likely over the coming months, with inflation having peaked …
The Bank of Japan kept policy loose and retained its easing bias today and we think it won’t tighten policy even as underlying inflation reaches its 2% target. As was widely anticipated, the Bank kept its short-term policy rate at -0.1% and its target for …
The Fed stuck to the script in delivering a 75bp rate hike at its September meeting, but in our view still managed to deliver a hawkish message with the accompanying projections , which imply an additional 75bp hike in November and a 50bp move in …
21st September 2022
Despite incurring a record loss last year and now having to operate with negative equity, the RBA has not requested a recapitalisation from the government. But given that it did receive a capital injection in 2013 and that it may well record further …
Even after raising its policy rate by 100bp today, the Riksbank signalled that its tightening cycle has some way to go. We expect another large hike at its final meeting of the year in November, perhaps by 75bp. Next year, the beginning of QT will ease …
20th September 2022
Even more caution than usual should be exercised when using UK overnight indexed swap (OIS) rates to infer the expected path of Bank Rate over the next couple of years. This is because they have risen by far more than the yields of Gilts with comparable …
15th September 2022
After fully adjusting our economic forecasts to take account of what is shaping up to be a big fiscal expansion, we now think the Bank of England will raise interest rates from 1.75% currently to a peak of 4.00% next year (our previous forecast was 3.00%) …
The recent decline in oil prices has weighed on some equity market indices and come alongside a decline in US inflation compensation, but we don’t think those moves will unwind much even if, as we expect, oil recovers a bit. Oil prices have now fallen …
Reports that the ECB will soon start debating QT add to the risks facing euro-zone government bond markets. While the Bank could still expand its holdings of peripheral sovereign debt through the PEPP, QT would raise the bar even further for it to …
12th September 2022
Notwithstanding the big policy announcements in the UK this week, we still think that the pound and the UK stock market will struggle over the rest of this year, but expect 10-year Gilts to rally. We set out what we think the “Energy Price Guarantee” …
9th September 2022
The ECB is almost certain to follow today’s 75bp rate hike with further aggressive increases in the coming months. We doubt that even a recession would cause the Bank to halt rate hikes. Against that backdrop, and with uncertainty about policymakers’ …
8th September 2022
