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Reuters
11 hours ago
- Business
- Reuters
Resurgence of India rate-cut wagers revives foreign investor interest in bonds
MUMBAI, July 22 (Reuters) - Foreign appetite for Indian government bonds is back, with inflows picking up steadily over the last month, as investors gauge fresh expectations of a rate cut by the Reserve Bank of India as early as August. The RBI cut rates by a larger-than-expected 50 basis points in June and changed the stance to "neutral", prompting investors to bet on a prolonged pause. But a sharp drop in June retail inflation has some investors reassessing the likelihood of another rate cut. The RBI could implement a modest 25 basis point cut in August if inflation remains subdued and growth concerns persist, said Singapore-based Manish Bhargava, CEO of Straits Investment Management, adding that bond yields are attractive at current levels. Over the last one month, foreign investors have net bought 129 billion rupees ($1.5 billion) of Indian bonds linked to global indexes after selling more than 330 billion rupees in the first two-and-a-half months of the financial year that started on April 1, clearing house data showed. Analysts said concerns on the growth front are also likely to prompt the central bank to lower rates further. With recent high-frequency data disappointing and indicating the possibility of a further slowdown in growth, "there is potential for more support from the RBI further down the line," said London-based Giulia Pellegrini, lead portfolio manager, emerging market debt at AllianzGI. India's overall economic fundamentals remain solid, keeping the country on investors' radar, she said. A wider gap between interest rates in India and the U.S. would add to the appeal of Indian debt, investors said. That's why a Federal Reserve rate cut could act as a positive catalyst for Indian bonds, as they have historically helped local currency debt markets, said Nigel Foo, Singapore-based head of Asian fixed income at First Sentier Investors. However, current Indian bond yields are lower than where they were in the past at similar policy rate levels, and so are relatively unattractive, he added. The 10-year U.S. yield was around 4.35%, with the Fed expected to cut rates by at least 50 bps in 2025. The Indian 10-year benchmark bond yield was at 6.30%. "India's local debt story remains very compelling on both FX and rates," said Jean‑Charles Sambor, head of emerging markets debt at TT International Asset Management in London, who expects bond yields to decline through this year and next, and finds the middle of the yield curve attractive. ($1 = 86.2470 Indian rupees)
News.com.au
15 hours ago
- Business
- News.com.au
‘Remains tight': Why the RBA held interest rates in July
A stronger than expected job market stopped the RBA pulling the trigger on a July rate cut, leaving struggling homeowners to wait a little longer for rate relief. The central bank released its meeting minutes on Tuesday, showing the board decided to hold the cash rate despite inflation sitting within its target range. 'Recent monthly CPI indicator data – which can be volatile and do not cover all items in the CPI – were broadly consistent with this expectation,' the RBA board said. But with more Australians currently in work, the RBA was wary the strong employment figures could lead to an increase in inflation. 'The labour market was assessed to have remained tight, with measures of labour utilisation little changed over the prior year,' it said. 'Growth in private demand had begun to recover, but was still subdued.' The RBA had to work with May's unemployment figures, which showed just 4.1 per cent of eligible Australians were out of work. When the June figures were released after the RBA meeting, it showed unemployment had jumped to 4.3 per cent, with 34,000 Aussies losing their jobs. But households may not have to wait long for interest rate relief, with the RBA's meeting minutes seemingly clearing the way for further rate cuts. 'All members agreed that, based on the information currently available, the outlook was for underlying inflation to decline further in year-ended terms, warranting some additional reduction in interest rates over time,' the RBA minutes said. A cautious RBA monetary board held the official cash rate at 3.85 per cent following its July meeting, with the shock move defying expert commentators and predictions from the money markets. The board voted 6-3 in favour of the hold. 'A minority of members judged that there was a case to lower the cash rate target at this meeting,' the board said. 'These members placed more weight on downside risks to the economic outlook – stemming from a likely slowing in growth abroad and from the subdued pace of GDP growth in Australia.' Fronting the media after the decision, Reserve Bank governor Michele Bullock said the votes were 'unattributed' and declined repeatedly to reveal her position. She said the board wanted to wait for the full quarterly data to be released by the Australian Bureau of Statistics. 'By then we will know what the June quarter CPI is and if it comes in as we think it will – a little bit at the margin, we're a little bit worried about – but if it comes in as we think it will, continue to decline, then that validates our easing path,' she said. Opinion remains divided as to whether the hold was the right decision. Westpac chief economist Luci Ellis, who worked for the RBA for 15 years, says the central bank might have chosen to 'assert its independence' by bucking expectations of a rate cut. 'There was no real economic benefit to waiting five more weeks,' Ms Ellis wrote in an economic note released last week. While the decision may have left homeowners frustrated, Ms Ellis said it was a low-risk decision for the central bank from a broader economic perspective. 'The dirty little secret of monetary policy is that small differences in the level of interest rates or the timing of changes make essentially no difference for inflation outcomes,' Ms Ellis said. 'If holding the cash rate 100 basis points lower for a year only boosts inflation by 0.2 per cent or so – broadly the result from the RBA's main model – then 25bp higher for five weeks is not even a rounding error.' The RBA will next meet on August 12, with money markets widely forecasting a rate cut.
Reuters
2 days ago
- Business
- Reuters
New Zealand annual inflation quickens but below economists' forecast
WELLINGTON, July 21 (Reuters) - New Zealand's annual consumer inflation accelerated in the second quarter but was below economists' forecasts, leading markets to narrow the odds on a rate cut next month given weakness in the broader economy. Annual inflation came in at 2.7% in the second quarter, its highest level in a year, and speeding up from the 2.5% rate in the first quarter, Statistics New Zealand said in a statement on Monday. However, economists had forecast inflation at 2.8%. The statistics agency attributed the uptick to an increase in local government taxes and housing rental prices. On a quarter-on-quarter basis, the consumer price index rose 0.5%, compared with a 0.9% increase in the first quarter. Economists in a Reuters poll had forecast a 0.6% rise for the quarter. The New Zealand dollar dipped 0.3% to $0.5941 following the data release. Markets are now pricing in a 75% chance that the central bank will cut by 25 basis points in August, up from a 61% chance ahead of the data. The Reserve Bank of New Zealand, which in May forecast annual inflation for the quarter at 2.6%, held interest rates steady at this month's policy meeting partly due to near-term price risks. It was the first pause in the RBNZ's easing cycle that began in August 2024, a period in which it slashed rates by 225 basis points to 3.25%. The uncertainty around U.S. President Donald Trump's tariff policies and the impact on global growth and prices have kept most policymakers, including the RBNZ, on edge. New Zealand's annual inflation is nudging nearer to the upper end of the central bank's 1% to 3% target band. But economists say that with medium-term inflation expected to remain contained and considerable spare capacity in the economy, a rate cut in August remains likely. ASB Bank senior economist Mark Smith said ASB's core judgment is that the RBNZ will accommodate or look through the tick up in near-term inflation as the weakening global outlook and the large margin of spare capacity imply a lower medium-term inflation outlook. 'After earlier tapping the monetary policy brakes, the RBNZ is expected to press the accelerator and actively provide policy support," Smith said in a note. Annual non-tradeable inflation rose 3.7% in the second quarter, its lowest level since the second quarter of 2021, according to Statistics New Zealand.
Yahoo
3 days ago
- Business
- Yahoo
Fed officials grow more outspoken—and split—over interest rate cuts
Federal Reserve governor Christopher Waller called for a July rate cut again on Friday. Other Fed officials like New York Fed president John Williams and Boston president Susan Collins said July was too early to lower rates because the extent of inflation from tariffs wasn't clear yet. As the U.S. economy navigates that hazy outlook, Fed officials are trying to figure out whether to cut rates to avoid a rise in unemployment or to maintain them because tariffs could lead to more inflation. A consensus on interest rate cuts is becoming elusive. Federal Reserve officials are having a hard time agreeing on what lies ahead for the U.S. economy in a time of unprecedented tariffs, a straining debt ceiling, and political upheaval. Throughout the spring, the Fed was mostly in agreement there was no rush to cut interest rates. The central bank was content to wait and see how exactly President Donald Trump's tariff policy would impact the economy. A series of revised forecasts in the aftermath of the tariffs called for lower growth and rising inflation. But the details themselves were still debated: How high would inflation go? How long would it last? Would businesses layoff employees if growth stalls? Now, three months on from the early-April tariff announcement, Fed officials are starting to formulate their own answers to those questions. Among the most dovish officials are Fed Board governors Michelle Bowman and Christopher Waller, who believe rate cutting should begin as early as this month. In two public appearances on Thursday and Friday, Waller called for rate cuts to start at the Fed's meeting on July 29-30. Others like John Williams, president of the Federal Reserve Bank of New York, and Susan Collins, president of the Federal Reserve Bank of Boston, see a July rate cut as too early because there is still the possibility of further inflation over the course of the year. These two schools of thought don't just differ on the timing of rate cuts, but on what is the larger threat to the economy: mass layoffs or soaring inflation. Those in Waller and Bowman's camp fear middling growth will cause the U.S. to flatline, forcing businesses to cut costs, including by shedding employees. On the other hand, those who favor holding rates believe a cut would only exacerbate the accelerating inflation they see as likely, if not certain. The prevailing view is that the Fed will keep interest rates steady at its upcoming meeting. The CME FedWatch tool sees a 95% chance of a rate hold at the upcoming meeting. On Friday in an interview with Bloomberg TV, Waller outlined the case for a rate cut he saw as necessary to push a teetering labor market toward safety. The labor market's solid headline numbers masked a weakening in the private sector, Waller argued. The latest Bureau of Labor Statistics report from June outpaced expectations, with the U.S. adding 147,000 jobs and an unemployment rate of 4.1%. An earlier report that specifically tracks the private sector showed it had lost 33,000 jobs in June. Waller said he wanted the Fed to act now, before the labor market turned for the worse. 'If you're walking on a lake and the ice is frozen, it sounds safe but when you start hearing cracks—and that's what I feel like—it's too late once you go through the ice,' Waller said. 'So you've got to start prepping in advance before you have that happen.' Waller's more hawkish colleagues are wary of cutting rates and loosening monetary policy at a time they believe it should remain restrictive. Inflation started to creep up in June, according to the Consumer Price Index report released this week. Prices rose 2.7% over the last 12 months, an uptick from 2.4% in May. The most recent CPI also showed early signs tariffs were pushing prices higher. Consumer staples like clothes, toys, and electronics, which are the exact sorts of products that rely heavily on foreign manufacturing, all saw their prices increase. 'For items that are more exposed to higher tariffs…price increases so far this year have been well above what one would expect based on past trends,' Williams said on Wednesday. Few dispute prices will rise because of tariffs. The split is over whether they will persist or smooth out quickly. Most economists argue any increases are only now starting to show up in the economic data because many companies had stockpiled inventory anticipating the tariffs. Textbook economics would suggest tariffs only lead to a one-time price shock. At the same time, the Trump administration's goal with its signature tariff policy has been to rewrite the rules of global commerce, making for little historical precedent to guide Fed officials and economists. Waller preferred to look through the inflation risk. 'With inflation near [the Fed's 2%] target and the upside risks to inflation limited, we should not wait until the labor market deteriorates before we cut the policy rate,' he said on Thursday. The Fed's debates about monetary policy come against a bellicose political backdrop, in which the central bank's traditional independence is eroding. Earlier this week, there were multiple reports Trump was preparing to fire Fed chair Jerome Powell, with whom he disagrees with for not lowering interest rates. Markets tanked on the news. They then shot back up when Trump denied the report. Members of the administration are also laying the groundwork for a series of political attacks over the $2.5 billion renovations to the Federal Reserve's Eccles Building in Washington D.C. Certain White House officials said they believe the cost overruns on the project and Powell's testimony about some of the building's planned design features may amount to mismanagement and cause for termination. The acrimony—albeit one-sided—between the White House and the Fed adds a new dimension to what might otherwise be ordinary internal policy deliberations. 'Comments coming from Fed officials suggest the Federal Open Markets Committee is cleaving, with a vocal side arguing for rate cuts to begin now, and another side (including Jay Powell) still wanting a delay,' Macquarie global rates strategist Thierry Wizman wrote in a note on Friday. 'It could evolve into a split along political lines, with one side swayed by political motives, and the need to accommodate fiscal policy, at the expense of adherence to the price-stability mandate.' But while politicians like Trump have waded into the Fed—once considered taboo—the central banks officials have not crossed the line themselves. Powell declines to answer all questions about Trump or his policies. On Thursday when Waller was asked if he'd spoken to any White House officials about possibly succeeding Powell, he gave a one word answer: 'Nope.' Williams brushed off the D.C. machinations. 'We've got a job to do,' he said. This story was originally featured on Error while retrieving data Sign in to access your portfolio Error while retrieving data Error while retrieving data Error while retrieving data Error while retrieving data
Yahoo
4 days ago
- Business
- Yahoo
Markets signal that firing Powell is one line Trump can't cross
After reports that President Trump planned to fire Federal Reserve Chair Jerome Powell sent markets lower, the president denied the reports, fueling a rebound. Wall Street experts are coming out in defense of the Fed amid mounting pressure from Trump for the Fed to cut rates. For instance, JPMorgan (JPM) CEO Jamie Dimon said Fed independence is "absolutely critical." Meanwhile, Trump is still eyeing his next Fed chair nominee, whether he ousts Powell early or waits until the Fed chair's term is up in May 2026. A willingness to cut rates is a clear qualification required by the president. Yahoo Finance Senior Reporters Ines Ferré and Allie Canal outline the latest. To watch more expert insights and analysis on the latest market action, check out more Opening Bid here. And is, uh, markets seem to have taken a breather, you know, taken a pause. They said, okay, maybe this is not going to happen right now, but they are still on edge. Yeah, for sure. Look, I think that this is the red line for the markets. If President Trump were to fire Jerome Powell, then you would see, as one analyst said, a mess in the markets, and that would be on equity on the equity side, and also on the bond side as well. So, uh, and hence when you saw the bond yields ticking higher, that's when the president sort of pushed back, uh, pulled back on those comments. Um, another point that I want to make is also that the fact that you've got the big voices on Wall Street, our David Holleroth wrote a piece about this, uh, the big banking names that have been talking about Fed independence. This says a lot. Again, this is the line that the market is drawing. If the president goes to fire Jerome Powell, then you will see, uh, a market reaction, and the fact that you have heavy hitters on Wall Street that are talking about Fed independence just underscores that. And Ali, uh, some headlines crossing, Kevin Warsh, who's reportedly also on the running for this, uh, this Fed job along with Kevin Hassett. Uh, on another network saying quote, there's a credibility crisis at the Fed. Now Warsh, his background is a little checkered as it pertains to interest rates. Um, what do you think about all these folks just trying to curry favor with Trump, and I think it would just it's just sewing the seeds of credibility, you know, of of the Fed's independence credibility being challenged here. Yeah, we have multiple names jockeying for that position, and all signs point to Donald Trump choosing a more dovish Fed. But you have to remember that there are multiple members that make up the FOMC. So even if we see a more dovish Fed chair, there still needs to be alignment among all of those other names when it comes to interest rates and the decisions there. And the Fed has its work cut out for them, right? We've seen of really solid economic data, but we still have tariffs that are working their way through the system. Many of strategists have told us that this full impact couldn't might not hit until the fall, or possibly even 2026. So that's why we have a lot of divergence on the street about when we could potentially see those Fed rate cuts. Morgan Stanley doesn't think we're going to see any cuts this year. Other Wall Street firms, like Capital Economics, they projected a rate cut in December. And then if you take a look at the CME Fed futures, this is what markets are pricing. We're now at 50/50 odds for September. We were well above 70% just a few months ago. So, that just goes to show how quickly the story is changing here, but clearly, the president wants the Fed to cut interest rates. He's consistently reiterated that to the public. He's called Jerome Powell too late Powell, but he might just have to wait a little bit longer. Related Videos Fed Governor Waller thinks interest rates are over 1% too high Trump to sign crypto's GENIUS Act into law Fed rate debate, GENIUS Act passes, Chevron-Hess deal: 3 Things Waller calls for rate cut, GENIUS Act, Netflix earnings: 3 Things Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
