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IFI_Monthly_Interest_Rate_Outlook_-_May_2018.pdf

Please find attached the May 2018 edition of the IGM Monthly Interest Rate Outlook.

Highlights:

  • Yields are heading higher offering tighter financial conditions. An oft cited contribution to the low yield environment is the global savings glut aka large current account surpluses. Senior Editor/Analyst Marcus Dewsnap points to evidence which suggests the surpluses may well begin to decline. More competition for a diminishing savings pool means higher yields need to be offered.
  • The BoJ jettisoned its timeline for hitting the inflation target, Senior FX Analyst Jian Hui Tan suggests this might not be a bad move, it is 'probably wise for them to remove an albatross around their necks which in turn allows them a degree of optionality in future policy moves (namely tweaking its YCC parameters).' [Pages 5, 8].
  • Despite Chf weakening to 1.2000 and inflation accelerating, Senior FX Analyst Mark Mitchell notes 'SNB President Jordan � was keen to stress that there is still a lot of work to be done before they even think about withdrawing some of their stimulus.' [Pages 5, 10]
  • Policy risk via FX channels casts a shadow over both the BCB and Banxico. Emerging Markets Managing Analyst Chris Shiells writes of the latter 'Since the Mxn hit 6/5mth highs versus the USD in mid-April, the currency has been on an EM leading slide against the Dollar and this has once again raised the slight chances of a rate hike over the next 6-months, with players eyeing volatility in markets after the now expected Presidential election victory of AMLO.' [Pages 6,16-17].
  • On the former, Emerging Markets Analyst Robert Graystone says 'we would maintain that the Real's path in the run up to the October election remains key to inflationary pressure and the path of monetary policy.' [Pages 6, 16]

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