Mixed Central Banking Signals – Currency Thoughts
Mixed Central Banking Signals
August 20, 2024
The Executive Board of the Swedish Riksbank cut their policy interest rate by 25 basis points for the second time since March and released a statement that points to somewhat greater easing over the rest of 2024. Officials proclaim in it that “the policy rate can be cut somewhat faster than was assessed in June. If the inflation outlook remains the same, the policy rate can be cut two or three more times this year.” The rate had previously been lifted by four percentage points between April 2022 and September 2023 from 0% to 4% but now becomes 3.5%. The statement observes that inflation has lately dropped more quickly than anticipated against a backdrop of slowed demand-side pressure and will soon converge around the 2% target.
The Chinese one-year and five-year loan prime rates, which last month had been each cut ten basis points to 3.45% and 3.85%, were left at those levels this month as analysts had expected. Policy easing at the PBoC has not been aggressive enough yet to lend discernible lift to the Chinese economy’s disappointing growth performance, and the Xi government’s fiscal policy has failed to promote the country’s needed rotation from investment-led to consumption-led growth.
Released minutes from the last Reserve Bank of Australia monetary board meeting have a hawkish tone. Such note that “several developments over preceding months had supported the view that inflation would be slow to decline” and “a pattern since early 2023 of both Bank and market-implied forecasts modestly underpredicting inflation a few quarters in advance.” After intensely weighing the pros and cons of leaving the OCR steady or raising such, members opted for not change but retained forward guidance concluding that “it was not possible to either rule in or rule out future changes in the cash rate target.”
Policymakers at the Central Bank of Turkey reacted late to last year’s rapid reignition of inflationary pressure and scampered to catch up to reality by catapulting the one-week repo rate from 8.5% at the start of June 2023 to 50.0% by end-March of this year. The rate was not lifted further at this week’s scheduled policy review. A released statement, however, “reiterated that it remains highly attentive to inflation risks. The tight monetary stance will be maintained until a significant and sustained decline in the underlying trend of monthly inflation is observed, and inflation expectations converge to the projected forecast range.” Core inflation of 60.2% remains far from the 5% medium-term target.
This week’s biggest central banking event lies ahead, namely the Jackson Hole Symposium, where Fed Chairman Powell may shed new light on the latest thinking of the Federal Open Market Committee members.
In financial market action overnight,
- U.S. share prices experienced little net movement in the first hour of trading. The Japanese Nikkei had closed 1.8% higher, but equity ground was lost in China, Hong Kong, and key European centers.
- Ten-year U.S. Treasury and German bund yields fell by 4 and 2 basis points, while the 10-year Japanese JGB yield edged up a basis point.
- Gold climbed to a new record high, touching $2570.4 per ounce.
- The dollar eased 0.5% versus the Swiss franc, 0.3% against the yen, 0.2% relative to sterling and 0.1% against the euro and loonie.
- The price of bitcoin went back above $60 for the first time in 10 days, gaining almost 2% for the day.
Consumer price inflation last month in the euro area was reconfirmed at the flash estimate of 2.6%, up from 2.5% in June but still half of the pace during the year ending July 2023. Core inflation printed at 2.9% for a third straight month. Prices in the services sector remained problematic, jumping 1.2% on month and 4.0% on year. The 12-month increase of consumer prices was higher in July than June in Germany, France, Italy and Spain.
A 0.8% on-year drop in German producer prices last month was the smallest 12-month decrease in a streak of 13 straight sub-zero percentage changes, the biggest of which was a drop of 9.2% recorded last September.
Portuguese PPI inflation of 1.9% in July was marginally lower than June’s 14-month high of 2.0%.
Consumer price inflation in Hong Kong increased by a full percentage point to an 8-month high of 2.5% in July.
Canadian consumer price inflation of 2.5% in July was its lowest reading in 40 months and down from a peak of 8.1% in mid-2022. Core inflation came in below expectations, and a half-percentage point slide in the shelter component has favorable implications for Canada’s southern neighbor. Fed officials expect to see shelter costs recede later this year.
Georgian producer prices fell 0.5% on month and decelerated 1.1 percentage points in year-on-year terms to 8.2% last month.
Other data highlights this Tuesday include a record high monthly current account surplus in the euro area of EUR 52.4 billion. The seasonally adjusted surplus of EUR 50.5 billion was considerably wider than EUR 37.6 billion recorded in May, and the 12-month surplus of EUR 370 billion (equal to an ample 2.5% of GDP) was extensively better than that of EUR 30 billion in the prior 12 months to June 2023.
Construction output in Euroland rose 1.7% in June and posted a year-on-year increase for the first time since January. Nonetheless, construction in the second quarter was 0.4% less than in 1Q.
South Korean consumer confidence fell 2.8% in August to a 3-month low.
The Swiss trade surplus of CHF 25.4 billion in January-July was roughly 25% wider than a year earlier.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Central Bank of Turkey, Euroland CPI and current account, Peoples Bank of China, RBA minutes, Swedish Riksbank
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