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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Christine Lagarde has said the European Central Bank will be unable to commit to a particular path of interest rate cuts once it starts to ease monetary policy, despite signs that wage growth has peaked in the eurozone.The ECB president’s comments indicate that even if it starts to cut borrowing costs in June — as many investors expect after inflation fell sharply over the past year — it is likely to keep markets guessing on the timing and scale of potential rate cuts.Lagarde told a conference of ECB watchers in Frankfurt on Wednesday that continued high wage growth and weak productivity in the eurozone meant services inflation was expected “to remain elevated for most of this year”. This meant it would need to continue checking that “incoming data supports our inflation outlook”, she said.Earlier this month, the ECB cut its inflation forecast for this year to 2.3 per cent and predicted it would drop to its 2 per cent target in mid-2025.“Our decisions will have to remain data dependent and meeting-by-meeting, responding to new information as it comes in,” Lagarde said. “This implies that, even after the first rate cut, we cannot pre-commit to a particular rate path. However tempting that is. However much each of you would like to see it.”The ECB has signalled that June is the earliest it is likely to cut rates, arguing that it will only have sufficient data to know whether inflationary pressures from rising wages continued to ease in the first quarter after its next meeting in April.Lagarde stuck to this timeline on Wednesday, saying the bank would have more information “in the coming months” that would allow it to check “whether wages are indeed growing in a way that is compatible with inflation reaching our target sustainably by mid-2025”. She said the ECB’s inflation forecasts had become more accurate in recent months — after being much less reliable at the start of the surge in prices more than two years ago. This made it more confident that it would be able to “move to the next phase of our policy cycle” in the coming months.Recent eurozone wage data “point in this direction”, she said, after a slowdown in the growth of negotiated wages to 4.5 per cent and pay per employee to 4.6 per cent in the fourth quarter. The ECB’s more forward-looking wage tracker, which collates real-time data on collective wage agreements, showed average wage growth would be 4.2 per cent this year, down from a reading of 4.4 per cent in January, Lagarde said.The central bank considers wage growth of 3 per cent to be consistent with its 2 per cent inflation target.Eurozone inflation slowed from above 10 per cent in 2022 to 2.6 per cent in February, bringing it tantalisingly close to the ECB’s 2 per cent target. In response, some ECB governing council members have started to express their views on the pace of rate cuts. Greek central bank governor Yannis Stournaras recently said it could cut rates twice before the summer and four times in total this year. Finland’s central bank boss Olli Rehn said that inflation if appeared to be stabilising at 2 per cent “then we will have the conditions for several interest rate cuts this year”.However, Lagarde warned that “domestic price pressures will still be visible” for much of this year, and while the ECB forecast wage growth would slow to 3 per cent by 2026, the tightness of eurozone labour markets meant this “cannot be taken for granted”.If wages rise faster than the ECB predicts as workers seek to regain their lost purchasing power, that could keep inflation at 3 per cent this year and 2.5 per cent next year, Lagarde warned.If companies raised their profit margins 1 percentage point more than the ECB expected in the next three years, it would lead to inflation of 2.7 per cent this year and 2.4 per cent next year, she said. More

ISLAMABAD (Reuters) -The International Monetary Fund said on Wednesday it had reached a staff level agreement with Pakistan, which if approved by its board, will disburse $1.1 billion for the South Asian country’s broken economy as it struggles with a balance of payment crisis. The funds are the final tranche of a $3 billion last-gasp rescue package Pakistan secured last summer, which averted a sovereign debt default. Islamabad is also seeking another long-term bailout. “The IMF team has reached a staff-level agreement with the Pakistani authorities on the second and final review of Pakistan’s stabilization program,” the IMF said in a statement. “This agreement is subject to approval by the IMF’s Executive Board,” it added. The deal expires on April 11 and while Pakistan has yet to be added to the IMF’s executive board’s calendar, officials say board approval is expected sometime in April.The deal comes after the IMF mission held five days of talks with Pakistani officials to review the fiscal benchmarks set for the loan.”Pakistan’s economic and financial position has improved in the months since the first review, with growth and confidence continuing to recover on the back of prudent policy management and the resumption of inflows from multilateral and bilateral partners,” the IMF said. However, growth is expected to be modest this year and inflation remains well above target, as Pakistan needs more policy reforms to address its “economic vulnerabilities”, the lender added.Pakistan’s sovereign dollar bonds rallied, with several gaining more than 1%. All of its sovereign dollar bonds were trading above 75 cents on the dollar after a remarkable rally so far this year. The 2026 maturity was bid at 88.53 cents, 21 cents higher than in January and more than 50 cents above its level a year ago.NEW AGREEMENT The IMF said Pakistan had expressed interest in another bailout during the review talks, with discussions on a medium-term programme expected to start in the next few months.Prime Minister Shehbaz Sharif told his cabinet on Wednesday that Pakistan needed a new IMF loan, adding that increasing the tax base was mandatory for securing this deal.”The IMF agreement will improve the country’s economy,” Finance Minister Muhammad Aurangzeb said in the cabinet briefing, according to a statement from Sharif’s office. The government has not officially stated the size of the additional funding it is seeking. Bloomberg reported in February that Pakistan planned to ask for a loan of at least $6 billion. Ahead of the stand-by arrangement, Pakistan had to meet IMF conditions including revising its budget, and raising interest rates as well as generating revenues through more taxes and hiking electricity and gas prices.It had also recommended reforms in loss-making state-owned enterprises, including the national flag carrier, Pakistan International Airline (PIA), which Islamabad has already put up for sale. The cabinet also approved setting up a holding company to park the airline’s debt and liabilities, the statement said, terming it an important milestone toward its privatisation. The IMF said the government was committed to these measures, and called for broadening the tax base as well as adjusting power and gas tariffs.Economist Sakib Sheerani said the new long-term agreement would be focusing more on deeper structural conditionality such as the public sector wage and pension bill. More

WASHINGTON (Reuters) – Federal Reserve officials left their policy meeting in late January in search of “greater confidence” that inflation was on a sustainable downward path, a notably squishy standard they set for determining when the U.S. central bank might start cutting interest rates.Instead, they’ve have been buffeted by services prices roaring upward, job growth that continues to surprise to the upside, and housing costs that have kept climbing faster than expected.Far from confidence, the issue they face in the two-day meeting that concludes on Wednesday is whether progress on inflation has flat out stalled and, if so, whether the Fed’s policy rate needs to stay in the current 5.00%-5.25% range longer than anyone – investors, consumers, politicians and U.S. central bank officials themselves – had expected.That range was set last July after a historic round of aggressive monetary tightening triggered by inflation surging to a 40-year peak. Fresh economic projections due to be released at 2 p.m. EDT (1800 GMT) alongside a new monetary policy statement will show if officials still expect to reduce the policy rate by three-quarters of a percentage point this year, an outlook they’ve held since December and which was premised on inflation’s continued decline.At a press conference shortly after the end of the meeting, Fed Chair Jerome Powell will elaborate on the new policy statement before being quizzed on whether his recent comment that the U.S. central bank was “not far” from making a decision on an initial rate cut remains the case in the face of faster-than-anticipated price increases.Another key point is whether the statement will still refer to inflation as “elevated,” an adjective the Fed has used throughout the current tight credit phase and which could be removed to signal that rate cuts are imminent.Powell will be under pressure from both sides of the debate, as some economists see signs that inflation is becoming lodged at levels too far above the Fed’s annual 2% target to ignore, while others expect an upcoming slowdown in economic growth and hiring to keep price pressures muted and warrant rate cuts soon.POLITICAL WINDSAhead of this week’s Fed meeting, major investment firms scaled back the rate cuts they are expecting this year. Goldman Sachs went from forecasting a full percentage point of cuts in 2024 to three-quarters of a point. Roger Aliaga-Diaz, the chief economist for the Americas at Vanguard, said between recent data and a “cautious” Fed, “it’s entirely possible that the Fed may not be in position to cut rates this year” at all.Pantheon Macroeconomics’ chief economist, Ian Shepherdson, who was among the earliest to correctly forecast the dramatic softening in inflation over the course of last year that underpins the now-widely embraced “soft-landing” thesis, meanwhile argued that savings-depleted households were now “exposed” more fully to the Fed’s tight credit policies. Moreover, he said, recent small business surveys suggest hiring could potentially slow sharply in the coming months.Some Democrats in the U.S. Congress also have peppered Powell with rate-cut demands. With headline inflation running at 2.4% in January by the Fed’s preferred measure – the personal consumption expenditures price index – lawmakers argued in a March 18 open letter to the U.S. central bank chief that keeping monetary policy this tight was not necessary and put the current economic expansion at risk.The housing market in particular “is facing major imbalances” between supply and demand that won’t get fixed with high interest rates discouraging home and apartment construction, they wrote in a letter signed by members of the Congressional Progressive Caucus and others, including Senator Elizabeth Warren of Massachusetts, a frequent critic of Powell.MIDDLE PATHThe Fed is grappling with other issues that could become evident at the end of this week’s meeting, including whether a recent jump in productivity or changes in labor supply have raised the economy’s potential, whether underlying interest rates have also increased, and whether it is time to slow the monthly decline in the central bank’s massive holdings of U.S. Treasuries and other assets. The pressing decision, however, is when to begin the rate cuts, a “pivot” that has been underway since late last year. The Fed has been laying the groundwork steadily but has held off committing to a start date for the easing cycle in part because policymakers feel the worst-case outcome would be for inflation to stall or reaccelerate after they had begun to lower borrowing costs. That’s a problem largely avoided by waiting to cut rates, while the economy’s ongoing strength, as seen in heady economic growth and an unemployment rate that remains below 4%, also has bolstered the bias towards waiting.Central banks globally are doing the same sorts of analysis as they engineer an epochal change in financial conditions away from years of near-zero or even negative interest rates to an era where many analysts expect borrowing costs to remain above the rate of inflation, a significant benchmark which means that borrowed money comes at a “real” cost.The Bank of Japan on Tuesday ended its – and possibly the world’s – experiment with negative interest rates by approving its first hike in borrowing costs in 17 years, joining the global tightening of monetary policy triggered when the COVID-19 pandemic and other factors led to a worldwide breakout of rising prices.If Powell is true to his recent form, he is likely to walk a middle path on Wednesday, acknowledging that inflation remains sticky but also maintaining for now the central bank’s baseline expectation that price pressures will continue to ease, if slowly, and eventually pave the way for interest rates to fall.The Fed “will remain noncommittal about the timing of the first rate cut as inflation has surprised to the upside and there are no glaring fissures in the economy,” Ryan Sweet, the chief U.S. economist at Oxford Economics, wrote this week. If there’s change in the outlook, he said, it would be towards fewer and later cuts. “Though the Fed knows that disinflation is in the pipeline, risk management could lead them to favor underpromising on rate cuts this year and potentially overdelivering,” he said. More

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Tokio Marine’s international business has grown to more than 50% of the company’s profits, compared with less than 3% 20 years ago, with its most recent large acquisitions in the U.S. market.”Something we could do relatively easily would be in the $10 billion range,” Chris Williams, co-head of Tokio Marine’s international business said in an interview on Monday.”North America is the biggest insurance market in the world, there are going to be opportunities there, there are opportunities in Asia and Europe, Canada and Australia,” Williams said. “We have aspirations to grow our business in all of those locations.”Japanese insurers have historically pursued overseas investments to mitigate negative interest rates and stubborn deflation at home but recent signs of more durable economic growth led the BOJ to announce on Tuesday it would end eight years of negative interest rates.That decision would have no direct bearing on Tokio’s acquisition strategy, a source familiar with the company’s plans said.Williams did not give a timeline but said the insurer was “very patient” in its hunt for good quality businesses, which could be “bolt-on” smaller-sized or large deals.”We track all the public companies you’d expect around the world,” he said. “Our strategy when we look at these businesses is to say what’s been the flight path, what are the results…over a period of time.”Tokio Marine bought U.S. insurer HCC in 2015 for $7.5 billion and more recent purchases include U.S. insurer Pure Group in 2020 for $3.1 billion. The insurer was focusing on expanding in commercial insurance, Williams said, which could include sectors such as cyber, rather than in home and motor insurance.Commercial insurers, such as those operating at Lloyd’s of London, have navigated unexpected losses in recent years from a pandemic, wars, and natural catastrophes by raising premium rates and excluding some business.Lloyd’s, where Tokio Marine already has operations, doubled its underwriting profit last year. “One of the things we like about London is that it is quite innovative,” Williams said. “We would like to continue to expand our Lloyd’s platform.”Tokio Marine is still considering options for its Southeast Asian life insurance business, Williams said. The insurer appointed Goldman Sachs and Jefferies to sell the $1 billion operation, Reuters reported last year. Insurers are facing further geopolitical risk this year, with a raft of elections, including in the United States.Tokio Marine is underweight in property insurance and takes a very cautious approach to insuring property against losses from riots or terror attacks, Williams said.It has also reduced its exposure in the Red Sea, where attacks by Yemen’s Houthi militants have pushed up insurance costs.The insurer is one of dozens involved in legal wrangles with aviation leasing firms about payouts for planes stuck in Russia following its invasion of Ukraine.Tokio Marine has set aside cash for any possible settlements, as insurers and lessors hold talks ahead of court cases.”There’s a strong desire to get this in the rear view mirror,” Williams said. More