Busy Thursday Calendar for Central Bank Watchers
March 23, 2023
Wednesday belonged to the Federal Reserve, but no fewer than eight other central banks announced their interest rate decisions today. The Swiss National Bank’s policy interest rate was hiked 50 basis points to a 14-1/2 year high of 1.50%. Rate increases of 25 basis points were engineered by the Central Bank of Norway to 3.0%, the Central Bank of the Philippines to 6.25%, the Bank of England to 4.25%, and the monetary authorities in Hong Kong and Macau to 5.25%. The Central Bank of the Republic of China (Taiwan) unexpectedly lifted its discount rate by 12.5% to 1.875%, while officials at the Central Bank of Turkey, whose policy rate had been slashed from 19% in September 2021 to 8.5% last month, left policy unchanged after today’s review.
In financial markets overnight, the dollar was marked down by 1.0% against the New Zealand dollar, 0.8% relative to the Chinese yuan, 0.6% versus the Canadian and Australian dollars, 0.5% vis-a-vis sterling, 0.3% against the euro and 0.2% relative to the Japanese yen and Swiss franc. From Fed Chairman Powell’s press conference, investors took away the belief that the federal funds rate is now close to its cyclical peak.
Prices for gold and bitcoin tokens have jumped 1.6% and 1.2%, while oil is 0.5% softer.
Ten-year sovereign debt yields compared to Wednesday’s close are three basis points (bps) higher in the United States but down 8 bps in Germany, France and Spain and 4 bps in Japan.
Share prices are down 0.5% to 1% in key European stock exchanges so far. Equity results in the Pacific Rim closed mixed with gains of 2.3% in Hong Kong, 1.2% in Indonesia, 0.7% in Taiwan, and 0.6% in China but drops of 0.7% in Australia, 0.5% in India, and 0.2% in Japan. U.S. stock futures show some bounce after yesterday’s selloff.
A total of only 191k new U.S. jobless insurance claims last week attested to a continuing tight labor market. The U.S. current account deficit narrowed 5.6% to $206.8 billion last quarter but remained at elevated 3.2% of GDP. In 2022, the deficit totaled $945.8 billion, equivalent to 3.7% of GDP and 11.7% wider than the 2021 current account gap.
Consumer confidence improved this month to a 10-month high in Denmark but slipped to a 2-month low in Turkey. Reflecting severe power shortages, consumer confidence in South Africa slumped 15 index points to a 3-quarter low in the first quarter of 2023.
Consumer price inflation in Singapore fell 0.3 percentage points further in February to a 10-month low of 6.3%. Such crested last August-September at 7.5% but remains two percentage points higher than its February 2022 reading.
At 1.50%, the Swiss National Bank’s new policy rate level is at its highest since November 2008. Today’s increase follows 225 basis points of tightening last year. The rate had been at negative 0.75% from January 2015 until June 2022. A released statement notes that inflationary pressure is broadly based and recently rising. Officials revised up their projected inflation path between now and the first quarter of 2025, projects CPI inflation averaging 2.6% this year, foresees only 1.0% of economic growth in 2023, leaves the dollar open to possible additional interest rate hikes, and reaffirms that it will continue to sell foreign currency as necessary to counter franc overvaluation. With regard to the liquidity problems of Credit Suisse, the statement declares, “The measures announced at the weekend by the federal government, FINMA and the SNB have put a halt to the crisis.”
The Central Bank of Norway‘s 3.0% policy interest rate has risen from zero percent as recently as September 2021. Krone depreciation, rising wage growth, low unemployment, and resilient economic activity have driven inflation well above the 2% target, and the central bank’s governor provided forward guidance that more rate hikes are likely: “There is considerable uncertainty about future economic developments, but if developments turn out as we now expect, the policy rate will be raised further in May.”
The Bank of England‘s vote in favor of a 25-basis point rate hike to 5.25% was not unanimous, as two of the nine committee members voted to retain a 5.0% level. This was the 11th increase from a base of 0.10% when the first move occurred in December 2021. While officials expect a sharp inflation deceleration later this year, February’s acceleration to 10.4% caught them by surprise. Going forward, officials promise to “adjust Bank Rate as necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit.”
The new Filipino overnight repo rate of 6.25% marks its highest level since 2007 and a rise of 425 basis points since the pandemic low of 2.0%. CPI inflation of 8.6% last month was almost as high as January’s 14-year peak of 8.7%. Projected inflation has been revised upward but is seen setting in the middle of the 2-4% target next year. A released statement opines “that the Philippine banking system is resilient to evolving market conditions” and “reassures the public that monetary authorities remain ready to respond further to inflation risks in line with the BSP’s data-dependent approach to ensuring price and financial stability.”
Domestic monetary policy is subordinated to fixed exchange rate regimes at the Hong Kong Monetary Authority and the Macau Monetary Authority. The Hong Kong dollar has been pegged to the U.S. currencies since 1983, and Macau links its currency to Hong Kong’s. As a result, whenever the Federal Reserve changes its interest rate, the rates in Hong Kong and Macau move automatically in kind. Both rates now become 5.25%, 25 basis points above the Fed’s new target ceiling, and thiese are the highest rates in 15 years.
The Central Bank of the Republic of China (Taiwan) is the rare central bank where the size of interest rate changes usually amounts to less than 25 basis points. Policy is reviewed quarterly, and each of such meetings in 2022 ended with a discount rate hike of 12.5 basis points, resulting in a combined half percentage point rise to 1.75% from 1.25%, the level since March 2020. Today’s meeting also yielded a 12.5-basis point increase, and the new level represents an 8-year high. According to the bank’s statement, “the Board judged that a continued policy rate hike will help achieve the policy objectives of promoting price stability and fostering sound economic and financial development on the whole.” CPI inflation is projected to average 2.1% this year, down from marginally less than 3.0% in 2022.
The only central bank among the eight announcing policy decisions today not to change its interest rate was the Central Bank of Turkey, where officials cut their policy interest rate by 50 basis points last month. That reduction culminated five percentage points of easing between August and November 2022 and a similar amount of reduction engineered in September-December of 2021. Big interest rate changes had also occurred in 2020 — 375 basis points of cuts in the early part of the year followed by 10.75 percentage points of rate increased between September 2020 and March 2021. Turkey, where both presidential and parliamentary elections are scheduled for May 14, continues to have a very big inflation problem in spite of a drop in the 12-month increase of consumer prices from 85.5% in October 2022 to 55.2% last month. A released statement asserts that it has “become even more important to keep financial conditions supportive to preserve the growth momentum in industrial production and the positive trend in employment after the earthquake.”
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bangko Sentral Ng Pilipinas, Bank of England, Norges Bank, Swiss National Bank, U.S. current account