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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.
The July Politburo meeting emphasized the importance of the domestic market for Chinese economy amid COVID-19 pandemic. In addition, the meeting also confirmed that the stimulus policy will be gradually normalized with ongoing rollout of targeted fiscal stimulus and more conservative monetary policy stance.
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.
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.
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
Colombia started its recovery path after the strong second quarter shock due to the pandemic. This process will be slow and gradual and will be determined by sector openings approved by the national and local governments. GDP is expected to fall by 7.5% this year and to recover by 5.5% in 2021.
The world is experiencing the deepest recession in the last hundred years. The IMF estimates that the global economy will contract 4.9% in 2020. Many countries will have contractions in the second quarter of this year of between 30% and 40% at annualized rates.