Filtered by Topic: Monetary Policy Use setting Monetary Policy
The tightening of Brazil’s labour market and pick-up in wage growth over the first half of the year has supported a consumer boom. We expect conditions to cool over the coming quarters but, for now, the buoyant labour market is adding to the central …
5th September 2024
We held online Drop-In sessions earlier this week to discuss the outlook for major DM and EM economies and the risks that they face as we look forward to 2025. (See a recording here .) This Update answers some of the questions that we received, including …
Following its third consecutive 25bp interest rate cut today, the communications from the Bank of Canada reiterated that further cuts are likely. We expect 25 bp cuts at the final two meetings this year. While Governor Tiff Macklem left the door open to a …
4th September 2024
Attention in Egypt is turning to the timing of the first interest rate cut. The lessons from the start of the last easing cycle in 2018 suggest that this is likely to begin in April, which is a little later than most expect. But the more important point …
3rd September 2024
Inflation in Korea fell back sharply last month, supporting our view that the central bank will cut interest rates at its next meeting in October. Inflation data published today showed that the headline rate fell from 2.6% y/y in July to 2.0% in August. …
The PBOC appears poised to step up its efforts to prevent bond yields from falling, even though lower borrowing costs would help the economy right now. The inconsistencies in its policy approach are linked to the shifting whims of the Party leadership, …
29th August 2024
The pick-up in Nigerian GDP growth seen in Q2 will probably be followed by a renewed slowdown this quarter. But we think the backdrop of rising oil production, falling inflation and possible interest rate cuts should set the stage for a more sustained …
28th August 2024
Rates left on hold, easing cycle will be more “stop-start” from here The Hungarian central bank (MNB) suggested that its decision to leave the policy rate on hold today, at 6.75%, was likely to mark a temporary pause in the easing cycle, rather than an …
27th August 2024
The Bank of Korea left rates on hold again today but sounded very dovish. With policymakers now more confident about achieving their inflation target and domestic demand set to remain weak, we think the BoK will start to cut rates in October and that the …
22nd August 2024
Central bankers are unlikely to offer much forward guidance at this weekend’s Jackson Hole symposium, preferring to stress their “data dependence”. Since most economies are expanding, inflation is easing back to target and financial markets have …
21st August 2024
We don’t think the slew of inflation-busting public sector pay deals that have been agreed by the new government will prevent wage growth from slowing next year to the rates of 3.0-3.5% we think are consistent with the 2.0% inflation target. But the big …
With the Fed set to finally start loosening policy and a soft landing still looking like the most probable outcome for the US economy, we think unfavourable rate differentials and continued robust risk appetite will lead to some further weakness in the US …
The South African Reserve Bank’s (SARB’s) new “supercore” inflation measure adds yet another piece of evidence that price pressures are being brought under control. We think the SARB should now be confident that it can start its interest rate cutting …
20th August 2024
We think the Riksbank will follow today’s 25bp rate cut with a cut at each of the three remaining meetings this year to take the policy rate to 2.75%. But we expect the terminal rate to be 2.5% which will be reached in early 2025. This is higher than the …
The global macroeconomic risks surrounding a possible ceasefire deal between Israel and Hamas are asymmetric. An agreement – while having significant economic consequences for countries in the region – would probably not itself be a game-changer for …
19th August 2024
Norges Bank’s decision to leave its policy rate unchanged at today’s meeting, at 4.5%, was never in doubt. However, we still suspect that continued declines in inflation will allow it to start cutting before the end of the year, which would be earlier …
15th August 2024
Since the Riksbank’s last meeting in June, Swedish inflation and activity data have been weaker than policymakers expected. We think this will encourage them to cut the key policy rate from 3.75% to 3.5% next week and to indicate at least a further 50bp …
14th August 2024
The RBNZ began its easing cycle with a 25bp rate cut at its meeting today. Although the Bank appeared to strike a cautious tone about further policy easing, we think it will cut rates more aggressively than many are anticipating. We were among the 12 …
Inflation in Norway has continued to fall more quickly than policymakers expected. But with the krone coming under renewed pressure recently, we think they will maintain a hawkish tone next week. At the last meeting, in June, Norges Bank left its policy …
9th August 2024
Recent safe haven flows into the franc may have prompted limited FX interventions by the SNB. But we think that the policy rate will remain its main policy tool, even for dampening the franc’s strength. Indeed, we now expect the SNB to cut its policy rate …
8th August 2024
The recent market turmoil didn’t move the needle for the MPC today: it continued to strike a hawkish tone as the majority of members voted to keep the repo rate unchanged at 6.50%. But with inflation set to fall back towards the RBI’s 4% target over the …
We are in the minority of forecasters who expect the Reserve Bank of New Zealand to hand down a 25bp rate cut at its meeting next week. Moreover, with excess capacity in the economy rising rapidly, we think the Bank will embark on a more aggressive easing …
7th August 2024
Although the UK has clearly been caught up in the recent turmoil in global financial markets, we do not think a double-dip recession is on the cards. Nonetheless, the disorderly market reaction, if sustained, raises the downside risks to our GDP forecast …
6th August 2024
The minutes to last week’s central bank meeting in Brazil raised the possibility that policymakers will respond to the worsening inflation outlook by hiking interest rates. And despite the sharp shift down in US interest rate expectations since that …
Although the RBA left rates on hold today, it poured cold water on market expectations that it will loosen policy later this year. With the economy still running above its speed limit, we continue to believe that rate cuts won’t be on the agenda until Q2 …
Japan’s government has intervened in the FX markets to weaken the yen far more often than to strengthen it. But FX interventions have become very rare over the past two decades and our sense is that the government is welcoming a stronger exchange rate in …
Fears of a US recession have rattled EM equity markets at a time when EM economies themselves are showing more pronounced signs of weakness. Most EM currencies have held up well, suggesting a dovish tilt may come from EM central banks – particularly those …
5th August 2024
The Bank of England kick-started a loosening cycle today by cutting interest rates from 5.25% to 5.00%, but the accompanying guidance and forecasts suggest it will proceed cautiously. Accordingly, we suspect the Bank will keep rates on hold in September …
1st August 2024
CNB slows easing cycle, but rates will still fall further than many expect Czech National Bank (CNB) Governor Michl sounded fairly cautious in his guidance about the future course of the easing cycle in the post-meeting press conference. But the …
Fed lays the groundwork for September rate cut There was no surprise rate cut from the Fed today, with the fed funds target range left unchanged at between 5.25% and 5.50%, but the changes in the accompanying statement – which included a shift from a …
31st July 2024
The fading drag from load-shedding was widely expected to allow a recovery in South Africa’s economy this year, but this hasn’t materialised. We think that weak demand is to blame, itself a symptom of tight fiscal and monetary policy and a challenging …
The Bank of Japan outlined a plan for reducing its bond purchases and hiked its policy rate by 20bp today. We think it will follow up with another 20bp hike at its October meeting . Only one-third of analysts polled by Reuters, ourselves included, had …
We think the yen’s rally will continue, but suspect that won’t stop the Australian and New Zealand dollars – alleged victims of the carry trade’s unwind – from making some ground over the next year or two. Australia’s Q2 inflation data took a bit of a …
In detailed analysis last year, we concluded that equilibrium nominal interest rates would settle at between 3% and 4% in advanced economies in the next ten years. We maintain that opinion and in fact some of the forces boosting equilibrium rates seem to …
30th July 2024
Donald Trump’s comments on the Fed have brought the issue of central bank independence into the spotlight. This is not just a concern in the US but an issue that is rearing its head in a number of EMs too. In general, these fears look overdone. But …
29th July 2024
Alongside its decision to cut interest rates today, the Bank of Canada struck a more dovish tone than in June, supporting our forecast that another cut is coming at the next meeting in September. The Bank’s second 25 bp cut, taking the policy rate to …
24th July 2024
The latest flash PMIs suggest that while GDP growth probably slowed in Europe at the start of Q3, it continued to recover in Japan. Although the rise in shipping costs has caused manufacturers’ input prices to rise, central banks may take comfort from the …
Easing cycle continues The Hungarian central bank (MNB) cut interest rates by 25bp again today, to 6.75%, and the post-meeting press conference suggests that, while there are some MPC members who want to pause the easing cycle, the balance is a bit more …
23rd July 2024
We doubt the independent pay review bodies’ recommendations for the government to give teachers and NHS staff a 5.5% pay rise will prevent wage growth from slowing to 3.0% by the end of next year. But if the government chooses to extend this pay rise to …
China’s bond market seems to be caught between the country’s slowing economy and the PBOC’s desire to push long-end yields higher. The announcements from the Third Plenum this week probably won’t help the central bank, and we still think yields will fall …
19th July 2024
The South African Reserve Bank’s decision to leave its repo rate unchanged at 8.25% was of little surprise but there was increased optimism on the MPC that inflation is moving towards the 4.5% mid-point of the target and that inflation expectations are …
18th July 2024
Today’s decisions to leave interest rates on hold and give no clear signals about the future path of interest rates were in line with expectations. The overall tone was arguably slightly dovish, making a September cut more likely. But the risks to our …
While the global monetary policy loosening cycle is now well underway, there is more nuance than you might assume. Recent data have made us more confident that cuts (or further cuts) are to come in the US and Canada. But in Australia, the UK and large …
The upside surprise to headline consumer price inflation last month has all but ended hopes of a rate cut at the RBI’s August policy meeting. But we think that the conditions will be in place for policy loosening to begin in December. To recap, headline …
16th July 2024
The Bank of Canada’s business and consumer surveys point to weak GDP growth, show that firms’ wage expectations are now lower than their pre-pandemic peak, and suggest that consumers are increasingly concerned about the health of the labour market. All …
15th July 2024
Disinflation in the services sector seems to have stalled in several advanced economies this year. That’s partly because the easiest wins related to food and energy effects are behind us and also reflects some temporary factors. Much now depends on the …
12th July 2024
It is not clear that Donald Trump, if elected, would gain much from trying to force Fed Chair Jerome Powell out of the role only a year before his term expires anyway. Trump might instead focus his efforts on securing Senate approval for future …
11th July 2024
The continued weakness of the renminbi and the yen against the US dollar despite the narrowing of interest rate differentials via-a-vis the US is something of a conundrum, but our sense remains that both currencies will rebound against the dollar later …
The Bank of Korea left its policy rate unchanged today at 3.5%, but dropped clear hints that interest rate cuts would be coming soon. With growth set to struggle and inflation likely to fall further, we are maintaining our view the central bank will cut …
At first sight, the latest CPI data out of Central and Eastern Europe (CEE) might seem to provide central banks reason for comfort. But a look under the surface paints a more worrying picture: underlying core price pressures in some countries have re …
10th July 2024
