Filtered by Topic: Monetary Policy Use setting Monetary Policy
Continued strength in underlying inflation and activity will prompt the Reserve Bank of Australia to start hiking rates in June. And we now expect the Bank to lift the cash rate to 1.75% by August next year. Further evidence that the Australian economy is …
10th February 2022
We now think that Bank Rate will rise from 0.50% currently to 1.25% sooner than we previously thought. What’s more, we now expect three more 25 basis point (bps) rate rises in 2023, resulting in rates ending next year at 2.00%. That compares to the …
9th February 2022
Any policy tightening by the ECB in 2022-23 will probably be too limited to cause major problems in the bond market. But if interest rates rise much further than we anticipate, that could trigger renewed bond market turmoil – which in turn would …
Our base case is that monetary tightening by the ECB results in a manageable rise in Italy’s government bond yields. We think it would take 10-year yields rising to 5% or more to bring debt sustainability into question. However, there is no guarantee that …
The National Bank of Romania (NBR) accelerated its tightening cycle today with a 50bp hike to its key policy rate (to 2.50%) and, with inflation firmly above the central bank’s target, we think this cycle has plenty more room to run. We now expect the …
The Bank of Thailand (BoT) left its policy rate unchanged today at 0.5%, and despite the recent rebound in inflation, we expect interest rates will remain on hold for some time to come. The decision was unanimous, and the outcome was correctly predicted …
The National Bank of Poland (NBP) raised its policy rate by another 50bp, to 2.75%, at today’s meeting and, while there was little change in language in the statement, we think a backdrop of strong wage and price pressures will prompt further hikes to …
8th February 2022
If oil prices were to remain at their elevated levels, they could push current account and budget balances into surplus in many of the EM producers. It would also ease any concerns about dollar pegs in the Gulf, although we think the currencies of Angola …
Inflation is a growing concern for policymakers in South Asia and means interest rates are likely to rise further this year. Elsewhere in Asia, inflation remains low and is likely to fall back over the coming months, supporting our view that policymakers …
Today’s appointment of Jens Stoltenberg as the new Governor of the Norges Bank is a slap in the face for the bus driver, plumber, and baker who had applied for the job, as well as the two thirds of Norwegians that favoured Ida Wolden Bache to succeed …
4th February 2022
The Czech National Bank (CNB) slowed the pace of its tightening cycle for the second consecutive month today and the accompanying communications were less hawkish than expected and suggest that there is little appetite for much more significant …
3rd February 2022
While the ECB did not change its policy settings today, President Lagarde more than made up for it in the press conference. We now think the ECB will decide in March to taper its asset purchases faster than previously indicated, and are pencilling in 50bp …
The Central Bank of Egypt (CBE) kept interest rates unchanged at Thursday’s MPC meeting amid stronger price pressures and, if we’re right in expecting the authorities to let the pound weaken gradually this year at the same time that US Federal Reserve …
One challenge for central banks as they consider reducing the size of their balances sheets is that, if they sell assets bought during the pandemic, they will likely face a financial loss. This is less of an issue for the Bank of Canada because it has an …
While the decisions by the Bank of England to hike interest rates from 0.25% to 0.50% and to start reversing quantitative easing (QE) were both as expected, with four MPC members wanting to raise rates to 0.75% and all members deciding to sell the …
The statement accompanying the Brazilian central bank meeting yesterday, at which the Selic rate was hiked by 150bp to 10.75%, made clear that policymakers will slow the pace of tightening from here. But with inflation worries still prominent, we think …
The markets are right to be sceptical of claims that the Fed could begin its tightening cycle with a “shock-and-awe” 50bp interest rate hike next month. At a time when the yield curve is already unusually flat, an aggressive start to the tightening cycle …
2nd February 2022
The Q4 GDP data released over the past week underline the fact that the two largest developed markets – the US and euro-zone – have so far experienced very different crises and recoveries. These differences help to explain why economic growth in the …
1st February 2022
The RBA today ended its bond purchases, revised up its inflation forecasts and no longer signalled that wage growth needs to be “materially higher” to meet its inflation target on a sustained basis. We expect the first rate hike in August . The Bank’s …
The surprisingly hawkish shift on Colombia’s central bank board at Friday’s meeting, when the policy rate was increased by 100bp to 4.00%, suggests that the tightening cycle will be more aggressive than we had thought. We now expect the policy rate to …
31st January 2022
The announcement by Argentine President Fernández that the government has reached a new agreement with the IMF, the 22nd in their history, will give some relief to international bondholders in the near term. But this is just the start of a long journey to …
28th January 2022
The South African Reserve Bank pressed ahead with its tightening cycle by raising the repo rate from 3.75% to 4.00% today as policymakers’ concerns about upside inflation risks and the global monetary policy backdrop increased. Overall, though, the …
27th January 2022
The decision by Chile’s central bank to deliver a surprisingly large 150bp rate hike yesterday, to 5.50%, supports our view that the tightening cycle will go further than the path it had previously signalled. That said, we think that the dramatic upward …
The Fed’s announcement that it will “soon be appropriate” to raise interest rates and the numerous hints dropped by Chair Jerome Powell in the post-meeting press conference all but guarantee that a March rate hike is coming. Meanwhile, the Fed set out a …
26th January 2022
The Bank of Canada kept policy unchanged today but judges that the conditions to start raising interest rates have now been met, suggesting that it will hike its policy rate at the next meeting in March. Markets had given the Bank a green light to start …
Trimmed mean inflation will probably climb above the upper end of the RBA’s 2-3% target band in Q1, which would add to the case for the RBA to start hiking rates in May. However, the RBA hasn’t changed its policy rate in an election month since it started …
The Central Bank of Nigeria (CBN) kept its benchmark rate on hold at 11.50% today as it shrugged off the unexpected rise in inflation in December and maintained its focus on supporting the recovery. We think that the current accommodative policy stance is …
25th January 2022
The Monetary Authority of Singapore’s (MAS) surprise move to tighten policy today, ahead of its usual April meeting, probably won’t be its last. We think the added uplift to inflation from a domestic outbreak of Omicron will force the MAS to tighten again …
The State Bank of Pakistan (SBP) left interest rates on hold today at 9.75% and indicated that further modest tightening is likely later in the year. We think the central bank will take a breather over the next few months, but we doubt today’s meeting …
24th January 2022
Our baseline forecast envisages that US corporate bond spreads rise only slightly as the Fed raises interest rates over the next couple of years. But we think the risks to this forecast are skewed to higher spreads. We think that the Fed will hike …
21st January 2022
The long and detailed account of December’s Governing Council meeting underlines that there are significant differences of opinion about the inflation outlook. We suspect that the balance of opinion will shift in the coming months towards forecasting …
20th January 2022
Turkey’s central bank (CBRT) followed kept its one-week repo rate on hold at 14.00% today and, even though inflation is likely to breach 40% in the coming months, President Erdogan is unlikely to permit interest rate hikes. We think it’s more likely that …
Bank Indonesia (BI) left interest rates unchanged at 3.5% at its meeting today, but the decision to raise the reserve requirement ratio (RRR) from March suggests that rate hikes will come sooner than we had previously expected. The decision to leave rates …
After twelve years in the job, Øystein Olsen was never going to spring a surprise at his last meeting in charge of the Norges Bank. Instead, the Bank left its policy rate unchanged at 0.5% and reiterated that it “will most likely be raised in March”. We …
The dovish tone of Bank Negara Malaysia (BNM) as it left rates on hold today only strengthens our non-consensus view that policy will be left on hold this year to support the recovery. In contrast, the analyst consensus is for 50bps of tightening, while …
The 50bp rate hike made by the Central Bank of Sri Lanka (CBSL) today – after it stood pat for two meetings as foreign currency dried up and inflation soared – is likely to prove too little too late. The CBSL today raised its deposit and lending rates by …
Today’s reductions to both the one-year and five-year Loan Prime Rates (LPR) continue the PBOC’s efforts to push down borrowing costs. We expect additional easing to follow in the coming months, including measures to push down deposit rates. But …
The Bank of Japan today upgraded its assessment of inflation risks to “broadly balanced” for the first time since 2014. However, it reiterated its pledge to keep expanding the monetary base until inflation exceeds 2% and also signaled that it will keep …
18th January 2022
The People’s Bank (PBOC) has stepped up its efforts to loosen monetary conditions, following up last month’s reduction to the Loan Prime Rate (LPR) with cuts to the rates at which it lends to banks. Another LPR cut this month is now a given and we expect …
17th January 2022
The Bank of Korea (BoK) is far from done, after making its first back-to-back rate hike since 2007 today. We now expect a total of four 25bp hikes in 2022, taking the policy rate to 2.00%. Today’s decision to raise the policy rate from 1.00% to 1.25%, …
14th January 2022
We think that rate differentials and commodity prices will be the key factors driving the relative performance of six “high-beta” DM currencies in 2022, continuing last year’s trend. We expect all these currencies to lose ground against the US dollar this …
13th January 2022
We expect policymakers in Denmark and Switzerland to match the 50bps of interest rate hikes that we now forecast in the euro-zone next year. And against the backdrop of rising global interest rates, we now think that the Riksbank will start a tightening …
We expect the Bank of Canada to wait for the coronavirus restrictions to be lifted before starting to raise interest rates, suggesting it is more likely to begin hiking in March or April than at its meeting this month. OIS futures imply a near 50% chance …
12th January 2022
We think that GDP growth in the Gulf will be stronger than most expect this year on the back of rising oil output. Elsewhere, we expect a larger depreciation of the Egyptian pound than most anticipate and, if anything, there is a growing risk of an even …
With pandemic-related inflationary pressures proving a bit more intense and persistent than we had anticipated, and policymakers sounding more willing to tighten policy, we think the ECB is most likely to end net asset purchases in December 2022 and raise …
In his Senate re-nomination hearing today, Fed Chair Jerome Powell echoed the increasingly hawkish rhetoric coming from other officials. He admitted that "supply side constraints have been very consistent and very durable" and that the Fed was "not seeing …
11th January 2022
We doubt that “fiscal dominance” – worries about the impact of higher interest rates on debt sustainability – would stop the ECB from raising interest rates. But it might encourage the Bank to backstop the bond market even after raising rates by …
We think that GDP growth in Australia will surprise to the upside. But with wage growth only approaching the 3% watermark the RBA would like to see by year-end, we expect the Bank to keep rates on hold. By contrast, we expect the RBNZ to hike interest …
We think GDP growth will come in below expectations this year. Even so, inflation will ultimately settle at a higher level than is currently appreciated and this feeds into our hawkish interest rate forecasts. We expect currencies to struggle in an …
10th January 2022
We think that Latin American GDP growth will slow by more than most expect in 2022, while inflation will also drop more a bit more quickly than the consensus anticipates. This feeds into our relatively dovish monetary policy views across the region. …
