Filtered by Topic: Monetary Policy Use setting Monetary Policy
The first round of Colombia’s presidential election has set up a close race between left-wing Gustavo Petro and populist Rodolfo Hernández in the second round vote on 19 th June. The vote was a major repudiation of the pro-business governments that have …
30th May 2022
Talks between Pakistan and the IMF ended last week without agreement, but the subsequent decision by the government to cut back fuel subsidies has cleared one of the major hurdles towards a deal being agreed. Financial markets in the country reacted well …
China’s beleaguered property developers may soon see some respite both from their inability to borrow at reasonable rates and from sliding property sales. Last week, PBOC Governor said that the government would “correct the contraction in credit to …
House prices in New Zealand are tumbling and all signs point to a further deterioration in the months ahead. On that basis, we are revising up our forecast for the peak to trough decline in prices from 10% to 20%. That’s why we expect the RBNZ’s hiking …
We suspect that US non-farm payrolls climbed by 300,000 in May (Friday) We think euro-zone headline inflation rose further in May, to just below 8% (Tuesday) China’s PMIs probably increased but remained weak this month (Tuesday & Wednesday) Key Market …
27th May 2022
CBN governor: in or out? Reports this week suggesting that Nigeria’s central bank (CBN) governor, Godwin Emefiele, had been sacked have subsequently been denied by officials. Even so, the rumours did no good for the CBN’s independence and, with or without …
Another Petrobras CEO gone The news this week that Brazil’s President Bolsonaro sacked the CEO of oil giant Petrobras, José Mauro Coelho, provides a worrying sign about the direction of policymaking in the run-up to October’s elections. Mr. Coelho became …
With core inflation rising well above the ceiling of the 1% to 3% target range and first-quarter GDP growth likely to have been as strong as 5.0% annualised, there is little to stop the Bank of Canada from hiking its policy rate by another 50bp this week, …
Russia and default (yes, we’ve been here before!) A Russian sovereign default moved a step closer this week after the US government decided not to extend a waiver that allowed US investors to receive debt payments from Russia’s government. We looked at …
There are some question marks over quite how big the fiscal stimulus announced by the Chancellor yesterday proves to be. Much depends on whether the 25% levy on the profits of oil/gas producers lasts beyond the next year, which Sunak said would happen if …
Nordics to follow ECB (following the Fed) The change to our ECB forecast this week (see here ) has big implications for Scandinavian central banks so we are now formally changing our projections for the Riksbank, Norges Bank and Nationalbank. (See Key …
Contraction in Q2? The euro-zone PMI survey for May, published this week, suggested that the economy may fare a little better in Q2 than we had assumed. Indeed, the Composite index remained well above the 50 “no change” mark, leaving it consistent with …
Governor Das confirms more rate hikes to come… RBI Governor Shaktikanta Das was in a candid mood when on media duties this week. Among the more notable comments, he said that the MPC would be revising up its inflation forecasts for this year and next in …
The RBI kicked off its tightening cycle this month with a 40bp hike to the repo rate (to 4.40%) in an unscheduled policy announcement. The minutes to that meeting show that several MPC members are keen to frontload policy tightening to keep a lid on …
Surge in utility bills adds to price pressures The activity data released this week were a mixed bag. While retail sales powered ahead in April, real private investment probably fell in Q1. What’s more, it now looks likely that house prices started to …
The ECB’s guidance that it can use PEPP reinvestments to contain bond spreads has a few big limitations. If the forthcoming interest rate hikes cause spreads to blow out, the ECB will either need to change the rules governing its reinvestments or, more …
26th May 2022
With core CPI inflation still rising, the Bank of Canada has no choice but to continue hiking its policy rate “forcefully’ back toward neutral. All three of the core measures tracked by the Bank are now above the 3% ceiling of the target range. (See Chart …
With inflationary pressures remaining intense and policymakers keen to get the deposit rate out of negative territory, we now think the ECB is most likely to raise rates by 50bp in July and by 125bp in total this year. That said, we still think the …
Despite the backdrop of inflation at 70% and the lira falling by falling by 10% against the dollar this month, Turkey’s central bank left interest rates on hold at 14.00% today. So long as President Erdogan is in power, rate hikes will remain off the …
Colombia’s upcoming presidential election could result in the country’s first left-wing government in recent decades, headed by Gustavo Petro. While he is unlikely to be as radical as many expect, Petro’s policies would lead to higher public debt, higher …
A majority of central banks in the region hiked interest rates over the past month. In the Gulf, central banks raised interest rates in line with the Federal Reserve, although this won’t necessarily curb demand in the region. Credit growth tends to …
The decision by the Bank of Korea (BoK) to hike its policy rate by 25bps, to 1.75%, is likely to be followed by more hikes to tackle elevated inflation. But the Bank is set to turn more dovish further ahead. Today’s unanimous move was no surprise, with …
Further upside surprise in core inflation points to another 50bp hike Housing slump begins, but won’t stop march back to neutral We expect slower pace of tightening in H2, with policy rate peaking at 2.5% We expect the Bank of Canada to hike its policy …
25th May 2022
The RBNZ sounded hawkish when it hiked rates by 50bp today, and we now think rates will rise to 3.5% by the end of this year. But the Bank endorsed our long-held non-consensus view that rate cuts will be required in the years ahead. We think the Bank will …
We held a Drop-In today to discuss our views on the ECB and what the chances are of a further hawkish surprise in the coming weeks. (You can see an on-demand recording here .) This Update answers several of the questions that we received, some of which we …
24th May 2022
The Central Bank of Nigeria (CBN) delivered a surprise 150bp interest rate hike, to 13.00%, today amid mounting inflation and balance of payments concerns. We expect rates to be raised by another 100bp, to 14.00%, in July but further tightening seems …
We estimate that euro-zone households’ debt interest payments will quadruple as a share of income over the next couple of years as the ECB raises its policy rate. This will put yet further strain on households which are already struggling with higher …
The State Council has announced support measures totalling 1.7% of GDP. Most of this comprises incentives for banks to lend to struggling firms, rather than fiscal stimulus. The People’s Bank has also made a call for “all-out” efforts to boost lending, so …
Bank Indonesia (BI) left interest rates unchanged today and the dovish tone from the press conference suggests the central bank is in no rush to tighten policy. We are maintaining our view the central bank will raise interest rates by just 25bps this …
House prices are starting to fall across Australia earlier than we had anticipated. While we still expect the RBA to hike rates until early-2023, the experience from previous housing downturns points to an earlier end to the current tightening cycle. …
Upside surprises to inflation coupled with a hawkish Fed have prompted aggressive monetary policy responses by central banks across the emerging world over the past month. Policymakers in Czechia , Romania, Chile and Egypt raised interest rates by more …
23rd May 2022
High inflation and the fall in the currency were the two key factors behind the State Bank of Pakistan’s (SBP) decision to raise interest rates by a further 150bp today. More tightening looks inevitable, and much will depend on whether the government can …
The Bank of Israel (BOI) hiked its policy by a larger-than-expected 40bp today, to 0.75%, and the backdrop of a strong economy, tight labour market and mounting inflation pressures means that we think it will deliver further hikes at its upcoming …
The Bank of Japan’s attempt to relieve pressure on the Yield Curve Control framework by offering to buy an unlimited amount of 10-year Japanese government bonds (JGBs) at yields of 0.25% for as long as necessary appears to have done the trick so far. …
The cost of living squeeze will push net energy importers including the euro-zone and UK close to, or into, recession. While this will have some disinflationary effects in the medium-term, we doubt that it will bring inflation down on its own. So central …
20th May 2022
Central bank hawks ascend amid market ruffles Recent investor risk-off sentiment has pushed up sovereign dollar bond yields across Sub-Saharan Africa, fuelling debt risks further. And central banks appear to be taking note, with some policymakers turning …
China the exception China today cut interest rates, but the notable recent shift across the rest of the region has been an embrace of rate hikes. Central banks in India , the Philippines and Malaysia have all hiked for the first time this cycle in recent …
Hungary: policymakers seek to fight imbalances Officials in Hungary sought this week to reassure investors that they will tackle inflation and mounting macro imbalances. Tighter policy is needed, which underpins our below-consensus growth forecasts. In a …
50bp is the new 25bp? It was a quiet week on the data front, but we had plenty of comments and speeches from policymakers to pick through – notably from three of the members of the Riksbank’s Executive Board. Deputy Governors Henry Ohlsson and Martin …
Heatwave damage could extend beyond wheat The news has been dominated this week by the government’s decision to restrict exports of wheat on food security grounds, following heavy damage to crops from the heatwave. This has caused ructions in the global …
History suggests that the surge in energy prices over the past year means there is a good chance that the euro-zone will suffer a recession in 2022. It also suggests that it will be tricky for the ECB to tighten monetary policy without causing a recession …
Today’s reduction to the five-year Loan Prime Rate (LPR) should help drive a revival in housing sales, which have gone from bad to worse recently. But the lack of any reduction to the one-year LPR suggests that the PBOC is trying to keep easing targeted …
Policymakers in South Africa upped the pace of tightening today, raising the repo rate by 50bp to 4.75%, as concerns about inflation (and inflation expectations in particular) have grown. We don’t think that the hawks will have their way for long though …
19th May 2022
The account of the ECB’s April meeting shows that a lot of policymakers thought the criteria for rate hikes had already been met. Since then, the case for rate hikes has only strengthened. While not our central forecast, a 50bp hike in July is …
Tunisia: further rate hikes needed The central bank of Tunisia (BCT) joined the region’s tightening cycle this week, in part to shore up the dinar and mitigate the risks stemming from the currency to the public finances. But we doubt that this will …
The war in Ukraine will exacerbate two key macro risks in Central and Eastern Europe (CEE) this year: wage-price spirals (particularly in Poland) and widening current account deficits (particularly in Hungary and Romania). Monetary policy will do most of …
The Turkish lira has come under renewed pressure in recent weeks but interest rate hikes to shore up the currency are off the cards. Instead, further sharp and disorderly falls would most likely be met by formal capital controls and more strident …
Headline CPI inflation in Japan probably rose above 2% in April (23.30 BST) We expect interest rate hikes in South Africa, the Philippines, and Egypt Clients can sign up for tomorrow’s Drop-In on commercial property here Key Market Themes The hawkish tone …
18th May 2022
The switch from global QE to QT is imminent But not all banks will participate, with the BoJ still buying and the ECB on standby QT will contribute to a rise in yields, especially in US, but no global market meltdown The focus of recent weeks has been on …
The strength of the hard activity data for April refutes the recent message from financial markets that the economy is at risk of imminent recession. The solid gain in control group retail sales, together with upward revisions to past months leaves the …
