Filtered by Topic: Monetary Policy Use setting Monetary Policy
Downside risks to the Bank of England’s forecasts are crystallising MPC will wait until the current QE program is ending before adding more stimulus QE still the tool of choice, negative rates possible further ahead The initial recovery has been …
10th September 2020
Chile’s economy is recovering more quickly than we had previously expected and, as a result, we are revising up our 2020 GDP growth forecast to -5.5% (previously -7.0%). The stronger rebound has eased pressure on the central bank to loosen monetary policy …
While the euro’s recent appreciation has generated a lot of attention, it is in fact close to its historical average by most measures. So while ECB policymakers may note at today’s press conference that the exchange rate influences their economic …
Bank Negara Malaysia (BNM) left its main policy rate on hold at 1.75% today, but with the economy likely to remain weak for some time to come, we doubt this marks the end of the Bank’s easing cycle. Today’s meeting was always likely to be a close call. …
Inflation rises, but central banks won’t be too alarmed Brazilian inflation remained well below the central bank’s target last month, at 2.4% y/y, confirming that price pressures are soft and supporting our view that the Selic rate will stay low for a …
9th September 2020
The experience of the aftermath of the Global Financial Crisis (GFC) chimes with our EM rates view on two counts. The first is that easing cycles in many EMs are now at an end (Brazil) or will draw to a close over the coming months (Mexico, South Africa …
Bank will stay the course at upcoming meeting Likely future PM Suga has indicated that he sees scope for interest rate cuts But recent comments suggest he won’t interfere in monetary policy decisions The Bank of Japan will leave policy settings unchanged …
The use of traditional monetary policy tools alongside financial repression will keep government borrowing costs in India in check over the coming years. That should help to ensure that only modest fiscal tightening will be needed to put the public debt …
Rebound in household incomes to continue Wage growth improved in July and household incomes are likely to rebound further as more workers who lost their jobs during the state of emergency find employment again. Meanwhile, the second estimate of Q2 GDP …
8th September 2020
Brazil & Mexico’s PMIs diverge The manufacturing PMIs for August published this week were surprising, both for the strength they implied in Brazil’s economy and the weakness in Mexico’s. But in both cases, the surveys are painting an exaggerated picture …
4th September 2020
Slow recovery in the Philippines A long and strict lockdown meant the Philippines suffered one of the biggest falls in GDP in the region in the second quarter. (See here .) The most recent data suggest that it is also experiencing one of the slowest …
Pandemic decimating some services sectors The 7.0% q/q plunge in Q2 GDP was larger than we had anticipated and meant that Australia entered its first recession in 29 years. And while we’ve pencilled in a 0.5% q/q rise in Q3, the risks to that forecast are …
Surge in sales to reverse in August Retail sales were 12% above pre-virus levels in July but the closure of non-essential shops in Victoria will weigh heavily on spending in August. That means that sales won’t rise all that much in Q3, though a rebound in …
No major policy changes on the cards at next week’s Governing Council meeting. Recent developments mean that the ECB will stick firmly to its dovish course. We think the Bank will eventually add to its planned emergency asset purchases. The ECB will not …
3rd September 2020
While the Bank of England might not follow the Fed and change its inflation remit, we doubt this will stop it from significantly loosening policy and from keeping it loose for a very long time. The Fed announced last week that it will now seek “to achieve …
Still a very long way from normal The rise in the August PMIs pales in comparison with the falls during the lockdown and it is highly likely that output is still a very long way from pre-pandemic levels. Given the bleak economic outlook, we think the RBI …
Proposed changes to Bank Indonesia’s mandate, which include a shift to focus more on growth and unemployment, could lead to major changes in how the central bank operates. However, given the country’s high level of foreign currency debt, policymakers …
2nd September 2020
Ongoing virus-related supply disruptions as well as one-off factors such as phone tariff hikes have kept inflation higher than we had anticipated over recent months. But with food inflation set to drop sharply and demand set to remain depressed, we are …
The Fed’s switch to an average inflation targeting regime and revised interpretation of its full employment goal are a response to challenges which are common to many economies, including the euro-zone. We think the ECB will move in a similar direction …
1st September 2020
The 11% q/q drop in GDP in Turkey in Q2 was smaller than we had expected and we now forecast the economy to slump by 3% this year (previously 5.8%). But the recovery over the coming quarters will be held back by weakness in the tourism sector as well as …
The RBA today expanded its Term Funding Facility which should contribute to continued strong growth in the money supply. And while it didn’t indicate that additional stimulus is forthcoming, we still expect it to expand its bond purchases before long . As …
Argentina & the IMF: Take 22… Barring any unexpected hiccups, $66.2bn of Argentina’s international sovereign bonds will be restructured next Friday. As will $41.7bn of local-law FX bonds. Now the government wants to tackle the debts owed to its historic …
28th August 2020
Nigeria’s foreign currency woes Fresh measures by Nigeria’s central bank to clamp down on foreign currency transactions underline the severe pressure on the naira. While the currency will probably be allowed to weaken, further restrictions are likely to …
Turkish lira still vulnerable as EU tensions escalate The Turkish central bank’s tightening of monetary conditions has helped to stabilise the lira but the further ratcheting up of tensions with the EU mean that the risks to the currency lie to the …
QE is edging closer The Bank of Korea (BoK) surprised no one by keeping rates on hold at 0.5% this week. (See here .) Less expected was Governor Lee’s assertion that the Bank has “room for a rate cut”. We’ve now pencilled in a further 25bp cut to 0.25% in …
RBI OMOs a sign of things to come The rise in government bond yields over recent weeks appears to have jolted the RBI into action. The central bank this week held an open market operation (OMO) in which it purchased long-dated bonds with the aim of …
Chair Jerome Powell announced this morning that the Fed will be adopting what he described as a “flexible form of average inflation targeting”, which we expect will trigger additional policy stimulus in the form of stronger forward guidance and possibly …
27th August 2020
The consumption share of GDP had edged up in recent years, but that progress has been reversed by the COVID-19 stimulus response, which has focused on boosting investment. (See Chart 1.) The consumption share should start to rebound again soon as the …
Broad money growth accelerated to a 12-year high in July, but we think that this will prove to be temporary and is not likely to push up inflation. Meanwhile, growth in bank lending to firms has returned to more normal levels, while consumer credit …
In Australia, the lockdown in Melbourne in July was of similar intensity to the initial lockdown in April. Even so, retail sales only fell by 2% m/m in Victoria which still left them around 2% above pre-virus levels. Part of that strength may reflect …
Both Korea and Japan are experiencing second waves, but a stronger shift in consumer behaviour in Korea means the outbreak there is likely to have a larger impact on growth. As such, we’ve revised down our GDP forecast for Korea but kept it the same for …
The Bank of Korea (BoK) left its policy rate on hold at 0.50% today but gave hints at the press conference that fresh rate cuts were on the table. We have pencilled in a cut in Q3 as a result and are sticking with our view that the BoK will expand …
The neutral interest rate has become one of the hot topics in Russian monetary policy over the past year and the downward revision to the central bank’s estimate of the neutral rate in July marks the first step in the shift towards a new normal of lower …
26th August 2020
Having been among the fastest in the world at controlling the initial outbreak, Hong Kong, Vietnam and Korea are all at different stages of a second wave of infections. With new infections in Hong Kong down from three-figures at their recent peak in late …
Draconian lockdown in Victoria to weigh on recovery and lift unemployment Inflation and wage growth set to soften further We still expect the Bank to start buying-longer dated bonds early next year The Reserve Bank of Australia isn’t keen on providing …
25th August 2020
Banks hit with co-pay on stimulus bill When the Global Financial Crisis struck, Chinese policymakers leant heavily on the state-owned banks to shore up economic activity. While the 2009 RMB4trn fiscal stimulus package receives much of the credit, the …
21st August 2020
Small dividend makes Fin Min’s job harder The RBI’s annual dividend transfer took place this week and was met with far less fanfare compared to last year. That is in large part because the size of the transfer has reverted to more normal levels after a …
The minutes of the Reserve Bank’s August policy meeting show that the MPC – of which three members are now due to step down – has turned notably more hawkish on the inflation outlook. But there are reasons to think that inflation pressure will ease and, …
Net trade to provide large boost to Q3 GDP The 7.8% q/q plunge in GDP in Q2 wiped out all the gains since PM Abe returned to power in 2012, but timelier data suggest that a strong rebound is now underway. The 7.4% m/m rise in export volumes in July was …
The account of the ECB’s last monetary policy meeting suggests that there was a strong consensus in favour of the current policy settings. Absent a big surprise in the economic data or fresh financial market turmoil, the Bank is likely to leave policy …
20th August 2020
Turkey’s central bank kept its key policy interest rates on hold today and, while the accompanying statement acknowledged growing upside risks to inflation, it looks like that the focus will remain on tightening monetary conditions via the use of the …
The central bank of the Philippines (BSP) left its main policy rate on hold at 2.25% today, but with the pandemic weighing heavily on the economy, we doubt the Bank has finished easing. Today’s decision to hold follows a 50bp cut at the BSP’s last meeting …
This morning’s decision by the Norges Bank to leave its key interest rates on hold at zero was never really in doubt. We still think it more likely than not that the Bank will leave rates on hold throughout our forecast horizon. Today’s announcement was …
The Central Bank of Sri Lanka (CBSL) left both its deposit and lending rates on hold at 4.50% and 5.50% respectively at its meeting today, but given the poor outlook for the economy and mounting political pressure, we think the easing cycle has further to …
Commercial banks left the Loan Prime Rate (LPR) on hold today. Given signs that the focus of monetary policy has shifted to containing financial risks on the back of the relatively rapid economic recovery, we think the LPR will be unchanged for the …
Bank Indonesia’s (BI) decision to leave interest rates unchanged at 4.0% suggests that it is waiting to see if the recent stabilisation in the rupiah holds. Provided it does, we think further easing is likely over the coming months as the economic …
19th August 2020
If the monthly activity data are anything to go by, GDP data for Q2 (Q1 of FY20/21) due at the end of the month will show that investment slumped by more than 30% y/y. (See Chart 1.) That will prove the bottom given the lifting of lockdown measures since …
The Central Bank of Egypt (CBE) kept interest rates on hold for a fourth consecutive meeting on Thursday as policymakers remained cautious about delivering more monetary stimulus. That said, with the CBE accepting that inflation will undershoot its …
14th August 2020
Demand for trucks rising at fastest pace since 2010 Data published this week showed that vehicle sales expanded 16.4% y/y in July, the fastest pace in over three years. Most of the focus has been on the strength of passenger car sales, which is …
The Norges Bank will almost certainly leave its key interest rate on hold at zero next Thursday (20 th August), and we expect it to reiterate that it is in no rush to tighten policy. Having cut its key policy interest rate to a record low of zero at its …
13th August 2020
