Central Bank Surprises in India and Australia

July 16, 2013

Published minutes from the Reserve Bank of Australia reflected a tilt away from additional monetary easing.  At the policy board meeting earlier this month, officials observed that past rate cuts were positively impacting housing and other aspects of the economy and believed that this support had not yet run its course.  Aussie dollar depreciation was acknowledged, which equates to easier monetary conditions.

The Reserve Bank of India has tightened policy at a non-scheduled meeting, boosting the marginally standing facility rate to 10.25% (300 bps above the main rate) from 8.25%.  A statement was released by RBI officials, attributing the action to a need to counter potential capital outflows that have been weakening the rupee.  Emerging economies with current account deficits like India and Indonesia are especially susceptible to outflows as global financial markets anticipate Fed tapering.

After opening the week on an up-note, the dollar fell back overnight by 1.4% against the Aussie dollar, 0.9% relative to the kiwi, 0.6% versus the Swissie, 0.5% against the yen and euro, 0.2% vis-a-vis the loonie and 0.1% against sterling.  The yuan remains steady.

Equities are mostly lower in the Pacific Rim and Europe.  Gains of 0.6% in Japan and 0.5% in China were exceptions.  Stocks otherwise dropped 0.9% in India, 0.6% in the Philippines and New Zealand, and 0.5% in South Korea, and they are down 0.6% in Spain, 0.4% in France and 0.1% in Germany and Britain.

The 10-year gilt yields fell five basis points, while the 10-year JGB is up a single basis point.  German bunds are steady.

Several British price statistics were reported.

  • Consumer prices dipped 0.2% on month in June but accelerated to a 12-month increase of 2.9% from 2.7% in the year to May.  Core CPI inflation edged up to 2.3% from 2.2%.
  • Retail price inflation also picked up, reaching 3.3% from 3.1%.
  • Producer output price inflation accelerated to 2.0% from 1.2% in May, and core climbed to 1.0% from 0.8%.
  • Producer input inflation rose to 4.2% from 1.8%, and its core index climbed to 2.1% from 1.4%.
  • House prices, according to the ONS, rose 0.3% on month and accelerated to a 12-month increase of 2.9% from 2.6%.

Euroland’s seasonally adjusted trade surplus narrowed slightly to EUR 14.6 billion in May from EUR 15.2 billion in April.  Most disturbing, exports fell by 2.3% on top of a 1.0% slide in April.  The unadjusted surplus in January-May of EUR 57.1 billion was 6.6 times larger than a year earlier, thanks to a 3.9% decrease in imports.

Euro area consumer prices rose 0.1% in June and 1.6% from a year earlier.  That was up from a 12-month increase of 1.4% in May and 1.2% in April but down from 2.4% in the year to June 2012.  Core inflation held steady at a sub-target 1.2% in June.

The ZEW Institute reported that investor expectations regarding the German economy dipped to a reading of 36.3 in July from 38.5 in June.  Such has been steady on the whole lately, printing at 36.3 in April and 36.4 in May.  Perceptions about current conditions improved 2 points to a score of 10.6.  The ZEW indices for the whole euro area were 32.8 for expectations, 2.2 points higher than in June, and minus 74.7 for the current situation, 4.8 points better than in June.

New Zealand consumer prices rose less than forecast last quarter, increasing 0.2% from 1Q and 0.7% from the second quarter of 2012.  The last in-target 12-month increase was a gain of 1.0% in the year to 2Q12.  The target is a range of 1% to 3%, and the RBNZ is unlikely to tighten before the second half of 2014.

Scheduled U.S. data today include consumer prices, industrial production, the National Home Builders index, Treasury Department-compiled international capital flows, and weekly chain store sales. Canada’s monthly survey of manufacturers will be reported.  Bernanke semi-annual testimony begins tomorrow before the House.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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