Filtered by Topic: Monetary Policy Use setting Monetary Policy
While US and euro-zone 10-year government bond yields have surged over recent weeks, we think this sell-off has mostly run its course – we expect these yields to end this year a bit below their current levels. The yields of 10-year government bonds in the …
2nd September 2022
While attention has understandably focused on Fed Chair Jerome Powell’s Jackson Hole speech made last Friday, there were also important interventions over the weekend by ECB policymakers. These suggest that the risks to our above-consensus forecasts for …
29th August 2022
The >10,000 word account of the ECB’s July meeting confirms that a large majority of policymakers favoured a 50bps rate hike and are focused more on their mandate to contain inflation than on trying to head off recession. We expect two further 50bp …
25th August 2022
The further widening of Chile’s current account deficit in Q2 combined with an increased reliance on portfolio inflows leave the Chilean peso vulnerable to a deterioration in investor risk appetite. We think the peso will remain under pressure and, as a …
24th August 2022
We expect the PBOC to follow its recent policy rate cuts with further easing over the months ahead. This informs our decision to lower our forecasts for China’s 10-year government bond yield. But we don’t think further rate cuts, of the scale we …
Soaring electricity and gas prices will help lift inflation above 3% by year-end. But with that boost unlikely to be sustained, the Bank of Japan won’t see a need to tighten monetary policy. The surge in food prices and the fading drag from last May’s …
It’s clear in hindsight that the Bank of England kept monetary policy too loose for too long during the recovery from the pandemic. But that does not mean that the mandate given to it by the government requires change. In fact, making radical changes to …
23rd August 2022
Bank Indonesia (BI) hiked interest rates by 25bp to 3.75% today, and the hawkish commentary from the press conference increases the risk that the Bank will tighten policy further this year. Today’s decision came as a surprise. Of the 27 analysts …
Today’s reductions to both the one-year and five-year Loan Prime Rates (LPR) continue the PBOC’s efforts to support the faltering economy. We expect additional easing to follow in the coming months, but policymakers still appear reluctant to engineer a …
22nd August 2022
In addition to revealing that higher interest rates had barely affected household and corporate finances, national accounts data for Q1 suggested that, with the exception of households in a handful of medium-sized economies, private sectors are …
19th August 2022
Turkey’s central bank stepped up its fight against economic orthodoxy by cutting its one-week repo rate by 100bp, to 13.00%, despite the backdrop of inflation at 80% and an extremely poor external position. This latest move could prove to be the trigger …
18th August 2022
Following today’s decision by the Norges Bank to raise its policy rate by 50bp at the second consecutive meeting, we now expect the Bank to make it a hat-trick of 50bp hikes at the next meeting in September. With price pressures looking strong, further …
The central bank in the Philippines (BSP) today raised its policy rate by a further 50bps to 3.75%, and gave a strong indication that more rate hikes are likely over the coming months. That said, with inflation set to peak soon and headwinds to the …
The resignation of Central Bank of Egypt (CBE) Governor Tarek Amer points to a growing tension within policymaking circles on the best way to address the country’s external imbalances. We think the next governor will ultimately need to let the pound …
17th August 2022
The RBNZ lifted the overnight cash rate by 50bp to 3% today as everyone had anticipated and signaled that it will deliver another 50bp hike in October. We now expect the Bank to hike rates to a peak of 4% instead of our previous forecast of 3.5%, but we …
The latest data out of Nigeria suggest that GDP growth weakened further in Q2. Ongoing production problems in the oil sector will drag on growth in the coming year and, while that is likely to be offset by fiscal stimulus ahead of February’s elections, we …
15th August 2022
The People’s Bank (PBOC) has cut its policy rates in response to a loss of economic momentum. A cut to the Loan Prime Rate (LPR) later this month is now a given and we expect additional easing measures further ahead, though it’s far from clear that this …
Mexico’s central bank (Banxico) hiked interest rates by 75bp, to 8.50%, for a second consecutive meeting yesterday but, amid mounting evidence that the economy is struggling and with inflation close to a peak, we think that the pace of tightening will …
12th August 2022
While history shows that recessions can begin even while employment is still rising, the current rate of payroll employment growth is far too strong to be consistent with an economic downturn. By the same token, although we think an outright contraction …
11th August 2022
We expect a recession in 2022/23 to be driven by high inflation, with a contraction in real consumer spending at its epicentre. But with household and corporate balance sheets still relatively healthy, we suspect the recession will be mild by historical …
The rise in new delinquencies on consumer loans over the first half of the year mostly reflects rising interest costs. With debt levels low, real incomes on track to begin rising again amid a drop back in inflation and the labour market holding up well, …
10th August 2022
We held a Drop In yesterday outlining our latest forecasts for global financial markets. This Update answers some questions that we received during that Drop In but didn’t have time to address. What would have to go right for bond and equity markets to be …
With most workers who left during the pandemic mostly returned to the labour force by early 2022, it is little surprise that growth of the labour force has slowed. But the decline in the participation rate over recent months also appears to reflect some …
The Bank of Thailand hiked interest rates today by 25bp (to 0.75%), but reiterated that the tightening cycle will be gradual. We are sticking with our view that the policy rate will peak at 1.5% next year. Today’s decision came as no surprise and was …
The 2.5% slump in productivity over the past year – the worst since records began in 1948 – is another illustration of the chasm that has opened up between the GDP and employment figures. The only plausible explanation to our minds is that one or both of …
9th August 2022
The sharp increase in retirements this year presents downside risks to our forecasts for employment and, with GDP growth already faltering, further raises the probability that economic activity will contract. The fall in employment over June and July is …
A rise in Bank Rate to a peak of 3.00% wouldn’t dent real consumer spending anywhere near as much as the drag from surging inflation over the coming quarters. That said, it would only compound the downward impact on spending, which reinforces our view …
While DM central banks are currently raising interest rates in earnest, the past week has brought signs that tightening cycles are now nearing an end in parts of the emerging world. Indeed, with interest rates now well above neutral in much of Emerging …
8th August 2022
The RBI today raised the repo rate by 50bps to 5.40% as we had anticipated, and struck a relatively hawkish tone despite inflation surprising to the downside in recent months. It’s clear that the tightening cycle still has legs and we expect another …
5th August 2022
The Czech National Bank (CNB) became the first major EM central bank to end its tightening cycle after it left its policy rate on hold at 7.00% today. The communications were not as dovish as we had expected, but the new-look MPC is clearly less inclined …
4th August 2022
While raising interest rates by 50 basis points (bps) today, from 1.25% to 1.75%, the Monetary Policy Committee (MPC) suggested that rates will probably have to rise further to knock on the head the recent rises in price/wage expectations, but that a …
The statement to yesterday’s Brazilian central bank meeting, at which the Selic rate was hiked by 50bp to 13.75%, made clear that Copom is more confident that inflation will fall back and also more concerned about the slowing economy. We remain of the …
Consumer price inflation in Korea increased to a new 24-year high last month, but we think it has now peaked. With headwinds to the economy mounting, we believe that the central bank’s tightening cycle will come to a finish before the end of the year. …
2nd August 2022
The Reserve Bank of Australia revised up its inflation forecasts sharply when it lifted the cash rate by 50bp today and we expect it to hike rates more aggressively over coming months than most anticipate. However, we expect the Bank to start cutting …
We still expect a higher 10-year Treasury yield, lower S&P 500 and stronger US dollar over the remainder of the year, but have pared back our forecasts for the rise in yields and fall in equities. In particular, we now suspect the 10-year yield is …
29th July 2022
Governor Tiff Macklem has voiced concern about the inflationary impact of the loonie, but we doubt that a modest fall would prevent the Bank of Canada from pausing its tightening before the Federal Reserve. At US$0.78, the loonie is far lower than the …
28th July 2022
We held an online Drop-In event yesterday to discuss our Q3 Global Economic Outlook and the forecasts within it (see an on-demand recording here ). This Update addresses several of the client questions that we did not have time to answer during the event. …
The Fed’s decision to raise interest rates by a further 75bp to 2.25%-2.50% takes them close to their “neutral” level. With inflation set to fall and mounting signs of economic weakness, we suspect officials will be more cautious raising rates from here, …
27th July 2022
Risks rising, but recession still far from inevitable While the deterioration in the survey data and renewed inversion of the Treasury yield curve imply that the risks are rising, our composite models suggest that the economy is still more likely than not …
Bank lending growth accelerated further in June, but lenders expect the demand for loans to slow sharply in the coming months, adding to the reasons to expect the economy to fall into recession. Meanwhile, banks in the periphery are tightening the Ts and …
The news today that Gazprom will further reduce its natural gas supply to Europe increases the likelihood of recessions in the euro-zone, UK and parts of Emerging Europe. It also supports our view that inflation pressures will be relatively persistent in …
26th July 2022
Italy’s next government is unlikely to bring the country’s future in the euro-zone into doubt, in a repeat of the turmoil that we saw after the 2018 election. But it will probably run looser fiscal policy and find it more difficult to pass reforms. If it …
Our view that GDP growth will slow below potential next year assumes one of the sharpest falls in dwellings investment in Australia’s modern history. However, this Update explains why dwellings investment could hold up better than we’re anticipating. In …
25th July 2022
The ECB’s 50bp rate hike today is likely to be the first move in a sustained interest rate hiking cycle which we think will bring the deposit rate to around 2% next year. We also think the Bank will at some point have to use its new asset purchase …
21st July 2022
South Africa’s central bank upped the pace of tightening further with a 75bp hike, to 5.50%, as policymakers’ intensifying fears about inflation (and inflation expectations) trumped any concerns about the slow and bumpy economic recovery. The increasingly …
The rise in local currency bond yields across the emerging world poses a particular risk to fiscal positions in those EMs with large government financing needs and a short average debt maturity. Egypt, Pakistan, and Ghana stand out as those most …
Bank Indonesia (BI) left interest rates unchanged again today, and the dovish commentary from the press conference means we are pushing back the timing for the first hike from Q3 into Q4. With growth set to slow over the coming quarters and inflation to …
The Bank of Japan didn’t concede any ground to bond traders today but we still think there’s a good chance that it will widen the tolerance band around its 10-year yield target . The Bank kept its short-term policy rate at -0.1% and its 10-year yield …
It looks like Italy is heading for an early general election. While that won’t necessarily cause an economic and financial crisis, bond spreads are likely to widen regardless of what the ECB announces later today. After the Lega, Five Star Movement and …
The Q2 ECB bank lending survey showed a tightening in credit standards for commercial property lending in the first half of the year, with expectations for a further squeeze in H2. With the cost of debt also higher, more restrictive credit will weigh on …
20th July 2022
