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The Reserve Bank of Australia (RBA)’s board members “saw the case for a slower pace of increase in interest rates as becoming stronger,” according to minutes from its Sept. 6 meeting, where it raised its interest rate by 50 basis points to 2.25%.

“The Board expects to increase interest rates further over the months ahead, but it is not on a pre-set path given the uncertainties surrounding the outlook for inflation and growth,” it said in the minutes released Tuesday. It added medium-term inflation expectations remained “well anchored.”

Future interest rate increases will be guided by data and the outlook for inflation and labor markets, the RBA said.  

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Some ECB Officials Backed Smaller Interest-Rate Hike in July. Account of meeting shows unanimous accord on bond tool. Money markets are betting on 100 bps of tightening by October.

The summary, released Thursday  two weeks before policy makers next gather in Frankfurt to set borrowing costs  said, however, that there was unanimous agreement on a new tool to stave off market jitters as borrowing costs rise.  

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Australia’s central bank lifted its inflation and wage growth forecasts while predicting unemployment will remain under 4% through mid-2024, underscoring the need for even tighter monetary policy.

Headline inflation is seen hitting 7.75% by December, the Reserve Bank said Friday in its quarterly Statement on Monetary Policy. Both the headline and core measures are predicted to remain well above the RBA’s 2-3% target over the next year before hitting the top of its band at the end of the forecast period in December 2024. 

 

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The Bank of England will consider a half-point interest rate hike at its August, quickening the pace in its fight against inflation, Governor Andrew Bailey said.

In his annual Mansion House speech in London this evening, Bailey will also say the BOE may reduce its government bond holdings amassed during quantative easing by between £50 billion and £100 billion in the first year of active sales. It could vote on sales as early as September.

The remarks put detail on Bailey’s pledge to act forcefully if necessary to bring inflation under control. Prices are set to rise over 11% this year, more than five times the BOE’s target, and Bailey said meeting that goal is his primary objective.

‘This means that a 50 basis-point increase will be among the choices on the table when we next meet,” Bailey will say, according to a text of the speech released Tuesday. “50 basis points is not locked in, and anyone who predicts that is doing so based on their own view.”

The BOE built up as much as £875 billion of assets during its quantitative easing stimulus program over the past decade. Some of that portfolio has rolled off the balance sheet as assets matured.

The comments may well be the last from a BOE policy maker before officials hold their August meeting. Investors are all but certain the bank will opt for its first 50 basis-point hike since gaining independence in 1997.

Officials already have increased their benchmark at five straight meetings. That’s taken it to 1.25%, from 0.1% in December. In June they signaled their willingness to act more forcefully if needed.

The Aug. 4 decision will include the publication of the BOE’s plans for balance sheet reduction, known as quantitative tightening. That will ensure a sales plan can begin after a “confirmatory vote” that could be as early as September, Bailey will say.

Analysis carried out with the Debt Management Office suggest the BOE “are currently looking at a total reduction in the stock of gilts held by the APF, which covers both sales and gilt redemptions, of something in the region of £50‐100 billion in the first year,” the speech said. “Market Intelligence suggests that’s broadly in line with what market participants are expecting.” 

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Two senior Bank of England officials signaled they’re prepared to hike interest rates at quicker pace if needed to prevent inflation from becoming embedded, adding to evidence that a half-point move is on the table as soon as next month.

Chief Economist Huw Pill said the BOE’s latest guidance showed a willingness to accelerate their hiking cycle if necessary. That came hours after Deputy Governor Jon Cunliffe said the BOE “will do whatever is necessary’ to prevent inflation from persisting, promising officials “will act and we will act forcefully.”

The remarks are among the clearest signal yet that BOE insiders such as Pill and Cunliffe, who have previous expressed doubts over lifting rates in a 50-basis-point step, may consider such a move in August. The BOE has hiked rates at five straight meetings, so far moving in smaller increments than some of its international peers.
The BOE’s vow in June to “act forcefully” to persistence in inflation “reflects both my willingness to adopt a faster pace of tightening than implemented thus far in this tightening cycle, while simultaneously emphasizing the conditionality of any such change in pace on the flow of new data and analysis,” Pill said in a speech in London.

“Much remains to be resolved before we vote on our August policy decision. How I vote on that occasion will be determined by the data that we see and my interpretation of it,” he added.

He also left the door open toward a smaller move, noting that the BOE has “finely balanced” decisions in August and beyond and that there’s a case for operating policy with a “steady hand.” Bold moves,” he said, can disrupt markets.
Pill also said the BOE’s updated guidance was designed to give greater flexibility to its communication, and reflected both the uncertainties the BOE face and the likelihood that future decisions may become more finely balanced as officials weigh the competing forces of faster inflation and lower growth.

He acknowledged that the BOE’s previous guidance wrong-footed investors about when policy makers would start their tightening cycle last year. Then, a series of officials reiterated that tightening was needed.

For now, he said inflation expectations remain “anchored,” but that the BOE are watching them closely for the risk price pressures become embedded. Consumer-facing firms, he said, probably have little pricing power, but business suppliers may have more ability to raise the cost of their products, he said.

“I think we probably need to tighten further,” he said during a question-and-answer session after the speech, adding that the question is about what pace the BOE should move.

“There’s a general point that central banks have more leverage and more effective transmission of their policies if they’re acting in this steady handed and this sort of lower frequency way,” Pill said. “One off bold moves can be disturbing in terms of their impact on the financial markets. There is a case for this more steady handed approach.”
The bank has already increased rated to 1.25%, from 0.1% last year in an effort to contain price gains. Consumer prices are rising at the fastest pace in 40 years after a surge in energy costs, well above the BOE’s 2% target. Cunliffe emphasized the goal during an interview with BBC Radio 4’s “Today” program.

“It’s our job to make sure that as this inflationary shock passes through the economy, at a time when we have also have a tight labor market, we don’t find that a combination of a strong shock from abroad and energy prices combines with domestic factors and leaves us inflation being the new normal,” Cunliffe said in the radio interview. “People can have confidence that we will act to make sure that doesn’t happen.”  

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AUSTRALIA'S central bank chief said rate increases will be conducted in quarter or half point increments, according to Reserve Bank of Australia (RBA) governor Philip Lowe.

"We're on a narrow path back to lower inflation," Lowe said during a panel discussion in Zurich on Friday (Jun 24). "We can navigate that path, but there are risks - and the risks come both from the global economy and the uncertainty around households and how they are going to respond to higher interest rates."

Australia has swung from being an outlier in keeping rates low to now rapidly hiking as it tries to rein in escalating inflation. The central bank is expected to back up its half-point increase this month with another in July, having begun its tightening cycle in May.  

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The Reserve Bank of Australia will do what’s necessary to bring inflation down to its 2-3% target, Governor Philip Lowe said, in a hawkish message that helped send government bond yields soaring to a 10-year high.

Lowe, in an interview with ABC TV warned inflation could hit 7% by year’s end and is unlikely to slow until the first quarter of 2023. It’s “reasonable” to expect interest rates will rise to 2.5% from 0.85% now, he said, while expressing confidence households could manage higher debt repayments.


The Reserve Bank governor, Philip Lowe, has warned Australians to be prepared for higher interest rates, saying inflation will likely reach 7% by the end of the year and it must be brought under control.
In his first public appearance since the RBA raised the cash rate by a larger than expected 50 basis points at last week’s board meeting, Lowe said on Tuesday night he was predicting inflation to rise to 7%. That compares with current inflation of 5.1%.

“By the end of the year, I expect inflation to get to 7%,” Lowe said.
Lowe said the economy was in remarkable shape with the unemployment rate at a 50-year low, households having built up financial buffers of around $250bn and the number of people falling behind on their mortgage repayments actually declining.  

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RBA’s Hawkish Message Helps Send Australian Bond Yields Soaring. Governor Lowe says it’s reasonable to expect rates to hit 2.5%
Australian three-year yield rises to 3.65%, highest since 2012. 

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Analysts at RBC Capital Markets on Monday joined other brokerages in cutting their 2022 year-end S&P 500 target, trimming it by about 3.3% to 4,700 points, due to slowing economic growth.

HSBC and Credit Suisse cut their targets on the benchmark index in May following a market selloff over fears of a prolonged war in Ukraine and record high oil prices that are hurting global economic recovery from COVID-19.

“We are continuing to bake in a slower economic growth backdrop in 2022-2023, but not a recession,” RBC said in a note. The brokerage previously expected the S&P 500 to end 2022 at 4,860 points.


Uncertainty around the U.S. central bank’s policy move to check inflation which is running at more than three times its 2% goal, the Russia-Ukraine war, prolonged supply-chain snarls and higher Treasury yields have rocked global stock markets.

Several bank chiefs have recently sounded the alarm on fading consumer sentiment and demand due to record high inflation, with JPMorgan boss Jamie Dimon describing the challenges facing the U.S. economy akin to a “hurricane” down the road.

However, RBC analysts said small-cap companies were faring better on its sentiment and valuation model, with their earnings looking better than others.

“If it turns out that the U.S. avoids a recession and the U.S. equity market has bottomed, we’ll look back at SmallCap’s resilience in early 2022 as something telling us stocks had already priced-in the economic damage that was around the corner.”  

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Japan’s currency is the worst performer in G-10 this year. Increasingly hawkish Federal Reserve weighing on yen. The yen extended a twenty-year low against the dollar Tuesday, weighed down by the widening gap between yields in Japan and the US, stoking speculation over potential intervention. 

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The Bank of Canada indicated that persistent price pressures are making it more likely policymakers will need to raise borrowing costs to contractionary levels in order to keep inflation expectations anchored.

In a speech a day after the central bank raised its benchmark overnight rate by a half percentage point to 1.5%, Deputy Governor Paul Beaudry gave new guidance Thursday on how high borrowing costs could rise. The policy rate may now go to the top, or even above, what the Bank of Canada considers its “neutral range,” estimated at between 2% to 3%.

During their policy deliberations this week, Beaudry said officials discussed how price pressures continue to surprise on the upside and are broadening, with inflation poised to move even higher before easing.

“This raises the likelihood that we may need to raise the policy rate to the top end or above the neutral range to bring demand and supply into balance,” Beaudry said in prepared remarks of the speech provided to journalists. He was speaking in Gatineau, Quebec.
The comments will firm up market expectations the central bank may need to increase rates to levels that more actively slow economic growth in order to contain three-decade-high inflation.

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