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MNI Peru CB Preview – Aug 2026: Hike Should Not Be Ruled Out
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Norges Bank is widely expected to leave its key policy rate on hold at 4.25% this week, despite placing weight on a hike in its most recent rate projections, as softer-than-expected inflation data has boosted the case for waiting and reassessing in the September forecast round.
August is an interim meeting, coming between the quarterly forecasts, and while Norges Bank's policy committee has made clear further tightening is likely irrespective of the news flow from the Iran conflict the precise timing has been left open with the central bank moving away from meeting specific guidance (see MNI INTERVIEW: Norges Head Sees Rate Hike Despite Iran Deal ).
The June guidance was that "it will likely be necessary to raise the policy rate further at one of the forthcoming monetary policy meetings” with its rate projection pricing in a Q3 hike.
The question of whether the move is more likely to come in August or September has swung in favour of the latter. Norges Bank had forecast that inflation on the target, core, measure (CPI-ATE) would be 3.3% in June and July but it fell to, and held at, 2.7% in those two months. The two undershoots makes a case to wait-and-see if the softness is fleeting but with inflation having overshoot target for some four years Governor Ida Wolden Bache is likely to continue to want to signal a readiness to hike.
OPTIONS
One option for Wolden Bache and her colleagues is to leave the June guidance in place. Another is to alter the guidance statement to something less explicit, such as highlighting the reassessment to come in the September Monetary Policy Report, while using her statement and press conference to continue to stress that the door is wide open to a hike.
How Norges Bank's analyses the recent softer inflation will be keenly watched -- if the emphasis is on ephemeral factors, most notably shifts in food prices and concerns over service sector inflation, are flagged up, the messaging will still be hawkish.
The currency, which often correlates closely with shifts in short-term oil price along with swings in global risk-on/off sentiment, is a wildcard for the Norwegian central bank but is currently close to Norges Bank's projected level. On the output side, Norwegian oil investment and production tends to be robust to price shifts and the bank's projection of a gentle decline in investment appears to be holding good (See MNI INTERVIEW: Oil Investment Lower As Norges Bank Expects ).
Aug-11 14:47Norway’s oil investment is set to continue albeit on a gently declining path in coming years, in line with Norges Bank's June predictions, despite the higher crude prices seen after the onset of the Iran war, Marius Menth Andersen, Chief Economist at Offshore Norge, told MNI in an interview.
With the Norwegian industry production close to full capacity and a number of major projects coming to an end, the near-term outlook remains broadly in line with the central bank’s prediction in its latest quarterly forecasts of a gentle decline in petroleum investment between 2026 and 2028, with current high oil prices having only a marginal effect, according to Andersen.
"We are not a significant swing producer in the market. It's the long-term outlook that shapes the investment outlook ... if you look at the investment spend on production ..which is the factor that could be affected by the short-term movements of oil prices, it has stayed pretty much in line with predictions at the year's start," Andersen said.
He foresees investment stabilising after 2028 but warns of political risks, with budget negotiations underway and parts of the Labour-lead governing coalition in favour of cutting back on oil production.
Oil investment is set to be around NOK270 billion in 2026, which is predicted to drop off around 5% next year, Andersen said.
"It's a steady downtrend until around 2028, I believe, before it flattens out ...we have to remember that we are dropping off from quite high levels. So, the downward trend in the coming years is to be expected if we move over the peak of investment, and then the investment level is set to stabilise around historical levels," he said.
DECLINES CURBED
In the June Monetary Policy Report Norges Bank, noted that its intentions survey indicated that petroleum investment would fall somewhat more in 2026 and 2027 than it had previously predicted but that the price rise following the closure of the Strait of Hormuz would "curb the decline." Andersen, however, stressed that recent price movements are only relevant at the margins.
"Norway is not a swing producer in the same way as American shale or OPEC volumes. We produce near full capacity, pretty much regardless of the short-term movement in oil and gas prices. High prices can, on the margin, incentivize some in-field drilling," he said, adding that developments in the Strait of Hormuz do not change the longer-term picture, which is of continued strong European demand for Norwegian gas and oil.
POLITICAL RISK
The Labour Party, which has been broadly supportive of the oil industry, formed a minority government after last year's election and it relies on support from three parties sympathetic to lowering oil and gas activity.
"In October, when the state budget is presented, they have the opportunity to strong arm the minority government into giving them some wins on the climate side, and that's a significant risk for us because every year they propose either new taxes or holds to exploration and so forth... they haven't gotten significant wins so far, but this introduces political risk into the companies investment decisions," Andersen said.
Aug-11 12:49
The Reserve Bank of Australia Board stands ready to raise the 4.35% cash rate if incoming data push back its current timeframe for returning inflation to target, which it sees occurring by December 2027, Governor Michele Bullock told reporters Tuesday.
The Board is not ruling out further rate increases if inflation remains above target for longer than currently forecast, Bullock said, after its unanimous decision to hold the cash rate steady as expected. (See MNI RBA WATCH: Board To Hold On Lower Q2 CPI Print)
“The message today is that in waiting, the Board isn't ruling out that there might be a need for further interest rate rises if we look like we're off a path which takes us with inflation remaining above the target for much longer than in the forecasts," she noted.
Tuesday's pause followed three 25-basis-point rate increases this year, which unwound all of 2025's monetary easing and demonstrated the RBA's commitment to bringing inflation down, Bullock said.
Monetary policy was now somewhat restrictive, she added, pointing to signs of slowing in the labour market, a rise in unemployment, softer economic growth and weaker housing activity as evidence that policy was working. However, slowing growth and a rising unemployment rate did not mean policy was too restrictive or that the RBA needed to reverse course, she said.
Markets firmed their expectations for another rate increase following the release of the RBA's latest forecasts and Bullock's appearance, with a November hike attracting a 54% probability and markets pricing in a 4.64% cash rate by March 2027.
UPSIDE RISKS
In its updated Statement on Monetary Policy, the RBA lowered its peak trimmed mean inflation forecast by 50bp to 3.3% in the December quarter. It still expects trimmed mean inflation, its preferred measure, to return to the 2–3% target band by December 2027, unchanged from its May outlook, based on a slightly lower market-implied cash rate path that sees the rate peaking at 4.5% by June 2027.
Despite the lower CPI forecast, Bullock said inflation risks remained firmly skewed to the upside, citing the Middle East conflict, inflation expectations, the pace at which higher costs feed through to consumer prices and the extent of excess demand.
Bullock said Board members held diverse views on the severity of inflation risks, but all were concerned about the potential for inflation to remain higher than expected.
INFLATION TIMELINE
Bullock noted the RBA's current timeframe for returning inflation to target was reasonable and consistent with its dual mandate, despite it holding above the target band for some time. The RBA's mandate gives it flexibility to bring inflation down over time while avoiding unnecessary costs to employment and economic activity, she said. Forecasts were inherently uncertain and the RBA would reassess its outlook as new data emerged and adjust monetary policy if its forecasts proved incorrect.
However, future supply shocks could require a policy response, particularly if they occurred frequently or began to lift inflation expectations. "[The RBA] has reacted firstly to the excess demand. We have also been reacting to what's been going on with the supply shock, and the risks that I pointed to are about supply shocks," she noted. "Given the circumstances we're in, we have limited ability to completely ignore any future supply shocks. We have to be very careful."
Aug-11 08:14
China's recent sharp decline in crude oil imports is likely to prove temporary as refiners gradually replenish inventories if oil prices ease, a senior energy economist told MNI, adding it is too early to conclude the conflict involving Iran has accelerated China's peak oil demand.
"The duration of the current pullback in imports will depend on how long the Strait of Hormuz remains closed and how oil prices move," said Lu Ruquan, president of the CNPC Economics & Technology Research Institute, a think tank under China National Petroleum Corporation.
Lu said the recent collapse in imports reflected temporary supply adjustments and weaker refining demand rather than a structural decline in oil consumption. Chinese firms are also unlikely to rush back into the market in a way that would sharply lift global prices, he added, pushing back against warnings that renewed Chinese buying could expose a supply shortage.
China's crude imports fell 20%, 29% and 41% y/y in April, May and June, respectively. June imports totalled about 29 million tonnes, or 7.1 million barrels per day, the lowest monthly level since October 2016 and well below the 2025 average of 11.6 million bpd, official data showed. (See MNI INTERVIEW: Less Demand Eases China's Oil Supply Pressure)
A temporary surplus of refined products also contributed to the decline, Lu said. Higher oil prices weakened demand, prompting refiners to cut operating rates and draw down inventories to limit losses.
Government policies also reduced China's reliance on imported crude. Without drawing on strategic reserves, authorities freed up the equivalent of about 200 million tonnes of additional supply by optimising refined-product exports, accelerating electric-vehicle adoption, increasing domestic oil production and expanding coal liquefaction and gasification, Lu said. Those measures largely offset the roughly 230 million tonnes of crude China imports annually through the Strait of Hormuz.
Over the medium to long term, Lu said China's crude import demand will depend on the relative economics of imported oil and domestic renewable energy.
While rising demand for petrochemical feedstocks has yet to offset the sharp decline in gasoline and diesel consumption, Lu described the transition as gradual and still in its early stages rather than evidence that China's oil demand has already peaked. Stronger economic growth would also lift demand for petrochemical products and support overall oil consumption, he said.
"If the Strait of Hormuz reopens and oil prices fall sharply, the shift to electric vehicles could slow," Lu added.
ENERGY SECURITY
Although China still imports more than 70% of its crude oil, its overall energy self-sufficiency rate is about 84%, supported by rapid renewable-energy deployment and abundant coal resources that amount to 5.9 trillion tonnes, Lu said, describing the country's energy system as "sensitive but not fragile".
Every 300 million tonnes of coal can be converted into roughly 100 million tonnes of oil equivalent, while coal liquefaction and gasification remain commercially viable when crude prices are around USD60-65 per barrel, he added.
Lu cautioned, however, that China's growing dependence on imported critical minerals represents a new strategic vulnerability. Copper, cobalt, nickel and lithium are essential to electrification, while China relies on imports for about 80% of its copper supply.
He argued competition for critical minerals is likely to become more intense than competition for oil, citing U.S. efforts to build critical-mineral supply chains and strategic reserves that exclude China.
Aug-11 07:12
Kevin Warsh's decision to roll back forward guidance and go silent on his economic assessment is a defensible, even necessary, break from the Powell Fed, and markets reacting badly to the shift are behaving "like an addict," former New York Fed economist Dominique Dwor-Frecaut told MNI, adding she expects the Fed to keep rates on hold through year-end.
"In reality, the world is a very messy and uncertain place. The risk with providing policy guidance is that you project more certainty than you actually have," she said in an interview.
The heavy Treasury sell-off that followed Warsh's July press conference, partly a kneejerk reaction to the new Fed chairman's refusal to spoon-feed markets, "is like trying to wean an addict," she said. "You take out the drugs, they don't take it well, even though in the long run it is in their own best interest."
The cold-turkey approach that Warsh has taken is tenable, not that the rookie Fed chair hasn't made missteps, said Dwor-Frecaut, current chief U.S. economist at Macro Hive.
At the press conference, he appeared comfortable letting markets do the Fed's tightening for it. And a Financial Times report last week citing people familiar with Warsh's thinking said he would consider raising interest rates in September if markets priced in higher borrowing costs -- implying Fed policy is dictated by markets.
"If the idea was the lack of credibility would push up long term rates, so you have to hike to make up for the lack of credibility -- I don't think Warsh or anyone on the FOMC would agree," she said. "You build credibility by taking good decisions."
Guidance that turns out wrong can add more volatility than the underlying economic surprises alone would generate, she said. And if the Warsh Fed makes the right decisions, the kind of volatile market reaction to pared-back guidance will likely calm, she said.
INFLATION COULD UNDERSHOOT
Hike expectations have already receded after a surprisingly soft July jobs report and a pullback in oil prices last week, and Dwor-Frecaut's base case is for the Fed to remain on hold through year-end on encouraging inflation data, she said.
Workers currently have little bargaining power, so cost shocks from tariffs or energy prices are being absorbed through lower real wages and reduced household income rather than passed through to broader prices, she said. Additionally, the improving external balance suggests that the U.S. economy is not overheating.
The Trump administration's immigration crackdown, wider economic uncertainty and potentially AI are dampening wage growth, she said.
"Somehow unemployment must not be a very good measure of the pressure on the labor market, otherwise wage growth would not be slowing the way it is today," she said. "My research house estimates July CPI is likely to undershoot the consensus, and that could sway people like (Minneapolis Fed President Neel) Kashkari because he's a risk management guy, and give more conviction to the doves." (See MNI INTERVIEW: Fed Set To Hike Rates Once This Year-Haslag)
Growth has stayed resilient because falling real household income has been offset by a falling savings rate, but that dynamic is unsustainable, she said. A flare-up in Middle East, an equity selloff or other shock could upset the fragile balance, though it is not her base case.
COMPETITION OF IDEAS
With Warsh refusing to engage in the economic discussion, markets need to widen their attention to other influential FOMC members and weigh their individual arguments.
"Having a chair stepping back, it gives more scope for FOMC members to form their own opinions," she said. "Having this discussion of ideas on based on their own merit, rather than based on who supports them, I think it's a very, very healthy development."
Reducing the number of meetings to six from eight and replacing the SEP and dot plot with something closer to the Bank of England's quarterly monetary policy report would improve Fed communication, she said.
"We need a much richer submission, which will tell us how the FOMC views the economy and their reaction function. We don't need policy guidance, but we need those two things, and if we can have them in writing a few times a year, it would be fantastic."
Aug-10 14:01
The Reserve Bank of Australia Board looks set to leave the cash rate unchanged at 4.35% when it meets next Tuesday, with attention shifting to how policymakers assess demand and whether recent signs of softer inflation are sufficient to rule out further tightening.
Markets have priced little chance of an Aug. 11 hike, but assign roughly even odds to one additional 25 basis point increase by year-end. A hold would mark the Board's second consecutive pause, following three consecutive rate increases this year that reversed 2025's cumulative 75bp of easing. (See MNI RBA WATCH: Bullock Keeps Hike Prospects Alive Despite Hold)
While several former RBA economists have argued the cash rate may still need to rise to 4.6% to contain persistent domestic inflation, a sustained housing downturn could dampen household spending through the wealth effect, reducing the need for further tightening. (See MNI INTERVIEW: Another RBA Hike In 2026 Below 50-50 - Ex-Econ)
For now, lower-than-expected inflation has given the Bank scope to pause and assess the impact of earlier rate increases, particularly as global uncertainty persists.
ECONOMIC DATA
Markets pared back expectations of further tightening after second-quarter inflation undershot forecasts. Headline CPI rose 0.6% q/q, below the 0.7% consensus and down from 1.4% in Q1, while the trimmed mean increased 0.8%, also below expectations and unchanged from the previous quarter. Annual headline inflation eased to 3.8% y/y in June from 4.0% in May, while the trimmed mean held at 3.6%, 10 basis points below market expectations.
Meanwhile, Cotality's national home value index fell a further 0.7% in July, following declines of 0.5% in May and 0.7% in June, leaving prices 1.6% below their March peak. Restrictive monetary policy, weaker buyer sentiment following the Budget and broader economic uncertainty continue to weigh on the market.
The RBA is likely to welcome softer housing conditions. Governor Michele Bullock recently said weaker demand growth is needed to return inflation sustainably to the 2-3% target, while stressing the key question is whether the monetary tightening delivered earlier this year will prove sufficient to achieve that outcome.
While CPI and housing data suggest less need for higher rates, both household spending and the labour market show room exists for a further increase should the board deem it necessary later in the year.
Household spending rose 0.8% in June to leave spending up 1.3% over the quarter, with almost half of the increase reflecting higher prices rather than stronger volumes, while Australia's unemployment rate held at 4.4%, in line with expectations, while employment surged by 76,300, well above the expected 15,000 increase.
FURTHER HIKE
While some former RBA officials argue the cash rate may need to rise, noting the Bank's recent comments on higher oil prices and second-round inflation risks were intended to caution markets, the debate remains live over how restrictive policy already is. Former RBA chief economist John Simon argued persistent domestic price pressures mean policy may still not be sufficiently restrictive, reiterating his view that the cash rate will likely need to rise to 4.6% by late 2026 or early 2027.
However, James Morley, professor of macroeconomics at the University of Sydney, said recent data suggested policy was already sufficiently restrictive. Weaker housing activity, softer consumer sentiment and signs of a cooling labour market indicate earlier rate increases are gaining traction, although another supply shock or a stronger-than-expected inflation outcome could still prompt further tightening.
Aug-07 08:27
Resilient exports should keep China's full-year container throughput growth above 5%, despite an expected H2 slowdown as the effects of front-loaded exports, tighter global monetary policy and softer demand from developed markets dampen the traditional peak shipping season, local experts told MNI.
Nationwide container throughput growth is forecast to ease to 4-5% in the second half after rising 5.9% in H1, resulting in full-year growth of about 5-5.5%, according to Xu Kai, chief information officer at the Shanghai International Shipping Institute.
"Continued resilience in exports and broader market diversification should underpin activity, while the moderation in H2 mainly reflects high global interest rates and weaker demand in Europe and the U.S.," he said.
The Pacific trade lane's peak season arrived unusually early in April and May, Xu said, adding that subdued inventory replenishment in Europe and the U.S. will limit shipping demand growth in the second half. (See MNI EM: EU Aims To Reduce China-Dependence, Avoid Trade War)
China's exports rose 13.4% year-on-year in the first half of 2026, with continued market diversification and shipments of green-energy products, including lithium batteries and wind turbines, as well as AI components, supporting container throughput, he said.
Meanwhile, cargo throughput is expected to grow 2-3% in the second half after rising 2.0% in H1, leaving full-year growth at around 2.5%, Xu estimated. Foreign-trade cargo should continue to outperform domestic cargo, while domestic bulk cargo remains in an adjustment phase as China's industrial and energy structures evolve, he added.
According to the Shanghai International Shipping Institute's Mid-Year Report, tensions in the Middle East have disrupted direct shipping services to the Persian Gulf, with some cargo rerouted through Southeast Asian hubs and ports outside the Gulf, reshaping regional transshipment patterns.
However, Xu said the overall impact on Chinese ports has remained limited because their competitiveness is driven primarily by extensive hinterland cargo volumes and diversified export markets rather than transshipment activity.
Xu said China has become an increasingly important stabilising force in global trade, with the smooth and efficient operation of its ports providing vital support for global supply chains and the recovery of the world economy.
Michael Zhong, founder of shipping information platform OneShipping, expects cargo throughput at Chinese ports to grow 2-3% year-on-year in the second half, while container throughput growth is likely to moderate to around 5%.
U.S. tariffs on Chinese goods have fallen significantly from a year earlier, while the tariff differential between China and other exporters to the U.S., including Southeast Asian countries, has also narrowed, Zhong said.
FREIGHT RATES
The Shanghai Containerized Freight Index (SCFI), which tracks Shanghai spot freight rates on global container routes, is expected to trade between 2,800 and 3,100 points in August before easing to 2,400-2,800 in September and October, Xu predicted. The index stood at 3,060 in late July, down from this year's high of 3,326 reached earlier in the month.
"If shipping through the Red Sea resumes fully and rapidly, the index could decline further to around 2,000-2,200 points," Xu added.
The outlook reflects increasingly loose market fundamentals as vessel supply continues to outpace demand. Global container fleet capacity reached 33.3 million TEU in the first half of 2026, up 6.1% year-on-year, exceeding the 5.3% increase in global container trade volumes, Xu continued.
Although deliveries of new vessels have slowed recently, fleet expansion will remain elevated in the second half, he added.
Xu cautioned that several geopolitical risks could still trigger sharp freight-rate volatility, including uncertainty over shipping through the Strait of Hormuz and the Red Sea, U.S. tariff policy and navigation conditions at the Panama Canal.
"The full resumption of Red Sea shipping represents the largest downside risk for freight rates," he said.
The China Containerized Freight Index (CCFI), which incorporates longer-term contract rates, is expected to ease gradually to between 1,750 and 2,000 over the next three months from around 1,900 in late July.
Despite weaker freight rates, China's export sector is expected to remain the most stable driver of global container shipping demand in the second half, supported by growing exports of AI components and green-energy products, Xu said. (See MNI EM INTERVIEW: Further Yuan H2 Appreciation Uncertain – Guan)
Zhong estimates that both indexes could decline by around 20% over the next three months. "The upward momentum in freight rates has largely run its course, with rates on China's key trade lanes to Europe and the U.S. having already peaked," Zhong said.
Aug-07 02:22
Prospects for the Reserve Bank of Australia to raise the cash rate again this year are slipping as policymakers weigh growing global uncertainty alongside the housing downturn and its impact on household spending through the wealth effect, reducing the need for additional tightening, former RBA economist Martin Eftimoski told MNI.
Eftimoski, who worked at the RBA from 2017 to 2021, estimated there was about a 40% chance of one further rate increase this year. The Bank would most likely elect to "kick the can down the road" as uncertainty in the global economy builds, he added, expecting the Board will hold at the next Aug. 11 meeting.
"On the balance of probabilities, the RBA is less likely to hike through the end of this year," he said, pointing to global uncertainty, particularly surrounding the U.S. 30-year Treasury yield, yen volatility and AI-related investment. "The RBA has good reasons to hold fire and wait because, more or less, the Australian domestic consumption story is now contained."
GEOPOLITICS
Markets currently assign around a 55% probability of a rate increase by December. While another hike would not surprise him, Eftimoski said policymakers were likely to place greater weight on evolving geopolitical and global economic risks than markets currently do.
"These are low-probability, high-impact risks that markets don't know how to price," he said. "The hawks probably think [the RBA] delayed a rate rise for too long and should have hiked at the last meeting. But the recent core inflation print suggests there's more slack in the economy than expected, and with the housing market slowing, they may prefer to wait and see how things evolve."
Eftimoski had previously expected the Bank to hike again at the August meeting, prior to the Q2 inflation print. (See MNI: RBA Likely To Hike Again In August - Ex Staff) However, if underlying inflation strengthens more than expected over Q3 and the Board concludes that further tightening was necessary, it would be more likely to act before year-end than wait until 2027, he added.
HOUSING MARKET
Noting the RBA has historically attached significant weight to the housing wealth effect, Eftimoski said what happens in the property market over the next six to 12 months "will play a major role in determining where the terminal cash rate ends up."
He said policymakers face a difficult trade-off between returning inflation to target and avoiding an unnecessarily sharp slowdown in activity. "The domestic consumption story is largely known, but geopolitical risks and other supply-side developments are still evolving," he said. "The Bank has been in a wait-and-see position for some time while inflation has remained persistent, but it'll also be wary of tightening enough to trigger a recession."
He cautioned, however, that any housing downturn could prove temporary given Australia's structural housing shortage.
Concerted U.S.-Japan intervention to support the yen would bolster the case for a Bank of Japan rate hike in September by easing political and public opposition to further policy tightening, former BOJ Executive Director Kenzo Yamamoto told MNI.
"It is natural that markets expect the BOJ to raise the policy rate in September, judging from recent developments," said Yamamoto, head of KY Initiative, citing the joint yen-buying intervention and comments by U.S. Treasury Secretary Scott Bessent.
The BOJ has been waiting for an opportunity to raise rates with broad support, including from the government, Yamamoto noted. "When the BOJ could not or did not want to raise rates, it argued that underlying CPI inflation had not yet reached the 2% target. Now markets are worried about the risk of the BOJ falling behind the curve, allowing the Bank to raise rates without attracting criticism."
Traders now see a 62% chance of a hike at the September meeting, up more than 10 percentage points since Monday.
YEN IMPACT
Downward pressure on the yen has eased somewhat following the joint intervention and Bessent's remarks that the U.S. "will not hesitate to participate in further joint intervention." Japanese Finance Minister Satsuki Katayama said Monday's action, which helped lift the yen about 3.2% against the dollar over the week to around JPY157.5, was aimed at countering "excessive volatility and disorderly movements" in the currency and pledged the government would not hesitate to take further action.
Yamamoto questioned the government's argument that recent dollar/yen moves had diverged from economic fundamentals. "If the exchange rate were truly far from fundamentals, intervention alone would trigger a sharp reversal," he said. Narrowing the U.S.-Japan interest-rate differential alone would not produce a sustained appreciation in the yen, Yamamoto argued.
"As long as the interest-rate gap remains wide, selling pressure on the yen will continue. In addition, the government's bias toward expansionary fiscal spending without clearly identifying funding sources has undermined confidence in fiscal discipline and contributed to yen weakness."
Yamamoto has warned since May that the BOJ has fallen behind the curve and called for a series of gradual rate hikes. (See MNI INTERVIEW: Ex-BOJ's Yamamoto Urges Gradual Hikes)
JGB PURCHASES
Yamamoto also criticised the BOJ's decision to suspend reductions in Japanese government bond purchases from April 2027 and maintain monthly purchases at around JPY2 trillion, saying markets viewed the move as weakening the Bank's commitment to balance-sheet normalisation.
"The BOJ has repeatedly argued that JGB purchases are part of monetary easing rather than government financing. If that is true, returning its JGB holdings closer to pre-easing levels should be the benchmark for judging that claim."
Yamamoto said that the BOJ needs to demonstrate more clearly that JGB purchases were not intended to finance government spending, estimating the BOJ's holdings of long-term JGBs would still total about JPY217 trillion in fiscal 2040, well above the roughly JPY100 trillion held before the launch of unprecedented monetary easing in 2013. The BOJ's massive asset purchases had enabled the government to issue debt well beyond what the market would otherwise have absorbed, effectively financing fiscal expansion, he argued.
Yamamoto also warned that the BOJ's June decision was so vague that it would struggle to resume reducing JGB purchases in the future. (See MNI BOJ WATCH: Uchida Flags More Hikes; No Timing Hint) Should long-term interest rates rise sharply, he said, the government could increase pressure on the BOJ to expand its bond purchases again.
Aug-06 07:54
Chinese fiscal authorities are likely to introduce additional government bond quotas in the second half to support consumption and investment as as local governments' debt-resolution efforts continue to absorb funds, policy advisors told MNI, adding guarantees and interest subsidies will play a larger role in supporting priority sectors and fiscal-monetary coordination.
The central government is expected to issue at least CNY500 billion of additional treasury bonds in H2, either by raising the fiscal deficit or issuing more special treasury bonds, an advisor to fiscal authorities told MNI, with the Standing Committee of the National People's Congress likely to approve the issuance in September. Beijing could also reactivate about CNY500 billion of unused local government special-purpose bond quotas if economic conditions deteriorate further, the advisor added.
With investment and consumption both weakening in Q2, GDP growth slipped below the government's target range, requiring fiscal policy to do more than simply accelerate implementation of existing measures, the advisor continued.
He noted last week's Politburo meeting said Beijing would "attach great importance" to economic difficulties and challenges, language rarely used previously, alongside pledges to "unveil additional policy measures" and "step up counter-cyclical efforts," signalling policymakers are increasingly concerned about the pace of the slowdown. (See MNI: PBOC Seen Cutting Rates, RRR Modestly In H2 – Advisors)
Zhao Xijun, co-dean of the China Capital Market Research Institute at Renmin University, said weak consumption was the main reason for slower Q2 growth, noting additional measures must be taken to lift consumption’s contribution to GDP growth from 2.1 percentage points in H1 to at least 3 pp, helping full-year growth reach around 4.7%. He highlighted the slow pace of fiscal spending in H1 and called for fiscal support alongside greater investment in areas such as elderly-care infrastructure.
Fiscal expenditure rose just 1.5% y/y, well below the full-year target of 4.4%, contributing to a CNY971.5 billion increase in government deposits held in the banking system.
Over the longer term, Zhao expects China's fiscal role to expand further as public services improve, implying the deficit-to-GDP ratio may eventually rise above the current 4%, although only gradually as economic growth and tax revenues permit. (See MNI INTERVIEW: China Likely To Announce New Fiscal Stimulus)
FISCAL-MONETARY COORDINATION
Dong Ximiao, chief economist at Merchants Union Consumer Finance, expects authorities to accelerate issuance of ultra-long special treasury bonds and local government special-purpose bonds in H2 to support investment. He said fiscal interest subsidies would increasingly complement the PBOC's structural monetary tools by supporting equipment upgrades, consumer goods trade-in programmes and technological innovation. Dong also suggested extending interest subsidies to auto loans and first-home mortgages to stimulate vehicle sales and the property market.
The advisor added fiscal authorities will expand support by providing guarantees and interest subsidies for corporate bond issuance of technology companies and enterprises involved in the "six networks", including electricity, computing infrastructure and railways.
Since 2025, fiscal authorities and the PBOC have jointly subsidized technology-innovation bond issuance to lower financing costs for high-tech firms.
DEBT RESOLUTION
The advisor said local government debt restructuring has significantly constrained fiscal spending, contributing to the 2.4% y/y decline in infrastructure investment in H1.
Most local government special-purpose bond issuance has been used to refinance existing debt rather than fund new projects, strengthening the case for additional bond quotas, he said.
China's Ministry of Finance launched a CNY12 trillion local government debt-resolution programme in 2024, targeting the elimination of implicit local debt by 2028.
Around CNY3 trillion remains to be resolved, according to the advisor, who warned that debt restructuring would continue to weigh on local governments' ability to support growth over the next three years. Debt pressures should begin to ease after 2029, he said.
Aug-06 06:45About
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