Filtered by Topic: Monetary Policy Use setting Monetary Policy
With interest rates nearing a peak, the next two phases of monetary policy will most probably be rates being held at that peak and then being cut. The Bank of England may soon provide some guidance on both, although ultimately it will be the economy that …
1st February 2023
The shift away from floating-rate to fixed-rate mortgages has meant that it was always going to take longer than in past tightening cycles for the rise in interest rates to feed through to the real economy. This is one reason why we think that once Bank …
It’s well known that, with the yield curve inverting the Fed is now racking up losses, but what is less appreciated is that the higher interest payments it is making are going mostly to foreign banks and money market funds. The Fed earns interest on …
30th January 2023
The shift away from floating-rate to fixed-rate mortgages presents risks as well as benefits. It will protect homeowners who are lucky enough to have a long time remaining on their fixed rate contract from higher mortgage payments. But that reduces the …
We held a Drop-In today to discuss the big economic and financial market development across Emerging Asia. (You can see an on-demand recording here .) This Update answers several of the questions that we received, some of which we couldn’t answer during …
26th January 2023
The South African Reserve Bank’s (SARB’s) smaller-than-expected 25bp interest rate hike today and large cuts to its growth forecast make clear that its focus is pivoting to concerns about activity rather than inflation. The next meeting will be a close …
The Bank of Canada accompanied its smaller 25 bp hike with new guidance that it intends to hold the policy rate at the current 4.5% while it assesses the impact of the cumulative interest rate increases so far. While the Bank did not rule out future …
25th January 2023
The Bank of Thailand hiked interest rates today by a further 25bps (to 1.50%), and hinted that more rate hikes were likely in the near term amid worries about rising underlying price pressures. We expect one more 25bps increase this year before the …
The losses which central banks are now incurring on the bonds they bought via their quantitative easing (QE) programmes are not a big cause for concern. These losses will not compromise central banks’ ability to operate monetary policy. And while …
Sri Lanka’s central bank (CBSL) kept interest rates unchanged today, and we expect it to leave rates on hold for the rest of the year as it aims to strike a fine balance between supporting a struggling economy and clamping down on high inflation. The …
The flash PMIs for January provide further evidence that the euro-zone economy has so far avoided the deep downturn that most economists anticipated, whereas the US and UK surveys still point to recessions in both cases. Supply shortages have become less …
24th January 2023
A closer look at Spain’s inflation data shows that there are significant measurement difficulties affecting both energy and core price data. However, we still expect measured headline inflation to remain lower in Spain than in most of the euro-zone and …
Recent data have shown that activity in the US is weakening as we had expected while that in the euro-zone has been surprisingly resilient. The resilience seems to reflect a combination of supply and demand factors, including easing shortages, lower gas …
The Central Bank of Nigeria (CBN) raised the benchmark rate by 100bp, to 17.50%, today in a surprisingly aggressive decision. But with incoming data likely to add to evidence of easing price pressures, we are not convinced that this hawkish tilt will …
Pakistan’s central bank (SBP) raised its policy rate today by a further 100bps (to 17.0%), and we expect more tightening over the coming months amid concerns about high inflation and the worsening external position. Interest rates have now been raised …
23rd January 2023
The Fed’s hawkish transformation has been so marked that, if its forecasts are to be believed, over the next couple of years it would effectively be adopting the same reaction function last followed during the Greenspan and Bernanke eras between 1987 and …
19th January 2023
The account of the December meeting, along with data released since then and recent comments from policymakers, suggest the ECB will raise its deposit rate from 2% to 3% by March rather than May as we had previously expected, and that QT will accelerate …
Moderating core price pressures, the continued fall in inflation expectations and the sharp decline in wholesale natural gas prices mean we think inflation in Central and Eastern Europe (CEE) will fall a bit more quickly in 2023 than we had anticipated a …
Bank Indonesia (BI) today raised interest rates by a further 25bps (to 5.75%) but also appeared to signal there would be no further rate increases this year. We are changing our forecast in response, and now think the tightening cycle has come to an …
The Norges Bank eased off the brakes today by leaving policy on hold, but signalled that it will raise its policy rate at the next meeting in March. We suspect that will be the final hike in this tightening cycle, but the risks are skewed towards …
Malaysia’s central bank (BNM) unexpectedly left its main policy rate unchanged today (at 2.75%), but appeared to leave open the possibility of further rate hikes later in the year. However, with growth set to slow and inflationary pressures easing, we …
The BoJ kept policy settings unchanged today, but the increase in its medium-term inflation forecasts supports our view that Yield Curve Control will be abandoned once a new Governor takes over in April . Following the unexpected widening of the tolerance …
18th January 2023
The fall in Spanish gas and electricity prices that has already happened is likely to cause energy inflation to slump to minus 20% in the coming months and this in turn will pull headline inflation below 2%. Core HICP inflation will probably also remain …
16th January 2023
The recent resilience of the economy to the dual drags of high inflation and higher interest rates doesn’t mean the pain has been avoided. Instead, our analysis suggests that higher interest rates will become a bigger drag on activity in the most …
The Bank of Korea today raised interest rates by a further 25bps (to 3.50%) and relatively dovish comments by Governor Rhee support our view that the tightening cycle is now over. With growth set to struggle and inflation likely to fall back further, we …
13th January 2023
Disruption from China’s reopening is fading faster than we had expected and we have revised up our forecast for growth there from 2.0% to 5.5%. This means that global GDP growth will be stronger than we had expected this year and energy inflation will …
12th January 2023
In the first instalment of our Election Watch series ahead of the late-February polls in Nigeria, we assess the economic policies proposed by key candidates. The elections offer a chance to depart from unorthodox policymaking under the outgoing …
While we think the hawkish ECB poses a near-term threat to euro-zone government bonds, we still expect their yields to be lower, in general, by the end of this year . Having climbed throughout December, developed market government bond yields have …
6th January 2023
The nomination of a less dovish candidate to succeed BoJ Governor Kuroda would probably signal that Yield Curve Control will soon be abandoned, though we would still expect the Bank to keep its short-term policy rate at -0.1%. This would result in a …
4th January 2023
Bank Indonesia (BI) today raised interest rates for a fifth consecutive meeting, but slowed the pace of tightening with a 25bp hike (to 5.50%). With inflation still well above target, the central bank has more work to do. But provided the currency …
22nd December 2022
The jump in bond yields and the further strengthening of the yen following the widening of the Bank of Japan’s tolerance band for 10-year JGB yields will lower the value of assets owned by Japanese investors. Insurance firms will be most affected by …
21st December 2022
Wider YCC band not start of tightening cycle The Bank of Japan today tweaked its Yield Curve Control (YCC) settings by widening the tolerance band around its yield target but we don’t expect it to hike its short-term policy rate anytime soon. The Bank’s …
20th December 2022
A mooted adjustment to the joint statement between the Bank of Japan and the government has been widely interpreted as a step towards the withdrawal of ultra-loose policy. However, the policy implications of giving the Bank more flexibility in meeting its …
19th December 2022
Today’s 50bp rate hike came alongside hawkish comments which are consistent with our view that the deposit rate will peak at 3%, significantly higher than the consensus forecast and a touch above what was priced into the market. The press release also …
15th December 2022
This is part of a series of reports outlining our key macro and market calls for 2023. Click here to view the full series. Our latest Global Economic Outlook can be found here . Our 2023 prognosis may be a gloomy one, but there are reasons to expect …
The Bank of England followed the Fed by slowing the pace of interest rate hikes from 75 basis points (bps) in November to 50bps hike today as widely expected, which took rates from 3.00% to 3.50%. But unlike the hawkish Fed, the Bank sounded a touch …
The SNB’s 50bp rate hike, to 1.00%, was in line with expectations but, more importantly, the Bank also raised its medium-term inflation forecast slightly, hinting that policymakers believe future hikes may be needed. We now think a further 25bp rate …
Taiwan’s central bank (CBC) today raised its main policy rate by 12.5bps (to 1.75%) but with inflation easing and growth set to struggle, we expect this hike to have marked an end to the tightening cycle. Today’s decision was in line with expectations. Of …
Today’s 25bp rate increase by the Norges Bank, to 2.75%, takes it very close to the end of its tightening cycle. But we think the Bank is a long way from pivoting to loosening policy. At its meeting in November, the Bank signalled that it would raise …
The central bank in the Philippines (BSP) today raised its main policy rate by 50bps (to 5.50%), but with Governor Felipe Medalla sounding more dovish than expected on inflation, we think the tightening cycle will be over soon. The decision was exactly in …
Despite the increasingly compelling evidence that core inflation will fall sharply next year, the Fed doubled down on its hawkishness today. We now expect two 25bp hikes from the Fed next year, with the fed funds rate peaking at 4.75% to 5.00% in …
14th December 2022
The statement accompanying the Brazilian central bank’s meeting yesterday, at which the Selic rate was left at 13.75%, made clear that policymakers are increasingly concerned about fiscal loosening when president-elect Lula takes power. This reinforces …
8th December 2022
The Bank of Canada delivered a somewhat dovish 50bp rate hike today, by softening its explicit forward guidance that interest rates will need to rise further. Our GDP and inflation forecasts suggest there is little need for the Bank to raise rates …
7th December 2022
Headline inflation in Central and Eastern Europe (CEE) will peak in most countries in the next few months, at around 20% y/y, and should fall to single-digits across the region by end-2023. But we think this initial large disinflation process will give …
The RBI slowed the pace of monetary tightening with a 35bp hike to the repo rate (to 6.25%) and, with headline inflation set to ease further and growth entering a softer patch, we think the central bank will call a halt to tightening in February. Further …
The RBA today hiked the cash rate by 25bp as widely anticipated and while the statement was marginally less hawkish, we’re sticking to our view that the Bank will lift the cash rate to 3.85% by April. The Bank’s decision to lift the cash rate from 2.85% …
6th December 2022
While food inflation has surprised to the upside in major DMs, it seems to be at or near a peak. We expect a combination of base effects and an easing of underlying price pressures to drag on food inflation in 2023. Food inflation soared in the past …
2nd December 2022
Croatia’s adoption of the euro on 1 st January 2023 is likely to bring only small benefits to the economy given how widely used the euro already is in the country. Even so, we think prospects for Croatia’s economy remain bright and expect it to outperform …
30th November 2022
The Treasury has started to make payments to the Bank of England’s Asset Purchase Facility (APF) to cover the losses it has racked up because of the Bank of England’s gilt purchases. While this won’t force the Chancellor to tighten fiscal policy …
25th November 2022
The reduction in the required reserve ratio (RRR) that the PBOC just announced will help banks follow through on a directive to defer loan repayments from firms struggling with widening lockdown restrictions. Market interest rates may also edge down as a …
