Filtered by Topic: Monetary Policy Use setting Monetary Policy
Outgoing President Mario Draghi defended the ECB’s decision last month to introduce a raft of measures and downplayed the Governing Council’s divisions. As euro-zone growth is set to remain weak and any fiscal stimulus is likely to be small, we think that …
24th October 2019
September’s plunge in inflation alongside the removal of US sanctions gave the Turkish central bank the green light to deliver another larger-than-expected interest rate cut today and the easing cycle has a little further to run in the coming months. But …
Inflation remains soft, rate cuts ahead Mexican inflation remained at 3.0% y/y October, which supports our view that policymakers will cut their key rate from 7.75% to 7.25% by the end of this year. Figures released today showed that Mexican inflation …
Having left its repo rate on hold at -0.25% this morning, we do not doubt the Riksbank’s clear intent to raise it to zero in December. However, with economic growth set to slow in 2020, and underlying price pressures to stay subdued, we think that …
Bank Indonesia (BI) cut interest rates again today and signalled that its main priority remains supporting the struggling economy. However, if the rupiah starts to drop back against the US dollar over the coming months as we expect, then we could be …
Chilean policymakers’ decision to cut their key interest rate by 25bp yesterday and the dovish tone of the accompanying statement supports our view that the easing cycle has further to run. We continue to expect 25bp of cuts by year-end, and a further …
Outlook for both domestic and external demand has worsened a little But financial stability concerns still stand in the way of interest rate cuts Bank will probably focus its efforts on steepening the yield curve via its bond purchases The economic data …
Officials have not pushed back on expectations for a 25bp cut this meeting Further slowdown in economic growth will prompt one final 25bp cut in December Rates would end up back at zero in a recession, but few signs one is imminent With the markets still …
23rd October 2019
There have been suggestions that the Bank of Korea (BoK) might soon need to adopt some of the unconventional policy measures that are being tried by the world’s major central banks. However, evidence from other countries that have tried quantitative …
Local bond yields have dropped over the past few months (see Chart 1) as the Reserve Bank has continued easing monetary policy, but we think they will start rising again before long. Fiscal policy has been loosened substantially - the finance ministry …
We estimate that a fiscal stimulus equivalent to 1.5% of GDP would still be consistent with maintaining Australia’s AAA-rating. Unfortunately, fiscal policy probably won’t come to the rescue, leaving the onus to support demand on the RBA. The slowdown in …
50bp cut almost certain now The fall in Brazilian inflation to 2.7% y/y in the middle of October, one of its lowest rates on record, means policymakers will (barring any hiccups in the final vote on pension reform later today) almost certainly cut the …
22nd October 2019
If Boris Johnson’s Brexit deal is approved in Parliament soon, we expect the pound would rise from $1.29 now to about $1.35 and 10-year gilt yields would increase from 0.72% to around 0.90% by the end of the year. While a lot of good news is already baked …
The newly-revamped Loan Prime Rate (LPR), the reference point against which banks now price loans, was unchanged in October. This will only increase pressure on the PBOC to ease funding costs for banks in the coming months. The one-year LPR was unchanged …
21st October 2019
Underlying inflation was moored well below the lower end of the RBA’s 2-3% target band even as the housing market was booming and the labour market was tightening. With the unemployment rate set to rise to 5.5% next year and interest rate cuts …
Credit growth will pick up as lending rates fall Data released this week showing that credit growth to the private sector dropped to a two-year low in September (see Chart 1) have raised concerns that the monetary transmission mechanism is lacking …
18th October 2019
More stimulus on the way in Korea GDP figures due to be released next week are likely to show Korea’s economy remained subdued in Q3 – we have pencilled in growth of just 0.4% q/q. (See our data preview below for more details.) However, with policy …
Underlying inflation set to weaken further The Reserve Bank of Australia will have breathed a sigh of relief after the unemployment rate dipped from 5.3% to 5.2% in September despite the fact that job growth slowed. And the minutes of the Bank’s October …
Bank of Japan’s bond holdings on track to fall The Bank of Japan bought ¥5.2 trillion (¥63 trillion annualised) of Japanese government bonds in September and its purchase plan for October foresees purchases of just ¥4.9 trillion (¥60 trillion annualised). …
Clashes on Governing Council will cast a shadow over Draghi’s farewell party. No chance of policy action next week, but we think policy will be loosened next year. Forthcoming review to change inflation target and possibly communication strategy. Mario …
17th October 2019
The shift in market expectations in Brazil towards much larger interest rate cuts by early 2020 now looks overdone. However, expectations for the Selic rate over a longer time horizon (2-5 years) look too high . There is a growing debate about how far …
Unemployment set to rise again before long The RBA will breathe a sigh of relief after the unemployment rate declined in September. But we think it won’t be long before unemployment starts to rise again, forcing the RBA to provide additional stimulus. The …
Overview – After a weak 2019, we expect that growth across most of Latin America will improve next year. That said, our forecasts for the regions two biggest economies – Brazil and Mexico – are below consensus. And Colombia and Argentina will miss out on …
16th October 2019
Overview – Looser policy will support stronger economic growth in Russia, as well as in Turkey (so long as US sanctions don’t get much worse), in the coming quarters. In contrast, the economies of Central and Eastern Europe are likely to slow further as …
The Fed’s move to begin purchasing $60bn of Treasury bills per month will eventually push the size of its balance sheet back up to $4trn over the coming year, not far below its $4.2trn peak. However it would be wrong to view this as a complete …
The Bank of Korea (BoK) cut its policy rate from 1.50% to 1.25% today and with growth set to remain subdued and price pressures likely to remain very weak, we are expecting more easing next year. Today’s decision followed the first rate cut in three years …
Overview – The end of the housing downturn has reduced the risk of a recession and we expect GDP growth in Australia to edge up from 1.7% this year to 2.0% in 2020. However, that’s still well below potential and we expect the unemployment rate to climb …
15th October 2019
Persistently weak WPI inflation raises likelihood of another rate cut The weakness in wholesale price inflation in September is likely to persist until the end of the year and, although not the preferred measure of inflation for India’s policymakers, …
14th October 2019
Recent suggestions that the Bank of Japan will cut its policy rate have fuelled speculation that Japanese banks might be forced to start passing on negative interest rates to savers. But given that Japan’s city and regional banks do not have excess …
The Monetary Authority of Singapore (MAS) loosened policy today and given the current weakness of the economy – GDP figures also published today show growth in year-on-year terms held steady at a ten-year low – monetary policy is likely to remain …
Waning confidence Business and consumer confidence data released this week provided yet another signal that economic activity in Australia is set to remain weak in the coming quarters. Following the May election, business confidence surged, probably …
11th October 2019
Given how much has been said (and leaked) about the ECB’s 12 th September meeting, there was little scope for fresh revelations in today’s account. But the report is consistent with our view that more rate cuts and corporate bond purchases will be easier …
10th October 2019
China Overview – China’s economy has remained resilient in recent months. But with the boom in property construction on borrowed time and headwinds from higher food inflation and cooling global demand likely to intensify further, it is hard to see how a …
Overview – Regional growth is likely to remain very weak, with slower growth in China likely to offset a modest recovery in the rest of the region. China’s economy has remained resilient in recent months. But with the boom in property construction coming …
Overview - We still think that the impact of October’s sales tax hike on consumption will be smaller than after previous tax hikes. But the outlook for external demand remains poor and firms have become less optimistic about the outlook for capital …
9th October 2019
We now expect growth in New Zealand to ease from 2.2% in 2019 to 1.5% in 2020. Along with a rising unemployment rate, weak economic activity will prompt the RBNZ to cut rates twice next year. Growth in New Zealand has gradually eased over 2019 as weak …
Overview – India’s economy slowed sharply in the first half of the year but, with policy support being stepped up, growth should gradually recover. And despite the recent soft patch for the economy, we remain optimistic about India’s longer-term …
8th October 2019
Headline consumer price inflation is likely to have jumped in September on the back of a surge in onion prices. But that’ll hardly bring tears to the eyes of the RBI, as it is likely to have stayed below the 4.0% target. Another rate cut in December seems …
7th October 2019
Once interest rates approach their lower bound, the RBA could provide long-term loans to banks and link their interest rate to the amount of new lending those banks undertake. However, if the Bank decided more stimulus was needed, we still think that …
If faced with a steep downturn, most EM central banks would be able to cut interest rates substantially in order to cushion their economies. Interest rates in a handful of countries are close to the zero bound, but these are typically economies with …
4th October 2019
Nigeria: CBN lending push will have little effect The Central Bank of Nigeria has increased pressure on commercial banks to extend more loans by announcing that the minimum loan-to-deposit ratio will rise from 60% to 65% in December. In aggregate, banks …
The Reserve Bank reverted back to a 25bp rate cut today and has left the door open for further easing in the near term. But we are firmly non-consensus in expecting modest rate hikes by the end of next year. The MPC’s decision to cut the repo rate for …
Stimulus running into diminishing returns The RBA cut interest rates to 0.75% on Tuesday as most had anticipated. It put more emphasis than usual on its intention to achieve full employment. In June, the Bank revised down its estimate of the unemployment …
Not bad enough for another rate cut The rush of data released this week was a mixed bag. Overall, there still isn’t a clear-cut case for the Bank of Japan cutting interest rates when it “re-examines” its policy settings at the end of the month. Amidst the …
Having cut its key interest rate by 25bps this morning, we now expect the Central Bank of Iceland (CBI) to stay in easing mode over the coming months and to reduce rates to 2.75% by year-end. The reduction in the seven-day deposit interest rate in Iceland …
2nd October 2019
We think that the ECB will increase its monthly bond-buying next year by purchasing more corporate debt. This would lead to a marked pick-up in bond issuance, but only a small increase in investment. The divisions on the ECB’s Governing Council become …
We still believe that the unemployment rate would have to fall to 4.0% to meet the RBA’s definition of full employment. With the actual unemployment rate now at 5.3% and rising, that means that the RBA has more work to do. We reiterate our forecast that …
The RBA cut interest rates to 0.75% as widely anticipated and we think it will lower rates to 0.5% by the end of the year. Rates approaching the zero lower bound will inevitably invite speculation about quantitative easing but the RBA’s forceful response …
1st October 2019
Suggestions that the recent rise in interbank rates was caused by the ECB’s new tiered interest rate system are wide of the mark. Instead, the increase reflects investors’ re-evaluation of the outlook for policy rates. They now anticipate a single 10 …
30th September 2019
Overview – After the deepest downturn since the Cultural Revolution in Q1, China’s economy will return to growth this quarter. But with labour market strains holding back domestic demand and external headwinds intensifying, output is still set to contract …
