So, how did the big week for central banks go? Well, China didn’t cut, Japan sat it out, but with a rate rise looming, the Bank of England was steady — leaving the Fed all alone with the most significant rate cut in four years.
There will be more focus on the Fed's decision, with senior members making speeches — seven in total, with Powell appearing Thursday, alongside three other public appearances by Fed members.
Meanwhile, in Australia, the Reserve Bank will not move on rates at its two-day meeting, starting today, and will continue to focus on inflation, ignoring darkening economic storm clouds in China and Europe.
As far as data this week is concerned, there’s the end-of-month inflation indicator in Australia, and in the US, the end-of-month PCE inflation, income, and spending data favoured by the Fed, as well as the final estimate of US second-quarter growth.
Friday saw the Bank of Japan leave its short-term policy rate unchanged, but a rate rise is coming, with inflation rising just as the central bank wants as it examines how the economy and markets are digesting its first rate increase in decades. The BOJ maintained its target for the overnight call rate at 0.25% after July’s increase. In March, the BOJ ended the world’s last negative interest rate policy and set the target at a range of 0% to 0.1%.
While a rate rise was not expected on Friday, the bank was widely expected to stand pat. However, analysts and investors expect the BOJ to raise interest rates again in the coming months once the markets become more stable. December is a current guess.
The BOJ on Friday maintained its assessment of the Japanese economy, saying it has recovered moderately despite some weaknesses. It also noted that careful attention should be paid to the impact of currency and other market movements on the economy.
Government data released earlier on Friday showed that consumer inflation picked up in August. Overall consumer prices rose 3.0% in August from a year earlier, faster than the 2.8% growth in July.
China, though, surprised by leaving its benchmark lending rates unchanged on Friday, shrugging off expectations for a cut after a dismal month of data on demand, investment, retail sales, and prices, which are now settling back towards deflation at the consumer level.
The weakening pace of economic activity last month bolstered the case for further easing — a rate cut or a reduction in bank reserve ratios — but nothing emerged.
Despite the sluggish pace of activity, China's benchmark one-year loan prime rate remains unchanged at 3.35%, while the five-year rate was held at 3.85%.
“It came as a surprise to me, as I expected the PBOC to follow the Fed and cut the loan prime rate by 10 basis points,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management, to Reuters.
Some economists reckoned the Fed’s half-per-cent cut would allow the Chinese central bank to trim its rates. However, other analysts believe the Chinese government does not want to be seen as following the US central bank — that would be a loss of face, even though the Chinese economy is sagging towards a crunch.
“But the PBOC is not one to blindly follow the Fed — monetary conditions in China are much less correlated with the US than many other countries,” said Zichun Huang, China economist at Capital Economics.
A hold on benchmark lending rates underscored that the PBOC remained constrained by concerns about bank profitability and declining long-term bond yields, Huang said.
Economists point out that central bank officials acknowledged earlier this month the limitations on further cuts to lending rates, citing a tightening in bank net interest margins — a key indicator of profitability — that reached a historic low of 1.54% at the end of June.
Instead, they hinted at a possible move to slash banks’ reserve-requirement ratio to inject liquidity into the nation’s financial system. However, that has happened several times in the past year (along with two rate cuts), and the economy has continued to sink.
China's economy is weighed down by sluggish demand and the prolonged property downturn. It is now doubtful that rate cuts or adding more reserves to the system will help — a major fiscal turnaround is needed from President Xi Jinping and his administration, especially in the property sector, where the $US140 to $US160 billion in announced policy support has had no impact whatsoever.
The Reserve Bank meeting this week won’t see much change, despite some excitable commentators thinking the Fed’s cut will force the RBA to follow suit.
The Reserve Bank will also publish its latest financial stability review on Thursday.
Economists predict the monthly inflation indicator will dip to 3.1% from 3.5% in July.
In addition to the inflation indicator on Wednesday, there’s job vacancies data for the three months to August, due on Thursday.
A handful of Australian companies will report earnings this week, including Brickworks, Washington H. Soul Pattinson, Solomon Lew’s Premier Investments, and Sigma Healthcare. Overseas, there are quarterly results due from Costco, H&M, Carnival, Diageo, and General Mills.
In the US, Friday will bring the Personal Consumption Expenditure inflation, income, and spending data, along with the third and final GDP figures for the June quarter.
There are also the flash results of monthly business activity surveys, which start appearing today and tomorrow.
In Europe, a vote is due on Wednesday regarding tariff levels in the EU on Chinese EVs.
