Hawks and doves definition

Hawks and doves are terms used by analysts and traders to categorise members of Central Bank committees by their probable voting direction ahead of monetary policy meetings. Hawks are those that want to see higher interest rates, while doves are those who would prefer interest rates to remain low.

Hawks

Hawks are members who vote for tighter monetary policy – meaning higher interest rates – with the aim of keeping inflation in check. This is often at the expense of economic growth, as higher interest rates discourage borrowing and encourage saving.

Higher interest rates tend to have a negative impact on stocks and stock indices within the affected economy, as investors sell assets in favour of lower-risk investments that still offer strong returns. This can in turn cause the economy’s currency to rise.

Doves

Doves are members who vote for looser monetary policy – keeping interest rates low – with the aim of boosting economic growth. This should increase spending, benefitting the economy and increasing employment. But it comes with the risk of rising inflation.

Lower interest rates tend to encourage investors to move their capital into higher-risk assets and discourage saving. This can have a positive effect on the stocks and stock indices within an economy, and a negative one on its currency.