Filtered by Topic: Monetary Policy Use setting Monetary Policy
PBOC survey reveals looser lending controls Although changes to interest rates and reserve requirements attract more attention, the main determinants of the pace of bank lending in China are quantitative controls such as loan quotas and window guidance. …
1st July 2022
Petro gets a frosty reception Gustavo Petro’s win in Colombia’s presidential election has caused tremors in the country’s financial markets. The stock market has fallen by around 7% since the vote while the currency is down by 5% against the dollar. The …
24th June 2022
Election puts focus on inflation Campaigning for the 10 th July Upper House election has formally begun. There is little question that the LDP will win – the only question is by how much. The scale of victory could have a bearing on the outlook for policy …
The May CPI data showed that inflationary pressures remain acute across the economy, which reinforces our view that despite growing concerns about the housing market, the Bank of Canada will become a member of the “75bp club” in July. Inflation now the …
Chair Jerome Powell signalled this week that the Fed will press ahead with its planned series of aggressive interest rate hikes, even as evidence mounts that economic growth will be weak in the second half of the year. Powell reiterates Fed’s hard-line …
New ECB forecasts Fears about a possible US recession have prompted investors to revise their interest rate expectations down this week, but we have pushed ours up. We now forecast the deposit rate to peak at 2% next year. (See Chart 1.) Chart 1: ECB …
How will the MAS respond? There are growing signs that Singapore’s economy is overheating. Figures published this week put inflation at a 10-year high of 5.6% y/y in May. Food and fuel prices have been key factors behind the increase, but the strong …
Hello “faster rate rises”, Goodbye “gradual” Chart 1: Use of “Gradual” in Norges Bank’s Monetary Policy Assessment or Equivalent (Number) Sources: Norges Bank, Capital Economics All eyes were on Oslo on Thursday morning as the Norges Bank delivered a …
RBA review won’t change inflation target Treasurer Jim Chalmers butted heads with RBA Governor Phillip Lowe this week over who would lead the forthcoming review of monetary policy. Chalmers denied the Governor’s wish that the review be jointly led by the …
Ripple effects of tighter global financing conditions African financial markets are not insulated from the tightening of global external financing conditions, and recent currency weakness and rising sovereign bond yields in the region will only add to …
17th June 2022
Banxico set to follow the Fed Given the Fed’s hawkish shift and the recent sell-off in the Mexican peso, we now think that Banxico will step up the pace of tightening with a 75bp rate hike next week, to 7.75%. We argued a few weeks ago that the upcoming …
50bp or 75bp in July Fed Chair Jerome Powell suggested that officials were split on whether to continue with another 75bp rate hike at the next meeting in late July, or to revert to 50bp increases. We have another super-sized increase pencilled in, mainly …
A shock, albeit with a small “s” It goes without saying that the FX market reaction to yesterday’s surprise 50bp rate hike by the SNB was far more muted than that in the days following the Frankenshock in 2015 (when the franc surged by about one-fifth …
The US Fed’s move to raise rates by 75 basis points (bps) this week to 1.50-1.75%, and the 50bps rises by a handful of other central banks, has inevitably led to questions about why the Bank of England raised rates by “only” 25bps on Thursday to 1.25%. In …
Words need to be followed by actions The ECB pulled off a neat trick this week: arresting the sell-off in peripheral bond markets without announcing very much at all. But there’s only so long that markets will be soothed by encouraging words about a …
RBI holds firm in defence of the rupee Data late last week showing a larger-than-expected rise in core inflation in the US in May, and the Fed’s hefty 75bp hike this week, have contributed to a broad-based sell-off in global financial markets with many EM …
Yen to hit 140 even if yield ceiling raised While Bank of Japan Governor Kuroda insisted today that Yield Curve Control has no limits, defending the 0.25% ceiling on 10-year yields with the kind of heavy JGB purchases seen this week is unsustainable over …
Two sides of the coin for MENA as Fed hikes by 75 Even though central banks in the Gulf have followed the US Fed in hiking interest rates, the early signs are that these economies have weathered the impact well so far. In contrast, the non-Gulf economies …
16th June 2022
Governor Tiff Macklem’s hawkish comments this week, even as he presented a report warning of the risks of aggressive policy tightening, leave little doubt that the Bank of Canada is singularly focused on making up for keeping policy too loose for too …
10th June 2022
Turkey: anything but rate hikes The Turkish lira remained under pressure this week and officials unveiled on Thursday a raft of measures aimed at tackling inflation and bolstering the currency. The Treasury revealed that it will issue lira-denominated …
New BSP governor signals further hikes The incoming central bank governor in the Philippines, Felipe Medalla, this week in a Bloomberg interview all but confirmed that interest rates would be raised at the central bank’s next two meetings in June and …
Farewell Stockholm, hello Basel It was announced this week that Cecilia Skingsley will up sticks from Stockholm to Basel in August and leave her role as First Deputy Governor of the Riksbank to head up the BIS’s Innovation Hub. It’s fair to say that Ms …
The ECB announcement yesterday that it intended to raise rates in July came as little surprise given the communications from ECB officials over the past few weeks or so. More interesting was the ECB’s strong suggestion that after the planned 25bp rate …
As former Prime Minister Harold Wilson once said, “a week is a long time in politics”. At the start of the week the current Prime Minister, Boris Johnson, was fighting for his political life with 41% of his own MPs voting to remove him as leader of the …
RBI frontloading continues The key event this week was of course the Reserve Bank’s policy announcement, in which the MPC stepped up the pace of tightening by hiking the repo rate by 50bps to 4.90%. We wrote about the decision here , and discussed it in …
Bank set to deliver 50bp hikes in July and August We argued two months ago that “most analysts are overestimating the near-term negative impact of RBA rate hikes on household finances and are therefore underestimating the degree of tightening required …
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
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 …
27th May 2022
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 …
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 …
Central bank hawks ascend amid market ruffles Recent investor risk-off sentiment has pushed up sovereign dollar bond yields across Sub-Saharan Africa, fuelling debt risks further. And central banks appear to be taking note, with some policymakers turning …
20th May 2022
China the exception China today cut interest rates, but the notable recent shift across the rest of the region has been an embrace of rate hikes. Central banks in India , the Philippines and Malaysia have all hiked for the first time this cycle in recent …
Hungary: policymakers seek to fight imbalances Officials in Hungary sought this week to reassure investors that they will tackle inflation and mounting macro imbalances. Tighter policy is needed, which underpins our below-consensus growth forecasts. In a …
50bp is the new 25bp? It was a quiet week on the data front, but we had plenty of comments and speeches from policymakers to pick through – notably from three of the members of the Riksbank’s Executive Board. Deputy Governors Henry Ohlsson and Martin …
Heatwave damage could extend beyond wheat The news has been dominated this week by the government’s decision to restrict exports of wheat on food security grounds, following heavy damage to crops from the heatwave. This has caused ructions in the global …
Tunisia: further rate hikes needed The central bank of Tunisia (BCT) joined the region’s tightening cycle this week, in part to shore up the dinar and mitigate the risks stemming from the currency to the public finances. But we doubt that this will …
19th May 2022
Gas supply concerns remain The threat of gas supplies from Russia being cut off continued to rise this week. First, Ukrainian pipeline operator GTSOU suspended the flow of gas through the Sokhranivka transit point, which could reduce gas supplies to …
13th May 2022
Banxico gearing up for more aggressive moves? The hawkish tilt by Mexico’s central bank at its meeting yesterday, when it raised its policy rate by 50bp (to 7.00%), suggests Banxico may soon shift its tightening cycle into a higher gear. The decision to …
Finland, NATO, and Russian gas supplies The fact that Russia is reportedly close to cutting off the supply of natural gas to Finland in retaliation for its intention to join NATO poses a risk for Finnish industrial firms that are most reliant on gas – …
The ECB’s hawkish conversion appears to be all but complete, with more officials this week joining the ranks of those calling for rates to rise in July – some more explicitly than others. Perhaps most notably, President Lagarde said on Wednesday that she …
Following the 0.1% m/m fall in GDP in March , we now think the economy is halfway towards a recession (two quarters of falling output in a row). (See here .) If GDP was flat in April, May and June, then it would be 0.1% lower in Q2 relative to Q1. We’ve …
Rise in bond yields becoming a concern The rupee dropped to an all-time low against the US dollar this week but, as we noted here , the big picture is that it has held up much better than most other EM currencies over the past few months. One reason is …
