Filtered by Topic: Monetary Policy Use setting Monetary Policy
The hawkish statement by the Central Bank of Russia that accompanied today’s decision to leave the policy rate on hold has prompted us to revise up our end-year interest rate forecast (to 8.25%, previously 7.50%). Nonetheless, we still think inflation …
3rd February 2017
The spotlight in the region’s currency markets over the past couple of years has been on the threat of large devaluations but, as we explain in this Focus, the risks in Morocco appear to lie in the other direction. With the authorities pushing ahead with …
The People’s Bank has raised the interest rate that it charges when providing funds in China’s repo market. This is the clearest evidence so far that monetary policy is being tightened and that supporting growth is no longer the primary immediate goal of …
Our economic forecasts point to a supportive backdrop for the housing market in 2017. Nevertheless, there are three potential risks facing the market. These are an interest rate shock, a shift in the behaviour of investors and a London-led correction. On …
Financial markets and a large majority of analysts are braced for a rate cut at the Reserve Bank of India (RBI) policy meeting next week. But, despite the continued damage and uncertainty caused by demonetisation, we don’t think it’s a done deal. The RBI …
The Reserve Bank of New Zealand will undoubtedly keep rates on hold at 1.75% at its meeting on Thursday 9 th February, but in the accompanying Monetary Policy Statement we suspect it will revise up its inflation projections. That said, while the financial …
2nd February 2017
The upwards revisions to the Czech National Bank’s inflation forecasts and the relatively hawkish post-meeting press conference reinforce our view that the Council’s koruna cap policy will end fairly soon. We think that the MPC meeting on 4th May is the …
The first Bank of England “Super Thursday” of 2017 saw the MPC Minutes and Inflation Report strike a cautiously-optimistic tone. That said, while the economy appears to be coping with Brexit uncertainty well so far, we think the start of the monetary …
Our Taylor rules suggest that central banks in Latin America attach most importance to the latest inflation rate and the current output gap when setting policy. Some central banks (notably Mexico) take into account other factors such as the exchange rate …
The króna has depreciated fairly sharply since the Central Bank of Iceland (CBI) last met. But given our expectation that it will rise again, we do not think the Bank will respond to recent currency movements by changing policy next week. … Icelandic …
At the conclusion of its two-day FOMC meeting, the Fed issued a near-identical statement to the one released in December, which strongly suggests it has no intention of raising interest rates again at the upcoming March meeting. Given the current …
1st February 2017
The Reserve Bank of Australia will almost certainly leave interest rates on hold at 1.5% at its policy meeting on Tuesday 7 th February, but its new forecasts to be published in the Statement on Monetary Policy on Friday 10 th may provide a hint that …
While there are still considerable uncertainties over the economic outlook, we maintain our view that the damage from the UK’s vote to leave the EU will be smaller than most forecasters have anticipated. Admittedly, higher inflation and Brexit uncertainty …
31st January 2017
Australia will make almost no progress this year with GDP growth once again coming in closer to 2.0% than 3.0%. With growth in New Zealand set to accelerate from around 3.0% to 3.5%, the divergence in the economic fortunes of the two neighbours will …
30th January 2017
President Donald Trump sees the renegotiation of NAFTA as an opportunity to close the trade deficit with Mexico and return manufacturing jobs to the US. It’s possible that he could gain modest concessions while leaving the rest of the treaty broadly …
27th January 2017
The widespread pick-up in activity and rebound in inflation in advanced economies during recent months has reduced the pressure for central banks to ease policy further. But only in the US do we expect interest rates to rise sharply. With economic growth …
The solid 0.6% expansion in UK GDP in the fourth quarter of last year provided further evidence that the vote to leave the European Union has so far had little discernible adverse effect on the UK economy, in stark contrast to the Treasury’s …
December’s euro-zone money and credit data are consistent with steady economic growth. But they still point to inflation undershooting the ECB’s target. … Euro-zone Monetary Indicators Monitor …
The Monetary Policy Committee (MPC) faces a less challenging trade-off between supporting the economy and controlling inflation. It will probably upgrade the growth projections in its Inflation Report. But the recent rebound in sterling should result in a …
26th January 2017
The Bank of Japan appears to have reduced the number of short-term JGB auctions it conducts this month, paving the way for a reduction in the volume of purchases this year. However, an increase in the target for 10-year JGB yields is not on the cards. … …
The Bank of Japan will probably extend the deadlines for some of its lending programmes by one year at the upcoming meeting. But having upgraded its assessment of the economy at the December meeting, there is little chance of new stimulus being announced. …
Following its rate hike at last December’s meeting, the Fed will remain in wait-and-see mode until it has more clarity on the magnitude, composition and timing of the anticipated fiscal stimulus. We expect no change at next week’s FOMC meeting, which …
25th January 2017
The Hungarian MPC kept its policy interest rate unchanged earlier today and the accompanying statement remained dovish in spite of a jump in inflation at the end of 2016. Looking ahead, with growth set to fall short of the central bank’s lofty …
24th January 2017
The surge in Mexican inflation in the first half of January, to 4.8% y/y from 3.4% y/y in December, was due largely to hikes in regulated fuel prices. But core inflation also rose further as the effects of a weaker currency pushed up import prices. We …
Today’s interest rate hike by the Turkish central bank was just large enough to buy support for the lira, but we think further hikes in the key policy rates will, ultimately, be needed in the coming months. Moreover, there were worrying signs that the MPC …
The sharp fall in the Turkish lira has forced the central bank to tinker with its monetary policy setup in an effort to shore up the currency, and we think hikes in key policy interest rates loom. Earlier this month, the Bank lowered reserve requirement …
With the recent improvement in the inflation outlook, the Bank of Japan is unlikely to ease further in 2017 but any speculation about policy tightening will prove premature. In fact, the Bank’s pledge to keep long-term government bond yields low has …
23rd January 2017
Upcoming state elections in India are likely to have an important bearing on economic policy at the local level. But perhaps more significant, the outcome of the state elections could be crucial in determining whether Prime Minister Modi’s BJP will …
Bank of Canada Governor Stephen Poloz surprised the markets last week with his admission that an interest rate cut was still “on the table” if one of the Bank’s downside risks became reality. The risks he identified, however, were nearly all US-related, …
20th January 2017
The world economy looks set to grow more rapidly this year than last. A substantial fiscal stimulus in the US will boost its growth rate, but will have only a limited impact on the rest of the world. With price pressures building in the US but not …
With the euro-zone economy performing fairly well and headline inflation on the up, the results of last week’s Bank Lending Survey were a timely reminder to the ECB that its job is far from done. Indeed, tighter credit conditions for firms and slower …
While the Monetary Policy Committee (MPC) has stated that it is willing to look through a period of exchange-rate driven above-target inflation, one of its conditions is that there are no significant second-round effects on domestic cost pressures. On the …
Prospects for the Nordic and Swiss economies’ are fairly good, with Sweden and Iceland likely to be the best performers. But the outlook for inflation, and therefore monetary policy, varies substantially. The Swedish economy is firing on all cylinders, …
Signs that inflation in both Australia and New Zealand has passed its low point may give the Australian and New Zealand dollars a bit of a boost when the data for the fourth quarter are released this Wednesday and Thursday. But while the rise in petrol …
President Draghi explained today that the ECB saw the recent rise in inflation as transient and outlined some tough conditions for future policy normalisation which are unlikely to be met for a very long time. Accordingly, we still expect asset purchases …
19th January 2017
We think it is most likely that the Czech MPC will remove the koruna ceiling at its meeting on 4th May. Following this, we are forecasting that the koruna will appreciate to 25.5/€ from 27/€ at present. … Czech koruna: when will cap be lifted and how far …
Bank Indonesia (BI) left its policy rate on hold at 4.75% today, and with inflation set to rise later in the year and the currency likely to come under renewed downward pressure as the Fed continues to hike interest rates, we see little scope for further …
Today’s decision by Malaysia’s central bank (BNM) to keep interest rates on hold at 3.0% came as no surprise. With the economy now recovering and the ringgit vulnerable to turns in investor sentiment, we expect rates to be left on hold throughout 2017. … …
Given the considerable uncertainty surrounding exactly what policies the incoming Trump administration will pursue south of the border, we have every sympathy with the Bank of Canada’s decision to leave interest rates unchanged today. Nevertheless, as the …
18th January 2017
Corporate debt affordability remains extraordinarily high, as corporate profit margins have rebounded and borrowing costs have continued to decline. Firms have responded with higher corporate bond issuance rather than with increased borrowing from banks. …
Portuguese government bonds rallied last week, but we doubt that this will continue. Sooner or later, we think that concerns about the sovereign credit rating and falling ECB asset purchases will push Portugal’s bonds yields higher. Our end-2017 forecast …
16th January 2017
Indian wholesale price inflation edged up in y/y terms last month, but dropped in m/m terms as price discounting continued to take place following demonetisation. Nevertheless, further ahead, demonetisation could push up inflation by leading to supply …
With commodity prices and interest rate differentials pulling the Canadian dollar in different directions again this year, our baseline scenario is that it will remain broadly unchanged, increasing only trivially from its current level to $0.77 by …
13th January 2017
Last week’s abortive army mutiny has focused attention on the political fragility of Côte d’Ivoire, which suffered a series of political and economic crises between 1993 and 2011. But we expect that the economy will remain an outperformer. … Côte …
Wage growth was subdued in 2016, but the recent decline in the euro-zone unemployment rate to an 87-month low, taken in isolation, points to a strong pick-up from here. On the face of it, that suggests that the ECB’s plans to buy assets throughout 2017 …
Poor infrastructure remains a major constraint on economic growth prospects across large parts of Emerging Asia. A couple of countries, namely the Philippines and Thailand, are likely to see a big increase in infrastructure spending over the next few …
The appreciation of the US dollar since the end of last year has prompted renewed concerns over the sustainability of currency pegs in the Gulf, but we think these fears are overdone. Oil prices are the key determinant of the devaluation threat and we …
Peru’s central bank left its key policy interest rate unchanged at 4.25% for the twelfth consecutive month, but with inflation still above target and the risks skewed to the upside, we expect policymakers to resume tightening policy later this year. Our …
In the land of fire and ice, currency movements in 2016 resembled an erupting volcano rather than a creeping glacier. The appreciating króna put downward pressure on inflation, prompting the Central Bank of Iceland (CBI) to cut interest rates twice. While …
Recent revisions to the GDP data suggest that the output gap has all but closed. However, the main factor holding back inflation over the last two decades were entrenched deflation expectations rather than a lack of demand. Unfortunately, the Bank of …
