Several Central Bank Policy Reviews and Signs of Receding Inflation
October 16, 2024
Central bank policy interest rates were cut today in the Philippines, Thailand and Namibia, each by 25 basis points, while Indonesia’s 7-day repo rate, which had been reduced at last month’s review, was not changed.
Just prior to the release of U.S. import and export price figures, the dollar was showing no net change overnight against the euro, yen, loonie, Swiss franc, Mexican peso or Turkish lira. The New Zealand dollar and sterling had dropped 0.1% and 0.3% partly in response to lower-than-expected inflation data released in those countries.
Asian stock markets were showing red, including declines of 1.8% in Japan, 1.2% in Taiwan, and 0.9% in South Korea. The British FTSE had climbed 0.7%, and the 10-year British gilt yield was nine basis points lower. Lower-than-forecast U.K. CPI and PPI data all but assure that the Bank of England’s base rate will be cut in November. The German DAX and Paris CAC declined, and 10-year sovereign debt yields in those economies had each fallen four basis points. The U.S. Treasury yield was three bps lower.
An additional 0.5% decline in the price of oil augmented the recent rash of benign inflation reports to promote expectations of ongoing disinflation.
Prices for Bitcoin and gold were alternatively in the black with gains today of 1.3% and 0.6%.
U.S. import prices decreased 0.4% in September, their biggest monthly slide in nine months and sufficient to swing the 12-month rate of change to -0.1% from +0.8% in August and +1.7% in July. Fuel, down by 7.0% on month and 17.3% on year, provided the main disinflationary impetus, but all other import price items collectively edged up just 0.1% on month. Export prices also rose 0.1% last month and were 1.8% greater than a year earlier.
British consumer prices flat-lined last month, depressing their 12-month increase by a greater-than-forecast half percentage point to a 41-month low of 1.7%. Notably, that lies below than the Bank of England’s 2% target, and service sector price disinflation, a process which has lagged most everywhere, sped up this time with a drop from 5.6% in August to a 28-month low of 4.9%. Overall core CPI in the U.K. fell to a 3-year low.
Other British price indices also decelerated last month. The retail price index fell 0.3% on month and by 0.8 percentage points to a 2.7% on-year advance. Producer input prices sank 1.0% on month and showed its steepest on-year slide (-2.3%) since March. Producer output prices fell 0.5% on month and 0.7% on year. That 12-month drop was the most in 47 months.
New Zealand consumer price inflation slowed 1.1 percentage points to 2.2% last quarter, its slowest pace since the initial quarter of 2021.
Italian CPI inflation in September was not revised from initial indications of a 0.2% monthly dip and the smallest 12-month rate of rise (0.7%) in 9 months.
Croatian consumer price inflation of 1.6% in September was down from 6.7% in September 2023 and a peak of 13.5% in November 2022. Croatian inflation had not been as low of 1.6% for the past 42 months.
Czech producer prices slid 0.2% in September, almost having their on-year increase to 0.6%.
U.S. mortgage applications last week dropped for a third straight week and this time by a whopping 17.0%. This almost wiped out back-to-back increases of 14.2% and 11% in the final two weeks of September. The 6.52% 30-year fixed mortgage rate last week was up from 6.36% in the prior week and its highest in nine weeks.
Japanese core private domestic orders for machinery had been expected to show little change in August but disappointingly slumped 1.9% on month and 3.4% on year. A member of the Bank of Japan Board, Adachi, cautioned that interest rates should not be lifted prematurely and in any case should be done gradually.
The Central Bank of the Philippines‘ key interest rate was lowered by 25 basis points today to 6.0% in a follow-up to an initial 25-bp cut in August. A peak of 6.5% had been reached in August 2023 after increases totaling 100 bps in 2023 and 350 bps in the second half of 2022. Filipino CPI inflation slid under the central bank’s target range of 2-4% to 1.9% last month. Officials concluded, “The within-target inflation outlook and well-anchored inflation expectations continue to support the BSP’s shift toward less restrictive monetary policy… the Monetary Board will maintain a measured approach in its easing cycle to ensure price stability conducive to sustainable economic growth and employment.”
The Bank of Thailand monetary policy committee by a vote of 5-2 unexpectedly agreed to initiate a cycle of interest rate reduction, lowering its 1-day repo rate by 25 basis points to 2.25% today. Such was the first cut since May 2020 ended a peak 2.5% level maintained since August 2023. “The Committee deems that a neutral stance of policy rate remains appropriate with the economic growth and inflation outlook.” CPI inflation in Thailand is targeted at 1-3% but has fallen from a crest of 7.9% in August 2022 all the way to 0.6% as of September. The two dissents has preferred leaving the interest rate unchanged, in order to “preserve policy space amid ongoing uncertainties.”
The decision not to cut Bank Indonesia‘s 6.0% 7-day repo rate again as had been done at September’s monthly review also caught analysts by surprise. CPI inflation there has slowed to a 34-month low of 1.84%, not far from the target floor of 1.5%. Officials cited selling pressure on the rupiah and greater uncertainties surrounding global financial markets. The central bank interest rate had been 3.5% from February 2021 until August 2022, then raise by 200 bps over the rest of 2022 and 50 bps in 2023 and 25 basis points one last time in April of this year.
The central objective of monetary policy in Namibia is to set interest rates in such a fashion as to insure that its currency remains anchored to the South African rand. From 7.75% since June 2023, the Central Bank of Namibia‘s policy rate had been initially lowered 25 bps this past August by 25 bps and was cut similarly at today’s scheduled policy review to 7.25%. Inflation in Namibia has slowed to a 37-month low of 3.4% from as high as 7.3% in August 2022.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank Indonesia, Bank of Thailand, British CPI and PPI, Central Bank of Namibia, Central Bank of The Philippines, U.S. import prices
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