Filtered by Topic: Monetary Policy Use setting Monetary Policy
Our view that GDP growth will slow below potential next year assumes one of the sharpest falls in dwellings investment in Australia’s modern history. However, this Update explains why dwellings investment could hold up better than we’re anticipating. In …
25th July 2022
Slump in confidence points to sales weakness ahead Retail sales rose by a bit more than we anticipated in May, but the preliminary estimate implies that most of the gain in sales volumes was reversed in June and the slump in consumer confidence suggests …
22nd July 2022
Who would have thought that one of the most noteworthy parts of the news on the UK economy this week would be the government’s debt interest payments on its index-linked gilts? But with the battle to become the next Prime Minister reaching its final …
Fed officials may have briefly contemplated an even bigger hike following the news of the further surge in inflation in June but, with inflation expectations dropping back and the incoming news on activity softening, we expect another 75bp hike next week. …
Almost exactly ten years on from Mario Draghi’s “whatever it takes” speech, the ECB this week had another attempt at keeping a lid on peripheral bond spreads as it kicked off its first tightening cycle in more than a decade with a bigger-than-expected …
Tanzania, Kenya secure IMF funds The approval this week of an IMF package for Tanzania and the latest disbursement of a loan for Kenya will ease near-term balance of payments pressures. The Fund has pushed fiscal consolidation in both countries but, in …
Danish policymakers won’t be rushed Given that Denmark’s Nationalbank operates an exchange rate peg with the euro, it was no surprise to see it mirror the 50bp rate hike by the ECB on Thursday afternoon. If anything, the only surprise was that it took …
Remittances to support external position Remittances (money transferred by foreign workers back to their home countries) are an important and often underappreciated source of foreign currency for India. The RBI’s latest monthly bulletin released this week …
Pipeline price pressures have peaked Spending on travel and leisure is supporting activity and has so far prevented the UK composite flash PMI from joining the euro-zone’s PMI in contraction territory. Perhaps even more encouraging was that price …
Further tightening over the coming months We published our latest Emerging Asia Economic Outlook this week, which contains our detailed forecasts. Here are three key calls from the report. Key Call 1: Growth will slow GDP figures due over the coming …
Euro-zone on brink of recession July’s flash PMIs suggest that the euro-zone is teetering on the brink of recession due to slumping demand and rising costs while inflationary pressures remain intense. The ECB will have to follow up on yesterday’s historic …
Mobility softening as virus cases surge New Covid-19 cases are now nearly twice as high as they were at the peak of the Omicron wave in February. The government has so far ruled out declaring another state of emergency, which makes sense as the number of …
Table of Key Forecasts Global Overview – The outlook for the world economy has darkened again and we have reduced our forecasts for all major economies, leaving them further below the consensus of economists. We now anticipate recessions in the euro-zone …
21st July 2022
Headline CPI inflation probably eased in Japan in June (00.30 BST) Rising prices probably weighed on June retail sales volumes in the UK (07.00 BST) We expect July’s flash PMIs to show that activity weakened in the euro-zone & the UK Key Market Themes …
The ECB’s 50bp rate hike today is likely to be the first move in a sustained interest rate hiking cycle which we think will bring the deposit rate to around 2% next year. We also think the Bank will at some point have to use its new asset purchase …
South Africa’s central bank upped the pace of tightening further with a 75bp hike, to 5.50%, as policymakers’ intensifying fears about inflation (and inflation expectations) trumped any concerns about the slow and bumpy economic recovery. The increasingly …
Overview – High energy and agricultural prices helped to cushion Latin American economies over the first half of the year, but the second half will be much more challenging. As growth slows, fiscal concerns are likely to come back to the fore. And in the …
The latest population projections released by the UN this month show that India will overtake China as the world’s most populous nation in 2023 (see Chart 1), a touch earlier than previously expected. The UN also projects that India’s working-age …
The incoming activity data now show clearer signs of weakness, particularly in the most interest-rate sensitive components of spending. But there are still few signs of that moderation morphing into a recession. The rise in mortgage rates has weighed on …
Overview – The spillovers from the war in Ukraine are driving a divergence in the region’s outlook. Higher oil output and looser policy will drive above-consensus GDP growth in the Gulf this year and next. Elsewhere, though, external and debt problems …
The rise in local currency bond yields across the emerging world poses a particular risk to fiscal positions in those EMs with large government financing needs and a short average debt maturity. Egypt, Pakistan, and Ghana stand out as those most …
Bank Indonesia (BI) left interest rates unchanged again today, and the dovish commentary from the press conference means we are pushing back the timing for the first hike from Q3 into Q4. With growth set to slow over the coming quarters and inflation to …
The near-term economic outlook has deteriorated in recent months and Switzerland, Sweden, and Denmark are set for mild recessions in late 2022 and early 2023. This is partly a function of external weakness; as highly open economies, the recession in the …
The Bank of Japan didn’t concede any ground to bond traders today but we still think there’s a good chance that it will widen the tolerance band around its 10-year yield target . The Bank kept its short-term policy rate at -0.1% and its 10-year yield …
It looks like Italy is heading for an early general election. While that won’t necessarily cause an economic and financial crisis, bond spreads are likely to widen regardless of what the ECB announces later today. After the Lega, Five Star Movement and …
The minutes of the RBA’s July meeting showed that the Bank debated a smaller 25bp rate hike but ended up hiking rates by 50bp. Those minutes also included a discussion of the level of the neutral interest rate, which will come into touching distance …
We expect lift-off from the ECB and a rate hike in South Africa too… …but think that central banks in Indonesia, Turkey and Japan will stand pat Gas exports to Europe via NordStream are scheduled to resume tomorrow Key Market Themes The release of strong …
20th July 2022
Overview – Economies in Emerging Europe were resilient in the first half of this year, but the outlook has deteriorated markedly as headwinds have strengthened. Inflation is likely to continue rising and we think that GDP will do little more than stagnate …
Overview – The Bank’s aggressive policy tightening will weigh heavily on domestic demand, with consumption growth set to slow sharply while residential investment plunges back to pre-pandemic levels. There is scope for the economy to avoid recession if …
The Q2 ECB bank lending survey showed a tightening in credit standards for commercial property lending in the first half of the year, with expectations for a further squeeze in H2. With the cost of debt also higher, more restrictive credit will weigh on …
Overview – Further interest rate hikes are likely across the region in the near term, and we have raised some of our year-end forecasts to reflect growing concern among the region’s policymakers about inflation. However, with economic growth likely to …
With inflation expectations contained, Fed won’t risk abrupt 100bp shock Pace of rate hikes likely to slow once Fed has policy back to neutral stance Fed funds rate to peak at close to 4% early next year and fall below 3% by end-2024 The Fed is set to …
Policymakers in a bind after another jump in inflation The jump in inflation in South Africa to 7.4% y/y in June keeps a 75bp interest rate hike on the table at the SARB’s meeting tomorrow. But with policymakers clearly concerned about the weakness of the …
Global pressures peaking, domestic pressures strengthening There are some encouraging signs that the upward pressure on underlying inflation from global factors has started to ease. But as it is being replaced by stronger upward pressure from domestic …
We doubt that the upcoming review of Australia’s monetary policy framework will result in a change to the RBA’s 2-3% inflation target. But the Bank could be forced to put more emphasis on house prices, reduce the frequency of Board meetings, and …
Overview – We expect the economy to avoid a recession only narrowly, as higher interest rates trigger a contraction in residential investment and weakness in consumption growth. Core inflation has been stronger than we expected this year but, on balance, …
19th July 2022
The Central Bank of Nigeria (CBN) followed up May’s 150bp interest rate hike with a 100bp increase in the benchmark rate today, to 14.00%, as worries about inflation continued to mount. We now expect a 50bp hike at the next MPC meeting, although with …
Most large EMs are weathering the environment of rising global interest rates and a strong dollar relatively well. That said, countries with large current account deficits , most notably Chile and Hungary , are finding their currencies in the crosshairs, …
18th July 2022
Overview – A rise in CPI inflation from the 40-year high of 9.1% in May to a peak of 12% or higher in October will reduce real incomes by enough to mean that a recession now seems inevitable. Our forecast that real household disposable income will fall by …
Overview – Supply shortages and continued virus caution will result in a weaker recovery in Japan than most anticipate. With wage growth sluggish too, the Bank of Japan won’t see a need to lift its policy rates. However, we expect the Bank to widen the …
Inflation has probably peaked The stronger-than-expected rise in consumer prices in Q2 adds some upside risks to our forecast that the Reserve Bank of New Zealand will lift rates to 3.5%, but we still think that weaker economic activity will force the …
The Bank of Canada justified its 100 bp interest rate hike on the basis that front-loading hikes has historically raised the chance of a “soft landing”. With the pace of house price declines already gathering pace ahead of that move, however, we are not …
15th July 2022
The bigger-than-expected rise in CPI inflation to 9.1% in June triggered speculation that the Fed might follow the Bank of Canada with a 100bp rate hike later this month. But the disappointing activity data and drop back in inflation expectations means …
UK CPI inflation may have risen further in June (Tue.) We expect a 25bp hike from the ECB next week... (Thu.) ...while the Bank of Japan could widen its tolerance band for the 10-year JGB yield (Thu.) Key Market Themes We think that several data releases …
Brazil’s ‘kamikaze’ social transfers Brazil’s fiscal rules took another blow this week after congress approved a constitutional amendment (the so-called ‘kamikaze’ amendment) that will expand social transfers. Spending will increase by 41bn reais, or 0.4% …
While a lot of attention has focussed naturally on the potential implications for the JGB market of a further tweaking of the Bank of Japan’s Yield Curve Control (YCC), the country’s huge investment in markets overseas means that they too might …
The latest population projections released by the UN this week reaffirm that demographics will support strong GDP growth in Sub-Saharan Africa in the long run. But similarly robust income convergence is likely to remain a pipe dream. Chart 1: Total …
Further tightening over the coming months Asian policymakers turned decidedly more hawkish this week, with the Bank of Korea raising interest rates by 50bp for the first time in its history on Wednesday. This was followed by unscheduled monetary …
Monday went from bad to worse in Norway Monday proved a day to forget for Norwegian economists and football fans, with another increase in core inflation in the morning compounded by an 8-nil drubbing by England in the evening. Admittedly, the increase in …
New forecasts We published our quarterly European Economic Outlook this week, which contains all of our latest forecasts for the euro-zone, its member states and the ECB. In this Weekly , we will highlight three of our key calls on the economic outlook. …
