23 September 2022
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A busy day for central banks

By Daniel Richards

Following on from the Federal Reserve on Wednesday, yesterday saw a raft of central banks making their policy rate decisions, with major DM and EM announcements. Yesterday’s meetings kicked off with the Bank of Japan, which once again stuck to its ultra-loose monetary policy even as the Fed had signaled higher for longer rates in the US when it hiked the night before. In its guidance, the BoJ stuck to the post-pandemic language, saying that it would ‘not hesitate to take additional easing measures if necessary’, while Governor Haruhiko Kuroda said later that there would be no imminent change in policy. The resultant sell-off in the yen led to government intervention in the FX markets for the first time in 24 years, with currency official Masato Kanda saying that the ‘government is concerned about excessive moves…’

In the UK, the BoE hiked rates by 50bps yesterday, taking the bank rate to a 14-year high of 2.25%. This was the second 50bps hike in a row but was a smaller move than the 75bps hikes implemented by the bank’s North American and European peers in recent weeks. Three members of the nine-strong MPC had voted for 75bps but the majority (five) had opted to maintain the same pace –one member voted for a smaller, 25bps move, leaving the bank open to charges of a lack of consensus on the best way to tackle the mounting challenges facing the UK. The communiqué noted that inflation would likely now peak lower than previously projected, following the announcement of significant government support to households and businesses in the energy markets, but it still anticipates that price growth will remain above 10% over the coming months, and acknowledged the longer-term inflationary pressures that this government support would instill alongside government plans to cut taxes – Chancellor Kwasi Kwarteng is due to talk through the new government’s fiscal plans in parliament today, with a scheduled reversal of the 1.25% national insurance hike planned from November 6, and a potential cut to stamp duty. With this in mind, the bank continued to pledge to act ‘forcefully’. In terms of growth, the bank expects a -0.1% contraction in the third quarter, which would place the UK in a technical recession following the -0.1% seen in Q2. Along with the rate hike, the BoE also confirmed that it would begin the drawdown of its balance sheet by GBP 80bn over the next 12 months, through both maturing gilts and active gilt sales, taking it to GBP 758bn next year.

Other global central banks to hike yesterday include Switzerland, Norway, Indonesia, Philippines, Taiwan, and South Africa. By contrast, Turkey cut by 100bps for the second consecutive meeting, taking the one-week repo rate to 12.00%. The bank has been cutting the benchmark rate even as inflation has hit 80% y/y, and while much of that is down to global energy price pressures, the depreciation of the lira is helping to drive an acceleration in core inflation also.  The bank’s statement demonstrated an ongoing commitment to growth, saying ‘it is important that financial conditions remain supportive to preserve the growth momentum in industrial production and the positive trend in employment…’

In Egypt, the central bank kept its benchmark overnight deposit rate on hold at 11.25%, as we had expected. Our reasoning was that the CBE was unlikely to change rates while negotiations around a new IMF deal continued even after inflation rose to 14.6% y/y at the latest print, and could also reflect the administrations aim to rely more on FDI flows in future rather than the portfolio flows that have appeared to be the focus in recent years. Nevertheless, the CBE did raise the required reserve ratio from 14% to 18%, and it maintains that the 300bps of hikes enacted earlier are still percolating through the economy, thereby tightening conditions. In terms of growth, the statement declared that real the GDP expansion was an above-expectations 6.6% in the fiscal year ended June 30 following a provisional print of 3.2% y/y in the final quarter.

US jobless claims stood at 213,000 in the week to September 17, up from the 208,000 recorded in the previous week but below the 217,000 consensus projection. Labour market data has as yet showed little sign of the likely softening warned about by Jerome Powell on Wednesday following the Fed’s latest 75bos hike.

Key economic data and events

11:15 France S&P Global manufacturing PMI, September. Forecast: 49.8

11:30 Germany S&P Global/BME manufacturing PMI, September. Forecast: 48.3

12:00 Eurozone S&P Global manufacturing PMI, September. Forecast: 48.8

12:30 UK S&P Global manufacturing PMI, September. Forecast: 47.5

17:45 US S&P Global manufacturing PMI, September. Forecast: 51.0

Fixed Income

  • Markets endured a cavalcade of central bank decisions overnight with most developed market banks hiking by substantial amounts. The decisions from the Bank of England, Swiss National Bank, Norges Bank, South African Reserve Bank among others come in the wake of the hawkish tone set by the Federal Reserve earlier in the week. In the US Treasury market, the hawkish tone lingers with 2yr UST yields up 7bps, closing at 4.1222%. For the 10yr, yields added 18bps to 3.7138%.
  • The Bank of England’s 50bps hike helped to put pressure on gilts overnight with yields adding 18bps to 3.487%. With the government’s plans to increase spending and reduce taxes likely to contribute to even more inflation, the BoE may be forced into further hikes. European bonds also weakened with the 10yr bund yield up 7bps to 1.958% while the 10yr French bond yield added 8bps to 2.517%.
  • Bonds are opening weaker in Asia today with Australian 10yr yields up 24bps to just a bit below 4% while New Zealand 10yrs have added 15bps to 4.155%.


  • The dollar remained in the driving seat as far as currency markets are concerned with central bank action failing to arrest the decline against the greenback. The Swiss franc came under considerable pressure with USDCHF up by 1.2% to 0.9782 as the SNB’s hike failed to convince markets that it was enough to deal with inflation. EURUSD settled roughly flat at 0.9836 while GBPUSD dropped slightly to 1.1261. The Japanese yen rallied on news of government intervention into the currency markets even as the Bank of Japan kept its accommodative stance intact.
  • In commodity currencies, AUDUSD was the standout winner, managing to gain 0.2% to 0.6645 while USDCAD added 0.2% to 1.3487 and NZDUSD dropped slightly to 0.5849.


  • Equity markets continued to tumble yesterday following the hawkish tone delivered by the Fed on Wednesday night a subsequent round of tightening from a host of other global central banks amid deteriorating growth projections.
  • In Asia, the Nikkei dropped -0.6% while the Hang Seng lost -1.6%. In Europe, the messaging from the Bank of England did little to reassure stock markets and the FTSE 100 dropped -1.1%. The European composite STOXX 600 lost -1.8%.
  • In the US, the Dow Jones lost -0.4%, the S&P 500 -0.8% and the NASDAQ -1.4%.
  • Locally, the ADX closed flat but the DFM ended the day -0.8% lower. The Tadawul was closed around the Saudi Arabian National Day holiday.


  • Oil prices edged up slightly, with Brent futures added 0.7% to USD 90.46/b and WTI gaining by 0.66% to USD 83.49/b. Russia’s president, Vladimir Putin, and the Saudi crown prince, Mohammed bin Salman, agreed to commit to the OPEC+ alliance according to a statement from Russian officials. Comments from Nigeria’s energy minister also indicated OPEC+ could step in again to cut output to halt prices from falling further.

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Written By

Daniel Richards Senior Economist

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