New Developments Abroad: Another Asian Central Bank Tightens

July 17, 2008

Yesterday it was the Bank of Thailand lifting its key rate by 25 bps to 3.5%.  Today, the Philippine Central Bank tightened by a greater-than-anticipated 50 basis points to 5.75% after doing 25 basis points in June.  CPI inflation in the Philippines exceeds 11% and is at a 14-year high.

Aside from a 0.1% uptick against the yen, the dollar is lower by 0.3% against sterling, the euro, and Aussie dollar and 0.2% against the Swiss franc.

Sovereign bond yields are lower in the U.S., Canada and Australia but higher in Japan (+2 bp to 1.595% on the 10-year) and Europe.

Stock prices are mostly higher.  Nikkei +1.0%.  Dax and Ftse +1.3%.  China’s CSI 300 was an exception, dropping 1.0%.

Oil slid another 0.3% and has lost 8.5% from Tuesday’s high.  Gold recovered 0.3% to $965.60/oz.

Japanese stock and bond transactions generated a Y 332 billion inflow last week.

The French Finance Minister reiterated that the present bout of inflation should not be countered with higher interest rates, but ECB Council Member Wellink says it’s a mistake to assume inflation will ease merely as growth slows.

Italy’s trade deficit narrowed to just EUR 59 million in May from EUR 1022 mln in April and EUR 779 mln in May 2007.  The current account shortfall widened to EUR 6.985 bln from EUR 4.359 bln in May 2007.

Chinese GDP growth slowed to 10.1% y/y in 2Q from 10.6% in 1Q, 11.2% in 4Q07 and 11.9% in 2Q07.  CPI inflation eased to 7.1% y/y in June from 7.7% in May, but PPI inflation strengthened to 8.8% from 8.2% in May.  Industrial production and retail sales posted on-year advances in June of 16.0% and 23.0%.  Exports account for the slowdown in GDP growth.  Fixed asset investment increased 29.5% in the year to June.  Corporate goods price inflation rose 9.5% y/y in June, down from 9.6% in May and a peak of 10.3% in April.  Their on-year increase in June 2007 was 5.4%.  Analysts expect slower growth and receding inflation to lead Chinese monetary officials not to raise interest rates in 2H08 and to slow the rate of yuan appreciation.

The Swiss ZEW index weakened sharply in July to -76.9 from -63.8 in June.

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