Filtered by Topic: Monetary Policy Use setting Monetary Policy
After a big couple of weeks for the UK, the US, the world and global financial markets, we have revised some of our economics forecasts. Due to the policies in the UK Budget (bigger and sooner rises in government spending than taxes, see here ), we now …
8th November 2024
Financial market and monetary policy impact Asian currencies fell against the dollar after the US election result was announced, and we think they will weaken over the coming months on the back of higher US Treasury yields and an increase in US tariffs. …
Tariffs won’t be a big drag We’re now assuming that Donald Trump will impose a 60% tariff on US imports from China and a 10% tariff on imports from all other countries next year. The US is Japan’s largest export destination, with shipments equivalent to a …
RBA need not fret geopolitical risks The RBA’s meeting this week came and went without much ado, with the Bank leaving rates on hold yet again and providing little in terms of new forward guidance. In fact, the RBA’s meeting was quickly overshadowed by …
While there were some positives to take from this week’s GDP data release, it still points to an economy stuck in a period of below potential growth. This reinforces our view that the Bank of Canada will cut by 50bp again in December. Third-quarter GDP …
1st November 2024
Mexico in the firing line The US election race is heading into the final stretch. All our analysis on what it means for EMs can be found on our dedicated webpage here . For Latin America, the implications for Mexico are largest. Both Harris and Trump …
CEE struggling, Hungary in a league of its own The Q3 GDP data out of Central Europe this week continued a bleak run of activity data for the region. The Czech economy grew by just 0.3% q/q – in line with our forecast, but some way below the central …
South Africa reembraces fiscal discipline The biggest event this week was South Africa’s Medium-Term Budget Policy Statement (MTBPS) on Wednesday, which was pitched as pro-growth, but the numbers underline that the Treasury sees little room to loosen the …
The main economic news in the euro-zone this week were the stronger-than-expected GDP figures for Q3 and inflation figures for October, as well as a concerted effort by ECB policymakers to play down the need to accelerate the pace of rate cuts. So it is …
Elevated services inflation not a deal breaker Markets have continued to dial back expectations for policy loosening by the RBA following the release of Q3 CPI data this Wednesday. They are now fully pricing in a rate cut only by May, whereas they were …
LDP loses majority for first time since 2009 We already indicated last week that the LDP might lose its majority in last Sunday’s House of Representatives election, but the fact that it failed to achieve a majority even once we include the seats of …
Brazil: fiscal dominance on the cards? Policymakers at Brazil’s central bank have sounded increasingly alarmed in recent media comments. Part of that reflects concerns that the economy may be overheating. We looked at that in detail in a piece earlier …
25th October 2024
Bank steps up the pace of loosening The Bank’s shift to a larger interest rate cut this week, which took the policy rate down to 3.75% (see here ), created some confusion among commentators. Some wondered why the Bank felt the need to act more …
Dead Nigeria Shell oil deal sign of local firm worries This week Nigeria rejected Shell’s sale of its onshore oil business, the latest multinational attempt to divest from Nigeria. Lower foreign investment makes us less hopeful on Nigeria’s oil production …
Having behaved “normally” over the summer, gold has slipped back into anti-traditional-driver mode in recent weeks. The ~4% rise in the gold price since the start of October has come alongside sharp rises in US Treasury yields and the dollar. Soberingly, …
This week’s news has persuaded us that the ECB is likely to cut interest rates further and faster than we previously thought. We now see a greater-than-even chance of a 50bp rate cut in December, and think the “terminal” rate in this cycle will be below …
Weak GDP data may give BoK second thoughts National accounts data published on Thursday showed that Korea only narrowly avoided a technical recession, with GDP expanding by just 0.1% q/q in Q3 after a 0.2% decline in Q2. The main drag came from exports, …
October surprise? The result of Japan’s Lower House election should be clear by early Monday morning. The new prime minister, Shigeru Ishiba, called Sunday’s vote to take advantage of a revival in the government’s popularity since he replaced Fumio …
Inflation concerns appear misplaced At an event organised by the Peterson Institute this week, RBNZ Governor Adrian Orr suggested that the Bank was likely to be more circumspect about loosening policy going forward. The Governor argued that it was …
Al-Sisi demands review with IMF Comments from Egypt’s President al-Sisi over the past week pushing back against the pace of reforms under the current IMF deal has alarmed investors a little, but the bigger picture is that Egypt’s economy is in a far …
24th October 2024
SARB lays out requirements for lower rates The South African Reserve Bank’s Monetary Policy Review (MPR) released this week made clear that recommitting to fiscal consolidation and pushing through structural reforms are key to creating extra space for …
18th October 2024
Brazil: trying to tighten the purse strings (again) A proposed “spending review” in Brazil would, if approved by President Lula, ease fears about the state of the public finances and reduce the chances of aggressive rate hikes by the BCB. There are three …
External developments: the good, the bad & the ugly The current account data released across the region over the past week show that external positions have continued to improve in some countries (notably Turkey), while in others they are deteriorating …
All systems go on 50bp A string of soft data releases this week should give the Bank of Canada the necessary confidence to step up the pace of monetary easing at its meeting next week. September’s CPI report , on Tuesday, showed headline inflation at 1.6% …
Until now, all the focus has been on the Chancellor’s £22bn fiscal “black hole”. This week a different, bigger, number hit the headlines: a £40bn “funding gap”. Why the change? A crucial distinction is the time period they relate to. The £22bn “black …
Property prices flat last month One reason the Bank of Korea pushed back against the prospect of another near-term rate cut at its meeting last week was fear of a rebound in property prices that might threaten financial stability. We think this concern is …
The euro-zone construction output data for August, released earlier today, were the final activity data to be published ahead of the preliminary euro-zone Q3 GDP data release in two weeks’ time. While activity data for the third quarter have been a mixed …
Firms will take higher labour costs on the chin With the Australian labour market remaining resilient as ever, financial markets have come around to our view that the Reserve Bank of Australia won’t cut interest rates before Q1 2025. That’s a notable …
Hurricanes add to upside inflation risks Inflation risks more balanced Based on the combined CPI and PPI data, we calculate that the Fed’s preferred core PCE deflator price measure increased by 0.24% m/m in September which, at 2.9% annualised, is a little …
11th October 2024
The stronger labour market data makes the Bank of Canada’s decision in October a close call but, with upside inflation risks fading, and demand still very weak, we think the Bank will want to bring interest rates to a more neutral stance relatively …
Kenya’s second consecutive 75bp cut Kenya’s lowered its policy rate by 75bp this week and continued disinflation alongside an improved external environment mean that Kenya will deliver further monetary loosening over the coming months. Similar trends are …
Worrying developments in Mexico There had been a lot of debate about what to expect from Claudia Sheinbaum ahead of her inauguration as Mexico’s (first female) president and her first two weeks in office have provided the first insights into where her …
Some encouraging signs in the latest CPI data The batch of September inflation data out of the region this week offered some welcome signs for central banks. In Hungary, the headline rate fell to 3.0% y/y – its lowest rate since January 2021 and slightly …
France needs austerity Having survived a vote of no confidence on Tuesday evening, on Thursday France’s government presented its 2025 budget. The key points had been well signposted in advance: €60bn of savings next year, equivalent to 2% of GDP, made up …
Bank of Korea cuts The Bank of Korea kickstarted its easing cycle earlier today with a 25bps cut. As we outlined here , with GDP growth struggling and price pressures very weak, further easing is likely over the coming months. BI unlikely to cut again …
RBI on course for December rate cut In a busy week for India Watchers, the key event was the Reserve Bank’s policy announcement on Wednesday. The MPC opted to keep the repo rate unchanged at 6.50%, with new member Nagesh Kumar the sole dissenter. But …
Consumer support and a larger deficit Tomorrow’s press conference will provide a platform for the Ministry of Finance (MoF) to reveal its fiscal plans. The stakes are high - most observers agree that recent stimulus announcements won’t amount to much …
Easing monetary restraint is the need of the hour As was widely anticipated, the Reserve Bank of New Zealand cut its Official Cash Rate by 50bp at its meeting on Wednesday. But it’s worth noting that the Committee sounded rather dovish. In contrast to …
Fiscal risks cloud the outlook for rates in Colombia The decision by Colombia’s central bank (BanRep) this week to maintain the pace of easing with a 50bp cut, to 10.25%, rather than deliver a larger 75bp cut suggests that officials are increasingly …
4th October 2024
Israel’s economy has frequently bounced back from conflict throughout its history, but developments over the past week have raised the risk of permanent scarring to the economy from the ongoing hostilities across the Middle East. The latest ratcheting up …
Oil spikes, but won’t knock the BoE off course On its own, the jump in oil prices from $72 per barrel (bp) on Monday to a one-month high of $79pb due to the conflict in the Middle East (see here and here ) isn’t enough to have a bearing on how fast the …
Korea – weak data point to first rate cut With inflation below target and activity data pointing to a further slowdown, we expect the Bank of Korea to kickstart its easing cycle at its scheduled monetary policy meeting next Friday. September’s inflation …
France’s prime minister, Michel Barnier, revealed his hand this week – or at least he showed some of his cards – as he set out plans to fill the hole in the country’s public finances. He has given himself a bit more time to bring the deficit down to the …
Oil price risks still skewed to downside We learnt this week that India recorded a current account deficit equivalent to 1.5% of GDP in Q2 (Q1 of FY24/25), from a surplus of 0.5% of GDP in Q1. Of course, seasonal factors are at play; smoothed out over a …
Tankan upbeat, BoJ cautious The August activity data were a mixed bag, with retail sales rising for the fifth consecutive month but the 3.3% m/m plunge in industrial output was much weaker than expected. What’s more, firms’ production forecasts don’t …
CBN rate hikes about inflation and credibility The Central Bank of Nigeria’s surprise hike this week highlighted the greater progress that the MPC wants to see on the inflation front and also importantly its steadfast ambition to restore its trust and …
27th September 2024
Worrying signs in the CFIB Business Barometer Although the CFIB Business Barometer covers only small firms, in recent years the survey indicators have provided a fairly accurate steer to economic conditions. The headline index fell to 55.0 in September …
Fiscal risks in Romania continue to build Romania’s fiscal watchdog this week warned that the country’s budget deficit could come in at 8.0% of GDP this year. This is significantly above the government’s original target of 5.0% and also above its new …
Government hinting about more investment The government appears to be laying the ground for a rise in public investment in the Budget on 30 th October. This week the Chancellor said “growth is the challenge and investment is the solution.” That was …
A 25bp interest rate cut by the ECB at its next meeting in mid-October is now more-or-less fully priced into the market. The decision will be a close call, but a cut is far from a foregone conclusion. Our base case remains that the Bank will wait until …
