Filtered by Topic: Monetary Policy Use setting Monetary Policy
New governor committed to the tight policy stance The hawkish statement accompanying the Turkish central bank’s decision to leave interest rates unchanged at 45.00% today supports our view that a shift to monetary easing remains some way off and we still …
22nd February 2024
The Bank of Korea left its policy rate on hold today (at 3.5%) and attempted to push back against expectations for an early rate cut. However, with inflation likely to be back to target soon and domestic demand struggling, we expect easing to begin in …
Central banks in both Australia and New Zealand are likely to remain in “wait and watch” mode in the near term, given lingering risks to the inflation outlook. However, we think concerns about inflation persistence are overdone. Goods inflation is already …
On hold again, easing coming soon The Bank of Korea (BoK) kept its main policy rate unchanged today (at 3.5%), but with inflation cooling and growth set to struggle, we don’t think cuts are far away. The decision was correctly predicted by all 38 …
Minutes lean a little hawkish, but don’t rule out May rate cut The minutes of the Fed’s late January policy meeting included support for both hawks and doves although, somewhat disappointingly, there was no attempt to quantify what gaining “greater …
21st February 2024
The economy continues to appear impervious to higher interest rates and, although we expect growth to slow over the first half of this year, that slowdown is likely to be modest. But we don’t expect continued economic resilience to prevent inflation from …
An AI productivity boom. A Chinese structural slowdown. Aging workforces. In the coming decades, the global economy will be shaped by forces that will dictate which countries will make strides and which will stumble. Our Long Run Economic Outlook presents …
Bank Indonesia left its policy rate on hold at 6.00% at its meeting today, and once again reiterated its plans to start loosening policy later in the year. We expect the central bank to start cutting rates in Q2. Today’s decision was correctly predicted …
Headline inflation in Brazil has declined in recent months, but a deeper dig into the data shows that underlying price pressures are starting to build again. Although another 50bp cut in the Selic rate at the next central bank meeting in March is nailed …
20th February 2024
The AI revolution should deliver substantial productivity gains in the coming decade, particularly in advanced economies. But with working age populations falling in key areas and China’s economy in structural decline, we expect global growth to slow …
Data published today show that negotiated wage growth in the euro-zone remained strong at the end of last year. But these data won’t stop the ECB from cutting interest rates in April – as we are forecasting – as long as other indicators continue to point …
GDP has fallen for two consecutive quarters but we don’t think the economy is in recession and should return to growth this year. While the gap between nominal wages and inflation is closing fast, the wage-price virtuous cycle will receive a boost when …
This page has been updated with additional analysis since first publication . PBOC eschews broad-based cuts, steps up property support Today’s 25bp cut to the 5-year LPR is clearly aimed at supporting the housing market. On its own it will not revive new …
RBA’s talk of tightening is just bluster The minutes of the RBA’s February meeting showed that uncertainty remains the name of the game. However, we think that the incoming data should give the Board greater conviction that it has done enough to subdue …
In a week in which UK and Japanese data both confirmed two consecutive quarters of contracting GDP, Group Chief Economist Neil Shearing explains why the concept of “recessions” can be unhelpful in understanding the state of economies. He also tells David …
16th February 2024
Signs of healthy growth going into the first quarter support our view that the Bank of Canada will probably wait until June to pivot to rate cuts. Signs of positive activity in the first quarter The latest January data has brought signs that growth could …
Ratings downgrade highlights realities in Israel The decision by Moody’s to deliver Israel’s first credit rating downgrade in its history late last week is a warning sign to policymakers that the strength of the public finances should not be taken for …
The German Economy Minister Robert Habeck admitted this week that the economic situation was “dramatically bad” and said the government would reduce its 2024 growth forecast from 1.3% to 0.2%. The new forecast is a bit lower than the Bundesbank’s latest …
Will the Bank of Korea turn dovish? The BoK looks almost certain to leave interest rates unchanged at its meeting on Thursday. Instead, the focus will be on the tone of the statement. We expect the central bank to start sounding more dovish, as concerns …
Tightening cycle comes to a close, but rates to stay high Russia’s central bank (CBR) left its policy rate on hold at 16.00% as expected today and we think that inflation pressures will prevent it from cutting interest rates for most of this year. Today’s …
The Czech economy has had the weakest performance of any EU country since the pandemic, and we think that growth will disappoint expectations again in 2024. This will keep inflation contained and put pressure on the central bank to loosen monetary …
Services inflation will slow sharply Australian labour market data published yesterday garnered considerable attention, largely because they showed that the unemployment rate overshot analyst expectations and jumped to a two-year high of 4.1%. However, we …
We think that global growth will undershoot consensus expectations in 2024 as various props to growth from 2023 fade and as the lagged effects of past rate hikes continue to feed through. Among the advanced economies, the US will continue to outperform …
15th February 2024
Weaker economic data from the US have bolstered our view that the Federal Reserve will be able to cut rates by more than investors currently expect. As a result, we continue to think that Treasury yields will generally fall by the end of the year. …
Argentine President Javier Milei’s ambitious economic reform plans have quickly run into political obstacles. There’s still plenty of fiscal tightening that Milei is likely to undertake and there have been some areas of success such as the peso …
Plunge in inflation seals the deal on a larger rate cut We’d expected a large fall in Czech inflation in January, but the collapse from 6.9% y/y in December to just 2.3% y/y shows that price pressures are dissipating even more quickly than we’d …
Easing cycle to begin around the middle of the year The central bank in the Philippines (BSP) today left its main policy rate unchanged (at 6.50%), but sounded a little more dovish than after previous meetings. With inflation likely to stay low and …
This page has been updated with additional analysis since first publication. In the mildest of mild recessions, but recovery is in sight The news that the UK slipped into technical recession in 2023, will be a blow for the Prime Minister on a day when he …
With activity and inflation both softer than it had expected a few months ago, the RBNZ will likely stay put at its meeting at the end of the month. However, with a still-tight labour market fuelling uncertainty about domestically-sourced price pressures, …
14th February 2024
We survey 12 major advanced economy housing markets to understand why house price falls have been small despite high starting points and sharp increases in mortgage rates. We then use this information to ascertain whether the correction in house prices is …
Current fixed mortgage rates of around 4.6% are based on investors’ forecast that Bank Rate will be cut from 5.25% to 4.50% by the end of the year. We think that rates will be reduced a bit faster than that, in which case further declines in mortgage …
13th February 2024
Above-target inflation to keep NBR in a hawkish mood The National Bank of Romania (NBR) left its policy rate on hold at 7.00% again today and, while interest rate cuts are likely to start around mid-year, we think that monetary easing will be less …
Chairman Thomas Jordan’s recent comments about the franc raise questions over whether the SNB might use FX interventions to loosen monetary conditions. But we think policymakers will use the policy rate as the main tool to achieve price stability, and …
A key point that stands out from the raft of EM central bank decisions over the past couple of weeks is that policymakers are focussed much more on domestically-generated price pressures than the Fed. We expect a pivot towards monetary easing in the …
12th February 2024
Developments over the past week or so have put a dent in the until-recently widespread belief that inflation was firmly in retreat and that central banks had a clear path to cutting rates. Bond yields have crept further up from December lows as more …
We’re trying a ‘quickfire round’ on this week’s episode of The Weekly Briefing from Capital Economics to get Group Chief Economist Neil Shearing answering the questions that clients have been asking most frequently in recent days: Could inflation rebound? …
9th February 2024
The strength of the labour market in January is another reason to think that the Bank of Canada can wait a little longer before it starts to cut interest rates. Bank’s latest communications give little away Governor Tiff Macklem gave little away in his …
Is euro adoption the path forward for Czechia? The Czech government’s debate on adopting the euro reignited at the start of this year and took another step forward this week, although we think that the potential benefits of joining the single currency …
Brazil: the hawkish case builds This week’s release of the minutes to the latest Copom meeting, January CPI figures and December budget data support our view that Brazil’s central bank will lower interest rates by less than most expect this year. The …
This week, ECB policymakers again pushed back against the prospect of an imminent rate cut, with Executive Board member Isabel Schnabel saying that policymakers “must be patient and cautious”. Ms Schnabel’s main concern was that more clarity is needed on …
Inflation back to target The most recent batch of inflation figures for the region paint an encouraging picture. Headline inflation fell again in most countries last month and is now within target nearly everywhere. ( Korea and Singapore are the main …
RBI not ready to pivot yet There were no surprises from the RBI’s policy announcement this week, with the repo rate being kept on hold at 6.50% once more. We had even suggested that MPC member Jayanth Varma would dissent, and in the event he was the only …
Weakness underlying headline strength There was the usual seasonal surge in net credit in China in January that took new bank lending to a record high. The underlying story is less positive, with loan demand little changed and broader credit growth slower …
RBA’s hawkish bias will be put to the test While the RBA’s decision to leave rates on hold on Tuesday didn’t surprise anyone, the Bank’s Monetary Policy Statement did raise a few eyebrows. In contrast to a number of its developed-market counterparts, the …
We expect government bond yields in emerging market (EM) economies to fall over the remainder of the year, helped by a broadening easing cycle and falling Treasury yields. While the big question around monetary policy in developed market (DM) economies is …
8th February 2024
Bahrain taps bond market as repayments near This week, Bahrain became the latest emerging market to issue dollar bonds which will help it meet large upcoming debt repayments. But fiscal policy will need to be tightened in the coming years to put the …
Although the recent transition to a higher interest rate climate has not caused any lasting or systemic financial flare ups, it is probably too soon to sound the all-clear. And while a higher interest rate climate in the medium-term will reduce …
CNB steps up its easing cycle The Czech National Bank (CNB) accelerated the pace of its monetary easing cycle today with a 50bp interest rate cut, to 6.25%, and the post-meeting communications support our view that an even larger interest rate cut is on …
Mexican inflation drops, but Banxico to hold firm later today The jump in Mexico’s headline inflation rate to 4.9% in January means Banxico won’t feel comfortable enough yet to start an easing cycle at the Board meeting later today. Elsewhere, the further …
