Filtered by Topic: Monetary Policy Use setting Monetary Policy
The quantitative tools that the PBOC relied on to pump up credit growth during previous downturns have become ineffective due to weak demand. That leaves interest rates as the main avenue for monetary support. But bank lending rates need to decline to a …
11th September 2023
In his speech this week, Governor Tiff Macklem sounded much more confident that the Bank will be able to meet its 2% inflation target. The latest labour market and local housing data suggest that may still be possible without a recession. Policy rate has …
8th September 2023
Market implied rates suggest that investors expect inflation to normalise in the US and Europe in the next couple of years. While we share that view, we think they are overestimating the level of policy rates required to achieve inflation targets. As a …
The recent rise in oil prices to $90 per barrel means CPI inflation is likely to rise from 6.8% in July to 7.1% in August, but it won’t prevent inflation falling to the 2% target by the middle of next year. Even if oil prices climbed to $100 per barrel, …
The decision by the National Bank of Poland (NBP) to kick off its easing cycle this week with a much larger-than-expected 75bp interest rate cut has been heavily criticised, and suggests to us that policymakers are underestimating the challenge of …
Headline inflation jumps in August The long and steady decline in inflation across Emerging Asia came to an end last month, with headline inflation picking up in all six countries that have so far reported August price data. (See Chart 1.) Chart 1: …
MoF signaling some concern over weaker yen As the yen weakened to nearly 148 against the dollar this week, the government has signalled its readiness to intervene in foreign exchange markets to stop its slide. Masato Kanda from the Ministry of Finance …
Will the FOMC’s September meeting confirm that the Fed is done with tightening? Will the ECB and Bank of England take rates higher? Will accompanying language give any hints about how long rates will stay elevated? Economists from our US, Europe and UK …
7th September 2023
Developments in the past few weeks have moved the dial somewhat on the global story. In major DMs, there have been more signs of activity softening either in terms of output or employment, evidence of disinflation continues to mount, and it has become …
This page has been updated with additional analysis since first publication. The decision by Malaysia’s central bank (BNM) to leave the overnight policy rate unchanged at 3.0% came as no surprise. Despite the poor near term outlook for economic growth, …
The more cautious tone of the Monetary Policy Report released by Chile’s central bank today supports our view that, once the large falls in inflation are behind us in early 2024 and the economy recovers, the easing cycle is likely to shift down a gear. We …
6th September 2023
The Bank of Canada accompanied its decision to leave interest rates unchanged with a pledge to hike again if needed, but we doubt it will need to follow through. With recession risks rising and labour market conditions loosening, we continue to think that …
The higher share of floating rate mortgages in Italy and Spain means that household interest spending in both countries has risen much further than in Germany and France. Interest spending is also set to keep rising much more quickly in Italy and Spain in …
Bank maintains hawkish bias, but next move likely to be a cut The Bank of Canada accompanied its decision to leave interest rates unchanged with a pledge to hike again if needed, but we doubt it will need to follow through. With recession risks rising and …
NBP starts it easing cycle with a bang The National Bank of Poland (NBP) kicked off its easing cycle today with a much larger-than-expected 75bp cut to its main policy rate, to 6.00%. We will firm up new interest rate forecasts after Governor Glapinski’s …
Sharp falls in inflation mean that the economies of Central and Eastern Europe (CEE) are on the cusp of a broad-based monetary loosening cycle. That said, we think that the legacy of the inflation shock over the past two years will be more persistent …
5th September 2023
The jump in inflation in August was driven by temporary factors and we don’t think this marks the start of a sustained rise in inflation, especially since core inflation continued to drop back. Nevertheless, the rise in inflation last month reduces the …
The RBA retained its tightening bias when it kept interest rates unchanged at 4.10% today. However, we think the Bank’s next move will be a rate cut, perhaps as early as the first quarter of next year . The Bank’s decision to keep the cash rate unchanged …
RBA is done tightening and will cut rates earlier than most expect The RBA retained its tightening bias when it kept interest rates unchanged at 4.10%, but we think the Bank’s next move will be a rate cut, perhaps as early as the first quarter of next …
The Bank of Israel (BoI) left its policy rate on hold again today, at 4.75%, and while our baseline forecast is that the tightening cycle is now over, the BoI’s hawkish comments support our view that it won’t turn to interest rate cuts until Q2 next year …
4th September 2023
Inflation surge puts another large hike on the table The jump in Turkish inflation to a much stronger-than-expected 58.9% y/y last month, coming shortly after bumper Q2 GDP figures, means the central bank (CBRT) is likely to follow up last month’s 750bp …
Overview – We no longer expect Japan’s economy to enter a recession. However, with real household incomes set to fall until the end of this year, domestic demand growth will remain sluggish. Accordingly, we expect GDP growth to slow from 2.3% this year to …
The news that the UK economy may now be 1.5% bigger than its Q4 2019 pre-pandemic size, rather than 0.2% smaller, suggests the economy has been much stronger than we previously thought. But with the UK still likely to be suffering from a labour supply …
1st September 2023
Bank to pause amid rising recession risks The surprise second-quarter contraction in GDP was partly due to the wildfires but, even without that damage, growth would have been very weak. With the August CFIB Business Barometer showing further concerning …
This week the Bank of England’s Chief Economist, Huw Pill, indicated that while the Bank still had to “see the job through” and remain vigilant with “stubbornly high inflation”, he didn’t think interest rates need to rise much further from 5.25% now. But …
Stimulus efforts are finally gaining momentum. Yesterday, regulators announced measures to support households and shore up the property sector, including looser downpayment requirements and reductions to existing mortgage rates. And today, the state banks …
Turkey’s policy shift has ticked a lot of the right boxes so far and the central bank’s large rate hike this month will go a long way to rebuilding confidence among investors. But there are still question marks about how much tightening will be delivered …
31st August 2023
We’ve become a bit more confident in our forecast that the Bank of England will raise interest rates from 5.25% now to a peak of 5.50%, rather than much further, as higher interest rates appear to be weighing more heavily on activity. The peak in UK …
What’s driving the slide in SAMA’s assets? The drop in the Saudi Central Bank’s (SAMA) foreign assets to a 14-year low in July caused some concern this week, but we suspect this reflects funds being recycled to the Public Investment Fund. Figures …
China's reopening recovery has fizzled out and the economy is now at risk of a downward spiral. We think policymakers will provide enough stimulus to avoid this and deliver a modest reacceleration in growth over the coming quarters. But most of the …
This page has been updated with additional analysis since first publication. September rate decision hangs in the balance The small upside surprise to euro-zone headline inflation in August was entirely due to energy, while the core rate edged down. We …
Sub-Saharan Africa is set to record its weakest growth (outside the pandemic) since 2016 this year as the drags from domestic headwinds are exacerbated by a less favourable external environment. Our GDP growth forecasts across the region are generally …
Double-digit inflation will prevent September rate cut The fact that Polish inflation remained in double-digits in August, at 10.1% y/y, means that an interest rate cut at the central bank’s meeting next week now seems very unlikely. That said, we think …
Higher gasoline prices mean CPI will surprise to the upside of the Bank’s forecasts But GDP growth is slowing and labour market conditions are loosening Bank can afford to wait for more data and is unlikely to hike again Inflation has surprised to the …
30th August 2023
History suggests that dollarisation, which is at the heart of Argentine presidential candidate Javier Milei’s policy platform, is a surefire way to get inflation under control. But whether this translates into broader macro stability would hinge on …
GDP growth has slowed sharply across most of Emerging Asia since the middle of last year and looks set to remain weak over the coming quarters, as tight monetary policy at home and subdued activity abroad weigh on demand. We anticipate below-trend and …
Rapid fall in inflation and weaker-than-expected wage growth mean RBA is done hiking Looming recession should prompt the Bank to ease policy earlier than most expect We’re moving forward our forecast for the first rate cut from Q2 2024 to Q1 All of the …
The July JOLTS data cast further doubt on the idea that the Fed will need to keep rates high for longer. With the job quits rate now below its pre-pandemic peak and the job openings rate also rapidly approaching that level, labour market conditions have …
29th August 2023
This page has been updated with additional analysis since first publication. MNB cuts rates again, but a short pause in the easing cycle may be coming The Hungarian central bank (MNB) announced another 100bp cut to its quick deposit rate (the key policy …
Despite the slowdown in EM GDP growth in Q2, there’s little sign that labour markets are softening. Wage growth remains alarmingly strong across much of Latin America and Central Europe (CEE). That supports our view that, while central banks in these …
The effects of tighter monetary policy are very clear in the latest money and credit data, reinforcing our view that the euro-zone economy will perform worse than most analysts expect in the coming quarters. Data released yesterday showed that the sharp …
This page has been updated with additional analysis since first publication. RBA will look past upswing in retail sales We don’t believe that the healthy uptick in retail sales in July represents a second wind for the Australian consumer. Accordingly, …
28th August 2023
After a relatively cautious speech at Jackson Hole from Fed Chair Jerome Powell and data this week which cast doubt on the idea of an economic resurgence, we still aren’t convinced that the rise in market interest rate expectations for the next few years …
25th August 2023
Solid growth not yet prompting Fed rethink Fed Chair Jerome Powell underscored the FOMC’s commitment to data dependence in his Jackson Hole speech today, but there was no suggestion that signs of economic resilience have already prompted Fed officials to …
CBRT policy shift now firmly back on track There’s a lot of confusion about what drove Turkey’s central bank to deliver an unexpected 750bp rate hike this week and doubts remain about the policy U-turn. But at this point we’re minded to focus on the …
BRICS expansion unlikely to challenge G7 India made history this week after its Chandrayaan-3 mission became the first to touch down on the south pole of the moon. Remaining column inches in the local press have been given to the BRICS summit in …
Strong immigration and the turnaround in the housing market raise the chance that the economy will avoid recession but, with the Bank of Canada keeping further rate hikes on the table, we still judge that GDP will contract later this year. Even if …
This page has been updated with additional analysis since first publication . Inflation rise likely to take larger rate cuts off the table The jump in Brazilian inflation to a higher-than-expected 4.2% y/y in the middle of the month (and the prospect of …
Momentum behind price rises starting to slow The economic data released this week suggest that the case for policy rate hikes in response to above-target inflation is still not compelling. For a start, the Tokyo CPI showed that inflation excluding fresh …
Denmark’s economy has been among the fastest-growing since the pandemic and, although growth will slow in the coming months, we expect it to continue outperforming the euro-zone. Nonetheless, the DNB will probably keep its policy rates below those of the …
24th August 2023
