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Despite a dovish surprise in December’s core inflation figure, which was 10 basis points below expectations, several factors could exert hawkish pressure. These include a repricing of global rates, particularly in the United States, rising energy prices, a weaker Norwegian Krone (NOK) than anticipated, and robust house prices coupled with a resilient labor market.BofA anticipates that Norges Bank will signal a potential rate cut in March but will use cautious language to prevent any dovish interpretations that might undermine the NOK. While a new rates path is not expected to be released, the monetary policy assessment is likely to highlight some hawkish risks.The Committee has shown a more nuanced view on inflation prospects and policy trade-offs, softening their previously hawkish stance on the inflation outlook in December. They made a significant revision to core inflation forecasts and acknowledged shortcomings in the central bank’s models to predict disinflation trends. With current rates well above the bank’s estimates of neutral (1.7-2.7% nominal), BofA remains convinced that a gradual cycle of rate reductions is on the horizon, starting with a 25 basis point cut in March. Although the base case predicts four cuts throughout the year, there is a growing possibility that it could be limited to three, particularly if the Federal Reserve’s easing expectations stay subdued.In terms of currency impact, BofA expects minimal immediate effects from the upcoming Norges Bank meeting, viewing it largely as an interim event. However, they suggest that the recent upward repricing of Norges Bank’s terminal rate may have been excessive, especially when compared to the European Central Bank, given the relatively stable FX conditions. BofA maintains a bearish stance on the NOK for the time being.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More
Saudi Arabia’s government debt-to-GDP ratio surged from under 2% in 2014 to 31% by 2020, and while the ratio has since stabilized, the Kingdom remains the largest international dollar bond issuer among emerging markets since the beginning of 2022. Despite a current debt-to-GDP ratio of 29.6%, which is considerably lower than the emerging market average of around 70%, Capital Economics warns of potential increases in the debt ratio if oil prices decline more than the Saudi government’s projections.The 2025 Budget from Saudi Arabia indicates that budget deficits will persist, with domestic and international debt issuances as the primary financing method. Earlier this year, the National Debt Management Centre’s 2025 Borrowing Plan was followed by a highly successful $12 billion international bond issuance.Capital Economics’ analysis includes several scenarios based on different oil price levels. The public debt-to-GDP ratio is projected to decrease only if oil prices remain above $80 per barrel. However, under the firm’s central scenario, where oil prices drop from $80 per barrel today to $55 per barrel by 2027-2030, the Saudi public debt-to-GDP ratio could climb to 50% by 2030 and 60% by 2033, shifting the country’s sovereign risk from low to moderate.A more severe scenario, with oil prices falling to $40 per barrel without other changes, could see the public debt-to-GDP ratio nearly double to almost 90% by 2030. Nonetheless, if Saudi Arabia increases oil production to 12.0 million barrels per day, which is 35% higher than current levels, and if oil prices were at $40 per barrel, the debt ratio would approach 80% by the end of the decade.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More
Senior officials of EU governments agreed last week to support Bayrou’s plan, which will replace a more front-loaded scheme designed by his predecessor Michel Barnier that was rejected by the French Parliament in December.The plan aims to cut France’s budget deficit to 5.4% of GDP this year from 6.2% in 2024. Barnier wanted to reduce it more sharply in 2025 to 5.0% of GDP. But the end goal — 3% of GDP in 2029 — was the same for both plans and that was the EU condition for approval by the European Commission.”The new plan stays within the requirements of the Commission,” one EU diplomat close to the discussions said.”Ultimately, the most important part is that the Commission takes its job seriously in monitoring the implementation of the plan and enforcing the rules if and when the French budget strays outside of the boundaries set in the plan,” the diplomat said. More
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, (Reuters) – Bond vigilantism has returned to Britain, raising the prospect that the government will be forced to consider politically toxic tax rises or public spending cuts to placate investors concerned about the country’s fiscal health. But Chancellor of the Exchequer Rachel Reeves could also get a helping hand from the Bank of England’s balance sheet.In the first weeks of 2025, certain gilt yields spiked to highs last seen in 2008. While yields have since come off these highs, following softer-than-expected December inflation data, it is fair to assume the UK bond market could be in for a bumpy ride in the coming months.Recent market gyrations primarily reflect the global jump in government bond yields, driven by uncertainty about the potentially inflationary policies that U.S. President Donald Trump’s second term might bring.But gilts have been buffeted around more than most, suggesting investors may have UK-specific concerns, namely that the new Labour government’s policies will increase debt without doing much to improve growth.While all this has been happening, the BoE has continued with its ‘quantitative tightening’ (QT) program, selling gilts after years of being the major buyer of UK government bonds. Unlike the Federal Reserve, the BoE isn’t just letting debt roll off its balance sheet but is actively selling.The gilt market is worth around 2.6 trillion pounds ($3.17 trillion), and at its peak, the bank held nearly 900 billion pounds of it. If the BoE’s current QE plans continue unchecked, that number will drop to roughly 560 billion pounds by the end of September. The UK is expected to issue approximately 300 billion pounds worth of gilts this year and a similar amount in the following fiscal year. Meanwhile, the bank is planning to reduce its bond holdings by 100 billion pounds. The gilt market will thus have to absorb around 400 billion pounds over the next 12 months.If the bank were to halt its sales, it would effectively cut supply by 25%, which would very likely put downward pressure on yields.That would be welcome news for Reeves, who already faces annual debt interest payments of 105 billion pounds, a figure that will rise if government bond yields climb, eating into the resources she has available to boost the economy.But given the BoE’s messaging, a complete halt is unlikely. What’s more probable is that the bank could decide to slow the pace of divestment, mimicking the Fed’s passive approach – i.e., not reinvesting as bonds mature.Roughly 87 billion pounds of gilts will mature this year, so this strategy could reduce the bank’s gilt sales by around 13 billion pounds over the next 12 months.There is a problem, however.One reason recent bond market jitters did not reach the chaotic levels seen during the 2022 UK market meltdown presided over by former prime minister Liz Truss is that Reeves has been clear that she respects the independence of the central bank and the Office for Budget Responsibility. Truss explicitly wanted to rein them in.Any hint that this independence is being infringed now could unnerve investors.So if the BoE were to act, it would have to show markets that it was doing so to uphold its mandate – not because of political or fiscal concerns.One potential justification would be market instability, as the BoE is tasked with ensuring markets function properly. BoE Deputy Governor Sarah Breeden said earlier this month that the bank was monitoring the market closely, but there was currently no cause for concern.A second motive could be impaired monetary policy transmission. For example, if the BoE cuts official rates when it meets in early February yet market interest rates continue to rise, this would tighten monetary conditions when the bank wants the reverse.Simon French, chief economist at Panmure Liberum, noted that a change in the QT program “wouldn’t be controversy free, with political accusations…and claims the bank is helping finance a fiscal overstretch. But it is the right thing to do for the UK economy”.The BoE was accused of deliberately aiding the government when massive fiscal spending coincided with an increase in quantitative easing during the Covid-19 pandemic, allegations the bank pushed back hard against. The following cycle of sharp rate hikes doused that debate, at least temporarily.Having committed to its pace of bond sales, the BoE won’t be eager to change tack. But if gilt market volatility intensifies, it may not have a choice. (Mike Peacock is the former head of communications at the Bank of England and a former senior editor at Reuters.)($1 = 0.8195 pounds) More
DAVOS, Switzerland (Reuters) -For budget furniture retailer IKEA, the fewer trade tariffs there are, the better, CEO of Ingka Group, the biggest global IKEA franchisee, told Reuters on Monday as businesses braced for higher possible U.S. tariffs under President Donald Trump.”We, and I think probably all international companies thrive from harmonised tariffs, if you like, and actually, the fewer the better, because at the end of the day there is a risk in any country with tariffs that you need to, as a company, pass it on to the customers,” Jesper Brodin said on the sidelines of the World Economic Forum annual meeting in Davos, Switzerland.Inflation and high interest rates have had a “damaging” impact on consumers over the past few years, Brodin said, adding that he saw demand improving.”We are quite optimistic about the outlook and we already see a shift where people are returning to, I would say, a normal situation when it comes to consumption,” he said.Ingka Group, which runs IKEA stores in 31 countries and accounts for 90% of global IKEA sales, reported a drop in annual net profit and sales last year after cutting prices to lure inflation-weary shoppers back to its big blue stores.Despite weak consumer demand, Brodin said his only real worry was climate change. Pointing to the severe economic impacts of extreme weather events like the Los Angeles fires, he said leaders of Europe, the U.S., and China must find an aligned approach to combating climate change.”There is still a myth out there that adapting to mitigate climate change will be an economic loss, in IKEA we have found that is absolutely the opposite,” said Brodin.”We are here to meet other peers and businesses, government leaders in order to speed up the change because the world is not acting fast enough on this.”Join GMF, a chat room hosted on LSEG Messenger, for live interviews: https://lseg.group/4ajdDTy More
