Filtered by Topic: Monetary Policy Use setting Monetary Policy
The 50bp hike in the cash rate today is consistent with our view that interest rates will peak at higher levels than most anticipate and we’re expecting additional 50bp hikes in July and August . That 50bp hike was anticipated by just a handful of …
7th June 2022
Following its second 50 bp policy rate hike, the Bank of Canada hinted that it will consider an even larger move next month. With CPI inflation heading to 7.5% this month due to the surge in gasoline prices, there is a clear chance of a larger move, …
3rd June 2022
Stage set for strong GDP growth in 2022… GDP data for Q1 (Q4 of FY21/22) released this week showed that the economy weathered the Omicron wave pretty well. Even though the annual growth rate slowed from 5.4% y/y in Q4 of 2021 to 4.1%, GDP still eked out a …
Thailand: rates unchanged on Wednesday GDP figures published from across Asia over the past few weeks confirm that Thailand’s recovery from the pandemic has been the slowest in the region. (See Chart 1.) A steady increase in tourism arrivals should …
2nd June 2022
MPC set to follow off-cycle rate hike with 50bps of tightening in both June and August Pace of tightening to slow after inflation peaks in Q3 We will be hosting an online Drop-In after the June MPC meeting, register here We think the MPC will follow its …
We think growth in US non-farm payrolls slowed in May but remained strong (Friday 3 rd June) We expect the RBA to raise its policy rate by 25bp, to 0.6% (Tuesday 7 th June) ECB may give more clues on its tightening plans at its June meeting (Thursday 9 th …
1st June 2022
ECB will leave rates unchanged next week but raise rates by 50bp in July. Bank staff will revise inflation forecasts up , growth forecasts down . ECB to keep us (and itself!) guessing about design of anti-fragmentation tool. Members of the ECB Governing …
The Bank of Canada hiked its policy rate by another 50bp, to 1.5%, today and, after warning that "the risk of elevated inflation becoming entrenched has risen", closed the accompanying statement with an ominous hint that a 75bp hike was now on the table …
Policy tightening by the RBI is putting public finances stretched by the pandemic under further strain. While an increase in debt financing costs is inevitable, we expect the government and RBI to step up financial repression so that the full impact of …
If you have questions about accessing any of the research below, please contact us at sales@capitaleconomics.com Can the world cope with higher interest rates? Examines the risk that tightening will lead to recession. How high will interest rates go? Why …
We expect the most aggressive policy tightening cycle in decades to cause a slowdown in global economic growth, not a severe downturn. The biggest risk is that inflation stays higher for much longer than we anticipate, causing central banks to raise …
Housing downturn just beginning The monthly decline in house prices in May is the start of a significant housing downturn as the RBA’s hiking cycle continues. There’s a risk that this prompts the RBA to end its hiking cycle early, but our central forecast …
Annual money growth is slowing sharply and, given rapidly rising interest rates, wealth losses and QT, that slowdown has a lot further to run. (See Chart 1.) The growth rate of bank loans is accelerating, however, suggesting that fears of an economic …
31st May 2022
GDP across Central Europe expanded strongly in Q1 and the latest figures for March and April suggest that activity has remained resilient since the war in Ukraine started. Russia’s economy has not (yet) fallen off a cliff as had been expected. Industry in …
African central banks have turned up their hawkish noises over the past month. Policymakers in Nigeria and Kenya delivered their first interest rate hikes following pandemic-era cuts. In South Africa, the Reserve Bank stepped up the pace of its tightening …
Mediocre labour market data point to another 25bp rate hike in June However, further upside surprises in inflation should prompt faster hikes in Q3 Rates to peak at 3.0% by early-2023, rate cuts to come in 2024 The Reserve Bank of Australia will probably …
The first round of Colombia’s presidential election has set up a close race between left-wing Gustavo Petro and populist Rodolfo Hernández in the second round vote on 19 th June. The vote was a major repudiation of the pro-business governments that have …
30th May 2022
Talks between Pakistan and the IMF ended last week without agreement, but the subsequent decision by the government to cut back fuel subsidies has cleared one of the major hurdles towards a deal being agreed. Financial markets in the country reacted well …
China’s beleaguered property developers may soon see some respite both from their inability to borrow at reasonable rates and from sliding property sales. Last week, PBOC Governor said that the government would “correct the contraction in credit to …
House prices in New Zealand are tumbling and all signs point to a further deterioration in the months ahead. On that basis, we are revising up our forecast for the peak to trough decline in prices from 10% to 20%. That’s why we expect the RBNZ’s hiking …
We suspect that US non-farm payrolls climbed by 300,000 in May (Friday) We think euro-zone headline inflation rose further in May, to just below 8% (Tuesday) China’s PMIs probably increased but remained weak this month (Tuesday & Wednesday) Key Market …
27th May 2022
CBN governor: in or out? Reports this week suggesting that Nigeria’s central bank (CBN) governor, Godwin Emefiele, had been sacked have subsequently been denied by officials. Even so, the rumours did no good for the CBN’s independence and, with or without …
Another Petrobras CEO gone The news this week that Brazil’s President Bolsonaro sacked the CEO of oil giant Petrobras, José Mauro Coelho, provides a worrying sign about the direction of policymaking in the run-up to October’s elections. Mr. Coelho became …
With core inflation rising well above the ceiling of the 1% to 3% target range and first-quarter GDP growth likely to have been as strong as 5.0% annualised, there is little to stop the Bank of Canada from hiking its policy rate by another 50bp this week, …
Russia and default (yes, we’ve been here before!) A Russian sovereign default moved a step closer this week after the US government decided not to extend a waiver that allowed US investors to receive debt payments from Russia’s government. We looked at …
There are some question marks over quite how big the fiscal stimulus announced by the Chancellor yesterday proves to be. Much depends on whether the 25% levy on the profits of oil/gas producers lasts beyond the next year, which Sunak said would happen if …
Nordics to follow ECB (following the Fed) The change to our ECB forecast this week (see here ) has big implications for Scandinavian central banks so we are now formally changing our projections for the Riksbank, Norges Bank and Nationalbank. (See Key …
Contraction in Q2? The euro-zone PMI survey for May, published this week, suggested that the economy may fare a little better in Q2 than we had assumed. Indeed, the Composite index remained well above the 50 “no change” mark, leaving it consistent with …
Governor Das confirms more rate hikes to come… RBI Governor Shaktikanta Das was in a candid mood when on media duties this week. Among the more notable comments, he said that the MPC would be revising up its inflation forecasts for this year and next in …
The RBI kicked off its tightening cycle this month with a 40bp hike to the repo rate (to 4.40%) in an unscheduled policy announcement. The minutes to that meeting show that several MPC members are keen to frontload policy tightening to keep a lid on …
Surge in utility bills adds to price pressures The activity data released this week were a mixed bag. While retail sales powered ahead in April, real private investment probably fell in Q1. What’s more, it now looks likely that house prices started to …
The ECB’s guidance that it can use PEPP reinvestments to contain bond spreads has a few big limitations. If the forthcoming interest rate hikes cause spreads to blow out, the ECB will either need to change the rules governing its reinvestments or, more …
26th May 2022
With core CPI inflation still rising, the Bank of Canada has no choice but to continue hiking its policy rate “forcefully’ back toward neutral. All three of the core measures tracked by the Bank are now above the 3% ceiling of the target range. (See Chart …
With inflationary pressures remaining intense and policymakers keen to get the deposit rate out of negative territory, we now think the ECB is most likely to raise rates by 50bp in July and by 125bp in total this year. That said, we still think the …
Despite the backdrop of inflation at 70% and the lira falling by falling by 10% against the dollar this month, Turkey’s central bank left interest rates on hold at 14.00% today. So long as President Erdogan is in power, rate hikes will remain off the …
Colombia’s upcoming presidential election could result in the country’s first left-wing government in recent decades, headed by Gustavo Petro. While he is unlikely to be as radical as many expect, Petro’s policies would lead to higher public debt, higher …
A majority of central banks in the region hiked interest rates over the past month. In the Gulf, central banks raised interest rates in line with the Federal Reserve, although this won’t necessarily curb demand in the region. Credit growth tends to …
The decision by the Bank of Korea (BoK) to hike its policy rate by 25bps, to 1.75%, is likely to be followed by more hikes to tackle elevated inflation. But the Bank is set to turn more dovish further ahead. Today’s unanimous move was no surprise, with …
Further upside surprise in core inflation points to another 50bp hike Housing slump begins, but won’t stop march back to neutral We expect slower pace of tightening in H2, with policy rate peaking at 2.5% We expect the Bank of Canada to hike its policy …
25th May 2022
The RBNZ sounded hawkish when it hiked rates by 50bp today, and we now think rates will rise to 3.5% by the end of this year. But the Bank endorsed our long-held non-consensus view that rate cuts will be required in the years ahead. We think the Bank will …
We held a Drop-In today to discuss our views on the ECB and what the chances are of a further hawkish surprise in the coming weeks. (You can see an on-demand recording here .) This Update answers several of the questions that we received, some of which we …
24th May 2022
The Central Bank of Nigeria (CBN) delivered a surprise 150bp interest rate hike, to 13.00%, today amid mounting inflation and balance of payments concerns. We expect rates to be raised by another 100bp, to 14.00%, in July but further tightening seems …
We estimate that euro-zone households’ debt interest payments will quadruple as a share of income over the next couple of years as the ECB raises its policy rate. This will put yet further strain on households which are already struggling with higher …
The State Council has announced support measures totalling 1.7% of GDP. Most of this comprises incentives for banks to lend to struggling firms, rather than fiscal stimulus. The People’s Bank has also made a call for “all-out” efforts to boost lending, so …
Bank Indonesia (BI) left interest rates unchanged today and the dovish tone from the press conference suggests the central bank is in no rush to tighten policy. We are maintaining our view the central bank will raise interest rates by just 25bps this …
House prices are starting to fall across Australia earlier than we had anticipated. While we still expect the RBA to hike rates until early-2023, the experience from previous housing downturns points to an earlier end to the current tightening cycle. …
Upside surprises to inflation coupled with a hawkish Fed have prompted aggressive monetary policy responses by central banks across the emerging world over the past month. Policymakers in Czechia , Romania, Chile and Egypt raised interest rates by more …
23rd May 2022
High inflation and the fall in the currency were the two key factors behind the State Bank of Pakistan’s (SBP) decision to raise interest rates by a further 150bp today. More tightening looks inevitable, and much will depend on whether the government can …
The Bank of Israel (BOI) hiked its policy by a larger-than-expected 40bp today, to 0.75%, and the backdrop of a strong economy, tight labour market and mounting inflation pressures means that we think it will deliver further hikes at its upcoming …
The Bank of Japan’s attempt to relieve pressure on the Yield Curve Control framework by offering to buy an unlimited amount of 10-year Japanese government bonds (JGBs) at yields of 0.25% for as long as necessary appears to have done the trick so far. …
