Filtered by Topic: Monetary Policy Use setting Monetary Policy
We held a Drop-In yesterday to discuss recent developments in central banking and related financial market implications. This Update answers several of the questions that we received, some of which we couldn’t fit in during the event and some that we are …
17th June 2022
Yen to hit 140 even if yield ceiling raised While Bank of Japan Governor Kuroda insisted today that Yield Curve Control has no limits, defending the 0.25% ceiling on 10-year yields with the kind of heavy JGB purchases seen this week is unsustainable over …
The Bank of Japan gave no ground at all to bond traders today as it left all its major policy settings unchanged. Governor Kuroda was resolute in claiming that Yield Curve Control has no limits in his press conference. But the likelihood is that defending …
The Bank of Canada’s hawkishness, a widening of mortgage spreads, and news that at least one lender is restricting new loan applications suggest the outlook for house prices is worse than we previously feared. Lenders tripped over themselves to provide …
16th June 2022
We expect the Norges Bank to step up the pace of tightening at its policy meeting next Thursday (23 rd June) with a 50bp rate hike, to 1.00%, and to indicate that it will probably raise interest rates again at its “interim” meeting in August. Recall that …
Bank of Japan may resist widening the tolerance band around its yield target, for now Final euro-zone inflation data will reveal the breadth of inflationary pressures there (10.00 BST) US industrial output probably rose at a healthy pace in May (14.15 …
Two sides of the coin for MENA as Fed hikes by 75 Even though central banks in the Gulf have followed the US Fed in hiking interest rates, the early signs are that these economies have weathered the impact well so far. In contrast, the non-Gulf economies …
By raising interest rates by 25bps (basis points) today, from 1.00% to 1.25%, rather than by 50bps or the 75bps the Fed announced last night, we think the Bank of England is putting too much weight on the softening economy and not enough on surging …
Taiwan’s central bank today raised interest rates by 12.5bp (to 1.50%) and appeared to indicate that rates would be raised further this year due to concerns about rising inflation. But we think the tightening cycle will be gradual. The central bank was …
After the excitement of yesterday’s ECB emergency meeting and 75bp hike by the US Fed, the SNB kept its end up by unexpectedly raising its policy rate by 50bps this morning – its first rate rise since 2007. Given its history of unscheduled announcements, …
The recent falls in the Turkish lira have led to increased speculation that, with the CBRT showing no sign of willingness to raise interest rates, policymakers will be forced to turn to capital controls to prevent sharp and disorderly moves in the …
While the Brazilian central bank’s tightening cycle is drawing to a close, the statement accompanying yesterday’s 50bp increase in the Selic rate (to 13.25%) left the door open to additional hikes. With Copom sounding a little more worried about inflation …
The Fed’s larger 75bp rate hike came as little surprise to the markets following the worse than expected May CPI data and Monday’s tip-off in the Wall Street Journal. Our view that inflation will remain uncomfortably high and that the economy will avoid a …
15th June 2022
Global economic activity might have contracted slightly in Q2, which would be the weakest outcome in recent history aside from the height of the pandemic and the Global Financial Crisis. Part of the weakness reflects a likely slump in Russian GDP, but we …
The ECB’s press release following its unscheduled meeting fell short of announcing a fleshed out spread-fighting tool that could provide a permanent solution to the problem. Flexible PEPP reinvestments might buy policymakers a little time, but the new …
News that the ECB Governing Council is holding an emergency meeting today shows that policymakers are taking the threat of rising peripheral yields more seriously than they were last Thursday at their regular policy meeting. Ten-year Italian yields have …
The PBOC may ease policy tomorrow with a 10bp cut to its MLF rate (02.20 BST) We expect the Fed to hike by 75bp (19.00 BST) We think Brazil’s central bank will raise rates by 50bp (22.30 BST) Key Market Themes While the twin sell-off in bond and equity …
14th June 2022
We suspect that the spread between 10-year Italian and German government bonds would need to widen by another 100bp or so, to around 3.5%, to force the ECB to make a stronger formal statement of support for peripheral bonds. And even then, any initial …
Last Friday, we warned in our Data Response to May’s CPI report that the unexpected rise in headline inflation opened the door to a 75bp rate hike by the Fed this Wednesday. Media reports this afternoon suggest the Fed will indeed hike by 75bp at this …
The weakening in the yen to a 24-year low and a crack in the Bank of Japan’s ceiling on 10-year yields today is putting significant pressure on policymakers to respond. FX intervention is a possibility, but we doubt it would be effective. We suspect the …
13th June 2022
Housing markets are now showing signs of starting to weaken. While the consensus is that house price inflation will merely slow, we expect outright prices to fall in several of the most vulnerable markets. We have highlighted before which housing markets …
Governor Tiff Macklem’s hawkish comments this week, even as he presented a report warning of the risks of aggressive policy tightening, leave little doubt that the Bank of Canada is singularly focused on making up for keeping policy too loose for too …
10th June 2022
Tighter ECB policy could cause house prices in the euro-zone to fall, but we think that a housing crash will be avoided even in the Netherlands where the risks are largest. Against the backdrop of ultra-loose monetary policy, supportive fiscal policy, and …
Turkey: anything but rate hikes The Turkish lira remained under pressure this week and officials unveiled on Thursday a raft of measures aimed at tackling inflation and bolstering the currency. The Treasury revealed that it will issue lira-denominated …
The Russian central bank (CBR) delivered a 150bp interest rate cut to 9.50% today as its focus continued to shift away from inflation risks towards supporting the economy. We think further reductions are likely to be more gradual, with rates ending this …
After months of aggressive interest rate hikes, the end of tightening cycles in parts of Emerging Europe and Latin America is creeping closer. But inflation concerns mean that policy rates are likely to remain high for a long time yet. Meanwhile, …
New BSP governor signals further hikes The incoming central bank governor in the Philippines, Felipe Medalla, this week in a Bloomberg interview all but confirmed that interest rates would be raised at the central bank’s next two meetings in June and …
Farewell Stockholm, hello Basel It was announced this week that Cecilia Skingsley will up sticks from Stockholm to Basel in August and leave her role as First Deputy Governor of the Riksbank to head up the BIS’s Innovation Hub. It’s fair to say that Ms …
The ECB announcement yesterday that it intended to raise rates in July came as little surprise given the communications from ECB officials over the past few weeks or so. More interesting was the ECB’s strong suggestion that after the planned 25bp rate …
As former Prime Minister Harold Wilson once said, “a week is a long time in politics”. At the start of the week the current Prime Minister, Boris Johnson, was fighting for his political life with 41% of his own MPs voting to remove him as leader of the …
RBI frontloading continues The key event this week was of course the Reserve Bank’s policy announcement, in which the MPC stepped up the pace of tightening by hiking the repo rate by 50bps to 4.90%. We wrote about the decision here , and discussed it in …
Bank set to deliver 50bp hikes in July and August We argued two months ago that “most analysts are overestimating the near-term negative impact of RBA rate hikes on household finances and are therefore underestimating the degree of tightening required …
Inflation to stay above 2% until early next year But BoJ needs broader price increases sustained by stronger wage growth Yield Curve Control looking a lot more secure, but may still be tweaked While Japanese inflation will stay just above the Bank of …
China’s inflation data may add to evidence that lockdowns were disinflationary (02.30 BST) High food and energy prices probably kept inflation above 8% in the US … (13.30 BST) … and elevated inflation probably weighed on consumer confidence in early June …
9th June 2022
Today’s policy statement and press conference sets the stage for the ECB to raise interest rates by 75bp by September and we expect that to be followed by two more hikes this year. The Bank’s failure to provide any more details about its backstop plans …
While we doubt it will be the main driver of the US dollar, the ongoing reduction in the size of the Fed’s balance sheet (i.e., “quantitative tightening”, or “QT”) adds to our conviction that the greenback will continue to appreciate over the rest of the …
The markets and consensus are underestimating the chances of a 50bps rate hike It’s almost 50-50 between a 50bps and 25bps hike, but we’re going for 50bps Either way, recent events support our view that interest rates will rise to 3.00% next year The …
The Bank of Korea (BoK) is almost certain to hike interest rates further this year, but with financial risks receding, economic growth likely to slow and inflation set to fall back to target by early next year, we think financial markets and the consensus …
Hawkish shifts by the RBA and the RBNZ in recent weeks have prompted us to forecast an even more aggressive hiking cycle by both central banks in the months ahead. Both central banks hiked rates by 50bp at their latest meeting and we have now pencilled in …
Fed to raise rates to 1.25%-1.50% and signal another 50bp hike in July Stubborn inflation may make September meeting a close call between 25bp or 50bp We expect fed funds target range to peak at 3.25%-3.50% in 2023 H1 The Fed is set to hike interest rates …
8th June 2022
Real economic growth is slowing rather than collapsing in the face of the twin drags of higher inflation and rising interest rates. The Chancellor’s latest fiscal handout will help support GDP in the second half of the year. And with the Prime Minister …
The guidance in the Monetary Policy Report released by Chile’s central bank today, following on from its 75bp rate hike to 9.00% yesterday, suggests that the tightening cycle has a little further to run. We think that double digit inflation alongside …
The Turkish lira has continued to slide and the current backdrop is eerily similar to that which preceded previous currency crises. Sharp and disorderly falls in the lira over the coming weeks are now a real risk. The lira slipped beyond 17/$ this morning …
The Bank of Thailand left interest rates unchanged today, but hawkish comments from the central bank suggest that rates will be raised sooner than we had previously expected. Today’s decision was a close call, with the monetary policy committee voting 4-3 …
The RBI hiked the repo rate by 50bps to 4.90% today, as we had anticipated, and made substantial upward revisions to its near-term inflation forecasts. Further tightening will follow over the coming months. But we also expect policymakers to step up …
With the RBA set to hike the cash rate to 3% by early-2023, we now expect house prices to fall by 15% from their April peak. While the economy has considerable momentum from reopening in the near-term, plunging house prices will weigh on consumer spending …
With some important exceptions, including the German manufacturing sector, economic activity seems to have held up a little better than we had feared so far in Q2. We don’t think this will last. The recent strength has been helped by the re-opening of …
7th June 2022
The Bank of Canada’s recent communications suggest that it will be unfazed by the second consecutive double-digit drop in home sales in May. This raises the chance of the Bank enacting a larger interest rate hike at its meeting in July and leaves us …
We expect Poland’s central bank to raise its policy rate by 75bp The Reserve Bank of India may hike by another 50bp… (05.30 BST) …and clients can register for our post-RBI Drop-In here (15.00 BST) Key Market Themes Although we doubt it will appreciate …
We forecast the SNB to largely shadow ECB rate hikes over the next 18 months or so, albeit allowing the interest rate differential with the euro-zone to widen from 25bps at present to 50bps by end-2022. But the balance of risks is skewed towards the Bank …
