Emerging-market currencies advanced on Thursday as the Bank of Japan’s decision not to take further steps to stimulate its economy buoyed Asian exchange rates along with the Japanese yen. MSCI’s gauge of developing-country currencies climbed 0.7 percent, heading for the strongest level against the dollar since July 29. Colombia’s peso gained the biggest and led advances in emerging-market currencies. South Koreas’ won appreciated for a second day, leading Malaysia’s ringgit, China’s yuan, and Taiwan’s dollar higher.
The U.S. bond-market gauge of inflation outlook, known as the break-even rate, climbed to the strongest level since August due to higher oil prices and faster-than-forecasted domestic price growth in the first quarter. The 10-year break-even rate, a proxy on investors’ expected annual inflation rate over the next decade, increased more than 3 basis points to 1.72 percent, the highest since August 3.
U.S. gross domestic product (GDP) grew at a 0.5 percent annual rate (Q/Q) in Q1 2016, the lowest reading in two years, as consumer spending growth slowed, business investment plunged and exports declined further. Economist had forecast a 0.7 percent growth. The U.S. economy grew at a 1.4 percent pace in Q4 2015.
Euro Area economic confidence improved in April with an index of executive and consumer confidence increasing to 103.9 from an upwardly revised 103 in March. A market survey by economist had estimated a gain to 103.4. The pick-up in the sentiment indicator can be attributed to easing concerns about regional and global economic outlook.
Japan’s central bank left its benchmark interest rate unchanged at -0.1 percent in a policy meeting Thursday and refrained from expanding its monetary stimulus. Separately, in its quarterly outlook for economic activity and prices report, the Bank of Japan downgraded its 2016/17 forecasts for GDP growth and inflation.
Emerging and Frontier Economies
Europe and Central Asia
The central bank of Moldova dropped its benchmark base rate by 200 bps to 15 percent, marking the third consecutive rate cut so far this year, as inflation in March slowed more than anticipated. Consumer prices rose 9.4 percent (y/y) less than the 10.3 percent in February, but still much higher than the target of 5.0 percent over the medium-term. Policymakers also cut the overnight lending and deposit rates by 200 bps each to 18 percent and 12 percent respectively.
Middle East and North Africa
Egypt’s central bank held its benchmark overnight interest rate at 10.75 percent, as expected. The lending rate and the discount rate were also left at 11.75 percent and 11.25 percent respectively. The decision came after a 150 bps hike last month in an attempt to curb inflationary pressures following the devaluation of the Egyptian pound.
United Arab Emirates’ consumer prices rose 1.4 percent (y/y) in March, less than the 2.2 percent rise in February. It was the lowest figure since November 2013 as prices of housing rose at a slower pace and transport cost fell further. In contrast, food and non-alcoholic beverages cost increased at a faster pace. On a monthly basis, consumer prices edged up 0.1 percent.
Zambia's consumer prices jumped 21.8 percent in April, slightly less than the 22.2 percent surge in March as lower prices of non-food items such as motor vehicles moderated headline inflation. On a monthly basis, consumer prices rose by 0.3 percent after the 0.5 percent gain in March.