Filtered by Topic: Monetary Policy Use setting Monetary Policy
Inflation holding up better than expected The 1.6% q/q jump in consumer prices in Q3 was largely due to the reversal of the government’s free childcare policy and on its own tells us very little about the broader inflation picture. More importantly, …
30th October 2020
The ECB left its policy settings unchanged at today’s meeting, but explicitly stated that it would “recalibrate” them in December. We think this will include an increase in the size and duration of the PEPP and lower TLTRO interest rates. More radical, …
29th October 2020
The Norges Bank will almost certainly leave its key interest rate on hold at zero next Thursday and will probably reiterate that it is in no rush to hike. However, given the backdrop of rising house prices, we think that policymakers will start to …
The Bank of Japan today revised up its outlook for GDP growth for the next couple of years, reducing the already scant chances of additional easing even further. As widely anticipated, the Bank kept its short-term policy rate at -0.1% and its target for …
As restrictions have been lifted in both countries, activity has rebounded. Admittedly, the second draconian lockdown in Victoria will hold back the recovery in GDP in Australia in Q3 and Q4. But we expect the pace of recovery to pick up in the first half …
Recovery in consumption will slow in Q4 Retail sales were broadly unchanged in September, remaining a smidge below pre-virus levels in volumes terms. That’s consistent with our view that consumption rebounded strongly last quarter, although we think the …
Consensus comes round to our view that MPC will expand QE by £100bn in November This won’t be the last QE expansion Negative rates are possible, but probably not for another 6-12 months Back in June, we were pretty much alone in forecasting that the MPC …
28th October 2020
Underlying inflation to remain subdued The surge in quarterly inflation in Q3 only unwound some of the weakness in Q2 and we still expect underlying inflation to remain weak for years to come. The 1.6% q/q rise in consumer prices in Q3 was the largest …
Cash rate target, three-yield target and TFF interest rate to be lowered to 0.10% Interest rate on Exchange Settlement balances to remain at 0.10% Quantitative easing is coming and the Bank may buy $150bn in government bonds The Reserve Bank of Australia …
The minutes of the Reserve Bank’s October policy meeting – in which policy was left unchanged – show that the MPC has turned more dovish on the inflation outlook and that it has reservations about the strength of the economic recovery. This reinforces our …
26th October 2020
So much for the optimism about Russia’s recovery… Russia’s economy lost a lot of steam at the end of Q3 as the recovery in consumer spending over the summer reversed. (See here .) The rebound was supported by social transfers from the government and the …
23rd October 2020
The decision by Russia’s central bank to leave its policy rate at 4.25% today suggests that inflationary concerns are preventing further easing for now. But the communications reinforce our view that interest rates are likely to be cut next year to 3.50%; …
Table of Key Forecasts Overview – The speed and strength of economic recoveries in emerging markets will continue to vary enormously by country, with China and some other parts of Asia leading and India, South Africa and much of Latin America lagging. …
Minutes reiterate dovish message The minutes of the RBA’s meeting on 6 th October largely sent the same message as Governor Lowe’s speech a week alter. However, there are two points worth highlighting. First, the Board discussed lowering the targets for …
Japanese inflation to remain around zero Headline inflation dropped to zero September, and we think it be negative over the coming months before hovering around zero throughout most of next year. Headline CPI fell from +0.2% y/y to 0.0% y/y last month …
Inflation to ease further in the months ahead The further easing in headline and underlying inflation in Q3 are consistent with our view that weak inflation will prompt the RBNZ to cut rates into negative territory next year. Prices rose by 0.7%q/q in Q3, …
Overview – Recoveries across Sub-Saharan Africa will be weak, with the region’s three largest economies – Nigeria, South Africa and Angola – set to fare particularly badly. A rebound in tourism sectors has been delayed, low oil prices will weigh on growth …
22nd October 2020
We think that Swiss policymakers would be prepared to match any small interest rate cut by the ECB, albeit reluctantly. However, if policymakers in the euro-zone opt to ease policy in other ways, as we think is more likely, this may help to reduce …
Overview – Fresh virus outbreaks and tighter containment measures mean that the economies of Emerging Europe are likely to suffer a fresh downturn in Q4, but we still think that the region will bounce back more strongly from the crisis than many other …
The growing risk of a second national UK lockdown has spooked equity markets over the last week. We already expect the recovery to stall in Q4 and additional COVID-19 restrictions could easily throw it into reverse, which would hammer UK corporate …
The Central Bank of Sri Lanka (CBSL) left both its deposit and lending rate on hold at 4.50% and 5.50% respectively at its meeting today but, given the poor outlook for the economy, we think the easing cycle has further to run. The decision was correctly …
Overview – The picture has brightened for Latin America as new COVID-19 cases have fallen from their peaks, which should allow governments to ease restrictions and provide a boost to economic recoveries. Even so, with the number of new cases still very …
21st October 2020
New COVID-19 cases in India have dropped significantly over the past month. (See Chart 1.) Encouragingly, the share of tests returning positive has also dropped, indicating that the improvement in test results reflects a genuine drop in infections. That …
The RBA’s assets will rise further over the coming months as banks draw down funding under the TFF. But so will the assets of other central banks. If the Bank wanted to catch up with the advanced economies’ most expansionary central banks, it would need …
Bank set to lower GDP growth and inflation forecasts slightly Expansion in BoJ’s assets already very large by international comparison Bank is unlikely to announce additional easing The Bank of Japan may revise down its GDP growth and inflation forecasts …
While we wouldn’t rule out negative interest rates being used a bit further down the line, over the next 6-12 months we think 10-year gilt yields will be kept close to 0.15% by the Bank of England expanding quantitative easing (QE) by a further £250bn by …
20th October 2020
Commercial banks left the Loan Prime Rate (LPR) on hold today. With the PBOC appearing reluctant to keep monetary policy loose for longer than needed amid a broadening economic recovery, we think the next move in the LPR will be an increase early next …
Headwinds facing Czech economy growing The Czech government this week announced stricter containment measures for the next three weeks in an effort to control the surge in COVID-19 cases which, on a per capita basis, is now the worst globally. Last week, …
16th October 2020
West’s virus woes need not deal a major blow China’s goods exports have been strong despite the weakness of the global economy. Data published on Tuesday showed they rose 9.9% y/y last month, with the strength concentrated in shipments of consumer goods …
Political wrangling compounding COVID risks Malaysia’s economy has rebounded rapidly from the crisis. Second quarter national accounts data show that by the end of June the economy was just 3.2% smaller than it was a year ago. (See here .) Recent upbeat …
RBA doubles down on inflation commitment RBA Governor Phillip Lowe gave a speech this week outlining how the Bank can deliver more easing. One change he unveiled was to the RBA’s forward guidance. In recent meetings, the Bank has said that it won’t raise …
Fresh stimulus will have limited impact on demand After dragging its heels for several months, the Finance Ministry announced further stimulus this week with a package worth INR730bn (0.4% of GDP). Around half of this consists of cash vouchers and loan …
Rise in inflation to push next rate cut into 2021 The increase in Nigerian inflation in September, to 13.7% y/y, will probably be followed by similarly high inflation readings in the coming months. The central bank is likely to keep its benchmark rate on …
15th October 2020
Overview - Australia and New Zealand have had far greater success in containing the virus than most other large advanced economies. Coupled with huge fiscal support, that means that the recovery in economic activity could surprise to the upside next year. …
Food aside, prices continue to recover from COVID-19 downturn Headline consumer price inflation, weighed down by easing food price inflation, continued its decline last month. But core consumer prices rose again for the second straight month and factory …
WPI inflation rises by more than expected The rise in headline wholesale price inflation in September was sharper than expected but, with price pressures likely to ease in earnest over the coming months, we think further policy rate cuts are still on the …
14th October 2020
The Bank of Korea (BoK) left its main policy rate on hold at 0.50% today and, with the economic recovery holding up relatively well, further rate cuts seem unlikely. Instead the focus of the BoK is likely to shift to cushioning the impact of loose fiscal …
Economy recovering, monetary policy set to stay loose for an extended period The Monetary Authority of Singapore (MAS) left policy on hold today as advanced GDP data showed that the economy rebounded well in Q3. However, with GDP still well below its …
Large output gaps look set to keep inflation low in most emerging markets over the next few years. But further out, we think that worrying public debt trajectories in some places (Brazil and South Africa), and greater emphasis on growth over inflation by …
13th October 2020
Bank Indonesia (BI) left interest rates on hold at 4.0% today, but it is too soon to call an end to the easing cycle. With the economy in need of further support, we think the central bank will resume its easing before the end of the year. BI left …
Download the pdf for the full Outlook Overview – China has become the first major economy to return to its pre-virus growth path, thanks to its rapid containment of COVID-19 and effective stimulus response. The rebound initially leaned heavily on …
12th October 2020
The post-Global Financial Crisis (GFC) experience suggests that the South African Reserve Bank (SARB) is unlikely to raise the repo rate within our near-term forecast horizon (to end-2022). Investors are anticipating that the SARB will hike the policy …
Inflation has held up better than we had anticipated in recent months. The surge in spare capacity suggests that it could weaken more sharply as social distancing measures are relaxed. But we only expect underlying inflation average -0.2% next year. One …
IMF wades in on fiscal policy... The IMF made headlines this week with the suggestion in its latest Fiscal Monitor that governments across the globe should continue to spend to support economic recoveries. It’s giving a similar message to Mexico. Indeed, …
9th October 2020
Spending recovered further during Golden Week Tourist activity and spending during the nine-day “Golden Week” holiday that ended yesterday was substantially stronger than during holidays earlier in the year, but still depressed. That might point to …
Surge in Vietnam’s exports puts it in danger Vietnam has so far emerged as the biggest winner of the US-China trade war, as tariffs on goods from China have led US importers to switch suppliers. Vietnam’s exports to the US have doubled since the start of …
Big budget spend up Josh Frydenberg unveiled the 2020/21 Budget on Tuesday announcing nearly $100bn of additional stimulus measures. Of particular note, the Budget brought forward stage 2 of the tax cuts to June 2020 (to be back-dated), introduced a 100% …
It came as no surprise that the new MPC voted unanimously to keep the repo and reverse repo rates on hold today. But the relatively dovish tone of the statement, along with the dire growth outlook, mean we remain comfortable with our non-consensus view …
Reasons for caution despite improvement in data This week brought some much-needed good news for India’s beleaguered economy. Activity data for September have been promising. The manufacturing PMI jumped to an eight-year high, while export growth turned …
