Filtered by Topic: Monetary Policy Use setting Monetary Policy
The minutes of the Reserve Bank’s 7 th February policy meeting – in which rates were cut – reveal a significant difference of opinion between MPC members on the outlook for core inflation. We share the view of the committee’s two dissenters that elevated …
22nd February 2019
The latest data paint a mixed picture of the performance of the Swiss and Nordic economies at the end of 2018, with signs of weakness in Switzerland and Sweden offset in part by robust quarterly GDP growth in Norway and Denmark. However, we think that GDP …
21st February 2019
The continued softness of Brazilian inflation up to mid-February, combined with the ambitious pension reform presented to Congress yesterday, will keep interest rate hikes off the table in the coming months. … Brazil IPCA-15 …
The Tunisian central bank hiked its key policy rate aggressively this week and we think that further steps will be needed to correct the country’s large economic imbalances. Meanwhile, the UAE has denied reports that ships will now be allowed to travel to …
Bank Indonesia (BI) left interest rates unchanged at its meeting today, and given the improved performance of the rupiah as well as the less hawkish tone of the central bank’s press conference, we are taking out the two rate hikes that we previously had …
The weakness of the latest inflation and economic activity data in many emerging markets, combined with growing expectations for looser monetary policy in the developed world, has prompted a dovish shift by many EM central banks. Policymakers in India and …
20th February 2019
Measures to loosen both fiscal and monetary policy announced this month could provide a small boost to demand in the near-term. The finance ministry made a clear bid in the interim budget to shore up support ahead of the general election with plans to …
The weaker-than-expected outturn for Swedish inflation in January underlines our view that the Riksbank will be in no rush to raise interest rates again. Indeed, with core inflation remaining stubbornly subdued, and increasing downside risks to economic …
19th February 2019
The weakness of the latest inflation and economic activity data in Chile means we now think that the central bank will pause its tightening cycle until next year (previously we expected 50bp of hikes this year). But, we still expect interest rate hikes in …
18th February 2019
As demand and supply would both drop after a no deal Brexit, it’s not obvious how policy should respond. But our view that the drop in demand would last longer than any fall in supply suggests the focus should be on stimulating demand. And even in the …
The Fed’s “patient” stance was originally a response to the deteriorating global economic and financial market backdrop, but the dreadful activity data and subdued inflation figures out this week provided further domestic evidence to justify that dovish …
15th February 2019
The Riksbank delivered a slightly more hawkish message than anticipated at its meeting this week, but we still think that the chance of an interest rate hike this year is falling. Meanwhile, despite Denmark and Finland both performing very well in Q4, we …
Data released this week showing a pick-up in core inflation in Hungary and the Czech Republic support our view that, unless the activity figures take a sharp turn for the worse, central banks in both countries are likely to tighten monetary policy. …
With Germany having narrowly avoided recession and Italy’s downturn dragging on, policymakers at the ECB will soon have to provide more clarity about which tools they are willing to use if the economic data don’t improve. … China and Germany, another …
Concerns that policymakers in developed countries do not have the tools to fight the next downturn are generally misplaced. There is plenty more they could do. The constraints will instead be reluctance to prolong the adverse side-effects from the use of …
Weak business sentiment in Australia is likely to be another drag on private investment in 2019. And given the role the housing downturn is playing in sentiment, we expect things to get worse before they get better. In New Zealand, the RBNZ has followed …
Comments from Saudi Arabia’s Oil Minister that oil production will be reduced to well below its OPEC quota suggests that the authorities are focused on driving oil prices higher in order to prevent a return to growth-sapping austerity. Meanwhile, …
14th February 2019
The drop in headline wholesale price inflation in January was broad based, but underlying inflation is likely to rise again before long. This underlines why we think the RBI’s recent rate cut, as well as others that look set to follow, will prove to be a …
The Riksbank seems to be in denial about the weakening of Sweden’s economy. While it reiterated today that it expects to raise interest rates in the second half of this year, with the economy performing poorly and core inflation showing little sign of …
13th February 2019
We think the explicit neutral stance adopted by the RBNZ in today’s policy meeting is appropriate as we suspect that the economy will not gain enough momentum to support interest rate hikes until 2021. … New Zealand - RBNZ gets more realistic by taking a …
Should a Brexit deal be reached within the next few months, the UK’s financial markets will probably buck the global trend with money market rates, Gilt yields and the pound all rising by more than is widely expected. The FTSE 100, however, probably won’t …
12th February 2019
The next euro-zone recession is likely to begin before the ECB has raised interest rates from the “zero lower bound”. When it happens, we think the Bank will resume its asset purchase programme – but it will probably do so half-heartedly, which could …
11th February 2019
The People’s Bank (PBOC) appears to have intervened little in FX markets last month, suggesting that the renminbi is not facing much downward pressure at present. However, with the economy likely to slow and interest rates likely to fall further over …
Details of Brazilian Finance Minister Paulo Guedes’ pension reform unveiled this week are impressive, but political realities could yet scupper these plans. Elsewhere, despite the hawkish statement accompanying this week’s interest rate decision by …
8th February 2019
This week’s “shunto” spring wage negotiations got underway against an inauspicious backdrop, with corrected official data showing that real wages didn’t rise at all last year. Next week, Japan’s zero interest rate policy, which was conceived as a last …
The fall in oil prices and shift in interest rate expectations in the US and Europe seem to have brought EM monetary tightening to an end. While most central banks aren’t in a rush to loosen policy, the focus over the coming year is likely to be on …
The Bank of England drove a bulldozer through its near-term projections this week as it ratcheted up the severity of Brexit uncertainty and the corresponding impact on the economy in its forecast. We have some sympathy with the Bank’s change of heart. The …
The nomination of Princess Ubolratana Rajakanya Sirivadhana Varnavadi (sister of the current king) as a prime ministerial candidate in Thailand’s upcoming general election, has completely changed the political landscape of the country. There is clearly a …
At its meeting next week, the Riksbank is likely to deliver a dovish message, perhaps hinting that even the single rate hike that it has pencilled in for this year is now in doubt. … Riksbank to strike a dovish note next …
The less hawkish nature of the Russian central bank’s statement means that we no longer expect an interest rate hike in the coming months. Instead, with inflation likely to return to target in 2020, we think that interest rate cuts will come back onto the …
The RBA changed tact this week and shifted away from its long-held tightening bias to a neutral stance on interest rates. This move was accompanied by a new set of downgraded economic forecasts, which project that headline inflation will not return to …
The RBI was able to point to a fall in inflation to justify its rate cut this week. But it also took a more sanguine line on the risks posed by still-high core inflation. We believe this will prove to have been a mistake. … RBI changes …
The Danish krone is now close to the centre of the central bank’s exchange rate band – a level at which it has in the past unilaterally raised interest rates. However, we think it is likely to leave rates on hold throughout this year and 2020, not least …
7th February 2019
The Czech National Bank’s post-meeting communications made clear that concerns about the external environment resulted in interest rates being left on hold – rather than hiked – today. Given the Bank Board’s focus on wages and inflation, additional …
The Bank of England today emulated the Fed by leaving interest rates on hold, sounding more dovish and hinting that fewer rate hikes are in the pipeline. But if we are right in thinking that GDP growth will be stronger than the Bank believes, then it may …
The central bank in the Philippines (BSP) left interest rates unchanged today, but with inflation set to continue falling back over the coming months, we think that the BSP will soon start to unwind some of last year’s monetary tightening. … Philippines: …
The RBI’s new governor Shaktikanta Das has delivered what the Modi government was hoping for. The “calibrated tightening” stance was jettisoned at his first policy meeting today in favour of a rate cut. A low level of headline inflation provided …
The Bank will be weighing up the impact of a tighter labour market but weaker GDP growth when it leaves interest rates at 1.75% on Wednesday. It’s unlikely that any of the recent data will cause the RBNZ to change their forecasts for interest rate hike in …
Economic activity finished last year on a weak note and most business surveys suggest that things did not improve in January. Italy went back into recession in the second half of 2018 and the evidence suggests that economic activity there has continued to …
6th February 2019
We expect EM risk premia to rise this year as global growth slows, something which has often been associated with EM central banks raising interest rates. But big currency falls and surges in inflation this year look unlikely. In fact, lower inflation …
Even if the Fed has stopped hiking interest rates sooner than we originally envisaged, we doubt that will prevent a marked economic slowdown this year. After all, that dovishness was partly prompted by the more severe than expected downturn in global …
The Central Bank of Iceland had hinted only a few weeks ago that interest rate hikes were likely at the start of this year, but the recent economic data have been weak enough for it to hold fire today. It maintained a hawkish bias in its statement, but …
The Bank of Thailand (BoT) left interest rates on hold today, but sounded surprisingly upbeat on the outlook for the economy. While this suggests that a further rate hike cannot be entirely ruled out, we are sticking with our view that interest rates will …
5th February 2019
Brexit is a political crisis, not an economic one. While the extra uncertainty caused by Brexit has clearly hampered investment and consumption, the economy is fundamentally sound. There are still many different ways Brexit could play out and this …
Faced with a severe downturn, developed economies would exhaust their conventional monetary policy tools quickly. At first sight, Japan’s experience suggests that even the bold use of unconventional tools might not work. However, there are reasons why …
Although the RBA took a more dovish tone when it left rates on hold today we think it will need to consider cutting rates before long as the economic outlook deteriorates. While the RBA still sees growth in 2019 of around 3% we are much less optimistic …
In a remarkable U-turn, the Fed appears to have abandoned plans to continue gradually raising interest rates it set out only six weeks ago. The markets unsurprisingly welcomed this dovish shift, but we don’t think it will prevent economic growth slowing …
1st February 2019
Manufacturing PMIs for Switzerland, Sweden and Denmark, released on Friday, dropped sharply in January, suggesting that the recent weakness in the euro-zone is spilling over to its neighbours. Next week, we expect rising inflation and inflation …
Parliament hit the Brexit ball back into May’s court this week, leaving us with no clearer picture of how Brexit might unfold than we had this time last week. But beneath the bouncing Brexit headlines, the economy seems to be holding up well … Parliament …
