March 18, 2021
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Norges Bank: The end of ZIRP

  • The Norges Bank MPC unsurprisingly kept the policy rate at zero, however, the real news is the introduction of tightening pressure within its 2021 policy rate projections. Such hawkish revisions were flagged by our model as a reflection of reduced spare capacity.
  • There are three reasons for the Norges Bank’s hawkish stance: an improvement in global economic prospects; the vaccination rollout in Norway is proceeding faster than expected; ZIRP with an overheating housing market is an inappropriate combination.

March 17, 2021
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De-globalisation’s macro impacts

  • Globalisation in recent decades both lowered and flattened the Phillips Curve, making domestic inflation more dependent on the global rather than the domestic output gap.
  • We believe that the drive for supply chain security is pushing this process into reverse and that the post-pandemic world will have a higher and steeper Phillips Curve.
  • Inflation will be higher for a given set of unemployment data, especially if there’s a global schism. Policymakers will respond more to output and risk overstimulating.

March 11, 2021
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ECB: insignificant prevention

  • The ECB announced no policy changes while indicating purchases at a “significantly higher pace than during the first months of this year”. A low pace in January and excess within the existing envelope means the difference may not impact markets.
  • Rather than attempt to reverse recent moves, we see the ECB trying to discourage an extension, thereby preventing a tightening inconsistent with the outlook. It is such a weak form of guidance, though, markets may test its limits if the US move extends.