Australia appears to rule out rate cuts for the next six months

The Reserve Bank of Australia Board has left interest rates untouched at its August meeting, leaving the cash rate target unchanged at 4.35% and the interest rate paid on Exchange Settlement balances unchanged at 4.25%.

An RBA statement noted that the economic outlook is uncertain and recent data have demonstrated that the process of returning inflation to target has been slow and bumpy. Inflation remains above its 2-3% target and is proving persistent. Recent data showed that CPI rose 3.9% over the year to the June quarter. In year-ended terms, underlying inflation has now been above the target's midpoint for 11 consecutive quarters. And quarterly underlying CPI inflation has fallen very little over the past year. The statement concluded by emphasising that returning inflation to target within a reasonable timeframe remains the RBA’s highest priority. 

With that in mind, in the subsequent press conference, RBA Governor Michele Bullock suggested that the RBA will not make any rate cuts in the next six months.

“But near term ... the board’s feeling is that the market path at the moment is pricing in interest rate reductions by the end of this year,” Bullock noted. “I think the board’s feeling is that the near term by the end of the year, in the next six months, that doesn’t align given what the board knows at the moment. And given what the forecasts are, that doesn’t align with their thinking about interest rate reductions at the moment.”

 

Southeast Asia could outpace China in GDP and FDI growth in the next decade

Southeast Asia is likely to outpace China in gross domestic product (GDP) and foreign direct investment (FDI) growth over the next decade, according to the report ’Navigating High Winds: Southeast Asia Outlook 2024 – 2034’ from the Angsana Council, Bain & Company, and DBS Bank.

The GDP of the top six economies in Southeast Asia (SEA-6) is projected to grow at an annual rate of 5.1% on average, with Vietnam and the Philippines driving the region’s growth, each expected to exceed 6%, and Indonesia tailing close at 5.7%. SEA-6 has attracted more FDIs than China for the first time in a decade. In 2023, SEA-6’s FDI amounted to US$206bn, while China recorded US$43bn. Between 2018 and 2022, SEA-6 grew its FDI by 37%, compared to China’s 10%.

Over the past 30 years, Southeast Asia’s GDP growth has been moderate, with Vietnam succeeding as the regional leader in most metrics. SEA-6 grew significantly slower than China or India. Between 1993 and 2003, real GDP growth in the SEA-6 countries averaged 3.8 times. In comparison, China experienced a much higher GDP growth of 11 times, while India saw a growth rate of 6.6 times.

One notable aspect is that most Southeast Asian countries saw their manufacturing value-added (MVA) as a share of GDP peak in the 2000s. The region then ’prematurely de-industrialised’ as China became more competitive.

Yet, Southeast Asia has improved its fundamentals for a resurgence in growth. Southeast Asia’s domestic capital formation is increasing steadily, reflecting businesses’ confidence in most countries in the region. In the past decade, the area has strengthened its key sectors, such as export-oriented manufacturing and semiconductor packaging, and attracted investments in growth sectors, such as data centres. The rise of technology-enabled disruptors (TEDs) has introduced increased competition and innovation even in traditional sectors of the economy. Countries such as Malaysia, the Philippines, and Indonesia have refocused their strategies towards growth, while Vietnam has already raced ahead of the pack.

Despite a slowdown in Vietnam, it is still expected to lead the region to grow at 6.6% GDP growth on average over the next decade. Vietnam’s export-oriented economy is well-positioned to capture “China + 1” opportunities. Its domestic ecosystem promotes healthy inter-provincial competition and cultivates a strong workforce. This combination sets Vietnam up well to attract diverse investment sources while developing its economy.

The Philippines, expected to grow at 6.1%, benefits from a pro-growth administration that is prioritising infrastructure investments, particularly with renewable energy projects garnering investor interest. It can also reap demographic dividends, unlike Singapore and Thailand which will face challenges in this area. Indonesia is expected to grow at 5.7%, with strong potential to exceed this forecast given the availability of resources, a growing population and workforce, and a thriving ecosystem of entrepreneurship and innovation. It needs to improve its MVA, going beyond commodities, and embrace keeping the economy open and competitive. Likewise, Malaysia, which is expected to grow at 4.5%, shows signs of doing well with recent efforts to attract FDI, leveraging its past successes in growth sectors such as semiconductors. It could also be the main beneficiary of flow through of opportunities from Singapore, particularly reflected in the sharp uptick in data centre investments. Malaysia’s data centre capacity has the potential to more than double the capacity of Singapore, which hitherto has been the leader in the region.

 

Tide of outflows in UK equities at slowest in three years as optimism grows 

Outflows from UK-focused equity funds fell to their lowest level in July since investors turned their backs decisively on their home market three years ago, according to the latest Fund Flow Index from Calastone. Investors sold a net £207m of their UK-focused fund holdings, the best result for the sector since August 2021 and less than one-third of the average monthly outflow year-to-date.

The best day for UK equity funds was Friday, 5 July, the day after the General Election, which saw Labour sweep to power with a large majority. Investors added a net £59m to their UK-focused holdings on that day, more than half the net buying of equity funds of all kinds.

July’s net improvement was driven by a reduction in selling by existing holders – it fell a tenth below its long-run monthly average, and by an increase in buying, which was a tenth above average. It is significantly positive when both indicators move in this way.

The positive development for UK-focused funds came against a backdrop of enthusiastic buying of equity funds in general. July’s inflows of £2.19bn were the highest since March this year and were consistent with 2024’s pattern of record buying. The strong buying took the January to July net inflow to £13.58bn, the best seven-month period on Calastone’s ten-year record. Moreover, four of the best ten months for equity funds in the last decade have been in 2024, including July.

The fund sectors that benefitted the most included North America (up £1.12bn), where inflows rebounded after drying up in June, and emerging markets, which saw record net buying of £424m. In both cases, inflows ramped up in the second half of the month following a sharp correction in the S&P 500 and global emerging market stock indices, respectively. Asia-Pacific was the only other geographical equity fund sector to see outflows in the month.

Among other asset classes, money market funds had their best month of the year (up £432m) and fixed income funds, buoyed by hopes of rate cuts finally arriving, saw inflows return (up £84m) after two months of net selling. Meanwhile, property funds had their least bad month since September 2023, with outflows shrinking to £19m.

 

IFC and Citi to support sustainable supply chain finance in Mexico

International Finance Corporation (IFC) and Citi have agreed to implement a US$500m facility in Mexico as the first project under the umbrella of a US$2bn sustainable supply chain finance programme focused on emerging markets signed by the two institutions. 

This is the largest project to date under IFC’s Global Supply Chain Finance Program (GSCF), which was launched in 2022 as part of IFC’s response to global supply chain disruptions. The GSCF is designed to help address the supply chain finance gaps for SMEs and expand access to sustainable supply chain finance.

This facility builds on IFC’s advisory work in Mexico related to the development of local credit infrastructure (including e-invoice financing) and the introduction of new reverse factoring and other asset-based financing products. IFC has been actively working with Mexican authorities and stakeholders to strengthen the legal foundation of supply chain finance markets and hopes this programme supports the continued growth of the financing provided by Citi and other market participants.

“The role of trade and supply chain finance in facilitating the goods and services essential for sustainability is paramount, and this programme will enable suppliers in Mexico, some of whom may not traditionally be considered bankable, to receive such financing,” said Nathalie Louat, Global Director of Trade and Supply Chain Finance at IFC.

 

Philippines looks to enhance settlement of e-payments

The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) has approved amended guidelines on the “Settlement of Electronic Payments under the National Retail Payment System (NRPS) Framework” as part of ongoing efforts to ensure the integrity and efficiency of the payment system.

The revised guidelines provide operational flexibility to automated clearing houses (ACHs) organised under the NRPS Framework. ACHs established under the NRPS are InstaPay, a real-time, low-value digital payments facility serving as a substitute for cash transactions, and PESONet, a batch electronic funds transfer service that is a viable alternative for cheques and recurring payments.

The Circular requires prior BSP approval for new rules or enhancements to the settlement of e-payments under the Manual of Regulations for Payment Systems (MORPS). This ensures that all enhancements to the settlement guidelines of ACHs are thoroughly reviewed and approved by BSP before implementation.

Under the policy, ACHs may now lodge requests with the BSP when they deem adjustments necessary to enable more settlement cycles, support faster settlement, and improve the overall efficiency of e-payments. For instance, subject to BSP approval, an ACH may recommend using a particular demand deposit account (DDA) maintained with the BSP when settling e-payments instead of separate DDAs. This can be requested in view of evolving circumstances, or when there are new use cases.

 

Nacha adds Visa as Preferred Partner

Nacha has announced that Visa has joined its Preferred Partner programme for ACH Experience, Open Banking and Account Validation.

Through Tink, an open banking platform acquired by Visa in 2022, Visa combines its payments and open banking expertise to build innovative products that aim to optimise ACH payment experiences, making it easier for users to connect accounts and provide trusted parties with access to their financial data. 

Once consumer-permissioned data is integrated, account and balance details can be instantly verified to facilitate faster ACH payment set-up and more seamless payment flows.