July 18, 2024
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UK: Slow Slackening Progress for Pay

  • The UK unemployment rate remained at 4.4% in May as the H1 increases are grinding to a halt in a similar pattern to 2023. Underlying changes are also becoming more neutral.
  • Weekly vacancies data have rebounded to March levels while redundancies remain low and monthly pay growth is consistently annualising above 5%.
  • The dovish BoE can welcome a renewed slowing in the headline wage growth rate despite current levels remaining inconsistent with the inflation target.

By Philip Rush

July 18, 2024
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Benjamin - Late call

Exchanging collateral as security has become the norm between financial market counterparties. That has made the system much safer. But counterparties need to be prepared for the potential liquidity need from sharp margin calls in stress. And enough collateral has to be collected during good times, via initial margin or haircuts, otherwise that can allow the build-up of excessive leverage, which can unravel and destabilise the system in bad times.

Nathanael Benjamin’s speech focused on the evolving landscape of collateral management and its significant impact on financial stability and monetary policy. He highlighted the shift in risk-taking from traditional banks to non-bank financial institutions (NBFIs) since the global financial crisis, noting that this has increased interconnectedness and the need for robust collateral management. Key challenges include the liquidity demands arising from sharp increases in margin requirements during times of stress and the interaction between initial margin requirements and leverage. He stressed the importance of international and domestic measures to address these issues, including the work being done by the Bank of England to enhance system-wide resilience through things like reforming margin practices and developing a new repo lending facility for NBFIs. He also underlined the importance of transparency, stress testing, and preparing market participants for substantial liquidity needs to mitigate procyclical behaviours and prevent liquidity crises.

- Positivity: 75
- Uncertainty: 50

July 17, 2024

Indonesia Policy Rate 6.25% (consensus 6.25%) in Jul-24

  • Bank Indonesia kept its policy at 6.25%, aligning with market expectations to ensure inflation control and Rupiah stabilization amid ongoing global financial uncertainties.
  • Future interest rate decisions will be influenced by persistent global financial market uncertainty, particularly the US monetary policy direction, and strong domestic economic growth driven by robust consumption and investment.
  • Ensuring Rupiah stability and maintaining inflation within the 2.5 ± 1% target range remain central to Bank Indonesia’s strategy, supported by a mix of pro-market monetary operations, macroprudential policies, and digitalization efforts to foster economic resilience and growth.

July 17, 2024
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EA Inflation Stable Enough for the ECB

  • The final EA inflation print confirmed the flash at 2.52% in June, with services refusing to slow from 4.1%. Median inflation rates broadly rebounded, stabilising the 3mma.
  • Divergences between member states’ underlying pressures are balancing slightly above a target-consistent pace. The ECB is unlikely to be concerned about that.
  • Stability in the ECB’s medium-term forecast seems sufficient for it to cut again in September. Tight labour markets may yet renew pressures and pause cuts later.

By Philip Rush