Monetary policy monitor: March 2022

Summary

Our Monetary Policy Monitor provides centralized and summarized policy views on our outlook for key central banks. Among the key themes of the Q1-2022 update:

G10 Central Banks

• Among the developed economies, most central banks have remained focused on uncomfortably high inflation, with Ukraine uncertainties so far seen as posing limited downside risks to growth overall. The Federal Reserve, Bank of England and Bank of Canada have all raised rates this year, while the European Central Bank announced plans to accelerate the tapering of its bond purchases.
• The Bank of Japan is a notable exception. Given a relatively modest commodity price driven uptick of inflation, Japan's central bank indicated there is no need to raise interest rates at the current juncture.
• Our outlook is generally in line with the consensus forecast. That said, we see a slightly faster pace of rate hikes from the Federal Reserve than does the consensus economist forecast, while we also see a faster pace of rate hikes from the Bank of England.

Emerging Market Central Banks

• Central banks across the emerging markets are likely to continue tightening monetary policy, especially as the Russia-Ukraine conflict pushes commodity prices sharply higher. With that said, we believe select central banks may be close to ending their respective tightening cycles, in particular the Brazilian Central Bank (BCB).
• The Central Bank of Russia (CBR) lifted its Key Rate to 20% in an effort to defend the value of the ruble and protect against a local inflation spike. We expect Russian interest rates to remain at these levels for the time being, and gradually be lowered starting in October 2022. Aside from Russia, higher commodity prices may trigger tighter policy in Emerging Asia, particularly from the Reserve Bank of India (RBI).
• Our views on monetary policy in the emerging markets matches the consensus as far as the direction of interest rates in most EM countries; however, our forecasts differ slightly as far as the timing and magnitude of rate adjustments for select central banks.

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