Filtered by Topic: Monetary Policy Use setting Monetary Policy
We think that the gap between the yields of 10-year German and Swiss government bonds will re-emerge over the next couple of years as the ECB tightens policy more quickly than the SNB. Prior to the pandemic, there was a spread between the yield of the …
17th February 2022
The further rise in inflation to close to 50% y/y in January was clearly not enough to sway Turkey’s central bank (and crucially, President Erdogan) to shift back to orthodoxy as the one-week repo rate was left at 14.00% at today’s MPC meeting. We expect …
The central bank in the Philippines (BSP) left its main policy rate unchanged at 2.0% today and we expect rates to be left on hold throughout 2022. In contrast, the consensus is expecting 50bps of hikes. Today’s decision came as no surprise and was …
FOMC minutes later on Wednesday may provide clues on the pace of rate hikes (19.00 GMT) The recovery in Australia’s labour market may have stalled in January (01.30 GMT) We think Turkey’s central bank will leave rates on hold on Thursday (11.00 GMT) Key …
16th February 2022
While the simmering tensions over Ukraine could keep euro-zone inflation higher for longer than most expect, we think that it is unlikely to put the ECB off plans to start normalising policy this year – provided that there is neither a drastic military …
Business investment has been much weaker in Canada than the US since the pandemic, which helps to explain why productivity growth has lagged. There are reasons to be optimistic about the next couple of years, but we are doubtful of the Bank of Canada’s …
With equilibrium interest rates in developed markets probably still close to record lows, actual interest rates are likely to peak at a far lower level in this cycle than in most previous ones. The main risk to our forecasts is that cyclical inflationary …
Even if tensions between Russia and Ukraine abated, we wouldn’t expect risky assets to gain all that much over the rest of this year and next, mainly because we think ongoing monetary tightening would continue to keep a lid on any rally. Risky assets have …
Strong data will keep the RBNZ’s hiking cycle on track The Bank will hike rates to 2.0% by August But we think the Bank will eventually have to reverse course, cutting rates next year The New Zealand economy remained hot at the end of last year. And while …
Inflation still not a concern in China Chinese inflation continued to drop back last month. Although there are some signs of supply disruption, we think these will be temporary. Factory-gate inflation should moderate further while consumer price inflation …
Quantitative tightening (QT), namely the shrinking of central banks’ balance sheets, is likely to play an active role alongside rising interest rates in the tightening of monetary policy over the coming months. However, central banks will have to play it …
15th February 2022
The People’s Bank (PBOC) has refrained from further policy easing for the time being. It left rates unchanged today when injecting liquidity via its reverse repo operations and medium-term lending facility (MLF). But the central bank’s latest monetary …
Fed minutes may shed more light on the likelihood of a 50bp rate hike in March (Wednesday) We think the UK labour market remained tight in December (Tuesday) We expect the PBOC to cut the rate on its medium-term lending facility by 10bp (Monday) Key …
11th February 2022
While data from the past month have been consistent with global economic activity picking up some pace towards the tail end of 2021, timely data point to a weak turn of the year as the Omicron wave took its toll. For example, virus caution and government …
The news this week that CPI inflation climbed to a new high of 7.5% in January prompted another surge in interest rate expectations. Fed funds futures now puts the odds of a 50bp hike in March at more than 50/50 and are pricing in 160bp of tightening for …
Adam “the hawk” Glapinski takes flight Comments from Poland’s central bank Governor Glapinski this week that the NBP will do whatever it takes to tackle inflation underline the hawkish shift from the NBP this year. This supports our view that interest …
One thing that stands out about the Bank of Canada’s forecasts is its optimism about prospects in 2023. While the Bank’s forecast for GDP growth of 4.0% this year is in line with the consensus, its forecast for a 3.5% gain in 2023 is 0.5%-points higher …
Rising inflation has put major DM central banks under pressure and interest rate expectations have risen. But most emerging markets look relatively well placed to weather a period of DM policy tightening. Current account deficits are generally small or in …
Russia’s central bank (CBR) maintained the pace of its tightening cycle today with another 100bp interest rate hike, to 9.50%, and the hawkish communications suggest that the cycle will not stop until the CBR has confidence that inflation has peaked. This …
Governor Ingves is not for turning We were surely not the only ones to have thought, “What is the Riksbank playing at?”, following the damp squib of its policy announcement on Thursday morning. Recall that the Bank barely changed its dovish messaging, and …
Anybody expecting the ECB to completely undo the hawkish policy shift that Christine Lagarde delivered at last week’s meeting will have been disappointed by this week’s numerous policy statements. Admittedly, Ms Lagarde herself adopted a more balanced …
The second successive 50bp hike by Mexico’s central bank (to 6.00%), in another 4-1 split on the Board, suggests that it is maintaining its hawkish stance under the new Governor Victoria Rodríguez. And with inflation set to remain well above target in the …
The RBI’s policy announcement – in which rates were left unchanged – was the main event this week and our initial response can be found here . One key takeaway was that the Bank remains relaxed about the inflation outlook, even as inflation appears to be …
Bank readies artillery to defend yield target Expectations for a global monetary tightening cycle lifted 10-year Japanese government bond (JGB) yields to just three basis points shy of the top end of the Bank of Japan’s ±0.25% target range yesterday. (See …
Recent developments have supported our view that the pandemic will not do much permanent damage to the level of GDP in most countries, especially developed markets. Nonetheless, it will accelerate some of the structural trends that were already set to …
10th February 2022
We think upcoming “quantitative tightening” by the Fed will contribute to further increases in the yields of long-dated Treasuries this year and next. Investors have ramped up their expectations for Fed rate hikes lately, pushing Treasury yields to …
We estimate that the leap in utility prices and hike in taxes on 1 st April will reduce real household disposable incomes over the next two years by a cumulative £80bn. The resulting 2.0% decline in real incomes in 2022 will be the largest on record. (See …
While the Riksbank largely stuck to its dovish stance this morning, the fact that three of the six members of the Executive Board entered reservations and favoured reducing the size of the balance sheet this year leaves the direction of policy on a knife …
Inflation risks might spur an aggressive policy action similar to that of the mid-1990s. But this would be unusual and there are very good reasons for caution. Even those banks that start out fast will slow the pace before long. Monetary policymakers are …
Bank Indonesia (BI) left interest rates unchanged at 3.5% at its meeting today, and the weakness of inflation means the tightening cycle is likely to be very gradual. The decision to leave rates on hold came as little surprise and was predicted by all 31 …
The recent hawkish turn by many major central banks did not faze the RBI today, which continued to project a dovish tone while keeping policy settings unchanged. But inflation risks are building and we expect them to force the MPC’s hand before long. We …
Continued strength in underlying inflation and activity will prompt the Reserve Bank of Australia to start hiking rates in June. And we now expect the Bank to lift the cash rate to 1.75% by August next year. Further evidence that the Australian economy is …
We now think that Bank Rate will rise from 0.50% currently to 1.25% sooner than we previously thought. What’s more, we now expect three more 25 basis point (bps) rate rises in 2023, resulting in rates ending next year at 2.00%. That compares to the …
9th February 2022
Any policy tightening by the ECB in 2022-23 will probably be too limited to cause major problems in the bond market. But if interest rates rise much further than we anticipate, that could trigger renewed bond market turmoil – which in turn would …
Our base case is that monetary tightening by the ECB results in a manageable rise in Italy’s government bond yields. We think it would take 10-year yields rising to 5% or more to bring debt sustainability into question. However, there is no guarantee that …
The National Bank of Romania (NBR) accelerated its tightening cycle today with a 50bp hike to its key policy rate (to 2.50%) and, with inflation firmly above the central bank’s target, we think this cycle has plenty more room to run. We now expect the …
Rising core inflation to prompt another 50bp hike from Banxico The fall in Mexican inflation to 7.1% y/y suggests that the headline rate has peaked, but the central bank will remain concerned about rising core inflation. As such, we expect another 50bp …
The Bank of Thailand (BoT) left its policy rate unchanged today at 0.5%, and despite the recent rebound in inflation, we expect interest rates will remain on hold for some time to come. The decision was unanimous, and the outcome was correctly predicted …
Romania’s central bank may raise its policy rate by 25bp, to 2.25% We expect Thailand’s central bank to stand pat throughout 2022 (07.00 GMT) Brazil’s inflation probably rose further last month (12.00 GMT) Key Market Themes Despite recent increases, we …
8th February 2022
The National Bank of Poland (NBP) raised its policy rate by another 50bp, to 2.75%, at today’s meeting and, while there was little change in language in the statement, we think a backdrop of strong wage and price pressures will prompt further hikes to …
Both we and the market are now discounting 100bp of ECB rate hikes by the end of 2023. (See Chart 1.) And given the sequencing set out by Christine Lagarde, it seems likely that net asset purchases will end in Q3 this year at the latest. There are a …
If oil prices were to remain at their elevated levels, they could push current account and budget balances into surplus in many of the EM producers. It would also ease any concerns about dollar pegs in the Gulf, although we think the currencies of Angola …
Inflation is a growing concern for policymakers in South Asia and means interest rates are likely to rise further this year. Elsewhere in Asia, inflation remains low and is likely to fall back over the coming months, supporting our view that policymakers …
A perfect storm of surging house prices, a further worsening of supply shortages, and a pick-up in labour mobility would be needed to cause an inflation surge in Japan. Even if inflation did reach 2%, this wouldn’t necessarily trigger a policy response by …
We expect Poland’s central bank to raise its policy rate by 50bp to 2.75% We think that the US trade deficit widened in December (13.30 GMT) Find our macro forecasts in our latest Global Economic Outlook here Key Market Themes We don’t think government …
7th February 2022
What came through most clearly in yesterday’s Monetary Policy Committee (MPC) statement was the signal that the MPC will act to quash rising cost, price and wage expectations. We unpacked the Bank of England’s February meeting, at which it raised interest …
4th February 2022
“Mr Establishment” gets the job Today’s appointment of Jens Stoltenberg as Governor of the Norges Bank shows that worries of potential political nepotism ultimately fell on deaf ears, and completes the trifecta for top jobs for the ex-PM and Finance …
We said in our Drop-in on Tuesday that there would be a high bar to clear for the ECB to change its plans and raise interest rates this year. Three days later, after some strong inflation data, that bar now seems to have been cleared! January’s inflation …
Today’s appointment of Jens Stoltenberg as the new Governor of the Norges Bank is a slap in the face for the bus driver, plumber, and baker who had applied for the job, as well as the two thirds of Norwegians that favoured Ida Wolden Bache to succeed …
Governor Lowe coming around to rate hikes It’s striking that just six months ago RBA Governor Lowe stated that he couldn’t understand why markets were expecting rate hikes in 2022 or early 2023. But this week the Governor announced the RBA would end its …
