Filtered by Topic: Monetary Policy Use setting Monetary Policy
The shift in market expectations in Brazil towards much larger interest rate cuts by early 2020 now looks overdone. However, expectations for the Selic rate over a longer time horizon (2-5 years) look too high . There is a growing debate about how far …
17th October 2019
Unemployment set to rise again before long The RBA will breathe a sigh of relief after the unemployment rate declined in September. But we think it won’t be long before unemployment starts to rise again, forcing the RBA to provide additional stimulus. The …
Overview – After a weak 2019, we expect that growth across most of Latin America will improve next year. That said, our forecasts for the regions two biggest economies – Brazil and Mexico – are below consensus. And Colombia and Argentina will miss out on …
16th October 2019
Overview – Looser policy will support stronger economic growth in Russia, as well as in Turkey (so long as US sanctions don’t get much worse), in the coming quarters. In contrast, the economies of Central and Eastern Europe are likely to slow further as …
The Fed’s move to begin purchasing $60bn of Treasury bills per month will eventually push the size of its balance sheet back up to $4trn over the coming year, not far below its $4.2trn peak. However it would be wrong to view this as a complete …
The Bank of Korea (BoK) cut its policy rate from 1.50% to 1.25% today and with growth set to remain subdued and price pressures likely to remain very weak, we are expecting more easing next year. Today’s decision followed the first rate cut in three years …
Overview – The end of the housing downturn has reduced the risk of a recession and we expect GDP growth in Australia to edge up from 1.7% this year to 2.0% in 2020. However, that’s still well below potential and we expect the unemployment rate to climb …
15th October 2019
Persistently weak WPI inflation raises likelihood of another rate cut The weakness in wholesale price inflation in September is likely to persist until the end of the year and, although not the preferred measure of inflation for India’s policymakers, …
14th October 2019
Recent suggestions that the Bank of Japan will cut its policy rate have fuelled speculation that Japanese banks might be forced to start passing on negative interest rates to savers. But given that Japan’s city and regional banks do not have excess …
The Monetary Authority of Singapore (MAS) loosened policy today and given the current weakness of the economy – GDP figures also published today show growth in year-on-year terms held steady at a ten-year low – monetary policy is likely to remain …
Waning confidence Business and consumer confidence data released this week provided yet another signal that economic activity in Australia is set to remain weak in the coming quarters. Following the May election, business confidence surged, probably …
11th October 2019
Given how much has been said (and leaked) about the ECB’s 12 th September meeting, there was little scope for fresh revelations in today’s account. But the report is consistent with our view that more rate cuts and corporate bond purchases will be easier …
10th October 2019
China Overview – China’s economy has remained resilient in recent months. But with the boom in property construction on borrowed time and headwinds from higher food inflation and cooling global demand likely to intensify further, it is hard to see how a …
Overview – Regional growth is likely to remain very weak, with slower growth in China likely to offset a modest recovery in the rest of the region. China’s economy has remained resilient in recent months. But with the boom in property construction coming …
Overview - We still think that the impact of October’s sales tax hike on consumption will be smaller than after previous tax hikes. But the outlook for external demand remains poor and firms have become less optimistic about the outlook for capital …
9th October 2019
We now expect growth in New Zealand to ease from 2.2% in 2019 to 1.5% in 2020. Along with a rising unemployment rate, weak economic activity will prompt the RBNZ to cut rates twice next year. Growth in New Zealand has gradually eased over 2019 as weak …
Overview – India’s economy slowed sharply in the first half of the year but, with policy support being stepped up, growth should gradually recover. And despite the recent soft patch for the economy, we remain optimistic about India’s longer-term …
8th October 2019
Headline consumer price inflation is likely to have jumped in September on the back of a surge in onion prices. But that’ll hardly bring tears to the eyes of the RBI, as it is likely to have stayed below the 4.0% target. Another rate cut in December seems …
7th October 2019
Once interest rates approach their lower bound, the RBA could provide long-term loans to banks and link their interest rate to the amount of new lending those banks undertake. However, if the Bank decided more stimulus was needed, we still think that …
If faced with a steep downturn, most EM central banks would be able to cut interest rates substantially in order to cushion their economies. Interest rates in a handful of countries are close to the zero bound, but these are typically economies with …
4th October 2019
Nigeria: CBN lending push will have little effect The Central Bank of Nigeria has increased pressure on commercial banks to extend more loans by announcing that the minimum loan-to-deposit ratio will rise from 60% to 65% in December. In aggregate, banks …
The Reserve Bank reverted back to a 25bp rate cut today and has left the door open for further easing in the near term. But we are firmly non-consensus in expecting modest rate hikes by the end of next year. The MPC’s decision to cut the repo rate for …
Stimulus running into diminishing returns The RBA cut interest rates to 0.75% on Tuesday as most had anticipated. It put more emphasis than usual on its intention to achieve full employment. In June, the Bank revised down its estimate of the unemployment …
Not bad enough for another rate cut The rush of data released this week was a mixed bag. Overall, there still isn’t a clear-cut case for the Bank of Japan cutting interest rates when it “re-examines” its policy settings at the end of the month. Amidst the …
Having cut its key interest rate by 25bps this morning, we now expect the Central Bank of Iceland (CBI) to stay in easing mode over the coming months and to reduce rates to 2.75% by year-end. The reduction in the seven-day deposit interest rate in Iceland …
2nd October 2019
We think that the ECB will increase its monthly bond-buying next year by purchasing more corporate debt. This would lead to a marked pick-up in bond issuance, but only a small increase in investment. The divisions on the ECB’s Governing Council become …
We still believe that the unemployment rate would have to fall to 4.0% to meet the RBA’s definition of full employment. With the actual unemployment rate now at 5.3% and rising, that means that the RBA has more work to do. We reiterate our forecast that …
The RBA cut interest rates to 0.75% as widely anticipated and we think it will lower rates to 0.5% by the end of the year. Rates approaching the zero lower bound will inevitably invite speculation about quantitative easing but the RBA’s forceful response …
1st October 2019
Suggestions that the recent rise in interbank rates was caused by the ECB’s new tiered interest rate system are wide of the mark. Instead, the increase reflects investors’ re-evaluation of the outlook for policy rates. They now anticipate a single 10 …
30th September 2019
Overview – After the deepest downturn since the Cultural Revolution in Q1, China’s economy will return to growth this quarter. But with labour market strains holding back domestic demand and external headwinds intensifying, output is still set to contract …
Economic growth has continued to ease in both countries in the first half of 2019. In Australia, GDP growth eased to 1.4% y/y in Q2. And while the government’s tax cuts may mean that consumption supports a pick-up in growth in the coming months, the …
Three central banks surprised the markets this week with more hawkish-than-expected communications. The Turkish central bank is likely to cut rates further, but above-target inflation will prevent monetary easing in Hungary and the Czech Republic. …
27th September 2019
Mexican policymakers cut their policy rate from 8.00% to 7.75% yesterday, and we think that they will continue to loosen policy over the coming quarters. We now expect a 25bp cut in both of the remaining meetings this year, taking the rate to 7.25% rather …
Assessing investors’ expectations about the future path of policy interest rates in Norway is not as straightforward as it is in other countries, not least neighbouring Sweden. In this Update we answer ten key questions to provide a primer on how to gauge …
Interest rates cut around the world The Reserve Bank of New Zealand kept interest rates on hold at 1.0% this week following the dramatic 50 basis point cut in August. The decision to leave rates on hold was in line with market expectations and the analyst …
Yield spreads widen as Kuroda targets short end We expect the Bank of Japan’s “reverse twist” to intensify after the next Board meeting. On balance, we still think that the Bank will refrain from cutting short-term interest rates, but we’ll closely watch …
The Central Bank of Egypt shrugged off the market volatility following recent protests across the country and lowered interest rates by another 100bp, to 13.25%, at today’s meeting. So long as the protests don’t escalate, weak inflation pressures mean …
26th September 2019
Rising tensions in the Middle East present a significant upside risk to our oil price and inflation forecasts, and could force a handful of EM central banks to abandon easing cycles or even hike interest rates. But a majority of central banks would …
Today’s cut to the policy rate by the central bank in the Philippines (BSP) from 4.25% to 4.00% is unlikely to be the last in the easing cycle. With growth likely to disappoint and price pressures set to remain subdued, we expect more cuts in the coming …
With interest rates near the lower bound, central banks are experimenting with tiers. But they reduce the impact of rate cuts and do little to support banks’ profitability. Such efforts add to signs that monetary policy is near its limits. Recent weeks …
Another rate cut next week looks a done deal… …but MPC may opt for more traditional 25bp rate cut rather than 35bp In contrast to markets, we expect modest hikes next year The key question ahead of the MPC meeting that concludes on Friday 4 th October is …
Given that the SNB’s policy rate is already at -0.75%, fears of hitting the so-called ‘reversal rate’ are likely to make it unwilling to cut rates much further. With the ECB once again in easing mode, we put the odds of the SNB having to reinstate a …
25th September 2019
The Bank of Thailand (BoT) left interest rates unchanged at 1.50% today, but with economic growth set to remain weak and concerns about the strength of the baht mounting, we think the central bank will loosen policy again before the end of the year. …
The combination of a broad-based easing cycle in emerging markets and strong demand for risky assets has pushed local currency emerging market (EM) sovereign yields down sharply in 2019. However, we expect that rally to go into reverse by the end of the …
The Reserve Bank of New Zealand sounded more comfortable with its position when it left rates on hold today but we still think the Bank will cut rates to 0.75% by early next year. The decision to leave rates unchanged at 1.0% following the dramatic 50 …
The Bank of Japan’s announcement that it will “re-examine economic and price developments” at its meeting at the end of October has been widely interpreted as opening the door to a shift on policy. In this Update , we highlight the indicators that will …
24th September 2019
Labour market still set to ease further But outlook for GDP growth has improved as house prices have started to rebound Forceful policy response lowers likelihood of unconventional policy being deployed The continued rise in the unemployment rate will …
Fiscal stance still accommodative Government spending contracted in August, leading some to question the strength of fiscal support. But with tax cuts still weighing on revenue growth, the budget deficit remains close to its widest ever. (See Chart 1.) …
20th September 2019
The changes to the SNB’s tiering system, announced yesterday, are even more generous to domestic banks than they initially appear, and will help to ‘sugar the pill’ ahead of a probable rate cut. The main point of interest at yesterday’s SNB meeting was a …
Close but no cigar This week the government revealed that in the 2018/19 fiscal year the budget remained in deficit. The deficit was just $690 mn, rounding to 0.0% of GDP, much smaller than the $4.2 bn or 0.2% of GDP deficit that was forecast in the April …
