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Inflation menace vs pandemic recovery: central bank guide for 2022

Global central banks are set to spend 2022 diverging, as some take on the menace of inflation and others stay focused on boosting economic growth. The pandemic remains a risk to demand the world over, but after triggering a recession in 2020, its subsequent igniting of price pressures has also posed a challenge for monetary policy makers.

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Inflation Menace vs Pandemic Recovery: Central Bank Guide for 2022

(Bloomberg) -- Global central banks are set to spend 2022 diverging, as some take on the menace of inflation and others stay focused on boosting economic growth.

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Banxico Shows Hawkish Side With Larger-Than-Forecast Rate Hike

(Bloomberg) -- Mexico’s central bank unexpectedly accelerated the pace of interest rate increases, a hawkish move that seeks to contain quickly-deteriorating inflation expectations.

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Central Bankers Are Spooked by Signs That Inflation Is...

Many central banks are starting to withdraw the emergency stimulus they introduced to fend off last year’s pandemic recession.

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Central Bankers Are Spooked by Signs That Inflation Is Lingering for Longer

(Bloomberg) -- Many central banks are starting to withdraw the emergency stimulus they introduced to fend off last year’s pandemic recession. With inflation accelerating, the Federal Reserve is set to slow its asset-purchase program, while peers in Norway, Brazil, Mexico, South Korea and New Zealand are among those to have already raised interest rates. Behind the shift are signs that the recent inflation scare won’t fade soon amid supply chain strains, surging commodity prices, post-lockdown demand, ongoing stimulus and labor shortages. Complicating the task for policy makers is that growth may be slowing, prompting some to warn of a stagflationary-lite environment. That puts central bankers in a bind as they debate which risk they should prioritize. Targeting inflation with tighter monetary policy adds to the pressure on economies, but trying to boost demand may ignite prices further. For now, the feeling of many is that inflation has lingered longer than most predicted. As Huw Pill, the Bank of England’s new chief economist, said last week, the “balance of risks is currently shifting towards great concerns about the inflation outlook, as the current strength of inflation looks set to prove more long-lasting than originally anticipated.” Not all are as concerned or looking to change tack. Officials at the European Central Bank and Bank of Japan are among those intending to keep stimulating their economies aggressively. And the International Monetary Fund predicts that in advanced economies at least, inflation will soon ease to about 2%. What Bloomberg Economics Says: “Stagflation is too strong a word. Still, supply shocks that lift prices and lower output leave monetary policy makers with no easy options. With little urgency to act, the Fed and other major central banks are preserving optionality. If stubborn inflation forces their hand, the global recovery will face an additional drag.” --Tom Orlik, chief economist Here is Bloomberg’s quarterly guide to 23 of the world’s top central banks, covering 90% of the world economy: GROUP OF SEVEN U.S. Federal Reserve Current federal funds rate (upper bound): 0.25% Bloomberg Economics forecast for end of 2021: 0.25% Bloomberg Economics forecast for end of 2022: 0.25% Jerome Powell, who’s waiting to hear if he’ll be renominated for another four years at the helm of the Fed, has recently taken a step toward scaling back massive pandemic support. The Fed chair last month said the U.S. central bank could start to taper monthly bond purchases as soon as November. Getting that started is top of his to-do list, alongside persuading Americans that the Fed is also keeping an eye on higher-than-expected inflation. He’ll try to communicate that message without giving the impression that the Fed is getting closer to raising near-zero interest rates, even though policy makers were evenly split on rate liftoff next year, according to quarterly projections they released Sept. 22. But the forecasts -- displayed as anonymous dots on a chart -- can be affected by shifts in personnel. In addition to Powell’s chairmanship, President Joe Biden has the chance to pick three other governors on the seven-seat Board in Washington. A decision on the chair is expected this fall. There are also changes coming among the 12 regional Fed presidents. Two of the most hawkish -- Dallas Fed President Robert Kaplan and Boston’s Eric Rosengren -- are stepping down following revelations about their trading activity in 2020. Rosengren cited a serious health condition in announcing his early retirement. What Bloomberg Economics Says: “Stubbornly high inflation means risks appear to tilt toward an earlier hike than our current baseline of a 2023 move. However, our analysis of the views of voting FOMC members in 2022 suggests that the majority prefers a somewhat more accommodative timeline than implied by the committee median. After Rosengren’s early resignation, we think four 2022 voters currently favor a hike, against six for a hold next year.” --Anna Wong Rosengren’s Exit Leaves Just Four Hike Votes in 2022 European Central Bank Current deposit rate: -0.5% Bloomberg Economics forecast for end of 2021: -0.5% Bloomberg Economics forecast for end of 2022: -0.5% The ECB is preparing for a major policy update in December, when projections through 2024 will show how much progress inflation is set to make toward sustainably reaching a newly set 2% goal. Global supply bottlenecks and a series of one-time factors have pushed price growth far above that rate, though pressures are expected to ease over the course of next year. Policy makers led by President Christine Lagarde have already decided to slow purchases under their 1.85 trillion-euro ($2.2 trillion) pandemic program in the fourth quarter, and are likely to allow the plan to expire in March. A debate in coming months about how to redesign the ECB’s older bond-buying scheme may prove more contentious, with some advocating more flexibility and an increase in pace that others say may not be needed. What Bloomberg Economics Says: “Wage growth is unlikely to accelerate sustainably until the significant spare capacity in the labor market is absorbed. That will leave many on the Governing Council doubtful about the persistence of inflation and pushing for an increase in bond buying through the Asset Purchase Programme. They will also be concerned about the credibility of the ECB’s commitment in its strategy review to more ‘forceful or persistent’ action at the effective lower bound.” --David Powell Bank of Japan Current policy-rate balance: -0.1% Bloomberg Economics forecast for end of 2021: -0.1% Bloomberg Economics forecast for end of 2022: -0.1% BOJ Governor Haruhiko Kuroda must now work with a new prime minister, Fumio Kishida, to guide the economy out of the pandemic. The BOJ could decide this quarter to extend its Covid funding measures or wrap them up by the end of March, as planned. The policy board will be watching to see if the recovery benefits from a release of pent-up demand after restrictions on activity were finally lifted last month, and as vaccination rates rise. Still, inflation that’s forecast to stay below target for years means the bank is unlikely to let up on its main stimulus any time soon, even as peers move toward normalization. That divergence should keep the yen weak, providing a tailwind for Japan’s export-led recovery. What Bloomberg Economics Says: “Some central banks are looking to exit. Not the BOJ -- it’s far behind. We expect it to stay on cruise control through 2022. Goushi Kataoka, a prominent reflationist on the policy board, will see his term expire next summer. Japan’s new administration could fill his seat with a person who has a more balanced view on monetary policy – supporting a move toward normalization..” --Yuki Masujima BOJ Board Is United for Fighting Covid Crisis Bank of England Current bank rate: 0.1% Bloomberg Economics forecast for end of 2021: 0.1% Bloomberg Economics forecast for end of 2022: 0.25% With U.K. inflation on course to hit more than double the BOE’s 2% target by the end of the year, speculation is mounting the institution will be the among the first of its G-7 peers to start unwinding pandemic-era rate cuts.While officials said in September that they didn’t necessarily have to wait until their bond-buying plan finishes at the end of this year to act, most economists are penciling in the first move in for 2022. Markets are even more aggressive, and at one stage were predicting three increases next year.Still, concerns that a premature tightening would choke off the recovery may yet stay the BOE’s hand, especially as U.K. consumers prepare for a difficult winter of mounting bills. What Bloomberg Economics Says: “Inflation is becoming increasingly hard to ignore for the BOE. But we expect a rise in unemployment, following the end of the government’s furlough scheme, and a slower recovery to cool concerns among policy makers. That should mean interest rates are left alone until May. Still, we can’t rule out an increase this year if inflation continues to su

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Central bankers spooked by signs inflation lingering longer

MANY central banks are starting to withdraw the emergency stimulus they introduced to fend off last year’s pandemic recession.

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Mexico hikes interest rates again in bid to tame inflation

Mexico hikes interest rates again in bid to tame inflation
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Mexican Peso Forecast: Waters Turn Murkier for the Dollar, USD/MXN Remains Vulnerable

USD/MXN could move lower next week if the Fed sticks to the dovish script and reiterates that now is not the time to start talking about withdrawing stimulus despite rising inflation.

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Banxico Holds Key Rate, Betting Inflation Spike Is Temporary

(Bloomberg) -- Mexico’s central bank voted to hold its key interest rate near a five-year low, betting that a price spike that sent the inflation rate to more than double its target will be temporary.Banco de Mexico, led by Governor Alejandro Diaz de Leon, kept borrowing costs at 4% on Thursday, after consumer price increases hit 6.1% in April, far beyond its 3% target. All 24 economists surveyed by Bloomberg predicted the decision, as board members seek to keep injecting crucial stimulus even while prices climb.“In a highly uncertain environment, the risks for inflation, economic activity and financial markets pose major challenges for monetary policy,” the bank’s board wrote in a statement. “Given the recent shocks that have affected inflation, it is necessary for the adjustment in relative prices to take place in an orderly manner so that an impact on price formation and inflation expectations is avoided.”The board also said that while inflation has been accelerating faster than the bank’s own expectations, it still expects it to converge to target starting in the second quarter of 2022. The next rate decision announcement is scheduled for June 24.After an aggressive easing cycle that lowered rates from 8.25% since August 2019, the bank known as Banxico has recently taken a more careful approach, making just one quarter-point cut in its last five meetings since November.“Banxico continues to see current high inflation as transitory. What is new is that Banxico is now, finally, saying that the balance of risks to inflation is to the upside. We think this is still timid and shows an overall dovish board, but it’s a step in hawkish direction,” said Carlos Capistran, an economist at Bank of America Corp., who sees the bank holding rates for the rest of the year.Deputy Governor Gerardo Esquivel said last month he expects the inflationary spike to be temporary, since prices are being compared against a deep slump this time last year, a phenomenon known as the base effect. Most economies, from the U.S. to Chile, are also experiencing a similar price impact.While Esquivel sees inflation falling below the bank’s 4% target ceiling in July, some economists are less optimistic, starting to anticipate a rate hike in late 2021 or early 2022. Mexican swap markets are still pricing about 50 basis points in rate hikes in the second half of this year after Thursday’s decision.Read More: Latin American Central Bankers Stung by Food Inflation Jump“This looks pretty neutral,” Claudia Ceja, a strategist at BBVA in Mexico City, said about Banxico’s decision. “It could have been a little more hawkish, but they’re holding on.”Food InflationMexican food staples such as tomatoes, avocados and tortilla led the price increases in April, suggesting inflation is hurting the poorer segments of the population. President Andres Manuel Lopez Obrador last week called for inflation to be kept in check to stop consumers suffering extra costs.High prices will continue “due to real inflationary pressures caused by the economic reopening in the Mexican services sector and the global increase in commodity prices,” said Gabriela Siller, director of economic analysis at Grupo Financiero BASE.In the absence of significant fiscal stimulus by Lopez Obrador’s government, Banxico has done most of the heavy lifting in battling last year’s 8.2% contraction -- Mexico’s worst in nearly a century. The country also benefited from record remittances from Mexican workers in the U.S.Latin America’s second-largest economy is expected to recover 5% this year, according to the International Monetary Fund.(Updates with unanimous decision in lead, Banxico comments from third paragraph. A previous version corrected the spelling of governor’s surname.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.

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Robust Rebound Won't Augur End to Stimulus: Central Bank Guide

Robust Rebound Wonât Augur End to Stimulus: Central Bank Guide
This content was published on April 19, 2021 - 23:01
April 19, 2021 - 23:01
(Bloomberg) --
The aggressive rebound in global economic growth still isnât enough for most of the worldâs central banks to pull back on their emergency stimulus.
In Bloombergâs quarterly review of monetary policy covering 90% of the world economy, the Federal Reserve, European Central Bank and Bank of Japan are among the 16 institutions set to hold interest rates this year.
The outlook suggests officials still want to guarantee the recovery from last yearâs coronavirus recession by maintaining ultra-low borrowing costs and asset-buying programs. That may require them to accept any accompanying bounce in inflation.

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