Filtered by Topic: Monetary Policy Use setting Monetary Policy
We suspect that before the end of the year, the ECB will announce that it will end PEPP reinvestments before the end of 2024. This would allow the ECB to shrink its balance sheet more quickly and reinforce the message that monetary policy will remain …
2nd October 2023
The drivers of Brazil’s recent period of rapid growth seem to be the subject of a heated debate at the central bank – and policymakers’ conclusions will play a big role in determining the pace and scale of the easing cycle. For our part, we think the key …
28th September 2023
The direct hit to the economy from even an extended government shutdown beginning next week would be modest. But it could also result in delays to key data releases, including the September employment and CPI reports due over the next couple of weeks. At …
Nigeria’s policy shift has stalled in recent weeks as officials have responded to a growing political backlash by reverting to the interventionist tendencies of the Buhari administration. The result is that the naira has plunged on the parallel market and …
The latest euro-zone money and credit data show that tighter ECB policy is continuing to weigh on households’ and firms’ borrowing, as well as influencing what they do with their savings. The weakness in money and lending growth supports our view that the …
27th September 2023
The Hungarian central bank (MNB) delivered another 100bp interest rate cut (to 13.00%) and simplified its monetary policy toolkit at today’s meeting, paving the way for the second phase of the easing cycle in the coming months. The hawkish tone of the …
26th September 2023
The sharp slowdown in broad money growth since late last year suggests that higher interest rates are working by reducing households’ and firms’ demand for borrowing, which should lead to softer activity and lower inflation. This supports our view that a …
The abandonment of Yield Curve Control would probably prompt the Bank of Japan to reduce its bloated holdings of government bonds, which could push up long-term bond yields. However, there are good reasons to think that the fiscal consequences wouldn’t be …
25th September 2023
The September Flash PMIs add to evidence that economic activity in the US and Europe is weakening. This supports our view that the Fed, ECB, and Bank of England have finished hiking interest rates. Our estimate of the DM average composite PMI edged down …
22nd September 2023
We held a Drop-In yesterday to discuss the latest policy meetings of the Fed, ECB, and Bank of England and what they might mean for the future path of policy and financial markets. (See the recording here .) This Update answers several of the questions …
The Bank of Japan still sounded dovish when it kept policy settings unchanged today. But with inflation proving stickier than expected, we expect the Bank to lift its policy rate in January and have pencilled in the full-fledged dismantling of Yield Curve …
Note: We’ll be discussing September’s Fed, ECB and Bank of England policy decisions in a Drop-In at 3pm BST today. Register here to join. The surprise decision by the Bank of England to leave interest rates unchanged at 5.25% today probably means that …
21st September 2023
The SNB’s decision to keep rates unchanged at 1.75% was a surprise. Although the Bank left the door open for further hikes, we think rates are now at their peak. And with inflation set to fall further, we expect the SNB to start cutting rates next year. …
Despite all the talk of “higher for longer”, we believe that the global monetary policy tightening cycle is drawing to a close. In Q4, any final rate hikes in advanced economies will coincide with a number of cuts in emerging markets. And as we head into …
Following today’s rate hikes, the Riksbank and Norges Bank are now at, or close to, the end of their tightening cycles. Both central banks’ new projections suggest that they are more likely than not to raise rates one more time. But whether or not they …
The Fed doubled down on its mantra that interest rates will remain higher for longer, with its updated projections suggesting that the economy will enjoy the softest of soft landings and core inflation will still take some considerable time to return to …
20th September 2023
The prevalence of fixed-rate debt suggests the Fed’s aggressive rate hikes will continue to deal less damage to the economy than they might have done in the past. But higher rates are still likely to take a further toll on consumption and business …
On Tuesday 19th September, our Energy and Global Economics teams discussed the oil market outlook and its implications for inflation and monetary policy in an online briefing for clients. Watch the recording here . We are not convinced that the increase …
19th September 2023
The rise in oil prices, and upwards revision to our 2024 oil price forecast, will have only a small impact on EM inflation and won’t stop it from falling further. The much bigger upside risks to our inflation and interest rate forecasts stem from core and …
The wage-setting behaviour of Japanese firms has changed over the last couple of years and to reflect this we’re revising our long-run inflation forecast from 0.5% to 1.0%. However, that would still mean that inflation will settle well below the BoJ’s 2% …
There’s a lot of uncertainty about how much impact monetary tightening has had in the global economy so far, but in Central and Eastern Europe (CEE) the hit to households has already been significant and we estimate that almost all of the impact from …
18th September 2023
We think Norges Bank will go through with its plan to raise its policy rate by 25bp next week, to 4.25%, and signal that its tightening cycle is over. It is then likely to will wait until around the middle of next year before cutting interest rates, but …
15th September 2023
The Riksbank looks all but certain to follow the ECB’s example and raise its key policy rate by 25bp next week, to 4.0%. However, while that could mark the end of its tightening cycle, on balance we think It is more likely to deliver one last hike, in …
14th September 2023
On balance, we think the SNB will look through the recent low inflation and hike rates by 25bp one last time to 2.00%, given policymakers’ previous hawkish commentary. But with the economy stagnating in Q2 and wage growth suppressed, we would not be …
Today’s 25bp rate hike by the ECB probably brings its tightening cycle to an end. Given our view that underlying inflation will ease only gradually even though the euro-zone is heading for a recession, we think policymakers will leave rates at this record …
The quantitative tools that the PBOC relied on to pump up credit growth during previous downturns have become ineffective due to weak demand. That leaves interest rates as the main avenue for monetary support. But bank lending rates need to decline to a …
11th September 2023
Market implied rates suggest that investors expect inflation to normalise in the US and Europe in the next couple of years. While we share that view, we think they are overestimating the level of policy rates required to achieve inflation targets. As a …
8th September 2023
The recent rise in oil prices to $90 per barrel means CPI inflation is likely to rise from 6.8% in July to 7.1% in August, but it won’t prevent inflation falling to the 2% target by the middle of next year. Even if oil prices climbed to $100 per barrel, …
Developments in the past few weeks have moved the dial somewhat on the global story. In major DMs, there have been more signs of activity softening either in terms of output or employment, evidence of disinflation continues to mount, and it has become …
7th September 2023
The more cautious tone of the Monetary Policy Report released by Chile’s central bank today supports our view that, once the large falls in inflation are behind us in early 2024 and the economy recovers, the easing cycle is likely to shift down a gear. We …
6th September 2023
The Bank of Canada accompanied its decision to leave interest rates unchanged with a pledge to hike again if needed, but we doubt it will need to follow through. With recession risks rising and labour market conditions loosening, we continue to think that …
The higher share of floating rate mortgages in Italy and Spain means that household interest spending in both countries has risen much further than in Germany and France. Interest spending is also set to keep rising much more quickly in Italy and Spain in …
The jump in inflation in August was driven by temporary factors and we don’t think this marks the start of a sustained rise in inflation, especially since core inflation continued to drop back. Nevertheless, the rise in inflation last month reduces the …
5th September 2023
The RBA retained its tightening bias when it kept interest rates unchanged at 4.10% today. However, we think the Bank’s next move will be a rate cut, perhaps as early as the first quarter of next year . The Bank’s decision to keep the cash rate unchanged …
The Bank of Israel (BoI) left its policy rate on hold again today, at 4.75%, and while our baseline forecast is that the tightening cycle is now over, the BoI’s hawkish comments support our view that it won’t turn to interest rate cuts until Q2 next year …
4th September 2023
The news that the UK economy may now be 1.5% bigger than its Q4 2019 pre-pandemic size, rather than 0.2% smaller, suggests the economy has been much stronger than we previously thought. But with the UK still likely to be suffering from a labour supply …
1st September 2023
Turkey’s policy shift has ticked a lot of the right boxes so far and the central bank’s large rate hike this month will go a long way to rebuilding confidence among investors. But there are still question marks about how much tightening will be delivered …
31st August 2023
The July JOLTS data cast further doubt on the idea that the Fed will need to keep rates high for longer. With the job quits rate now below its pre-pandemic peak and the job openings rate also rapidly approaching that level, labour market conditions have …
29th August 2023
Despite the slowdown in EM GDP growth in Q2, there’s little sign that labour markets are softening. Wage growth remains alarmingly strong across much of Latin America and Central Europe (CEE). That supports our view that, while central banks in these …
The effects of tighter monetary policy are very clear in the latest money and credit data, reinforcing our view that the euro-zone economy will perform worse than most analysts expect in the coming quarters. Data released yesterday showed that the sharp …
Denmark’s economy has been among the fastest-growing since the pandemic and, although growth will slow in the coming months, we expect it to continue outperforming the euro-zone. Nonetheless, the DNB will probably keep its policy rates below those of the …
24th August 2023
The central bank of Sri Lanka (CBSL) decided to keep monetary policy unchanged today, contrary to the expectations of most analysts (including ourselves), after having slashed rates by a cumulative 450bps at its past two meetings. In the near-term the …
The decision today by the Bank of Korea to leave the policy rate unchanged (at 3.5%) for a fifth consecutive meeting came as no surprise. However, comments by the central bank governor at the press conference contained the first signs of a looming dovish …
GDP in those sectors normally most sensitive to interest rates has weakened over the past year and is now well below the pre-pandemic trend. The resilience of overall economic growth to higher interest rates is mainly due to ongoing recoveries elsewhere. …
23rd August 2023
August’s flash PMIs support our view that both the euro-zone and UK will slip into recession in Q3 and imply that the US is now barely growing. And with output prices still easing gradually, the surveys strongly suggest that we are at or close to the peak …
In an environment in which firms feel able to pass on higher energy costs in their selling prices, the latest leap in wholesale gas prices poses an upside risk to our forecast for core CPI inflation to fall to 2.0% by the start of 2025 and to our forecast …
China’s economy has stalled recently and headwinds are still intensifying on multiple fronts. The lack of a stronger stimulus response partly reflects a greater tolerance for economic weakness. But it also points to a worrying degree of policy paralysis, …
17th August 2023
The central bank (BSP) in the Philippines today left interest rates unchanged for a third consecutive meeting and, although the economy weakened markedly in Q2 and inflation is nearly back to target, rate cuts are off the table in the near-term due to …
Norges Bank is very close to the end of its tightening cycle. After today’s 25bp hike, taking the deposit rate to 4%, we expect one final 25bp increase in September. We have then pencilled in a faster pace of rate cuts next year than policymakers …
The Reserve Bank of New Zealand left rates on hold, as was widely expected. However, the minutes of today’s meeting were unambiguously on the hawkish side, with the Committee indicating the need to keep policy settings restrictive for a protracted period. …
16th August 2023
