Central Bank Rate Announcements, Geopolitical Uncertainties, and a Big Drop in the Turkish Lira
March 19, 2025
The Federal Reserve and Bank of Japan head a list of five central banks making interest rate announcements today. The BOJ Board voted unanimously to leave its overnight call interest rate unchanged at 0.50%. That matches its highest point since 1995. From 0.10% between January 2016 and March 2024, Japan’s short-term policy interest rate had stayed at 0.1%. A 20-basis point hike a year ago was followed by increases of 15 basis points last July and then a third move this past January to 0.50%. Japanese consumer price inflation rose in January to a 2-year overall high of 4.0% and a 19-month high of 3.2% in the core CPI index. As hoped, wage awards to the largest unions accelerated this spring, but officials want to see what wage talks with smaller unions produce. An even more compelling reason for caution involves the trade policies of the United States and other governments, which according to Governor Ueda at today’s press conference remain hard to quantify. To the extent that there is a consensus among forecasters, the next BOJ rate-normalizing move is anticipated around June.
The cease-fire between Israel and Hamas ended yesterday with a big bang, resulting in around 400 known Palestinian deaths including many children. In the other war between Russia and Putin, President Putin has made no serious concessions, but Trump reportedly seems fine with that.
News from Turkey that Istanbul Mayor Imamoglu and chief political rival to President Erdogan was detained and stripped of his education credentials sent the Turkish lira into a 12% tailspin overnight to as low as 41.707 per dollar, but at last look that drop had narrowed to around 5%.
Against other currencies, the dollar also appreciated overnight by 0.6% relative to the New Zealand dollar and Korean won, 0.5% versus the Australian dollar, 0.4% vis-a-vis the euro, 0.3% against the yen and sterling, and 0.2% versus the Swiss franc and loonie.
The Federal Reserve’s Open Market Committee wraps up its two-day policy review this Wednesday. The decision, which is expected to extend the pause that’s keeping the federal funds rate target at 4.25-4.50%, will be announced at 14:00 EDT (18:00 GMT) along with updated forecasts, and Chairman Powell’s press conference will begin thirty minutes later.
Ahead of the Fed’s action, the 10-year U.S. Treasury yield is a basis point firmer than yesterday but 27 bps lower than when the FOMC last met seven weeks ago. European sovereign debt yields slipped 3 bps in Germany, 2 bps in France, Italy and Spain, and a basis point in Great Britain. Japan’s 10-year JGB yield is unchanged.
Stock markets in the Pacific Rim closed down 1.4% in Taiwan, 0.3% in Japan, 0.4% in Australia and 0.1% in China but higher by 1.4% in Indonesia, 0.6% in South Korea, and 0.2% in India. Turkey’s stock market is down 6.9%, while major European exchanges are narrowly mixed so far, and U.S. stock futures are up slightly.
Bitcoin‘s price is up 1.0%, but oil is down 0.4%. Gold is steady near its record high.
The Central Bank of Iceland’s one-week term deposit rate was lowered by 25 basis points to 7.75%, its lowest level since May 2023. This was the fourth cut since October but smaller than ones done in November and February. The rate had crested at 9.25% in August 2023 and kept at that level for over a year. Although CPI inflation in Iceland printed at a four-year low of 4.2% in February (versus 10.2% in February 2023) and despite a half-percentage point deceleration of core CPI to 4.35% last month, the central bank’s statement after today’s rate decision strikes a note of caution:
Although inflation has eased and inflation expectations have fallen in the recent term, inflation pressures remain, which calls for a continued tight monetary stance and caution regarding decisions going forward. This is compounded by significant global economic uncertainty.
At Bank Indonesia, officials agreed to leave their refinancing rate unchanged at 5.75%. Two previous 25-basis point cuts had been undertaken in September and January, and before that the rate has crested at 6.25% for five months. Indonesian consumer price inflation unexpectedly dipped into negative territory, printing at -0.1% last month. That’s below officials’ 1.5-3.5% target range for CPI, but they are approaching policy with a keen eye on the highly volatile and uncertain global situation unleashed by the shift in U.S. policies regarding trade and security matters.
The decision of the Central Bank of Brazil is not due later today but not until well after the Fed’s action and Powell’s conference.
Revised Euroland consumer price inflation figures for February were revised a bit downward. The 12-month pace was 2.3% in February, not 2.4% as reported initially, and that constitutes a 3-month low. Last September’s 1.7% trough was the lowest since April 2021. Core inflation last month of 2.6% was at a 37-month low.
The four-quarter rate of increase in hourly labor costs in the euro area slowed more sharply than expected to a 9-quarter low of 3.7% in the final quarter of 2024 from 4.5% in the third quarter and 5.2% in last year’s first quarter.
Japanese economic data reported today included
- A 2.2% year-on-year rise in industrial production in January following a 1.5% on-year drop in the final quarter of 2024.
- Leaps of 4.5% on month (most since December 2023) and 4.3% on year in capacity utilization during January.
- A disappointing 3.5% monthly slide in core machinery orders during January.
- A seasonally trade surplus in February of JPY 182 billion. The seasonally unadjusted balance swung from a JPY 415 billion deficit in February 2024 to a surplus of JPY 585 billion last month, reflecting an 11.4% jump in exports but a 0.7% downtick in imports.
Consumer price inflation in South Africa, which fell to a 52-month low of 2.8% last October, matched January’s 3.2% last month. South Africa also reported today that retail sales in January increased 1.2% on month and by 7.0% from January 2024.
Portuguese producer price inflation fell to a 10-month low last month of -0.4%, far from the 22.4% peak touched in mid-2022.
New Zealand’s current account deficit last year of NZD 26.4 billion was little changed from the gap in 2023 and equivalent to 6.4% of GDP.
After very sharp surges in U.S. mortgage applications of 20.4% in the final week of February and 11.2% in the first week of March, such fell back 6.2% last week. The 30-year fixed mortgage rate only backed up five basis points in the latest week and was still 37 basis points below the 7.09% level in the first full week of January.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank Indonesia, Bank of Japan, Central Bank of Iceland, Euroland CPI and hourly labor costs
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