Filtered by Topic: Monetary Policy Use setting Monetary Policy
While leaving interest rates at the record low of 1.5% again today, the Reserve Bank of Australia hinted that it is not too worried about the economic implications of the Royal Commission investigation into the banks. We are more concerned and believe …
5th June 2018
Despite the sharp rebound in core inflation this year, there seems to be a growing belief in the markets that the Fed is now prepared to allow inflation to rise above the 2% target without stepping up the pace of rate hikes. After all, the FOMC has …
1st June 2018
The Bank of Canada issued a relatively hawkish policy statement on Wednesday this week, which increased speculation that another interest rate hike was coming, possibly as soon as July. But within only 24 hours, the reported weakness in first-quarter GDP …
While the fall in gilt yields over the past fortnight partly reflects an increase in safe haven demand, expectations for future interest rates have also slipped back. It seems unlikely, though, that an increase in euro-zone tensions will alter the …
For now, we don’t expect the geopolitical developments to alter the behaviour of the major central banks. Provided that the political crisis in Italy does not flare up again, we think the ECB is likely to unveil its timetable for winding down QE at its …
The Bank of Japan seems to be getting more concerned about the impact of low policy rates on financial stability. However, the financial system is neither unwilling to provide credit nor is credit growing at an unsustainable pace. And with inflation …
While the outlook for non-mining business investment in Australia is fairly encouraging, we aren’t expecting an appreciable pick-up in total private investment growth. That’s largely because the slowing housing market means that dwellings investment is …
The consensus is expecting the Reserve Bank of India (RBI) to keep rates on hold at the upcoming meeting that concludes on Wednesday 6th June. But the hawkish tone of the previous meeting’s policy minutes, and the deterioration in the inflation picture …
31st May 2018
Inflation in Kenya and Uganda will pick up over the coming months. The shift will be mostly due to base effects, and with inflation within target, policymakers in both countries will cut rates by 50bp in Q3. … E. African inflation: Still on track for rate …
The Bank of Canada left its key policy rate unchanged at 1.25% today but issued a slightly more hawkish statement, which will raise expectations of a rate hike later this year. … Bank takes a more hawkish …
30th May 2018
Bank Indonesia (BI) hiked rates by 25bp today (its second increase in two weeks). We expect further hikes later this year, but we doubt that a repeat of the aggressive tightening cycle seen in 2013 is on the cards. … New Bank Indonesia governor …
If sentiment towards Italy deteriorates as a result of the current political situation, we could see renewed capital flight and a further worsening of Italy’s already-high TARGET2 liabilities. But other euro-zone countries may refuse to tolerate any …
29th May 2018
The decision by Turkey’s central bank to begin using the one-week repo rate as its key policy tool looks less like an effort to simplify its monetary policy framework (as has been suggested by some), and more like a way to create room to raise market …
April’s euro-zone money and lending data provide further evidence that economic growth has peaked. While households’ and firms’ demand for loans is still fairly strong, the deteriorating situation in Italy is a key risk to the outlook. … Euro-zone …
The Reserve Bank of Australia will almost certainly keep interest rates on hold at 1.5% at its policy meeting on Tuesday 5 th June and with the outlook for inflation subdued and the Royal Commission into misconduct in the financial sector creating more …
In a massive political upset, the incumbent Barisan Nasional (BN) coalition led by Najib Razak was ousted by a resurgent opposition led by former Prime Minister Mahathir Mohamad in Malaysia’s 14 th general election. The result brought an end to BN’s …
28th May 2018
Annual consumer spending growth ground to its slowest pace in six years in Q1. Alongside a string of weak early indicators of spending in Q2, that called into question our forecast of a rebound in spending growth over the course of the year. Indeed, there …
25th May 2018
The plunge in the Turkish lira and dislocation in local markets in recent weeks has resulted in a severe tightening of broader financial conditions. Past experience suggests that a tightening on the scale seen so far is likely to be followed by a sharp …
We still believe that the oil price is more likely to fall from US$80 per barrel to US$65 rather than rise to US$100 as some have suggested. But even if it did hit US$100, inflation in Australia wouldn’t rise much above 2.5% and the hit to households …
Turkey has been in the grips of a currency crisis which forced the central bank to hike interest rates by 300bp on 23rd May, but that only provided brief respite for the lira. For now, there are signs that President Erdogan has taken the hint. He kicked …
24th May 2018
Although first-quarter GDP growth appears to have been stronger than the Bank of Canada assumed back in April, we don’t expect it to signal another rate hike is imminent at next week’s policy meeting, not when the housing market remains vulnerable to the …
South African policymakers, who left their key rate at 6.50% today, struck a hawkish tone. Though inflation will pick up this year, a hike is unlikely. We think the next move will be a small cut in 2019. … South Africa: Hawkish tone, but rates on hold for …
The Bank of Korea (BoK) kept its policy rate on hold at 1.50% today, as expected, and there was nothing in the accompanying statement or the governor’s press conference that suggest the BoK will adjust rates any time soon. A rate hike at the BoK’s next …
While there is still a lot of uncertainty, it seems likely that the Royal Commission into misconduct in the financial sector will lead to a tightening in credit conditions in Australia. A notable tightening in credit standards would weigh heavily on the …
Egypt’s economy has weathered the fallout from the pound’s devaluation in late-2016 and, as fiscal consolidation slows and inflation and interest rates drop back, growth should remain robust over the next couple of years. We expect that the economy will …
23rd May 2018
The plunge in the Turkish lira over the past few days has been steeper than that which triggered abrupt monetary tightening in 2014 and 2017. We expect the MPC to hold an interim meeting over the coming days to raise interest rates by at least 200bp. If …
The BJP’s failure to form a coalition despite winning by far the most seats in the Karnataka state election is a setback for the ruling national party, with the main opposition Congress and the local Janata Dal (Secular) parties now set to form an …
On some measures, Japan has been the strongest performing large developed economy over recent years. Growth has been unusually fast, unemployment is at historic lows and wage growth at two-decade highs. For all this though, the Bank of Japan remains a …
A surprisingly hawkish MPC statement suggest that Nigerian policymakers (who held their key rate at 14.00% today) will keep rates on hold for most of this year. But they will still probably cut rates by 100bp in Q4 when inflation is weaker and the effects …
22nd May 2018
A “yes” vote in Switzerland’s sovereign money referendum next month would completely overturn the current monetary system. It would constrain the Swiss National Bank’s approach to monetary policy, risks politicising the central bank, and would impair bank …
The BoJ could continue buying ETFs at the current pace for a long time since its purchases are small relative to the size of the stock market. But the Bank reckons that the stock market is now close to being overheated so a gradual reduction in the volume …
We think that interest rates in the US and elsewhere will diverge by more than investors are anticipating over the next year or so, but then converge in a way that they are not envisaging. We expect this contrast in monetary policy to have important …
21st May 2018
Households’ balance sheets are still in good shape, with debt burdens stabilising well below their pre-crisis levels and delinquencies low. However, the further rise in newly delinquent credit card debt appears to be an early sign that the recent surge in …
Home sales dropped to a five-year low in April and the surge in interest rates suggests the downward trend in sales has further to run. Although the Bank of Canada is still on the fence regarding the next move in its policy rate, Canadian government bond …
18th May 2018
This week’s figures suggested that the labour market is in rude health. Admittedly, some of the timelier measures of employment growth have started to weaken. And with the labour market now exceptionally tight, some slowdown in employment growth looks …
Higher market interest rates will undoubtedly act as a drag on household spending and business investment, offsetting some of the temporary boost from fiscal stimulus. We expect that will eventually prompt a marked slowdown in GDP growth, albeit probably …
The Philippines, India and Korea are all likely to follow Bank Indonesia by hiking interest rates over the next couple of months. But unlike Indonesia, these three are set to tighten policy from a position of relative strength. In the event that the …
Data released this week added to the evidence that soft global demand and the previous appreciation of the euro have taken a toll on euro-zone exports. We doubt that exports will regain all of their lost momentum, but growth should pick up in the coming …
Credit conditions in Australia will surely tighten further as a result of the Royal Commission investigation into misconduct in the financial sector, but there is a huge amount of uncertainty about the magnitude and implications. Housing finance …
The bout of softer-than-expected inflation and activity data which caused the MPC to step back from hiking Bank Rate in May is certainly reason for caution. But like the MPC, we think that temporary factors were behind the slowdown, and suspect that …
17th May 2018
The Egyptian central bank’s decision to keep interest rates on hold, rather than cut them again, comes on the back of a pick-up in underlying price pressures as well as the recent sell-off in EM currencies. But we think this marks only a pause in the …
The performance of the rupiah will continue to determine the near-term outlook for monetary policy in Indonesia. With the currency likely to remain under downward pressure as Treasury yields in the US continue to rise, further rate hikes by Bank Indonesia …
The Monetary Policy Committee’s latest inflation forecasts imply that UK interest rates will remain substantially below US rates for the foreseeable future. But there are reasons why the gap may not be as wide as the projections suggest. … Why the MPC …
Financial markets in the Middle East & North Africa have underperformed those in the rest of the emerging world over the past week following President Trump’s decision to pull the US out of the Iran nuclear deal. Equity markets have been the hardest hit, …
While the Central Bank of Iceland left policy unchanged today, its new forecasts show that it expects inflation to remain above target for the next three years. Moreover, we think that the Bank is underestimating the scope for inflation expectations and …
16th May 2018
Market sentiment towards Turkey is quickly evaporating as fears mount over the build-up of external vulnerabilities, high and rising inflation, and growing concerns that the central bank’s independence is being eroded. Paradoxically, political pressure …
The Bank of Thailand unsurprisingly decided to keep its policy rate on hold today at 1.5% against a backdrop of solid economic growth and subdued inflationary pressures. There was nothing in the accompanying statement that suggests the BoT is prepared to …
With wage growth stuck in the mud at 2.1% in the first quarter and likely to stay there or thereabouts for a while yet, the prospect of an interest rate rise next year has diminished further. It also makes the fiscal projections the Treasurer published in …
Purchases of government bonds by the Bank of Japan have stabilised over the past six months. But the rate at which its holdings are growing has continued to slow as its bonds are now maturing at a rapid rate. Our view remains that the Bank’s holdings of …
14th May 2018
Policymakers don’t put much weight on the wholesale price measure of inflation, but the fact that it accelerated in April nevertheless supports our view that policy tightening is likely this year. A particularly sharp pick-up in consumer price inflation …
