AsianBondsOnline Newsletter (15 September 2014)

To read the full report, data and graphs go to http://www.asianbondsonline.adb.org/newsletters/abowdh20140915.pdf?src=newsletter&id=uWidK3KdmgXVUWes9IgIcqKp1miwxx

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News Highlights - Week of 8 - 12 September 2014

Bank Indonesia’s (BI) Board of Governors decided on 11 September to maintain the BI rate at 7.50%, and to retain the Lending Facility rate at 7.50% and the Deposit Facility rate at 5.75%. The decisions were made to keep inflation within BI’s targets of 4.5±1% for 2014 and 4.0±1% for 2015, and to reduce the current account deficit. The Bank of Korea’s Monetary Policy Committee decided on 12 September to keep the base rate steady at 2.25%. In the Philippines, the Monetary Board of the Bangko Sentral ng Pilipinas decided on 11 September to leave unchanged the reserve requirement ratios and to raise by 25 basis points (i) the overnight borrowing (reverse repurchase) rate to 4.0%; (ii) the overnight lending (repurchase) rate to 6.0%; and (iii) interest rates on term reverse repurchases, repurchases, and the Special Deposit Account (SDA) facility.

*     Consumer price inflation in the People’s Republic of China (PRC) moderated to 2.0% year-on-year (y-o-y) in August from 2.3% in July, led by a slower y-o-y increase in food prices. Meanwhile, the Producer Price Index (PPI) for the PRC’s industrial sector decreased 1.2% y-o-y in August following a 0.9% fall in July. In Hong Kong, China, the PPI for the industrial sector fell 0.4% y-o-y in 2Q14 after registering a 6.2% drop in 1Q14. In Japan, producer prices rose 3.9% y-o-y in August following a 4.3% increase in July.

*     Japan’s 2Q14 real gross domestic product (GDP) growth was revised to -1.8% quarter-on-quarter (q-o-q) from its preliminary estimate of -1.7%, while the country’s y-o-y industrial production growth for July was also revised to -0.7% from -0.9%. Industrial production growth in the PRC moderated to 6.9% y-o-y in August from 9.0% in July. Hong Kong, China’s y-o-y industrial production growth inched up to 2.2% in 2Q14 from 2.1% in 1Q14. In Malaysia, industrial production growth slowed to 0.5% y-o-y in July from 7.0% in June as manufacturing and electricity output growth eased, and mining production contracted at a faster pace in July.

*     The PRC’s merchandise trade surplus widened to US$49.8 billion in August from US$28.2 billion a year earlier as merchandise exports grew 9.4% y-o-y and importable goods contracted 2.4%. Japan posted a current account surplus of JPY417 billion in July, a reversal from a deficit of JPY399 billion in June. The Philippines’ merchandise export growth stood at 12.4% y-o-y in July, down from June’s 21.3%, with July’s export value at US$5.5 billion.

*     Hong Kong, China sold a US$1 billion 5-year sukuk (Islamic bond) based on an ijarah (leasing) structure last week. Investors in Asia bought 47% of the total, followed by investors from the Middle East (36%), the US (11%), and Europe (6%). By investor type, financial institutions purchased 55%, followed by the public sector (30%), fund managers (11%), insurance companies (3%), and private banks (1%). China Great Wall Asset Management raised US$500 million from a 3-year US$-denominated bond sale carrying a coupon rate of 2.5% and a provisional (P)A1 rating from Moody’s. China Railway Corporation issued a CNY15 billion 7-year bond at a coupon rate of 5.18% last week.

*     Local currency government bond yields fell for all tenors in the Republic of Korea and Viet Nam, and for most maturities in Thailand last week. Yields rose for all tenors in Malaysia and Singapore, and for most maturities in Indonesia and Hong Kong, China. Yield movements were mixed in the PRC and the Philippines. Yield spreads between 2- and 10-year tenors widened in Hong Kong, China; Indonesia; the Republic of Korea; the Philippines; and Singapore; while spreads narrowed in the PRC, Malaysia, Thailand, and Viet Nam last week.