Filtered by Topic: Monetary Policy Use setting Monetary Policy
Riksbank eyeing a sharp but short tightening cycle The Grand Départ of the Tour de France from Copenhagen today is the first time that the race has started in a Nordic country. Fittingly, it comes in a week when the Riksbank shifted up a gear with its …
1st July 2022
The world’s leading central bankers were in a hawkish mood when they gathered for the ECB’s conference in Sintra this week, and President Lagarde was no exception. In her most emphatic rejection of the transitory view so far, Lagarde said she doesn’t …
How will the BoK respond to the weaker won? The Korean won remains under downward pressure. The currency has fallen by 4.6% against the greenback over the past month alone, and is down 8.3% since the start of the year (see Chart 1), making it the worst …
PBOC survey reveals looser lending controls Although changes to interest rates and reserve requirements attract more attention, the main determinants of the pace of bank lending in China are quantitative controls such as loan quotas and window guidance. …
China’s Caixin manufacturing PMI might exceed 50 for the first time in four months (02.45 BST) Euro-zone inflation in June was probably a bit lower than consensus estimates (10.00 BST) ISM manufacturing index might provide further evidence of slowing US …
30th June 2022
The hawkish turn by DM central banks over the past month has further soured investor risk appetite, and capital inflows into African economies are likely to have slowed. Countries with large external financing requirements, and heavy debt burdens …
Reports that the Saudi Central Bank (SAMA) has injected liquidity into the banking sector appears to be a consequence of a lack of FX intervention (despite high oil prices), tight fiscal policy and strong credit growth. SAMA appears keen to sustain robust …
As expected, this morning’s 50bp interest rate hike by the Riksbank, to +0.75% saw it join the ranks of the “50bp club”. But while policymakers resisted the urge to join “Club Fed” with a 75bp hike today, they indicated that they will front-load the pace …
Inflation has continued to beat expectations across Emerging Europe over the past month, reaching rates not seen in decades in most countries. It is now weighing more heavily on consumer confidence, and the surprise inflation releases for May prompted …
29th June 2022
The tight labour market is putting upward pressure on wages, with the Labour Force Survey showing a strong 1.0% m/m rise in average hourly earnings in May. While the annual rate of wage growth, at 3.9% y/y, remained lower than before the pandemic, base …
High inflation seems to be causing growing unrest in the region, which threatens to be economically disruptive and raise fiscal concerns. Recent protests in Ecuador have hit its oil sector hard, while truck drivers in Peru are about to embark on a strike. …
28th June 2022
Hungary’s central bank (MNB) stepped up the pace of tightening today with a much larger-than-expected 185bp increase in its base rate, to 7.75%, and the hawkish communications underline the view that further large rate hikes are likely to be delivered …
The Omicron virus wave in China appears to have eased global shipping bottlenecks rather than worsened them as many had feared. Firms were able to re-route shipments through other ports to avoid disruption in Shanghai. And weaker goods demand domestically …
Strength in consumption and labour market points to 50bp hikes in July and August Bank to slow tightening in H2, rates will peak above 3% Housing downturn to prompt rate cuts next year The Reserve Bank of Australia will probably lift the cash rate by …
After more than two years in the doldrums, Thailand’s tourism sector is finally showing signs of life. Arrivals in May reached 520,000 – a 77% increase from the previous month and 19% of the level reached in the same month of 2019. Spending by foreign …
27th June 2022
Petro gets a frosty reception Gustavo Petro’s win in Colombia’s presidential election has caused tremors in the country’s financial markets. The stock market has fallen by around 7% since the vote while the currency is down by 5% against the dollar. The …
24th June 2022
Election puts focus on inflation Campaigning for the 10 th July Upper House election has formally begun. There is little question that the LDP will win – the only question is by how much. The scale of victory could have a bearing on the outlook for policy …
The May CPI data showed that inflationary pressures remain acute across the economy, which reinforces our view that despite growing concerns about the housing market, the Bank of Canada will become a member of the “75bp club” in July. Inflation now the …
Chair Jerome Powell signalled this week that the Fed will press ahead with its planned series of aggressive interest rate hikes, even as evidence mounts that economic growth will be weak in the second half of the year. Powell reiterates Fed’s hard-line …
New ECB forecasts Fears about a possible US recession have prompted investors to revise their interest rate expectations down this week, but we have pushed ours up. We now forecast the deposit rate to peak at 2% next year. (See Chart 1.) Chart 1: ECB …
How will the MAS respond? There are growing signs that Singapore’s economy is overheating. Figures published this week put inflation at a 10-year high of 5.6% y/y in May. Food and fuel prices have been key factors behind the increase, but the strong …
Hello “faster rate rises”, Goodbye “gradual” Chart 1: Use of “Gradual” in Norges Bank’s Monetary Policy Assessment or Equivalent (Number) Sources: Norges Bank, Capital Economics All eyes were on Oslo on Thursday morning as the Norges Bank delivered a …
A handful of EM central banks have ramped up FX sales to provide support to weakening currencies over the past couple of months. And with inflation high and the US dollar likely to strengthen further, others could follow suit. FX intervention is unlikely …
Risk-off sentiment and the sell-off in EM financial markets have hit the Middle East and North Africa hard. Having been the top regional performer earlier in the year, the MSCI Arabian Markets Index has fallen by nearly 20% since mid-April. Sovereign …
The Mexican central bank’s shift to a 75bp interest rate hike yesterday (to 7.75%) and the hawkish language in the accompanying statement make another 75bp move at the next meeting in August a done deal. And the risks to our end-2022 interest rate …
RBA review won’t change inflation target Treasurer Jim Chalmers butted heads with RBA Governor Phillip Lowe this week over who would lead the forthcoming review of monetary policy. Chalmers denied the Governor’s wish that the review be jointly led by the …
Inflation to remain above BoJ target until early-2023 While inflation didn’t rise any further in May, it will remain above the BoJ’s 2% target until early-2023, while underlying inflation will approach 2%. However, the Bank won’t respond with tighter …
The latest Brazilian central bank communications give a strong signal that, when Copom stops hiking interest rates, it will act in a similar way to the end of the last tightening cycle in 2015. The lesson from that period is that rates will be kept high …
23rd June 2022
Having begun its tightening cycle in April, we expect the Riksbank to join the trend by raising its policy interest rate by 50bps, to 0.75%, next week. We were in a minority of forecasters that correctly predicted that the Riksbank would raise the repo …
The surge in interest rates, plunge in the stock market and weakness of consumer confidence have fuelled fears of an impending recession, but there is still little sign of that in the incoming economic data. The coincident indicators used by the NBER to …
Having surged in recent months, there are some tentative signs that EM inflation is nearing a peak. Our measure of aggregate EM inflation was steady at 7.0% y/y between April and May and some indicators of pipeline price pressures have eased. But even so, …
High inflation, falls in the lira and aggressive monetary tightening elsewhere are clearly not enough to persuade Turkey’s central bank to lift interest rates, as it left its policy rate at 14.00% today. Disorderly falls in the lira are a major risk, …
Bank Indonesia (BI) left interest rates unchanged again today, and the relative weakness of inflation means any tightening cycle is unlikely to be aggressive. We are maintaining our view the central bank will raise interest rates by just 25bps this year. …
This morning’s decision by the Norges Bank to raise its key policy rate by 50bps, to 1.25%, was in line with our non-consensus forecast. Also, as we predicted, the Bank all but confirmed that it will break with tradition and raise rates at the “interim” …
The central bank in the Philippines today raised its policy rate by another 25bp (to 2.5%), and signalled that further tightening was likely. However, with inflation set to peak soon and headwinds to the recovery mounting, we think the tightening cycle …
The minutes of the MPC’s June meeting – in which the repo rate was hiked by 50bps to 4.90% – show that combatting inflation remains the priority and suggest that tightening will continue to be frontloaded. The MPC voted unanimously to raise the repo rate …
22nd June 2022
We have raised our interest rate forecasts as banks double down on hawkish stance Alarming inflation picture points to more big hikes in the near term…. … but weakening activity will warrant a slower pace of tightening before long. It’s been a momentous …
The rupee has held up better than most EM currencies this month and the recent drop in FX reserves strongly indicates that this is in part because the RBI has once again ramped up its FX interventions. (See Chart 1.) RBI Governor Shaktikanta Das has made …
While inflation is still far lower in Japan than in most places, rapid increases in the prices of some everyday purchases have made it a political focus. A Nikkei poll following the Bank of Japan’s meeting at the end of last week found that nearly half of …
21st June 2022
Equilibrium interest rates in advanced economies are probably still very low. However, there is still a lot of uncertainty about how far above this equilibrium interest rates will have to go in the near-term to quash inflation. Even if we are right in …
Ripple effects of tighter global financing conditions African financial markets are not insulated from the tightening of global external financing conditions, and recent currency weakness and rising sovereign bond yields in the region will only add to …
17th June 2022
The best way for the ECB to contain peripheral bond spreads would be via a new programme of unlimited, flexible bond purchases. This may be what happens eventually, but we suspect it will take longer than many anticipate to agree, meaning there is plenty …
We expect rate hikes next week in Norway, Mexico, Czechia, the Philippines and Egypt Headline CPI inflation in the UK may have risen above 9% in May... (Wed.) ...but it probably remained around 2.5% in Japan (Fri.) Key Market Themes The BoJ left policy …
Banxico set to follow the Fed Given the Fed’s hawkish shift and the recent sell-off in the Mexican peso, we now think that Banxico will step up the pace of tightening with a 75bp rate hike next week, to 7.75%. We argued a few weeks ago that the upcoming …
50bp or 75bp in July Fed Chair Jerome Powell suggested that officials were split on whether to continue with another 75bp rate hike at the next meeting in late July, or to revert to 50bp increases. We have another super-sized increase pencilled in, mainly …
The appointment of Erik Thedéen as the new Governor of the Riksbank will only strengthen the relationship between the Bank and the financial regulator, and could result in more macroprudential powers being brought under the oversight of the Bank. It was …
A shock, albeit with a small “s” It goes without saying that the FX market reaction to yesterday’s surprise 50bp rate hike by the SNB was far more muted than that in the days following the Frankenshock in 2015 (when the franc surged by about one-fifth …
The US Fed’s move to raise rates by 75 basis points (bps) this week to 1.50-1.75%, and the 50bps rises by a handful of other central banks, has inevitably led to questions about why the Bank of England raised rates by “only” 25bps on Thursday to 1.25%. In …
Words need to be followed by actions The ECB pulled off a neat trick this week: arresting the sell-off in peripheral bond markets without announcing very much at all. But there’s only so long that markets will be soothed by encouraging words about a …
RBI holds firm in defence of the rupee Data late last week showing a larger-than-expected rise in core inflation in the US in May, and the Fed’s hefty 75bp hike this week, have contributed to a broad-based sell-off in global financial markets with many EM …
