Filtered by Topic: Monetary Policy Use setting Monetary Policy
Inflation is likely to have risen at the start of 2016 on account of a further small rise in food inflation. Looking ahead, the FY16/17 budget is likely to incorporate a significant rise in public sector wages, which would add to the RBI’s difficult task …
5th February 2016
The introduction of a negative interest rate on a small portion of excess reserves has already reduced corporate bond yields, and we think that banks may also lower lending rates somewhat. However, with appetite for credit fairly subdued, rates will have …
The Reserve Bank of Australia’s February Statement on Monetary Policy confirms that the chances of a near-term reduction in interest rates remains slim. Nonetheless, there are a number of factors that could yet alter the outlook and prompt the RBA to cut …
Today’s “Super Thursday” announcements were generally dovish but, true to form, Governor Carney gave mixed messages, striking a more hawkish tone at the press conference. While market expectations have changed very little, our view is that a hike in Bank …
4th February 2016
The Czech MPC was even more dovish than we had expected at this afternoon’s post-meeting press conference as it not only extended its commitment to keeping the exchange rate ceiling in place to 2017 (as we had suggested might happen), but it also …
While the latest data have raised fresh questions about the strength of the US economy, we think activity will recover because income growth remains strong while the drags from dollar appreciation and the downturn in the mining sector should fade. Growth …
The sharp drop in oil prices and the Canadian dollar have led to a rapid deterioration in Canada’s economic outlook, overwhelming the ability of policymakers to stabilise the economy with conventional stimulus. We expect GDP growth to be less than 1% in …
3rd February 2016
The 10-year Japanese government bond yield has fallen to a record low of less than 0.1% following the Bank of Japan’s decision to cut its deposit rate to -0.1%. We now forecast that the 10-year JGB yield will fall to -0.25%, as the BoJ reduces its deposit …
Financial markets got off to a tumultuous start to the year, but the economy has begun 2016 on a slightly stronger footing. The Markit/CIPS surveys point to quarterly GDP growth of around 0.6%, a slight pick-up on recent rates. And consumer confidence …
Hard data for the fourth quarter of last year, including GDP estimates for some countries and industrial production and retail sales figures for the region as a whole, suggest that euro-zone GDP posted a quarterly gain of just 0.3%. This would be the same …
Stronger-than-expected Turkish inflation in January, of 9.6% y/y, was partly driven by administered price hikes and what is likely to be a temporary unwinding of the impact of the decline in global oil prices. But even so, underlying price pressures are …
The Bank of Thailand’s (BoT) decision to keep its policy rate unchanged at 1.50% today came as no surprise. With the economy gradually recovering and the government stepping up efforts to support growth, we expect rates to be kept on hold throughout …
With longer-term interest rates falling alongside short-term rates, the introduction of negative rates will not hamper the Bank of Japan’s ability to purchase large amounts of government bonds. Nor will they have a crippling effect on commercial banks’ …
The Bank of Japan last week became the fifth central bank to impose negative rates and we now expect it to lower its deposit rate to -0.7% by the end of this year. If policy eventually needed to be loosened further, we think central banks could cut rates …
2nd February 2016
The tumble in inflation from the most recent peak of just over 5% in late-2011 to an average of 0% in 2015 has provided a welcome boost to the economy. But with near-zero rates of inflation now in the rear-view mirror, this favourable tailwind will not …
The Reserve Bank of India (RBI) kept its repo rate on hold at 6.75% today and, while the consensus is expecting further modest loosening later this year, we think that rates will remain unchanged throughout 2016. … RBI holds rates, no change likely in …
While the Reserve Bank of Australia acknowledged the threat posed by a weaker global economy when it left interest rates on hold at 2.0% today, we don’t think it went far enough. With the outlook for underlying inflation at home also softening, we …
Amid concerns about the sustainability of its large-scale asset purchases, the Bank of Japan now looks likely to rely increasingly on lowering the interest rate on central bank reserves to deliver policy easing. We believe that this rate may lowered to …
1st February 2016
The Fed certainly didn't rule out a March rate hike completely last week, but it was deliberately non-committal about the risks to the outlook. It's debatable whether the current uncertainty will clear up by the time of that March FOMC meeting. We …
29th January 2016
The sinking Canadian dollar has prevented the annual core CPI inflation rate from falling below the mid-point of the Bank of Canada 1% to 3% inflation target range, despite the worsening economic downturn and growing slack in the economy. But tentative …
The Russian central bank kept its benchmark one-week repo rate on hold at 11.00% earlier today, but the markedly more hawkish tone of the accompanying statement makes it clear that rate cuts – which the MPC had hinted at recently – are off the cards. …
December’s euro-zone monetary data suggested that money and lending growth in the currency union has peaked, adding to the case for the ECB to loosen monetary policy significantly in March. … Euro-zone Monetary Indicators Monitor …
The introduction of negative interest rates at today’s BoJ meeting will likely be followed by further cuts in coming months. The upshot is that the yen should continue to weaken against the dollar. … Further cuts in interest rates likely to be …
It’s odd that the financial markets placed so much emphasis on the rise in Australia’s tradables inflation rate in the fourth quarter of last year when this was more than offset by a fall in non-tradables inflation. What’s more, there are good reasons to …
The Central Bank of Egypt kept its benchmark overnight deposit rate unchanged at 9.25% today as an influx of financial support has eased immediate concerns over the country’s external position and reduced the need to follow up on December’s rate hike. But …
28th January 2016
The messages from this month’s Inflation Report will probably be pretty mixed. A lower profile for growth and inflation over the next few quarters should cement expectations that an interest rate rise soon is off the agenda. In contrast, a stronger …
The South African Reserve Bank has raised its key interest rate from 6.25% to 6.75% as inflation concerns outweighed worries about weak growth. We expect the bank will be forced to hike by another 50bp over the course of 2016. … South Africa: Rates …
The Reserve Bank of New Zealand’s hint that the weakening outlook for inflation means that interest rates may have to be reduced this year from the current rate of 2.5% supports our long-held view that rates will fall to 2.0%. The New Zealand dollar has …
The Fed certainly didn't rule out a March rate hike completely in the FOMC statement released today, but it was notable that it was no longer willing to describe the risks to the outlook as balanced. … Fed doesn't completely rule out March rate …
27th January 2016
The renewed turmoil in global financial markets together with the downward revisions to estimates of fourth-quarter GDP growth in the US have prompted claims that the Fed made a serious policy error in raising interest rates late last year. With the risks …
We continue to believe that GDP growth in both Australia and New Zealand won’t accelerate at all this year from last year’s disappointing rates of around 2.3%. A further weakening in the outlook for underlying inflation will also play a major role in …
The consensus is expecting further, albeit limited, monetary easing in India over the coming months, but we continue to think that the rate-cutting cycle has come to an end. The Reserve Bank of India’s (RBI’s) aversion to financial market volatility means …
The rise in headline inflation in the fourth quarter of last year, to 1.7% from 1.5%, hides the more important easing in underlying inflation. On one measure, underlying inflation is now below the RBA’s 2-3% target range. We believe that further falls in …
Inflation across Emerging Asia remains very low, with consumer prices rising by less than 2% y/y in seven of the 14 countries we track. Two of those, Thailand and Singapore, are in deflation, while there are only two countries, India and Bangladesh, where …
The growth rate of our M3 broad money measure slowed to a three-and-a-half year low of 4.1% in December, but the slightly narrower M2 measure increased by a solid 6.0% last year, while bank loans expanded by a very robust 8.4%. Since the slowdown in M3 …
26th January 2016
The turmoil in global markets since the beginning of the year is not, in our view, a sign that the world economy is heading for a recession, but the fall in oil prices will have a knock-on effect on inflation. While not a “game-changer”, it has reinforced …
Central Bank of Nigeria Governor Godwin Emefiele used the post-MPC meeting press conference to reiterate his commitment to retaining controversial FX restrictions. But with strains in the balance of payments building, we believe that the governor will, …
The latest fall in oil prices and in the ruble since the start of the year has dealt a blow to hopes that Russia’s economy would stabilise in the near future. Fiscal policy is likely to be tightened to counter the hit to the public finances. And the …
With economic activity recovering and underlying inflation holding up, the recent strengthening of the yen and the plunge in the Nikkei are unlikely to force the Bank’s hand at next week’s meeting. However, underlying inflation looks set to moderate and …
The external deflationary pressure from the stronger dollar and lower commodity prices is persisting for longer than we expected. The lower profile for energy prices now means that headline inflation will remain around 1% for much of the year and won’t …
25th January 2016
The recent turmoil in financial markets will have brought a sudden end to Governor Stevens ’“chilled” Christmas period. But this won’t be enough to prompt the Reserve Bank of Australia (RBA) to cut interest rates at the policy meeting onTuesday 2nd …
Despite a rapidly deteriorating outlook, the Bank of Canada defended its recent inaction on interest rates on the basis of it not knowing the details of the upcoming Federal budget, due to be delivered sometime in April. But if that budget fails to admit …
22nd January 2016
Our calculations indicate that fourth-quarter GDP growth slowed to only 1.0% annualised, largely thanks to a more modest 2.0% gain in consumption. The latter is hard to square with the continued decline in energy prices, but the weather may have played a …
The higher starting point means that inflation in Australia is unlikely to fall close to zero, as it has done in New Zealand. That said, underlying or “core” inflation in Australia may soon follow in the footsteps of core inflation in New Zealand by …
We have reduced the amount by which we forecast the dollar to strengthen against the euro and the yen this year, but increased the amount by which we project that it will appreciate against sterling. The big picture is that our new forecasts continue to …
21st January 2016
The ECB signalled firmly today that further policy loosening is imminent. While we are wary of putting too much faith in its communications after last month’s disappointment, there are good reasons to expect it to cut interest rates and accelerate its …
The decision by Malaysia’s central bank (BNM) today to cuts its statutory reserve requirement (SRR) ratio is not a signal that interest rates cuts are on the way. Worries about currency weakness and high levels of foreign currency debt mean BNM’s main …
Large injections of liquidity into the banking system by the People’s Bank (PBOC) have grabbed headlines today. The moves have more to do with offsetting the usual spike in liquidity demand ahead of Chinese New Year than a response to capital outflows or …
While recent events have increased the chances that interest rates will be cut from 2.5% now to 2.0%, as we have been expecting for some time, we think that the Reserve Bank of New Zealand will hold fire at the policy meeting on Thursday 28th January. …
The Bank of Canada’s decision to hold its key policy rate at 0.50% today doesn’t mean that further rate cuts are off the table entirely. The Bank sounded far more downbeat about the economic outlook because of the worsening commodity price shock. But …
20th January 2016
