Aurelia Butler

KARACHI (Reuters) – Pakistan’s central bank is widely expected to hold its key interest rate at a record 22% for the seventh straight policy meeting on Monday as Pakistan gears up for an International Monetary Fund board approval and talks on a longer term programme. Monday’s policy decision will be followed by the fund’s executive board meeting to discuss the approval of $1.1 billion in funding for Pakistan, which is the last tranche of a $3 billion standby arrangement with the IMF secured last summer to avert a sovereign default. The median estimate in a Reuters poll of 14 analysts predicts the State Bank of Pakistan (SBP) will hold rates steady.Four analysts are forecasting a 100-basis-point (bps) cut, while two expect a 50-bps cut on Monday. Eight respondents expect a rate cut before Pakistan signs a new programme with the IMF. There is another MPC meeting on 10 June 2024, which is possibly before Pakistan gets another IMF Programme.The South Asian nation is seeking a new long-term, larger IMF loan. Pakistan’s Finance Minister, Muhammad Aurangzeb, has said Islamabad will begin talks with the fund next month, and could secure a staff-level agreement on the new program by early July. Pakistan’s key rate was last raised in June to fight persistent inflationary pressures and to meet one of the conditions set by the IMF for securing the bailout.Pakistan’s Consumer Price Index (CPI) for March rose 20.7% from the year before, slowing down partly due to the “base effect”, touching a record high of 38% in May 2023. Tahir Abbas, head of research at Arif Habib Limited said that the central bank is unlikely to cut rates before getting a new IMF programme. “The monetary policy will also consider the inflationary outcome of tensions in the middle east and its impact of fuel prices, along with the Fed’s delay in monetary easing,” he added. “Expect a symbolic reduction in the current quarter (till June), with aggressive cuts to follow in the September quarter as the government has to roll over approximately 6.7 trillion rupees of maturing domestic treasury bills in the last quarter of the calendar year,” said Mustafa Pasha, CIO of Lakson Investments. He added that by then there will be greater clarity on inflation and FX inflows. “Historically the SBP has cut rates in the 1st year of an IMF program and we expect the policy rate to settle around 17% by December.”# Organization/Name MPC Rate cut Expectation before new IMF deal? 1 Adnan Sheikh 0 No 2 AKD Securities 0 No 3 Ammar Habib Khan 0 No 4 Arif Habib Limited 0 No 5 EFG Hermes -100 Yes 6 FRIM Ventures 0 Yes 7 Ismail Iqbal Securities -50 Yes 8 JS Global Capital -100 Yes 9 Lakson Investments -50 Yes 10 Pak Kuwait Investment Co -100 Yes 11 Spectrum Securities 0 No 12 Suleman Maniya -100 Yes 13 Topline Securities 0 Yes 14 Uzair Younus 0 No Median 0 Yes More

BENGALURU (Reuters) – The global economy is likely to carry its solid momentum for the rest of the year and into 2025, defying earlier expectations of a slowdown, according to a Reuters poll of economists who said stronger growth than forecast was more likely than weakness.That shift in the growth outlook brings its own set of challenges for central banks, which raised rates in quick succession to try and drive inflation down to target but now may have to wait even longer before considering rate reductions.Among bigger economies, the United States and India were expected to contribute the most to the pickup in growth. There was no deterioration in the consensus view for the euro zone or No. 2 economy China either, according to a March 27-April 25 Reuters poll of 500 economists covering 48 economies.Global growth was forecast at 2.9% this year, faster than 2.6% in a January poll, followed by 3.0% in 2025. More than 90% of common contributors upgraded their views and still said there was a significant chance growth could be even stronger.A 60% majority of economists, 98 of 162, said the global economy this year was more likely to grow faster than they expected than undercut their predictions. “We are continuing to be surprised by the resilience of the global economy. Now, part of that is we entered the year with subdued expectations, we thought that there would be a deceleration this year,” said Nathan Sheets, global chief economist at Citi.”So far we’ve been marking up growth for the global economy in a number of places including major economies like the U.S. and China, Europe to some extent as well. So it’s feeling solid.”On the flip-side, strong growth was expected to keep inflation and interest rates higher for longer. More than three-quarters of the central banks covered, 16 of 21, were expected to still be dealing with above-target inflation by year-end, up from 10 in the January quarterly poll. Economists still expect major central banks to cut rates either this quarter or next, broadly in line with financial market pricing. But most now forecast fewer cuts by year-end as inflation remains sticky.The U.S. Federal Reserve is expected to start cutting in September and once more in Q4, according to the poll, much later than a March start and a total of six cuts financial markets had priced in at the beginning of the year. In January, the Reuters consensus had a more modest outlook, with four cuts starting in June. Despite lackluster Q1 GDP growth reported on Thursday, risks were still for the Fed to go for fewer rate cuts this year as underlying inflation data that accompanied the report suggested pressures were building, not easing. The European Central Bank was still forecast to cut rates by 25 basis points in June, followed by two more in the second half of the year to support growth in the currency bloc which was expected to only grow an average 0.5% in 2024.That widening gap is already priced into the strong dollar, up over 4% this year against a basket of currencies. “A question we’ve been getting quite a lot is ‘can Europe start cutting before the Fed?’,” said James Rossiter, head of global macro strategy at TD Securities.”And I would say…when we look back in history, whether the ECB starts in June and the Fed starts in September, it will all look like it’s part of the same cutting cycle.”The Bank of England, which was the first among major central banks to raise borrowing costs in December 2021, will also wait until next quarter to lower them, the survey showed.(For other stories from the Reuters global economic poll:) More

TOKYO (Reuters) -The Bank of Japan on Friday is set to project inflation will stay near its 2% target in coming years and signal its readiness to raise interest rates from near-zero, in hope of keeping yen bears from pushing the currency to fresh 34-year lows.Recent threats of intervention by Japanese authorities have failed to arrest the yen’s slide against the dollar to levels unseen since 1990, adding to headaches for policymakers worried about the hit to consumption from rising living costs.The yen’s falls are driven by receding expectations of a near-term U.S. interest rate cut, and reassurances by the BOJ that it won’t hike rates aggressively after having ended eight years of negative interest rates in March.With no policy change expected at the two-day meeting concluding on Friday, markets are focusing on any hints from Governor Kazuo Ueda on how the weak yen could affect the next rate hike timing.Ueda may feel pressure to join the government in warning traders against pushing down the currency too much, some analysts say.”There’s a possibility the weak yen could push up trend inflation through rises in imported goods prices. If the impact becomes too big to ignore, it might lead to a change in monetary policy,” Ueda said in Washington last week, a view he may repeat at his post-meeting press conference.The BOJ is expected to maintain its short-term interest rate target at a range of 0-0.1%, which was set just a month ago when it made a historical exit from its massive stimulus programme.In a quarterly outlook report due after the meeting, the board is expected to project inflation – as measured by an index excluding fresh food and fuel costs – to stay near its 2% target through early 2027, sources have told Reuters.But data released on Friday showed Tokyo core inflation, a leading indicator of nationwide figures, slowed much more than expected to slip below the BOJ’s 2% target in April, underscoring uncertainty over the price outlook.Ueda has said the BOJ could hike rates further if it becomes confident that wage gains will broaden and prod firms to hike service prices, thereby kicking off a cycle of wage and price hikes.The report’s projection on consumption, inflation expectations and wages may offer clues on how soon it could next hike rates, analysts say.Economists polled by Reuters are divided on the timing of the BOJ’s next hike with some betting on action in the third quarter, while others project October-December or beyond.Markets are also focusing on whether the BOJ will maintain guidance offered in March to keep buying government bonds around the current pace of 6 trillion yen ($38.6 billion) per month.A removal or tweak of the guidance, originally put in place to avoid the March exit from causing an abrupt spike in bond yields, could be interpreted by markets as suggesting the BOJ will soon taper its bond buying to allow yields to rise more.The BOJ will discuss ways to reduce its bond buying at Friday’s meeting, such as reviewing the 5-7 trillion yen range it set for its monthly purchases, Jiji news agency reported on Thursday.Any such move could prop up the yen, as the BOJ’s huge bond buying is seen by markets as among factors that helped weaken the currency by capping bond yields, analysts say.At the end of each quarter, the BOJ releases its bond-buying schedule for the following quarter. In the schedule for the April-June quarter released last month, the BOJ said it would buy government bonds in a range of 5-7 trillion yen per month.The BOJ will issue details on its May bond-buying plan on April 30.($1 = 155.6400 yen) More

SEOUL (Reuters) – South Korea’s public finances are no longer a strength for its sovereign credit rating but are now a neutral factor requiring near-term efforts to contain the rise in debt, global ratings agency Fitch said. “We’ve seen a bit of a deterioration in public finance metrics over the past five or six years,” Jeremy Zook, Asia-Pacific director of Fitch Ratings, said in an interview with Reuters on Thursday. “And that’s more on a basis relative to peers. Before the pandemic, Korea’s debt ratio was much lower than the median of ‘AA’ rating countries, but now, it’s right in line with the ‘AA’ median.” Last month, when Fitch affirmed South Korea’s credit rating at “AA-” with a stable outlook, it expected the country’s sovereign debt ratio to rise to 51.4% of gross domestic product (GDP) in 2024, higher than the median of 48.5% for “AA” rated countries, and to 53.6% by 2028, diverging from a downward trend forecast for the “AA” median. “It’s not a weakness for Korea’s credit profile, but it’s no longer a rating strength for Korea. It’s more neutral,” Zook said, adding fiscal metrics have become more important in rating South Korea and are being watched closely by the credit ratings agency. Prudent fiscal spending had been an area of credit profile strength for Asia’s fourth-largest economy and helped to raise its rating on par with Britain, France and Belgium, but the pandemic era of stimulus policies pushed up its debt ratio sharply to 50.4% by 2023 from 35.9% in 2018.”Our view has been for quite some time that maintaining a lower debt ratio in the near term is important for Korea to manage some of longer-run risks,” Zook said, citing ageing demographics as the biggest structural challenge. Since its inauguration in May 2022, South Korea’s conservative Yoon Suk Yeol administration has been prioritising fiscal sustainability.But, fiscal consolidation may now be “a bit more gradual after the election”, Zook said, referring to this month’s parliamentary election in which the liberal opposition party won a landslide victory. The opposition Democratic Party is urging the government to draft a supplementary budget for a universal cash handout scheme of distributing 250,000 won ($181.96) per person to boost domestic demand. The government opposes the move.Zook said the cash handout proposal, if implemented, would risk keeping inflation more persistent and could have an impact on the Bank of Korea’s monetary policy.South Korea’s economy grew in the first quarter at the fastest pace in more than two years, beating market expectations, on a pick-up in domestic consumption and robust exports.The economy is expected to grow 2.1% in 2024, after expanding by a three-year low of 1.4% in 2023, but “there is some upside to that forecast after the GDP number,” Zook said. On monetary policy, Zook said the strong GDP data could push back interest rate cuts “just slightly”, while retaining his projection of two 25-basis-point cuts in the latter half of the year from the current 3.50%, the highest since late 2008. ($1 = 1,373.9500 won) More

The dollar hovered around 155.58 yen on Friday morning after surpassing the 155 yen level late on Wednesday in Asia, the highest since 1990 and heightening the chance of currency intervention by Japanese authorities.Suzuki said he was closely watching currency moves and is prepared to take action.Suzuki’s remark came after U.S. Treasury Secretary Janet Yellen said the U.S. dollar has been strong and interventions by other governments in currency markets is acceptable only in rare and extraordinary circumstances.Suzuki declined to comment on Yellen’s remarks. More

SINGAPORE (Reuters) – The yen was parked by a 34-year low on the dollar and decade lows on other crosses ahead of a Bank of Japan meeting where interest rates are expected to stay low, while the dollar dipped elsewhere on softer-than-expected U.S. growth data.The euro rose 0.3% overnight to a two-week high of $1.0728 following data showing the U.S. had grown at its slowest pace in nearly two years in the first quarter. The annualised rate of 1.6% missed economist forecasts for 2.4%.The Australian dollar, which has been boosted by a hotter-than-expected inflation reading this week, briefly topped its 200-day moving average to hit $0.6539, before settling to $0.6522 in Asia trade on Friday. [AUD/]The yen, however, fell to its weakest since 1990 at 155.75 per dollar, tracking a sharp rise in U.S. yields as separate figures showed a surge in an inflation measure.That opened – at the 10 year tenor – a 380 basis point gap over Japanese yields that it can be expected to stay wide with U.S. rate cut expectations evaporating and markets now pricing only 34 basis points of cuts in 2024.The size and persistence of the yield gap has encouraging short yen positions and drives Japanese money into dollar assets such as Treasuries, weighing on the currency.The yen has slipped past levels at 152 and 155 to the dollar where traders had been wary of pushback or intervention from officials and was last trading at 155.58 per dollar.Japanese Finance Minister Shunichi Suzuki said on Friday he was closely watching currency moves and prepared to take full steps in response. Short yen positions hit their largest for 17 years last week. On Thursday the yen made a near 16-year low of 167.06 per euro, and was near those levels in the Asia morning on Friday, and it touched a nine-and-a-half year low of 101.64 to the Aussie dollar.The Bank of Japan already hiked rates at a landmark meeting in March where it ended years of negative interest rates.Market expectations are low for any fresh policy shift on Friday, but are keenly watching for changes to inflation projections – which would broadcast an intent to hike rates – or to any guidance on the interest rate outlook.”The market is not pricing in much from this meeting but it’s important to watch where they set official inflation targets, and whether they revise their forecast,” said Nathan Swami, Citi’s Asia-Pacific head of FX trading in Singapore.”I’m expecting them to, which then opens up the summer meetings as live.”Sterling rose 0.4% overnight and was last at $1.2507. The New Zealand dollar was a touch firmer in Asia morning trade at $0.5960 and has gained in the previous four sessions. More

TOKYO (Reuters) -Core inflation in Japan’s capital slowed much more than expected in April and fell below the central bank’s 2% target, data showed on Friday, complicating its decision on how soon to raise interest rates.The reading comes just hours ahead of the conclusion of the Bank of Japan’s two-day policy meeting, where the board is set to keep interest rates steady and produce fresh quarterly inflation projections through early 2027.The core consumer price index (CPI) in Tokyo, a leading indicator of nationwide figures, increased 1.6% in April from a year earlier, slowing from a 2.4% gain in March. It was much lower than a median market forecast for a 2.2% rise.Services prices rose 1.6% in April from a year earlier, slowing from 2.7% in March, due largely to the Tokyo metropolitan government’s decision to make some tuition free, the data showed.A separate index that excludes the effect of both fresh food and fuel costs, closely watched by the BOJ as a broader price trend indicator, also showed inflation slowing to 1.8% in April from 2.9% in March. It was the slowest pace of increase since September 2022, when the index rose 1.7% year-on-year.While core inflation is still above the central bank’s 2% target, the slowdown highlights uncertainty on whether consumption and wage pressure will strengthen enough to keep price growth durably around that level.The BOJ has said its decision to end negative rates last month was driven by signs that robust demand and the prospect of higher wages were prodding firms to keep hiking prices for both goods and services.Governor Kazuo Ueda has said developments in service inflation would be among key factors that could determine the timing of the next rate hike, as they would show whether firms are starting to pass on labour costs to households.The weak yen complicates the BOJ’s rate hike path. While it helps exports and pushes up inflation, the hit to consumption could cool the economy and discourage firms from passing on the higher costs to households. More