Interest Rate Hikes in Australia and India

November 2, 2010

The dollar fell 1.1% against the Australian dollar, 0.9% versus the Swiss franc, 0.6% against the euro, 0.5% relative to the Canadian dollar, 0.4% against the kiwi, and 0.2% against the yuan.  The greenback gained 0.4% against sterling and 0.3% versus the yen.

The Reserve Bank of Australia lifted the Official Cash Rate by 25 basis points to 4.75%.  This seventh advance overall and first move since May had only been expected by one in four analysts.  RBA officials anticipate a large expansionary shock from the highest terms of trade since the early 1950s, and that will subject inflation to upward pressure even assuming a further tightening of monetary policy.

The Reserve Bank of India increased the repo rate and reverse repo rate by 25 bps each to 6.25% and 5.25%.  Along with five earlier tightenings since March, the repo rate is 150 bps above its trough, and the reverse repo rate has been raised by 200 bps.  Domestic demand is robust in India, and both inflation and expected inflation are higher.

Equities rose 0.4% in Singapore, 0.8% in New Zealand, 0.1% in Japan and 0.2% in Thailand but are off 0.4% in Taiwan, 0.3% in China, 0.5% in Indonesia, and 0.6% in Sri Lanka.  The German Dax has firmed 0.2%, and stocks so far have edged up 0.1% in the U.K. and France.

Ten-year sovereign bond yields have eased 3 basis points in Britain and one basis point in Japan.

Oil and gold prices rose by 0.5% and 0.6% to $83.33 per barrel and $1358.1 per ounce.

Britain’s construction purchasing managers index fell by 2.2 points to 51.6 in October, a nine month low.

Euroland’s manufacturing PMI was revised to 54.6 in October from a preliminary estimate of 54.1 and prints of 53.8 in September and 52.1 in August.

  • The French index of 55.2 was unchanged from its flash estimate and 0.8 lower than the September reading.
  • The German index of 56.6 compares to a preliminary 56.1 reading and 55.1 in September.
  • Italy’s index of 53.0 was 0.4 higher than in September.
  • Spain’s index returned to August’s 51.2 after dipping to 49.6 in September.
  • The Dutch index, reported Monday, rose to 55.4 from 52.9.
  • Ireland’s index improved to 50.9 after dipping to 48.4 in September from 51.1 in August.
  • Greece remains mired in recession with a deeply sub-50 reading of 43.6 in October after 44.7 in September.

Poland’s PMI in manufacturing rose to 55.6 from 54.7 in September.  Hungary’s index was 51.7, up from 50.2.

The National Bank of Romania left its benchmark interest rate unchanged at 6.25% as expected.

New Zealand wages showed an on-year increase of 1.6% in 3Q10, same as in the second quarter.

Published minutes from the Bank of Japan Policy Board’s October 4-5 meeting showed agreement that a delay had become more likely for restoration of sustained economic growth with price stability in Japan.  The Board, however, was divided over the cost-benefit balance of purchasing government debt.  The meeting produced one dissent against the vote to include long-term government bonds among the JPY 5 trillion of asset purchases to be undertaken.

U.S. mid-term elections are today.  The FOMC announces quantitative easing tomorrow, but expectations of the dose of stimulus have been scaled back since a Wall Street Journal article last week believed to have been planted by Bernanke.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.


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