Filtered by Topic: Monetary Policy Use setting Monetary Policy
Should the RBI target core inflation? Under current law, India’s government issues the RBI with an inflation target every five years. The current target of 4% headline CPI inflation, with a “tolerance band” of 2-6%, runs until the end of next month. We’ve …
26th February 2021
We doubt that the Reserve Bank of New Zealand’s new obligation to consider house prices will drastically change the outlook for monetary policy. But given that house price growth remains very strong, there is a risk that the Bank tightens policy earlier …
Bond yields soaring to two-year high The key market theme this month has been the surge in long-term government bond yields. While that rise is partly driven by worries that another large stimulus package in the US will lift inflation, yields have risen …
The Bank of Korea (BoK) left its main policy rate on hold at 0.50% today in a unanimous decision, and while further rate cuts are now very unlikely, we expect more intervention in the government bond market to curb rising long-term yields. The decision to …
25th February 2021
We think market participants are getting ahead of themselves by pricing in an interest rate hike from the Bank of Canada in 2022, particularly as Governor Tiff Macklem again signalled yesterday that the Bank will place greater emphasis on employment …
24th February 2021
The equilibrium level of real interest rates in the global economy may not remain quite as low as of late, but we expect any rise to be gradual and small. With policymakers at the same time taking a more tolerant attitude towards inflation, actual real …
The financial markets have started to price in a rate hike as soon as early-2023 Labour market tightening but wage growth and inflation set to fall short of RBA’s targets We expect the first rate hike to be delayed until early-2024 and bond yields to fall …
The Reserve Bank of New Zealand (RBNZ) sounded dovish when it left policy settings unchanged today, but we still expect the Bank to begin increasing rates next year. As expected, the RBNZ did not adjust the OCR or its asset purchase program at today’s …
Indian GDP data due to be released on Friday are likely to show only a small contraction in annual growth in Q4 2020, and high-frequency indicators point to a relatively strong start to 2021. Indeed, our in-house mobility tracker suggests that activity …
The pandemic has thrown up many surprises for the Canadian economy, the latest of which is the speed at which oil production has rebounded. Even though global fuel demand remains weak amid ongoing global travel restrictions, the Canada Energy Regulator’s …
23rd February 2021
The minutes of the Reserve Bank’s February policy meeting – in which interest rates were left unchanged – show that the MPC remains cautious on the inflation outlook but that it is also committed to keeping policy accommodative to ensure that the economic …
The Bank of Japan is likely to widen the tolerance band around its 10-year yield target next month. The last time this happened, many saw it – wrongly in our view – as a form of policy tightening. It will be driven more by a desire to steepen the yield …
The strong rise in output in Q4 2020 to just 1.2% below Q4 2019 levels bolsters our view that Japan’s economy will be back to the level it reached before the tax hike and close to its pre-virus path by mid-2022. (See Chart 1.) Daily virus cases have …
22nd February 2021
Commercial banks left the Loan Prime Rate (LPR) unchanged on Saturday. But monetary conditions have tightened in practice since the start of the year. We expect the PBOC to formalise the shift with policy rate increases in the next few months. The …
Retail sales in the UK probably edged down in January due to virus restrictions (07.00 GMT) Euro-zone flash PMIs likely to show manufacturing activity remains resilient… (09.00 GMT) …while flash PMIs in the US are likely to point to a strong recovery …
18th February 2021
The account of the January ECB monetary policy meeting confirms that there was unanimous support for the policy agreed at the December meeting, when the PEPP envelope was increased to €1.85trn and more TLTROs were announced. We expect the ECB to stick to …
One legacy of the pandemic is a huge expansion in central banks’ balance sheets. Fears that this will automatically boost inflation are overdone. So, too, are worries that central banks will provoke a destabilising rise in bond yields by selling their …
17th February 2021
The Long Run is a new subscription service offering insight into issues that will shape the global economy and financial markets over the next 30 years. This Update outlines our ten key calls for the coming decades. 1. Pandemic won’t permanently weaken …
We forecast the Norges Bank to be the first advanced central bank to begin raising interest rates, in the second half of this year. This will further bolster the krone, which we expect to be the best-performing G10 currency in 2021, and will drive the …
Economic rebound means the RBNZ done easing The Bank has already slowed the pace of asset purchases We expect the Bank to end quantitave easing this year before hiking rates in 2022 Economic data since the Bank’s last meeting have shown the New Zealand …
The continued surge in growth of narrow measures of the money supply underline that the economy is awash with liquidity, but that will not trigger a surge in price inflation when growth in the broader money supply and bank lending are trending lower. (See …
16th February 2021
RBNZ cracks down on the housing market In April 2020, the RBNZ removed its existing LVR restrictions for housing loans which stipulated that banks could not lend more than 80% of loans to owner-occupiers with loan-to-value (LTV) ratios above 80% and no …
11th February 2021
RBI commits to low rates and ramps up OMOs… Indian yields rose significantly in the aftermath of the unexpectedly-accommodative Union Budget announcement but developments since have helped to reduce some of the upward pressure. Admittedly, the RBI kept …
This morning’s announcement that the Riksbank left its policy settings unchanged will have come as a surprise to no one. Policymakers are in no rush to raise the repo rate from zero, but there are likely to be differences in opinion about how to proceed …
10th February 2021
There are fears that, by making the government’s debt servicing costs more vulnerable to short-term rises in interest rates, quantitative easing (QE) is storing up trouble for when Bank Rate rises. However, right from the onset of the scheme, it was clear …
Slip into deflation no cause for concern Headline consumer price inflation returned to negative territory last month, but this was largely due to a shift in the timing of the Lunar New Year. In fact, producer price inflation turned positive for the first …
Credit growth continues to slow as policy turns less supportive Credit growth in China dropped back further last month due to a broad-based slowdown in both bank and non-bank lending. Credit is likely to continue decelerating as the PBOC focuses on …
9th February 2021
SoE extension not a major worry The government this week extended the state of emergency by a month for ten of Japan’s eleven prefectures. Tochigi was the only prefecture that was excluded as it met all six of the metrics required to lower the status of …
5th February 2021
The MPC voted to keep the repo and reverse repo rates on hold today but committed to keeping policy “accommodative” for the foreseeable future. We no longer expect any more rate cuts, but markets are too hawkish in expecting modest rate hikes within the …
RBNZ tightening looking more likely Just three weeks ago we unveiled our non-consensus forecast that the Reserve Bank of New Zealand would begin raising rates in 2022. Since then a string of positive data releases has confirmed our view that the economy …
Banking reforms back on the agenda The dust is settling on the Finance Ministry’s unexpectedly accommodative Union Budget for FY21/22 delivered on Monday. We looked at various aspects of the announcement here and here . One topic mentioned by FM Nirmala …
Our forecast that the euro-zone economy rebounds strongly hinges on Covid-19 restrictions being lifted by the middle of the year. Unfortunately, vaccine supply shortages, distribution problems and concerns about variants could force governments to keep …
4th February 2021
The Central Bank of Egypt (CBE) opted to keep interest rates on hold at its first meeting of the year and, with inflation set to rise over the next 6-9 months, we think policymakers will keep rates unchanged for much of this year. But a drop in inflation …
Taper talk is premature and purchases typically won’t slow until next year There is absolutely no rush for central banks to shrink their balance sheets But when they do, the process will require some creative thinking Talk of tapering in recent weeks has …
The Riksbank is highly likely to leave its repo rate and other policy settings on hold next Wednesday (10 th February), but we expect it to beef up its asset purchase programme again before long. Recall that the Riksbank left its repo rate unchanged at …
3rd February 2021
After having been boosted by stockbuilding ahead of the end of the Brexit transition period on 31 st December, exports and imports were always going to fall in January. But the added drags of COVID-19, the new Brexit customs procedures and the surge in …
We are more upbeat about the outlook for the economy than the Reserve Bank of Australia. But the RBA seems keen to err on the side of caution. With the latest extension of its QE programme already ending in August, we suspect the Bank will announce one …
Euro-zone CPI inflation probably rose in January (10.00 GMT) We think virus-related restrictions weighed on US employment last month… (13.15 GMT) … but that the ISM services index will point to a continued recovery in activity (15.00 GMT) Key Market …
2nd February 2021
The RBA today upgraded its labour market forecasts but noted that the recovery remained dependent on “significant fiscal and monetary support”. Indeed, the Bank extended its Bond Purchase Program by another $100bn and indicated that it won’t raise …
Underlying inflation picked up strongly in New Zealand in Q4, with core inflation rising above the mid-point of the RBNZ’s 1-3% target band. That supports our view that the RBNZ will not cut rates further. But we expect strong house price growth and a …
1st February 2021
Short-term funding costs for banks have risen sharply during the past couple of weeks. The 7-day depository repo rate (DR007), which has been flagged by the PBOC as a key benchmark and focus of monetary policy, jumped over 100 basis points to a two-year …
29th January 2021
Inflation set to rise further The 0.9% q/q rise in consumer prices in Q4 was much stronger than the RBA’s forecast of 0.5% q/q. That said, the pick-up in annual inflation was entirely driven by administered goods as child-care subsidies and a freeze in …
Finance Ministry faces a tough balancing act For India watchers, next week will be one of the most important of the year. On Monday, Finance Minister Nirmala Sitharman will unveil the Union Budget for FY21/22. We published a full preview of the Budget …
The Bank of Canada has signalled that it will wait until 2023 to raise interest rates and, despite our stronger forecasts for GDP growth, there are a few reasons why we expect it to stick to this pledge. Last week the Bank reiterated that it will “hold …
28th January 2021
Bank to emphasise it is willing to provide more support and has the tools to do so But there is a lot of QE already in the pipeline and we doubt it’s ready to use negative rates Our relatively optimistic economic forecasts suggest it won’t need to either …
Saudi: squeezing SAMA to fund PIF The change at the helm of the Saudi Central Bank (SAMA) adds to signs that the government will lean more heavily on SAMA to support its efforts to diversify investments and the Saudi economy. SAMA Governor Ahmed …
The Fed acknowledged in its post-FOMC meeting statement today that the economic recovery weakened in the final couple of months of last year, but balanced that near-term pessimism with greater optimism that vaccines had reduced the medium-term risks to …
27th January 2021
Having experienced some of the smallest falls in output in Europe in 2020, GDP in Switzerland and the Nordics is likely to rise back to pre-virus levels in H2 2021 – about a year ahead of the euro-zone. As elsewhere in Europe, the pace of vaccine …
We expect the FOMC to reiterate its commitment to accommodative policy today Economic sentiment may have deteriorated in Europe in January (10:00 GMT) US GDP growth probably slowed in Q4 (13:30 GMT) Key Market Themes It seems very unlikely that the FOMC …
10-year gilt yields haven’t been significantly dragged higher by 10-year US Treasury yields because, unlike their US counterparts, break-even inflation rates in the UK have not been boosted by expectations of a big fiscal stimulus, a rise in inflation and …
