Filtered by Topic: Monetary Policy Region: G10 Use setting G10 Use setting Monetary Policy
We think investors’ expectations for the Fed funds rate will fall a little by the end of this year, which will push the 10-year Treasury yield a bit lower by end-2023. But we doubt lower “risk-free” rates would be enough to prevent a sharp drop in the S&P …
19th April 2023
Note: We discussed our revamped FCIs and took your questions on global financial conditions in a 20-minute online briefing on Thursday, 20 th April . Watch the recording here . We have revamped our financial conditions indices (FCIs) for advanced …
18th April 2023
Inflation concerns will prompt a final 25bp rate hike in May The minutes of the RBA’s April meeting reinforce our view that the decision to leave rates on hold did not signal an end to the Bank’s tightening cycle. Indeed, the Board did discuss the case …
Bank of Canada Governor Tiff Macklem used his press conference this week to push back against expectations for interest rate cuts later this year. That partly reflects the Bank’s less downbeat assessment of the economic outlook, but the nascent rebound in …
14th April 2023
The strength of the March CPI data may be enough to persuade the Fed to squeeze in a final 25bp rate hike at the early-May FOMC meeting. But with mounting evidence that economic growth is weakening again, we doubt that strength will last much longer. Core …
Data point to positive growth in Q1 The latest official activity data suggest that the euro-zone economy posted a small expansion in Q1. Admittedly, retail sales fell in February, continuing the downward trend they have been on for over a year. But lower …
The Bank of Canada delivered a mixed message today, noting that it is more confident inflation will decline in the next few months, but less confident that inflation will fall all the way to 2.0% as quickly as previously anticipated. Nonetheless, with the …
12th April 2023
The Bank of Canada delivered mixed messages today, noting that it is more confident that inflation will decline in the next few months but less confident that inflation will return to 2% as quickly as it previously anticipated. Nonetheless, with the …
Japan has escaped the recent banking turmoil in the US and Switzerland relatively unscathed. While banks face some risks arising from their lending exposure overseas , there are no signs of liquidity stress. And unrealised losses on bonds are less of a …
The local real estate board data suggest that new listings fell again in March, defying expectations that high interest rates could lead to forced home sales. With supply falling by more than demand, the risks to our house price forecasts lie to the …
6th April 2023
Current market pricing suggests that there is around a 60% chance that, at the next policy meeting in May, the Monetary Policy Committee (MPC) raises interest rates by 25bps, from 4.25% now to 4.50%. This isn’t surprising given the decision will probably …
The RBA’s decision to keep rates on hold at its April meeting has reignited debate over whether the Bank’s tightening cycle is at an end. Financial markets certainly seem to think this is the case. However, our view, and the analyst consensus, is that the …
Will underlying inflation prove to be stickier than we thought? Paul Ashworth and Andrew Hunter from our US Economics team held an online briefing shortly after the release of the March CPI report. During this 20-minute briefing, Paul and Andrew answered …
5th April 2023
Recent data suggest the economy’s resilient end to 2022 was sustained at the start of this year. But while the worst of the falls in real household incomes are in the past, we still think around two-thirds of the drag on real activity from the rise in …
The decision by the Reserve Bank of New Zealand to lift its official cash rate by 50bp, to 5.25%, came as an upside surprise, but we still think the end of the hiking cycle is approaching. In any case, the Bank’s aggressive tightening confirms our view …
Hawkish RBNZ will push New Zealand into recession The RBNZ’s decision to lift its official cash rate by 50bp, to 5.25%, came as an upside surprise to all. 22 out of 24 analysts polled by Reuters, including ourselves, had predicted a 25bp rate hike. The …
The Reserve Bank of Australia kept open the possibility of further tightening when it decided to leave its cash rate unchanged at 3.60% today. As such, we do still expect the RBA to deliver one final 25bp rate hike in May before bringing its tightening …
4th April 2023
RBA will deliver one final rate hike in May The RBA’s decision to keep rates on hold does not signal an end to its tightening cycle. The RBA’s decision to pause was correctly predicted by 21 out of 37 analysts polled by Reuters, including ourselves. The …
BoJ facing dilemma The economic data released this week underline the dilemma facing incoming Bank of Japan Governor Ueda. On the one hand, price pressures continue to strengthen. Inflation excluding fresh food and energy rose from 3.1% to 3.4% in the …
31st March 2023
Headline inflation tumbling, core peaking The big falls in headline inflation in Germany and Spain should provide some relief for struggling households in the coming months. And core inflation in Germany may now have passed its peak. However, with …
30th March 2023
Overview – The economy made a strong start to 2023, but we continue to expect a moderate recession this year as high interest rates feed through and the banking issues in the US weigh on exports. The downturn will help to pull CPI inflation to 2% by the …
29th March 2023
Overview – Acute bank stress will prompt a further tightening in credit conditions, which leaves us even more convinced that the economy will fall into recession this year. With core inflation remaining stickier than we had originally expected, however, …
The RBNZ will temper rate rises, but continue hiking to 5.25%. The Bank will look past the disruption to activity driven by Cyclone Gabrielle. Even so, recession-induced disinflation will pave the way for rate cuts by year-end. With the latest economic …
RBA has signalled that it will consider pausing its tightening cycle next week On balance, the economic data are consistent with a pause Final 25bp rate hike in May to be followed by cuts in Q2 2024 The RBA has signalled a pause in its tightening cycle at …
While CPI inflation will fall from 10.4% to around 3.5% this year, we think a recession involving a peak-to-trough fall in real GDP of around 1.0% is needed to ensure that domestic price pressures weaken to levels consistent with the 2.0% inflation …
28th March 2023
Overview – The euro-zone economy is set to perform much worse than consensus forecasts suggest over the next two years, with a recession looking likely. That is mainly because monetary policy and bank lending conditions are tightening. We expect …
Softness in retail sales raises risk of RBA pause The tepid rise in retail sales in February all but locks in a contraction in sales volumes in Q1. We think that a stronger rise in services spending will help keep private consumption buoyant this quarter. …
Softness in retail sales raises risk of RBA pause The tepid rise in retail sales in February all but locks in a contraction in sales volumes in Q1 and adds to the case for the RBA pausing its rate hiking cycle next week. The 0.2% m/m rise in retail sales …
The flash PMIs for March suggest that not only did advanced economies avoid recession in Q1, but the outlook for activity has improved as well. However, we still think the hit from higher interest rates will intensify . And with services price pressures …
24th March 2023
As we discussed in our “Drop In” webinar after this week’s Bank of England policy decision (see here ), the 25 basis points (bps) hike in interest rates, from 4.00% to 4.25%, could prove to be the end of the tightening cycle. But it is the data on the …
The Fed will need to wait at least another few weeks for clearer evidence of the impact from the recent banking sector turmoil, but we expect economic weakness will convince officials to move to the side-lines before long. Although the Fed pressed ahead …
The dovish tone of the RBA's March minutes has heightened the risks to our forecast for two more 25bp rate hikes in April and May. However, the Board did reiterate that its decision regarding a pause would hinge on the economic data released before its …
The Bank of England followed the Fed’s example by forging ahead today with a 25 basis point (bps) interest rate hike, taking rates from 4.00% to 4.25%. This could prove to be the last hike of the tightening cycle. But if wage growth and CPI services …
23rd March 2023
The 25bp rate hike and new projections unveiled by the Fed today were towards the more dovish end of potential outcomes. Despite recent strong economic data, officials acknowledged the likely hit from the banking sector turmoil and left their end-year …
22nd March 2023
Fed opts for dovish hike The 25bp rate hike and new projections unveiled by the Fed today were towards the more dovish end of potential outcomes – with officials acknowledging the likely economic hit from recent banking sector turmoil and leaving their …
Recent data suggest the economy’s strong start to the year was mostly sustained in February, with consumption growth set to accelerate in the first quarter, payroll employment growth robust and, partly reflecting that strength, core inflation still much …
Reacceleration in inflation supports the case for another rate hike The reacceleration in CPI inflation in February may be enough to tilt the Bank of England towards raising interest rates from 4.00% to 4.25% tomorrow despite the recent turmoil in the …
Reacceleration in inflation may force 25bps rate hike The reacceleration in overall CPI inflation from 10.1% in January to 10.4% in February (consensus 9.9%, BoE 10.2%) and core inflation from 5.8% to 6.2% (consensus 5.7%) may be enough to tilt the Bank …
RBA not done hiking yet The minutes of the RBA’s latest meeting confirm that the RBA is close to ending its tightening cycle, but we suspect that the strength of the latest labour force data will prompt it to deliver two more 25bp rate hikes. Contrary to …
21st March 2023
Clients can access all our latest research on the banking sector crisis here … … and catch-up on today’s Drop-in on the topic here Canada’s CPI inflation probably fell to 5.4% in February, from 5.9% in January (12.30 GMT) Key Market Themes Financial …
20th March 2023
Click here to read the full report Overview – Both the RBA and the RBNZ have more work to do to rein in the recent surge in inflation. That aggressive monetary tightening is starting to take its toll on economic activity and we expect GDP growth to slow …
Markets remain in a febrile state despite the weekend deal for UBS to buy Credit Suisse and a joint central bank statement pledge to beef up dollar liquidity support. What will it take to restore confidence and end this crisis? Economists from across our …
After concerns over US regional banks progressed to panic over the health of a Global Systemically Important Bank in Credit Suisse, a sense of calm was returning by the end of this week. No new banks have followed SVB and Signature to the wall, the ECB …
17th March 2023
The past week has provided a worrying reminder of the fragility of banking systems to rising interest rates. All our analysis on this can be found on our key themes page . Many metrics of financial market functioning have deteriorated worryingly fast and …
Amid growing concerns about the global economic backdrop , financial markets not only believe that the RBA is done tightening, but that rate cuts are on the horizon. (See Chart 1.) However, we’re not convinced. The latest data don’t yet show domestic …
Global financial risks creeping up The troubles at Silicon Valley Bank and Credit Suisse have dominated the headlines this week and have further weakened the case for the Bank of Japan ending Yield Curve Control (YCC). Market expectations for the Fed …
Close call, but if the situation doesn’t deteriorate further we think there will be a 25bps hike Beyond that, fading of banking worries and stronger data required for more hikes Markets may be underestimating how far interest rates will be cut next year …
16th March 2023
How will the Bank of England play its March rate decision following recent turmoil in the US and European banking sectors? Paul Dales, Ruth Gregory and Ashley Webb held an online briefing for clients shortly after the MPC announcement. During this …
Economy is tipping into recession With the New Zealand economy in for more pain on the heels of the Q4 GDP decline, we expect the RBNZ to start cutting rates towards the end of the year. The -0.6% q/q drop in production GDP was weaker than most had …
15th March 2023
RBNZ will cut rates by year-end as recession takes hold The -0.6% q/q contraction in production GDP was weaker than most had expected, but a tad stronger than our forecast (Refinitiv Consensus: -0.2%; CE: -1.5%). And crucially, it was much weaker than the …
