Filtered by Topic: Monetary Policy Region: G10 Use setting G10 Use setting Monetary Policy
Chapter 1: Will stronger potential growth boost r*? …
17th October 2023
Introduction and framework …
r* and the end of the ultra-low rates era: executive summary …
What will a world of structurally higher interest rates look like? How will central bank behaviour change in the coming years? What will this mean for market returns? Our senior economist team hosted a special online briefing all about their new work …
RBA will probably hike rates in November The minutes of the RBA’s October meeting support our view that the Bank will deliver a final 25bp rate hike at its November meeting. While the Bank decided to keep rates unchanged at that meeting, it kept …
This page has been updated with additional analysis since first publication. RBNZ to remain on hold as inflation continues to soften With price pressures on track to moderate further, we think that Reserve Bank of New Zealand won’t lift rates any higher. …
16th October 2023
The Bank of Canada’s quarterly surveys show that businesses’ inflation expectations continue to decline, albeit slowly, and point to a growing risk that the economy will fall into recession. Accordingly, we continue to doubt that the Bank will raise …
There appears to be growing support at the Fed for the idea that the recent sell-off in long-term Treasuries reduces the need for further policy rate hikes, but the more persuasive reason for the Fed to pause is that inflation is continuing to ease …
13th October 2023
Almost as fast as gilt yields rose (see here ) they have subsided. After surging from 4.68% on 2 nd October to a 21-year high of 5.11% last Friday, the 30-year gilt yield dropped to 4.72% on Thursday, although it has since ticked up to 4.85% on the back …
The latest activity and survey data have provided even more evidence that the resilience in activity in advanced economies over the first half of 2023 is now fading. High interest rates are clearly weighing on credit growth, and a further rise in debt …
Minutes stress uncertainty over economic outlook Despite the ‘higher for longer’ message from the Fed’s updated rate projections last month, the minutes from the September FOMC meeting suggest that officials’ confidence in those forecasts is limited, with …
11th October 2023
Any fall in bond prices resulting from higher bond yields won’t affect the BoJ’s balance sheet unless the Bank decides to sell its holdings. By contrast, rising interest payments on commercial banks’ reserve holdings could create losses, though those …
10th October 2023
Central banks in both Australia and New Zealand are likely to retain their hawkish bias in the near term, given that inflation is far from tamed in either country. While we think the RBNZ's tightening cycle is over, we expect RBA to hand down one final …
Welcome to a world of higher interest rates. This in-depth analysis shows you how the structural forces that have weighed on equilibrium real interest rates over the past two decades have faded, and the powerful new drivers that are likely to push them …
9th October 2023
Our latest Chart Pack on Japan's economy is embedded below. With the economy growing at an above-trend pace, the labour market should soon start to tighten again. There are mounting signs that a virtuous cycle between wages and prices is starting to form …
We expect the euro-zone economy to struggle over the next 18 months, and a mild recession in the coming quarters looks more likely than not. Headline and core inflation should keep falling, but the labour market will remain tight, keeping wage growth …
6th October 2023
One more hike for good measure On Tuesday new RBA Governor Michele Bullock began her tenure not with a bang but with a whimper, by leaving the cash rate unchanged at 4.10%. What’s more, the statement accompanying the policy decision gave few indications …
Bond market sell-off pushes yen to one-year low The big event this week was the sharp fall in the yen after it breached 150 against the dollar while Tokyo was asleep in the early hours of Wednesday. Government officials have refused to comment on …
The ‘higher for longer’ narrative on interest rates that is baked into market pricing is at odds with evidence of widespread falls in inflation. Higher oil prices mean that fuel inflation will be a bit higher than seemed likely a few months ago. But the …
5th October 2023
Slowing momentum in activity, the recent decline in employment, and the sharp falls in core CPI and services inflation in August are clear signs that higher interest rates are weighing more heavily on the economy. This strengthens our view that the mild …
4th October 2023
With its assessment of the balance of risks broadly unchanged, the Reserve Bank of New Zealand left rates on hold at its meeting today. Although the Bank will likely retain its tightening bias, we continue to believe that the official cash rate is at its …
RBNZ’s next move will be down Although the RBNZ will retain its tightening bias, we believe that the official cash rate is at its cyclical peak. All 27 of the analysts polled by Reuters, including ourselves, had expected the Bank to leave the OCR …
While new RBA Governor Michelle Bullock didn’t spring any surprises at her first interest rate decision today, we think that the Bank will hike interest rates to a peak of 4.35% at its next meeting in November . However, we expect the RBA to pivot towards …
3rd October 2023
RBA will deliver final rate hike next month While new RBA Governor Michelle Bullock didn’t spring any surprises at her first monetary policy decision today, we think that the Bank will hike interest rates to a peak of 4.35% at its next meeting in …
By putting upward pressure on JGB yields and the yen, tighter monetary policy could lead to falls in the value of bonds and overseas assets held by Japanese investors. Insurance companies and pension funds have the most to lose. However, we do not think …
Overview – We expect GDP growth to slow from 2.1% this year to only 0.8% in 2024, with the economy still likely to experience a near recession around the end of this year. Core inflation will continue to fall back to the 2% target by mid-2024, with much …
29th September 2023
Sustainable 2% inflation coming into sight The minutes of the Bank of Japan’s July meeting revealed that Board members had a lively debate on the outlook for inflation and monetary policy. One member noted that “close attention was warranted on the risk …
Economic data flash mixed signals The big news out of Australia this week was the strong rise in consumer prices in August. Moreover, with underlying price pressures showing few signs of relenting, we’ve revised up our forecast for the RBA’s terminal cash …
We suspect the pound will fall from $1.22 now to $1.20 by the end of this year. That’s not due to lower interest rate expectations in the UK compared to the US or the euro-zone, as we think the UK will be the last to cut rates. Instead, it’s due to the …
28th September 2023
The direct hit to the economy from even an extended government shutdown beginning next week would be modest. But it could also result in delays to key data releases, including the September employment and CPI reports due over the next couple of weeks. At …
Strong immigration and the resilience of the housing market raise the chance that the economy will avoid recession but, with the Bank of Canada keeping further rate hikes on the table, we still judge that GDP will contract later this year. Even if …
27th September 2023
Overview – We expect the euro-zone economy to struggle over the next 18 months, and a mild recession in the coming quarters looks more likely than not. Lower energy prices and improved global supply chain conditions should keep headline inflation on a …
Activity is holding up better than expected, while disinflation is stalling Another 25bp rate hike now seems more likely than not Policy easing pushed back to mid-2024 Stronger-than-expected GDP and inflation data should cement the case for the RBA to …
This page has been updated with additional analysis since first publication. Resurgent price pressures raise risk of tighter policy With Australia’s disinflationary process stalling, there’s a growing risk that the Reserve Bank of Australia will resume …
Overview – We expect another few quarters of near-zero GDP growth to lead to an annual gain of just 0.7% next year. Even with higher oil prices, the weakness of economic growth leaves scope for CPI inflation to fall back to the 2% target in 2024. That …
26th September 2023
The sharp slowdown in broad money growth since late last year suggests that higher interest rates are working by reducing households’ and firms’ demand for borrowing, which should lead to softer activity and lower inflation. This supports our view that a …
RBNZ to reassert its tightening bias as activity surprises on the upside Given the noise in the recent data, we don’t expect further rate hikes However, policy will remain restrictive for longer, with rate cuts only in Q3 2024 Although economic activity …
Given clearer signs of economic weakness in recent weeks, we think the surprise increase in underlying inflation pressures in August means the Bank of Canada is more likely to keep interest rates at their current level for longer than to raise rates …
25th September 2023
The abandonment of Yield Curve Control would probably prompt the Bank of Japan to reduce its bloated holdings of government bonds, which could push up long-term bond yields. However, there are good reasons to think that the fiscal consequences wouldn’t be …
The September Flash PMIs add to evidence that economic activity in the US and Europe is weakening. This supports our view that the Fed, ECB, and Bank of England have finished hiking interest rates. Our estimate of the DM average composite PMI edged down …
22nd September 2023
This week’s news that interest rates are probably at their peak (see here ) and the news that public borrowing in the current fiscal year is £11bn below the Office for Budget Responsibility’s forecast has raised the pressure on the Chancellor to deliver …
The new projections published by the Fed this week signalled that officials are fully onboard with the idea of interest rates staying ‘higher for longer’, but that is based on forecasts for real economic growth and inflation which we believe are …
We held a Drop-In yesterday to discuss the latest policy meetings of the Fed, ECB, and Bank of England and what they might mean for the future path of policy and financial markets. (See the recording here .) This Update answers several of the questions …
Higher inflation lowering deficit and debt/GDP Even though inflation excluding fresh food and energy remained stubbornly high at 4.3% in August, the Bank of Japan didn’t drop any further hints that it might tighten policy anytime soon at its meeting …
The Bank of Japan still sounded dovish when it kept policy settings unchanged today. But with inflation proving stickier than expected, we expect the Bank to lift its policy rate in January and have pencilled in the full-fledged dismantling of Yield Curve …
Overview – Both economies have dodged a recession so far, but we still consider it more likely than not that output will shrink across the second half of the year. With inflation softening and labour markets loosening, both central banks are done hiking …
Negative rates will end in early-2024 The Bank of Japan didn’t provide any hints that it will abandon loose monetary policy anytime soon when it kept policy settings unchanged today, but Governor Ueda may do so later today. We think the Bank will lift its …
Second-round effects set to be small The minutes of the RBA’s September meeting revealed that the Bank kept discussing another 25bp rate hike. One argument in favour was that the recent rise in petrol prices could make the process of returning to target …
