Filtered by Topic: Monetary Policy Use setting Monetary Policy
We expect a recession in 2022/23 to be driven by high inflation, with a contraction in real consumer spending at its epicentre. But with household and corporate balance sheets still relatively healthy, we suspect the recession will be mild by historical …
11th August 2022
Inflation pressures nowhere to be seen Russia’s month-on-month deflation deepened in July as consumer prices fell by a larger-than-expected 0.4% m/m (in y/y terms, the headline rate eased to 15.1%). The disinflationary impact of the strong ruble is likely …
10th August 2022
The rise in new delinquencies on consumer loans over the first half of the year mostly reflects rising interest costs. With debt levels low, real incomes on track to begin rising again amid a drop back in inflation and the labour market holding up well, …
We held a Drop In yesterday outlining our latest forecasts for global financial markets. This Update answers some questions that we received during that Drop In but didn’t have time to address. What would have to go right for bond and equity markets to be …
We’ve been warning for some time that CPI inflation would rise further than most people expect, triggering a recession. The prospect of even bigger rises in utility prices on 1 st October and in the first half of 2023 than we have pencilled in suggests …
With most workers who left during the pandemic mostly returned to the labour force by early 2022, it is little surprise that growth of the labour force has slowed. But the decline in the participation rate over recent months also appears to reflect some …
Headline inflation has peaked, although core will remain elevated Consumer prices were unchanged in July and there's a good chance that prices will fall outright in August. With core consumer prices increasing by a more modest 0.3% m/m last month, which …
Weaker pound to push inflation higher; further rate hikes on the cards Egypt’s headline inflation rate picked up to a three-year high of 13.6% y/y in July and we think it will remain above the Central Bank of Egypt’s (CBE’s) target range until early 2024. …
The Bank of Thailand hiked interest rates today by 25bp (to 0.75%), but reiterated that the tightening cycle will be gradual. We are sticking with our view that the policy rate will peak at 1.5% next year. Today’s decision came as no surprise and was …
Tight labour market and faster inflation point to another 50bp hike next week However, higher interest rates are taking their toll on housing market We expect two more 25bp hikes in October and December, but rate cuts next year Rising interest rates are …
Chances of another 50 bp hike next week rising The increase in CPI-ATE to a record-high will have raised eyebrows at the Norges Bank. We think another 50 basis point hike at next week’s interim meeting is likely. The increase in the headline inflation …
The 2.5% slump in productivity over the past year – the worst since records began in 1948 – is another illustration of the chasm that has opened up between the GDP and employment figures. The only plausible explanation to our minds is that one or both of …
9th August 2022
The sharp increase in retirements this year presents downside risks to our forecasts for employment and, with GDP growth already faltering, further raises the probability that economic activity will contract. The fall in employment over June and July is …
A rise in Bank Rate to a peak of 3.00% wouldn’t dent real consumer spending anywhere near as much as the drag from surging inflation over the coming quarters. That said, it would only compound the downward impact on spending, which reinforces our view …
Inflation fall eases pressure on Copom The sharp fall in Brazilian inflation to 10.1% y/y in July from 11.9% y/y in June was mainly a result of tax cuts on energy; inflation in most other price categories remains extremely strong. Even so, at the margin, …
Further rise in inflation to prompt another 75bp on Thursday The rise in Mexico’s headline inflation rate to 8.2% y/y in July, coming alongside the stronger-than-expected Q2 GDP figures released in late-July, mean that Banxico is almost certain to hike …
While DM central banks are currently raising interest rates in earnest, the past week has brought signs that tightening cycles are now nearing an end in parts of the emerging world. Indeed, with interest rates now well above neutral in much of Emerging …
8th August 2022
Pelosi goes to Taiwan With the Democrats at risk of losing control of Congress in November’s midterm elections, House Speaker Nancy Pelosi’s visit to Taiwan this week was probably partly motivated by a need to bolster the party’s national security …
5th August 2022
Costing Chile’s new constitution A recent report from Chile’s Centro de Estudios Públicos (CEP) that looks at the fiscal costs implied by the draft new constitution has made a splash this week. It estimates that the total annual cost for the government of …
The tide is turning on monetary policy in CEE The decision by the Czech central bank to keep its policy rate on hold this week, while Romania’s hiked rates, is representative of a growing divergence between central banks in the region. Poland’s central …
The Bank of England’s decision to step up the fight against high inflation by raising rates by 50 basis points (bps) from 1.25% to 1.75% was in line with our expectations. Moreover, we have been saying for some time that the UK economy would soon fall …
Labour market still hot The unexpected acceleration in non-farm payroll growth in July, together with the further decline in the unemployment rate and the renewed pick-up in wage pressures, suggests the economy is still a long way from recession. That …
Inflation the main concern for Thai policymakers Thailand is one of the few countries in the region not to have raised interest rates this year, but that looks set to change on Wednesday. We, along with the majority of other analysts, are expecting a 25bp …
Activity turning downwards The data published this week add to the evidence that a recession is just around the corner. Retail sales fell sharply in June and are on a clear downward trajectory. Admittedly, that might partly be because households are …
According to Google it’s “kanariefugl i kulminen” Against the backdrop of heightened tensions between China and Taiwan, and ongoing question marks over whether the US economy is in recession or not, it’s fair to say that the precipitous plunge in the …
Trade data point to softening in exports Preliminary data released this week showed India’s goods trade deficit widening from a seasonally-adjusted $25.8bn in June to $29.3bn in July, the largest on record in dollar terms. But while the widening in the …
RBA turns more pessimistic The RBA delivered yet another 50bp rate hike on Tuesday as widely anticipated. However, following the release of weaker-than-expected Q2 inflation data last week, financial markets are now pricing in a peak in the cash rate of …
The RBI today raised the repo rate by 50bps to 5.40% as we had anticipated, and struck a relatively hawkish tone despite inflation surprising to the downside in recent months. It’s clear that the tightening cycle still has legs and we expect another …
The Czech National Bank (CNB) became the first major EM central bank to end its tightening cycle after it left its policy rate on hold at 7.00% today. The communications were not as dovish as we had expected, but the new-look MPC is clearly less inclined …
4th August 2022
We expect central banks in Romania and India to hike policy rates We think US non-farm payrolls rose by around 250,000 in July… (13.30 BST) … and clients can sign up here for our Drop-In on the Employment Report (15.00 BST) Key Market Themes While the …
Banks are frontloading rate hikes to stem inflation risks and avoid more pain later on. Early signs are ok, with inflation expectations down and demand weakening somewhat. But rates could need to fall back before long, especially where housing risks …
Euro-zone GDP increased by more than we had expected in Q2 as reopening effects boosted the services sector, particularly in the southern countries. But things have already taken a turn for the worse. Business surveys are pointing to a big drop in …
Does Egypt really want an IMF deal? Egypt’s Finance Minister Mohamed Maait argued this week that any financing agreement with the IMF would be much smaller than some analysts’ estimates. If anything, Egypt could be hinting that it does not want IMF …
While raising interest rates by 50 basis points (bps) today, from 1.25% to 1.75%, the Monetary Policy Committee (MPC) suggested that rates will probably have to rise further to knock on the head the recent rises in price/wage expectations, but that a …
The statement to yesterday’s Brazilian central bank meeting, at which the Selic rate was hiked by 50bp to 13.75%, made clear that Copom is more confident that inflation will fall back and also more concerned about the slowing economy. We remain of the …
A disappointing end to Q2 The sharp fall in euro-zone retail sales in June means sales contracted in Q2 as a whole. With the final PMI surveys pointing to price pressures continuing to intensify and demand softening, we think household spending will …
3rd August 2022
Inflation close to a peak, but will remain high The modest rise in Turkey’s headline inflation rate to 79.6% y/y in July suggests that inflation is nearing a peak, but it will remain close to these very high rates for several more months and will be slow …
Inflation appears to have peaked Swiss inflation appears to have peaked in July at an enviably low level compared to that of most other advanced economies. That said, the core rate reached its highest level in more than two decades, which is likely to …
We think the Caixin Services PMI edged lower last month (02.45 BST) Inflation in Turkey probably exceeded 80% in July (08.00 BST) We expect Brazil’s central bank to hike rates by 50bp (22.30 BST) Key Market Themes Although the US dollar has faltered over …
2nd August 2022
Consumer price inflation in Korea increased to a new 24-year high last month, but we think it has now peaked. With headwinds to the economy mounting, we believe that the central bank’s tightening cycle will come to a finish before the end of the year. …
The Reserve Bank of Australia revised up its inflation forecasts sharply when it lifted the cash rate by 50bp today and we expect it to hike rates more aggressively over coming months than most anticipate. However, we expect the Bank to start cutting …
Labour market to remain tight In June, the number of unemployed people rose in the euro-zone for the first time in 14 months. Nevertheless, we expect the labour market to remain tight even as the economy heads into recession, maintaining the upward …
1st August 2022
The slump in the CFIB Business Barometer in July – to a post-pandemic low – shows that the jump in borrowing costs is hitting more than just the housing market. With the survey still pointing to elevated price and wage expectations, however, the mounting …
29th July 2022
Big challenges for Argentina’s new “superminister” President Alberto Fernández announced a major cabinet reshuffle yesterday in an effort to tackle the latest economic crisis. One of the casualties of the reshuffle is Silvina Batakis, who had taken over …
More signs of weakness This week continued the run of downbeat economic data, with the 0.9% annualised decline in GDP in the second quarter, following the 1.6% decline in the first, inevitably leading to a fresh round of calls that the economy has fallen …
Russian gas cut off raises energy supply risks The news flow this week continued to be dominated by concerns about energy supply this winter after Gazprom reduced gas exports to Europe further. The immediate consequence will be higher energy bills and an …
The fall in 10-year gilt yields from 2.60% in late June to 1.95% now has been in line with the global trend and shows that the markets are looking through the further near-term rises in inflation and interest rates and focussing more on the risks of …
Nigeria’s budget woes Data published by Nigeria’s Budget Office this week highlighted that, despite what should be a favourable high oil price environment, the public finances are actually getting worse. The figures showed that the federal government …
We still expect a higher 10-year Treasury yield, lower S&P 500 and stronger US dollar over the remainder of the year, but have pared back our forecasts for the rise in yields and fall in equities. In particular, we now suspect the 10-year yield is …
Given our forecast that the Bank of England will raise interest rates from 1.25% now to a peak of 3.00%, we still think that gilt yields have further to rise. However, with attention in the markets turning towards the prospect of lower inflation and …
