The Bank of Russia unexpectedly maintained its key interest rate at a record-high 21% , defying analysts’ expectations of another significant hike as inflation remains stubbornly elevated. The decision marks a shift toward a more measured approach in balancing economic growth and price stability. Key Details Inflation Concerns: Annual inflation climbed to 8.9% in November, well above the central bank’s 4% target , with inflation expectations reaching 13.9% in December. Policy Rationale: The central bank cited the significant tightening of monetary conditions after October’s 200-basis point hike as sufficient to resume disinflationary processes. Governor Elvira Nabiullina emphasized avoiding both economic overheating and severe slowdowns. Economic Overheating: Elevated government spending on the war in Ukraine and social programs, coupled with labor shortages and rising wages, have fueled strong domestic demand, exacerbating price pressures...
Emerging Asian currencies and stocks saw gains on Wednesday as investors anticipated the US Federal Reserve’s policy decision later in the day. Meanwhile, the yen experienced volatility following the Bank of Japan’s (BOJ) rate hike.
Key Points:
Currency Movements:
- The South Korean won and the Thai baht led currency gains, rising by 0.6% and 0.5% respectively.
- Other Asian currencies like the Singaporean dollar, Philippine peso, and Malaysian ringgit traded flat to 0.3% higher.
US Federal Reserve Decision:
- Investors are keenly awaiting the Fed’s decision, with markets largely expecting the central bank to maintain current interest rates.
- There is significant attention on any commentary regarding a potential rate cut in September.
Bank of Japan’s Rate Hike:
- The BOJ raised its short-term interest rate target to 0.25% and outlined a plan for quantitative tightening.
- This decision caused the yen to fluctuate, initially pushing it to its highest in a week before it pared gains.
Market Reactions:
- “The elephant in the room is JPY (the Japanese yen), which has been highly volatile,” noted Duncan Wrigley, chief China+ economist at Pantheon Macroeconomics.
- Analysts suggest the Fed's potential rate cuts could pave the way for Asian central banks to ease their policy stances.
Equity Markets:
- Most emerging Asian equity markets saw gains. Chinese stocks surged by about 1.9%, driven by investor optimism from a Politburo meeting emphasizing the need to boost consumption.
- Bourses in Thailand, Philippines, Malaysia, and Indonesia traded higher, with gains ranging between 0.1% and 0.8%.
Expectations and Outlook:
- Jonathan Koh, an economist at Standard Chartered, suggested that while some Asian central banks might follow the Fed in cutting rates, the overall interest rate differential may not significantly favor Asian currencies.
- Investors are also watching for inflation data from Indonesia and South Korea this week to assess the stance of their central banks.
Highlights:
- The Reserve Bank of India is expected to hold rates in August, with the first cut anticipated in Q4.
- The Philippines central bank projects July inflation to be between 4.0% and 4.8%.
- China's July factory activity shrank, while services grew at a slower pace.
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