Filtered by Topic: Monetary Policy Region: G10 Use setting G10 Use setting Monetary Policy
The Bank of Japan revised down its growth forecasts and sounded more dovish when it left policy settings unchanged today. However, we believe that the Bank has become far too downbeat about the outlook for inflation and we’re sticking to our forecast of …
1st May 2025
Bank of Japan will hike rates again in July The Bank of Japan revised down its growth forecasts and sounded more dovish when it left policy settings unchanged today. However, we believe that the trade war won’t be as damaging as feared and we’re sticking …
Contraction in first-quarter GDP not a worry Core inflation yet to capture tariff impacts Fed will remain in “wait-and-see” mode for some time A contraction in GDP and near-flatlining in core PCE prices would usually be more than enough to persuade …
30th April 2025
CPI data don’t support the case for below-neutral rates Although trimmed mean CPI gained a bit of momentum in q/q terms last quarter, it probably won’t keep the RBA from cutting rates by another 25bp at its May meeting. However, given lingering price …
Japanese banks are the one sector benefitting from the BoJ’s tightening cycle as higher interest rates lift their income by more than their expenses. And although they’ve struggled more recently amid the “Liberation Day” fallout, we think their …
The fall in market interest rate expectations since ‘Liberation Day’ is striking. On 31 st March, investors were pricing in just two more 25 basis points (bps) interest rate cuts this year from 4.50% now to 4.00%. Now they are fully pricing in three more …
25th April 2025
Case for aggressive easing remains weak Flash PMI data released this Wednesday suggest that ongoing global tensions are doing little to dent business confidence in Australia. Although firms reported a second successive decline in new export business as a …
Underlying inflation set to surpass 3% Inflation excluding fresh food and energy picked up from 2.6% to 2.9% in March. And the big jump in inflation in Tokyo in April at first glance would suggest that the Bank of Japan is starting to fall behind the …
The latest data suggest that the world economy got off to a weak start in 2025 even before most tariffs were implemented. While tariff front-running provided a boost to global industrial activity and exports to the US in Q1, this should soon fade. …
24th April 2025
At first glance, Australia and New Zealand should be fairly insulated from the brunt of the US’s ongoing trade war. Both countries have small manufacturing sectors, export little to the US and haven’t been hit with high US tariffs. That said, second-round …
Board will revise down forecasts for GDP growth due to trade tensions But Bank will signal continued confidence in meeting its 2% inflation target We expect another hike in July, with the policy rate climbing to 1.5% by 2027 The Bank of Japan will …
We are assuming that the 90-day pause on reciprocal tariffs becomes permanent, keeping tariffs at 10% for most countries except China which will face a steeper 60% levy. If Congress quickly redirects the tariff revenue back into the economy, a recession …
23rd April 2025
The latest flash PMIs suggest that tariffs and trade policy uncertainty weighed on activity and confidence in most DMs at the start of Q2 and boosted price pressures in the US. Our estimate of the weighted average of the flash composite output PMIs for …
Reuters’ latest monthly Tankan survey, which was conducted between 2 nd and 11 th April, showed that business conditions among large manufacturers rose to an eight-month high. Granted, that survey has often lagged behind the manufacturing PMI around …
If President Donald Trump does fire Fed Chair Jerome Powell, we suspect that the initial market reaction might not be disastrous, as long as Trump quickly lines up a relatively-qualified replacement, like Kevin Hassett or Kevin Warsh. In all likelihood, …
21st April 2025
Markets were almost evenly split on what the Bank of Canada would do yesterday, right up until the last minute. In the end, the Bank opted to keep interest rates unchanged at 2.75%, rather than loosen policy by an additional 25bp. In his opening …
17th April 2025
Recession looking even less likely For all the recent anguish about tariff-induced equity selloffs and plunging sentiment, this week served as a valuable reminder that the only true measure of the health of the US economy remains the hard data. On …
RBA will go slow and steady The minutes of the RBA’s April meeting revealed that the Bank’s decision to leave rates unchanged at 4.10% was underpinned by its view that risks to its outlook were two-sided. Granted, that assessment was made prior to Trumps’ …
Tariff impact may not be as big as feared The OIS markets imply that it’s a coin flip whether the Bank of Japan will raise rates again this year. That makes sense because the Bank sent some rather dovish signals this week. Governor Ueda noted in an …
Strong labour market lessens the need for aggressive cuts With the labour market broadly on solid ground, we expect the RBA to deliver only a shallow easing cycle. The 32,00 rise in employment in March was a touch softer than the 40,000 increase that we …
RBNZ won’t fret the modest uptick in inflation Although headline inflation in Q1 was stronger than it had anticipated, we suspect the RBNZ will take comfort from the fact that measures of core inflation continued to fall towards the mid-point of its 1-3% …
The Bank of Canada’s decision to keep interest rates at 2.75% today was not a big surprise given recent above-target core CPI gains, concerns about tariff-induced price rises and uncertainty about the extent to which the economy requires additional policy …
16th April 2025
Overview – Our working assumption is that the 90-day pause on the Trump administration’s reciprocal tariffs will be made permanent, with tariffs remaining at 10% for most countries apart from China. Providing Congress soon recycles the tariff revenue into …
Bank holds but further cuts likely amid dovish communications The Bank of Canada’s decision to keep interest rates unchanged at 2.75% today was not a huge surprise given recent above-target gains in core prices, concerns about future price increases and …
The upcoming federal election on 3 rd May appears likely to result in a hung parliament. Although the ruling Labor party’s recent uptick in the polls suggest that it is in pole position to form a minority government, we wouldn’t count out the …
Japan's economy will be hit less hard than many other large economies by the recent escalation of the trade war. While mounting uncertainty will keep the Bank of Japan on the sidelines for a few months, we expect the labour market to remain tight and …
15th April 2025
The extraordinary tariff chaos over the past week and associated fallout in the financial markets (see our coverage here ) have increased the chances that the damage to the UK from the US trade war will be larger and that inflation and interest rates will …
11th April 2025
BoJ will stay on sidelines for now The relief that followed the suspension of reciprocal tariffs for all countries except China on Wednesday proved short-lived as bilateral tariffs between China and the US are still being ratcheted up to eye-watering …
Downside risks to the economy that prompted March cut have eased Meanwhile, underlying inflation pressures are far too strong for comfort Bank likely to pause next week, but we still expect further cuts this year Despite the economy facing the existential …
10th April 2025
Despite President Trump’s latest decision to pause the US’s “reciprocal” tariff regime for 90 days, there is still a real risk that the second-order effects of higher US tariffs on the UK economy are bigger and that UK inflation and interest rates fall …
We have updated our forecasts for Canada to account for the latest changes in US trade policy. (See Table below.) A recession should be avoided, but the harsh tariffs on the vehicle sector and uncertainty about the future of the USMCA mean GDP growth is …
While Canada escaped “liberation day” relatively unscathed, the imposition of US tariffs and risk of more to come will still weigh on exports, consumer confidence and investment. With immigration also plunging, we now expect GDP to expand by just 0.4% …
9th April 2025
Even if Japan’s attempts to negotiate a trade deal with Trump succeed quickly, concerns about the impact of escalating tensions between the US and other trading partners will force the Bank of Japan to keep interest rates unchanged for a few more months. …
RBNZ will cut further than most anticipate The RBNZ cut rates by 25bp at its meeting today, while signalling that further easing would be forthcoming in the months ahead. We think the Bank will ultimately loosen policy settings to a greater degree than …
The Bank of Canada’s quarterly business and consumer surveys were nowhere near as bad as we feared, but that may only be because the survey periods preceded the most recent tariff announcements. Either way, it’s clear that those tariffs and uncertainty …
7th April 2025
Australia and New Zealand are safe havens in the current global trade storm because they have small manufacturing sectors, export little to the US and haven’t been hit with high US tariffs. We’re therefore sticking to our forecast that the RBA will only …
With President Trump announcing reciprocal tariffs of 34% and 20% on all US imports from China and the European Union respectively this week, the news that UK goods exports to the US will be subject to the minimum 10% “baseline” tariff from 5 th April …
4th April 2025
More policy support may be forthcoming Although the RBA left rates unchanged on Tuesday, it sounded a lot more dovish than it did in February. Indeed, it significantly toned down its concerns about upside inflation risks and the dangers of prematurely …
Tankan consistent with further tightening Compared to other Asian economies, the 24% US tariff on imports from Japan announced this week looks rather modest. Nonetheless, the chances that the Bank of Japan will hike rates in May as we’re forecasting have …
Canada has escaped much more lightly than we feared from President Trump’s big announcement, with the import-weighted US tariff likely to be 8% based on current plans and potentially below 5% in the near future. Nonetheless, the much larger tariff rate on …
3rd April 2025
We expect the Reserve Bank of New Zealand to cut its Official Cash Rate by 25bp, to 3.5%, at its next meeting on 9 th April. Although activity is now on the mend, spare capacity will ease only gradually, consistent with a sustained decline in …
2nd April 2025
The latest PMIs suggest that global industry is heading into Q2 on a weaker footing. Meanwhile, price pressures accelerated sharply in the US but generally eased elsewhere. The output component of the global manufacturing PMI fell to 50.5 in March from …
1st April 2025
While the RBA is becoming increasingly confident that inflation will sustainably return to target, we still expect its easing cycle to be shallower than most anticipate. The RBA’s decision to leave its policy rate unchanged at 4.10% was correctly …
RBA’s easing cycle will be shallow While the RBA is becoming increasingly confident that inflation will sustainably return to target, we still expect its easing cycle to be shallow. The Bank’s decision to leave the cash rate unchanged at 4.10% was …
Australian house price growth remained soft in March, amid still-weak housing demand. Although the RBA’s easing cycle could help deliver a shift in momentum later this year, stretched affordability is likely to constrain the strength of the rebound. Much …
Overview – We’ve become more concerned about the outlook for the economy due to the drags from higher businesses taxes and the more uncertain global backdrop being bigger than we thought and the boost from government spending being smaller. Our forecasts …
31st March 2025
RBA will cut two more times this year Australian Prime Minister Anthony Albanese confirmed today that the next general election will be held on 3 rd May. The announcement comes closely on the heels of the government’s 2025/26 Budget , which includes an …
28th March 2025
Time to act decisively has come The US this week announced a 25% tariff on auto imports and Japan will be among those economies most affected. (See here .) While PM Ishiba has said that “all options are on the table” when it comes to Japan’s response, our …
While US tariffs are a headwind, the continued acceleration in consumer prices will only heighten concerns among Bank of Japan’s Board members about inflation overshooting its 2% target. As the Bank should have a rough sense of the severity of US trade …
Following the series of US tariff announcements in early April, we have revised our forecasts. You can find the updated forecasts here . Overview – We have raised our assumption for the average US tariff rate that Canadian exporters will face, to a level …
27th March 2025
