Filtered by Topic: Monetary Policy Use setting Monetary Policy
Egyptian inflation jumped to 12.3% y/y in May as the impact of March’s devaluation of the pound continued to feed through into price pressures, while a decision by the government to hike medicine prices last month also played a role. Today’s figures, …
9th June 2016
The Bank of Korea (BoK) unexpectedly lowered its policy rate to a new record low of 1.25% today, marking its first cut since last June. The decision came a day after plans were unveiled for the restructuring of the country’s ailing shipbuilding industry. …
Despite leaving interest rates at 2.25% today, the Reserve Bank of New Zealand still hinted that they may fall to 2.0% before long. What’s more, we still think there’s a chance that rates may have to decline to 1.75%, although not until very late this …
The sudden stop in employment growth rules out any chance of a rate hike from the Fed at next week’s FOMC meeting, particularly now that the UK vote on whether to leave the European Union (EU) appears to be going down to the wire. A quick rebound in …
8th June 2016
It is by no means guaranteed that the MPC would loosen policy after a Brexit vote. But if it did want to give the economy some extra stimulus, an interest rate cut would not be its only option. … How might the MPC loosen policy after a …
The prospect of ECB corporate bond purchases, which begin today, has pushed corporate bond spreads down and prompted a pick-up in issuance. However, there are several reasons to think that spreads might rise after bond purchases begin. And the increase …
Consumer price inflation is likely to have dropped in May, but not by enough to bring it below the RBI’s 5.0% target for March 2017. … Drop in inflation not enough to prompt rate …
The Reserve Bank of India (RBI) kept its repo rate on hold at 6.50% today and, while the consensus is expecting further modest loosening later this year, we think that rates will remain unchanged throughout the rest of 2016 and 2017. … RBI holds rates, …
7th June 2016
It was no surprise after cutting interest rates in May that the Reserve Bank of Australia left rates on hold at 1.75% today. But by not sending a signal that rates will fall further, it has become a bit less likely that rates will be reduced to 1.5% in …
It is often claimed that central bankers are less committed to their inflation targets than they were before the global financial crisis, but a closer look suggests that there has not been a dramatic change. Policymakers are prepared to tolerate inflation …
6th June 2016
Russian inflation remained unchanged at 7.3% y/y in May for the third consecutive month, but it looks like it is on course to edge up over the coming months. As a result, we think that the central bank will continue to resist calls to cut rates. We expect …
The weak US non-farm payrolls data for May and uncertainty ahead of the UK referendum on EU membership, scheduled for 23rd June, may push back the next Fed rate hike until July at the earliest, if not September. Nonetheless, we still think that the US …
3rd June 2016
The rising business inventory-to-sales ratio is not a signal of an imminent recession. The increase in the ratio of some specific components – machinery – is a potential problem. But much of the rise in recent years is instead due to a compositional …
The long delay in explaining its new FX policy is another blow to the credibility of the Central Bank of Nigeria. In this note, we examine three key questions raised by the current FX policy uncertainty. … Nigeria: What to look for when CBN clarifies …
The 38,000 increase in non-farm payrolls in May, which is still only 73,000 if we adjust for the 35,000 striking Verizon workers, means that a June rate hike from the Fed is now very unlikely. (Consensus forecast 160,000, CE forecast 120,000.) A July hike …
The expansion of the ECB’s QE programme may have contributed to the recent increase in euro-zone equity prices and economic sentiment. But purchases of government bonds have increased by more in the region’s core than in the periphery, suggesting that …
Exports from Vietnam should continue to grow strongly in the short-term, helped by booming foreign direct investment into the manufacturing sector. However, the lack of spillovers from the dynamic foreign sector to the less productive domestic economy is …
The recent increase in Target2 imbalances does not suggest that the euro-zone is set for another crisis on the scale of 2011/12. However, it does suggest that countries in the core might be experiencing more of the benefits of QE. If anything, this is the …
The leap in GDP in Australia in the first quarter doesn’t significantly alter the outlook for underlying inflation, especially if we are right in thinking that economic growth will drop back below the economy’s potential rate later this year. This …
Growth in Emerging Europe is set to strengthen over the next few quarters, helped in part by the fact that the drag from Russia will ease as it exits recession. However, while the acute stage of Russia’s crisis has passed, the recovery over 2016-17 will …
2nd June 2016
The ECB is in wait and see mode while it assesses the effects of its latest policy measures, but President Draghi left the door wide open to further policy action. We continue to believe that the central bank’s work is not yet done . … ECB holds fire …
The Reserve Bank of Australia is unlikely to follow May’s 0.25% interest rate cut to 1.75% with another reduction at the meeting on Tuesday 7th June. But we still believe that rates will be reduced to 1.5% at the August meeting and, in a change to our …
The Reserve Bank of India (RBI) has cut its repo rate by 150bp since the start of last year, but we believe that it will now keep rates on hold not just at next week’s policy meeting but for the rest of 2016. To the extent the RBI does want to see further …
Economic growth in Emerging Asia has remained remarkably steady over the past year, even as export demand has stalled. However, policy support and lower oil prices will not continue to prop up domestic demand for long. The upshot is that even if export …
The Reserve Bank of New Zealand will almost certainly cut interest rates from 2.25% to 2.00% at its next policy meeting on Thursday 9th June. Although we don’t expect the RBNZ to signal this month that further rate cuts lie ahead, we think that rates will …
We disagree with recent suggestions that negative central bank policy rates encourage households to increase their savings, thereby reducing demand and weighing on inflation. In fact, the opposite seems to be true in the euro-zone. We suspect that …
1st June 2016
A Brexit and its after-effects could prompt the European Central Bank (ECB) to undertake further unconventional policy action, including measures to support the euro-zone’s financial sector, FX intervention and even some form of helicopter money. … How …
Iceland’s central bank kept its interest rates unchanged for the fifth consecutive meeting. But with price pressures set to pick up in the second half of the year, further tightening will be needed. … Iceland holds rates but tightening cycle not yet …
The delay that has just been confirmed in the sales tax hike will result in economic activity being stronger than would have been the case next year. The decision diminishes pressure on the Bank of Japan to provide more monetary stimulus to offset fiscal …
The surge in GDP in the first quarter means the RBA won’t be in a rush to cut interest rates again. But growth will slow during the rest of this year and we still think that continued low inflation will prompt the RBA to cut rates to 1.5%, probably in …
The robust growth in bank loans and the monetary aggregates is another reason to believe that second-quarter GDP growth will rebound markedly. The growth rate of our M3 measure accelerated to 4.0% in April, from 3.8%. … Monetary Indicators Monitor …
31st May 2016
Asian currencies fell back in May following signals from the Federal Reserve that interest rates in the US are likely to be raised this summer. … Asian currencies slide on Fed …
The pick-up in GDP growth in the first quarter might convince some that the worst effects of the oil price shock are over, but the details showed that business investment fell further, consistent with weaker intentions for this year. With the economy …
April’s euro-zone monetary data suggest that economic growth remains fairly slow. While the full effects of the ECB’s expanded stimulus measures will not yet have been felt, we doubt that they will boost money and lending growth significantly. … …
This week’s OPEC meeting in Vienna is likely to pass without any major surprises. Policymakers should be a little happier heading into the meeting than they were at the previous one in December – after all, oil prices broke through US$50pb last week for …
Markets are coming around to the idea that the Fed will raise rates for a second time either next month or in July, but still appear to be unusually sanguine about the prospects of additional rate hikes beyond then. We agree that the Fed will probably …
27th May 2016
By keeping monetary policy too loose for too long, Pakistan, Vietnam and Sri Lanka now face either a surge in inflation or a rise in bad debts. What’s more, central banks remain complacent about the risks. The longer it takes them to bite the bullet and …
Although GDP growth in Australia in the first quarter probably at least matched the 0.6% q/q rate in the fourth quarter of last year, the continued disappointment is the failure of non-mining investment to fill the hole left by the plunge in mining …
26th May 2016
The European Central Bank (ECB) is likely to maintain a dovish tone at its forthcoming policy meeting on 2nd June, forecasting below target inflation and holding open the door to further policy loosening later in the year. However, it is also likely to …
The US Fed looks set to increase interest rates soon, possibly as early as its June meeting, and we think it will end up hiking more than is generally expected over the next couple of years. However, Emerging Asia looks well-placed to cope with this next …
Despite a serious downgrade to its views on second quarter economic activity, the Bank of Canada opted to hold interest rates at 0.50% today and to remain neutral on the rate outlook, clinging to its hope that growth will rebound in the second half of the …
25th May 2016
Events in Brazil have dominated the past month. The new government under interim president, Michel Temer, has announced a string of market-friendly policies aimed at stabilising the economy, but it remains to be seen whether it will be able to push these …
A vote by the UK to leave the European Union would come as a major surprise and could trigger significant market turmoil. This would probably lead to the Bank of England keeping monetary policy looser for longer than it would otherwise have done. But we …
The minutes of the April FOMC meeting and subsequent comments by various Fed officials have prompted speculation that the Fed could raise interest rates as soon as next month. Treasury yields have rebounded sharply. We always said the June meeting was a …
Claims that the launch of negative interest rates has caused a flight to cash are exaggerated. However, there are clear signs that negative rates have lowered borrowing costs for Japan’s private sector. … Monetary Indicators Monitor …
Two years on from his inauguration, Prime Minister Narendra Modi has arguably just enjoyed his most successful month in office. For a start, PM Modi's BJP secured two important legislative victories in the latest session of parliament. The first was the …
While investors are still probably underestimating the future pace of monetary tightening in the US, we suspect that relatively low valuations will help to ensure that emerging market (EM) equities perform well in the next eighteen months. … Valuations …
24th May 2016
The Central Bank of Nigeria finally admitted at its MPC meeting today that its inflexible “strong naira” policy has failed. The move towards a more flexible exchange rate system is a positive step. We expect that the naira will weaken to around 240/$, …
The fact that Mexican inflation in the first half of this month came in at a weaker-than-expected 2.5% y/y eases some of the pressure on the MPC to tighten monetary policy next month. But if the peso continues to weaken, an interest rate hike next month …
