Filtered by Topic: Monetary Policy Use setting Monetary Policy
The policy turnarounds that have continued in Argentina, Egypt, Nigeria and Turkey have led to a sharp reduction in sovereign risk premia but have had mixed success in restoring macroeconomic stability so far. We remain most optimistic on the outlook for …
12th March 2025
Although the Bank of Canada cut interest rates by 25bp again today, it also warned that “monetary policy cannot offset the impacts of a trade war” and that it must guard against tariff-related rises in price inflation. This suggests that the Bank is …
The announcement by Brazil’s government that it will cut import tariff rates to zero for several food products underscores the government’s concerns about rising inflation and its own falling popularity. While we doubt the measures will do much to stop …
10th March 2025
Alongside today’s decision to cut the deposit rate from 2.75% to 2.50%, the ECB adjusted its messaging to signal that the outlook for monetary policy has become less clear. We still think that the Bank will lower interest rates further but now forecast …
6th March 2025
The agreement on a reform of the national fiscal rule reached by Germany’s likely next coalition partners suggests they will implement a significant fiscal stimulus of perhaps around 1% to 2% of GDP over the next two years. This could lift GDP growth by …
5th March 2025
The 25% tariff on all US imports from Mexico that came into force today will, if it stays in place, knock Mexico’s economy into recession in the coming quarters. A contraction in GDP this year of 1% would be plausible. And unlike Canada and China (also …
4th March 2025
If the US tariffs remain in place, Canada will undoubtedly fall into recession. The limited decline in the loonie so far suggests markets are still pricing in a quick U-turn from the Trump administration. But even if the tariffs are soon lifted, their …
The modest uptick in Australian house prices last month is unlikely to mark the beginning of a meaningful rally. With the Reserve Bank of Australia set to deliver a shallow easing cycle, housing affordability will remain stretched, weighing on the …
3rd March 2025
It is very unusual for the Bank of England to be cutting interest rates when inflation is above the 2% target and is expected to rise further. There’s a growing risk, then, that inflation fears will force the Bank to stop cutting rates. Equally, though, …
27th February 2025
Bank Indonesia now owns a larger share of government bonds than some DM central banks did at the height of their pandemic QE programmes. Amidst worries that the fiscal guardrails are coming off, BI’s continued bond purchases could create the impression …
A week spent visiting clients, policymakers and contacts in India underlines that the digital economy is thriving, that there is hope that India will not be hit hard by Trump’s tariffs, and that much-needed improvements in macroeconomic data reporting …
25th February 2025
The Bank of Korea today cut interest rates by a further 25bps (to 2.75%) and made clear that further easing is on the way. With growth set to struggle and inflation likely to remain low, we are sticking with our view that the policy rate will be lowered …
The Australian and New Zealand dollars have fared worse than almost every other currency over the past few months. We think they will continue to do so. The US dollar has been on the back foot lately, unwinding some of its earlier Trump-era gains as US …
Having handed down a third consecutive 50bp rate cut at its meeting today, the Reserve Bank of New Zealand is likely to slow the pace of easing going forward. That said, we still think there’s a compelling case for a lower terminal rate than most are …
19th February 2025
Nigeria’s headline inflation rate came in at 24.5% y/y in January after the national statistics office made substantial methodological changes and, while we do not yet have the full information to predict the exact path for inflation going forward, fading …
18th February 2025
When the Reserve Bank of Australia handed down its inaugural 25bp cut today, it indicated that any further withdrawal of monetary restriction would be limited, given residual inflationary pressures. Accordingly, we’re comfortable with our view that the …
The outcomes of central bank meetings over the last few weeks underscore the point that Asia will lead the next phase of the EM monetary easing cycle this year, alongside Mexico. Meanwhile, there are a handful of EM central banks (particularly in Central …
17th February 2025
Our base case is that Treasury term premia – and yields – rise only a little further. But we think disruptive US trade policy, among other things, poses a threat to that view and, relatedly, to Treasuries’ broader use as a hedge against any downturns in …
14th February 2025
Soaring food inflation has been the key driver behind the recent strength in headline inflation. Processed food inflation will remain high for a while yet but that won’t prevent overall food inflation from falling sharply as the surge in rice and fresh …
13th February 2025
The latest CPI data out of Central and Eastern Europe (CEE) have been stronger than expected, and leading indicators suggest that inflation across the region may be higher than we previously anticipated this year. We have revised up our interest rate …
12th February 2025
Comparing the ECB’s deposit rate to estimates of its equilibrium level suggests that monetary policy will soon be only slightly restrictive. But there is a huge amount of uncertainty around these estimates. With the economy struggling and underlying price …
7th February 2025
The Reserve Bank of India’s (RBI’s) decision to cut the repo rate by 25bps today to 6.25% confirms that, under new leadership, its priorities have tilted from containing inflation to providing more support for the economy. We think a further 75bps of cuts …
While cutting interest rates from 4.75% to 4.50% today, which was the third 25 basis point (bps) cut in seven months, the Bank of England showed some signs that it may cut rates faster and further than our forecast of a decline to 3.50% by early 2026. …
6th February 2025
We held an online Drop-In session last week to discuss the outlook for interest rates in major advanced economies as the Fed hit the pause button while the ECB cut again. (See a recording here .) The key message was that the threat of US tariffs and the …
4th February 2025
The threat by President Trump to cut funding to South Africa due to the controversial land expropriation bill will (if implemented) have limited direct economic effects. The bigger concern is that the threat will create tensions within the ruling …
3rd February 2025
Australia’s housing slowdown continued into the new year, as demand softened further. Although the prospect of imminent rate cuts could temporarily buoy buyer sentiment, we don’t expect a meaningful rally in the housing market given that affordability is …
It’s clear that after cutting its deposit rate from 3% to 2.75% today, the ECB expects to reduce rates further in the coming months. We think that weak growth and inflation will mean that the Bank has to lower interest rates further than most investors …
30th January 2025
The South African Reserve Bank decision to cut its repo rate by 25bp, to 7.50%, was widely expected but Governor Kganyago was more hawkish than anticipated, citing concern about US tariff threats and the prospects of the rand weakening further. On the …
Fed moves to the sidelines The Fed left its key policy rate unchanged at between 4.25% and 4.50% today and the accompanying statement suggests the FOMC is happy to remain on the sidelines, as it awaits more clarity on the potentially stagflationary mix of …
29th January 2025
With the economy doing better recently, the Bank of Canada’s decision to cut by 25bp today might have been a closer call were it not for the looming threat of tariffs. Admittedly, the Bank hinted that it might have to refrain from providing more policy …
Euro-zone money and lending growth data paint a rosier picture of the economy’s near-term prospects than the latest business surveys and suggest that the impact of ECB rate cuts is feeding through. However, that won’t stop the Bank from cutting interest …
Thailand’s recovery from the COVID-19 pandemic has not only been much weaker than that experienced in other parts of Asia, but also compared with past crises. The weakness of the economy is the key reason why inflation in Thailand is so low, and we think …
27th January 2025
The experience from other advanced economies is that there’s no hard and fast rule for how long it will take for the labour market to loosen in response to rate hikes by the Bank of Japan. But with the real policy stance set to remain loose, we expect the …
At face value, the latest batch of flash PMIs suggest that economic activity remained weak in Europe at the start of the year and lost some momentum in the US. Meanwhile, price pressures seem to be increasing everywhere, meaning that most central banks …
24th January 2025
The Bank of Japan signalled further tightening when it lifted its policy rate to 0.5% today. With inflation set to remain above its 2% target this year, we expect the policy rate to reach 1.25% next year. The Bank’s decision to lift interest rates to 0.5% …
When central bankers give guidance on likely interest rates changes in the next month or two, it’s probably best to believe them. But experience shows that banks’ own interest rate forecasts are very unreliable beyond three to six months in the future. …
23rd January 2025
We held an online briefing yesterday on Mexico’s economy and how it may be impacted by the Trump administration. (Listen to the on-demand recording here .) This Update answers some the key questions that came up. How do you interpret the threatened 25% …
Today’s policy announcement confirms that Norges Bank is likely to start cutting interest rates at its meeting in March, almost certainly with a 25bp reduction to 4.25%. We think it will then loosen monetary policy a little more quickly than its latest …
Egypt’s economy has struggled over the past year due to the effects of a weak pound, high inflation, and tighter fiscal and monetary policy, but there have been signs recently that a recovery is taking hold. We expect GDP growth will strengthen, and by …
22nd January 2025
We aren’t overly worried about the impact of higher bond yields on Japan’s public finances because rising interest rates are a direct consequence of higher inflation. With the effective interest rate on public debt set to rise only slowly, the net impact …
21st January 2025
The Bank of Canada’s latest business and consumer surveys support our view that GDP growth will pick-up this quarter and suggest there are some upside risks to our forecast for another 75bp of interest rate cuts this year. That said, given the threat of …
20th January 2025
Six months since its formation, South Africa’s Government of National Unity (GNU) has fostered a lot of goodwill in the market. Loadshedding is seemingly a thing of the past, logistics constraints have eased, and the fiscal position has improved. But …
16th January 2025
December’s weaker-than-expected inflation outturn won’t sway Norges Bank: we still expect it to wait until March to start cutting interest rates. We suspect that it will then lower rates gradually, once per quarter, until the key policy rate reaches 3% in …
The Bank of Korea today left its main policy rate unchanged at 3.00%, but with the economy struggling and inflation under control, we doubt it will be long before the central bank resumes its easing cycle. The decision not to cut interest rates for the …
The ceasefire reportedly agreed between Israel and Hamas is likely to have significant consequences for some countries in the region, notably Israel itself as well as Jordan and Egypt. But the possible disinflationary impact for the rest of the world via …
15th January 2025
If sustained, rising bond yields add to downside risks to economic growth. The potential direct effects on real activity are greatest in the US. But higher yields in other DMs could limit how far borrowing costs in the private sector fall and force the …
In a major surprise, Bank Indonesia today cut interest rates by 25bps (taking its main policy rate to 5.75%), citing the need to support economic growth. Given the central bank’s renewed focus on supporting the economy we are making adjustments to our …
It’s possible that prolonged weakness in economic activity and a jump in unemployment force the RBA to cut rates more aggressively than we’re anticipating. However, a more likely scenario resulting in below-neutral rates is that a sharper-than-expected …
Our base case is that a stabilisation and eventual fall back in gilt yields will allow the government to muddle through and wait until the next fiscal event on 26 th March before making any decisions on taxes and spending. However, a significant worsening …
14th January 2025
With long-dated gilt yields hitting multi-decade highs, we held an online Drop-In session on Wednesday to discuss the outlook for the gilt market and the implications for government policy and the UK macro and housing market outlook. (See a recording here …
9th January 2025
