Market expectations vs central bank projections

Despite aggressive tightening by many central banks, markets are still expecting more tightening will be required than several major central banks are projecting. South Africa stands out, with the market pricing in around 160 basis points of additional tightening will be needed, while the SARB’s latest published policy rate projection for end-2023 implies only another 10 basis points will be needed.

In the case of the UK, the Bank of England’s modal projection from yesterday’s MPR is higher than current market pricing, although their alternative model projection is substantially lower than what market pricing implies for the policy rate in 1 year’s time.

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