Chart of the Week - Central Banks vs Commercial Banks
Chart of the Week - Central Banks vs Commercial Banks
What happens when monetary policy + credit policy combine?
n.b. Check out the full archives of the Chart Of The Week for more charts.
Chart of the Week - Central Banks vs Commercial Banks
Policy Paths: This week we’re looking at the pathway of policy for central banks (monetary policy interest rates — the blue line), and commercial banks (changes in lending criteria — the black line).
What it shows is that central banks have been pushing up borrowing costs in attempt to tame inflation, while commercial banks have been tightening up lending standards in attempt to avoid making riskier loans to those who may not be able to weather the increased borrowing costs, or the potential downturn that usually comes from central bank policy tightening.
It’s when these two combine that the headwinds to the economy are most significant. Tighter overall funding conditions mean marginal business hit the wall, consumers spend less on debt-driven purchases like cars and homes, and investment projects + hiring plans face greater scrutiny. It’s not necessarily a death knell, but it makes things harder.
The bright side is that both lines look to have peaked for now. But the downside is that we may still be in the eye of the storm in terms of the long and variable lags of monetary policy + credit policy tightening.
This one is definitely going to be up there in terms of notable charts when I go to write this year’s forthcoming End of Year Special Report!
Key point: Monetary Policy + Credit Policy have tightened significantly.
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Aside from the chart above, we looked at several other charts, and dug into some intriguing global macro & asset allocation issues on our radar:
Bond Yield Outlook: update on the outlook, prospect of peak yields
Lending Standards: central bank vs commercial bank policy
Credit Spreads: full indicator set for predicting the future path
Commodities: after the bear a new bull and a new higher floor
EM Equities: gauging the catalysts vs background setup
Frontier Markets: an overlooked corner of the markets
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Callum Thomas
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