Filtered by Topic: Monetary Policy Use setting Monetary Policy
Argentina’s 2019 budget will reportedly contain some much-needed spending cuts, but key IMF requests are conspicuous by their absence. Meanwhile, Brazil’s election race is beginning to heat up, but the chances of major economic reform after the vote seem …
14th September 2018
The aggressive interest rate hike in Turkey on Thursday has soothed the markets, but President Erdogan’s comments today reinforce our fears that he will put pressure on the central bank to reverse course. Meanwhile, comments from the Czech National Bank …
Political uncertainty following Sweden’s general election last weekend is unlikely to meaningfully alter the Riksbank’s plans to start tightening policy around the turn of the year. Meanwhile, in Norway, stronger August inflation data this week will have …
While Michel Barnier, the EU’s Chief Negotiator, raised hopes that a Brexit deal will be secured soon, we suspect that an agreement is still some way off. This feeds into our forecast that sterling will pull back to $1.25 and €1.09 by end-2018. This is …
Although retail sales were weaker than we had been expecting in August specifically, upward revisions to sales in previous months mean that real consumption growth still appears to have remained strong in the third quarter. … Retail Sales …
The tone of the Russian central bank’s press conference suggests that today’s interest rate hike was a pre-emptive move against an expected tightening of US sanctions, not the start of a cycle. As things stand, we think it’s most likely that rates will be …
Ten years after the collapse of Lehman Brothers, there are concerns that the financial markets will bring the global economy to its knees again. We do not think, however, that they will be a major cause of the next recession, despite claims that the …
There are growing suggestions that the South African Reserve Bank will raise interest rates at its meeting next week, but the weakness of the latest activity data and of inflation expectations mean we think that it will keep rates on hold. Elsewhere, the …
Although CPIF inflation was above target in August, the further decline in non-energy inflation will worry the Riksbank. If it remains soft, then the Bank will probably keep rates on hold until early 2019. … Swedish Consumer Prices …
The moderation in wholesale price inflation in August was in large part due to another drop in food inflation. But core inflation remained elevated, supporting our view that the RBI’s tightening cycle still has a little further to run. … Wholesale Prices …
The ECB today confirmed its intention to normalise policy gradually, expressing very little concern about signs of an economic slowdown. Given growing risks and economic uncertainty, the first interest rate hike is still at least a year away. But the …
13th September 2018
Ten years after the collapse of Lehman’s, the risk of something similar occurring again in the near future appears to be low. But looking for the next Lehman’s misses the point – crises on the scale seen in 2008 are rare and, while a repeat looks unlikely …
The Monetary Policy Committee (MPC) does not appear to be in a rush to raise interest rates again soon. Indeed, our assumption that a Brexit deal will be struck at the eleventh hour will probably prevent the MPC from lifting rates again until next year. … …
The aggressive interest rate hike delivered by Turkey’s central bank has soothed the markets, but the next thing to watch will be the reaction of President Erdogan. Any sign that he will try to reassert his influence over monetary policy decisions could …
August’s rise in Egyptian inflation means that the central bank will probably leave interest rates on hold at this month’s MPC meeting. But signs that core price pressures have eased means that it won’t be long until rate cuts come back on to the agenda. …
In previous EM currency crises, real interest rates have increased (on average) by around 10.5%-11.0%-pts in the following year and remained more than 6.5%-pts above pre-crisis levels over the subsequent two years. In Argentina, real interest rates are …
Polish inflation is lower, and has been slower to rise, than elsewhere in Central & Eastern Europe (CEE), which seems to be a result of having more slack in its labour market and faster productivity growth. Nonetheless, we think inflation is likely to …
Mounting downside risks to economic activity mean that the Bank of Japan will have little reason in the foreseeable future to deviate from its pledge to keep interest rates extremely low for an extended period. Our long-held view that the Bank will keep …
The risk that higher interest rates will trigger widespread corporate defaults and cause the next global downturn is low, not least because business finances are generally in good shape. But as monetary policy is tightened, companies may scale back …
12th September 2018
Another sharp drop in food inflation pulled down headline consumer price inflation in August. But core inflation remains high and we still think that the Reserve Bank’s tightening cycle has a little further to run. … Consumer Prices (Aug.) & Industrial …
Indonesia and the Philippines are likely to tighten monetary policy aggressively over the rest of this year. The Philippines may even call an emergency policy meeting in the face of soaring inflation. But these two countries are the exceptions. With the …
The Andean economies of Chile, Peru, and Colombia all appear to be close to raising interest rates. In this Update, we take a closer look at what has triggered central banks to begin tightening cycles in the past. The short point is that Chile’s central …
10th September 2018
The large build-up in private sector debt over the last decade means that the Canadian economy is far more sensitive to interest rate rises than in the past. This increases the likelihood that the Bank of Canada’s rate hikes could trigger a potentially …
The rise in Egyptian inflation to 14.2% y/y last month, coupled with the backdrop of the recent sell-off in EM financial markets, means that the central bank will probably leave interest rates unchanged (rather than cut them) at this month’s MPC meeting. …
Following August’s increase in core inflation to a 19-month high, the Norges Bank is almost certain to raise interest rates at next week’s meeting. But policymakers remain cautious about the impact of tighter monetary policy, so they will move very slowly …
The latest opinion polls suggests that Sunday’s general election in Sweden will be a close call. But the outcome of the vote is unlikely to significantly alter the outlook for the economy or monetary policy. Meanwhile, data published this week showed that …
7th September 2018
The ISM surveys released this week suggest that the economy is set for another quarter of growth above 4% annualised. We suspect that will prove a little too optimistic, but the bottom line is that the economy remains unusually strong. That will give the …
Despite the steady flow of negative news about protectionism and crises in emerging economies, global growth is holding up well in Q3. Moreover, the labour market has continued to strengthen, particularly in the US, making two more rate hikes this year a …
The central bank governor of the Philippines, Nestor Espenilla, today all but confirmed that interest rates will be raised soon, possibly in an emergency meeting before the BSP is next scheduled to meet on 27 th September. Meanwhile, weak activity data …
The latest slide in the rupee appears finally to have jolted the RBI into action, with widespread reports of intervention today. We doubt that this will draw a line under the rupee’s decline. Meanwhile, the reliability of the GDP data is again being …
Central banks in both Russia and Turkey created a stir this week by raising the prospect of rate hikes, but we think that the degree of tightening in Turkey will disappoint markets and policymakers in Russia will probably leave interest rates unchanged. …
The People’s Bank still appears reluctant to deploy its FX reserves in order to support the renminbi. We suspect that it is leaning on state-owned financial institutions to sell foreign assets in its place. … FX Reserves …
Chinese consumers appear to have become more worried about inflation recently. But these concerns may reflect a broader sense of unease among households in response to a weakening labour market rather than about inflation itself, which seems likely to …
Despite mixed news from the economy and growing risks to the outlook, we expect the ECB to reiterate that asset purchases are set to end in December and that interest rates will probably rise gradually from next autumn. It will stress its ability to …
6th September 2018
Turkey’s central bank has all but confirmed that it will raise interest rates at next week’s MPC meeting and an increase of 350-400bp seems to be the bare minimum that will be needed to soothe investors. But pressure from the government means we think …
The recent turmoil in local markets means that Argentina’s recession will be even deeper than we previously anticipated. We now expect a 4% drop in GDP over 2018 as a whole (vs. -0.5% previously), and a further 2% contraction next year. A sovereign …
The Monetary Policy Committee (MPC) is unlikely to increase interest rates at its meeting on 13th September so soon after the last rise. In fact, given our assumption that a Brexit deal will only be struck at the eleventh hour, we doubt the MPC will move …
The decline in Brazilian inflation in August, to 4.2% y/y, adds to the reasons to think that Copom won’t raise interest rates at its meeting this month. Moreover, core inflation still looks quite soft and we think the pace of the eventual rate hikes over …
The improvement in South Africa’s current account deficit in Q2 should help to ease concerns about the country’s external financing needs and provide some support to the rand. Coming alongside the weakness of the latest GDP data, it reinforces our view …
Despite the more dovish tone of today’s policy announcement, the Riksbank looks likely to raise interest rates in December. We think that the Bank will then tighten more quickly in 2019 and 2020 than investors expect, causing the krona to strengthen. … …
While the Bank of Canada left its interest rates unchanged today it appears to be heading for a hike in October, although a serious breakdown in the NAFTA negotiations could result in a last minute delay. … Bank likely to raise interest rates in …
5th September 2018
The rise in Russian inflation to 3.1% y/y in August, combined with Governor Nabiullina’s hawkish comments yesterday, will add fuel to expectations for an interest rate hike. But with underlying price pressures still extremely weak, we think that the …
With growth easing and inflation very low, Bank Negara Malaysia’s decision to leave its main policy rate on hold at 3.25% today was no surprise. While the risks are skewed towards looser policy, we expect rates to stay on hold throughout this year and …
The statement accompanying the decision by Chile’s central bank to hold its policy interest rate at 2.50% flagged that a tightening cycle will begin in the coming months. We remain comfortable with our forecast for rates to begin rising at the next policy …
Headline consumer price inflation is likely to have eased in August, in large part due to another fall in food inflation. But more important from the policy perspective, core inflation is likely to have remained elevated. The upshot is that the RBI’s …
The increase in the volume of the Bank of Japan’s bond auctions merely offsets a reduction in their frequency and won’t alter the overall pace of purchases much. The bigger point is that those auctions don’t tell us anything about the outlook for monetary …
Uncertainty about the outlook for the economy and monetary policy in the euro-zone is unusually low. While it is unlikely to return to the levels seen during the financial crisis or euro-zone debt crisis any time soon, we suspect that it will rise over …
4th September 2018
In August, Swiss inflation was unchanged at its joint-highest level in over eight years. But underlying price pressures are subdued, and we think that falling oil prices and exchange rate effects will drag headline inflation down over the next year. So …
Today’s shift in the Bank of Japan’s bond purchases shouldn’t be interpreted as a signal that the 10-year target will be raised anytime soon. Note added post-publication: In this Update, we suggest that the increase in BoJ purchases “looks rather odd”. We …
