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01

The Central Bank of Brazil announced a 100 basis point rate hike, and the benchmark interest rate was raised to 5.25%

The Central Bank of Brazil announced a 100 basis point increase in interest rates on the evening of August 4, local time, raising the country's benchmark interest rate from the current 4.25% to 5.25%, in line with market expectations. This is the fourth consecutive interest rate hike by the Brazilian central bank this year.

The Central Bank of Brazil stated in a statement on the 4th that with the advancement of Brazil’s economic restart activities, coupled with the influence of factors such as the increase in electricity prices due to drought, the current inflation rate in Brazil continues to rise, especially the prices of industrial products and services. The trend of price increases has increased the risk of inflation throughout the year. The interest rate hike is designed to curb inflation expectations that further exceed the government's control target this year and next year. It is expected that the next interest rate hike meeting will increase interest rates by the same amount.

On March 17 this year, the Brazilian Central Bank raised the benchmark interest rate, which had been maintained for 6 years, from 2% to 2.75%, which exceeded the expectations of the Brazilian financial market at that time. On May 5 and June 16, the Central Bank of Brazil raised interest rates by 75 basis points each, raising the benchmark interest rate to 3.5% and 4.25% respectively.

It is understood that the interest rate meeting of the Brazilian Central Bank is held every 45 days, and its adjustment of the benchmark interest rate aims to keep the inflation rate within the management target range. The median inflation rate management target set by the National Monetary Committee of Brazil is 3.75%, allowing 1.5 percentage points to fluctuate. According to the latest expectations of the Brazilian financial market, Brazil's inflation rate this year will be 6.79%, which is higher than the 5.25% ceiling of the government's control target.

According to data from the Brazilian Institute of Geography and Statistics (IBGE), in the year to June this year, the cumulative inflation rate in Brazil was 8.48%, more than twice the median government control target.

Industry insiders said that Brazil's GDP is still lower than the level before the deep recession in 2014, which shows that the country's economic performance is still below its potential. However, given the current inflationary pressures, the Brazilian central bank has to raise interest rates to counteract it. Inflation, it is expected that the Brazilian central bank will continue to implement the policy of raising interest rates in the next few months, and the country’s benchmark interest rate will rise to 7% by the end of this year.

02

India's central bank keeps 4% repo rate unchanged

The Central Bank of India announced on August 6 that it would maintain the repurchase rate unchanged at 4% and maintain its stance of loose monetary policy unchanged.

This decision by the Bank of India is in line with market expectations. Although inflationary pressures are not small, due to the severe impact of the epidemic on the economy, the market generally expects the Central Bank of India to maintain low interest rates to promote economic recovery.

The Central Bank of India stated that it will implement as loose monetary policy as possible according to the situation to support economic recovery and reduce the impact of the epidemic.

The Central Bank of India also stated that the current inflationary pressures mainly come from insufficient supply. With the increase in overseas supply, India's inflation situation will ease.

03

Mexico's central bank raises its benchmark interest rate to 4.5%

The Bank of Mexico announced on August 12 that it would raise the benchmark interest rate by 0.25 percentage points to 4.5%. This is the second interest rate hike in Mexico this year.

The Bank of Mexico also raised its forecast for this year’s inflation rate from 4.8% to 5.7%. The Bank of Mexico issued an announcement that day that this was mainly affected by factors such as rising global inflation, blocked supply chains, and restricted activities of some goods and services.

Mexican Economy Minister Tatiana Clotier recently stated that due to the country’s third wave of the new crown epidemic, Mexico’s GDP growth rate this year is expected to be lower than the 6.3% previously predicted by the International Monetary Fund.

Mexico is the second largest economy in Latin America. The country’s GDP fell by more than 8% in 2020, the most serious economic contraction in the past 90 years.

Bank of America economist Carlos Capistran said: “The latest forecast by the Bank of Mexico shows that within the forecast range it will not approach 3%, which indicates that there will be further interest rate hikes. We expect the bank to raise interest rates three more times this year, each time Raise interest rates by 25 basis points and maintain interest rates at 5.25% by the end of the year."

The market also pointed out that it will raise interest rates by at least 75 basis points before the end of the year. It is expected that the rate of interest rate increase next year will slow down and will reach 80 basis points after 8 interest rate resolutions.

04

Bank of England: Continue to maintain the current monetary policy and take appropriate tightening measures if necessary

The Bank of England (BOE) said on August 5 local time that the scale of bond purchases remains unchanged and the benchmark interest rate is maintained at a historical low of 0.1%. The Bank of England also expects the UK inflation rate to rise above 4%, which is higher than expected. At the same time, the Bank of England officials believe that it is necessary to take some moderate tightening measures at an appropriate time to control price increases.

Committee member Michael Saunders was very worried about this, so he voted for the stimulus plan to end as soon as possible. This position was rejected by the other eight members of the Monetary Policy Committee, who believed that higher inflation would be temporary, although they stated that it is necessary to tighten stimulus policies in the “medium term” in order to achieve the 2% inflation target.

Officials said in a statement: "Compared with expectations in the May report, the economy is expected to experience a period of higher than the target inflation rate in the near term. During the forecast period, it may be necessary to tighten monetary policy appropriately."

Officials headed by Andrew Bailey also gave more clues about their withdrawal from the stimulus measures when the time is right. They said that when interest rates reach 0.5%, they will begin to withdraw from the 875 billion pounds (about 1.2 trillion US dollars) quantitative easing program.

It is understood that the British 10-year government bond yield has hardly changed since the Bank of England’s decision was introduced, at 0.51%, erasing the previous one basis point of growth; the pound exchange rate against the US dollar rose by 0.25%.

After the outbreak of the epidemic, inflation has soared, which has made people more concerned about the possibility of tightening policies by central banks around the world, although most people insist that the inflation spike is temporary. Although the Bank of England thinks so too, its assessment of the peak has been significantly higher than the 3% previously predicted in May.

It is reported that the Bank of England’s position is still consistent with the “hawking” process of most central banks in the world. For example, Fed Vice Chairman Richard Clarida said on Wednesday local time that the Fed may begin to reduce bond purchases later this year, and then start in 2023. Raise interest rates.

Luke Bartholomew, senior economist at Aberdeen Standard Investments, wrote in a report: "The warnings about future tightening policies are consistent with the practices of other global central banks, which are preparing the market for the gradual reduction of monetary support measures."

Hugh Gimber, global market strategy analyst at JPMorgan Chase, said: “In the two options of tightening policy too early or too late, global central banks now seem to be more satisfied with the latter option.”

After the announcement of the decision, the exchange rate of the British pound against the U.S. dollar and the Euro remained almost unchanged.

05

The French economy accelerates its recovery and rebounds significantly

Affected by the epidemic, the French economy experienced a sharp decline in 2020 and achieved a significant rebound in 2021. With the acceleration of vaccination and the gradual unfolding of the government's stimulus plan, the momentum of economic recovery has continued to stabilize. How to stabilize the domestic epidemic situation as soon as possible and seize the opportunity of recovery to promote transformation and development has become an important challenge affecting the sustainability of economic recovery.

In 2021, the French inflation rate will rise to 1.5%. Due to the upward impact of industrial input prices on the prices of manufactured goods, the core inflation rate will remain between 0.8% and 2.1% in 2022, and will remain at around 1.2% in 2023. . French household purchasing power will continue to recover in the next two years, but it still depends on variables such as the degree and speed of use of the huge household savings accumulated during the French epidemic, and market price pressures.

In the field of foreign trade, due to the recovery of international trade and the normalization of the sectors most severely affected by the epidemic, such as the tourism and aviation industries, French exports will rebound, which is conducive to giving full play to the advantages of specialized foreign trade. However, from the current data, exports are still sluggish. The window for improvement has not yet appeared, and it is highly vulnerable to the rebound of the epidemic and macroeconomic uncertainty. It is expected to return to normal in 2023 and contribute 0.4% to the economic growth.

06

Strong rebound in German manufacturing industry continues to recover

Recently, the German Federal Statistical Office released macroeconomic data for the second quarter. Data show that in the second quarter, Germany's gross domestic product (GDP) increased by 1.5% month-on-month and 9.6% year-on-year. Although the second quarter of this year achieved substantial growth over the same period last year, compared with the fourth quarter of 2019, Germany's GDP still fell by 3.4%. This means that the German economy has not yet recovered to the level before the outbreak of the new crown pneumonia, and the 1.5% month-on-month growth rate is also lower than the previous expectations of major research institutions of about 2%.

The German manufacturing industry is showing signs of continued recovery. According to data from market research firm Exin Huamai, the Purchasing Managers Index continued to rise to 65.9 in July. Not only in Germany, but the recovery of manufacturing in the entire Eurozone is also more optimistic. The Purchasing Managers Index in the Eurozone in July has been above the line of prosperity for 13 consecutive months.

However, while the order volume of manufacturing companies continues to grow, the tight international supply chain and rising raw material prices have also become the biggest concerns of German manufacturing companies. According to a survey recently released by the German Ifo Institute for Economic Research, more than two-thirds of German manufacturing companies believe that the current tight supply of raw materials and parts is still the biggest obstacle to increasing production capacity.

In addition, recent price increases in Germany have also caused more and more concerns. For some time, the European Central Bank has adopted a relatively loose monetary policy to assist member states to restore their economies. Previous analysis generally believed that price increases in the Eurozone and Germany would be temporary, and the possibility of causing systemic risks was extremely low. However, recent data from the German Federal Statistical Office showed that the German consumer price index in July is expected to increase by 3.8% month-on-month, which is significantly higher than previously expected, causing market concerns. Some research institutions believe that the excessively rapid price growth in Germany has shown a certain degree of long-term nature. If the German government continues to stimulate the economy by increasing public investment, the level of price increases may continue to rise, which will bring new challenges to economic recovery.

07

America

Data released on Tuesday showed that US retail sales fell more than expected in July, reflecting that consumer spending is steadily shifting to the service industry, and as inflation rises, consumers may become more price sensitive. The US Department of Commerce announced on Tuesday that overall retail sales fell 1.1% last month, and economists surveyed by the media estimated a median drop of 0.3%.

However, the output value of the US manufacturing industry recorded the largest increase in four months, which to some extent offset the negative effects brought about by the sluggish retail data. Data show that the US manufacturing output value rose 1.4% month-on-month in July, higher than the 0.7% expected by economists; the overall industrial output value including mining and utilities rose 0.9% in July, which was also higher than the expected 0.5%.

Earlier, due to disappointing economic data and the Taliban's occupation of Kabul, the capital of Afghanistan, US bond yields fell on Monday. The spread of variants of the new crown virus also makes people wonder whether companies can return to normal as quickly as previously expected.

08

The exchange rate of South Korean won turned from rising to falling due to the intervention of South Korean foreign exchange authorities, and the Bank of Korea raised interest rates for the first time in 15 months

According to a report by "Korea Economy" on August 18, the Korean won exchange rate in the Seoul foreign exchange market continued to rise that day, and it was once close to the 1,180 won mark.

With the intervention of South Korea's foreign exchange department, the Korean won exchange rate began to fall. Market participants believed that the South Korean foreign exchange department sold US dollars at around 1,180 won that day, building a defensive line. According to Bloomberg and Hyundai Motor Securities, as of the 17th of this month, the Korean won has depreciated 7.8% against the U.S. dollar. Among the currency values of 12 major countries, including the United States, the Eurozone, the United Kingdom, Canada, Japan, China, and Brazil, the depreciation has been the largest. Recently, due to continued foreign capital flight in South Korea’s stock market, coupled with the US Federal Reserve (FED) signal of tightening, the exchange rate may rebound again to 1,200 won.

Some analysts believe that FED will carry out asset purchase reductions as early as November this year. As the supply of dollars decreases, interest rates in the U.S. market will rise. Investors buying dollars and U.S. Treasury bonds will also gradually leave the financial markets of emerging countries. In order to prevent capital flight, the pressure of the Bank of Korea to raise interest rates may increase.

The Bank of Korea raises interest rates for the first time in 15 months

According to a report from Yonhap News Agency in Seoul on August 26, the Bank of Korea (Central Bank) held a plenary meeting of the Financial and Monetary Committee on the 26th and decided to raise the benchmark interest rate by 0.25 percentage points from 0.5% to 0.75%. This is the first time the Bank of Korea has raised interest rates in 15 months.

According to the report, the Bank of Korea took into account the possible impact of the new crown epidemic on the economy. It sharply lowered its benchmark interest rate from 1.25% to 0.75% on March 16 last year, and then lowered it again to 0.5% on May 28 of the same year. Maintain 0.5% unchanged. This time, the Bank of Korea raised interest rates for the first time in 15 months.

According to the report analysis, the Bank of Korea changed the currency tone because the surge in market liquidity during this period led to a surge in household loans, triggering asset bubbles and increasing market concerns about inflation. The Governor of the Bank of Korea, Lee Joo Yeol, has repeatedly emphasized the need to raise interest rates since May this year. After the meeting of the Financial and Monetary Committee last month, he said that despite the strengthening of controls on currency soundness, under low interest rates or long-term continued expectations, there are still limitations to strengthening macro soundness policies, and it is necessary to adjust the current easing policies in a timely manner. Turn to normal.

The report pointed out that the Bank of Korea believes that the economic recovery momentum is good, and even tightening monetary policy will not affect the economy. Economic experts also believe that the Bank of Korea will not lower its economic growth forecast for South Korea this year. These analyses and forecasts provide support for the central bank's interest rate hike.