Filtered by Topic: Monetary Policy Use setting Monetary Policy
South Africa’s central bank upped the pace of tightening further with a 75bp hike, to 5.50%, as policymakers’ intensifying fears about inflation (and inflation expectations) trumped any concerns about the slow and bumpy economic recovery. The increasingly …
21st July 2022
The rise in local currency bond yields across the emerging world poses a particular risk to fiscal positions in those EMs with large government financing needs and a short average debt maturity. Egypt, Pakistan, and Ghana stand out as those most …
Bank Indonesia (BI) left interest rates unchanged again today, and the dovish commentary from the press conference means we are pushing back the timing for the first hike from Q3 into Q4. With growth set to slow over the coming quarters and inflation to …
The Bank of Japan didn’t concede any ground to bond traders today but we still think there’s a good chance that it will widen the tolerance band around its 10-year yield target . The Bank kept its short-term policy rate at -0.1% and its 10-year yield …
It looks like Italy is heading for an early general election. While that won’t necessarily cause an economic and financial crisis, bond spreads are likely to widen regardless of what the ECB announces later today. After the Lega, Five Star Movement and …
The Q2 ECB bank lending survey showed a tightening in credit standards for commercial property lending in the first half of the year, with expectations for a further squeeze in H2. With the cost of debt also higher, more restrictive credit will weigh on …
20th July 2022
We doubt that the upcoming review of Australia’s monetary policy framework will result in a change to the RBA’s 2-3% inflation target. But the Bank could be forced to put more emphasis on house prices, reduce the frequency of Board meetings, and …
The Central Bank of Nigeria (CBN) followed up May’s 150bp interest rate hike with a 100bp increase in the benchmark rate today, to 14.00%, as worries about inflation continued to mount. We now expect a 50bp hike at the next MPC meeting, although with …
19th July 2022
While a lot of attention has focussed naturally on the potential implications for the JGB market of a further tweaking of the Bank of Japan’s Yield Curve Control (YCC), the country’s huge investment in markets overseas means that they too might …
15th July 2022
We think “quantitative tightening” (QT) may put upward pressure on long-dated Treasury yields over the coming years. But we think that changes in investors’ expectations for the fed funds rate will remain a far more important driver of these yields and …
14th July 2022
The resumption of the loan deal between Pakistan and the IMF should put the economy back on a more secure footing and limit the biggest downside risks. But the cuts to government spending that the deal requires, combined with hikes to interest rates, will …
The decision by the central bank in the Philippines to raise its benchmark policy rate by a further 75bp (to 3.25%) at an unscheduled meeting reflects mounting concerns about inflation. Further hikes seem likely, and we are changing our end-year forecast …
The Bank of Canada’s 100 bp hike today and its accompanying communications have led us to upgrade our forecast for the policy rate to 3.5% by the October policy meeting, from 3.0%. As the commodity price and global supply chain assumptions underpinning …
13th July 2022
The Bank of Korea today raised its main policy rate by 50bp (to 2.25%), and further hikes are likely in the near term given worries about inflation. But with economic growth set to slow and inflation concerns likely to ease later in the year, we think the …
The Reserve Bank of New Zealand hiked rates by 50bp in July but emerging worries about the health of the economy are consistent with our view that rates will peak around 3.5% rather than the 4% predicted by the Bank and financial markets. And we’re …
The euro hit parity against the US dollar today and we wouldn’t be surprised if it falls further. While we think it would take big moves in the trade-weighted exchange rate for the ECB to intervene in FX markets, at the margin the euro’s fall adds to the …
12th July 2022
The 200bp increase in the base rate (to 9.75%) by Hungary’s central bank (MNB) today has resulted in the most aggressive amount of monetary tightening in decades. With fiscal policy tightening too and the euro-zone on the verge of recession, all the signs …
The State Bank of Pakistan (SBP) today raised its main policy rate by 125bps (to 15.0%), and made clear that fighting inflation would remain its priority. Given that inflation looks set to rise further in the near term and remain well above target …
7th July 2022
Very high inflation and low unemployment are driving German unions to seek big pay rises in this year’s collective negotiations. We think nominal pay growth will be in the region of 4-5% this year and 3-4% in 2023. Although this would result in …
The central bank in Sri Lanka (CBSL) today raised its benchmark lending facility rate by a further 100bp (to 15.5%), and with inflation running at over 50%, more tightening seems likely. However, rate hikes on their own will not be enough to restore …
Tightening cycles in Latin America and Emerging Europe are already at an advanced stage. Some 70-80% of the likely rate hikes in their cycles have already been delivered and policymakers will bring these to an end before the end of the year. But inflation …
6th July 2022
The sharp slowdown in money growth is set to continue as the Fed’s monetary tightening ramps up, but the resilience of bank lending suggests the impact on the economy will be limited. (See Chart 1.) The Fed’s asset holdings fell by only $22bn in June, …
Bank Negara Malaysia (BNM) today raised its main policy rate by 25bps to 2.25% and reiterated that further tightening would be gradual. With the economy on the mend but inflation still low, we are sticking with our view that the policy rate will be raised …
Even though workers are accepting cuts in their real pay, nominal wage growth is still above “acceptable” rates for central banks in DMs of 3% to 4%. This underlines why interest rates need to head into restrictive territory to weaken economic activity …
5th July 2022
The RBA sounded a little more cautious about the outlook for the economy when it hiked rates by 50bp today, but we suspect that further upside surprises to inflation will encourage it to eventually lift the cash rate to around 3.5%. However, we expect the …
The Bank of Israel (BoI) stepped up the pace of tightening today with a 50bp interest rate hike, to 1.25%, as it dropped its commitment to “gradual” interest rate hikes. This suggests that similar moves may be in the pipeline and supports our hawkish view …
4th July 2022
Reports that the Saudi Central Bank (SAMA) has injected liquidity into the banking sector appears to be a consequence of a lack of FX intervention (despite high oil prices), tight fiscal policy and strong credit growth. SAMA appears keen to sustain robust …
30th June 2022
As expected, this morning’s 50bp interest rate hike by the Riksbank, to +0.75% saw it join the ranks of the “50bp club”. But while policymakers resisted the urge to join “Club Fed” with a 75bp hike today, they indicated that they will front-load the pace …
Hungary’s central bank (MNB) stepped up the pace of tightening today with a much larger-than-expected 185bp increase in its base rate, to 7.75%, and the hawkish communications underline the view that further large rate hikes are likely to be delivered …
28th June 2022
A handful of EM central banks have ramped up FX sales to provide support to weakening currencies over the past couple of months. And with inflation high and the US dollar likely to strengthen further, others could follow suit. FX intervention is unlikely …
24th June 2022
The Mexican central bank’s shift to a 75bp interest rate hike yesterday (to 7.75%) and the hawkish language in the accompanying statement make another 75bp move at the next meeting in August a done deal. And the risks to our end-2022 interest rate …
The latest Brazilian central bank communications give a strong signal that, when Copom stops hiking interest rates, it will act in a similar way to the end of the last tightening cycle in 2015. The lesson from that period is that rates will be kept high …
23rd June 2022
High inflation, falls in the lira and aggressive monetary tightening elsewhere are clearly not enough to persuade Turkey’s central bank to lift interest rates, as it left its policy rate at 14.00% today. Disorderly falls in the lira are a major risk, …
Bank Indonesia (BI) left interest rates unchanged again today, and the relative weakness of inflation means any tightening cycle is unlikely to be aggressive. We are maintaining our view the central bank will raise interest rates by just 25bps this year. …
This morning’s decision by the Norges Bank to raise its key policy rate by 50bps, to 1.25%, was in line with our non-consensus forecast. Also, as we predicted, the Bank all but confirmed that it will break with tradition and raise rates at the “interim” …
The central bank in the Philippines today raised its policy rate by another 25bp (to 2.5%), and signalled that further tightening was likely. However, with inflation set to peak soon and headwinds to the recovery mounting, we think the tightening cycle …
The minutes of the MPC’s June meeting – in which the repo rate was hiked by 50bps to 4.90% – show that combatting inflation remains the priority and suggest that tightening will continue to be frontloaded. The MPC voted unanimously to raise the repo rate …
22nd June 2022
The best way for the ECB to contain peripheral bond spreads would be via a new programme of unlimited, flexible bond purchases. This may be what happens eventually, but we suspect it will take longer than many anticipate to agree, meaning there is plenty …
17th June 2022
The appointment of Erik Thedéen as the new Governor of the Riksbank will only strengthen the relationship between the Bank and the financial regulator, and could result in more macroprudential powers being brought under the oversight of the Bank. It was …
We held a Drop-In yesterday to discuss recent developments in central banking and related financial market implications. This Update answers several of the questions that we received, some of which we couldn’t fit in during the event and some that we are …
The Bank of Japan gave no ground at all to bond traders today as it left all its major policy settings unchanged. Governor Kuroda was resolute in claiming that Yield Curve Control has no limits in his press conference. But the likelihood is that defending …
The Bank of Canada’s hawkishness, a widening of mortgage spreads, and news that at least one lender is restricting new loan applications suggest the outlook for house prices is worse than we previously feared. Lenders tripped over themselves to provide …
16th June 2022
By raising interest rates by 25bps (basis points) today, from 1.00% to 1.25%, rather than by 50bps or the 75bps the Fed announced last night, we think the Bank of England is putting too much weight on the softening economy and not enough on surging …
Taiwan’s central bank today raised interest rates by 12.5bp (to 1.50%) and appeared to indicate that rates would be raised further this year due to concerns about rising inflation. But we think the tightening cycle will be gradual. The central bank was …
After the excitement of yesterday’s ECB emergency meeting and 75bp hike by the US Fed, the SNB kept its end up by unexpectedly raising its policy rate by 50bps this morning – its first rate rise since 2007. Given its history of unscheduled announcements, …
The recent falls in the Turkish lira have led to increased speculation that, with the CBRT showing no sign of willingness to raise interest rates, policymakers will be forced to turn to capital controls to prevent sharp and disorderly moves in the …
While the Brazilian central bank’s tightening cycle is drawing to a close, the statement accompanying yesterday’s 50bp increase in the Selic rate (to 13.25%) left the door open to additional hikes. With Copom sounding a little more worried about inflation …
The Fed’s larger 75bp rate hike came as little surprise to the markets following the worse than expected May CPI data and Monday’s tip-off in the Wall Street Journal. Our view that inflation will remain uncomfortably high and that the economy will avoid a …
15th June 2022
The ECB’s press release following its unscheduled meeting fell short of announcing a fleshed out spread-fighting tool that could provide a permanent solution to the problem. Flexible PEPP reinvestments might buy policymakers a little time, but the new …
