Central Banks: Rate hikes, slowing inflation have tightened conditions - Standard Chartered

Standard Chartered’s analysts suggest that their Monetary Conditions Indices (MCIs) indicate tightening monetary conditions globally, with rate hikes in 2018, combined with falling inflation and higher real effective exchange rates (REERs), being the primary drivers of the tightening.

Key Quotes

“We expect subdued inflation to tighten conditions further; this increases the risks of dovish monetary policy action. Our MCI heatmap suggests possible dovish policy surprises from Indonesia, Singapore, Australia and Japan.”

“We expect rate cuts in Australia, India and Turkey this year; our call for rate cuts in Australia is non-consensus. Tightening conditions in the Philippines and Malaysia suggest dovish surprises; if tight monetary policy conditions weigh on growth, we see the risk of rate cuts from both central banks.”

“Monetary conditions in the US also tightened through 2018, on rising real interest rates and a stronger US dollar (USD). We expect two rate hikes from the US, higher than market expectations; our MCI suggests downside risks. In Brazil, we expect the policy rate to remain unchanged in H1, as declining inflation helps tighten presently loose conditions.”