Global Enthusiasm for Aggressive Interest-Rate Increases Waning at Central Banks

Conservative News DailyFebruary 5, 2023

(Bloomberg.) — A waning global enthusiasm to aggressive interest-rate rises may rule the dozen central-bank decisions that are due this week.

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In the wake of the Federal Reserve’s quarter-point move — and a market rally driven by investor euphoria that the inflation shock is finally fading — its peers are already well on the way to stopping as well.

This week’s highlights include the announcements by the Reserve Bank of Australia and the Reserve Bank of India on Tuesday. These will likely result in quarter-point increases in borrowing costs, which could be their last salvos.

Poland’s central bank has already halted rate increases and will probably ratify that view on Thursday, while its Romanian counterpart may decide to do the same.

Even in Latin America, where monetary officials stood out in the past couple of years for their early hawkish reaction to surging prices, rate-hiking cycles are running out of steam, not least because of how far they’ve already advanced.

Mexico’s central bank, while still determined to act against inflation, may deliver only a quarter-point increase — its smallest move since 2021.

Despite the changing environment, some monetary officials still maintain a hawkish attitude. The European Central Bank hiked 50 basis points on Thursday, and has promised the same in March.

Icelandic policy makers may also increase by the same amount on Wednesday, possibly echoed by Sweden’s Riksbank on Thursday.

However, investors have observed that global hiking fever has waned. And with Russia’s central bank meeting on Friday possibly shifting the focus to monetary easing, financial markets are inevitably starting to wonder when the others will follow suit.

Investors will finally be able to see the delayed release of German inflation data for January. The Bank of Canada will also publish minutes.

Click here for what happened last week and below is our wrap of what’s coming up in the global economy.

Canada and the United States

There’s not much on the US calendar, though still plenty for investors to digest after a week in which Fed Chair Jerome Powell didn’t push back against a market rally and then the monthly payrolls report appeared to show a huge increase in hiring.

The number of jobless claims for Thursday could indicate another tight labor market. Friday’s University of Michigan report will also update inflation expectations. There are about a dozen central bankers scheduled to speak, including John Williams (New York Fed President), Raphael Bostic (Atlant Fed President), Neel Kazhkari (Minnesota Fed President) and Powell.

In Canada, Governor Tiff Macklem will deliver his first speech since raising borrowing costs for an eighth-straight — and potentially final — time. His Tuesday remarks will likely focus on the Bank of Canada’s interpretation of the trailing effects of 425 base points of hikes since March.

The next day, the Ottawa-based central bank will offer the public a glimpse of its discussions before the Jan. 25 decision that saw officials signal their intent to move to the sidelines after raising the benchmark rate to 4.5% — the highest in 15 years.

The Bank of Canada, unlike the Federal Reserve, has never published minutes. In September, it announced that it would accept a recommendation from the International Monetary Fund and will begin publishing summaries of its discussions.

On Friday, Canada’s policy makers will get the first of three major indicators before their March rate decision. Economists expect January’s labor force survey to show the job market starting to loosen as output slows toward a potential stall.

Asia

China will be the main focus of the region, aside from rate decisions in Australia/India. Due Friday, factory-gate price data could show a fourth month in declines following drops in commodity cost.

CPI data for January showed an increase in prices in food, which likely led to a faster pace of inflation.

Those numbers may garner particular attention from global policy makers worried that China’s reopening from Covid lockdowns could fuel another inflation surge around the world.

Elsewhere, in Japan — where the central bank is unconvinced that price growth is high enough — labor cash earnings data will point to the strength of wages.

Europe, Middle East, Africa

In the wake of the ECB’s big rate-hike decision, comments by its officials will be closely monitored. Vice President Luis de Guindos, Isabel Schnabel (Executive Board member), and the governors of central banks from Spain, Italy, and Austria are among those who will speak.

The European Commission’s quarterly forecasts may also be a highlight. Having previously predicted a recession in the euro region, officials may lift their projections after a stronger-than-expected performance in the fourth quarter.

It’s a quieter week for euro-region data, with Germany the main focus. In particular, its inflation number — delayed from last week and unavailable to euro-zone statisticians — is due for release on Thursday, with economists predicting a re-acceleration.

Investors will also be focused on German factory orders and industrial production Monday morning.

Gross domestic product for December will be the key UK data this week. This will provide an indicator of whether or not there has been a recession. Bloomberg Economics believes it avoided this outcome.

Elsewhere in Europe, Hungary — with the dubious claim of suffering the European Union’s highest inflation — will probably report a further acceleration in price growth on Friday.

All central banks from Sweden, Iceland and Poland are due to meet. Officials from Serbia will also make a rate determination.

Russia’s slowing inflation puts pressure on the central banking to reduce rates and the Finance Ministry to spend more. Both are concerned about price growth. The central bank meets this Friday.

The Bank of Uganda will likely not be surprised by an increase in inflation and keep rates the same for Monday’s second meeting. It will be able to evaluate whether the price rise is temporary or permanent, since it allowed 350 basis points to increase the rates last year.

As the effects of the recent currency devaluation filter through, Egyptian inflation is expected to accelerate on Thursday.

Latin America

Brazil’s central bank on Monday posts its survey of expectations, followed on Tuesday by the minutes of its meeting on Wednesday where policy makers kept the key rate at 13.75%.

Rising inflation expectations and the bank’s hawkish tone have analysts looking for a delayed start to what they expect to be only minimal easing this year.

Mexico’s central banks are likely to increase their key rate by 10.5% following a record-breaking hike cycle that has seen minimal inflation since the third quarter.

Peru will also set a new record in tightening. Since May, consumer prices have not risen above 8% and unrest in the country is increasing inflationary pressures.

The minutes of Banco Central de Chile’s Jan. 26 meeting will underscore policy makers’ resolve to keep the key rate at 11.25% until they’re certain that prices are really in retreat.

While Chile’s inflation may have dropped to 12.8% from 12.8%, analysts believe the results for Brazil and Mexico will remain near 5.7%, 7.8% and respectively.

More concerning, perhaps, is the elevated core readings bedeviling the region’s economies, offering the prospect of multi-year slogs to get consumer prices back to their targets.

–With the help of Robert Jameson and Andrea Dudik.

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