Filtered by Topic: Monetary Policy Use setting Monetary Policy
Central banks in Central Europe are attempting to draw their tightening cycles to a close, but with inflation very high and currencies under pressure, there is a clear risk that this could be premature. This week Hungary’s central bank sprung a surprise …
30th September 2022
The government-induced turmoil in the markets this week has altered our thinking in five key ways. First, we have raised our forecast for the peak in interest rates from 4.00% to 5.00%. At the end of last week, we had thought that the tax cuts announced …
The accepted wisdom is that strong immigration reduces the pressure on the Bank of Canada to raise interest rates, as it will eventually help to ease labour shortages. But the immediate impact has been to boost rental growth at a time when the Bank is …
Mortgage rate floor relaxed, LPR cuts now less likely After being slashed this year, mortgage rates in most cities are now at the regulatory floor which, for first-time buyers, is currently set at 20 basis points below the five-year loan prime rate …
C/A deficit widens to multi-year high Data released this week show that India’s current account deficit widened to 2.8% of GDP in Q2, its largest since 2013. The data can however be volatile, so we prefer to take a longer perspective. In the year to Q2, …
Central banks in Mexico and Colombia delivered further large interest rates hikes yesterday, of 75bp and 100bp respectively, and the backdrop of strong inflation pressures and tighter external financing conditions means that a bit more tightening lies …
The RBI hiked the repo rate by another 50bp (to 5.90%) today and the communications give a clear steer that the tightening cycle still has further to run. But with inflation set to slow, we think the central bank will now revert to hikes of 25bp …
RBI continues to frontload tightening The RBI hiked the repo rate by 50bp for the third meeting in a row today, taking it to 5.90%. Further rate hikes are likely over the coming months but, with inflation set to slow, we think the central bank will now …
China’s manufacturing PMI may have weakened further this month (02.30 BST) We think India’s central bank will raise its policy rate by another 50bp (04.30 BST) US PCE inflation probably dropped in August due to lower energy prices (13.30 BST) Key Market …
29th September 2022
While the Bank of England’s temporary U-turn on its balance sheet has caused Gilts to rally strongly, we suspect their yields will remain high for some time yet. The Bank of England dramatically intervened in the Gilt market on Wednesday in response …
The Bank of England appears to have prevented the financial market fallout from the loose fiscal plans revealed in the Chancellor’s mini-budget from escalating into a full financial crisis. Since it committed to buy £65bn of long-dated gilts on …
Higher interest rates are already having an impact in CEE and a large part of the tightening of monetary conditions has yet to feed through. This will add to the headwinds facing growth in the coming quarters. Central banks have raised interest rates by …
OPEC+ weighing up a further output cut The latest reports suggest OPEC+ is seeking to follow up last month’s surprise 100,000bpd cut to oil output quotas with another reduction next week, increasing the downside risks to our Gulf GDP growth forecasts. …
Just like their peers in advanced economies, monetary policymakers across Sub-Saharan Africa have turned more hawkish recently. Central banks in South Africa and Nigeria hiked interest rates aggressively this month. Reining in inflation is clearly the …
Rate cuts on the horizon The Czech National Bank (CNB) left its policy rate on hold, at 7.00%, for a second consecutive meeting today. With inflation unlikely to rise much further and the economy on the verge of recession, we think interest rates will …
Bank Indonesia (BI) has been stepping up its efforts to support the rupiah in recent weeks, and we think further FX intervention and interest rate hikes are likely over the coming months as the central bank continues to try and defend the currency. …
The sharp increases in gas and electricity prices in Europe mean that households there – particularly in Germany and Italy – will see a steep rise in their costs of energy consumption. Accordingly, governments have announced support packages worth …
28th September 2022
European Commission’s Economic Sentiment Indicator may have fallen this month (10.00 BST) US GDP data may partly revise away Q1 decline (13.30 BST) We expect rate hikes in Mexico, Colombia, and Thailand Key Market Themes The plunge in the stock …
Mini-budget forces BoE to step in to prevent financial crisis The continued fallout this morning from the Chancellor’s mini-budget has forced the Bank of England to step in to avoid the early stages of a financial crisis. It has postponed its plan to sell …
The Bank of Thailand (BoT) hiked interest rates today by a further 25bp (to 1.0%) and appears committed to raising interest rates gradually over the coming months. But with inflation elevated and the currency coming under further downward pressure against …
Resilient activity and faster food inflation point to another 50bp hike next week Inflation set to remain stubbornly high We now expect rates to peak at 4.5% by April 2023; first rate cut only by end-2023 With GDP growth holding up and food inflation …
Thailand: central bank may need to accelerate the pace of tightening The Bank of Thailand hiked interest rates today by 25bp (to 1.0%), but with inflation elevated and the currency coming under further downward pressure, we think the central bank will …
Although the latest sell-off in Gilts has been driven in part by expectations for higher interest rates, the accompanying fall in sterling suggests the risk premia attached to UK assets has risen. In our view, in the absence of a concerted attempt to …
27th September 2022
In response to the government’s loose fiscal plans and the resulting weakening in the pound, we now think that interest rates will rise from 2.25% now to a peak of 5.00% (4.00% previously). Rates at those levels make the housing market look very …
After raising its base rate by a larger-than-expected 125bp, to 13.00%, Hungary’s central bank (MNB) announced today that it has now ended its rate hiking cycle and we now forecast the base rate to be left on hold over the coming year. Even so, with …
The rise in market interest rates that has already happened will push up mortgage rates to at least 6% and reduce the size of loans that lenders can offer. The resulting drop in buying power makes a significant drop in house prices inevitable. Many …
The Central Bank of Nigeria (CBN) upped the pace of its tightening cycle today, increasing the benchmark rate by 150bp, to 15.50%, as officials have become increasingly concerned about sky-high inflation and mounting pressure on the currency. We now think …
The ramping up of the US Fed’s hawkish rhetoric has turbocharged the dollar’s appreciation against EM currencies, with most falling by 2-6% against the greenback since the start of the month. (See Chart 1.) Reluctant to allow currencies to slide too …
It is now clear that central banks in advanced economies will raise interest rates even further than our above-consensus forecasts had implied, making the current tightening cycle the most aggressive in three decades. While this may be necessary to tame …
Latin American currencies have come under pressure this month which will put further upward pressure on inflation, but the bigger picture is that headline rates are at, or close to, a peak across the region. Indeed, headline rates in Brazil and Peru are …
A strong US dollar is a threat to countries with lots of foreign currency debt and/or inflation problems, and is putting pressure on central banks across the region to raise interest rates more aggressively. We recently changed our policy rate …
Early signs that tighter policy is working but RBA will hike by 50bp next week Consensus catching up to our long-held view that rates will reach 3.6% Absence of wage-price spiral means RBA will be able to loosen policy next year Other analysts are …
Investors have revised up how far they expect the Bank of England to raise interest rates as they continue to digest the tax cuts announced on Friday. This Update examines what the impact on the housing market would be, and whether that could prevent …
We think US durable goods orders fell in August (13.30 BST) Hungary’s central bank will probably raise its benchmark rate by 100 bp (12.00 BST) Sign up here for our Drop-In on Tuesday to discuss recent moves in FX markets Key Market Themes Italy’s …
26th September 2022
Govt and BoE do the bare minimum, markets may yet force the issue It remains to be seen whether today’s statement by the government and the Bank of England will be enough to ease the markets’ fears about the government’s fiscal policy. The initial …
BoE needs to get on front foot with big rate hike The further fall in the pound in early trading means that we’ve now reached the point where the Bank of England needs to step in in order to regain the initiative. There are a couple of ways it could do …
We expect rate hikes in Mexico, Colombia, Thailand, Hungary and Nigeria next week US real personal consumption probably changed little in August (Thu.) We think euro-zone CPI inflation rose further last month (Fri.) Key Market Themes We think …
23rd September 2022
Policy tightening in Ghana: past, present and future Despite the release of better-than-expected Q2 GDP growth figures in Ghana, the economic outlook remains gloomy as policy tightening to address the country’s debt woes will increasingly bite. Data …
Another month, another batch of PMIs pointing to Q3 GDP having fallen in major advanced economies. Yet despite the deterioration in real activity, as well as some further signs that pipeline price pressures are easing, September’s PMIs will do little to …
The hawkish message from the Federal Reserve this week has prompted us to revise up our forecast for the peak policy rate in Canada to 4.0%, even as the latest data suggest that inflationary pressures are easing and the economy faces a growing risk of …
The Fed’s transformation from inflation-denier back to Volcker-style inflation-slayer is all but complete. As Chair Jerome Powell acknowledged in his press conference this week, “we have got to get inflation behind us. I wish there were a painless way …
Argentina’s second IMF review This week the IMF announced that a staff-level agreement has been reached with Argentina to release a $3.9bn tranche of the $44bn programme, which will help the government to continue external debt repayments (mainly to the …
Inflation and currency key concerns for SBV Central banks stepped up tightening cycles across the region this week, with hikes in the Philippines, Indonesia (both 50bp) and Taiwan (12.5bp). There was also an unscheduled move from the central bank …
Table of Key Forecasts Overview – There has been growing evidence that pipeline price pressures have eased, underlining our view that inflation will fall sharply next year. Commodity prices and shipping costs have fallen, product shortages have …
In a quiet week for euro-zone economic data, attention has focused on the bumper interest rate hikes by central banks elsewhere, including the Fed , Bank of England , the Riksbank , the SNB and the Norges Bank . The scale of the rate hikes and the …
In what has proven to be an action-packed week for major central banks, those in the Nordics and the SNB kept their end up and delivered historically large rate rises. And more tightening is likely from all three before the year is out. The 100bp rate …
With the Fed still clearly in a hawkish mood, we have revised up our forecasts for the 10-year Treasury yield. We now expect it to be around its current level at the end of this year, in contrast with our previous forecast of a decline. But we still …
First intervention to buy yen since 1998 In the wake of the Fed’s hawkish 75bp rate hike on Wednesday, the yen approached 146 against the dollar for the first time since 1998. Back then the government intervened to shore up the yen and it did so again …
Drop in FX reserves not a macro concern Data to the first week of September show that the RBI’s FX reserves have dropped in value to US$550bn, the lowest level in almost two years. (See Chart 1.) While part of that is a valuation effect, it is mainly …
Aussie falls to our year-end forecast With the Fed delivering a hawkish 75bp rate hike by signalling that it will continue tightening aggressively, the Australian dollar has slumped to US$0.66, on par with our end-year forecast. The exchange rate …
