Filtered by Topic: Monetary Policy Use setting Monetary Policy
The current struggles of the S&P 500 don’t have much in common with most previous “bear markets”, but we still think one is likely as the Fed presses ahead with monetary tightening . Although it has recovered a bit lately, at the time of writing the S&P …
18th May 2022
We don’t expect the Bank of Japan to tighten monetary policy meaningfully but, with inflation about to breach 2%, what if we are wrong? The direct impact of higher interest rates on the corporate sector would be manageable, but a stronger yen would weigh …
We estimate that a rise in Bank Rate from 0.10% last November to a peak of 3.00% would mean that GDP is around 2.0% lower than if Bank Rate had stayed at 0.10%. That is a smaller drag than the Bank of England has incorporated into its forecasts. We do not …
17th May 2022
We now expect Australia’s inflation to rise by more than 6% this year. Even allowing for an acceleration in earnings growth and a further solid rise in employment as immigration resumes, that will result in the first annual fall in real household …
The ECB’s rate hikes in 2011 were a mistake, not just because they exacerbated the widening in peripheral bond spreads. Underlying inflation was subdued and policymakers were too concerned with acting pre-emptively to contain inflation expectations. They …
16th May 2022
Just as policymakers at the ECB are becoming more concerned about inflation expectations (see here ), the rise in expectations in Sweden is giving the Riksbank plenty to fret about too. The Bank’s preferred measure – gleaned from a survey of money market …
13th May 2022
Gas supply concerns remain The threat of gas supplies from Russia being cut off continued to rise this week. First, Ukrainian pipeline operator GTSOU suspended the flow of gas through the Sokhranivka transit point, which could reduce gas supplies to …
Banxico gearing up for more aggressive moves? The hawkish tilt by Mexico’s central bank at its meeting yesterday, when it raised its policy rate by 50bp (to 7.00%), suggests Banxico may soon shift its tightening cycle into a higher gear. The decision to …
Finland, NATO, and Russian gas supplies The fact that Russia is reportedly close to cutting off the supply of natural gas to Finland in retaliation for its intention to join NATO poses a risk for Finnish industrial firms that are most reliant on gas – …
The ECB’s hawkish conversion appears to be all but complete, with more officials this week joining the ranks of those calling for rates to rise in July – some more explicitly than others. Perhaps most notably, President Lagarde said on Wednesday that she …
Following the 0.1% m/m fall in GDP in March , we now think the economy is halfway towards a recession (two quarters of falling output in a row). (See here .) If GDP was flat in April, May and June, then it would be 0.1% lower in Q2 relative to Q1. We’ve …
Recent data have shown the firmest evidence yet that high inflation is damaging real consumer spending in advanced economies. Real retail sales fell in the US, UK, and euro-zone in March, while increases in Australia and Japan reflected temporary rebounds …
Rise in bond yields becoming a concern The rupee dropped to an all-time low against the US dollar this week but, as we noted here , the big picture is that it has held up much better than most other EM currencies over the past few months. One reason is …
Golden Week encouraging The strong rebound in mobility over Golden Week suggests that virus fears are waning for many consumers. After stay-at-home spring holiday periods in 2020 and 2021, last week finally saw a seasonal spike in mobility. (See Chart 1.) …
The trade-weighted US dollar has edged up to multi-decade highs as the Fed has started to raise its policy rate. In this Focus, we analyse past Fed tightening cycles and explain why we think the dollar will continue to appreciate over the course of the …
12th May 2022
Brazil’s central bank has undertaken the most aggressive tightening cycle of any major economy over the past year, but there has been surprisingly little impact on bank lending. And while we do expect credit growth to weaken, we doubt that it will …
The South African Reserve Bank is set to shake up its monetary policy setup. This Update provides some clarity on what policymakers will do and why, and what it means for monetary and credit conditions. What is the Reserve Bank planning? In November 2021, …
11th May 2022
Bank Negara Malaysia (BNM) raised its main policy rate earlier than many had expected today, but given low inflation and a continued need to support the recovery, we still think that the tightening cycle will be much more gradual than markets expect. …
The weaker economic outlook triggered by the surge in CPI inflation to a 30-year high of 7.0% in March has yet to put a dent in businesses own expectations for their selling prices. The Bank of England’s Decision Maker Panel survey found that in April …
10th May 2022
We expect the Fed to reduce its asset holdings by more than $3trn over the next couple of years, enough to bring the balance sheet back in line with its pre-pandemic level as a share of GDP. That shouldn’t have a major impact on the economy but, with …
We expect higher interest rates to cause a 10% fall in house prices over the next 12 months and an even steeper fall in residential investment. With the rest of the economy still recovering from the pandemic and benefitting from higher commodity prices, …
9th May 2022
The sharpest fall in real incomes since the 1990/91 recession won’t prevent a strong rebound in consumption this year and next. But with the tailwind from reopening the economy set to fade, consumption and GDP growth will fall below trend in 2024, …
China’s trade, credit and inflation data may reveal the impact of virus disruptions We think annual CPI inflation fell in the US in April, for the first time in eight months (Wed.) Clients can register for a Drop-In on our forecasts for global bonds, …
6th May 2022
Inflation at multi-decade highs The past week has shone the spotlight on the region’s inflation problem. April CPI figures showed that inflation rose to its highest level since 2000 in Colombia, since 1998 in Peru and since 1994 in Chile. Data out of …
Fed moving expeditiously The Fed’s policy statement this week warned that the FOMC is “highly attentive to inflation risks” and, as a result, in his post-meeting press conference Chair Jerome Powell acknowledged that “there is a broad sense on the [FOMC] …
As anticipated, this week’s Monetary Policy Report was the third in a row in which the Bank of England revised up its inflation forecast over the next two years and revised down its GDP forecast. But it was the Bank’s dramatic cuts to its GDP forecast and …
The struggles of both bonds and equities during the Fed’s rapid hiking cycle of 1994/95 may provide a warning to investors today. The Fed’s 50bp rate hike earlier this week – its first such hike in over two decades – looks set to be followed by a …
Schlegel won’t rock the boat at the SNB The SNB announced this week that Martin Schlegel will succeed Fritz Zurbrügg as Vice-Chair of the Governing Board after Mr Zurbrügg retires at the end of July. Mr Schlegel is part of the furniture at the SNB, having …
While a stronger dollar is generally regarded as a headwind for EMs, we think it will only be a minor one for most major EMs, particularly compared with the headwinds from weakness in China, spillovers from the war in Ukraine, and domestic monetary …
Widening bond spreads a cause for concern We agree with investors that the ECB is likely to raise interest rates by 25bp in July. We first made the call in late March, when even the most hawkish members of the Governing Council were talking about hiking …
Jump in inflation likely to be temporary Interest rates in the Philippines look set to rise soon, but the tightening cycle is likely be gradual. Figures published earlier this week show that headline inflation in the Philippines increased from 4.0% y/y in …
Power shortages pose upside risk to inflation The ongoing heatwave in India is prompting a surge in electricity demand that power companies are struggling to meet. (See Chart 1.) In fact, power shortages at peak times were more widespread in April than in …
RBA starts the climb The RBA finally came around to our long-held view that rate hikes would be needed in the first half of this year and hiked rates at the meeting on Tuesday. Admittedly, we had expected the Bank to hike by 15bp, bringing rates back to …
German industrial production probably fell by as much as 2% in March (07.00 BST) We think non-farm payrolls rose by a solid 375,000 in April … (13.30 BST) … and clients can register for a Drop-In on the April US payrolls numbers here (15.00 BST) Key …
5th May 2022
With more monetary tightening to come from the Fed, we think the rise in Treasury yields has further to run and that equities will continue to struggle. At face value, this week’s Fed announcements were quite hawkish : the central bank hiked its target …
Central banks in Czechia and Poland caught investors by surprise today as the Czech central bank (CNB) unexpectedly re-accelerated the pace of its tightening cycle with a 75bp hike while Poland’s central bank (NBP) slowed the pace of tightening with a …
The latest data suggest that the increase in inflation is becoming more broad-based and persistent. While headline inflation only edged up in April, the core measure jumped to 3.5%. A range of alternative measures of underlying inflation, including our …
The Monetary Policy Committee (MPC) struck a more dovish tone today while raising interest rates from 0.75% to a 13-year high of 1.00% and saying that it won’t make a decision until after August on whether to shrink its balance sheet quicker by selling …
As was widely expected, the Norges Bank left interest rates on hold at +0.75% today and all but confirmed that “the policy rate will […] be raised in June”. After June, we forecast two more rate hikes in 2022 and one per quarter next year, which would …
The communications following the Brazilian central bank meeting yesterday, at which the Selic rate was hiked by 100bp (to 12.75%), confirm that the tightening cycle is nearing an end. But even so, with inflation set to remain firmly in double digits over …
With the Fed "highly attentive to inflation risks" it raised its policy rate by a bigger 50bp today, to between 0.75% and 1.00%, and launched its quantitative tightening; with the caps on the value of maturing principal allowed to run off each month set …
4th May 2022
Overview – Sub-Saharan Africa’s recovery is likely to remain slow going and our growth forecasts are generally below the consensus. While spillovers from the war in Ukraine will boost a handful of economies – notably Angola and Nigeria – in others, the …
The prospect of tighter monetary policy in the euro-zone has raised the threat of a bigger sell-off in the region’s bond markets. If this happens, we think the ECB would ultimately intervene to prevent any lasting damage. But we doubt that it will agree …
The Reserve Bank today turned even more hawkish with an unscheduled, unconventional 40bp hike that takes the repo rate to 4.40%. We had been among the early hawks on Indian monetary policy and were already expecting more rate hikes than the consensus this …
Equilibrium real interest rates in the euro-zone appear to be below zero and lower than in most other advanced economies. We expect them to stay that way. While the ECB is likely to raise interest rates sooner and further than most economists expect, this …
3rd May 2022
The RBA started hiking the cash rate today and sounded hawkish for the first since the start of the pandemic. Our forecast that interest rates will reach 2% by year-end is far above the analyst consensus of 1%, but the risks are tilted to the upside . The …
Central banks across the region have recently turned more hawkish. Over the past month or so, policymakers in Korea, Taiwan, Singapore, Sri Lanka, India and Pakistan have all tightened policy. Governor Benjamin Diokno in the Philippines has also hinted …
29th April 2022
Russia’s central bank (CBR) cut its policy rate by another 300bp to 14.0% today and the communications suggest that the CBR is now more focused on boosting credit growth than it has been in the past. This shift in the CBR’s policy framework is likely to …
President Xi has reportedly told officials to ensure that China’s real GDP growth exceeds that of the US this year. This is likely to happen on paper. The published data usually confirm that growth targets have been met and the official target this year …
We doubt that the unexpected 1.4% annualised decline in first-quarter GDP will stop the Fed from hiking its policy rate by a bigger 50bp next week or from launching quantitative tightening. The Fed will stress the ongoing strength of employment growth, …
