The highlight this week came from the Bank of Japan. The BoJ shocked markets adjusting the central bank’s yield curve control program which saw yields rise sharply and a similar move in the yen. Dollar Yen went from 137.20 to 133.20 on the announcement. 10-year JGB yields surged to 0.455%, the highest since 2015 leading to a limit down halt on the Osaka Exchange. The Central Bank of Turkey left its key one-week repo rate unchanged at 9% in its December meeting on Thursday, as expected. Bank Indonesia increased interest rates by 25 bps during the last meeting of 2022, a fifth consecutive hike.
Central bank monetary policy decisions and market activity interest rate decisions can have a dominant effect on financial markets, fiscal policy and geopolitics. We keep an eye on key banker developments, what they mean and what is ahead.
Central Bank Weekly Analysis and Outlook – Banker dynamics are complex. There are myriad facets to analyze and contemplate.
To say central bankers, have issues is an understatement. Already grappling with the quickest inflation in decades they now have these decisions to make, forcefully raise borrowing costs to defend currencies and risk hurting growth, spend reserves that took years to build to intervene in foreign exchange markets, or simply stand aside and let the market play out.
Weekly Recap and Outlook
A quiet week heading into Christmas other than the BoJ action. The Bank of Japan as widely expected kept unchanged its -0.1% target for short-term interest rates, and 0% for the 10-year government bond yield. However, the market was shocked with Bank of Japan Gov. Haruhiko Kuroda adjusting the central bank’s yield curve control program which saw yields rise sharply and a similar move in the yen. Dollar Yen went from 137.20 to 133.20 on the announcement. 10-year JGB yields surged to 0.455%, the highest since 2015 leading to a limit down halt on the Osaka Exchange.
Elsewhere in Asia, Bank Indonesia increased interest rates by 25 bps during the last meeting of 2022, a fifth consecutive hike, on Thursday as it sought to tame inflation and strengthen the rupiah exchange rate. The benchmark 7-day reverse repurchase rate now stands at 5.5%, the deposit facility at 4.75% and the lending facility at 6.25%, their highest level since 2009 and in line with market forecasts. So far in 2022, the central bank has lifted rates by 200bps.
The Central Bank of Turkey left its key one-week repo rate unchanged at 9% in its December meeting on Thursday, as expected, saying the current policy rate is adequate. The bank had cut key interest rates in November for the fourth consecutive month. There is concerted pressure from President Recep Tayyip Erdogan wanting rates cut to stimulate the economy but the collapsed Lira and soaring inflation perhaps enabled reason to take hold. The TCMB had signaled it will end the rate-cutting cycle.
Highlights – Federal Reserve
- Federal Reserve Credit declined $16.4bn last week at $8.531 TN.
- Fed Credit was down $370bn from the June 22nd peak.
- Over the past 171 weeks, Fed Credit expanded $4.820 TN, or 129%.
- Fed Credit inflated $5.720 Trillion, or 203%, over the past 528 weeks.
- Fed holdings for foreign owners of Treasury, Agency Debt were little changed last week at $3.309 TN.
- “Custody holdings” were down $116bn, or 3.4%, y-o-y.
Central Bank Highlights This Past Week:
Central Bank Week Ahead:
The most notable event are the Bank of Japan Governor Kuroda’s speech Sunday night and the central bank’s “Summary of Opinions” for insights on the central bank’s outlook after it unexpectedly increased its yield curve control threshold last Tuesday. The Argentina central bank has an Interest Rate Decision at the end of the week, the benchmark interest rate in Argentina was last recorded at 75 percent
This Week’s Interest Rate Announcements (Time E.T.)
- 20:30 Argentina Interest Rate Decision Friday, Dec. 30
Monday, Dec. 26
- Nothing Seen
Tuesday, Dec. 27
- 10:30 Dallas Fed Manufacturing Index
- 06:50 BoJ Summary of Opinions
Wednesday, Dec. 28
- Nothing Seen
Thursday, Dec. 29
- Nothing Seen
Friday, Dec. 30
- 20:30 Argentina Interest Rate Decision, the benchmark interest rate in Argentina was last recorded at 75 percent
The Fed with a Strong US Dollar
The strong dollar is likely to negatively affect the US economic outlook and could alter the Federal Reserve terminal interest rate, economists surveyed by Bloomberg said. Just 28% saw the currency strength as unlikely to have any impact.
The survey of 40 economists was conducted Oct. 21-26.
- 44% said they believed the Fed could fully complete its aggressive rate tightening despite possible stresses.
- 38% said the policy makers would be forced to cut rates earlier than expected and
- 18% said the Fed would not be able to raise rates as much as planned.
- Survey respondents expect rates to peak at 5% early next year and a majority of the economists now expect a US and global recession.
The Fed as expected raised another 50 basis-points last meeting. The median estimate for the terminal rate in 2023 had been raised to 5.10% versus the September projection of 4.60%. The value of the dollar is an important component to lowering inflation. A stronger dollar tends to dampen inflation by reducing the costs of imports and lowering domestic production as it raises export prices.
“Usually the trade deficit would balloon when the dollar appreciated as much as we had seen since last year. But that effect has been curiously absent so far, even as we are already about five quarters into the appreciation process. One possible explanation is that US is increasing its exports in energy products. The fact that this tightening channel of dollar is absent means that the dollar appreciation is less contractionary to the economy than historically.”Anna Wong (Bloomberg chief US economist)
Latest Key Central Bank Decisions, Reports Archive
- Turkey Central Bank Cuts Left Interest Rates Unchanged at 9%, Bond Yield Hits Six Year Low
- Bank Indonesia Raised Rates by 25 basis points to Highest Level Since 2009
- Yen Soars After Bank of Japan Mini Pivot Widens Yield Curve Control Band
- Banco de México Raises Rates by 50 bps to Record High 10.50%, Hints at More Hikes
- ECB Raises Rates Another 50 bps as Expected, Forecasts Higher Inflation
- Bank of England Raises Interest Rates 50bps to 3.5%, Projects Inflation Likely Peaked
- Taiwan Raised Interest Rate by 1.75 percent, Highest Since 2015
- Norway Raised Interest Rate by 25 bps to 2.75 percent, Highest Since 2009
- Swiss National Bank Raises Policy Rate by 50 bps to 1.00%, as expected
- Philippines Central Bank Raised Rates by 50 basis points to 5.50% with Inflation at 14 Year Highs
- Hong Kong’s Monetary Authority Raised Interest Rates in Lockstep with US Federal Reserve
- Federal Reserve Raises Rates 50bps as Expected, Hawkish Revisions to Unemployment and Inflation
- Bank of Canada Hikes Rates 50 bps to Highest Level Since 2008
- Reserve Bank of India Hike Rates Fifth Time in a Row to 6.25%
- RBA Raises Rates to Ten Year High 3.10%, says Inflation in Australia Too High
- Federal Reserve Beige Book Highlights Higher Interest Rates Further Dented Home Sales
- NY Fed Williams Expects US Jobless Rate to Rise from 3.7% to 4.5-5.0%
- Turkey Central Bank Cuts Interest Rates Another 150bp Ending Easing Cycle
- Sweden’s Riksbank Raise Rates by 75 bps to the Highest Level Since December 2008
- South Africa Raises Interest Rates 75bps to Tame Inflation
- Bank of Korea Raises Rates To 3.25%, Highest level Since June 2012
- Reserve Bank of New Zealand Raise Rates by 75bp to 4.25% to Highest Since January 2009
- Appreciation of Swiss Franc Guards Against Inflation says SNBs Jordan
- Fed Vice Chair Brainard says Slower Pace of Rate Increases Probably Soon
- Bank of England Raises Interest Rates 75bps to 3% in Biggest Rise in 30 Years
- Norway Raised Interest Rate by 25bps, Norwegian Crown Fell Against Euro
- Markets Reverse Sharply on Feds Powell Statements, What Does it all Mean?
- Federal Reserve Again Raises Rates 75bps as Expected, Hints at Possibly Smaller Hikes
- Japan Spent ¥6.35 trillion in October on Intervention to Support the Yen
- ECB Raises Rates Another 75 bps as Expected TLTRO Terms and Conditions Recalibrated
- Bank Indonesia Raised Rates by Another 50 basis points to 4.75% to Tame Inflation
- Federal Reserve Beige Book Highlights Employment Strength as Price Increases Generally Moderate
- RBA says Financial Stability Risks Have Increased Globally
- Banco de México Raised Rates for 11th Straight Time to Record 9.25%
- Cable Pounded Again After Indecisive Bank of England Statement
- Japan Intervened to Support Yen for First Time Since 1998 After BOJ Decision
- Swiss National Bank Raises Policy Rate by 75 bps to 0.50%, Swiss Franc Falls sharply
- Philippines Central Bank Raised Rates by 50 basis points to 4.25%, Moves to Support Peso
- Bank of Japan Monetary Policy Unchanged Sending Yen to a Fresh 24-Year Low
- Brazil Central Bank Pauses Rates at 13.75%, after Inflation Eased Below 10%
- Federal Reserve Gives All Banks a Pass in Annual Bank Stress Test
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From The TradersCommunity Research Desk