Central Bank Roll Call – Currency Thoughts
Central Bank Roll Call
March 20, 2025
The immediate sigh of relief by market participants — expressed in higher share prices and a retreat of the 10-year Treasury yield — to yesterday’s Federal Reserve show quickly wore off during overnight hours. Less emphasis has been attached to the unchanged Fed signal of likely two interest rate cuts later this year and to Chairman Powell’s characterization of the tariff impact on price growth as possibly proving “transitory.” The main message, repeated in a range of other central bank rate decisions today is that the global economy has entered into a period of strongly intensifying uncertainty that will require particular policy caution, with decisions made on a meeting to meeting basis, heavier weight paid to hard data than soft data, and a greater inclination to delay actions. To little surprise, President Trump wasted little time before voicing a criticism of the Fed, which in his opinion would be much better off lowering interest rates as economies adjust to higher tariffs.
The roll call since Powell’s press conference yesterday of other central banks announcing interest rate decisions includes monetary authorities in the U.K. (no change), Brazil (+100 basis points), Taiwan (no change), China (no change), Hong Kong (no change), Sweden (no change), Uzbekistan (+50 basis points), Moldova (no change), and Switzerland (-25 basis points).
In stock market action this Thursday, U.S. futures shortly before 09:00 EDT were still around 0.5% in the red. The four largest euro area bourses were each showing losses of at least 1.0% and of 1.6% in the case of the German DAX. Japan’s market was closed in observance of the Vernal Equinox holiday. The Hang Seng and Shanghai Composite indices dropped 2.2% and 0.5%, while share prices advanced by 1.9% in Taiwan, 1.2% in Australia and India and 1.1% in Indonesia. Turkey’s stock market recovered 1%.
The ten-year U.S. treasury yield’s six-basis point drop overnight exceeded 10-year sovereign debt yield declines of five basis points in Germany and the U.K. and three basis points in France, Italy, Spain and Switzerland.
Bitcoin got an initial lift from the Fed and more so in advance of today’s remarks by Trump on crypto, rising above $87,300, only to fall $85100 and now shows a net overnight loss of 1.8%.
The dollar has dipped 0.2% versus the yen but shows broad gains otherwise. The weighted DXY dollar index is 0.5% higher.
Although somewhat smaller than forecast, the U.S. current account deficit exceeded $300 billion for a second straight quarter, averaging 4.1% of GDP in 4Q 2024 after 4.2% of GDP in the third quarter and recording a full 2024 deficit of $1.14 trillion or 3.9% of GDP. By comparison, the deficit of $905 billion in 2023 equaled 3.3% of GDP.
The Philly Fed manufacturing index faltered to 5.6 this month from 27.8 in February and 46.3 in January. That’s a piece of soft data, but the hard data report of new jobless insurance claims remained historically low last week at 223k.
Other data highlights include
- A two-month high of 0.7% in German producer price inflation last month. Even when excluding energy, German PPI inflation stayed below 2% at 1.4%.
- By contrast, producer price inflation rose in Russia to a six-month high of 9.8% and in Estonia to a 23-month high of 3.3%.
- Australian February labor market statistics showed an unchanged 4.1% jobless rate but a hugely unexpected 52.8k decline in employment.
- New Zealand GDP posted its fastest quarterly growth since mid-2023 (+0.7% in 4Q) but not enough to prevent another year-over-year decline, this time of 1.1%.
- Construction output in the euro area rose only 0.2% in January and was unchanged from its year-earlier level.
- Consumer prices in Hong Kong last month dipped 0.1% on month. The 12-month increase receded from a 4-month high in January to a 2-month low of 1.4%.
The Bank of England’s bank rate as expected was left unchanged at 4.5% after an 8-1 vote by its Monetary Policy Committee with Dhingra casting a dissent favoring a fourth 25-basis point cut. The three reductions of 25 basis points were made last August, November and February after a cyclical peak of 5.50% maintained for a whole year. The BOE statement explaining the committee’s latest thinking notes “relatively little news since the previous meeting from UK economic developments” and a continuing range of different expectations regarding future growth and inflation. “There has been substantial progress on disinflation over the past two years, as previous external shocks have receded, and as the restrictive stance of monetary policy has curbed second-round effects and stabilized longer-term inflation expectations.” On the other hand, officials cite three broad sources of intensifying uncertainty: a war of reciprocating tariffs started by the United States; multiple geopolitical tensions; and German plans for significant reform to its fiscal rules. All in all, the case continues for maintaining a restrictive monetary stance and proceeding cautiously with rate changes that will be decided on a meeting-to-meeting basis.
Chinese officials have signaled a readiness to bring more monetary stimulus to bear if needed to support economic growth, but have chosen other policy options of late. As was expected, the People’s Bank of China 1-year loan prime rate of 3.1% and 5-year loan prime rate of 3.6% were again left unchanged at this month’s fixing. Their last decline – each by 25 basis points — was made last October.
The Central Bank of the Republic of China (Taiwan)’s discount rate as expected was left unchanged at 2.0%. A year has now passed since a 12.5-basis point rate hike culminated 87.5 basis points of tightening begun in March 2022. Inflation remains low and stable, but Taiwan is particularly exposed to pervasive geopolitical uncertainty around the globe in general and President Trump’s handling of the Russia-Ukraine conflict in particular. It seems an odds-on bet that the U.S. would not intervene if China were to attack Taiwan.
The Swedish Riksbank‘s policy rate last cut in January by 25 basis points and, at 2.25%, is at its lowest level since November 2022 and down from a peak of 4.0% held from September 2023 until an initial cut in May 2024. Swedish CPIF inflation, which officials target at 2% over the medium term, is projected at 2.5% this year but then falling gradually back to target in 2026 and thereafter if the rate remains at 2.25%. Economic expansion has returned but is currently still weak.
The Executive Board is vigilant regarding contagion effects that could lead to inflation not falling back as expected. Uncertainty abroad is unusually high due to the escalating trade conflict and the rapidly changed security situation. There is also significant uncertainty surrounding domestic demand, including household consumption, corporate investment and the impact on the economy of increased defense spending. The Executive Board has decided to hold the policy rate unchanged at 2.25 per cent and assesses that the rate will remain at this level going forward.
Uzbekistan is a different case altogether, and its circumstances call for progressive tightening. Officials at the Central Bank of Uzbekistan today raised their policy rate by half a percentage point back to 14.0%, matching a level that prevailed from March 2024 to July 2024 and before that from September 2020 to March 2022. CPI inflation printed in February at 20.13%, up from 9.7% at the end of 2024. This rise has been accompanied by indications of rising inflation expectations held by consumers and businesses alike. Even if inflation were to fall to 7-8% late this year as monetary officials predict, it would still be above their 5% target.
The National Bank of Moldova’s policy interest rate was lifted by 200 basis points in January and another 90 bps to 6.5% in February in response to a rise of inflation from as low as 3.3% a year ago to a 17-month high of 9.1% in January. That compares to a medium-term target range on CPI of 3.5-6.5%. With inflation sliding back a half percentage point, officials this month chose not to tighten policy further but rather to monitor the impact of what was done earlier this year. Amid high uncertainty, the bias of policy seems to be skewed upward.
Swiss monetary policy is reviewed just quarterly. Swiss National Bank officials had maintained a peak 1.75% interest rate from June 2023 until an initial cut of 25 basis points. Two more 25-bp reductions were made in June and September before halving the rate from 1.0% to 0.5% at last December’s review. They decided to cut the rate in half again today to 0.25%, reaching its lowest level since September 2022. The Swiss franc is still considered overvalued, so they also reserve the prerogative to intervene when needed to prevent undue appreciation. At 0.3% in February, CPI inflation has slowed to a 46-month low, and officials project inflation staying below 1% through 2027. They worry, too, about what else is happening in the world: “The economic outlook for Switzerland has become considerably more uncertain. Against the backdrop of increased trade and geopolitical uncertainties worldwide, developments abroad continue to represent the main risk.”
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of England, Central Bank of the Republic of China (Taiwan), Central Bank of Uzbekistan, National Bank of Moldova, Peoples Bank of China, Swedish Riksbank, Swiss National Bank, U.S. current account
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