Global Economics

Global Central Bank Watch

Global Central Bank Watch

A hawkish pivot

With underlying inflation set to stay uncomfortably high for at least the next six months, we expect most central banks to continue or begin raising interest rates next year. But in some cases, markets may be overestimating the degree to which policy is tightened in 2022. And not every central bank will tighten policy. In China, we think that this month’s cut in the 1-year LPR rate will be a prelude to further easing next year. And President Erdogan has zero appetite for higher interest rates in Turkey.

21 December 2021

Global Central Bank Watch

Rate hikes brought forward, but end point still low

There has been a hawkish shift among many of the world’s central banks over recent weeks as inflation has continued to surprise on the upside. In this Global Central Bank Watch, we assess the reasons for that shift and what they imply for the policy outlook. In some cases, central banks have reacted more strongly to near-term price pressures than we had expected, causing us to bring forward our projected interest rate hikes in several economies. However, we generally do not expect rates to peak at higher levels than we previously assumed and maintain the view that real rates will be negative for several years to come in the major advanced economies.

29 September 2021

Global Central Bank Watch

How will central banks respond to the inflation threat?

The rise in inflation and the question of how central banks will respond has dominated headlines over recent weeks. In this Global Central Bank Watch, we set out a framework for thinking about how the inflation threat and other factors will determine the path of policy in the world’s major advanced and emerging economies in the months ahead. We also highlight some key dates and events to watch for more information about the inflation outlook and how central banks’ reaction functions are evolving.

30 June 2021
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Global Central Bank Watch

Central bank mission creep

There have been several cases of central bank mission creep in recent months, with policy remits widening to cover areas other than consumer price inflation. The Bank of England is now helping to tackle climate change, the Bank of Japan is still trying to support banks’ profitability, the US Fed has adjusted its employment goal to put some emphasis on equality and the Reserve Bank of New Zealand has been tasked with stabilising house prices. In this Global Central Bank Watch, we explain those changes and assess what the implications might be.

Global Central Bank Watch

Taper talk a prelude to bigger policy debate

Talk of tapering in recent weeks has been premature and we suspect that most major central banks will keep up asset purchases at their current pace for the rest of the year. Assuming that tapering starts once recoveries are well underway, and that the process is well communicated, we do not foresee a repeat of the “taper tantrum” of 2013. With that being said, the sheer scale of the expansion in central banks’ balance sheets over the past year will have major implications of the conduct of monetary policy in the post-pandemic era – and is likely to require further unconventional thinking by policymakers.

Global Central Bank Watch

Taper talk a prelude to bigger policy debate

Talk of tapering in recent weeks has been premature and we suspect that most major central banks will keep up asset purchases at their current pace for the rest of the year. Assuming that tapering starts once recoveries are well underway, and that the process is well communicated, we do not foresee a repeat of the “taper tantrum” of 2013. With that being said, the sheer scale of the expansion in central banks' balance sheets over the past year will have major implications of the conduct of monetary policy in the post-pandemic era – and is likely to require further unconventional thinking by policymakers.

 

4 February 2021

Global Central Bank Watch

Vaccines won’t preclude looser policy

The encouraging news about vaccines has led us to expect most restrictions in advanced economies to be removed by Q2 next year, allowing them to embark on steeper recoveries towards their pre-virus path. But while some have speculated that this will prompt the major central banks to consider policy normalisation, or at least to stop loosening, we disagree. In this Global Central Bank Watch, we outline seven reasons why monetary policy may be loosened further in the coming months and will then remain ultra-loose for several years to come.

Global Central Bank Watch

Average inflation targets from a global perspective

For the past thirty years the orthodoxy has been that central banks should focus on controlling inflation, targeting a rate (normally 2%) over a key policy horizon (often 18 months to two years ahead). In his address to the annual Jackson Hole monetary policy symposium, US Federal Reserve Chair Jerome Powell signalled a break with that orthodoxy by announcing that the Fed would now adopt “a flexible form of average inflation targeting”.

9 September 2020
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