What Hawkish and Dovish Mean


Another perspective to understand between Hawkish and Dovish

Hawkish and dovish are terms that refer to the general sentiment of the central bank of any country, or anyone talking about a country's monetary policy.

Hawkish has to do with things going up:

  • A hawkish stance is guarding against inflation getting too high. Think about a hawk circling to protecting the upper limit of inflation.

  • To curb inflation, a hawkish policy will increase interest rates, or some other equivalent action.

  • An increase in interest rates can cause an increase (strengthening) in the country's currency.

Doves usually stay on ground:

  • When a central bank is dovish, they are guarding against deflation, or the cost of goods and services getting too low.

  • Interest rates might be lowered

  • If interest rates are lowered, then the value of a currency may decrease

Definition of Hawkish

A hawkish stance is when a central bank wants to guard against excessive inflation.

Inflation happens when the economy is growing. This leads to an increase in wages and/or the cost of raw products.

Obviously, if everyday goods and services good too expensive, too quickly, people will be unable or unwilling to buy things. This prevents money from changing hands and slows down the economy.

Central banks don't want the economy to grow too quickly, because it is not sustainable.

So they try to keep the economy growing at more reasonable pace by being hawkish, or watching over inflation. They usually do this by raising interest rates.

When money becomes more expensive to borrow, it slows the growth of the economy because it makes it harder for businesses to grow by using borrowed money to expand, and people will spend less through borrowed money, like credit cards.

Definition of Dovish

Dovish is the opposite of hawkish. This is when an economy is not growing and the government wants to guard agains deflation.

…which is a decrease in the cost of goods and services.

In other words, they want to do something to stimulate the economy. In order for people to start spending more money on goods and services, the central bank will usually lower interest rates.

When it is easier (cheaper) to borrow money, businesses can expand more easily and consumers will usually spend more money by using credit cards or other types of debt, to finance purchases.

Source: Above an extract from Trading Hero, written by Hugh Kimura.

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