This morning’s decision by the Swiss National Bank to keep its policy settings unchanged came as no surprise. The prospect of further falls in the franc should allow the Bank to largely stay out of the FX market, but the policy rate will remain rooted at …
25th March 2021
The annual rate of money and lending growth remained strong in February, and with the ECB likely to make significant asset purchases throughout this year and next, money growth will remain well above pre-pandemic levels. But we don’t think this will cause …
The central bank in the Philippines (BSP) left its main policy rate on hold at 2.00% today, and while a temporary rise in inflation means interest rates are set to remain on hold for the next few months, the dire economic outlook means the Bank is still …
Parliament’s approval this week of a loosening of restrictions on FDI in the insurance sector will not have a significant macro impact, but it provides reassurance that FDI reform remains a priority for the government. That bodes well for India’s external …
We are sticking to our view that the US stock market will gain a bit more ground this year and next, despite revising up our end-2021 and end-2022 forecasts for the 10-year Treasury yield. (See here .) We also generally expect developed market (DM) …
24th March 2021
We are revising down our forecast for euro-zone GDP growth due to the resurgence of virus cases, slow pace of vaccination and extension of lockdowns. The recovery is likely to be delayed until the third quarter this year and we think GDP will not regain …
In light of our revised forecasts for long-term US Treasury yields, we have raised our forecasts for the yields of 10-year government bonds in most other developed markets. But in most cases we doubt they will rise by as much as yields in the US. We …
The EU’s tougher stance on vaccine exports might help to secure some concessions and additional doses from the UK. But it will do nothing to combat vaccine hesitancy in parts of the bloc and is unlikely to significantly boost the rollout in Europe. This …
March’s advanced economy PMIs painted a positive picture, with headline indices typically now well into expansionary territory. Supply shortages are boosting prices and constraining output to some extent, especially in the US. And the euro-zone PMI is …
The unusual rise in the Fed’s preferred PCE measure of inflation above CPI inflation in January partly reflects the impact of the differing methodology which, as spending patterns return to pre-pandemic norms, should be reversed this year. But it is also …
Despite the recent rise in bond yields, we think that Egypt’s public debt ratio will resume its downward trend in the coming years. Since the start of the year, Egypt’s local currency bond yields have risen by 40bp, on average, across the yield curve, …
Despite the ongoing rise in the number of rigs actively drilling for oil, we continue to expect a lacklustre recovery in US oil production over the next couple of years . An often-overlooked aspect of the rise in the number of rigs drilling for oil in the …
The Bank of Thailand (BoT) left interest rates on hold at 0.5% today and made clear in its accompanying statement that rates will stay low for the foreseeable future. We think the that the policy rate will remain unchanged until at least the end of next …
A rise in headline consumer price inflation over the coming months will do little to temper growing market expectations of imminent rate hikes. But it will largely be driven by fuel price inflation, which the RBI should look through. Further ahead, a …
The rapid growth of the global labour supply in the past few decades looks set to give way to a period of much weaker growth. Some argue that this will reverse the decline in inflation seen in recent years as the bargaining power of labour rises and an …
Even if the long-rumoured Australia-New Zealand travel bubble does go ahead, it wouldn’t make a huge difference to either economy. We think the bubble would give a small boost to New Zealand’s GDP and be a small drag on Australia. A travel bubble between …
The Bank of Canada seems to have signalled that it will reduce the pace of its government bond purchases at its next meeting in April. We now expect it to bring its net purchases to zero by the end of the year. In a speech today, Deputy Governor Toni …
23rd March 2021
The easing of virus restrictions in Greece this week – despite rising case numbers – is unlikely to change the picture for Q1; the economy probably contracted. Moreover, if it leads to a faster spread of the virus, it could even delay the start of the …
The replacement at the helm of Turkey’s central bank is particularly worrying against a backdrop of a dire balance of payments position, large dependence on foreign capital inflows and the central bank’s severely depleted foreign exchange reserves. If …
Hungary’s central bank (MNB) left its key interest rates on hold today but the tone of the communications could not have been much more hawkish without raising interest rates. The MNB is defending its view that inflation will settle back to the 3% target …
Policymakers in Nigeria opted to keep their benchmark rate unchanged at 11.50% at today’s MPC meeting in the face of rising inflation and a weak recovery. We don’t think that a hawkish minority will turn into a majority in the coming months and, if …
Recent movements on house prices show only limited evidence that COVID-19 has substantially changed where people want to live. While central London has underperformed, central Manchester and Birmingham appear unaffected. That said, we wouldn’t rule out …
Our forecast that the Bank of England will keep interest rates at +0.10% for a few more years and that, as a result, inflation will rise above the 2% target for a prolonged period is consistent with a further steepening in the gilt yield curve. As a …
China’s statutory retirement ages are low. Raising them, as the Five-Year Plan proposes, would make the pension system more affordable but it wouldn’t make an appreciable difference to the ongoing decline in the size of the workforce. Most older workers …
Our Mobility Trackers suggest that the recent rise in coronavirus infections and associated restrictions are weighing on activity in Latin America, emerging Europe and the euro-zone. In contrast, mobility in the US has continued to recover as restrictions …
The latest crisis engulfing Turkey will make it harder for the country to roll over its external debts, with the banking sector particularly vulnerable. If Turkey’s crisis worsens, it may cause wobbles in a few EM currencies, but there are reasons to …
22nd March 2021
The abrupt sacking of Turkey’s central bank (CBRT) governor on Friday has triggered sharp falls in the lira and a tightening of external financing conditions. The banking sector is a key source of vulnerability and arguably looks more exposed than it was …
As vaccines are rolled out across the world and restrictions on economic activity are removed, we expect global consumption patterns to return to something like normal. Electronics exporters, most notably Taiwan and Vietnam, are likely to lose out. …
Commercial banks left the Loan Prime Rate (LPR) unchanged today. We have been forecasting the PBOC to hike rates this year but the likelihood of that is diminishing – the PBOC appears to favour quantitative controls on lending instead. Either way, credit …
The shock decision by Turkey’s President Erdogan to sack central bank governor Naci Agbal late on Friday is likely to trigger large falls in the lira when markets open on Monday. It looks like the central bank’s (CBRT’s) efforts to fight the country’s …
20th March 2021
We now expect mortgage interest rates will rise to 4.0% by the end of the year, and to 4.25% by end-2022. But housing demand will be supported by a reopening economy, the large fiscal stimulus, frustrated buyers still looking for homes and substantial …
19th March 2021
South Africa’s Reserve Bank (SARB) is unlikely to be in a rush to follow other EM central banks in tightening monetary policy. We think the policy rate will be on hold this year and probably in 2022 too. This week has seen central banks in Brazil, Russia …
The sharp rise of US yields in response to this year’s shift in US fiscal policy and rapid progress on vaccinations – and the Fed’s apparent willingness to accept higher long-term interest rates – have prompted us to raise our end-2021 and end-2022 …
Thanks to changing consumption patterns and structural and cyclical knocks to the traditional property sectors, both occupier and investor demand for data centres set new records last year. But, while further strong growth is likely, we don’t expect these …
Russia’s central bank (CBR) unexpectedly hiked its key policy rate by 25bp to 4.50% at today’s meeting in response to the recent surge in inflation and the accompanying communications sent a strong signal that it is prepared for an aggressive tightening …
Tighter restrictions for large parts of France for at least the next month are likely to reduce activity by only a further 1.5% or so. But the economy was already operating some 5% below its pre-virus level and the prospect of the most economically …
Nigeria’s budget deficit is set to narrow sharply this year as oil revenues increase and the government fails to meet ambitious capital spending plans. The shortfall should be easily covered by domestic borrowing but, if we’re right in expecting oil …
The Bank of Japan’s policy review today contained various nudges to policy levers but ultimately marked neither a tightening nor an easing of policy. Governor Kuroda was keen to emphasise in the press conference that widening the target band for 10-year …
The 14 th Five-Year Plan makes clear that self-sufficiency has grown as a priority for China’s leadership. But it is light on specifics. The details will probably be fleshed out in the raft of industry-level plans that usually follow its publication. But …
The recent rise in EM sovereign bond yields will, if sustained, make public debt problems in some countries even worse. Those with large local currency debts may ultimately turn to financial repression policies, which might improve debt dynamics but at …
18th March 2021
We expect inflation to hit 3.5% in April and then to sit at the upper end of the Bank of Canada’s 1% to 3% target range for most of the rest of the year. Given the likelihood that inflation will drop back to less than 2% in 2022, however, we do not expect …
The Monetary Policy Committee (MPC) did not follow in the ECB’s footsteps by stepping up the pace of its QE purchases. Instead, it echoed the message of the Fed by emphasising that rate hikes are still a long way away. This suggests that rates won’t rise …
Even as inflation picks up this year, additional labour market slack, weak past inflation and a focus on jobs protection at the expense of pay increases all mean that euro-zone wage growth will remain subdued. This should reassure the ECB that the labour …
Turkey’s central bank didn’t disappoint investors, delivering a larger-than-expected 200bp interest rate hike (to 19.00%) today, and we think that it will keep monetary conditions tighter than most expect over the next couple of years. That will provide a …
As we expected, the Norges Bank laid the groundwork this morning for the start of a tightening cycle, later this year. But we think it will raise interest rates sooner and faster than it currently projects. This morning’s decision by the Norges Bank to …
Taiwan’s central bank appears in little hurry to raise interest rates despite the strong performance of the economy, and today’s decision to leave the policy rate unchanged at 1.125% came as no surprise. With growth set to ease and inflation low, we …
Recent volatility in financial markets meant Bank Indonesia (BI) was never likely to cut interest rates for a second consecutive month at its meeting today, and further rate cuts look off the agenda for the time being. However, fears of a repeat of the …
We suspect that the ECB will be more tolerant of inflation in the future than it has been in the past. In particular, it is likely to look through a short period of above-target inflation this year. And even if both headline and core inflation remained …
The updated economic projections released after the Fed’s mid-March meeting show that officials expect strong economic growth this year to have only a transitory impact on inflation, which explains why most still aren’t thinking about thinking raising …
17th March 2021
While the stock market fared much better than the economy in the US overall during the past ten years, we do not expect that to remain the case. A country’s stock market and its economy will grow at the same rate if there are no changes in the ratios of …
