Filtered by Topic: Monetary Policy Use setting Monetary Policy
While yesterday’s ECB policy statement and press conference left many investors with the impression the Bank may be willing to tolerate higher peripheral bond yields, we doubt that this is the case. Either through words or action, the Bank is likely to …
22nd January 2021
Turkey’s central bank left its benchmark one-week repo rate unchanged at 17.00% at today’s MPC meeting as concerns about the faltering economic recovery took priority. But the hawkish tone on inflation supports our view that rates will be unchanged …
21st January 2021
As expected, the Norges Bank left its policy rate on hold at a record low of zero once again this morning and reiterated that it “will most likely remain at today’s level for some time ahead”. This supports our view that, while we expect Norway to be …
Despite the headwind from the third virus wave, the Bank of Japan revised up its growth forecasts for the next couple of fiscal years. And while Governor Kuroda didn’t provide much insight into what to expect from the upcoming review due in March, we …
The main change to the Bank of Canada’s policy statement today was a signal that the pace of its bond purchases will be reduced as the Governing Council gains confidence in the strength of the recovery. As well as keeping the policy rate at 0.25% and …
20th January 2021
The surge in narrow money growth is entirely due to regulatory changes and a substitution out of savings accounts due to low interest rates. (See Chart 1.) Our measure of M3 shows broad money growth has slowed, dampening fears that a surge in money will …
Bank Negara Malaysia (BNM) left its main policy rate on hold at 1.75% today, but with the country once again in lockdown following a surge in COVID-19 cases, we think that the Bank will eventually be forced into action. Of the 23 analysts polled by …
Commercial banks left the Loan Prime Rate (LPR) on hold today. But with monetary conditions already being tightened in practice and underlying inflation set to rebound, we think it is still likely that the PBOC opts to formally hike rates later this year. …
The Bank of Korea (BoK) left its main policy rate on hold at 0.50% today in a unanimous decision, and with signs that the latest virus outbreak is coming under control, further rate cuts seem unlikely this year. Korea’s third wave of the virus had …
15th January 2021
The Bank of England may not be ready to use negative interest rates until H2 2021. And by then, COVID-19 restrictions might be easing and the economy could be growing rapidly. In any case, if the Bank does loosen policy further, we suspect it will use …
7th January 2021
The lockdowns implemented at the end of last year did not lead to another surge in bank lending, probably because they were less strict and more focused on limiting social activity. But if lockdowns are extended or made more draconian, firms’ demand for …
5th January 2021
The new Tier 4 COVID-19 restrictions, which closely resemble November’s lockdown, raise the chances that the economy stagnates, if not contracts, in the first three months of 2021. If the economy is heading for a double-dip, at least the second leg down …
21st December 2020
Commercial banks left the Loan Prime Rate (LPR) on hold today. But with China’s leadership eyeing a gradual withdrawal of policy support, we think the PBOC will start to hike its policy rates next year. The one-year LPR was unchanged at 3.85% (both the …
The Bank of Japan’s decision today to extend its emergency loan facility by six months didn’t come as a surprise. The announcement that the Bank would soon conduct an assessment of its easing strategy is more striking, but it appears unlikely to result in …
18th December 2020
Indonesia’s central bank left interest rates unchanged today, but given the poor outlook for growth, further easing is likely early next year. The decision by Bank Indonesia to leave interest rates unchanged at 3.75% came as no real surprise – 24 of the …
17th December 2020
The Fed tweaked the guidance for its asset purchases in the statement issued after the conclusion of today's FOMC meeting, with the new language implying those purchases could continue for longer than previously believed. Nevertheless, with yields already …
16th December 2020
We think that the recovery from the pandemic will be stronger than most anticipate. That means that the labour market will tighten rapidly, allowing central banks to end their bond purchases. The upshot is that both the Australian dollar and the New …
In contrast to the consensus, we think that the economic recovery in 2021 will be quicker and fuller, the Bank of England will continue to shy away from negative interest rates, the Chancellor won’t tighten fiscal policy and if there’s a no deal Brexit, …
15th December 2020
One of the biggest upside risks to our forecasts is that households spend the extra savings that they have accumulated during the past few months. If they do, North America and the UK look likely to benefit more than the euro-zone. Chart 1 shows that …
11th December 2020
The ECB’s message that it will persist with its flexible asset purchase programme until at least early 2022 should reassure investors that there will not be a reversal of the compression of bond yields anytime soon. Beyond then, there is a little more …
10th December 2020
The key change to the Bank of Canada’s policy statement today was its commitment to “keep interest rates low across the yield curve”. This is in line with our view that, even as the economy rebounds strongly next year, the Bank will prevent the 10-year …
9th December 2020
The RBI kept the repo and reverse repo rates on hold today and made an explicit commitment to keep policy “accommodative” for the foreseeable future. Markets are too hawkish in expecting modest rate hikes within the next 12-18 months. The MPC’s unanimous …
4th December 2020
China’s rebound from the COVID-19 shock has been swifter and stronger than most anticipated. We think its economy will continue to surprise to the upside for a while, paving the way for PBOC rate hikes and further renminbi appreciation. But the property …
The ECB has said it is prepared to reduce its deposit rate further below zero. However, since any economic benefits would be small and it would be politically unpalatable to some on the Governing Council, we expect the Bank to instead focus on the TLTROs …
1st December 2020
The RBA still sounded cautious when it left policy settings unchanged today. But if our more optimistic forecasts for GDP growth and inflation are realised, the Bank may not decide to expand QE in April. The Bank kept both its cash rate target as well as …
New Zealand is likely to be one of the few countries where output had recovered to pre-virus levels in Q3. Taken together with the recent positive news on the vaccine, we no longer expect the RBNZ to cut rates into negative territory. New Zealand removed …
30th November 2020
The Bank of Japan’s new special deposit facility won’t lift the profitability of struggling banks meaningfully, nor should it result in a rise in money market rates. However, it is another sign that the Bank is becoming more worried about the impact of …
COVID-19 vaccines are a gamechanger for our economic forecasts and mean that we now think that by the middle of the decade the economy won’t be much smaller than if the COVID-19 crisis had never happened. This is a more positive outlook than the views of …
27th November 2020
The account of the last ECB Governing Council meeting confirms that policymakers were becoming more concerned about the outlook for both inflation and GDP growth in late October and that they were preparing to loosen policy in December. The vaccine news …
26th November 2020
The announcement this morning by the Riksbank that it has left the repo rate on hold at zero was never in doubt, and positive news on the vaccine front means that we no longer expect it to cut back into negative territory next year. However, the expansion …
Lending growth is likely to pick up in the final two months of the year as firms again take advantage of loan guarantees to replace lost revenues during lockdowns. And the ECB looks set to support bank lending to the real economy by extending its Targeted …
The Bank of Korea (BoK) left its main policy rate on hold at 0.50% in a unanimous decision, and with the economy set to rebound further in spite of a growing third wave of the coronavirus, further easing seems unlikely in the months ahead. Instead, rates …
The ECB looks set to announce an increase in the size of its Pandemic Emergency Purchase Programme in December and to extend the time for which it pledges to make net purchases and reinvestments. As a reminder, the Pandemic Emergency Purchase Programme, …
25th November 2020
The huge amount of personal savings built up during the pandemic, if unleashed, represents perhaps the biggest upside risk to the economy over the coming year or two. But even once the spread of the virus is brought under control, there are reasons to …
24th November 2020
The Treasury’s decision not to extend the majority of the Fed’s emergency lending facilities beyond the end of the year is unlikely to have a major impact on the economy given that those facilities made just $25bn of loans. At the margin, however, it …
20th November 2020
At its December meeting, the ECB is very likely to announce additional TLTRO operations and it may well make their terms even more favourable for banks. In this Update , we review the ways that the ECB could alter TLTROs so that they provide greater and …
Growth in narrow measures of the money supply has continued to edge higher as demand and saving deposits continue to accumulate but, with growth in broader measures of money and bank lending dropping back, there is little threat of that pushing inflation …
17th November 2020
President Erdogan’s latest comments suggest that the recent changes in Turkey’s economic management team may herald a shift back to orthodox policymaking. If these developments are backed up by a sharp interest rate hike at next week’s MPC meeting – we …
12th November 2020
The Bank of England won’t be worried by the recent jump in gilt yields given that it has been triggered by the growing possibility of a COVID-19 vaccine improving the economic outlook. As such, we have revised up our gilt yield forecasts. However, as the …
11th November 2020
There have been some concerns that as well as there being little scope to generate stimulus through interest rate cuts, the Bank of England is now reaching its limits on Quantitative Easing (QE). But the Bank seems open to loosening its own QE rules. And …
The Reserve Bank of New Zealand’s (RBNZ) decision to implement a funding for lending programme in December should provide some further stimulus on its own and is another step towards implementing negative rates in 2021. The Bank did not adjust the OCR or …
While card transaction data have overstated the health of consumer spending in recent years, we suspect they didn’t do so recently. As such, we’re willing to take the jump in transaction amounts in Q3 at face value and have pencilled in a strong rise in …
9th November 2020
With the markets still relatively calm amid the ongoing election uncertainty, the Fed took the predictable decision to stand pat today. However, if the election results in a divided government – as now looks likely – that will reduce the odds of any …
5th November 2020
This UK Economics Update contains full details of our new economic and financial market forecasts if there is a Brexit deal and for two different kinds of no deal Brexit. It also highlights that business investment is going to remain in the doldrums for …
As expected, the Norges Bank did not set off any fireworks this morning, and the decision to leave its key interest rate on hold at zero was never in doubt. The economy is likely to prove comparatively resilient during the second wave, but we still expect …
Back in June, we predicted that the Bank of England would expand quantitative easing (QE) by a further £350bn over the following 18 months (consensus £100bn). (See here .) By announcing an extra £150bn of QE today, the Bank has already done £250bn of …
