Filtered by Topic: Monetary Policy Use setting Monetary Policy
Turkey roasted In a turbulent week for Turkey, we’ve written various pieces on our services looking at the implications so we’ll summarise the key points in this Weekly . We looked at how a sell-off in the lira could damage the economy and financial …
19th November 2021
SARB joining in… This week, the South African Reserve Bank (SARB) joined its EM counterparts in tightening monetary policy, but we don’t think that policymakers in South Africa will hike interest rates as aggressively as those in Emerging Europe and Latin …
“Given these two-sided risks – weaker activity and higher inflation – the labour market story really is the crucial part of it, and we haven’t yet seen enough of that story, post furlough scheme.” ”Don’t forget what our framework is. It’s about inflation. …
Pakistan’s central bank (SBP) today raised interest rates by an aggressive 150bp and with inflation set to remain above target and the currency likely to come under further downward pressure, further hikes are likely over the coming months. While the …
RBA still a long way from raising rates RBA Governor Phillip Lowe pushed back once again this week on financial market expectations of a hike in the cash rate in 2022. Lowe reiterated that the economy would need to perform very differently from the RBA’s …
Inflation in the emerging world has generally surprised to the upside in recent months. But while inflation in most parts of Asia remains at levels which central banks are comfortable with, it has risen well above target in much of Emerging Europe and …
The fresh falls in the Turkish lira following the CBRT’s interest rate cut today have left Turkey firmly in crisis territory and echoes of previous “sudden stops” during major EM currency crises in the past are growing louder. Without an aggressive policy …
18th November 2021
Whether Jerome Powell or Lael Brainard is given the nod over the coming days, the next 12-18 months are shaping up to be an unusually challenging period for the Fed Chair. The October data showed a renewed jump in CPI inflation to a 30-year high, with …
While October’s trade data showed good exports still depressed by the recent collapse in domestic car production (see Chart 1), there is growing anecdotal evidence that the auto sector is on the cusp of a rapid rebound. Toyota said that its global …
The Riksbank is all but certain to leave its policy settings on hold next week. But against a backdrop of above-target inflation and the broader hawkish shift by policymakers elsewhere, we expect it to dial down the dovishness a bit and to perhaps further …
The South African Reserve Bank fired the starting gun on monetary policy normalisation with a 25bp hike in the repo rate, to 3.75%, today amidst growing concerns about inflation risks. But the statement lends support to our view that interest rates will …
The sharp falls in the lira over the past few days clearly weren’t enough for Turkey’s central bank to stand up to President Erdogan as it pushed ahead with a 100bp cut (to 15.00%) to its one-week repo rate. While the CBRT did signal that the easing cycle …
Bank Indonesia (BI) left interest rates unchanged at 3.5% today and appeared to signal that policy rates would remain unchanged for some time yet. A large output gap and weak inflation mean the central bank is in no hurry to follow other EM central banks …
The central bank in the Philippines (BSP) left its main policy rate on hold at 2.00% today to support the economic recovery, and with GDP still well below its pre-pandemic level, rates are set to remain low for a long time to come. The decision came as no …
There has been no let up for the Turkish lira today and all eyes are turning to the central bank’s interest rate decision tomorrow. Policymakers’ increased tolerance to falls in the lira as well as pressure from President Erdogan mean that an interest …
17th November 2021
New Zealand economy is running red hot RBNZ will hike by 50bps next week OCR will rise to 2.0% by the middle of next year The New Zealand economy is clearly overheating. Measures of underlying inflation are mostly above the ceiling of the RBNZ’s target …
Wage growth will firm up next year putting pressure on the RBA The 0.6% q/q rise in the wage price index in Q3 will provide the RBA with some confidence that rates need to remain low in the near term. But we think that wage growth will rise over 2022, …
Investors were initially disappointed following the decision by Hungary’s central bank (MNB) to raise its base rate by only 30bp (to 2.10%) today, but the hawkish post-meeting communications and a pledge to step up the pace of tightening by using other …
16th November 2021
The Turkish lira has remained under significant pressure at the start of this week and there is a growing risk that the central bank’s continued obedience to pressure from President Erdogan for interest rate cuts results in sharp and disorderly falls in …
By next year, Brazil’s public sector interest payments could be almost twice as large (at ~8% of GDP) as they were in 2020, making the challenge of stabilising the public debt-to-GDP ratio all the more difficult. A lot of the focus of the implications of …
15th November 2021
We expect the ECB to interpret a period of above-target inflation as “transient” even if it lasts for well over a year. Although it will end its emergency PEPP programme next March, we think the Bank will step up the pace of its conventional asset …
Core inflation running hot … Another week, another alarm bell for central bankers in the region. This time it was the turn of the October CPI figures, which showed further increases in Chile (to 6.0%), Mexico (6.2%) and Brazil (10.7%). Global energy …
12th November 2021
With the monetary policy normalisation debate heating up recently in South Africa, next week’s MPC meeting is likely to be a very close call. On balance, we think that the first rate hike will not be delivered just yet and the tightening cycle is likely …
Inflation hits new highs across CEE Inflationary pressures continue to strengthen across Central and Eastern Europe, keeping the onus on central banks to tighten policy aggressively. October inflation data this week provided for ugly viewing. In Hungary, …
Deciphering the SNB’s intentions on the FX front The weekly sight deposit data published by the SNB every Monday morning provide a timely, if imprecise, window into the Bank’s actions in the FX market. The last three data releases suggest that the SNB has …
Encouraging signs in Malaysia and Vietnam At face value, the 3.6% q/q contraction in Malaysia’s Q3 GDP that was revealed today was fairly gloomy. But the detail showed the economy rebounding strongly by the end of the quarter. The monthly national …
The Mexican central bank’s 25bp rate hike, to 5.00%, and the accompanying statement showed little sign that policymakers are likely to follow their peers in Latin America by upping the pace of tightening in response to strong inflation pressures. The …
Surveys point to strong inflation persisting The easing of Covid-restrictions and the reopening in New South Wales and Victoria in October prompted a lift in business confidence in the latest NAB business survey. Business confidence rebounded from 9.6 to …
Recent indicators confirm that the global recovery has continued, but also that it has entered a slower and more difficult phase. US GDP growth slowed sharply in Q3, and our China Activity Proxy suggests that there was a large contraction there. (See …
11th November 2021
We’ve been warning for a while that CPI inflation would rise further than most people expect and have recently pushed our own forecast even higher. We now think CPI inflation will rise from 3.1% in September to 4.0% in October and to almost 5.0% in April …
10th November 2021
The Bank of Thailand (BoT) left interest rates on hold today at 0.5%, and the poor outlook for the economy means rates are likely to remain low for some considerable time. Today’s decision was unanimous, and the outcome was correctly predicted by all 21 …
The sharp tightening of monetary policy in the region will strengthen the preference for savings, dampen lending growth and raise debt servicing costs next year. It is plausible to think that higher interest rates could trim 0.5-0.8%-pts off GDP growth …
9th November 2021
Rising interest rates will result in the RBA making further losses in the years ahead. The Bank’s existing reserves should be enough to absorb those losses in a benign scenario, but the Bank will stop paying a dividend. And in a worst-case scenario, the …
Economic growth has slowed sharply as output approaches its pre-pandemic level. We think that GDP will probably increase by only around 0.5% q/q in the final quarter, down from 2.2% in Q3. Manufacturing firms in Germany are struggling more than most and a …
8th November 2021
While the Fed announced tapering as expected at its meeting this week, the big surprise was how dovish the language in the statement and press conference remained, which suggests to us an increasing risk that the Fed is falling behind the curve. Chair …
5th November 2021
Chile: red-hot recovery starting to boil over Strong September activity (Imacec) data out of Chile this week adds to signs that that the economy is running hot, which will put more pressure on the central bank to take some steam out of the recovery. The …
Transition from coal poses big challenge to Asia If the ambitious targets laid down by the 2015 Paris Agreement to limit the rise in global temperatures to less than 2°C (and preferably 1.5°C) compared to pre-Industrial levels are to be met, then global …
You’re not dreaming: Israel passed a budget For the first time in more than three years, Israel’s government has brought some stability to the public finances by passing the 2021 and 2022 budgets. These are not game changers as far as fiscal policy is …
Yesterday’s 1.5% weakening in the pound against the US dollar to $1.35 and the 20 basis point decline in 2-year gilt yields to 0.43% show that the markets are reassessing the Bank of England’s inflation fighting credentials. And who can blame them. At the …
After failing to push back convincingly against financial markets’ expectations for rate hikes in last week’s press conference, ECB policymakers were out in force this week insisting that the Bank will not raise rates next year. Christine Lagarde said the …
RBNZ to hike by 50bp later this month The sharp decline in New Zealand’s unemployment rate last quarter came despite the strict lockdown implemented in Q3. What’s more, most measures of labour market slack included in the RBNZ labour market suite showed a …
Hike in reverse repo rate not imminent Recent measures by the RBI to further drain liquidity from the banking system have been fuelling hawkish monetary policy expectations. Overnight index swap rates have jumped over the past week. And several analysts …
The Czech National Bank (CNB) shocked everyone with a 125bp interest rate hike at today’s meeting and while this was clearly intended to front-load tightening, the hawkish communications suggest that the tightening cycle still has some way to go. We …
4th November 2021
By leaving interest rates at 0.10% and continuing its QE asset purchases, the Monetary Policy Committee (MPC) didn’t set off any early fireworks today. But it did throw on the bonfire the markets’ expectations that interest rates will rise to 1.0% by the …
Following yesterday’s taper announcement by the Fed, and ahead of the knife-edge decision by the Bank of England later today (we forecast a 15bp rate hike), this morning’s announcement from the Norges Bank was less eventful. Norwegian policymakers …
The Fed unveiled its QE taper today, as widely expected, but is still insisting that the surge in inflation is "largely" transitory, which suggests the doves have the upper hand. The Fed announced that it will reduce the pace of its asset purchases …
3rd November 2021
The National Bank of Poland’s (NBP) decision to raise its policy rate by a larger-than-expected 75bp to 1.25% alongside the upwards revision to its inflation forecast suggests to us that the NBP is taking the fight against inflation much more seriously …
Fed set to announce the start of asset purchase tapering (Wednesday 18.00 GMT) We expect the BoE to hike its policy rate by 15bp, to 0.25% (Thursday 12.00 GMT) We think the composite PMIs for Italy and Spain fell in October (Thursday) Key Market Themes We …
While the recent rise in the yields of short-dated developed market (DM) government bonds looks overdone to us, we still think that the yields of long-dated bonds will resume their rise . Charts 1 and 2 show that DM yield curves have flattened …
The economic and political backdrop in Turkey is eerily similar to that which preceded the currency crisis in 2018, although one key difference now is that the lira doesn’t appear to be fundamentally misaligned. The upshot is that, even if the lira were …
