Filtered by Topic: Monetary Policy Use setting Monetary Policy
With all domestic restrictions gone and the booster rollout further severing the link between cases and deaths, the conditions for a reopening bounce are in place. Moreover, consumers have ample room to splash the cash. The household savings rate remained …
19th April 2022
Most analysts are overestimating the near-term negative impact of RBA rate hikes on household finances and are therefore underestimating the degree of tightening required to bring inflation under control. We now expect the RBA to hike rates to 2.5% by …
The People’s Bank (PBOC) has just announced a cut to the reserve requirement ratio (RRR). This will help nudge down bank lending rates. But in order to make much difference to credit growth it needs to be followed up by cuts to policy rates and a …
15th April 2022
This Update was originally sent to clients as a Rapid Response immediately after the announcement by the PBOC. The People’s Bank (PBOC) forwent the opportunity to lower its policy rates today. That’s somewhat surprising given the sharp economic downturn …
Chinese activity data will reveal a sharp slowdown in March … (Mon.) … which reinforces our view that the PBOC will cut the Loan Prime Rate (Wed.) Register for our Drop-In on the key implications of the French election here Key Market Themes While the ECB …
14th April 2022
ECB President Christine Lagarde suggested at today’s post-meeting press conference that the Bank would be sticking to its plans for policy normalisation, despite inflation surprising to the upside since the last meeting. She highlighted the hit to …
Today’s ECB statement and press conference indicate that policymakers expect to end their net asset purchases early in Q3 and raise interest rates soon after that. With inflationary pressures still rising, we think they will lift the deposit rate sooner, …
Price pressures building This week brought March inflation releases from Norway, Denmark and Sweden. Norway’s inflation data were a little weaker than expected, with the headline rate at 4.5% and the core rate unchanged at 2.1%. (See here .) Those …
8.5% inflation marks the peak The news that core prices rose by a more modest 0.3% in March, even as higher energy prices drove headline inflation to a 40-year high of 8.5%, explains why investors pared bets this week on how far interest rates would rise. …
The Bank of Canada embraced a new-found hawkishness this week, hiking its policy rate by 50bp to 1.00% and announcing an almost immediate start to what amounts to a relatively more aggressive quantitative tightening than the Fed is contemplating south of …
N. Africa: some benefits from Europe’s energy war The war in Ukraine has prompted the EU to commit to reducing its dependence on Russian gas and, as we’ve highlighted before , Algeria and Egypt stand to be two key beneficiaries. So far, Italy’s Eni S.p.A …
World GDP appears to have expanded at a below-trend pace in Q1 as high inflation limited real consumer spending and supply shortages and Omicron waves continued to disrupt activity. March’s broad-based drop in consumer confidence suggests that consumer …
Upside risks to inflation are materialising We’ve been arguing for several months that both the consensus and the RBI have been underestimating the upside threats to inflation. Consumer price data for March released this week have reinforced our view. The …
Today’s decision by the Bank of Korea (BoK) to hike its policy rate by 25bp to 1.50% is unlikely to mark the end of its tightening cycle given the strength of inflationary pressures. We expect at least two more 25bp rate hikes in the coming quarters, …
Ban on Russian coal won’t lift energy prices Prime Minister Kishida’s decision last Friday to follow the EU in banning imports of Russian coal is unlikely to put much additional upwards pressure on Japanese energy prices. To be sure, Japan is the world’s …
Labour market tightening, inflation surging The Reserve Bank of New Zealand’s 50bp rate hike on Wednesday was in line with our forecast and financial market pricing, but defied the analyst consensus of a 25bp hike. We’ve pencilled in another 50bp hike in …
The Monetary Authority of Singapore (MAS) tightened monetary policy again at its meeting today. With growth set to remain strong and core inflation likely to stay elevated, we expect the MAS to maintain its tight policy stance for at least the next couple …
South Africa’s headline inflation rate will stay close to the upper bound of the central bank’s 3-6% target range in the coming months before falling sharply in the second half of the year. Some MPC members are in a hawkish mood, but we think that …
13th April 2022
We expect Korea’s central bank to hike its policy rate by 25bp (02.00 BST) Australia’s unemployment rate may have fallen to a multi-decade low in March (02.30 BST) We think the ECB will leave policy unchanged tomorrow (12.45 BST) Key Market Themes While …
The Bank moved into full-blown hawkish mode today, hiking its overnight policy rate by 50bp to 1.00% and announcing that quantitative tightening will start later this month, with no caps on the value of maturing bond principal allowed to roll off each …
We held a Drop-In on the political and economic problems facing Pakistan earlier today (see an on-demand recording here ). This Update answers some of the most common questions that we received. Question 1: What have we learned about the new prime …
Overview – The surge in global commodity prices will take a little gloss off India’s economic recovery this year but we still expect stronger GDP growth than the consensus. Higher commodity prices will also keep inflation elevated, which we think will …
The RBNZ’s decision to accelerate its hiking cycle shows it is willing to move decisively to get a hand on surging inflation. That’s in line with our forecast that it will hike the OCR to 3.0% by the end of this year. The Bank’s decision to hike rates by …
Overview – We expect the economy to bend rather than break under the pressure of a rapid monetary tightening by the Fed. We anticipate that real economic growth will remain consistently below its 2% potential pace over the next two-and-a-half years, but …
12th April 2022
Egyptian inflation rose to a near-three year high in March and will continue to pick up on the back of the spillovers from the war in Ukraine and last month’s devaluation. We now think interest rates will be hiked by a further 350bp, to 12.75%, by …
11th April 2022
The Bank of Israel kick-started its tightening cycle today with a 25bp interest rate hike to 0.35% and we think it will deliver further hikes at its upcoming meetings, taking rates to around 2.00% in the first half of next year. This is currently more …
The RBI’s policy announcement and the introduction of the Standing Deposit Facility has prompted a number of questions from clients on its intended purpose and what it means for monetary policy. This Update aims to provide further clarity on the new …
Credit growth rebounds to an eight-month high Broad credit growth was much stronger than expected last month amid increased policy support. With more easing on the horizon, we expect a further acceleration although a sharp pick-up in lending still seems …
The government used its 2022 Budget to set out a host of proposals to make housing more affordable for Canadians, but the impact of these measures on house prices will be far overshadowed by the effect of rising interest rates, with the Bank of Canada …
8th April 2022
The age of turbulence all over again As it was with Alan Greenspan, we suspect that, although he still receives favourable reviews now, history will judge Jerome Powell’s tenure as Fed Chair far more harshly. With the benefit of less than 24 months of …
Ghana’s economic recovery will remain sluggish over the next couple of years as policy is tightened in a bid to shore up the public finances and tackle high inflation. The risk of an imminent sovereign default appears low but, if fiscal consolidation …
Pressure mounting on India-Russia relations Relations between India and Russia came under fresh scrutiny this week, with US officials warning of “significant and long-term” consequences if India moves towards a “more explicit strategic alignment” with …
Prime Minister loses case in Supreme Court A change of leadership in Pakistan looks likely this weekend, calling the future of the country’s IMF deal into question. Yesterday, the Pakistani Supreme Court ruled unconstitutional the dissolution of the …
The MPC’s unanimous decision to keep the repo rate unchanged at 4.00% today came as no surprise but the introduction of a new policy rate that sets a higher floor for the interest rate corridor indicates a less accommodative policy stance. And with …
Strong inflation to trump sluggish wage growth When we predicted two months ago that the RBA would start to hike rates in June, we were among a small minority of analysts holding that view. But with the RBA this week signalling that it will no longer be …
The government announced a smorgasbord of new policies in the 2022 Budget, but the total increase in the budget deficit, at just $7bn, was arguably far lower than some feared. Moreover, as most of the funds are being allocated to new investments, rather …
7th April 2022
What now for the Egyptian pound? The Egyptian pound has remained relatively stable since last month’s devaluation , which may suggest it has reached its fair value. But we still think policymakers need to move to a more flexible exchange rate and allow …
ECB will reiterate plan to end asset purchases in third quarter… …but will acknowledge that inflation is much higher than expected. We think it will raise the depo rate as soon as July and lift it to +0.25% by year-end. The Governing Council is likely to …
Evidence is mounting that more rate hikes will be needed Bank to hike rates by 50bp in April and May, 3.0% by end 2022 But we think the Bank will eventually have to reverse course, cutting rates next year Inflation is set to exceed the RBNZ’s forecasts …
Overview – We expect Australia’s GDP to surpass its pre-virus trend as soon as this quarter and to keep expanding at a robust pace thereafter. While wage growth will accelerate only gradually, we expect inflation to surge to 5% by the middle of this year. …
Euro-zone retail sales probably rose slightly in February (10.00 BST) We think Mexico’s inflation rose further in March, paving the way for a rate hike (12.00 BST) Canada’s federal budget may unveil a small increase in spending Key Market Themes We think …
6th April 2022
GDP growth and inflation continue to outperform Bank’s forecasts Bank set to accompany 50 bp hike with start of quantitative tightening We now expect the policy rate to reach 2.0% by the fourth quarter We now anticipate that the Bank of Canada will raise …
The National Bank of Poland (NBP) unexpectedly delivered its largest interest rate hike in 22 years today (100bp, to 4.50%) to get on top of the deteriorating inflation outlook and we think there’s little argument against further hikes to come. We now …
The yen isn’t obviously undervalued so it isn’t clear whether attempts to strengthen it would work. Most importantly, the Bank of Japan remains convinced that a weaker yen is beneficial for Japan’s economy. The yen has weakened by around 7% against the …
This tightening cycle looks set to be much more synchronised across developed market economies than the last one, which we think creates more scope for rises in bond yields across countries but could limit any further flattening of the US yield curve. …
5th April 2022
While today’s policy statement wasn’t outright hawkish, the RBA’s dovishness is waning and we’re confident in our forecast that the Bank will start to lift interest rates in June . As widely anticipated, the Bank kept policy settings unchanged today, but …
Brazil: high inflation raises wage spiral, strike risks The start of a general strike by workers at Brazil’s central bank today to push for an inflation-busting 26.3% pay rise has mainly been a matter of concern for analysts because of the practical …
1st April 2022
SA officials to give ground on public wages? Public sector wage negotiations will soon kick off in South Africa and there are reasons to think that officials may concede further ground to trade unions. A surging wage bill has been a key driver of the …
Shifting goalposts for Nationalbank and SNB The fact that we now expect the ECB to hike interest rates sooner and faster than we previously anticipated naturally affects our outlooks for policy in Switzerland and the Nordics. Note that we now forecast the …
In adapting to the threat of having its foreign exchange reserves frozen, the People’s Bank is likely to shift more of its portfolio into unconventional alternatives, including EM sovereign debt and real assets. But as long as the PBOC wants to continuing …
