Filtered by Topic: Monetary Policy Use setting Monetary Policy
RBA flags higher neutral interest rate (sort of) This week’s speech by Reserve Bank of Australia Assistant Governor Luci Ellis on the neutral interest rate was an odd affair. The last time the Bank published an estimate of the neutral rate was in 2017, …
14th October 2022
The Monetary Authority of Singapore (MAS) tightened policy today, in an attempt to contain elevated price pressures, but with inflation likely to fall in the coming quarters and the economy set to struggle, we expect this move to have marked an end to the …
While the Fed isn’t likely to follow the Bank of England in pausing QT in response to upward pressure on long-term government bond yields, the reduction of the Fed’s balance sheet could end sooner and be significantly smaller than we had first thought. …
13th October 2022
Overview – Emerging European economies are facing a difficult winter due to the energy crisis as well as headwinds from weakening demand for exports and tightening external financing conditions. We expect almost all economies in the region to experience a …
Strictly speaking, recent measures by the Bank of England do not qualify as so-called “fiscal dominance”. But this could be the thin end of the wedge, and not just for the UK. While we are a long way off central banks in developed economies directly …
Overview – The RBI has frontloaded policy tightening over recent months but with inflation peaking and economic headwinds building, we think the central bank will now slow the pace of tightening and revert to 25bp hikes. Our forecast is for the repo rate …
Spillovers from the war in Ukraine and tighter external financing conditions have exacerbated strains in Egypt’s balance of payments and we think the pound needs to fall a lot further. This will add to inflation pressures, prompting further interest rate …
Chile’s central bank (BCCh) became the latest in the emerging world to end its tightening cycle yesterday. But with inflation only likely to fall back towards target in late-2023 and the external position in a fragile state, monetary policy will be kept …
Fed remains in hawkish mood for now While the minutes provided some hints that Fed officials are beginning to lay the ground for a slower pace of rate hikes eventually, the overall tone was still hawkish, suggesting that the Fed will push ahead with …
12th October 2022
Headline inflation rises, but now set to drop back The rise in headline consumer price inflation in September to further above the RBI’s 2-6% target range challenges our view that the RBI will slow the pace of tightening. But with food and energy …
The rise in headline consumer price inflation in September to further above the RBI’s 2-6% target range challenges our view that the RBI will slow the pace of tightening. But with food and energy inflation now set to lastingly drop back and growth likely …
Overview – Soaring interest rates and falling real incomes will result in a more pronounced slowdown in economic activity in both countries than most anticipate. In fact, we now expect New Zealand to enter a recession next year as the RBNZ will hike …
The decision by the Bank of Korea to raise its policy rate by a further 50bp (to 3.0%) indicates the central bank’s near-term focus will remain on combating inflation. But with growth slowing and price pressures already having peaked, we think the …
BoK hikes rates again, but tightening cycle drawing to a close The decision by the Bank of Korea to raise its policy rate by a further 50bp (to 3.0%) suggests the central bank’s near-term focus will remain on combating inflation. But with growth set to …
Central banks have the tools to deal with liquidity crises arising from rising interest rates and falling asset prices. Instead, the bigger threat is that higher interest rates produce large and simultaneous falls in asset prices that threaten the …
11th October 2022
September FOMC minutes may shed light on where rates will peak (19.00 BST) We expect central banks in Korea and Chile to hike interest rates Clients can sign up here for tomorrow’s Drop-in previewing China’s Party Congress Key Market Themes While the …
Note: This report has been updated in the 6th paragraph to reflect 11th Oct. comments from BoE Governor Andrew Bailey. Given that the surge in gilt yields that has forced the Bank of England to intervene in the market was initially driven by the …
Labour market won’t make the Bank of England’s task any easier While there were tentative signs that the labour market is cooling from the red-hot conditions seen in recent months, the shortfall in labour supply is keeping it exceptionally tight. That …
Japanese firms’ holdings of interest-bearing assets have risen relative to their interest-bearing liabilities and some are suggesting that they benefit from rising interest rates as a result. But with domestic interest rates little changed as the Bank …
10th October 2022
Returning to m/m inflation Inflation continued to fall in Russia in September, to 13.7% y/y, but at a much slower rate than in previous months. The recent period of strong disinflation is coming to an end and the central bank is likely to scale back the …
7th October 2022
The bi-annual Monetary Policy Review (MPR) released this week by the South African Reserve Bank (SARB) bolsters our view that the monetary tightening cycle will continue to take on a distinct path to most other EM central banks. In many ways, the SARB has …
The hawkish speech from Governor Tiff Macklem this week suggests that the Bank of Canada has no intention of following the Reserve Bank of Australia in dropping down to a 25 bp hike at its next meeting, despite the growing downside risks to the economy, …
What could the Fed "break"? The recent liquidity issues faced by UK pensions funds and problems at a few European banks have led to speculation that the Fed’s interest rate hikes will trigger some form of financial instability which, via an adverse …
Russia under more strain after Ukraine annexation The macroeconomic fallout from Russia’s call-up of military reservists and its formal annexation of Ukrainian territory has continued to mount, resulting in tighter Western sanctions, a mass fleeing of …
BoK to take cautious approach The consensus is expecting the Bank of Korea (BoK) to increase its policy rate by 50bp at its scheduled meeting on Wednesday. But with the economy slowing sharply, we think a 25bp hike is more likely. A weakening currency …
The Prime Minister, the Chancellor and investors will probably all be breathing a huge sigh of relief today as there was no guarantee that they would end the week in the same positions as they started it. But the lesson from the past couple of weeks is …
A raft of economic data for Sweden published this week added to the evidence that its economy is slowing and, like most of Europe, heading for a recession this winter. The 1.3% fall in Statistics Sweden’s monthly GDP indicator in August was the biggest …
Inflation seems to have peaked, but Banxico to keep tightening for now Mexico’s headline inflation rate was unchanged at 8.7% y/y in September and will probably start to drop back over the coming months. But it will remain above the upper end of Banxico’s …
Strong case for even bigger rate increase The case is growing for the ECB to step up the pace of tightening further at its meeting in three weeks. The account of last month’s ECB meeting, published on Thursday, showed that policymakers expect to keep …
Bank not done tightening yet Following the RBA’s surprise decision to hike the cash rate by 25bp instead of the 50bp widely anticipated, the financial markets now price in a peak of 3.6% by mid-2023 instead of 4.2% just before the meeting. Some …
No sign of FX sales, but PBOC pushing back in other ways The decline in China’s foreign exchange reserves appears to be due to valuation effects rather than direct intervention in the FX market. But we still think the PBOC will try, and may well succeed, …
The trend towards ever more “financial globalisation” has already decelerated and will probably slow further as the global economy fractures and policymakers favour resilience over efficiency. While a disorderly rupture of financial relations remains …
6th October 2022
Drop-In: Sept CPI, the Fed and the US Economic Outlook …
Overview – The jump in interest rates and worsening global backdrop leaves the economy facing recession, and elevated debt levels are a downside risk to our forecast for a moderate peak-to-trough fall in GDP of 1.0%. For now, our expectation that …
Account shows hawks still ruling the roost The account of the September ECB meeting confirms that there was a strong consensus in favour of rapid policy normalisation. Since the September meeting, inflation has again increased more than expected, …
With pr ic e pressures still strong, the looming global recession is unlikely to derail central banks’ tightening plans in the months ahead. While the RBA quoted the deteriorating global outlook when it recently decided to slow the pace of rate hikes in …
Overview – We expect inflation to fall more rapidly than the Fed anticipates, albeit partly because the even-bigger surge in interest rates will send the economy into a mild recession early next year and drive up the unemployment rate. As a result, we …
5th October 2022
NBP now looking through the inflation figures Poland’s central bank (NBP) left interest rates unchanged at 6.75% today, which is a big surprise after data released last week showed a larger-than-expected rise in inflation in September. The accompanying …
NBR still has a bit more work to do The National Bank of Romania (NBR) hiked its policy rate by 75bp, to 6.25%, at its meeting today. The tightening cycle is likely to slow down but we still expect rates to reach 7.00%, which is slightly higher than most …
Continued worries about inflation mean the central bank (BoK) in Korea still has further work to do, and we are sticking with our view that the BoK will raise interest rates by at least 50bp between now and the end of the year. But with inflation likely …
Overview – In a difficult global environment, Japan's economy has benefitted in recent months from a reopening boom in consumption and the easing of supply shortages in industry. Those tailwinds will soon fade, while external demand will slow. As a …
The Reserve Bank of New Zealand hiked the overnight cash rate by 50bp to 3.5% as widely anticipated and the hawkish tone of the statement is consistent with our forecast that rates will peak at 4.5% by mid-2023. However, that aggressive tightening will …
RBNZ will hike all the way to 4.5% The Reserve Bank of New Zealand hiked the overnight cash rate by 50bp to 3.5% as widely anticipated and the hawkish tone of the statement is consistent with our forecast that rates will peak at 4.5% by mid-2023. For a …
Italy’s composite PMI probably fell in September below the 50 “no change” mark (08.45 BST) We think the US trade deficit fell sharply in August, as exports continued to surge (13.30 BST) We expect Romania’s and Poland’s central banks to hike their …
4th October 2022
Inflation persistence has strengthened the drive for higher rates… … while weak exchange rates and fiscal policy concerns add to challenges for some. Peaks will be higher than we had assumed and the risk of policy mistakes has grown. Recent developments …
The Reserve Bank of Australia slowed the pace of monetary tightening by delivering a smaller 25bp rate hike to 2.60% this month, but we still expect rates to peak a touch higher than most anticipate. And the financial markets are now coming round to our …
Rates may peak at 3.6% by early-2023 The Reserve Bank of Australia slowed the pace of monetary tightening by delivering a smaller 25bp rate hike this month, but we still expect rates to peak a touch higher than most anticipate. The Bank’s decision to slow …
The Bank of Israel delivered another 75bp interest rate hike to 2.75% today and while the accompanying communications were not particularly hawkish, it’s clear that the tightening cycle is far from over. We’ve pencilled in two more hikes in this cycle, …
3rd October 2022
It has been five years since the People’s Bank last dipped into its own foreign exchange reserves on a significant scale to support the currency. Since then, it is widely believed …
