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...
Asian markets mostly held their ground on Monday, supported by China's latest stimulus measures, but Japan's Nikkei took a sharp dive, driven by concerns that the country’s new prime minister might favor normalizing interest rates.
The Nikkei fell 4.0%, as investors were uncertain about Prime Minister Shigeru Ishiba’s stance on the Bank of Japan’s (BOJ) monetary policy, despite his weekend comments suggesting that monetary policy "must remain accommodative" due to the current state of the economy. The uncertainty led to a brief recovery in the yen, with the dollar bouncing 0.5% to ¥142.85 after falling from ¥146.49 on Friday.
Meanwhile, China's central bank announced plans to lower mortgage rates on existing home loans by 50 basis points on average by the end of October. This comes as part of Beijing's largest stimulus package since the pandemic, aimed at tackling deflation risks and reviving the economy. Christian Keller, head of economic research at Barclays, noted that this indicates the Chinese government is becoming more serious about addressing the economic downturn.
On Wall Street, markets continued their strong performance after a favorable core US inflation reading on Friday, with futures indicating a 53% chance of a 50-basis-point rate cut by the Federal Reserve in November. S&P 500 futures rose 0.1%, and Nasdaq futures added 0.2%, signaling continued optimism as the S&P 500 is up 20% year-to-date, on track for its strongest January-September performance since 1997.
In commodities, gold reached record highs at $2,685 an ounce, buoyed by a weaker dollar and lower bond yields, while oil prices remained volatile due to concerns over increased supply from Saudi Arabia amid Middle East tensions.
Overall, while China's stimulus measures provided some stability across Asia, concerns over Japan's monetary policy and US rate cuts continue to drive market uncertainty.
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