Filtered by Topic: Monetary Policy Use setting Monetary Policy
With more monetary tightening to come from the Fed, we think the rise in Treasury yields has further to run and that equities will continue to struggle. At face value, this week’s Fed announcements were quite hawkish : the central bank hiked its target …
5th May 2022
Central banks in Czechia and Poland caught investors by surprise today as the Czech central bank (CNB) unexpectedly re-accelerated the pace of its tightening cycle with a 75bp hike while Poland’s central bank (NBP) slowed the pace of tightening with a …
The latest data suggest that the increase in inflation is becoming more broad-based and persistent. While headline inflation only edged up in April, the core measure jumped to 3.5%. A range of alternative measures of underlying inflation, including our …
The Monetary Policy Committee (MPC) struck a more dovish tone today while raising interest rates from 0.75% to a 13-year high of 1.00% and saying that it won’t make a decision until after August on whether to shrink its balance sheet quicker by selling …
As was widely expected, the Norges Bank left interest rates on hold at +0.75% today and all but confirmed that “the policy rate will […] be raised in June”. After June, we forecast two more rate hikes in 2022 and one per quarter next year, which would …
The communications following the Brazilian central bank meeting yesterday, at which the Selic rate was hiked by 100bp (to 12.75%), confirm that the tightening cycle is nearing an end. But even so, with inflation set to remain firmly in double digits over …
With the Fed "highly attentive to inflation risks" it raised its policy rate by a bigger 50bp today, to between 0.75% and 1.00%, and launched its quantitative tightening; with the caps on the value of maturing principal allowed to run off each month set …
4th May 2022
Overview – Sub-Saharan Africa’s recovery is likely to remain slow going and our growth forecasts are generally below the consensus. While spillovers from the war in Ukraine will boost a handful of economies – notably Angola and Nigeria – in others, the …
The prospect of tighter monetary policy in the euro-zone has raised the threat of a bigger sell-off in the region’s bond markets. If this happens, we think the ECB would ultimately intervene to prevent any lasting damage. But we doubt that it will agree …
The Reserve Bank today turned even more hawkish with an unscheduled, unconventional 40bp hike that takes the repo rate to 4.40%. We had been among the early hawks on Indian monetary policy and were already expecting more rate hikes than the consensus this …
Equilibrium real interest rates in the euro-zone appear to be below zero and lower than in most other advanced economies. We expect them to stay that way. While the ECB is likely to raise interest rates sooner and further than most economists expect, this …
3rd May 2022
The RBA started hiking the cash rate today and sounded hawkish for the first since the start of the pandemic. Our forecast that interest rates will reach 2% by year-end is far above the analyst consensus of 1%, but the risks are tilted to the upside . The …
Central banks across the region have recently turned more hawkish. Over the past month or so, policymakers in Korea, Taiwan, Singapore, Sri Lanka, India and Pakistan have all tightened policy. Governor Benjamin Diokno in the Philippines has also hinted …
29th April 2022
Russia’s central bank (CBR) cut its policy rate by another 300bp to 14.0% today and the communications suggest that the CBR is now more focused on boosting credit growth than it has been in the past. This shift in the CBR’s policy framework is likely to …
President Xi has reportedly told officials to ensure that China’s real GDP growth exceeds that of the US this year. This is likely to happen on paper. The published data usually confirm that growth targets have been met and the official target this year …
We doubt that the unexpected 1.4% annualised decline in first-quarter GDP will stop the Fed from hiking its policy rate by a bigger 50bp next week or from launching quantitative tightening. The Fed will stress the ongoing strength of employment growth, …
Stefan Ingves would struggle to keep a secret Much of the analysis following the start of repo rate hikes by the Riksbank yesterday has pushed a narrative that the Bank’s messaging was more hawkish than expected and its decision to raise rates as a …
Repo rate hike on the horizon MPC members have been in a chatty mood this week, with both Jayanth Varma and Ashima Goyal giving interviews to the press. Despite being at opposite ends of the policy spectrum (Mr Varma is the most hawkish member of the …
Inflation now surging in Australia The 2.1%q/q rise in headline inflation and the 1.4% rise in trimmed mean inflation in Australia in Q1 were much stronger than the RBA was forecasting. Admittedly, the strength in inflation has been largely driven by …
BoJ ups the ante once again The Bank of Japan remained under pressure to defend its 10-year yield target this week and conducted fixed rate auctions offering to buy an unlimited amount of bonds every day. The amounts purchased in the auctions on Tuesday …
We think that the Norges Bank will keep interest rates on hold, at +0.75%, next Thursday, before resuming its tightening cycle in June. We forecast one rate hike per quarter this year and next, which would leave rates at 2.50% by end-2023. But the balance …
28th April 2022
Tighter global monetary conditions and spillovers from the war in Ukraine have caused public debt problems to worsen in several emerging markets, and the MENA region is not immune to this. Within the region, Tunisia’s public debt position is most fragile …
Table of Key Forecasts Overview – Lockdowns in China and spillovers from the war in Ukraine will slow the EM recovery and growth is likely to be weaker than most expect. Recession risks are rising in Emerging Europe in particular. On the flipside, …
Rising price/wage expectations will prompt MPC to raise interest rates by 25bps MPC to announce its decision to sell some of its gilt holdings A tight labour market/more persistent price pressures may mean rates rise to 3.00% in 2023 The weakening …
The key policy development this month was the introduction of a new Standing Deposit Facility (SDF), through which the RBI will drain excess banking sector liquidity. The SDF now provides the floor for the interest rate corridor, previously set by the …
Surging commodity prices have pushed up inflation across the region and we expect inflation to hit fresh multi-year highs in the coming months. A loss of Russian gas supplies should not lead to rationing in Poland, but it will have a big impact in …
Fiscal positions across Sub-Saharan Africa have been a persistent source of concern since the onset of the pandemic – and in some cases, even before. And the commodity price moves resulting from the war in Ukraine will be unfavourable for public finances …
Overview – Our GDP growth forecasts are generally above the consensus, but with higher commodity prices and weaker global demand set to weigh on economic recoveries, growth across much of Emerging Asia will be slower than we had anticipated in our last …
As we had expected, the Riksbank finally bowed to economic logic in its April meeting by raising the repo rate, to +0.25%, and announcing that it will begin to shrink its balance sheet this year. While the Bank has spoken in the past of the need to tread …
The Bank of Japan resisted the temptation to widen its tolerance band for 10-year JGB yields today, but it did outline that it will from now on conduct unlimited fixed rate auctions every business day until yields drop back comfortably below its ceiling …
Inflation continues to march higher in Latin America, most recently driven by surging food prices owing to poor domestic weather conditions and rising global agricultural prices. This has led to unrest in Peru, and there is growing political pressure to …
27th April 2022
Our new forecast that interest rates will be raised from 0.75% now to a peak of 3.00% next year is more hawkish than the peak priced into the financial markets (2.50%) and the peak expected by the consensus of economists (2.00%). That’s because we think …
50bp hike likely to be first in series of three over next few policy meetings QT to be launched next week – caps will be ramped up to $95bn per month Economy should bend rather than break under higher rates We expect the Fed to hike interest rates by 50bp …
The further fall in the unemployment rate in March, to a multi-decade low of 5.3%, raises the risk that a sharp acceleration in wage growth will exacerbate inflationary pressures, at a time when consumer price inflation is already approaching 7%. Business …
The higher prevalence of renewables in the energy mixes than in most of Europe means the squeeze on incomes from higher gas prices will be less acute in Switzerland and the Nordics, and Norway even stands to benefit from elevated commodity prices. But as …
Table of Key Forecasts Global Overview – We have revised our forecast for world growth this year to further below the consensus to reflect the growing ill effects of high inflation. While inflation should ease as the year goes on, the drag on real incomes …
RBA has not kicked off tightening cycle with 50bp hike since early 1990s But inflation now on track to reach levels last seen in early 1990s Bank to lift cash rate to 0.50% in June, rate to peak at an above-consensus 2.5% The surge in inflation would …
Inflation to surpass 6% Inflation surged in Q1 and is on track to surpass 6% later this year, exceeding the levels reached around the GST hike in 2000. With trimmed mean inflation already higher than at the start of previous tightening cycles, the Reserve …
Overview – Even though a further surge in CPI inflation to a 40-year high of 10% in October will take the economy to the brink of recession, we think the Bank of England will raise interest rates from 0.75% now to a peak of 3.00% in 2023 to contain …
26th April 2022
With US Treasury yields set to keep rising over the coming year, it will become even more difficult for the Bank of Japan to defend its target for 10-year JGB yields. While we don’t expect the Bank to abandon Yield Curve Control altogether, we think it …
Overview - China’s economy rebounded sharply from the initial COVID-19 outbreak. The recovery will be slower and more muted this time, even if the ongoing COVID outbreak is successfully quashed, as less policy support is planned and exporters face a …
Overview – The Gulf economies will be major beneficiaries from higher energy prices and our growth forecasts sit far above the consensus. Outside the Gulf, higher inflation and tighter fiscal policy will weigh on growth, while balance sheet problems are …
25th April 2022
The surge in consumer price inflation in March leads us to think that the Bank of Canada will now rapidly raise its policy rate to 2.5% by the end of the year. The jump in inflation to 6.7% in March (see here ) seems to have been an even bigger surprise …
23rd April 2022
Overview – The war in Ukraine has delivered a shock to Europe just as it was coming out of the pandemic. Higher energy prices will keep inflation elevated, squeeze household incomes and dent business confidence. We think the euro-zone economy will do no …
22nd April 2022
With Fed officials seemingly competing to try and sound more hawkish than their peers, a 50bp rate hike next month appears nailed on – even though this week also brought further tentative signs that inflation is set to ease soon. Fed readying …
The minutes of the MPC’s early April meeting – in which the committee kept the repo rate on hold but introduced a new rate that set a higher floor for the interest rate corridor – confirm that taming inflation has taken precedence over supporting the …
We first said in late March that we thought the ECB was likely to raise rates as soon as July. This was because inflation had been higher than expected for several months in succession and we thought it would continue to surprise on the upside, while the …
Boom time for Salmon prices In an otherwise extremely quiet week for tier-1 macroeconomic data releases, the publication of weekly salmon price data from Statistics Norway stood out. In short, it’s boom time for the fishing industry. The export price of …
Currency slide will continue The renminbi had been defying the gravitational pull of a collapsing interest rate differential with the dollar. In recent days, something seemed to give. The onshore currency lost 1.8% against the dollar this week. The slide …
The perfect storm of surging commodity prices due to the war in Ukraine and the hawkish shift by major DM central banks has pushed a few frontier markets to the brink of sovereign default . Sri Lanka has already announced the suspension of debt payments …
