Investors Sensing the Beginning of the End of the Cycle of Rising Central Bank Interest Rates
April 14, 2023
The hope that central bank rates are nearing their peak continues to take some air out of the dollar’s tires. The weighted dollar index touched its lowest level overnight since April 21 of last year and so far has lost a tad over 12% since peaking seven months ago. Compared to Thursday closings, the dollar is up 0.3% against the Mexican peso, 0.2% versus sterling, 0.1% relative to the yen but unchanged against the euro.
The shifting mood caused by rising concern about soft global growth prospects and expectations of falling inflation has promoted a recovery in bitcoin’s price, which advanced 1.4% overnight. Prices for West Texas Intermediate oil and gold are respectively 0.4% higher and 0.2% lower today so far.
Stock markets in the Pacific Rim closed up 1.2% in Japan, 0.8% in Taiwan, 0.6% in China and 0.5% in Hong Kong and Australia. Key European share prices are around 0.4% higher so far, while the major U.S. stock futures shows narrowly mixed changes.
Central Bank policy tightening cycles in Singapore and Peru have been paused.
- Officials at the Monetary Authority of Singapore (MAS) subordinate domestic monetary policy to an exchange rate target consisting of a trading corridor midpoint, slope, and band width, which are reviewed only semiannually in April and October. Beginning in October 2021, MAS officials had promoted strength in the Singapore dollar to counter imported inflation, and they incrementally tightened their stance six times including on some unscheduled occasions. But at this month’s scheduled review, the existing stance was deemed okay and not changed.
- Peru’s central bank interest rate benchmark had dropped as low as 0.25% during 2020 but began in August 2021 to be raised progressively at each ensuing scheduled meeting, reaching 2.5% by the end of that year and 7.5% by the end of 2022. One final rate hike to 7.75% occurred in January 2023, but three monthly policy reviews have now passed without further change. In a released statement, officials as in February and March caution against assuming that 7.75% represents the tightening peak: “t. This decision does not necessarily imply an end to the BCRP’s monetary tightening cycle. Future reference rate adjustments will be conditional on new information about inflation and its determinants, including the macroeconomic effects of the political unrest of previous months.”
More data were reported today showing a decline in inflation but with underlying price pressures (excluding food and energy which tend to be volatile) proving sticky.
- French CPI inflation fell from a 38-year high in February of 6.5% to 5.7% last month, but March’s revised estimate was 0.1 percentage point above the preliminary figure, and food price inflation of 15.9% was significantly higher than 14.8% experienced in February.
- Spanish CPI inflation of 3.3% in March was significantly less than February’s 6.0% reading, not to mention the 454-month peak of 10.8% last July and 9.8% in March of 2022.
- Polish consumer price inflation of 16.1% in March was down from a 319-month high of 18.4% in February.
- German wholesale prices, which hit a record high of 23.8% in April 2022, subsequently receded to 8.9% in February 2023 and then to a 26-month low of 2.0% last month.
- Swedish CPI inflation of 10.6% in March represented a 7-month low but was not far from the 382-month peak of 12.3% touched a few times and most recently in December.
- Finnish CPI inflation of 7.9% was also at a 7-month low and down from 9.1% in the last 2 months of 2022.
- The combined producer price and import price index of Switzerland fell another 0.6 percentage points in March to a 23-month low of 2.1% from a 490-month peak of 6.9% last June.
- Slovakian CPI inflation of 14.8% last month was down from a 22-year high of 15.4% in February.
- Consumer prices rose 12.7% between March 2022 and last month in Kyrgyzstan, their smallest 12-month increase in a year and a half, after a 16.2% on-year rise in February.
New Zealand’s manufacturing purchasing managers index swung back into contractionary territory during March with a 3-month low reading of 48.1 after printing at 52.0 in January and 51.7 in February.
Financial market movement overnight was muted ahead of several U.S. data releases today, including retail sales, industrial production, import prices, and the preliminary estimate of consumer confidence from the U. Michigan/Reuters survey.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Central Reserve Bank of Peru, French and Spanish CPI, German WPI, Monetary Authority of Singapore
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