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...
The People's Bank of China (PBOC) has ramped up its net purchases of sovereign bonds, acquiring a total of 200 billion yuan ($28.5 billion) from dealers in September. This figure surpasses the amount of bonds bought in the previous month and highlights the central bank's commitment to maintaining adequate liquidity in the banking system and reinforcing counter-cyclical monetary policy adjustments.
While the PBOC did not specify the tenors of the bonds purchased or the timing of these operations, it has indicated a shift in strategy. Last month, the central bank bought short-tenor government bonds while selling longer-tenor notes, a move aimed at managing liquidity and stabilizing the financial environment.
Recent market conditions have been tumultuous, marked by a flurry of stimulus announcements and reports of special sovereign bond issuance, which temporarily halted the bond-buying frenzy. The yield on the benchmark bond surged to 2.26%, the highest level since mid-July, before easing off ahead of China's upcoming week-long holiday.
Concerns over a sluggish economy had previously driven the benchmark 10-year yield below 2% for the first time on record, prompting traders to remain vigilant regarding potential central bank interventions. This caution is heightened by the PBOC's awareness of how fluctuations in US Treasuries can impact the market, particularly following the collapse of Silicon Valley Bank earlier this year.
PBOC Governor Pan Gongsheng has emphasized that the central bank will continue to address "problematic acts" within the bond market. He has outlined a series of stimulus measures, including reductions in key interest rates, in an effort to achieve China's 5% growth target for the year.
The PBOC is adopting a more proactive approach to manage the bond market dynamics, transitioning from initial verbal warnings to direct actions. In July, the central bank revealed it had "hundreds of billions" of yuan of securities available through agreements with lenders, signaling its readiness to intervene as necessary.
As the PBOC continues to navigate the complexities of the bond market, its recent actions underline a strategic focus on ensuring stability and liquidity amid a challenging economic landscape.
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