Global Themes - Monetary Policy Is Decoupling
Global monetary policy dynamics are likely to be mixed over the coming year, with continued tightening in the US likely to keep some of the more vulnerable emerging markets on the defensive. Deflation remains a serious global risk.
We expect the European Central Bank to remain in easing mode for some time to come, with options including additional interest rate cuts and other measures, so long as deflationary pressures remain. The US Federal Reserve is set to continue tapering in 2014 despite weather-related weakness in economic activity in December-January. We expect the Bank of Japan to maintain its current policy for the remainder of H114, but believe that once signs of economic weakness become clearer in H214, they will succumb to political pressure to further expand bond purchases.
Most central European central banks are likely to start hiking rates before the end of 2014. In Latin America, we expect tighter policy in Colombia, Mexico, and Brazil. Asian monetary policy will be mixed, with Chinese lending policy likely to be the dominant regional risk.
|Global - Proportion of Economies Experiencing Monetary Tightening/Easing|