Filtered by Topic: Monetary Policy Use setting Monetary Policy
The Bank of Canada’s decision to raise interest rates to 1.25% yesterday has reinforced expectations of further rate hikes later this year. According to futures markets, there is a 22% chance of a rate hike to 1.50% as soon as March. Our view is that the …
18th January 2018
In the long run we suspect the Fed will move away from rules-based inflation targeting and shift to a more discretionary regime that focuses on financial stability as well as price stability and full employment. In the short run, however, the Fed’s …
The euro-zone’s impressive upturn looks set to continue apace as reduced political uncertainty, high levels of business confidence, and continued strong policy support allow investment to take off. Growth has also broadened across the region, with labour …
With consumer price inflation set to rise gradually, but house prices falling, we think that the Norges Bank will reiterate next week that interest rates will not rise until the autumn. We suspect that it will ultimately wait until 2019 before tightening …
South African policymakers held their key rate at 6.75% today, but a dovish tone suggests that they have abandoned November’s tightening bias. We expect that the next move will be a 25bp cut in early 2019. … South Africa: SARB walks back its hawkish …
After some brief respite, US Treasuries have come under fire again. Indeed, the 10-year yield has now rebounded to its highest level since last spring. We expect its rise to continue this year, as the Fed tightens policy by more than investors are …
Today’s decision by Bank Indonesia (BI) to leave interest rates unchanged at 4.25% came as no surprise. Although the central bank’s accompanying statement suggests that further easing is not imminent, with growth likely to struggle and inflationary …
The Turkish MPC’s decision to keep all of its key interest rates unchanged today was accompanied by a statement that indicates the Committee is more determined to bring inflation back under control. This supports our view that rates will be kept at …
Hungary’s central bank has started two new policies this week aimed at bringing down bond yields, including the first QE programme in an emerging market. But there are reasons to think that the impact of these measures on yields may not be as large as …
Speculation that the Bank of Japan is about to increase its yield target has pushed the yen higher. However, we think that policy tightening remains a distant prospect and that the yen will weaken as this become clear. … Bank of Japan to keep policy loose …
The Bank of Korea (BoK) kept its policy rate on hold at 1.50% today, and the governor’s accompanying press conference signalled aggressive tightening is not in the pipeline. With the economy set to grow at a robust pace, but inflation benign and concerns …
The Bank of Canada’s raised interest rates to 1.25% today, from 1.00%, and its more upbeat economic outlook suggests that it will hike rates again later this year, probably in April. In contrast to the consensus, we wouldn’t bet too heavily on further …
17th January 2018
Growth in Emerging Asia reached a five-year high in 2017 but we think that it has now peaked and will slow gradually over the next couple of years. The main headwind will come from the export sector. Despite the decent outlook for the global economy, the …
16th January 2018
The announcement on Friday by Morocco’s central bank that it will move to a more flexible exchange rate regime has raised concerns that the dirham will follow the path of currencies in the rest of North Africa, where similar policy shifts have been …
15th January 2018
The three major Nordic and Swiss central banks met in December and provided very different messages about the outlook for monetary policy in their respective countries. First, the Swiss National Bank (SNB) left policy unchanged and, despite the franc’s …
Bank lending has continued to slow. However, this doesn’t seem to reflect a tightening in bank lending attitudes, which remain very accommodative. What’s more, overall borrowing by the private sector is growing at the fastest pace since the early 1990s as …
Headline wholesale price inflation edged down in December. But stripping out the effect of volatile fuel and food prices, our measure of core WPI inflation rose last month. With reasons to think that core price pressures will rise further over the coming …
Swedish policymakers will be discouraged by the fact that the decline in inflation in December was due to slower inflation for domestic goods and services. But with resource utilisation strong, domestic inflation looks set to pick up this year. We think …
12th January 2018
A reduction in the size of the BoJ’s JGB auction moved markets this week. This wasn’t policy tapering in an effort to reduce stimulus: the Bank now only buys what is needed to maintain the yield target and that amount has been falling for a while. Indeed, …
The Saudi government looks set to loosen fiscal policy this year which should support a pick-up in economic growth. However, as we explain in this Watch, households won’t be net beneficiaries from this. The introduction of a new household allowance and …
Our tracker suggests that EM capital outflows picked up a bit in December, but remained slow over the year as a whole. Portfolio flows into EMs hit a record high last year, and look strong going into 2018. … Emerging Markets Capital Flows Monitor …
Peru’s central bank cut its policy interest rate last night by 25bp to 3.00% and, while the statement didn’t give much away regarding future moves, we still think there’s room for another 25bp cut in the policy rate (to 2.75%) in this cycle. … Peru’s …
2018 may be the year that the Australian economy fails to grow at a much faster pace than the majority of its peers and its interest rate premium is wiped out. This may mean that 10-year bond yields in Australia end the year no higher than in the US and …
The Polish MPC left interest rates unchanged today, but the post-meeting press conference highlighted that a hawkish faction exists on the Council. We think inflation will rise above target in the coming quarters, which should be enough to prompt a …
10th January 2018
Our indicators suggest that, while financial risks in EMs have diminished over the past couple of years, pockets of vulnerability exist in several countries including Turkey, Hong Kong and Singapore. … Vulnerabilities linger in a handful of …
While the global economy is set to grow strongly again in 2018, the recovery is likely to de-synchronise somewhat as China slows before the US, and Europe remains strong. This could have important implications for both policymakers and financial markets. …
The Fed’s quantitative tightening has so far had little impact on the monetary aggregates, but the effects of rising short-term interest rates are becoming more visible. Meanwhile, after slowing sharply in early 2017, bank lending growth is now …
A Bloomberg report that Chinese officials are considering halting purchases of US government debt triggered a sell-off in the US Treasury market today. In fact, China has not been buying US debt for most of the last few years. And, in practice, the …
The Bank of Canada will increase interest rates again early this year, possibly as soon as next week, particularly after learning that businesses are more optimistic. That said, we still believe housing woes will become a bigger drag on the economy, …
The rise in Brazilian inflation to 3.0% y/y last month leaves it right at the lower bound of the central bank’s 4.5±1.5% target range, which should provide room for a further 25bp cut in the Selic interest rate at the next Copom meeting in February. But …
This week’s reduction in the Bank of Japan’s scheduled government bond purchases doesn’t signal that it is about to lift the yield target. The Bank purchases whatever is needed to maintain the target and the credibility of its commitment to the target has …
While the Riksbank’s early bond reinvestments will make policy slightly more expansionary in the short term, the minutes of December’s meeting suggest that the decision to bring forward reinvestments was taken mainly to avoid liquidity problems. There was …
Inflation ended 2017 on a softer note, with a decline in both producer price inflation and non-food consumer price inflation. This is consistent with our view that cooling price pressures will open the door to monetary easing this year. … Consumer & …
At the start of January, the euro reached a three-year high against the US dollar and a three-and-a-half year high in trade-weighted terms. While the euro’s climb over the past year or so may seem like a major headwind to economic growth, we remain …
9th January 2018
The rise in Mexican inflation to a fresh 18-year high of 6.8% y/y in December will probably lead to further calls for Banxico to raise rates again at its policy meeting on 9th February. While another hike is possible, with inflation set to fall sharply in …
2018 is widely expected to be the year that the Reserve Banks of Australia and New Zealand start to raise interest rates from their record lows. We disagree. In this Update, we outline five of our non-consensus calls for 2018 and highlight some potential …
The improvement in business sentiment in the fourth quarter of last year, most notably the marked rebound in investment and hiring intentions, suggest that the increased uncertainty around NAFTA isn’t likely to restrain economic growth this year. This …
8th January 2018
The Romanian MPC’s hawkish post-meeting press statement, which followed the decision to hike the policy interest rate earlier today, supports our view that monetary policy will be tightened by more than most anticipate over the course of 2018. … Romanian …
With euro-zone headline inflation falling in December and core inflation still subdued, the ECB will continue to emphasise that interest rate hikes remain a long way off. … Euro-zone Flash CPI …
5th January 2018
We expect consumer price inflation to surge over the coming months on the back of a spike in food price inflation. However, with core inflation probably close to a peak and producer price inflation now falling, we don’t think officials will respond to the …
While the budget for the coming fiscal year foresees record spending, expenditure will only rise marginally and revenues may climb even faster. The upshot is that the government is set to proceed with fiscal tightening. While there is no pressing need to …
Financial stability concerns were in the spotlight in Australia for much of 2017 and although actions by the RBA and APRA have gone some way to addressing these concerns, recent news that household debt reached a new record high in the third quarter of …
The latest survey evidence suggests that the economy ended 2017 on a reasonable footing. Indeed, despite a fall-back in both the manufacturing and construction PMI surveys in December, the all-sector PMI points to quarterly GDP growth of around 0.5%, a …
4th January 2018
After bringing its net asset purchases to a close last month, the Riksbank reiterated that it expects to raise interest rates in September this year. The Bank’s track record suggests that this forecast should be taken with a generous pinch of salt; …
Further sharp falls in Egyptian inflation in the coming months are likely to prompt the central bank to embark on a monetary easing cycle. We expect the benchmark interest rate to be cut to 13.25% by end-2018 and 11.25% by end-2019, from 18.75% at …
3rd January 2018
The euro-zone economy performed better in 2017 than we and most forecasters had anticipated at the year’s outset. Investment growth picked up despite intense political uncertainty. And while a rise in inflation dampened households’ real incomes growth as …
21st December 2017
With the People’s Bank last week tweaking the interest rates on its open market operations, it seems timely to highlight some of the peculiarities of China’s monetary policy framework. One key one is that, as the People’s Bank has still not made a full …
A rising number of analysts believe that the BoJ will start tightening policy by the end of next year. But with inflation set to remain below its 2% target, we think that the Bank will keep policy loose for longer. … Weak price pressures will prevent BoJ …
The minutes of the Reserve Bank of India’s (RBI’s) December policy meeting show that most MPC members are concerned about recent fiscal developments and the inflation outlook. Indeed, with consumer price inflation rising to a 15-month high in November and …
Frontier markets have enjoyed a recovery in 2017, with aggregate GDP growth set to reach close to 3%, up from a seven-year low of 2.3% in 2016. Frontiers in Latin America and Sub-Saharan Africa have exited recession, while growth has strengthened among …
20th December 2017
