Filtered by Topic: Monetary Policy Use setting Monetary Policy
Overview – With inflation easing and domestic demand struggling in much of emerging Asia, central banks are likely to start cutting interest rates soon. The one remaining concern for policymakers is the fear of further falls in their currencies. But this …
27th March 2024
We continue to think that policymakers in China and Japan will do enough to keep their currencies from weakening much further, but the risk of a break lower in one, or both, is increasing. Push-back from the authorities in China and Japan has stabilised …
Overview – China’s economy has fared better recently and policy support is likely to remain a near-term prop to growth. But we remain less sanguine about the medium-term outlook. Domestic Demand – State investment can make up for lacklustre consumption, …
Overview – Sub-Saharan Africa will record a pick-up in growth over the coming years, helped by an improving external environment reducing the threat of further large currency falls as well as sovereign defaults. Monetary and fiscal policy will generally …
We think investors are underestimating the extent of rates cuts that the Riksbank will make this year. Policymakers are, rightly in our view, increasingly confident that inflation will soon return sustainably to the 2% target. Accordingly, we think they …
MPC to keep repo rate on hold at 6.50% next week Committee to wait until headline inflation reaches 4% before pivoting, probably in Q3 We think rates cuts will be a bit more aggressive this year than consensus forecasts We agree with consensus …
The past month has seen Egypt’s economic crisis turn around with the devaluation of the pound, aggressive interest rate hike, and unlocking of a new IMF deal. There have been false dawns before, but this shift back toward economic orthodoxy feels more …
Riksbank Policy Announcement (March 2024) Riksbank confirms rate cuts imminent The Rikbsank’s decision to leave interest rates unchanged at 4.0% today was no surprise and the press release confirms that policymakers expect to cut rates soon. We are …
Data released today showed that Spanish inflation picked up from 2.9% in February to 3.2% in March. We think it is likely to increase further over the coming months due to base effects in energy inflation, higher VAT rates on energy and foods, and …
Overview – Australia’s GDP growth will remain soft throughout the first half of the year so the recent stalling in inflation should be followed by a renewed moderation. However, as the labour market remains very tight, we’re pushing back our forecast for …
This page has been updated with additional analysis since first publication. Inflationary pressures are letting up, but risks linger Headline Inflation in February once again came in below the expectations of both the analyst consensus and the RBA. But …
Overview – We expect weak GDP growth of 0.8% this year, and a fall in inflation to less than 2% next year, to persuade the Bank of Canada to cut its policy rate back to 2.5% by mid-2025. A recovery in productivity and looser policy should drive a rebound …
26th March 2024
Overview – Economies in Central and Eastern Europe (CEE) ended last year in stagnation, but headwinds to growth are lifting and we think that 2024 will be a year of modest recovery. Inflation has fallen sharply in recent months but in some parts of the …
The Central Bank of Nigeria continued its hiking cycle today, raising rates by 200bp to 24.75%, providing further evidence that officials are fighting aggressively to tackle the inflation problem and restore its damaged credibility. We think that the CBN …
Pace of easing slows, and will slow further before long The decision by the Hungarian central bank (MNB) to slow the pace of its easing cycle today, with a 75bp cut to its base rate (to 8.25%), will probably be followed by a further slowdown in the pace …
Overview – Activity in the region slowed to a crawl at the end of last year and, while a recovery will take hold in the coming quarters, growth will fall short of consensus expectations. The disinflation process has largely run its course and the strength …
India retained its title as the world’s fastest-growing major economy last year and the latest data suggest that the economy continues to perform exceptionally well. Headline inflation has eased in recent months and we think it will reach the 4% midpoint …
The Central Bank of Sri Lanka today cut interest rates by a further 50bps and hinted at further rate cuts to come. With inflationary pressures under control and the economic recovery struggling, more policy easing is likely before the end of the year. …
While the Bank of Japan’s JGB holdings have started to shrink and will continue to do so now that Yield Curve Control is over, we think that the normalisation of the Bank’s balance sheet could take up to a decade. While shrinking central bank demand for …
The government’s plan to cut temporary resident numbers over 2025 to 2027 will result in the weakest three years for population growth in Canada’s 157-year history. While it might not be enough to persuade the Bank of Canada to start its loosening cycle …
25th March 2024
Overview – Low oil output in the Gulf will constrain GDP growth over the first half of this year. But as this reverses, growth will pick up and by more than most expect. Elsewhere in Middle East and North Africa, external financial support has mostly …
Faltering consumer spending reinforces our view that GDP growth will slow this year, although that slowdown is likely to be modest. After a disappointing couple of months for inflation, easing demand growth should help to drive a more marked decline later …
We held an online Drop-In session last week to discuss the outlook for monetary policy following the US Fed and Bank of England policy meetings and comments by the ECB’s Christine Lagarde. (See a recording here .) This Update answers several of the …
Overview – After having been too high for the past three years, inflation in the UK will be too low for the next three years, and much lower than in the US and the euro-zone. Not only do we think that CPI inflation will fall from 3.4% in February to below …
Has Tusk changed the tide in Poland? The 100 day milestone for Poland’s new government is marked today. From an economic perspective, we think there are three key points worth highlighting about how the outlook has and hasn’t changed. First, the release …
22nd March 2024
LGFVs stepping up land purchases Despite the collapse in home sales, construction activity has retreated only modestly in recent years. We think the bulk of the correction has yet to come , with construction activity likely to halve by the end of this …
SARB: will rate cuts ever come? The South African Reserve Bank (SARB) looks set to leave interest rates on hold at 8.25% next week and it now seems an easing cycle won’t begin until after May’s election, the outcome of which could even persuade the SARB …
The Fed wasn’t as hawkish as we had expected this week and, assuming the recent upturn in core inflation proves temporary, there is still a good chance that interest rate cuts will begin in June. Fed content with more gradual inflation fall Despite recent …
The surprise fall in February leaves CPI inflation on track to average 2.8% this quarter, well below the Bank of Canada’s forecast of 3.2%. As the decline in inflation pressures was broad-based, there is a growing likelihood that the Bank of Canada will …
The Bank of England was never going to do anything except keep interest rates at 5.25% this week, but we and the financial markets were surprised that it took further steps in preparing the ground for the first interest rate cut. (See here .) As a result, …
Data released this week broadly support our view that the euro-zone economy will have stagnated in Q1. The Composite PMI rose a touch in March but remained consistent with GDP flatlining. And the ZEW painted a similar picture. Admittedly, we also learned …
GDP growth will come in below consensus in most EMs this year, with the notable exceptions of India and Taiwan. Although stubborn wage growth means the pace of disinflation is likely to slow from here, we think the EM monetary easing cycle will broaden …
Little change in language, possible easing from mid-2024 Russia’s central bank (CBR) left its key policy rate on hold, at 16.00%, for a second consecutive meeting as expected today and there were few notable changes in its press statement. The central …
Rate cut in August remains plausible At its meeting earlier this week, the RBA dialled down its hawkish bias, with Governor Bullock noting that “the risks to the outlook are finely balanced”. However, her statement may well have been a little premature. …
Run-off in bond holdings will accelerate The Bank of Japan didn’t disappoint at this week’s meeting as the Bank ended negative interest rates, Yield Curve Control and its ETF purchases. Even so, 10-year JGB yields declined and the yen weakened to as low …
Japan’s exit from negative interest rates could place some upward pressure on bond term premia elsewhere, but we don’t think it will prove too disruptive to markets even if the BoJ ultimately hikes a lot more than we expect. Investors largely took the …
This week’s flurry of central bank meeting points to growing confidence among policymakers in most major economies that inflation is on track back to target. That supports our view that long-term government bond yields will fall back a bit further this …
21st March 2024
The flash PMIs for March suggest that the euro-zone economy is still flatlining, while the UK and Japan seem to be pulling out of recession heading into Q2. The survey indicators of price pressures moved in different directions, but in general remain a …
Overview – Although we expect GDP growth to slow to a below-potential pace over the next few quarters, we then anticipate a pick-up late this year, as monetary policy flips from a headwind to a tailwind. Our forecasts are based on the assumption of no …
With the Bank of England striking a slightly more dovish tone whilst keeping interest rates at 5.25% and inflation likely to fall further and faster than the Bank expects, we still think a rate cut in June is possible and that rates will fall to 3.00% in …
Egypt: appreciation for the CBE’s policy shift After the “Super Wednesday” devaluation on 6 th March, the pound has appreciated over the past week or so and it appears as though officials have (so far) stuck to their pledge to let the currency move more …
Slight dovish tilt, and fast fall in inflation will make BoE more dovish before too long The Bank of England sprung no surprises, leaving interest rates at 5.25% for the fifth time in a row and, despite no MPC members no longer voting to raise interest …
Despite the booming economy, inflationary pressures in Taiwan are likely to remain subdued. Accordingly, we think today’s unexpected rate hike by the central bank (CBC) will prove to be a case of one and done. Today’s decision to raise the policy rate by …
Governor Karahan retakes the initiative Turkey’s central bank unexpectedly raised its key policy rate by 500bp at today’s meeting, to 50.00%, and its hawkish communications leave open the possibility of another rate hike in April. With the potential for a …
The SNB under Chairman Thomas Jordan has never shied away from making big calls, so it was fitting that it surprised markets with a 25bp rate cut today, to 1.5%, only three weeks after Mr Jordan announced he would leave his post in September. We expect …
This page has been updated with additional analysis since first publication. Stagnation continues, price pressures still high The flash PMIs for March suggest that the euro-zone economy is still flatlining, in line with our forecast. Meanwhile, the price …
Copom points to smaller cuts ahead The Brazilian central bank’s 50bp cut in the Selic rate to 10.75% today was never in doubt, but the change in the forward guidance supports our view that the easing cycle will slow to 25bp cuts soon (probably at the June …
20th March 2024
Despite upward revisions to the median projections for both GDP growth and core PCE inflation, the Fed’s median forecast for interest rates still shows a cumulative 75bp of policy loosening this year. In contrast, we continue to believe that …
