Chinese Central Bank Interest Rate Decision Evokes Disappointed Reaction
August 21, 2023
Policymakers at the Central Reserve Bank of China took a halfway approach to enhancing policy stimulus at the August fixing of the 1- and 5-year loan prime rates for corporate borrowing and house mortgages, respectively. It was expected that each rate would be cut further following 10-basis point reductions in each done two months ago. Although the one-year rate was sliced 10 basis points again to a record low of 3.45%, the 5-year LPR was unexpectedly left unchanged at 4.2%.
Sputtering consumer spending in China has led analysts to revised their growth projections for this year and next downward, and officials have acknowledged that more macroeconomic support will be needed. But fiscal and monetary action thus far has undershot the talk. PBOC officials have been worried equally by the yuan’s depreciation and have provided intervention support to the currency and stopped them from cutting interest rates faster. June’s reduction was only the first changes since cuts in August 2022. The balanced policy approach today, however, failed to lend the yuan support, as such fell initially through 7.30 to 7.3086 per USD following the announcement. Meantime, the Shanghai composite equity index fell 1.2%, and Hong Kong’s Hang Seng closed 1.8% lower.
Their weakness did not hurt equities in Europe however, which so far show gains on the day ranging from 0.5% in the U.K. to 1.7% in Italy. U.S. stock futures are up, too, following last week’s tumble.
Ten-year sovereign debt yields have climbed five basis points in the U.S., Italy and Germany, as well as by four bps in Spain and France, 2 bps in Japan and a basis point in Great Britain. The price of bitcoin tokens slipped 0.5% further and are down 13.4% in July 23. Prices for gold and WTI oil are alternatively up 0.2% and 1.4% today. The dollar shows modest losses so far.
Today’s economic data releases mostly feature prices.
- German producer prices dropped 1.1% on month and 6.0% on year in July, easily exceeding the expected size of the declines. The 12-month rate of decrease was the most in 165 months and represents a dramatic reversal of record on-year increases of 43.8% last August and September. Energy prices fell 19.3% on year compared to a 139% upsurge in August 2022, while collective producer price inflation for all other items slowed to 2.0% from 14.0%.
- Polish producer prices in July were 1.7% below year-earlier levels, there most deflationary point since 2015 and down from a 393-month peak of +25.6% in June 2020.
- Estonian producer prices fell 3.2% between July 2022 and last month and have decelerated from a 328-month high of +33.7% PPI inflation in May 2022.
- PPI inflation last month in Latvia of -2.5% was down from +0.4% in June and a record high of +37.7% in August 2022.
- Slovenian PPI inflation of 4.1% in July was its lowest in 26 months and down from a record 22.5% in May 2022.
- Georgian producer prices fell 0.7% on month and 1.7% from July 2022. That was the sixth straight month with a subzero outcome but the least negative since February.
- After a massive devaluation of the Lebanese pound in February, consumer price inflation there soared to a record 263.8% in March and had receded only to 251.5% as of last month.
- CPI inflation of 1.8% in Hong Kong last month was its lowest since March and down from 4.4% in September 2022.
Quarterly GDP growth in Thailand slowed much more sharply last quarter than expected to 0.2% from 1.7% in 1Q and resulted in slower year-on-year growth of 1.8% after 2.6%.
Industrial production in Poland dived 8.5% in July and was 2.7% less than in July 2022.
The year-on-year change in Great Britain’s Rightmove house price index edged just under zero percent this month to -0.1%. An 82-month high 10.4% had been recorded in March 2022.
This fourth week of August features the 2023 BRICS summit in South Africa, the annual Jackson Hole central banking symposium, the first Republican presidential debate, and preliminary August purchasing manager survey results for Euroland, Japan, Australia, Great Britain and the United States.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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