Geopolitical risk headlines the week, as the conflict in the Middle East risks spreading into a regional war following Iran’s missile attack on Israel. Meanwhile, the IMF has warned that global central banks should be wary of leaving interest rates high for too long given the impact on households.
International Market Developments
Geopolitical risk headlines the week, as the conflict in the Middle East risks spreading into a regional war. This follows Iran’s missile attack on Israel over the weekend in retaliation to an Israeli air strike earlier this month. The situation has since calmed slightly as US President Biden has stated that the US would not support an Israeli retaliatory strike.
The Fed’s FOMC minutes from its 20 March meeting indicated that almost all participants at the March meeting had judged it appropriate to pivot to a less restrictive policy stance sometime this year. While upside inflation surprises have seen the shift to fewer potential interest rate cuts for 2024, the minutes indicate that favourable supply-side factors are keeping cuts on the table.
US CPI for March increased more than expected by 3.5% y/y, from 3.2% y/y in February. The increase was driven by higher gas prices in March, while food prices were also up. Core CPI registered in line with expectations in March, at 3.8% y/y, from 3.7% y/y in February. This data may support the case for the Fed to keep rates on hold and may question the feasibility of an early rate cut in June.
The IMF warned yesterday that global central banks should be wary of leaving interest rates high for too long. The IMF noted that this would risk putting households under unnecessary strain as economies have experienced different effects from high interest rates thus far. The IMF will publish its World Economic outlook update this week.
Fitch Ratings has lowered its outlook on China’s long-term credit rating to negative. The outlook downgrade comes on the back of “uncertain economic prospects amid a transition away from property-reliant growth” and “reflects increasing risks to China’s public finance outlook.” The move maintains China’s A+ credit rating. This comes after Moody’s Ratings downgraded the outlook on China in December last year.
Local Market Developments
Domestically, the March CPI is due out on Wednesday and is expected to come in at 5.4% y/y, from 5.6% y/y in February. Core CPI is expected at 4.9% y/y in March, from 5.0% y/y in February. This is mainly because of the easing of food inflation that is expected to have offset higher fuel prices.