BIS warns against slashing interest rates too soon

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. Traders expect the Bank of England could follow suit in August after deciding in June to leave rates unchanged.

All eyes will be on Washington this week as the US Fed releases its June meeting minutes and a growth forecast on Wednesday. Some think the Fed could start cutting rates in September, though the case for that has cooled of late.

“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.

THE CLOSING BELL: TADAWUL-

The TASI fell 0.4% yesterday on turnover of SAR 5.3 bn. The index is down 2.4% YTD.

In the green: Talco (+9.9%), Modern Mills (+9.9%) and Miahona (+8.4%).

In the red: Sasco (-5.7%), Raydan (-4.7%) and Bupa (-4.0%).

THE CLOSING BELL: NOMU-

The NomuC fell 0.6% yesterday on turnover of SAR 38 mn. The index is up 6.6% YTD.

In the green: Saudi Top (+10.4%), Enma Al Rawabi (+9.3%) and Armah (+6.9%).

In the red: Future Care (-11.2%), Paper Home (-8.0%) and NBM (-6.7%).

CORPORATE ACTIONS-

Shareholders of Tadawul-listed SAL Saudi Logistics have approved the board’s recommendation to distribute a dividend of SAR 140.8 mn at SAR 1.76 for 1Q 2024, according to a filing to Tadawul (pdf). They also approved disbursing SAR 272.8 mn in dividend at SAR 3.41 for Q2, Q3 and Q4 2023.

Shareholders of Tadawul-listed Retal Urban Development have signed off on the board’s proposal of a 2 mn share buyback for its employee stock ownership program, it said in a filing to Tadawul (pdf). The transaction will be financed through the company’s own resources.

Tadawul-listed Tabuk Cement will begin distributing a dividend of SAR 22.5 mn at SAR 0.25 per share for FY 2023 starting Tuesday, 16 July, it said in a disclosure to Tadawul.

Shareholders of Tadawul-listed telecom giant Mobily have approved the board’s recommendation to distribute SAR 1.1 bn in dividend at SAR 1.45 per share for FY 2023, according to a regulatory filing (pdf). The distribution date was set for Monday, 15 July.