Filtered by Topic: Monetary Policy Use setting Monetary Policy
The slowdown in narrow money growth reflects the Fed’s efforts to shrink its balance sheet and the rise in interest rates, with the latter increasing the opportunity cost of holding funds in non-interest bearing deposit accounts. In contrast, broad money …
21st August 2018
There is no reason to believe that the latest bout of turbulence in emerging markets will prompt the Fed to reconsider future interest rate hikes, since the economic and financial market spillovers are likely to be limited and come at a time when domestic …
EM central banks continued to tighten monetary policy in August. Policymakers in Argentina and Indonesia raised interest rates to support their currencies amid fears of contagion from the crisis in Turkey. But elsewhere the shift towards tightening has …
We suspect that, due to technical reasons, the ECB will increase its purchases of Italian government bonds in October. This might help to prevent yields from shooting up if Italy’s Government submits a very expansionary Budget to the European Commission …
Indian equities have continued to surge in August, with the benchmark Sensex stock index rising to a fresh record high of over 38,000 today. The recent strong performance in the Sensex compared to other equity markets is perhaps a reflection of the fact …
20th August 2018
The main factor weighing on EM assets recently has been worries about contagion from the crisis in Turkey. But even if these fears subside, there are plenty of other reasons to be pessimistic about the outlook. … Turkey’s crisis just one of many threats …
17th August 2018
We learned this week that much of the strength of consumption growth in the second quarter was sustained in July, suggesting that third quarter GDP growth will be stronger than we had anticipated. The July retail sales figures showed control group sales …
Campaigning for Brazil’s elections in October started this week, and market-friendly candidate Geraldo Alckmin seems to have positioned himself well to mount a challenge to the leading populists. However, Mexico’s recent election, where expectations that …
The jump in headline inflation to 3.0% in July, from June’s 2.5%, was partly due to rising energy prices but also appeared to reflect a pick-up in general inflationary pressures. We think that the Bank of Canada’s commitment to take “a gradual approach” …
We have reassessed our view on the likely timing of a Brexit deal. Our working assumption is now that a deal is reached at the eleventh hour in Q1 2019, rather than in the autumn. However, we doubt that Brexit uncertainty will knock the economy off …
The authorities in Indonesia have redoubled their efforts to support the rupiah over the past week amid further downward pressure on EM currencies caused by the crisis in Turkey. Meanwhile, labour market data for South Korea show job growth fell sharply …
The Egyptian central left interest rates on hold last night, but declining inflation means that the easing cycle is likely to resume at September’s MPC meeting. And we still think that interest rates will, ultimately, be lowered by more than most analysts …
The Turkish lira has recovered lost ground since Monday, although policymakers have only done the bare minimum in response to the crisis. There have been some positive noises on fiscal policy, yet there is no sign that the central bank will raise interest …
A former BoJ executive suggested that the Bank of Japan may tolerate 10-year yields rising to 0.4% even while keeping its official target at zero. This would lift trading income, increase returns on bond holdings and might also encourage banks to lift …
The minutes of the Reserve Bank’s August policy meeting – at which interest rates were hiked again – show that the MPC has placed great importance on preserving its recently-acquired credibility. With this in mind and given that core inflation is still …
Commercial banks’ non-performing loans (NPL) rose by RMB183bn in Q2, the biggest increase in over a decade. On paper, bad loans now make up just under 2% of all loans, the highest ratio since the Global Financial Crisis. The official NPL ratio still looks …
16th August 2018
Credit has continued to expand steadily in most major advanced economies in recent months and is rising particularly strongly in the US. Meanwhile, the currency crisis in Turkey has so far had only a fairly small knock-on effect on financial conditions in …
Following his shock election victory at the start of May, 93-year-old Prime Minister Mahathir Mohamad has wasted no time in carrying out his main campaign promises. With his first 100 days in office now almost up, Mahathir has already scrapped an …
After leaving policy unchanged today, the Norges Bank looks almost certain to begin raising interest rates at its next meeting in September. But even as the central bank tightens monetary policy over the next few years, we think that falling oil prices …
Colombian GDP growth increased from 2.2% y/y in Q1 to 2.8% y/y in Q2, and we think the recovery will strengthen by more than the consensus expects over the coming quarters. … Colombia GDP (Q2 …
15th August 2018
The plunge in the Turkish lira is likely to push inflation above 20% and tip the economy into recession in the coming months. Our base case is that GDP growth will now average 3.0% over 2018 as a whole (thanks to a strong first half of the year) and be …
Today’s rate hike by Bank Indonesia (BI) comes against a backdrop of continued weak economic growth and subdued inflation, and demonstrates that BI’s main focus remains supporting the currency. With the rupiah likely to remain under downward pressure over …
The rand’s status as a liquid, easily traded currency makes it particularly vulnerable to shifts in EM sentiment. But these seldom last, and the SARB will not – as some expect – respond by hiking rates. … South African rand: Why always …
14th August 2018
Wholesale price inflation moderated in July after hitting a five-year high in June. But core inflation remained elevated, supporting our view that the RBI’s tightening cycle still has a little further to run. … Wholesale Prices …
Abolishing cash would allow the Bank of Japan to cut interest rates deeper into negative territory. But in a society where cash transactions are still widespread, such a move would prove deeply unpopular. And if policy rates become too negative, consumers …
EM currencies have come under pressure over the past few days as Turkey’s crisis has escalated, but history suggests that such sentiment-driven sell-offs tend to be short-lived. We wouldn’t expect the majority of EM central banks to react to the latest …
13th August 2018
Growth in bank lending picked up last month to the fastest pace this year. However, a further slowdown in other forms of credit, including shadow financing, mean that broad credit growth continued to weaken in July to a fresh multi-year low. … Bank …
The drop in Indian consumer price inflation in July was due in most part to a sharp fall in food inflation. Core inflation remained elevated. As such, we think that the Reserve Bank’s tightening cycle has a little further to run. … Consumer Prices …
Policymakers at the Bank of Uganda kept the policy rate unchanged at their meeting this morning and we don’t expect any rate cuts for the remainder of this year. … Uganda Interest …
The falling rand has, yet again, highlighted the currency’s vulnerability to EM risk sentiment. From an economic perspective, however, the country’s situation is very different from Turkey’s building crisis. … South Africa: Turkey …
There is a good chance that the recent volatility in financial markets triggered by the crisis in Turkey will prompt Bank Indonesia into hiking interest rates at its meeting on Wednesday. For most countries, however, the sharp falls in financial markets …
The collapse in the lira has raised concerns about the health of Turkey’s banking sector. Banks’ dollar bonds yields and interbank interest rates are already pointing towards some stress, and these will be key indicators to watch over the coming days and …
10th August 2018
The renewed appreciation of the Swiss franc this week as investors sought out safe haven assets will not have been welcomed by the SNB. But the franc is still weaker than it has been over the past few years so we do not expect the SNB to alter its stance. …
The Turkish lira may have surpassed the Argentine peso as the worst performing EM currency this year, but Argentine markets have still had a rough week. The lesson from other parts of Latin America is that, if Argentina’s escalating graft probe implicates …
Market interbank rates have now converged with those offered by the People’s Bank in its lending operations. We think the central bank will soon start cutting these official policy rates in order to sustain a further loosening of monetary conditions. … …
Hong Kong’s economy slowed last quarter in year-on-year terms after expanding in Q1 at the fastest pace since 2011. Looking ahead, with headwinds from tightening monetary conditions building and external risks increasing, we expect economic growth to cool …
Turkey seems to have been on the brink of a crisis several times this decade, only for the central bank to do just enough to steady the ship. But there are reasons to think that emergency interest rate hikes during the current currency crisis might only …
Joko Widodo (also known as Jokowi) confirmed earlier this week that he will be seeking a second term as president, setting the stage for a repeat of the 2014 election, which saw him narrowly edge past Prabowo Subianto, who leads Indonesia’s main …
The rescue of five small failing banks in Ghana should help to improve the (fragile) health of the sector and, in time, should help to support a recovery in credit growth. Elsewhere, the resumption of debt restructuring talks in Mozambique is likely to …
Media reports suggest that the Bank of Japan was close to hiking rates twice this year. But the decision to allow ten-year yields to rise a bit further above the 0% target placated the hawks on the Board. And the introduction of forward guidance suggests …
The chances that interest rates in Australia will rise a bit earlier than we expect have grown this week while it has become more likely that interest rates in New Zealand will be unchanged for longer than we expect. That divergence gives us more …
The Reserve Bank of Australia’s new projections that the economy will be in an almost perfect state in 2020 suggest that the Bank is edging ever so slowly towards raising interest rates. Our view that GDP growth will be weaker than the RBA expects and …
The second consecutive monthly rise in Mexican inflation was driven largely by higher energy inflation, and is unlikely to spook Banxico. There’s a long way to go until the next policy meeting, but assuming the peso holds up well, the central bank is …
9th August 2018
The diplomatic spat that erupted between Saudi Arabia and Canada this week should have little economic impact, but it does risk undermining investor confidence in Saudi Arabia at a time when the government is already wavering on its reform agenda. …
The central bank in the Philippines (BSP) today increased its policy rate for the third meeting in a row, and left the door open to further rate hikes. We think at least one further increase in rates is likely, but with inflation likely to start falling …
While leaving interest rates at the record low of 1.75% at today’s policy meeting, the Reserve Bank of New Zealand strongly suggested that the first interest rate hike is further away than it previously thought. That supports the more dovish rate forecast …
Argentina’s central bank announced a tweak to its monetary policy framework last night which, in time, should help it to gain better control over monetary conditions. It also appears to have stopped monetising the government’s budget deficit, and has …
8th August 2018
The lesson from other countries that have suffered from currency crises is that fiscal and monetary policy will need to tighten, preferably under the auspices of an IMF deal, to stabilise the economy. However, it’s unclear that this is politically …
Non-energy inflation in Sweden has been unexpectedly weak in recent months, prompting investors to push back their expectations of the first rate rise into 2019. But there is evidence of rising cost pressures, which we think will give the Riksbank …
Brazilian inflation rose to a higher-than-expected 4.5% y/y last month, but this reflects higher food and energy inflation which the central bank has made clear it will look through. Underlying price pressures still look weak. Elsewhere, the rise in …
