Central Bank Watch – Week Ahead Focus on Lagarde, Israel, New Zealand, Thailand and Korea Central Banks

In the week ahead four central banks are expected to hold, RBNZ, BoT, BoK and Israel. We also get no less than four speeches from ECB President Lagarde and one from Fed Chair Powell. Bankers were busy last week with Riksbank, Bank Indonesia, SARB, and Iceland sat pat as expected. Turkey’s central bank delivered a much larger hike pushing rates to 40%. Chinese banks left LPRs unchanged. Hungary as expected cut again. Data wise there is plenty for rate watchers, Core Eurozone inflation, US core PCE,
China’s PMIs and Australian, Indonesia and Peru CPIs.

The Treasury market continues to respond to hot geopolitical risk, hotter inflation, greater supply and credit risk. Curve shapes are being bent as the US economy continues to grow much faster than the non-inflationary speed limit and is outpacing many other major industrialized economies.

Central Bank Weekly Analysis and Outlook – Banker dynamics are complex. There are myriad facets to analyze and contemplate.

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.

In the Week Ahead

In the week ahead we have

  • Bank of Israel (Monday): An expected hold at 4.75% is widely expected to be extended given unwillingness to add to pressures on the shekel in light of the ongoing war.
  • RBNZ (Tuesday): New Zealand’s central bank is expected to hold its official cash rate at 5.5% for a fourth straight meeting on Wednesday night (ET). Still high Q3 inflation readings will keep it warning about a prolonged restrictive stance.
  • Bank of Thailand (Wednesday): The BoT is widely expected to hold its benchmark rate at 2.5% after a surprise hike at its prior meeting. Inflation is slowing and Q3 GDP growth disappointed.
  • Bank of Korea (Thursday): One of the earliest hiking central banks is widely expected to extend its policy rate hold that has been ongoing since January and deliver guidance toward further extending this bias into the new year.

Previews come from Scotiabank and other sources.

Central Bank Highlights This Past Week:

This week’s central bank main events included:

  • China (Monday): After the PBOC recently held its Medium-Term Lending Facility rate, China’s banks are expected to leave the 1-year and 5-year Loan Prime Rates unchanged at 3.45% and 4.2% respectively.
  • RBA minutes (Monday): Recall that the RBA hiked by 25bps on November 7th. The minutes are likely to offer further explanation of the reasoning. They may be somewhat stale, however, given the strong rise in wages during Q3 and the 55k increase in employment that occurred since that meeting.
  • Hungary (Tuesday) The National Bank of Hungary will cut its main interest rate by 75 basis points to 11.5% on Tuesday, according to 18 of 20 economists in a Bloomberg survey. That would be the same-sized reduction as last month. The decision will be announced at 2 p.m. in Budapest, followed by a statement and likely briefing an hour later.
  • Prime Minister Viktor Orban’s government has been pressuring the central bank for a quicker reduction in interest rates, citing better-than-expected inflation data and anemic economic growth following a prolonged recession. But rate-setters, who had a brush with a currency crisis a year ago, prefer to play it safe.
  • “The current environment supports the continuation of rate cuts at an unchanged pace of 75 basis points in November,” Deputy Governor Barnabas Virag said told a conference last week in unusually explicit terms. If inflation continues to slow and global risk factors allow, the central bank intends to continue monetary loosening at this pace in the months ahead, he added.
  • The forint has gained 2.8% against the euro so far this quarter, with only the Russian ruble and Polish zloty outperforming it among a basket of 23 emerging-market currencies. The yield on the 10-year government forint bond fell to 6.9% on Monday, down from more than 9% at the start of the year.
  • FOMC Minutes (Tuesday): A recap of what happened at the October 31st – November 1st meeting. The minutes may be stale after the market reaction to the recent CPI reading. The FOMC is likely keeping their powder dry to come back with a more substantive update on December 13th when they deliver their next decision along with a full forecast update including a fresh ‘dot plot’.
  • Bank Indonesia (Thursday): A minority thinks that BI could hike its 7-day reverse repo rate 25bps to 6.25% in a continuation of the bias that sparked a surprise hike on October 19th. Inflation recently jumped to 2.6% y/y in October from 2.3% previously but with core inflation dipping to 1.9% y/y.
  • Riksbank (Thursday): Consensus is split with just under half expecting a hold at 4% and just over half expecting a 25bps hike and there is also uncertainty over whether balance sheet plans will be adjusted to accelerate to pace of unwinding.
  • SARB (Thursday): No policy rate change is expected on Thursday with the rate expected to remain at 8 ¼%.
  • Turkey (Thursday): Another big rate hike is expected. By how much is anyone’s guess for an exceptionally volatile central bank dealing with a protracted currency crisis. The one-week repo rate presently stands at 35%.

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.

Most of the G10 central banks may complete their rate hike cycles around the middle of the year or earlier, the unwinding of central bank balance sheets may continue longer, depending on the damage done.

Eyes on the Bond Market

US Bond Watch

U.S. Treasuries closed the shortened week broadly lower. Treasuries followed Thanksgiving with a lower start that returned the 30-yr yield to little changed for the week while yields on shorter tenors were pushed above their closing levels from last week. The 2-yr note showed a five-basis point increase in yield for the week while the 10-yr yield rose three basis points since last Friday, pressuring the 2s10s spread to -48 bps from -46 bps at last week’s settlement.

Crude oil faced more selling pressure, giving back this week’s gain, while the U.S. Dollar Index fell 0.4% to 103.36, slipping back below its 200-day moving average (103.61). The Index lost 0.4% this week.

Yield Watch

Friday/Week

  • 2-yr: +5 bps to 4.95% (+5 bps for the week)
  • 3-yr: +4 bps to 4.67% (+3 bps for the week)
  • 5-yr: +5 bps to 4.49% (+3 bps for the week)
  • 10-yr: +5 bps to 4.47% (+3 bps for the week)
  • 30-yr: +5 bps to 4.60% (UNCH for the week)

Highlights – Federal Reserve

  • Federal Reserve Credit declined $43.8bn last week to $7.776 TN.
  • Fed Credit was down $1.125 TN from the June 22nd, 2022, peak.
  • Over the past 219 weeks, Fed Credit expanded $4.049 TN, or 109%.
  • Fed Credit inflated $4.965 TN, or 177%, over the past 576 weeks.
  • Fed holdings for foreign owners of Treasury, Agency Debt dropped $22.9bn last week to an almost five-month low of $3.408 TN.
  • “Custody holdings” were up $97.3bn, or 2.9%, y-o-y.

Fed 2023 Bank Stress Tests.

Busy Central Bank Week Ahead:


This Week’s Interest Rate Announcements (Time E.T.)

Monday, November 27, 2023

  • 09:00 Israel Interest Rate Decision

Tuesday, November 28, 2023

  • 20:00 RBNZ Interest Rate Decision

Wednesday, November 29, 2023

  • 02:00 Thailand Interest Rate Decision
  • 20:00 Bank of Korea Interest Rate Decision

Thursday, November 30, 2023

  • 02:30 Indonesia Interest Rate Decision
  • 06:00 Turkey Interest Rate Decision
  • 08:00 South Africa Interest Rate Decision

Friday, November 24, 2023

  • None Seen

This Week’s Central Bank Speeches, Meetings (Time E.T.)

Monday, November 27, 2023

  • 09:00 Israel Interest Rate Decision
  • 09:00 ECB President Lagarde Speaks
  • 22:20 MPC Member Ramsden Speaks
  • 22:20 RBA Gov Bullock Speaks

Tuesday, November 28, 2023

  • 03:00 German Buba President Nagel Speaks
  • 07:30 ECB McCaul Speaks
  • 10:00 Fed Goolsbee Speaks
  • 10:05 Fed Waller Speaks
  • 10:45 FOMC Member Bowman Speaks
  • 11:00 ECB President Lagarde Speaks
  • 12:00 MPC Member Haskel Speaks
  • 13:05 Fed Vice Chair for Supervision Barr Speaks
  • 13:30 ECB’s Lane Speaks
  • 15:30 Fed Vice Chair for Supervision Barr Speaks
  • 20:00 RBNZ Interest Rate Decision
  • 20:30 BoJ Board Member Adachi Speaks
  • 21:00 RBNZ Press Conference

Wednesday, November 29, 2023

  • 02:00 Thailand Interest Rate Decision
  • 10:05 BoE Gov Bailey Speaks
  • 13:45 FOMC Member Mester Speaks
  • 14:00 Beige Book
  • 20:00 Bank of Korea Interest Rate Decision
  • 20:30 BoJ Board Member Nakamura Speaks

Thursday, November 30, 2023

  • 06:00 CBRT Monetary Policy Meeting Minutes
  • 06:30 RBI Monetary and Credit Information Review
  • 08:30 ECB President Lagarde Speaks
  • 09:05 FOMC Member Williams Speaks
  • 09:15 ECB McCaul Speaks
  • 10:45 ECB’s Supervisory Board Member Jochnick Speaks
  • 12:00 German Buba President Nagel Speaks
  • 12:30 German Buba Balz Speaks
  • 15:30 Fed’s Balance Sheet
  • 15:30 Reserve Balances with Federal Reserve Banks

Friday, December 1, 2023

  • 03:00 Fed Vice Chair for Supervision Barr Speaks
  • 06:30 ECB President Lagarde Speaks
  • 06:30 ECB’s Enria Speaks
  • 10:00 Fed Goolsbee Speaks
  • 11:00 Fed Chair Powell Speaks
  • 11:30 Atlanta Fed GDPNow (Q4)

Federal Reserve FOMC Schedule 2023


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.


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Sources: TC WSJ Bloomberg Scotia Bank

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