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Rates Markets Ripe for Shake Up as Five Asia Central Banks Meet
Rate cuts expected in New Zealand, India and Philippines.
This week looms as a key one for Asian financial markets with no less than five central banks set to hand down decisions that may set the tone for the rest of the year.
Markets are predicting policy makers in India, the Philippines and New Zealand will all cut interest rates to shore up faltering growth, while those in Australia will pause after back-to-back moves, and Thailand looks set to avoid lowering borrowing costs at all.
The Reserve Bank of Australia is first up on Tuesday, with markets expecting it to stay on hold after cutting rates in June and July to a record 1%. The next reduction is currently priced for December, with a further one expected in mid-2020.
There’s a growing perception the RBA may be unwilling to lower its benchmark below 0.5%, suggesting there is a possible floor for rates just a few basis points below next year’s pricing. This would appear to create an asymmetric risk, i.e., there’s a much more room for rates to rise than fall.
The Reserve Bank of New Zealand announces policy Wednesday. Markets are fully pricing in a 25 basis-point cut from the current 1.5%, a follow up to a similar move in May. Swap markets suggest the central bank will cut again later this year, and possibly once more by April.
A lot is priced in, but RBNZ has said it may allow interest rates to fall as low as minus 35 basis points, according to a Treasury paper prepared earlier this year looking at options for unconventional monetary policy. That means there’s plenty of room for rates to go lower.
The Reserve Bank of India also announces Wednesday, and markets are broadly pricing in a rate cut this week and another in the next six months. The central bank lowered its repurchase rate to a nine-year low of 5.75% in June and paved the way for more easing. Significant rate cuts would do a lot of good for the country, Finance Minister Nirmala Sitharaman said last week.
More easing is coming and that should be bullish for Indian swap rates, especially as there’s plenty of room to keep cutting if inflation stays in check. Data released earlier this month showed consumer prices rose 3.13% in June from a year earlier, below RBI’s target of 4%.
Some economists are predicting a rate cut when the Bank of Thailand meets Wednesday but the market isn’t pricing one in. The central bank has preferred to use verbal intervention and reducing bond supply to guide the local currency rather than adjusting interest rates. The stronger dollar has taken some pressure off the baht (and the central bank) and may help push up short-dated rates as well.
The forward curve has shifted lower since the end of May with three-month money-market rates fixing about 30 basis points below the central bank’s benchmark. This would typically signal lower rates, but in this case appears to reflect a stronger baht, and the flat-term structure argues against any change in central bank rates.
The diverging outlooks for the five central banks announcing policy this week throws up a number of potential trades. Signs of stability in Australia and a possible floor under rates provides some room for Aussie short-end rates to rise, particularly against those of New Zealand where there is plenty of scope to ease.
Turning to Southeast Asia, Thai swap rates may be set to underperform as the baht has room to soften, while rates in the Philippines and India have scope to reset even lower. In the world of cross-market positions though, it’s important to remember everything is relative.
Below are key Asian economic data and events due this week:
*Monday, Aug. 5: China Caixin composite PMI;
expect MUCH PAIN HERE
Indonesia GDP; Taiwan foreign reserves
*Tuesday, August 6: Reserve Bank of Australia policy decision; New Zealand jobs; CPI release from Philippines, Taiwan; South Korea current account balance
*Wednesday, Aug. 7: Reserve Bank of India policy decision; Reserve Bank of New Zealand policy decision; Bank of Thailand rate decision; Taiwan trade balance
*Thursday, Aug. 8: Philippine central bank rate decision; China trade balance (and PAIN here too)
*Friday, Aug. 9: Japan GDP; China CPI, PPI (good ruck here as well)
https://www.bloomberg.com/news/articles/2019-08-04/rates-markets-ripe-for-shake-up-as-five-asia-central-banks-meet
>Wow. WTF happened to Fox News
playing the game for a long time and were never in POTUS's corner at all. Ratings is all it's ever been about. They just the less sucky of them all. Still suck
there is no going to next. this place goes down you worry about your provisions. 'dis it fren