Filtered by Topic: Monetary Policy Use setting Monetary Policy
The RBA will probably look through the decline in headline inflation in the second quarter, especially given that underlying price pressures were slightly stronger than it had anticipated. That said, we believe underlying inflation will remain subdued for …
26th July 2017
Nigeria’s central bank kept its key interest rate on hold at 14.00% today, but the governor’s speech made it clear that policy loosening is on the agenda. We expect 200bp of cuts by the end of this year. … Nigeria’s central bank pauses before launching …
25th July 2017
The unexpected decline in core inflation over recent months is only partly due to transient factors and suggests that, after raising rates twice in the first half of the year, the Fed will hike rates just once more this year. The Fed had argued that …
EM retail sales growth picked up for a third consecutive month in May and is now running at a 12-month high. What’s more, the improvement has been widespread across different EM regions. In Russia and Brazil, a drop in inflation has both helped to boost …
24th July 2017
Mexican inflation remained unchanged in the first half of July which, combined with the latest activity data suggesting that GDP growth slowed in Q2, reinforces our view that Banxico’s tightening cycle is over. … Mexico Bi-Weekly CPI (Jul.) & IGAE …
The rally in the Canadian dollar to a 14-month high of US$0.79, from US$0.74 a month ago, is likely to fade before year end. While higher oil prices might allow a temporary lift in the coming months, this will be offset by drag from shifting policy …
21st July 2017
The Argentine peso has been the worst-performing EM currency over the past month, and we think it has further to fall. Our forecast is for it to weaken by another 10% against the dollar to 19/$ by end-18 (from 17.2/$ currently). This is a particular …
Although the headline inflation rate fell to 1.0% in June, from 1.3%, the uptick in two of the three core inflation measures suggests that some of the temporary factors restraining inflation are now fading. Needless to say, this will reinforce the Bank of …
The Fed is unlikely to make any major policy changes at next week’s FOMC meeting, but the statement will probably concede that the recent drop back in inflation has been more broad-based than Chair Janet Yellen has previously argued. With core inflation …
At this week’s ECB press conference, President Mario Draghi highlighted the continued improvement in the euro-zone’s economic performance. He reiterated that the region looks set for a period of solid, broad-based growth. We agree. In fact, our forecasts …
Economic prospects are fairly bright in the Nordic and Swiss countries. Switzerland is benefitting from faster growth in the euro-zone, Swedish firms are optimistic about their prospects, and Norway is recovering from its oil-related slowdown. As Swedish …
The renewed rise in the euro since yesterday’s ECB press conference may increase speculation that the Bank will have to change tack. But we doubt that it will be too worried about the currency at current levels. A further appreciation might force it to …
After a marathon policy meeting today, Bank Indonesia confirmed that it was keeping its policy rates unchanged. Quite why the decision took so long is unclear – the decision was exactly what everyone had expected. A senior BI official has characterised …
20th July 2017
Today’s ECB press conference made us more confident that tapering will come next year. An announcement of the policy now seems most likely to come in October, rather than at the next meeting in September as we had previously assumed. But we still think …
The markets remain sceptical that the Fed will continue to normalise interest rates over the next couple of years. But even with inflation still below target, the simple policy rules that the Fed appears in practice to be following indicate that …
EM bond markets have, for the most part, shrugged off the rise in developed market bond yields since the end of June. This strengthens our view that policy normalisation in developed markets is unlikely to cause systemic problems for emerging markets. …
The SARB’s easing cycle will be gradual and data-dependent, but the key policy rate will fall to 6.00% by the end of 2018. Looser policy supports our non-consensus view that growth will pick up this year. … South Africa: Beginning of a gradual loosening …
The Bank of Japan upgraded its assessment of the economy yet again at today’s meeting. But the Board’s inflation forecasts remain far too optimistic even after renewed downgrades. We reiterate our longstanding view that the Bank will not tighten policy …
The result of India’s presidential election is due to be announced later today. It won’t have direct implications for the economy since the role of president is largely ceremonial. But the result could strengthen the ruling BJP’s position in future …
The resilience of home sales in China (up 18% y/y in June) has raised questions about the effectiveness of government efforts to cool the sector, which have been stepped up in recent months. In fact, they seem to have been performing well. The major …
19th July 2017
Given the continued weakness of core inflation, we now expect the Fed to delay the next interest rate hike until December. Accordingly, while there is a chance that the statement following next week’s FOMC meeting will be used to announce the start of …
We expect the current period of strong economic growth in advanced economies to continue for the next year or two, led by rising household consumption and business investment. In many countries the labour market is approaching full employment, but …
Policymakers across Africa are set to loosen monetary policy sooner and more dramatically than most think. We expect cuts in South Africa, Nigeria, Angola, Kenya, & elsewhere over the coming months. … Africa: Monetary policy easing cycle is getting into …
While inflation remains well below the Bank of Japan’s 2% target, Governor Kuroda deserves credit for a number of radical policy changes. His reappointment would therefore underline the government’s resolve in tackling deflation and repairing the public …
18th July 2017
The CBK’s decision to keep its key rate on hold signals its willingness to look through the current period of above-target inflation. With inflation having now peaked, we expect that the next move will be a cut. … Kenya: Rates on hold, next move will be a …
17th July 2017
Saudi Arabia’s official foreign exchange reserves have continued to decline sharply, despite the marked improvement in the current account position over the past year or so. This has raised concerns in some quarters but, as we explain in this Watch, it …
The Bank of Japan will probably upgrade its assessment of the health of the economy at the upcoming meeting. But downward revisions to the Board’s inflation forecasts will underline that policy tightening remains a distant prospect. … Lower inflation …
Peruvian economic activity rebounded strongly in May as the effects of severe flooding at the start of the year started to fade and we expect the recovery to continue over the coming months. … Peru Economic Activity …
14th July 2017
Markets focused this week on supposedly dovish comments in Fed Chair Janet Yellen’s semi-annual testimony to Congress, but in truth she did little more than repeat the existing Fed line. As long as core inflation starts to rebound, we still expect a …
Government bond yields have risen recently by more in Germany than in some “peripheral” countries of the euro-zone. This has happened even though the sell-off in bonds has been caused by concerns that the ECB will scale back its purchases, from which the …
The Bank of Canada’s new-found confidence in the economy and forecast rebound in core inflation have prompted speculation that interest rates might rise much higher this year. But with household debt at extremely high levels and the housing bubble already …
The change of Romania’s government late last month has prompted a shift in the direction of fiscal policy from loosening to tightening. But the new administration has struggled to put together a legislative agenda and has already backtracked on several …
Peru’s central bank cut its policy interest rate by another 25bp, to 3.75%, and we expect at least one further quarter point reduction this year. Elsewhere, the Central Bank of Chile left its policy rate on hold at 2.50% for a second month, but we think …
The announcement earlier in the week from the US government that it is formally seeking to renegotiate the Korea-US free trade pact (KORUS) is not a big threat to the Korean economy. The negotiations are most likely to focus on eliminating non-tariff …
The drop in headline Indian wholesale price inflation in June will increase the clamour for rate cuts. But stripping out the effect of volatile fuel and food prices, our measure of core WPI inflation held steady, and there are reasons to think it core …
The Bank of Canada may end up reversing the rate hike it made yesterday. But central banks elsewhere are likely to begin raising rates over the next year or two and are less likely to reverse course. Their economies are approaching full capacity and are …
13th July 2017
We expect the ECB to renew its hints of future QE tapering at its forthcoming meeting, despite the modest tightening of financial market conditions that such hints have caused already. We still see the Bank tapering its purchases to zero in the first half …
We’ve argued for some time that the debate around monetary policy in Mexico would shift from tightening to loosening over the second half of this year. While the potential for market volatility in the run-up to next year’s presidential election may cause …
With inflation falling and growth rebounding, it was no surprise that Malaysia’s central bank (BNM) kept its policy rate unchanged at 3.0% today. Looking ahead, we expect that BNM will keep interest rates on hold until at least the end of the year. … …
The Bank of Korea (BoK) left interest rates on hold today and there was little indication in the governor’s accompanying press conference that the central bank is in any hurry to adjust policy. We continue to expect the policy rate to be kept at 1.25% …
The Bank of Canada’s decision to begin raising interest rates is a gamble that might have to be reversed before long. With the housing bubble already showing signs of bursting and household debt at extremely high levels, higher borrowing costs will dampen …
12th July 2017
Household debt has remained elevated in the euro-zone as a whole, but there has been significant deleveraging in the countries that needed it most. Given positive trends in the labour market, we expect households across the region to withstand ECB policy …
11th July 2017
With Turkish inflation now on a downwards path, it seems increasingly likely that the central bank will start to loosen monetary conditions before the year is out. The easing cycle will probably begin slowly, but overall we think the average cost of …
Vietnam’s decision to cut interest rates today risks fuelling a further surge in credit growth, increasing the risk of a sharp rise in non-performing loans further down the line. We think the rate cut will have to be reversed over the coming years. … …
7th July 2017
The “devaluation” of the Pakistani rupee earlier in the week is a reminder of the country’s precarious balance of payments position. Pakistan will soon be forced to either let the currency fall much further, tighten monetary policy aggressively, or make …
The Egyptian central bank’s surprise decision late last night to hike its benchmark overnight deposit rate by 200bp, to 18.75%, was largely a response to recently-announced subsidy cuts, which will temporarily push up inflation. However, the accompanying …
We now expect the government to delay the sales tax hike currently scheduled for October 2019 beyond 2020. While this would remove one obstacle to policy tightening by the Bank of Japan, the bigger picture is that price pressures will strengthen only …
The rising level of household debt in Australia presents a clear risk to the economic outlook and helps in part to explain why we expect the pace of consumer spending to slow this year. What’s more, given the risk it poses to financial stability, it is a …
While there is no urgency for the MPC to dampen inflationary pressures, the extraordinary starting point of policy and general resilience of the economy suggest that UK interest rates are likely to rise a bit sooner and a bit more quickly than markets and …
6th July 2017
The press statement that followed today’s MPC meeting in Poland remained extremely dovish, but it does seem that there are growing divisions within the Council. With wage growth and core inflation likely to rise over the coming months, we expect more MPC …
5th July 2017
