Filtered by Topic: Monetary Policy Use setting Monetary Policy
Tax revenues surging The Bank of Japan’s flow of funds figures show that the budget deficit was a still large 6.6% of GDP in the year to March. (See Chart 1.) In fact, we estimate that the deficit widened sharply in Q1 to around 10% of GDP in …
15th July 2022
INR settlement unlikely to see widespread use The RBI announced earlier this week that it has put in place a mechanism for international trade to be settled directly in rupees “in order to promote growth of global trade” and “support the increasing …
Labour market tightening rapidly On balance, the economic data released this week are consistent with our view that the Reserve Bank of Australia will tighten policy more aggressively than most anticipate. Admittedly, the further slide in consumer …
ECB will raise its rates by 25bp and signal 50bp likely in September. Deposit rate will rise to +1.25% by year-end and +2.0% next year. Policymakers may not agree anti-fragmentation tool next week. ECB policymakers are likely to follow through on their …
14th July 2022
We think “quantitative tightening” (QT) may put upward pressure on long-dated Treasury yields over the coming years. But we think that changes in investors’ expectations for the fed funds rate will remain a far more important driver of these yields and …
Overview – The euro-zone looks on course to fall into a mild recession in the coming quarters. Real incomes are falling, business sentiment has plummeted and growth in the region’s export markets is slowing. Nevertheless, the labour market is likely to …
The resumption of the loan deal between Pakistan and the IMF should put the economy back on a more secure footing and limit the biggest downside risks. But the cuts to government spending that the deal requires, combined with hikes to interest rates, will …
Stronger-than-expected inflation strengthens case for front loading hikes The stronger-than-expected increase in Swedish inflation in June will only strengthen the resolve of policymakers to squeeze inflation out of the system and raises the chance that …
WPI inflation has probably peaked Wholesale price inflation in India dropped back in June from its record high, and now appears to have passed its peak. CPI inflation will also peak in the next few months, but in the near term it’s still likely to rise …
Board will lift FY2022 inflation forecast but predict below-target inflation thereafter Interest rate targets will remain unchanged for years However, calm in bond markets provides window for tolerance band widening The Bank of Japan will signal prolonged …
The decision by the central bank in the Philippines to raise its benchmark policy rate by a further 75bp (to 3.25%) at an unscheduled meeting reflects mounting concerns about inflation. Further hikes seem likely, and we are changing our end-year forecast …
Recent data suggest that global economic activity was even weaker than we initially thought in Q2, with GDP probably contracting in several major economies including the euro-zone, UK and China. The earliest signs for Q3 are not good, with business …
13th July 2022
We expect Chile’s central bank to hike by 50bp (Wed. 23.00 BST) Inflation in Sweden probably rose further above target last month (Thurs. 07.00 BST) Clients can watch our Drop-In on the latest US CPI surprise here Key Market Themes While we expect …
The Bank of Canada’s 100 bp hike today and its accompanying communications have led us to upgrade our forecast for the policy rate to 3.5% by the October policy meeting, from 3.0%. As the commodity price and global supply chain assumptions underpinning …
Another inflation shocker nails on a 75bp hike this month The stronger than expected 1.3% rise in consumer prices in June, which pushed headline inflation to 9.1%, from 8.6%, nails on another 75bp rate hike at the July FOMC meeting. But with commodity …
The Bank of Korea today raised its main policy rate by 50bp (to 2.25%), and further hikes are likely in the near term given worries about inflation. But with economic growth set to slow and inflation concerns likely to ease later in the year, we think the …
The Reserve Bank of New Zealand hiked rates by 50bp in July but emerging worries about the health of the economy are consistent with our view that rates will peak around 3.5% rather than the 4% predicted by the Bank and financial markets. And we’re …
Consumer prices in the US are likely to have risen again in June (13.30 BST) Growth of exports out of China probably edged lower in June We expect interest rate hikes in Canada, New Zealand, Korea and Chile Key Market Themes While the euro ’s rapid fall …
12th July 2022
The euro hit parity against the US dollar today and we wouldn’t be surprised if it falls further. While we think it would take big moves in the trade-weighted exchange rate for the ECB to intervene in FX markets, at the margin the euro’s fall adds to the …
Inflation holds steady, but will climb again soon Headline consumer price inflation held steady in June, but the core rate rose further. We expect inflation to climb higher above the RBI’s target in July and August, which should be enough for the MPC to …
The 200bp increase in the base rate (to 9.75%) by Hungary’s central bank (MNB) today has resulted in the most aggressive amount of monetary tightening in decades. With fiscal policy tightening too and the euro-zone on the verge of recession, all the signs …
We think that the economy is well-placed to handle higher interest rates and anticipate a period of weak economic growth rather than an outright recession: Rate-sensitive spending is a relatively small share of the economy right now, there are no …
11th July 2022
Another 50bp hike looking tempting for the Norges Bank The services-driven increase in Norway’s core inflation rate in June increases the chance that the Norges Bank will raise its policy rate by another 50bps at its August policy meeting. The increase in …
With the June employment report suggesting fears of an imminent recession are misplaced, the Fed looks set to press ahead with aggressive rate hikes over the coming months. That said, recent sharp declines in commodity prices may, if sustained, soon give …
8th July 2022
Argentina: not budging on the peso The UK isn’t the only country suffering tumult sparked by a finance minister’s resignation. Earlier in the week, Argentina was thrown into crisis after Martin Gúzman, the architect of the country’s latest IMF deal, …
The falls in commodity prices this week point to some relief ahead for CPI inflation, but the Bank of Canada will be more focused on the rises in long-run inflation expectations and wage growth in the latest data, prompting a larger 75 bp interest rate …
MNB pulls out all of the stops to support the forint Hungary’s economy is now under substantial pressure. The forint has slumped and interest rates have been hiked aggressively. The only way through this is to accept the pain of a weak currency and …
25bp or 50bp? The Bank of Korea (BoK) has raised interest rates by 25bp five times so far this cycle, and further hikes looked nailed on for the central bank’s meeting on Wednesday. But whereas the consensus is expecting the BoK to step up the pace of …
Robust payrolls undermine recession claims The strong 372,000 gain in non-farm payrolls in June appears to make a mockery of claims the economy is heading into, let alone already in, a recession. That may be enough to solidify the case for another 75bp …
Weak economy may lead to looser fiscal policy There are two reasons why whoever fills Boris Johnson’s shoes as Prime Minister after his resignation this week is unlikely to significantly change the path of policy or the economy. First, all PM hopefuls …
Trade tweaks to have offsetting impact… Following the reintroduction of the sovereign gold bond scheme in June, the government has further stepped up its attempts to reduce gold imports, with the Finance Ministry hiking the basic import tax on gold from …
The State Bank of Pakistan (SBP) today raised its main policy rate by 125bps (to 15.0%), and made clear that fighting inflation would remain its priority. Given that inflation looks set to rise further in the near term and remain well above target …
7th July 2022
Very high inflation and low unemployment are driving German unions to seek big pay rises in this year’s collective negotiations. We think nominal pay growth will be in the region of 4-5% this year and 3-4% in 2023. Although this would result in …
Overview – Strong economic growth and surging inflation have prompted the RBI to kick-start its hiking cycle and we think the central bank will continue to frontload policy tightening. In all, we think the repo rate will rise by a bit more than the …
Inflation to rise further and more monetary tightening on the cards Egypt’s headline inflation rate slowed for the first time since November to 13.2% y/y in June, but inflation will remain above the upper bound of the Central Bank of Egypt’s (CBE’s) …
The central bank in Sri Lanka (CBSL) today raised its benchmark lending facility rate by a further 100bp (to 15.5%), and with inflation running at over 50%, more tightening seems likely. However, rate hikes on their own will not be enough to restore …
Overview – With inflation rising even further than we had anticipated, both the RBNZ and the RBA will slam harder on the brakes than most anticipate. We expect policy rates to peak around 3.5% in both countries. With the ongoing housing downturns set to …
Inflation is still rising and labour market still tightening We expect the Bank to hike rates by a further 50bp in July But as the housing downturn weighs on activity, RBNZ will reverse course next year Rising interest rates have started to weigh on house …
Tightening cycles in Latin America and Emerging Europe are already at an advanced stage. Some 70-80% of the likely rate hikes in their cycles have already been delivered and policymakers will bring these to an end before the end of the year. But inflation …
6th July 2022
The latest data suggest that underlying inflationary pressures in the euro-zone remain intense. Although core inflation edged down from 3.8% in May to 3.7% in June, this appeared to be down to temporary policy changes in Germany that will weigh on …
Jump in inflation expectations points to larger 75 bp hike Bank to reiterate need for policy rate to move to a restrictive setting We expect rate to peak at 3.0% in October and now anticipate rate cuts in 2023 The recent acceleration in wage growth and …
The sharp slowdown in money growth is set to continue as the Fed’s monetary tightening ramps up, but the resilience of bank lending suggests the impact on the economy will be limited. (See Chart 1.) The Fed’s asset holdings fell by only $22bn in June, …
Bank Negara Malaysia (BNM) today raised its main policy rate by 25bps to 2.25% and reiterated that further tightening would be gradual. With the economy on the mend but inflation still low, we are sticking with our view that the policy rate will be raised …
Even though workers are accepting cuts in their real pay, nominal wage growth is still above “acceptable” rates for central banks in DMs of 3% to 4%. This underlines why interest rates need to head into restrictive territory to weaken economic activity …
5th July 2022
The RBA sounded a little more cautious about the outlook for the economy when it hiked rates by 50bp today, but we suspect that further upside surprises to inflation will encourage it to eventually lift the cash rate to around 3.5%. However, we expect the …
The Bank of Israel (BoI) stepped up the pace of tightening today with a 50bp interest rate hike, to 1.25%, as it dropped its commitment to “gradual” interest rate hikes. This suggests that similar moves may be in the pipeline and supports our hawkish view …
4th July 2022
Recent inflation figures out of the region and remarks from central bank officials point towards more, and potentially larger, interest rate hikes in most African economies over the coming months. A key exception is South Africa, where the latest …
1st July 2022
Petro picks a moderate The news that Colombia’s President-elect Gustavo Petro has chosen José Antonio Ocampo as his finance minister provides an early sign that Petro will govern as an economic moderate. Mr Ocampo is a well-respected economist, a former …
Surveys of pricing intentions suggest that firms are confident of being able to both make recent price rises stick and to follow them up with further big increases over the next year. So the news that consumers have a slightly smaller savings buffer than …
