Aurelia Butler

JERUSALEM/LONDON (Reuters) – A lower than expected Israeli inflation reading will still not allow the central bank to resume its rate cutting cycle anytime soon with policy makers constrained by Israel’s war against Hamas, analysts said.May inflation came in steady at 2.8%, well below a Reuters consensus of 3.2%, taking markets by surprise, but some analysts remain entrenched in their views that it is not the time for the Bank of Israel to deliver more cuts. The inflation rate is now within the 1%-3% annual target and the global backdrop is one of easing policy, with many central banks in emerging economies well down the easing path and major peers, bar the U.S. Federal Reserve, headed the same way. “If a war was not going on with elevated geopolitical risks, one could make a case for monetary loosening,” said Jonathan Katz, chief economist at Leader Capital Markets. “Elevated risk is the overriding monetary consideration at the moment,” he said. “Clearly, if a ceasefire is reached … this (May) CPI print would provide support for the doves on the (monetary) committee.”The war with Hamas is now in its ninth month and shows little signs of ending, while tensions have intensified on the northern border with Hezbollah in Lebanon to keep Israel’s risk premium high – a key focus for the Bank of Israel since the war began in October.While dollar-shekel has been largely steady, spreads between Israel dollar denominated bonds and U.S. government bonds have widened in recent weeks. The BOI lowered its benchmark interest rate in January by 25 basis points to 4.5% following 10 straight aggressive rate increases. The next decisions are due on July 8 and Aug. 28.The central bank has cautioned the easing cycle will be far more gradual than the front-loaded hikes that took the key rate from 0.1% to 4.75% in less than two years in 2022 and 2023. VOLATILE AIR FARESSticky inflation, bond market expectations of an inflation rate of 3.1% in a year’s time and geopolitical risks had already prompted some analysts to push their expectations for rate cuts further out. JPMorgan now predicts one 25 basis point cut in the third quarter, compared to three cuts of that magnitude it expected to see a month ago. Goldman Sachs projects 25 bps cuts in both the third and the fourth quarter – although it concedes the timing is hard to call with the level of uncertainty. “We maintain a relatively dovish view on the medium-term outlook for Israeli inflation and rates as we think more favourable CPI prints in the coming months and a reduction in shekel volatility will enable the BOI to restart its cutting cycle in Q3 at the pace of 25 bps a quarter,” it said.Others are less optimistic, with those with such dovish views in the minority of the forecasts seen by Reuters. “We expect the BOI to err on the side of caution and not offer any more rate cuts this year,” said Brahim Razgallah at Barclays. The central bank and private economists had initially forecast about 1 percentage point of cuts in 2024.Mizrahi Tefahot chief strategist Yonie Fanning, said markets seem to have 1.5 rate cuts priced in over the next year – a figure unchanged by May’s inflation reading.BOI Governor Amir Yaron told Reuters after the last rates decision on May 27 that rates could not decline as long as inflation pressures persisted and Israel’s war against Hamas remained uncertain, driving up government spending.One issue for investors as well as the central bank and economists is the CPI itself. The April index was higher than expected largely due a nearly 20% rise in notoriously volatile international air fares, while the same item fell 15% in May to shave off 0.4 points.”The surprise in May’s CPI (does not) signal a shift in the inflation environment but rather more ‘noise’ around flight prices,” said Bank Hapoalim Chief Economist Victor Bahar, who also cited higher wages and an expansion of the government’s budget deficit as adding to price pressures.As such, “the interest rate will not decrease before the U.S. Fed lowers rates”, he said. More

LONDON (Reuters) – The Bank of England kept its main interest rate unchanged at a 16-year high of 5.25% on Thursday ahead of a July 4 election, but some policymakers said their decision not to cut rates was now “finely balanced”.The BoE’s Monetary Policy Committee voted 7-2 to keep rates on hold, in line with economists’ expectations in a Reuters poll. Deputy Governor Dave Ramsden and external MPC member Swati Dhingra remained the only policymakers to support a cut to 5%.BoE Governor Andrew Bailey said in a statement alongside the decision that it was “good news” that the latest data had shown inflation was back at its 2% target, but that it was too soon to cut rates.”We need to be sure that inflation will stay low and that’s why we’ve decided to hold rates at 5.25% for now,” he said.Bailey’s statement differed from last month, when he said he was “optimistic” that data was moving in the right direction for a rate cut.Sterling fell against the U.S. dollar after the announcement and British government bond yields dropped as investors saw a greater chance of an early rate cut. Markets priced in an 88% chance of a first quarter-point cut by September’s meeting, up from 74% before Thursday’s decision.The BoE vote follows a long-trailed decision by the European Central Bank earlier this month to start to cut rates, while financial markets do not expect the U.S. Federal Reserve to lower borrowing costs until late this year.A Reuters poll of economists published last week showed most expected a rate cut on Aug. 1 after the BoE’s next rate decision.”We still expect the MPC to cut rates in August but this is not a done deal – they remain very data-driven so the evolution of key indicators over the coming month will be key,” said Alpesh Paleja, interim deputy chief economist at the Confederation of British Industry.Any cut is likely to be too late for Prime Minister Rishi Sunak, whose Conservative Party is around 20 points behind the opposition Labour Party in the pre-election polls.While Sunak has sought credit for the fall in inflation since he took office in October 2022, when it was at a 41-year high of 11.1%, Labour blames high mortgage rates on economic mismanagement by the Conservatives’ previous leader, Liz Truss.The BoE said the upcoming election had no impact on its decision. RISING INFLATIONThe BoE expects inflation to rise above target as the effect of past energy price falls drops out of annual inflation data, and repeated its May forecast for inflation to be around 2.5% in the second half of 2024.In a sign the central bank may be getting closer to cutting rates, the BoE policy minutes said the decision to keep rates on hold had been “finely balanced” for some MPC members.The BoE said indicators of inflation persistence – chiefly wage growth and services inflation – had moderated since its May meeting but remained high.The MPC members whose views on a rate cut were “finely balanced” placed less weight on higher-than-expected May services inflation than others.They viewed the higher-than-expected reading as reflecting a nearly 10% rise in Britain’s minimum wage and annual indexed rises in prices that reflected past inflation – factors they did not expect to have as big an upward effect on future inflation.But for other MPC members, the high services price inflation and the fact that wage growth had been faster than standard economic models had predicted reinforced their view that it was too soon to cut rates.Services price inflation has fallen less than the BoE expected at its May meeting – only declining to 5.7% rather than 5.3% – and private-sector wage growth is almost twice the rate the BoE judges as compatible with 2% inflation.Since the start of the election campaign the BoE has been in a self-imposed period of silence, cancelling public events.Before that, BoE Chief Economist Huw Pill described an excessive focus on a June rate cut as “ill advised” but both he and Deputy Governor Ben Broadbent – who steps down at the end of this month – said a rate cut over the summer was possible.The BoE began to raise rates in December 2021, earlier than other major central banks, and they reached their current peak in August 2023. (This story has been corrected to say ‘bond yields dropped’ not ‘bond prices dropped,’ in paragraph 6) More

SINGAPORE (Reuters) – Singapore’s banking sector, including wealth management, poses the highest money laundering risk in the city-state, the government said in a money laundering risk assessment report published on Thursday.Banks had higher exposure to money laundering threats and could be more easily exploited due to the sheer volume of transactions they handle and their exposure to customers from high-risk jurisdictions, the home affairs ministry, the central bank and the finance ministry said in a statement.This is the latest national risk assessment report since the previous one was published in 2014. The findings in the updated report will guide ongoing efforts to ensure that Singapore’s anti money laundering regime “keeps pace with the identified risks”. The report comes after Singapore busted a $2.24 billion money laundering ring run by foreigners, with the last of 10 offenders sentenced on June 10.The criminals held money in bank accounts in Singapore and converted some into real estate, cars, handbags and jewellery. Since the money laundering case emerged last year, the government has set up an inter-ministerial panel to review the anti-money laundering regime and sharpened their policing of the inflows of wealth and wealthy individuals.In the new risk assessment report, Singapore said its key money laundering threats stemmed from fraud – particularly cyber-enabled fraud – organised crime, corruption, tax crimes and trade-based money laundering.The report also identified new risk sectors not included in the last report. These are digital payment token services providers and precious stones and precious metal dealers. “Singapore’s position as an international financial centre and as a trading and transit hub with a highly externally oriented economy exposes it to the risks of criminals exploiting our economic openness, financial system and business infrastructure to launder or move illicit funds and assets,” the joint statement said. Singapore has benefited from strong inflows of wealth into Asia due to its political stability, low taxes, and policies favourable towards family offices and trusts.The Asian financial hub had assets under management of S$4.9 trillion ($3.6 trillion) in 2022. As at end 2022, 76% of Singapore’s assets under management originated from outside Singapore.The number of family offices or one-stop firms that manage the portfolios of the wealthy in the city-state rose to around 1,400 last year from 1,100 a year ago, according to government statistics. ($1 = 1.3513 Singapore dollars) More

ZURICH(Reuters) -The Swiss National Bank cut interest rates on Thursday for the second time running, pointing to easing price pressures that allowed it to maintain its position as a front-runner in the global policy easing cycle now underway.The Swiss franc weakened against other currencies and stocks gained after the central bank cut its policy rate by 25 basis points to 1.25%, as expected by two-thirds of analysts polled by Reuters, following a quarter-point reduction in March.The SNB’s decision had been finely balanced, given a recent rebound in economic growth and a break in the trend of gently falling inflation in Switzerland.”The underlying inflationary pressure has decreased again compared to the previous quarter,” SNB Chairman Thomas Jordan said. “With today’s lowering of the SNB policy rate, we are able to maintain appropriate monetary conditions.”Jordan pointed to the SNB’s inflation forecasts, which were tweaked downwards and enabled the reduction in interest rates.Even at the furthest end of its forecasts – covering the first quarter of 2027 – the SNB now expects inflation at 1.0%, well within its 0-2% target range.The recent rise of the Swiss franc, driven by rising political uncertainty in Europe pushing investors towards the safe haven currency, was also highlighted by Jordan.The franc has gained 4.5% against the euro in the past month on political concerns, including the upcoming French elections, which could see the far right win power.The SNB was paying close attention, Jordan said.”We are ready to be active on the foreign exchange market and that can go in both directions,” he told reporters.ING economist Peter Vanden Houte said the rate cut was not a big surprise given the recent strengthening of the franc.”With decent Swiss GDP growth in the first quarter there was no real urgency for the SNB to cut rates, but given the still benign inflation outlook the SNB saw a window to ease,” said Vanden Houte. “For the SNB it was more a rate cut because it could, not because it should.” Various factors lie behind Switzerland’s low price pressures, including an energy mix that makes the country less exposed to oil and gas costs, wage restraint, and protection against imported price inflation from the strong franc.STICK OR CUT?On a busy day for central banks on Thursday, the Bank of England is also due to announce its latest decision, with economists expecting it to keep its rates unchanged.Norway’s central bank held its rates steady.Thomas Gitzel, chief economist at VP Bank Group, said the SNB had done the right thing by lowering rates again. Had it not, “it could have created the impression the SNB was unsure about its key interest rate reduction in March.”Cooling inflation allowed the SNB to become the first major central bank to lower rates at its last meeting.It has since been followed by the European Central Bank, which last week cut rates for the first time in five years.Canadian and Swedish central banks have also started to bring down borrowing costs that were lifted to tackle the post-pandemic inflation surge. The U.S. Federal Reserve last week, however, held rates steady and pushed out the start of rate cuts to later this year.Economists said that Thursday’s cut narrowed the scope for more easing for the Swiss central bank, with one more quarter-point move in September a possibility, but not a given.”With the latest rate cut, the policy rate is now closer to its terminal value, which we estimate at 1.00%,” said Maxime Botteron, economist at UBS in Zurich, referring to a potential end point of the current easing cycle. “This means that the potential for additional cuts is limited.” More