Filtered by Topic: Monetary Policy Use setting Monetary Policy
The April PMIs for Asia fell sharply, providing the first sign that Trump tariffs are weighing on sentiment in the region. With concerns about growth mounting and inflation worries continuing to ease, we think most central banks in the region will …
2nd May 2025
Headwinds are gathering for the Swedish economy, and we expect the Riksbank to strike a dovish tone in its statement next week. But it will probably stop short of cutting the policy rate as it waits for some of the economic uncertainty to fade. Meanwhile, …
1st May 2025
The Bank of Japan revised down its growth forecasts and sounded more dovish when it left policy settings unchanged today. However, we believe that the Bank has become far too downbeat about the outlook for inflation and we’re sticking to our forecast of …
A robust monsoon this year – as predicted by experts – wouldn’t have as big an impact on India’s economy as it would have had a couple of decades ago. But it could boost employment and energy production. What’s more, it would anchor prices of key crops …
30th April 2025
The IMF’s decision to pause Colombia’s access to its flexible credit line is not particularly concerning given the country’s robust external position, but the Fund has shone the spotlight back onto the country’s fiscal problems. With general elections …
28th April 2025
Saudi Arabia’s economy enjoyed a relatively strong start to the year underpinned by its non-oil sector. But while GDP growth will accelerate this year as oil output rises, the coinciding slip in oil prices is already resulting in a firmer turn to fiscal …
The latest flash PMIs suggest that tariffs and trade policy uncertainty weighed on activity and confidence in most DMs at the start of Q2 and boosted price pressures in the US. Our estimate of the weighted average of the flash composite output PMIs for …
23rd April 2025
Reuters’ latest monthly Tankan survey, which was conducted between 2 nd and 11 th April, showed that business conditions among large manufacturers rose to an eight-month high. Granted, that survey has often lagged behind the manufacturing PMI around …
The Central Bank of Egypt (CBE) decided to cut interest rates on Thursday and we think monetary conditions will be loosened a lot further than most expect over the course of this year. That said, administered price hikes and spillovers of the US-China …
22nd April 2025
If President Donald Trump does fire Fed Chair Jerome Powell, we suspect that the initial market reaction might not be disastrous, as long as Trump quickly lines up a relatively-qualified replacement, like Kevin Hassett or Kevin Warsh. In all likelihood, …
21st April 2025
The ECB’s decision to cut its deposit rate from 2.5% to 2.25% today was expected. And the monetary policy statement sent a clear signal that the Bank will cut rates further to counter the impact of trade policy uncertainty. We are forecasting two more …
17th April 2025
The Bank of Korea today left interest rates unchanged, but the dovish commentary from the press conference and the statement suggest further cuts are coming. We are sticking with our view that rates will end the year at 2.0% (from 2.75% currently). The …
The Bank of Canada’s decision to keep interest rates at 2.75% today was not a big surprise given recent above-target core CPI gains, concerns about tariff-induced price rises and uncertainty about the extent to which the economy requires additional policy …
16th April 2025
The upcoming federal election on 3 rd May appears likely to result in a hung parliament. Although the ruling Labor party’s recent uptick in the polls suggest that it is in pole position to form a minority government, we wouldn’t count out the …
The ECB’s Bank Lending Survey paints a positive picture of the housing market. Conditions for consumer credit and corporate loans were less encouraging, and the tariff chaos of the past two weeks might have made banks more cautious about lending and …
15th April 2025
While the recent drop in crude oil prices would lower inflation a bit, that drag will be more than offset by a boost from the weaker Australian dollar. The upshot is that barring a sharp fall in business confidence, we’re sticking to our forecast that the …
14th April 2025
With the Swiss currency having experienced its largest two-week appreciation since the “Frankenshock” in 2015, the SNB may already have started selling francs in the FX market. We have a 25bp cut pencilled in for June, but the risks are that policymakers …
11th April 2025
Despite President Trump’s latest decision to pause the US’s “reciprocal” tariff regime for 90 days, there is still a real risk that the second-order effects of higher US tariffs on the UK economy are bigger and that UK inflation and interest rates fall …
10th April 2025
We have updated our forecasts for Canada to account for the latest changes in US trade policy. (See Table below.) A recession should be avoided, but the harsh tariffs on the vehicle sector and uncertainty about the future of the USMCA mean GDP growth is …
Despite the 90-day pause to the US’s “reciprocal” tariff regime, ECB policymakers will still need to assess the impact of higher US tariffs for euro-zone inflation. Some have argued that tariffs could boost euro-zone inflation in the medium term, but our …
The Reserve Bank of India’s (RBI’s) decision to cut the repo rate by another 25bps today to 6.00% comes as no surprise given the recent sharp drop in inflation and the headwinds from US tariffs. But the dovish tone of the communications reinforces our …
9th April 2025
Even if Japan’s attempts to negotiate a trade deal with Trump succeed quickly, concerns about the impact of escalating tensions between the US and other trading partners will force the Bank of Japan to keep interest rates unchanged for a few more months. …
The Bank of Canada’s quarterly business and consumer surveys were nowhere near as bad as we feared, but that may only be because the survey periods preceded the most recent tariff announcements. Either way, it’s clear that those tariffs and uncertainty …
7th April 2025
Australia and New Zealand are safe havens in the current global trade storm because they have small manufacturing sectors, export little to the US and haven’t been hit with high US tariffs. We’re therefore sticking to our forecast that the RBA will only …
There has been a marked dovish shift on th e Polish National Bank’s (NBP’s) MPC and it now looks like interest rate cuts will come this year , rather than in 2026 as we'd previously thought . But we think this will be another punctuated cycle of interest …
4th April 2025
We hosted two online Drop-In sessions on 3 rd April to discuss the fallout from President Trump’s Liberation Day tariff announcement. (See a recording here .) This Update contains answers to some of the questions that we received and links to several more …
3rd April 2025
Canada has escaped much more lightly than we feared from President Trump’s big announcement, with the import-weighted US tariff likely to be 8% based on current plans and potentially below 5% in the near future. Nonetheless, the much larger tariff rate on …
If the 20% US tariff on the EU is sustained it is likely to reduce economic activity in the euro-zone by more than the 0.1-0.2% of GDP we had previously assumed. The impact on inflation should be small but risks to growth and confidence cement the case …
Quick action by the Turkish central bank appears to have stemmed pressure in Turkey’s financial markets after the recent sell-off. But the rapid depletion of FX reserves means that policymakers have less scope to act in the event of a renewed spike in …
2nd April 2025
We expect the Reserve Bank of New Zealand to cut its Official Cash Rate by 25bp, to 3.5%, at its next meeting on 9 th April. Although activity is now on the mend, spare capacity will ease only gradually, consistent with a sustained decline in …
The latest PMIs suggest that global industry is heading into Q2 on a weaker footing. Meanwhile, price pressures accelerated sharply in the US but generally eased elsewhere. The output component of the global manufacturing PMI fell to 50.5 in March from …
1st April 2025
Underlying inflation problems in Central and Eastern Europe and Latin America and perennial exchange rate worries in Indonesia mean that their central banks are, if anything, likely to react hawkishly to the effects of US import tariffs. Interest rates …
While the RBA is becoming increasingly confident that inflation will sustainably return to target, we still expect its easing cycle to be shallower than most anticipate. The RBA’s decision to leave its policy rate unchanged at 4.10% was correctly …
While US tariffs are a headwind, the continued acceleration in consumer prices will only heighten concerns among Bank of Japan’s Board members about inflation overshooting its 2% target. As the Bank should have a rough sense of the severity of US trade …
28th March 2025
Data released this morning showed that euro-zone money and lending growth continued to accelerate in February, supporting the case of those at the ECB who would prefer to pause interest rate cuts in April. The narrow M1 measure of the money supply – which …
27th March 2025
As expected, Australian Treasurer Jim Chalmers unveiled a slew of new spending measures in today’s pre-election Budget. However, we don’t believe the scope of fiscal expansion is large enough to keep the RBA from cutting rates a bit further this year. In …
25th March 2025
The latest flash PMIs suggest that while economic activity may have picked up a bit in advanced economies towards the end of Q1, the outlook remains fairly bleak. And while inflation seems to finally be receding in the euro-zone, price pressures remain …
24th March 2025
Norges Bank signalled in January that a rate cut was likely at its meeting next week, but we now think it will leave the policy rate unchanged at 4.5%. While we still suspect that it will lower interest rates a couple of times this year, the case for much …
20th March 2025
The South African Reserve Bank left its repo rate on hold at 7.50% today, but a minority of MPC members voted for a cut and we do not think the easing cycle is over. If inflation continues to surprise on the downside as we expect and there is clarity on …
While leaving interest rates at 4.50% today, the Bank of England seemed less committed to continuing to cut rates by 25bps every quarter. We had already been pondering this possibility and today’s news has tipped us towards putting a pause in the rate …
Brazil’s inflation outlook appears increasingly worrying, and the headline rate is likely to hit around 6% y/y by year-end, which is a bit higher than most expect. That’s likely to trigger a few more rate hikes in the coming months, taking the Selic rate …
The Riksbank left both its policy rate and its interest rate forecasts unchanged at today’s meeting, suggesting that monetary policy will be on hold for the foreseeable future. And while policymakers largely dismissed the sharp rise in inflation so far …
In the press conference following today’s SNB meeting, Chairman Martin Schlegel emphasised that inflation risks are mainly do the downside, suggesting that a further cut in June is possible. But we think today’s rate cut, taking the policy rate from 0.5% …
Although the FOMC stuck to its projection for two rate cuts this year, a growing number of officials share our view that further loosening is unlikely amid the increased upside risks to inflation. Otherwise, the Fed confirmed that it will slow the pace of …
19th March 2025
Euro-zone services inflation fell to a 10-month low in February and leading indicators point to further declines in the coming months. We think this will prompt the ECB to cut interest rates at its meetings in April and June, taking the deposit rate from …
With the Bank of Japan sounding a bit more worried about downside risks to activity from US tariffs than about upside risks to inflation, we’re pushing back our forecast for the next rate hike from May to July. However, we still expect the Bank to lift …
Deflation has reared its head again in China, underscoring the problem of persistent supply and demand imbalances. The limited extra support for consumption outlined at the National People’s Congress and in the new “Special Action Plan” for consumption …
18th March 2025
Peru’s economy grew strongly in 2024 but we think that a combination of domestic and external headwinds will cause growth to slow by more than most expect over the coming years. But it is still likely to outperform most other major Latin American …
17th March 2025
We expect the SNB to cut its policy rate by 25bp next week to take it to 0.25% in response to the very low inflation rate early this year. But we think that will be the last cut of the cycle, as underlying price pressures have not been as weak as we …
13th March 2025
The strong inflation data so far this year supports our view that the Riksbank has already ended its loosening cycle and will keep its policy rate at 2.25% next week. And we expect the policy statement to focus much more on the upside risks to inflation …
