Go slow and steady with rate cuts, says the BIS: The Bank for International Settlements (BIS) warned central banks in its annual report (pdf) against cutting interest rates too soon, cautioning that it could reignite inflation. Despite signs that the global economy is headed towards “smooth landing” with cooling inflation and steady growth, the BIS says central banks need to set a “high bar” for easing policies.

Remember: Central banks around the world are preparing to ease monetary tightening policies this year. The European Central Bank got the ball rolling with a 25 bps rate cut last month, ahead of the US Federal Reserve, which is set to start cutting rates by September.

“A premature easing could reignite inflationary pressures and force a costly policy reversal — all the costlier because credibility would be undermined,” BIS General Manager Agustín Carstens said.

Central banks should keep an eye on potential risks like high public debt and falling commercial property values, as well as inflation spikes in service prices and wages, Carstens said.

Service prices relative to core goods remain lower than pre-pandemic levels, while real wages have yet to keep up with higher costs — but a reversion of these trends that happens too fast will only spur inflation. The BIS estimates that catching up on lost purchasing power could raise inflation by up to 1.5% in major Eurozone economies by 2026.

MARKETS THIS MORNING-

Asian markets are mixed this morning, with the Nikkei and Kospi in the green and the ASX 200 and Shanghai Composite in the red. Markets are closed in Hong Kong this morning for a national holiday. Futures suggest US equities will start the trading week in the green, as will most major European benchmarks. The exception: France, where the CAC 40 looks set to come under selling pressure at the opening bell as investors digest the far-right Rassemblement National’s strong showing in the first phase of parliamentary elections.

EGX30

27,766

+1.0% (YTD: +11.5%)

USD (CBE)

Buy 47.96

Sell 48.10

USD (CIB)

Buy 47.98

Sell 48.08

Interest rates (CBE)

27.25% deposit

28.25% lending

Tadawul

11,680

-0.4% (YTD: -2.4%)

ADX

9,061

+0.6% (YTD: -3.2%)

DFM

4,030

+0.5% (YTD: +4.4%)

S&P 500

5,460

-0.4% (YTD: +14.5%)

FTSE 100

8,164

-0.2% (YTD: +5.6%)

Euro Stoxx 50

4,894

-0.2% (YTD: +8.2%)

Brent crude

USD 85.0

-0.3%

Natural gas (Nymex)

USD 2.60

-3.1%

Gold

USD 2,340

+0.1%

BTC

USD 61,984.40

+1.6% (YTD: +46.8%)

THE CLOSING BELL-

The EGX30 rose 1.0% at Thursday’s close on turnover of EGP 4.4 bn (0.2% above the 90-day average). International investors were the sole net sellers. The index is up 11.5% YTD.

In the green: Fawry (+5.9%), Eipico (+5.1%), and EFG Holding (+4.6%).

In the red: Beltone Holding (-3.3%), Oriental Weavers (-2.3%), and Palm Hills Development (-2.3%).

Tags: