Filtered by Topic: Monetary Policy Use setting Monetary Policy
Strength in car sales won’t last Data released this week show that new passenger vehicle sales jumped by 14% y/y in August, the first positive rate of growth since the nationwide lockdown and the strongest monthly number since 2018. (See Chart 1.) That …
18th September 2020
Underlying inflation to weaken much further While headline inflation fell in August, excluding the government’s domestic travel subsidy scheme it showed a renewed pick up. However, we still think inflation will fall much further into negative territory …
If it is sustained for long enough, the policy stimulus being implemented in the euro-zone could eventually cause inflation to take off. However, we think it is more likely that policy is normalised as the crisis passes. The risk of an institutional slide …
17th September 2020
Today’s decision by South African Reserve Bank’s to keep its benchmark rate unchanged probably means that further easing is unlikely to materialise. Even so, monetary conditions are likely to remain very loose in the coming years and we expect rates to …
With the economy holding up relatively well, the decision by Taiwan’s central bank (CBC) to leave interest rates on hold came as no surprise. Further rate cuts are unlikely, and we expect interest rates to remain on hold for the foreseeable future. The …
The dovish tone of the Brazilian central bank’s statement from yesterday’s meeting (at which the Selic rate was left at 2.00%) supports our view that the policy rate will remain at its current historic low into 2022. In contrast, most analysts and …
The Bank of Japan’s decision to keep policy settings unchanged today didn’t come as a surprise and we don’t expect incoming PM Suga to push the Bank into policy rate cuts. The Bank kept its policy rate at -0.1% and its target for 10-year government bond …
RBNZ pushing QE to its limits Second wave delays the economic recovery The RBNZ set to launch negative rates next year The RBNZ is reaching the limits of its asset purchase program. We therefore doubt the Bank will make any significant policy changes at …
The FOMC’s updated economic and rate projections show that officials expect to leave the fed funds rate at the current near-zero rate until at least 2023 and probably well beyond that. With the five-year Treasury yield already at less than 0.2%, however, …
16th September 2020
After a tweak-laden last policy meeting, the Riksbank is likely to maintain the status quo next Tuesday (22 nd September). While there is no burning platform for policy change, we think that the next move in interest rates will eventually be down. Recall …
15th September 2020
Jump in inflation to prevent rate cut… for now The increase in Nigerian inflation in August, to 13.2% y/y, will probably stay the hand of policymakers at next week’s MPC meeting. But, with a weak economic recovery, there may still be scope for an interest …
Recovery continues as consumption rebounds Economic growth in China accelerated further in August as sentiment improved among consumers and private firms. Retail sales surpassed 2019 levels for the first time since the COVID-19 outbreak, while investment …
Inflation has been close to the midpoint of the RBA’s 2-3% inflation target since its launch in the 1990s, but this has come at the expense of soaring house prices and household debt. Australia’s experience underlines that central banks need better tools …
A way out of Brazil’s fiscal straitjacket? Brazil’s congress will reportedly receive a plan for the Federative Pact reform next week, which could ease concerns about the public finances. The essence of the Pact is that it will shift spending …
11th September 2020
Seeing the good, the bad and the ugly in SA data Figures released this week provided little cause for optimism about South Africa’s prospects for a strong rebound in activity. The slew of terrible data might, at least, prompt policymakers to lend more …
Second wave fears ease The recent jump in coronavirus cases in Korea, Hong Kong and Vietnam had a negative impact on each economy, with hospitality sectors bearing the brunt of the damage. But with infection numbers now falling again and restrictions …
Melbourne lockdown extended Victorian Premier Daniel Andrews confirmed this week that the state would remain in the current lockdown until at least the end of September, in line with our own expectations. (See here .) But the path out of lockdown he …
While no policy change was expected today, President Lagarde used the press conference to convey a slightly less gloomy message about the economy. She also dampened expectations for an early increase in the already-substantial PEPP envelope or for any …
10th September 2020
Downside risks to the Bank of England’s forecasts are crystallising MPC will wait until the current QE program is ending before adding more stimulus QE still the tool of choice, negative rates possible further ahead The initial recovery has been …
Chile’s economy is recovering more quickly than we had previously expected and, as a result, we are revising up our 2020 GDP growth forecast to -5.5% (previously -7.0%). The stronger rebound has eased pressure on the central bank to loosen monetary policy …
While the euro’s recent appreciation has generated a lot of attention, it is in fact close to its historical average by most measures. So while ECB policymakers may note at today’s press conference that the exchange rate influences their economic …
Bank Negara Malaysia (BNM) left its main policy rate on hold at 1.75% today, but with the economy likely to remain weak for some time to come, we doubt this marks the end of the Bank’s easing cycle. Today’s meeting was always likely to be a close call. …
Inflation rises, but central banks won’t be too alarmed Brazilian inflation remained well below the central bank’s target last month, at 2.4% y/y, confirming that price pressures are soft and supporting our view that the Selic rate will stay low for a …
9th September 2020
The experience of the aftermath of the Global Financial Crisis (GFC) chimes with our EM rates view on two counts. The first is that easing cycles in many EMs are now at an end (Brazil) or will draw to a close over the coming months (Mexico, South Africa …
Bank will stay the course at upcoming meeting Likely future PM Suga has indicated that he sees scope for interest rate cuts But recent comments suggest he won’t interfere in monetary policy decisions The Bank of Japan will leave policy settings unchanged …
The use of traditional monetary policy tools alongside financial repression will keep government borrowing costs in India in check over the coming years. That should help to ensure that only modest fiscal tightening will be needed to put the public debt …
Rebound in household incomes to continue Wage growth improved in July and household incomes are likely to rebound further as more workers who lost their jobs during the state of emergency find employment again. Meanwhile, the second estimate of Q2 GDP …
8th September 2020
Brazil & Mexico’s PMIs diverge The manufacturing PMIs for August published this week were surprising, both for the strength they implied in Brazil’s economy and the weakness in Mexico’s. But in both cases, the surveys are painting an exaggerated picture …
4th September 2020
Slow recovery in the Philippines A long and strict lockdown meant the Philippines suffered one of the biggest falls in GDP in the region in the second quarter. (See here .) The most recent data suggest that it is also experiencing one of the slowest …
Pandemic decimating some services sectors The 7.0% q/q plunge in Q2 GDP was larger than we had anticipated and meant that Australia entered its first recession in 29 years. And while we’ve pencilled in a 0.5% q/q rise in Q3, the risks to that forecast are …
Surge in sales to reverse in August Retail sales were 12% above pre-virus levels in July but the closure of non-essential shops in Victoria will weigh heavily on spending in August. That means that sales won’t rise all that much in Q3, though a rebound in …
No major policy changes on the cards at next week’s Governing Council meeting. Recent developments mean that the ECB will stick firmly to its dovish course. We think the Bank will eventually add to its planned emergency asset purchases. The ECB will not …
3rd September 2020
While the Bank of England might not follow the Fed and change its inflation remit, we doubt this will stop it from significantly loosening policy and from keeping it loose for a very long time. The Fed announced last week that it will now seek “to achieve …
Still a very long way from normal The rise in the August PMIs pales in comparison with the falls during the lockdown and it is highly likely that output is still a very long way from pre-pandemic levels. Given the bleak economic outlook, we think the RBI …
Proposed changes to Bank Indonesia’s mandate, which include a shift to focus more on growth and unemployment, could lead to major changes in how the central bank operates. However, given the country’s high level of foreign currency debt, policymakers …
2nd September 2020
Ongoing virus-related supply disruptions as well as one-off factors such as phone tariff hikes have kept inflation higher than we had anticipated over recent months. But with food inflation set to drop sharply and demand set to remain depressed, we are …
The Fed’s switch to an average inflation targeting regime and revised interpretation of its full employment goal are a response to challenges which are common to many economies, including the euro-zone. We think the ECB will move in a similar direction …
1st September 2020
The 11% q/q drop in GDP in Turkey in Q2 was smaller than we had expected and we now forecast the economy to slump by 3% this year (previously 5.8%). But the recovery over the coming quarters will be held back by weakness in the tourism sector as well as …
The RBA today expanded its Term Funding Facility which should contribute to continued strong growth in the money supply. And while it didn’t indicate that additional stimulus is forthcoming, we still expect it to expand its bond purchases before long . As …
Argentina & the IMF: Take 22… Barring any unexpected hiccups, $66.2bn of Argentina’s international sovereign bonds will be restructured next Friday. As will $41.7bn of local-law FX bonds. Now the government wants to tackle the debts owed to its historic …
28th August 2020
Nigeria’s foreign currency woes Fresh measures by Nigeria’s central bank to clamp down on foreign currency transactions underline the severe pressure on the naira. While the currency will probably be allowed to weaken, further restrictions are likely to …
Turkish lira still vulnerable as EU tensions escalate The Turkish central bank’s tightening of monetary conditions has helped to stabilise the lira but the further ratcheting up of tensions with the EU mean that the risks to the currency lie to the …
QE is edging closer The Bank of Korea (BoK) surprised no one by keeping rates on hold at 0.5% this week. (See here .) Less expected was Governor Lee’s assertion that the Bank has “room for a rate cut”. We’ve now pencilled in a further 25bp cut to 0.25% in …
RBI OMOs a sign of things to come The rise in government bond yields over recent weeks appears to have jolted the RBI into action. The central bank this week held an open market operation (OMO) in which it purchased long-dated bonds with the aim of …
Chair Jerome Powell announced this morning that the Fed will be adopting what he described as a “flexible form of average inflation targeting”, which we expect will trigger additional policy stimulus in the form of stronger forward guidance and possibly …
27th August 2020
The consumption share of GDP had edged up in recent years, but that progress has been reversed by the COVID-19 stimulus response, which has focused on boosting investment. (See Chart 1.) The consumption share should start to rebound again soon as the …
Broad money growth accelerated to a 12-year high in July, but we think that this will prove to be temporary and is not likely to push up inflation. Meanwhile, growth in bank lending to firms has returned to more normal levels, while consumer credit …
In Australia, the lockdown in Melbourne in July was of similar intensity to the initial lockdown in April. Even so, retail sales only fell by 2% m/m in Victoria which still left them around 2% above pre-virus levels. Part of that strength may reflect …
Both Korea and Japan are experiencing second waves, but a stronger shift in consumer behaviour in Korea means the outbreak there is likely to have a larger impact on growth. As such, we’ve revised down our GDP forecast for Korea but kept it the same for …
The Bank of Korea (BoK) left its policy rate on hold at 0.50% today but gave hints at the press conference that fresh rate cuts were on the table. We have pencilled in a cut in Q3 as a result and are sticking with our view that the BoK will expand …
