Europe, Middle East and Africa Emerging Markets Weekly

Research evidence excerpt

Europe, Middle East and Africa Emerging Markets Weekly

n Securities plc

higher, the USDILS has corrected towards 3.0, and the BoI’s communications have

Francesco Arcangeli

not turned particularly dovish. Granted, inflation surprised to the downside again

(44-20) 3493-0971

and oil prices declined, but is this enough to make the BoI take a bigger step? One francesco.arcangeli@jpmorgan.com

recurring feature of central banks’ behavior is that when they are on the move, they J.P. Morgan Securities plc

tend to (pro-cyclically) surprise expectations. The BoI, too, has generally moved Fatih Akcelik

more decisively than the consensus expected over the past two decades; moreover, (44 20) 3493 7285

the scale of surprises in easing cycles has been larger than in tightening cycles. Our fatih.akcelik@jpmorgan.com

main reservation about a 50bp cut is that, while the BoI has delivered a handful of J.P. Morgan Securities plc

larger 50-75bp cuts in the past, large moves are predominantly reserved for times Irshaad Mayet

when something has gone seriously wrong. Otherwise, the BoI and other central (27-11) 507-0418

irshaad.mayet@jpmorgan.com

banks favor gradualism. Although the current context appears somewhat similar JPMorgan Chase Bank, N.A., Johannesburg

to late 2006, we do not think the scale of macro pressures on the BoI is as extreme. Branch

It does not appear that, in case the BoI eases gradually, it would be making a policy Khamza Sharifzoda

mistake, i.e., a few back-to-back 25bp cuts could do as good a job. We therefore (44 20) 3493-3571

attach low probability to a larger move in July, albeit we recognize that we are part khamza.sharifzoda@jpmorgan.com

J.P. Morgan Securities plc

of the consensus which finds itself tricked systematically by the central bank.