Filtered by Topic: Monetary Policy Use setting Monetary Policy
The troubling start to 2025 is casting doubt over our key non-consensus forecasts for 2025. But we still think other forecasters are underestimating how fast the economy will grow, how far inflation will fall and how many times the Bank of England will …
9th January 2025
Brazil’s recent period of rapid growth is likely to come an end this year. Sovereign debt concerns will almost certainly rumble on, but further piecemeal austerity measures will probably prevent another rise in bond yields or leg down for the real. In a …
8th January 2025
The latest inflation figures out of Turkey have given us more encouragement that the disinflation process is underway and that the central bank could lower interest rates towards 30% by year-end. Even so, real interest rates will need to be kept …
7th January 2025
The December PMIs for Asia were a mixed bag, but we continue to expect manufacturing activity and GDP growth in the region to remain subdued in the near term. With growth set to struggle and inflation below target in most countries, we think central banks …
2nd January 2025
There was little festive cheer in Australia’s housing market last month, with house prices stagnating across the country’s eight capital cities. Given our view that the RBA has only limited room to cut interest rates over the coming year, prospects for a …
While the Bank of England left interest rates at 4.75% today, it struck a slightly more dovish tone. This supports our view that the next 25 basis points (bps) rate cut will come in February and that the Bank will cut rates further and faster than …
19th December 2024
The Bank of Japan's decision to leave rates on hold for a third consecutive meeting was not a great surprise. But in the post-meeting press conference Governor Ueda sounded in no hurry at all to resume the tightening cycle and there’s now a good chance …
The Riksbank’s decision to cut its policy rate by 25bp to 2.5% was widely anticipated and we expect it to cut just one last time next year, by 25bp in March. In contrast, Norges Bank left its policy rate unchanged today at 4.5% and is unlikely to start …
The Fed did cut interest rates by an additional 25bp today, as was largely expected, taking the fed funds rate down to between 4.25% and 4.50%. But the vote was not unanimous and, in a hawkish shift, the new median projection now shows only 50bp of …
18th December 2024
Inflation in South Africa is now running at extremely low rates by historic standards. While we think it will edge up from here, the extent of spare capacity in the economy and tight fiscal stance mean inflation will remain lower than consensus …
13th December 2024
Next Thursday, we expect the Riksbank to reduce its policy rate from 2.75% to 2.5% as it closes in on the end of its loosening cycle. In contrast, we think Norges Bank will leave its policy rate unchanged again next week at 4.5% as it waits until early …
12th December 2024
Today’s ECB policy statement and press conference suggest that policymakers are increasingly confident of meeting their inflation goal and increasingly conscious of downside risks to the economy. We think the outlook is weaker than the Bank believes and …
Note: When this Update was first published, China's state media had relayed the content of the CEWC readout but the readout itself had not been published. The Update has now been updated to reflect the contents of the readout that was published late on …
The Brazilian central bank’s aggressive interest rate hike yesterday may help ease concerns that fiscal dominance will take hold. But we think that measures to keep government debt servicing costs artificially low will ultimately form part of the solution …
Although the Bank of Canada cut interest rates by another 50bp today, its communications were more hawkish than might have been expected, with the Bank no longer indicating that further cuts are guaranteed and instead saying it “will be evaluating the …
11th December 2024
While mortgage interest cost (MIC) inflation has historically turned negative during, or after, loosening cycles, we expect it to remain positive this time and rebound from 2026. This is because, in contrast to previous monetary policy cycles, the …
10th December 2024
Our new Bank of England Caseometer helps track whether the Bank is becoming more inclined to cut interest rates faster and further or slower and not as far. Our forecast is that rates will continue to be cut gradually, but that they will fall to 3.50% in …
The RBA sounded more dovish today and it’s looking increasingly likely that it will lower interest rates sooner rather than later. While a downside surprise in Q4 inflation could trigger a February rate cut, we think the continued tightness of the labour …
The Reserve Bank of India’s (RBI’s) decision to keep the repo rate unchanged at 6.50% today highlights its unease at the current rate of headline inflation. Admittedly, the lowering of the cash reserve ratio does show that it is turning more concerned …
6th December 2024
In contrast to market pricing, we think that the SNB will be cautious and cut its policy rate by just 25bps, to 0.75%, next week as the Bank sticks to a gradual approach to loosening monetary policy. That said, the SNB is likely to lower its inflation …
5th December 2024
Although Australian house prices edged up a notch in November, we remain sceptical about prospects for a second wind in the housing cycle. Given that the RBA is unlikely to provide interest-rate relief until mid-2025 at the earliest, we expect the …
2nd December 2024
The fiscal tightening measures announced by Brazil’s finance minister late yesterday failed to live up to expectations and reinforce the idea that political commitment to stabilising the public finances is lacking. One consequence is that the central …
28th November 2024
The Bank of Korea cut interest rates again today by a further 25bps (to 3.00%) and made clear in its statement that more easing is on the way. We are sticking with our view that the central bank will continue to cut interest rates steadily over the coming …
While the RBNZ started hiking rates earlier during the recent tightening cycle than the RBA, it also lifted rates to a higher peak. The RBA tempered the degree of tightening in order to preserve the large falls in unemployment seen during the pandemic and …
The latest flash PMIs suggest that while industry continues to struggle across advanced economies, services activity is now slowing in Europe too. While reduced political uncertainty seems to have lifted business sentiment in the US, the PMIs suggest that …
22nd November 2024
The South African Reserve Bank’s decision to lower its repo rate by 25bp to 7.75% was not a surprise and Governor Kganyago sounded more optimistic that inflation is under control. Lingering concerns about the vulnerability of the rand and the growing …
21st November 2024
Morocco’s weaker economic performance this year is likely to be a blip. Buoyed by low and stable inflation, looser monetary policy, and a burgeoning manufacturing sector, we expect Morocco’s economy to grow by around 5% in 2025 and 2026, which is faster …
The jump in euro-zone negotiated wage growth in Q3, to a record high of 5.4%, was mostly due to one-off payments in Germany. Wage growth elsewhere was little changed. With headline inflation around 2% and the labour market loosening, wage growth is very …
20th November 2024
We expect the Reserve Bank of New Zealand to cut its policy rate by 50bp, to 4.25%, at its meeting next week. With inflation back at target, the labour market loosening rapidly and activity in the doldrums, there continues to be a compelling case for the …
Services inflation in the euro-zone has been stuck around 4% for the past 12 months, but there are good reasons to expect it to decline significantly next year. We think that core inflation will continue to edge down in 2025 and the headline rate will …
19th November 2024
The latest data suggest that Colombia and Chile underperformed Peru’s economy in Q3. Looking ahead, we think that lower prices for key commodity exports combined with relatively tight fiscal stances will offset any the favourable effect from looser …
We think that the euro will fall to parity against the US dollar next year but will strengthen against some other currencies, such as the renminbi, and on a trade-weighted basis we forecast it to be little changed. So the effect of FX moves on growth and …
18th November 2024
The deterioration in Colombia’s public finances has spooked investors and, with the government showing no clear willingness to rein in spending, Colombian financial assets are likely to remain under pressure. One implication is that the fiscal situation …
12th November 2024
As expected, after a run of stronger activity and inflation data since it started its rate cutting cycle with a 50bp reduction in mid-September, the Fed opted for a more modest 25bp cut at the conclusion of its two-day FOMC meeting, taking the fed funds …
7th November 2024
Mexico is one of the most vulnerable economies to the policies that US President-elect Trump flagged on the campaign trail. This Update looks at the channels through which it could be affected. One key point in all of this is that policymakers don’t have …
Watch a recording of our post-MPC online briefing here . While cutting interest rates from 5.00% to 4.75% today, the Bank of England implied that the Budget means rates will continue to fall only gradually. We agree and due to the Budget (and not the US …
Today’s 50bp cut is likely to be the only one in the cycle for the Riksbank, and we expect it to cut by just 25bp at its next two meetings to take the policy rate to its “terminal” level of 2.25% in January. This is less than the four cuts that market …
Alongside its decision to leave interest rates unchanged today, Norges Bank reiterated that it expects to remain on hold in December too. It is likely to start cutting in Q1 next year and we suspect that it will then loosen policy a little more quickly …
Inflation figures out of Turkey – including those published for October yesterday – have surprised on the upside and forward-looking indicators suggest that the disinflation process will be slow in the coming months too. Consensus expectations for the …
5th November 2024
With inflation falling back further in October, growth struggling and the property market in the doldrums, the conditions are in place for the Bank of Korea to cut interest rates again soon. We think the consensus is wrong to rule out the prospect of a …
Although the Reserve Bank of Australia maintained a broadly neutral stance at its meeting today, we still think it will start to lower interest rates as soon as February next year. However, with the labour market remaining resilient and productivity …
The rise in Brazilian local currency government bond yields this year is now on a scale similar to that seen during its fiscal crisis in 2015. Back then, bond yields only started to fall back when wholesale political change was on the horizon. That’s not …
4th November 2024
We expect interest rates to be cut to around the equilibrium of 3% or so in the US, UK and Australia. But rates in the euro-zone and Canada seem likely to fall below their equilibria next year, troughing at 1.5% and 2%, respectively. This judgement …
Euro-zone investment has been weak since the pandemic. And despite the recent downward revision to our ECB interest rate forecasts, we don’t think it will pick up substantially, given the sluggish outlook for both economic growth and the competitiveness …
1st November 2024
Despite the Riksbank reopening the door to a 50bp cut at its last meeting, we think it will proceed gradually and cut by 25bps next week to 3.0%. This is because the policy rate is approaching the neutral rate and the risks of over loosening are …
31st October 2024
Norway’s economy is struggling and inflation keeps falling faster than Norges Bank expects, yet the Bank has not started loosening policy. Next week we think it will open the door to a December rate cut. At its last meeting in September, Norges Bank said …
BoJ Governor Ueda sounded more optimistic today and we’re sticking to our forecast of another rate hike at the Bank’s next meeting in December, though we don’t expect further tightening in 2025 . It came as no surprise that the Bank left its policy rate …
In light of the worsening outlook for economic growth and inflation in the euro-zone, we are making major downward revisions to our ECB interest rate forecast. We now think the Bank will implement back-to-back 50bp rate cuts in December and January, and …
28th October 2024
New bank lending has risen recently as the interest rates on loans have begun to edge down, but it is still weak. While it will probably continue to increase gradually in the coming months, the ECB might need to cut its policy rates substantially to give …
25th October 2024
The government’s new immigration plan implies that the population will decline by 0.2% in both 2025 and 2026, a huge shift from population growth of almost 3% over the past two years. That means GDP growth is likely to remain subdued in the next couple of …
24th October 2024
