Central banks continue to surprise

This time it was the turn of the Reserve Bank of India to surprise markets with an interest rate cut which has come at a time when a handful of central banks have surprised the markets recently by taking unexpected action. The PBOC over the week end reduced its benchmark interest rate in a move that highlights the rapid slowing of the world’s second biggest economy, which has taken the buoyancy out of the equity market rally. With the RBI making its surprise move overnight Indian stocks spiked and the rupee has rallied in conjunction with the equity market strength, but both have been quick to pull back from their highs as investors continue to show concern over the disinflation environment that is building around the world.

This has been the second interest rate cut by both the PBOC and the RBI in just a few months, meanwhile the RBA surprised on Tuesday by not cutting rates, although they are expected to ease further later in the year so the bias for central banks around the world remains on of easing monetary policy. The exceptions of course are the Federal Reserve and to a degree the Bank of England and certainly in the case of the US dollar this is why we see the greenback reasserting itself pushing up against its recent multi-year highs.

Today is a busy day for economic data with the plethora of services PMI surveys from both sides of the pond, eurozone retail sales, the US ADP private payrolls, an interest rate decision from the BOC and then the Fed’s Beige Book.

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