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By Bilal Hafeez 12-02-2020
In: post | Newsletter

Macro Hive Deep Dives: How Central Banks Talk Rates Down + Exclusive On Banxico

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(total reading time: 2 mins)

Central bank communication has taken on increased importance in recent years as interest rates have steadily declined. We summarise a new ECB paper, which finds that how central banks describe uncertainty can meaningfully impact interest rates markets.

On the subject of central banks, we also feature an Exclusive by Macro Hive researcher Harshal Babla on a likely rate cut by Banxico tomorrow.



Banxico To Maintain A Cautious Stance (3 min read) Banxico is expected to continue its easing cycle with another 25bps rate cut to 7.0% on Thursday. All but one of the 23 respondents in the latest Citibanamex survey expect a 25bps cut and the market is fully priced for 25bps. This will make the fifth consecutive rate cut from Banxico but will still leave the policy rate amongst the highest in EM.



Bank of Mexico

We expect an unchanged vote split (4-1) in favour of a 25bps cut, accompanied with a dovish tone given weak growth, a highly restrictive monetary policy stance (real rates are at ~4%), and reduced domestic uncertainty creating a ‘window of opportunity’ to cut rates ahead of a relatively busy calendar in the second half of the year.

(Harshal Babla │ 12th February, 2020)



Central Banks

How Central Banks Can Talk Up Interest Rates And Term Premium (5 min read) In the last two decades, central banks have significantly increased communication towards the public in the form of speeches, reports, press conferences, and social media. Moreover, as policy rates have fallen closer to, or through, the zero lower bound (ZLB), central banks’ communication policy has taken on increased importance in influencing interest rate markets.


Despite this, research on the topic has been less forthcoming – a new paper from the European Central Bank (ECB) bucks that trend. The authors, Stephen Hansen, Michael McMahon, and Matthew Tong, analyse the specific channels through which communication affects interest rates. They find that that central banks’ narratives and forecasts around the uncertain economic outlook are especially potent in affecting rates markets.

(Stefan Posea│12th February, 2020)




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