Financial Economics & Central Banking
Financial Economics & Central Banking latest publications
We are sticking with 50bp cuts in the policy rate in each of the 2020 remaining scheduled meetings (to 3.00%). Forward guidance is unlikely but we expect Banxico to remain dovish and to brush aside the recent temporary and supply-driven inflation increase.
Since the arrival of the coronavirus to Mexico, Banxico has reduced the monetary policy rate by 2 percentage points, bringing it from 7% to the current level of 5%. The central bank can still lower it by at least another two percentage points and bring it down to 3% without posing a risk for inflation.
On July 21, the Council of the European Union adopted the Next Generation EU (NGEU) Recovery Plan, worth EUR 750 billion, for the coming years. It is equivalent to 5.4% of the EU's GDP, and almost EUR 1700 per capita.
July 29, 2020
FOMC Meeting July 28-29: Dovish tone signals more accommodation for an extended period
As expected, the Fed left interest rates unchanged and reaffirmed its commitment to, at a minimum, maintaining the current pace of asset purchases while also defending its expanded use of its lending powers until the economy is on the road to recovery.
Baseline assumes real GDP declines by 5.1% in 2020. Peak unemployment reached, but risks to the labor market remain. Disinflationary headwinds abate, but inflation to remain low in 2020.
Although the capacity to pay, as expressed by the debt-to-GDP ratios, does not seem unsustainable, the government should promote fiscal consolidation in order to prevent the debt from continuing to increase after 2022, ensuring sustainability in the medium term and the preservation of the Investor Grade.
Chinese economy is undergoing a V-shape recovery, with Q2 GDP increased significantly from -6.8% y/y in Q1 to 3.2%. Meanwhile, the recovery is still unbalanced as the pickup of the supply side appears much faster than that of the demand side. The recovery tends to make the 2H policy stimulus more conservative.
As widely anticipated, the ECB maintained status quo today, holding its policy guidance, interest rates, as well as the deposit tiering system unchanged