Filtered by Topic: Monetary Policy Use setting Monetary Policy
Upcoming state elections in India are likely to have an important bearing on economic policy at the local level. But perhaps more significant, the outcome of the state elections could be crucial in determining whether Prime Minister Modi’s BJP will …
23rd January 2017
Bank of Canada Governor Stephen Poloz surprised the markets last week with his admission that an interest rate cut was still “on the table” if one of the Bank’s downside risks became reality. The risks he identified, however, were nearly all US-related, …
20th January 2017
The world economy looks set to grow more rapidly this year than last. A substantial fiscal stimulus in the US will boost its growth rate, but will have only a limited impact on the rest of the world. With price pressures building in the US but not …
With the euro-zone economy performing fairly well and headline inflation on the up, the results of last week’s Bank Lending Survey were a timely reminder to the ECB that its job is far from done. Indeed, tighter credit conditions for firms and slower …
While the Monetary Policy Committee (MPC) has stated that it is willing to look through a period of exchange-rate driven above-target inflation, one of its conditions is that there are no significant second-round effects on domestic cost pressures. On the …
Prospects for the Nordic and Swiss economies’ are fairly good, with Sweden and Iceland likely to be the best performers. But the outlook for inflation, and therefore monetary policy, varies substantially. The Swedish economy is firing on all cylinders, …
Signs that inflation in both Australia and New Zealand has passed its low point may give the Australian and New Zealand dollars a bit of a boost when the data for the fourth quarter are released this Wednesday and Thursday. But while the rise in petrol …
President Draghi explained today that the ECB saw the recent rise in inflation as transient and outlined some tough conditions for future policy normalisation which are unlikely to be met for a very long time. Accordingly, we still expect asset purchases …
19th January 2017
We think it is most likely that the Czech MPC will remove the koruna ceiling at its meeting on 4th May. Following this, we are forecasting that the koruna will appreciate to 25.5/€ from 27/€ at present. … Czech koruna: when will cap be lifted and how far …
Bank Indonesia (BI) left its policy rate on hold at 4.75% today, and with inflation set to rise later in the year and the currency likely to come under renewed downward pressure as the Fed continues to hike interest rates, we see little scope for further …
Today’s decision by Malaysia’s central bank (BNM) to keep interest rates on hold at 3.0% came as no surprise. With the economy now recovering and the ringgit vulnerable to turns in investor sentiment, we expect rates to be left on hold throughout 2017. … …
Given the considerable uncertainty surrounding exactly what policies the incoming Trump administration will pursue south of the border, we have every sympathy with the Bank of Canada’s decision to leave interest rates unchanged today. Nevertheless, as the …
18th January 2017
Corporate debt affordability remains extraordinarily high, as corporate profit margins have rebounded and borrowing costs have continued to decline. Firms have responded with higher corporate bond issuance rather than with increased borrowing from banks. …
Portuguese government bonds rallied last week, but we doubt that this will continue. Sooner or later, we think that concerns about the sovereign credit rating and falling ECB asset purchases will push Portugal’s bonds yields higher. Our end-2017 forecast …
16th January 2017
Indian wholesale price inflation edged up in y/y terms last month, but dropped in m/m terms as price discounting continued to take place following demonetisation. Nevertheless, further ahead, demonetisation could push up inflation by leading to supply …
With commodity prices and interest rate differentials pulling the Canadian dollar in different directions again this year, our baseline scenario is that it will remain broadly unchanged, increasing only trivially from its current level to $0.77 by …
13th January 2017
Last week’s abortive army mutiny has focused attention on the political fragility of Côte d’Ivoire, which suffered a series of political and economic crises between 1993 and 2011. But we expect that the economy will remain an outperformer. … Côte …
Wage growth was subdued in 2016, but the recent decline in the euro-zone unemployment rate to an 87-month low, taken in isolation, points to a strong pick-up from here. On the face of it, that suggests that the ECB’s plans to buy assets throughout 2017 …
Poor infrastructure remains a major constraint on economic growth prospects across large parts of Emerging Asia. A couple of countries, namely the Philippines and Thailand, are likely to see a big increase in infrastructure spending over the next few …
The appreciation of the US dollar since the end of last year has prompted renewed concerns over the sustainability of currency pegs in the Gulf, but we think these fears are overdone. Oil prices are the key determinant of the devaluation threat and we …
Peru’s central bank left its key policy interest rate unchanged at 4.25% for the twelfth consecutive month, but with inflation still above target and the risks skewed to the upside, we expect policymakers to resume tightening policy later this year. Our …
In the land of fire and ice, currency movements in 2016 resembled an erupting volcano rather than a creeping glacier. The appreciating króna put downward pressure on inflation, prompting the Central Bank of Iceland (CBI) to cut interest rates twice. While …
Recent revisions to the GDP data suggest that the output gap has all but closed. However, the main factor holding back inflation over the last two decades were entrenched deflation expectations rather than a lack of demand. Unfortunately, the Bank of …
The Bank of Korea (BoK) kept its policy rate unchanged at 1.25% today, but with growth likely to slow further and inflation benign, we expect a rate cut later this year. … Korea holds rates, but easing in 2017 …
Most countries in Emerging Asia should continue to grow at a decent pace over the next couple of years as loose monetary policy helps support demand. The key exception is China, where growth looks set to slow as policy stimulus is withdrawn. Overall, we …
The ECB will not announce any policy changes next week after last month’s pledge to buy at least €60bn of assets per month until the end of 2017. President Draghi is likely to restate the Governing Council’s commitment to the plan despite the recent sharp …
12th January 2017
The motives behind the Argentine government’s decision to oust finance minister Alfonso Prat-Gay in December are unclear, but at this stage two key points are worth emphasising. First, despite legislative elections in October, a significant shift in …
Today’s minutes confirmed that only half of the Riksbank’s Executive Board supported the extension of its QE programme. And with inflation surpassing expectations in December, there is little cause for further monetary policy loosening – we expect the …
The unexpected decline in monthly GDP in October, together with the moderation in the new measures of core CPI inflation, might have prompted the Bank of Canada to reconsider cutting interest rates at next week’s policy meeting. But the recent strength of …
Mexico’s central bank has sufficient ammunition to intervene on an intermittent basis in FX markets to counter sharp selloffs in the peso. But the bigger picture is that interest rate hikes will remain policymakers’ main defence against a weaker peso (and …
11th January 2017
Dovish comments by Polish National Bank Governor, Adam Glapinski, at this afternoon’s post-meeting conference suggest that the MPC is as focused on growth as it is on inflation. We continue to think that growth is unlikely to strengthen as much as the …
The further drop in Brazilian inflation in December seals the deal for a larger cut in the Selic interest rate at today’s COPOM meeting (decision due 18.20 local time). A 75bp cut is possible, but we still think a 50bp reduction (to 13.25%) is the most …
A drop in food inflation pulled down headline consumer price inflation in December. We expect it to leap in January, but the increase is unlikely to be a major concern for policymakers. … Consumer & Producer Prices …
10th January 2017
On past form, the latest fall in the Turkish lira appears to be sufficiently large to trigger an interest rate hike at this month’s MPC meeting. If the Council doesn’t act, that will only reinforce concerns about central bank independence and might force …
9th January 2017
Recent hard data for the euro-zone have generally been encouraging. Despite falling in November, the level of retail sales remains fairly high after a strong rise in October. And while industrial production edged down in October, timelier national data …
The world economy is entering 2017 with stronger growth and rising inflation, but prospects for the rest of the year are more mixed. Activity has picked up in unison across the major economies in recent months, and the recent rise in energy prices will …
6th January 2017
The accompanying statement to today’s MPC meeting in Romania was less hawkish than we had expected. Nonetheless, with further fiscal stimulus in the pipeline and economic slack now exhausted, inflation is likely to rise sharply over the coming months. …
The larger-than-expected drop in Chilean inflation to a three-year low of 2.7% y/y, taking it further below the central bank’s 3% target, probably seals the deal for a 25bp interest rate cut (to 3.25%) at this month’s policy meeting. … Chile Consumer …
Consumer price inflation is likely to have edged down in December as price discounting continued following demonetisation. However, further ahead, demonetisation could push inflation up by leading to supply disruptions and boosting liquidity in the …
The recent weakening in the Australian dollar to a seven-month low against the US dollar won’t boost activity and inflation by as much as you may think as it has not been matched by a weakening in the broader dollar trade-weighted index. What’s more, if …
Following a host of central bank meetings last month, most of the Swiss and Nordic currencies fell against the US dollar. While there were few major changes for bond yields, equities in most countries recorded impressive gains. … Currencies depreciating …
4th January 2017
In our first Watch of 2017, we outline the prospects for India’s economy over the coming 12 months. The government’s demonetisation measures will lead to some weakness at the beginning of the year, but we expect growth to recover due to a rebound in …
3rd January 2017
Q4 GDP figures for Vietnam, which are due to be published sometime over the next couple of weeks, are likely to show the economy is continuing to expand at a rapid rate. However, the risks facing the country are building. Growth is unlikely to slow …
23rd December 2016
We expect Japan’s economy to grow by 1% next year. Given how low potential growth is, this should be enough to drive a further decline in spare capacity and to add to price pressures. The Bank of Japan is therefore unlikely to introduce further easing. …
Despite mounting speculation that the Czech MPC would hint at removing the koruna cap earlier than previously suggested, today’s MPC press statement was surprisingly dovish. We remain of the view that the cap is most likely to be lifted in mid-2017. And …
22nd December 2016
In 2016, weak inflation resulted in strong real disposable income growth for consumers, which in turn helped to support better-than-expected real GDP growth. The decent pace of growth, combined with worries about the strength of growth and political …
The switch to a so-called ‘border adjustment’ system of corporate tax, which was included in the House Republicans’ ‘Better Way’ proposals earlier this year, is beginning to draw more attention in the markets because of the scope for some very big winners …
China is ending 2016 on a stronger footing economically but with growing strains in its financial markets. A slight tightening of monetary conditions has snowballed into a bond market sell-off, with stresses compounded by official efforts to support the …
Taiwan’s central bank (CBC) kept its policy rate on hold today at 1.375%, but with growth likely to struggle over the coming year and inflationary pressures very weak, we think it will resume its easing cycle soon. … Taiwan to resume easing cycle next …
The EM world is now growing at its fastest pace in nearly two years. According to our GDP tracker, EM GDP growth in October reached 3.5% y/y, which is the strongest since January 2015. China has been driving the rebound, with our China Activity Proxy …
21st December 2016
