Filtered by Topic: Monetary Policy Use setting Monetary Policy
The current struggles of the S&P 500 don’t have much in common with most previous “bear markets”, but we still think one is likely as the Fed presses ahead with monetary tightening . Although it has recovered a bit lately, at the time of writing the S&P …
18th May 2022
We estimate that a rise in Bank Rate from 0.10% last November to a peak of 3.00% would mean that GDP is around 2.0% lower than if Bank Rate had stayed at 0.10%. That is a smaller drag than the Bank of England has incorporated into its forecasts. We do not …
17th May 2022
The ECB’s rate hikes in 2011 were a mistake, not just because they exacerbated the widening in peripheral bond spreads. Underlying inflation was subdued and policymakers were too concerned with acting pre-emptively to contain inflation expectations. They …
16th May 2022
Brazil’s central bank has undertaken the most aggressive tightening cycle of any major economy over the past year, but there has been surprisingly little impact on bank lending. And while we do expect credit growth to weaken, we doubt that it will …
12th May 2022
The South African Reserve Bank is set to shake up its monetary policy setup. This Update provides some clarity on what policymakers will do and why, and what it means for monetary and credit conditions. What is the Reserve Bank planning? In November 2021, …
11th May 2022
Bank Negara Malaysia (BNM) raised its main policy rate earlier than many had expected today, but given low inflation and a continued need to support the recovery, we still think that the tightening cycle will be much more gradual than markets expect. …
The sharpest fall in real incomes since the 1990/91 recession won’t prevent a strong rebound in consumption this year and next. But with the tailwind from reopening the economy set to fade, consumption and GDP growth will fall below trend in 2024, …
9th May 2022
The struggles of both bonds and equities during the Fed’s rapid hiking cycle of 1994/95 may provide a warning to investors today. The Fed’s 50bp rate hike earlier this week – its first such hike in over two decades – looks set to be followed by a …
6th May 2022
While a stronger dollar is generally regarded as a headwind for EMs, we think it will only be a minor one for most major EMs, particularly compared with the headwinds from weakness in China, spillovers from the war in Ukraine, and domestic monetary …
With more monetary tightening to come from the Fed, we think the rise in Treasury yields has further to run and that equities will continue to struggle. At face value, this week’s Fed announcements were quite hawkish : the central bank hiked its target …
5th May 2022
Central banks in Czechia and Poland caught investors by surprise today as the Czech central bank (CNB) unexpectedly re-accelerated the pace of its tightening cycle with a 75bp hike while Poland’s central bank (NBP) slowed the pace of tightening with a …
The Monetary Policy Committee (MPC) struck a more dovish tone today while raising interest rates from 0.75% to a 13-year high of 1.00% and saying that it won’t make a decision until after August on whether to shrink its balance sheet quicker by selling …
As was widely expected, the Norges Bank left interest rates on hold at +0.75% today and all but confirmed that “the policy rate will […] be raised in June”. After June, we forecast two more rate hikes in 2022 and one per quarter next year, which would …
The communications following the Brazilian central bank meeting yesterday, at which the Selic rate was hiked by 100bp (to 12.75%), confirm that the tightening cycle is nearing an end. But even so, with inflation set to remain firmly in double digits over …
With the Fed "highly attentive to inflation risks" it raised its policy rate by a bigger 50bp today, to between 0.75% and 1.00%, and launched its quantitative tightening; with the caps on the value of maturing principal allowed to run off each month set …
4th May 2022
The prospect of tighter monetary policy in the euro-zone has raised the threat of a bigger sell-off in the region’s bond markets. If this happens, we think the ECB would ultimately intervene to prevent any lasting damage. But we doubt that it will agree …
The Reserve Bank today turned even more hawkish with an unscheduled, unconventional 40bp hike that takes the repo rate to 4.40%. We had been among the early hawks on Indian monetary policy and were already expecting more rate hikes than the consensus this …
The RBA started hiking the cash rate today and sounded hawkish for the first since the start of the pandemic. Our forecast that interest rates will reach 2% by year-end is far above the analyst consensus of 1%, but the risks are tilted to the upside . The …
3rd May 2022
Russia’s central bank (CBR) cut its policy rate by another 300bp to 14.0% today and the communications suggest that the CBR is now more focused on boosting credit growth than it has been in the past. This shift in the CBR’s policy framework is likely to …
29th April 2022
As we had expected, the Riksbank finally bowed to economic logic in its April meeting by raising the repo rate, to +0.25%, and announcing that it will begin to shrink its balance sheet this year. While the Bank has spoken in the past of the need to tread …
28th April 2022
The Bank of Japan resisted the temptation to widen its tolerance band for 10-year JGB yields today, but it did outline that it will from now on conduct unlimited fixed rate auctions every business day until yields drop back comfortably below its ceiling …
Our new forecast that interest rates will be raised from 0.75% now to a peak of 3.00% next year is more hawkish than the peak priced into the financial markets (2.50%) and the peak expected by the consensus of economists (2.00%). That’s because we think …
27th April 2022
With US Treasury yields set to keep rising over the coming year, it will become even more difficult for the Bank of Japan to defend its target for 10-year JGB yields. While we don’t expect the Bank to abandon Yield Curve Control altogether, we think it …
26th April 2022
The minutes of the MPC’s early April meeting – in which the committee kept the repo rate on hold but introduced a new rate that set a higher floor for the interest rate corridor – confirm that taming inflation has taken precedence over supporting the …
22nd April 2022
With the yen falling to a 20-year low against the dollar, talk of foreign exchange market intervention is growing. While we think the bar for any intervention is high , this Update answers some key questions. 1. Who decides whether to intervene? Bank of …
21st April 2022
Despite calling on banks to nudge down borrowing costs, the PBOC stopped short of requiring that they lower the Loan Prime Rate (LPR) benchmarks this month. For now, policymakers are mostly relying on targeted measures to help support firms hit by the …
20th April 2022
The expansion of the government’s “Home Guarantee Scheme” will only result in a modest boost to housing demand. And with affordability set to worsen sharply as the RBA hikes interest rates, it won’t prevent house prices from falling next year. After …
Bank Indonesia (BI) left its main policy rate unchanged at 3.5% at its meeting today, and the relatively benign outlook for inflation means the tightening cycle is likely to be very gradual. The decision to leave rates on hold came as little surprise …
19th April 2022
The People’s Bank (PBOC) has just announced a cut to the reserve requirement ratio (RRR). This will help nudge down bank lending rates. But in order to make much difference to credit growth it needs to be followed up by cuts to policy rates and a …
15th April 2022
This Update was originally sent to clients as a Rapid Response immediately after the announcement by the PBOC. The People’s Bank (PBOC) forwent the opportunity to lower its policy rates today. That’s somewhat surprising given the sharp economic downturn …
Today’s ECB statement and press conference indicate that policymakers expect to end their net asset purchases early in Q3 and raise interest rates soon after that. With inflationary pressures still rising, we think they will lift the deposit rate sooner, …
14th April 2022
Today’s decision by the Bank of Korea (BoK) to hike its policy rate by 25bp to 1.50% is unlikely to mark the end of its tightening cycle given the strength of inflationary pressures. We expect at least two more 25bp rate hikes in the coming quarters, …
The Monetary Authority of Singapore (MAS) tightened monetary policy again at its meeting today. With growth set to remain strong and core inflation likely to stay elevated, we expect the MAS to maintain its tight policy stance for at least the next couple …
South Africa’s headline inflation rate will stay close to the upper bound of the central bank’s 3-6% target range in the coming months before falling sharply in the second half of the year. Some MPC members are in a hawkish mood, but we think that …
13th April 2022
The Bank moved into full-blown hawkish mode today, hiking its overnight policy rate by 50bp to 1.00% and announcing that quantitative tightening will start later this month, with no caps on the value of maturing bond principal allowed to roll off each …
We held a Drop-In on the political and economic problems facing Pakistan earlier today (see an on-demand recording here ). This Update answers some of the most common questions that we received. Question 1: What have we learned about the new prime …
The RBNZ’s decision to accelerate its hiking cycle shows it is willing to move decisively to get a hand on surging inflation. That’s in line with our forecast that it will hike the OCR to 3.0% by the end of this year. The Bank’s decision to hike rates by …
Egyptian inflation rose to a near-three year high in March and will continue to pick up on the back of the spillovers from the war in Ukraine and last month’s devaluation. We now think interest rates will be hiked by a further 350bp, to 12.75%, by …
11th April 2022
The Bank of Israel kick-started its tightening cycle today with a 25bp interest rate hike to 0.35% and we think it will deliver further hikes at its upcoming meetings, taking rates to around 2.00% in the first half of next year. This is currently more …
The RBI’s policy announcement and the introduction of the Standing Deposit Facility has prompted a number of questions from clients on its intended purpose and what it means for monetary policy. This Update aims to provide further clarity on the new …
Ghana’s economic recovery will remain sluggish over the next couple of years as policy is tightened in a bid to shore up the public finances and tackle high inflation. The risk of an imminent sovereign default appears low but, if fiscal consolidation …
8th April 2022
The MPC’s unanimous decision to keep the repo rate unchanged at 4.00% today came as no surprise but the introduction of a new policy rate that sets a higher floor for the interest rate corridor indicates a less accommodative policy stance. And with …
The government announced a smorgasbord of new policies in the 2022 Budget, but the total increase in the budget deficit, at just $7bn, was arguably far lower than some feared. Moreover, as most of the funds are being allocated to new investments, rather …
7th April 2022
The National Bank of Poland (NBP) unexpectedly delivered its largest interest rate hike in 22 years today (100bp, to 4.50%) to get on top of the deteriorating inflation outlook and we think there’s little argument against further hikes to come. We now …
6th April 2022
The yen isn’t obviously undervalued so it isn’t clear whether attempts to strengthen it would work. Most importantly, the Bank of Japan remains convinced that a weaker yen is beneficial for Japan’s economy. The yen has weakened by around 7% against the …
This tightening cycle looks set to be much more synchronised across developed market economies than the last one, which we think creates more scope for rises in bond yields across countries but could limit any further flattening of the US yield curve. …
5th April 2022
While today’s policy statement wasn’t outright hawkish, the RBA’s dovishness is waning and we’re confident in our forecast that the Bank will start to lift interest rates in June . As widely anticipated, the Bank kept policy settings unchanged today, but …
The Czech National Bank (CNB) slowed the pace of its tightening cycle for the third consecutive month today with a 50bp rate hike to 5.00%, but hawkish communications after the meeting suggest that the CNB is not finished yet. We now expect a 50bp hike at …
31st March 2022
The Monetary Policy Report released by Chile’s central bank today, following on from its 150bp rate increase to 7.00%, suggests that its tightening cycle is winding down to a close. However, we think that high inflation alongside Chile’s growing external …
30th March 2022
With the Ukraine war and pandemic-related prices pressures still much stronger than anticipated, we think the ECB will not want to wait much longer before beginning to raise interest rates. Our new forecast is for three 25bp rate hikes this year and five …
