Filtered by Topic: Monetary Policy Use setting Monetary Policy
While recent market attention has been on the ECB and Fed, the rise in the Swiss franc has ratcheted up the pressure on the SNB. As a result, investors have come around to our view that the Bank will push the boundaries of monetary easing by cutting rates …
23rd July 2019
Inflation remains well below target so Bank will pledge to keep rates low for longer Domestic demand set to slow after tax hike and external demand to soften But concerns about financial stability should forestall additional easing We expect the Bank of …
Survey won’t change the ECB’s mind about loosening policy The latest ECB Bank Lending Survey adds to the evidence that the euro-zone economy will remain sluggish. The euro-zone does not seem to be on the brink of recession, but continued slow growth …
Indian equities have dropped by over 3% so far in July (see Chart 1), even as most other Asian equities have held up reasonably well this month. The drop appears to have been triggered by proposals in this month’s union budget for FY19/20 which would …
Mexican government unwilling to fix Pemex The Mexican government’s underwhelming business plan for Pemex, announced this week, reinforces our view that it is not willing to implement the reforms necessary to stabilise oil production. Against that …
19th July 2019
South Africa: More evidence of Q2 rebound Retail sales figures out this week strengthened our view that South Africa’s economy returned to growth in Q2. Based on the data released so far, we’ve pencilled in growth of 1.6% q/q saar. (See here .) Interest …
Despite the run of stronger activity data in recent weeks, the deterioration in the survey evidence, lingering uncertainty over trade policy and the prospect of a prolonged period of below-target inflation all suggest there is still a decent case for the …
18th July 2019
The Bank of Canada’s economic forecasts suggest it is closer to making a dovish tilt than is widely thought. The key relationship in the Bank of Canada’s forecasting models is the link between inflation and the output gap. Absent any other factors, such …
Policymakers in South Africa will probably follow today’s 25bp cut with another 25bp of loosening at their next meeting in September. We expect that South African inflation will ease in Q3, while cuts from key central banks elsewhere – notably the US Fed …
The ECB is likely to change its forward guidance to signal that a rate cut is coming... … and it might also add an explicit reference to the possibility of re-launching QE. All this would confirm investors’ expectations that looser policy is on the way. …
Bank Indonesia (BI) today cut its benchmark interest rate from 6.0% to 5.75% and hinted that further easing is on the horizon. But the uncertain outlook for the currency means that this is unlikely to be the beginning of a prolonged easing cycle. Today’s …
The Bank of Korea (BoK) today cut interest rates by 25bp to 1.50% and signalled that further easing is on the way. Given the poor outlook for growth and the change in sentiment by the central bank, we now think interest rates will be cut a further two …
Labour market to deteriorate further this year We think the slowdown in employment growth has further to run and suspect that the deterioration in the labour market will cause the unemployment rate to rise before the year is out. Employment was almost …
Our central scenario is that cutting interest rates to 0.5% will be sufficient to restore growth and eventually return underlying inflation to the RBA’s target. If more stimulus were required, the government would probably remain reluctant to loosen …
17th July 2019
Early indicators suggest that GDP growth slowed sharply across Emerging Asia in the second quarter. Although most countries should stage a gradual recovery over the coming year, growth is likely to remain much weaker than the consensus and the IMF expect. …
Pakistan’s central bank (SBP) today raised its benchmark interest rates by a further 100bp amid continued concerns about high inflation and the country’s current account deficit. With inflation set to rise further over the coming months and the external …
16th July 2019
New regulations from the central bank will probably do little to encourage lending to the private sector. So long as government bond yields remain elevated, banks will prefer to park their money in treasuries. The Central Bank of Nigeria (CBN) has issued …
Underlying inflation won’t pick up much from here We doubt the strength in inflation in Q2 will be maintained for long and we expect underlying inflation to remain below the mid-point of the RBNZ’s 1-3% target band for the foreseeable future. That’s why …
Falling WPI inflation raises likelihood of another rate cut The wholesale price index is not the preferred measure of inflation for India’s policymakers, but the continued decline in the headline rate in June will help the MPC to justify another rate cut …
15th July 2019
Banxico likely to begin cutting rates next month The minutes to the last Mexican central bank meeting, published yesterday, revealed a more dovish shift on the Bank’s Board than we had expected. We now think that an interest rate cut at the next meeting …
12th July 2019
Given the recent run of stronger economic data, we thought the Bank of Canada might sound a cautiously optimistic note following its policy meeting this week, but the statement remained relatively neutral. (See here .) That could be the first sign that …
Despite the rebound in monthly GDP growth from -0.4% m/m in April to +0.3% m/m in May, the economy probably just about contracted in Q2 as a whole. ( See here .) Some of that is just payback from activity being brought forward from Q2 into Q1 ahead of the …
South Africa: Steady as she goes at the SARB The re-appointment of South Africa’s respected central bank governor will help to allay fears concerning the independence of the Reserve Bank. Governor Lesetja Kganyago is a fierce defender of the bank’s …
A lot has happened since the Governing Council’s policy meeting on 6 th June, so the account published today has arguably been superseded by events. But it does confirm that even five weeks ago the Bank was gearing up for action. The account also hints at …
11th July 2019
Lagarde selection strengthens our conviction of ECB rate cuts and QE to come. Trump’s nominations may be less influential, but lend policy a dovish tilt. Next year’s change of guard at the Bank of England could be meaningful. Recent news about a number of …
Activity data for May added to the evidence that the economy rebounded following its contraction in Q1. Even so, we think that the Reserve Bank will cut its policy rate from 6.75% to 6.50% next week. Figures released today showed that manufacturing output …
While it is recognised that political developments, such as a no deal Brexit and a Labour government, have the capacity to send the economy in different directions, it’s not as well known that three economic trends are in train regardless – looser fiscal …
The large margin of victory for Brazil’s pension bill in its first vote in the lower house last night is likely to result in a rally in local markets later today, and makes an interest rate cut at the Copom meeting this month a done deal. We have also …
Although the tone of Bank of Canada’s monetary policy statement remained fairly neutral, its updated forecasts suggest that the Bank is losing faith in the economy’s short-term prospects. We continue to expect the Bank to cut interest rates in October. As …
10th July 2019
Chair Jerome Powell’s semi-annual testimony to Congress indicates that, despite the trade truce following the recent G20 meeting and the strength of employment growth in June, the Fed intends to push ahead with a rate cut at the FOMC meeting at the end of …
Inflation back below target opens door to easing The sharp drop in Brazilian inflation to 3.4% in June, which took it below the central bank’s target, suggests that policymakers will soon start to ease monetary policy. Barring any major hiccups with the …
Overview - Australia’s housing downturn will probably come to an end towards the end of the year. That means that the drag from falling housing wealth on consumer spending will subside. It also means that homebuilding will become more attractive again. …
Bank Negara Malaysia’s (BNM) left interest rates unchanged at 3.0% today, but kept the door open to further easing. With growth set to slow in the second half of the year, we think the central bank will cut interest rates again soon. Today’s decision came …
9th July 2019
The dismissal of Turkey’s central bank governor over the weekend increases the chances of aggressive cuts in interest rates in the near-term. But it has also raised the risk of larger currency falls and is likely to make the country’s high inflation …
8th July 2019
The data this week were consistent with a continued slowdown in economic growth, but don’t yet look weak enough to convince the Fed to cut interest rates immediately. We suspect that Chair Jerome Powell will use his semi-annual testimony to Congress next …
5th July 2019
Developments this week make us more confident in our view that the ECB will change its forward guidance at its meeting on 27 th July, before cutting its deposit rate in September and announcing in October that it will re-launch QE. The first of these …
Swiss market shrugs off loss of ‘equivalence’ The Swiss stock market took the expiration of the ‘equivalence’ regime with the EU in its stride this week, mirroring the buoyant performance of other equity markets. The Swiss Market Index (SMI) jumped by …
Christine Lagarde’s nomination as ECB President makes us even more optimistic about the near-term outlook for government bonds in the euro-zone and reinforces our view that corporate bonds there will hold up better than elsewhere. We have argued for some …
Renewed drop in inflation to continue The renewed drop in inflation in June is likely to continue as the headline rate is dragged down by falling food and fuel price inflation, providing a green light for the central bank to cut rates in August. Today’s …
Broad money growth accelerated to a decade high in May, as past increases in interest rates boosted portfolio demand, but the more recent renewed slump in rates will trigger a slowdown in the second half of this year. (See Chart 1.) The decline in …
3rd July 2019
The relatively dovish stance adopted by Poland’s MPC in the communications accompanying today’s interest rate meeting supports our view that monetary policy settings will be left unchanged until the end of the Council’s term in early-2022. The decision by …
The decision by the Riksbank to leave its repo rate on hold at -0.25% this morning came as no surprise, but the fact that it left its (in our view) optimistic forecast for interest rates unchanged bucks the dovish trend by other central banks, notably the …
Yesterday’s announcement that Christine Lagarde will succeed Mario Draghi leaves us even more confident that the ECB will loosen monetary policy in the coming months. We think the Bank is likely to cut its deposit rate in September and re-launch QE before …
Swiss pension funds and life insurers have been among the losers from negative interest rates, but the SNB is unlikely to follow the Bank of Japan’s example of targeting long-term bond yields to limit the damage on the sector. Given that we now expect …
2nd July 2019
A rise in inflation has led five of the ten Polish MPC members to suggest that interest rates may soon need to be raised. But we doubt that any of the five more dovish members, including Governor Glapinski (who has the deciding vote in the event of a …
While the RBA lowered the cash rate to 1.0% at today’s meeting, it signalled that it won’t ease policy any further for now. However, we think that the Bank remains too optimistic about the outlook for the labour market and inflation. Accordingly, we’ve …
PMI readings not a barrier to policy loosening India’s manufacturing PMI reading remained consistent with decent output in June but it is unlikely be a barrier to further policy loosening. There is a high chance that a looser fiscal stance will be adopted …
1st July 2019
Swiss-EU stock market equivalence is no more The spat between the Swiss government and the EU came to a head this week after it became clear that the EC will follow through on its threat to let the current ‘equivalence’ regime for share trading lapse from …
28th June 2019
Dovish RBNZ As expected, the RBNZ kept the official cash rate on hold at 1.50% this week. But given the Bank’s dovish tone and our downbeat forecasts for New Zealand’s economy, we now think the RBNZ will cut rates twice this year. (See here .) Admittedly, …
While the performance of the US stock market in the Fed’s last four easing cycles was varied, our view remains that it will fall in the next one, which we expect to span from late-summer 2019 to spring 2020. The S&P 500 soared by nearly 15% in the …
27th June 2019
