Aurelia Butler

The RBA is set to keep its official cash target rate unchanged at 4.35%, having little reason to raise the rate after a series of softer inflation readings. Data released last week showed Australian consumer price index inflation grew less than expected in the fourth quarter, with its pace of growth slowing sharply from the prior quarter. A monthly CPI indicator for December also showed inflation coming closer to the RBA’s 2% to 3% annual target range. Falling Australian inflation comes as the effects of the RBA’s 2022 and 2023 rate hikes are baked into the economy. Decreasing inflation is the key driver of expectations for any interest rate cuts from the RBA in 2024.The RBA had hiked rates by a cumulative 425 basis points over the last two years, as it moved to contain a post-COVID surge in inflation. But the central bank has so far given scant indication on when it plans to begin trimming rates. Governor Bullock has also warned markets over potentially sticky inflation, citing upside risks from services inflation and a strong labor market. While inflation has cooled substantially in recent months, it still remains well above the RBA’s annual target range- giving the bank little impetus to begin trimming rates in the near-term. The Australian labor market has also remained largely robust in recent months. While a slowing pace of growth in hours worked indicated some cooling, unemployment remained low, while Australia’s participation rate remained close to record highs. A cooling labor market is also one of the key considerations for the RBA to begin cutting interest rates. “…the case to raise rate(s) from here is steadily losing traction. We expect that over coming months, further declines in inflation and soft outcomes in the real economy will give the Board enough confidence that inflation will return to target on the desired timetable. They will therefore have scope to reduce some of the current restrictiveness of policy,” Luci Ellis, Chief Economist at Westpac Group said in a recent note. Ellis added that they expected the RBA to begin trimming rates only by September. Despite recent declines in inflation, the RBA has stuck to its forecast that inflation will only reach its target range by 2025. Such a scenario could spur the bank into keeping rates higher for longer.But on the other hand, Australian economic growth and business activity has cooled sharply in recent months. Further cooling could invite earlier rate cuts by the RBA, especially on the risk of a potential recession in the country.Tuesday’s rate decision is also the RBA’s first meeting after the implementation of sweeping changes in its regulatory structure and meeting frequencies. The central bank will now meet eight times in a year, down from 11, and its meetings will also take place over the span of two days. The Australian dollar fell 0.1% on Monday in anticipation of the decision, while the ASX 200 index shed nearly 1%. More

SEOUL (Reuters) -South Korea’s financial watchdog on Monday announced a crackdown on careless risk management by financial firms.Practices that could come under scrutiny included investing in real estate projects without proper risk assessment or making excessive earnings through incomplete sales of equity-linked securities, said the governor of the Financial Supervisory Service, Lee Bok-hyun.”Authorities will not tolerate practices of passing on risks to consumers and society by privatising short-term profits without thorough risk management,” Lee said at a media conference on the agency’s policy agenda for this year.Lee said financial firms that avoid making proper provisions for losses could even be kicked out of the market and financial crimes would face “highest-level” punishments.The regulatory agency’s policy priorities include household debt management, supervision over short sales of stocks and virtual assets, Lee said. More

WASHINGTON (Reuters) -The U.S. Federal Reserve can be “prudent” in deciding when to cut its benchmark interest rate, with a strong economy allowing central bankers time to build confidence inflation will continue falling, Fed chair Jerome Powell told the CBS news show “60 Minutes” in an interview that aired Sunday night.”The prudent thing to do is…to just give it some time and see that the data confirm that inflation is moving down to 2% in a sustainable way,” Powell said. “We want to approach that question carefully,” with the economy’s current strength keeping the risk of recession reduced as policymakers wait for the final bits of data that will convince them to proceed with rate cuts.The interview took place on Thursday, before a blowout January jobs report on Friday showed firms added 353,000 new positions, with continued strong wage growth and 3.7% unemployment that has barely budged in two years.The United States’ sustained recovery amid falling inflation has seemed to put the Fed on the verge of what Powell characterized as a “historically unusual” situation, though he refrained from saying that a “soft-landing” was now all but assured.Indeed he said the Fed was watching risks to both its price stability and maximum employment mandates, and would consider weakening job growth as a possible reason to accelerate rate cuts.”We’re focused on the real economy and doing the right thing for the economy and for the American people over the medium and long term,” Powell said. “We have to balance the risk of moving too soon…or too late.””IN A GOOD PLACE”Fed chairs, covered intently by the financial press worldwide, occasionally use appearances on popular and widely available shows like “60 Minutes” to flag turning points in policy or to take note of major developments. Powell did so at the start of the pandemic to reassure the public that the central bank stood behind the economy.In this case the message was a positive one of falling inflation, strong employment, and a coming easing of credit conditions — all without the “pain” that Powell had earlier warned was in store for households as the Fed contained the worst outbreak of inflation in 40 years. “We think the economy’s in a good place. We think inflation is coming down. We just want to gain a little more confidence that it’s coming down in a sustainable way toward our 2% goal,” Powell said.The Fed’s preferred measure of inflation, the personal consumption expenditures price index, was running at a 2.6% annual rate as of December, though over shorter three- and six-month horizons it has been below the Fed’s target. In the wide-ranging conversation, the Fed chair reiterated many of the comments made at his press conference last week after the Fed held its benchmark interest rate steady in the current range of between 5.25% and 5.5%. This included his view that the next Fed meeting in March was likely too soon for rate cuts to begin.An outside shock could always throw the economy off course, he said, listing the world’s current set of geopolitical crises. Yet even some potential economic trouble spots, like China’s real estate problems and slowing growth rate, may have less impact on the U.S. than might be expected. “Our financial system is not deeply intertwined with theirs…Our production systems are not deeply intertwined with theirs,” Powell said. “The implications for the United States — we may feel them a bit, but they shouldn’t be that large.”Absent some unexpected development, the start of rate cuts “is really going to depend on the data,” Powell said.Asked about Fed policymaker projections in December that anticipate three quarter point rate cuts this year, the Fed chair said that “nothing has happened in the meantime that would lead me to think that people would dramatically change their forecasts.” More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The Federal Reserve’s rate-setters still expect to make around three quarter-point rate cuts this year, its chair Jay Powell said in an interview that aired on Sunday. Powell told CBS’s 60 Minutes show that “almost all” of the membership of the Federal Open Market Committee think the US central bank will cut rates from their current 23-year high of 5.25-5.5 per cent at some point over the course of 2024. Rate-setters, on average, expected to make 75 basis points of cuts back in December. Powell said in an interview recorded on Thursday that, while new projections were not due out until March 20, “nothing has happened in the meantime that would lead me to think that people would dramatically change their forecasts.” “If the economy were to weaken, then we could reduce rates earlier and perhaps faster,” he said. “If the economy were to prove — if inflation were to prove more persistent, that could call for us to reduce rates later and perhaps slower.” Markets had been betting on six cuts, beginning in March. But Powell’s insistence last week that such an early move was unlikely, and a strong January jobs report, quashed hopes of a move that early in the spring. Powell’s interview took place a day before non-farm payrolls figures showed the economy added 353,000 jobs — almost twice what economists had forecast. The Fed chair said ahead of their publication that the US labour market was moving into better “balance”. “The labour market is very, very strong still,” Powell told the show. “So really the kind of pain that I was worried about and so many others were, we haven’t had that. And that’s a really good thing. And, you know, we want that to continue.”Other Fed officials have raised concerns that the strength of the labour market could lead to higher wage growth and higher prices for services, complicating the central bank’s task of bringing inflation down to their 2 per cent goal. Powell said his “base case” was that inflation would continue to fall over the first six months of this year. “We look at inflation over a 12-month basis. That’s our target. And the first five months of last year were fairly high readings,” he said, indicating that those lower readings would pave the way for cuts around the middle of the year. Inflation was falling as chinks in supply chains unwound and the impact of the Fed’s rate rises took hold. The US central bank increased borrowing costs by 525 basis points in just 18 months after inflation surged to its highest level in decades.Powell said it was “historically unusual” that those increases in interest rates had not triggered a sharper slowdown in the economy or in the jobs market. “The broader situation is that the economy is strong, the labour market is strong, and inflation is coming down,” Powell said. “My colleagues and I are trying to pick the right point at which to begin to dial back our restrictive policy stance. That time is coming.”     More

“We’ve seen that the Chinese commitment in defence or investment comes with a high cost. That’s what we’d say to PNG,” United States Deputy Secretary of State Richard Verma told the Sydney Morning Herald in an interview published on Monday.Papua New Guinea Foreign Minister Justin Tkachenko told Reuters last week that it was in early talks with China on a potential security deal. China has offered to assist PNG’s police force with training, equipment and surveillance technology, Tkachenko said.The U.S. and ally Australia for decades have seen the Pacific as their sphere of influence, and are seeking to deter the island nations from forming security ties with China, after Beijing signed a security pact with Solomon Islands in 2022.Verma, in Australia last week after visiting the South Pacific, said it was a competition for influence in the resource-rich region, and that “we have to compete aggressively”. His comments came ahead of an address by PNG Prime Minister James Marape to the Australian parliament later this week. PNG has previously said Australia and the U.S. were its security partners, while China was an important economic partner.”We would like to see people choose security arrangement or investment opportunities or advanced connectivity with countries that play by the rules, that live up to the international standards,” Verma said.”China has shown that it is not doing that. China has shown that it’s not interested in the modern rules-based order.”He warned about the “false promise of authoritarian regimes” and said countries in investment arrangements with China have found that it can be a “debt trap”.”There are other options out there,” Verma said. More

BENGALURU/NEW DELHI (Reuters) -A rags-to-riches tale, Vijay Shekhar Sharma is no stranger to controversy. Now, India’s startup king faces arguably his biggest crisis in a race to save his revolutionary digital payments firm that had once counted Warren Buffett as a backer. Sharma has put up a brave face even as nervous investors plundered $2 billion off Paytm’s valuation after India’s central bank ordered his banking arm to stop most of it operations from March 1 for “persistent non-compliances” and “supervisory concerns”.The ruling threatens significant business disruptions as the bank is the backbone of his ubiquitous Paytm payments app used by millions daily in a nation where cash was once king.The test for Sharma, whose early days of life were one of hardship and challenges, is to keep the operations running and restore investor confidence. His latest troubles have attracted plenty of media publicity, not least because of his rapid rise to become one of India’s elite businessmen – at one point moving into the country’s top-100 richest club. The executive has also found many allies in India’s startup world as he often talks up their concerns, including publicly criticising Google (NASDAQ:GOOGL) saying its practices hurt smaller companies.Sharma described the regulatory action against Paytm as a “speed bump” this week during a conference call with analysts. He held out the hope of partnering with other banks and reassured investors the Paytm app will continue to work. The markets, however, remain sceptical of a quick resolution to the regulatory roadblock.Paytm’s valuation crashed to $3.7 billion after it lost $2 billion on Mumbai bourses this week. Since its 2021 IPO that valued Paytm at around $20 billion, the stock has now tanked 75%, and analysts at JP Morgan say the company now will need to “restore credibility” of the business.Sharma didn’t return a Reuters request for comment. HEATIt’s not the first time the 45-year-old CEO has grabbed the headlines, and for all the wrong reasons. Recalling the firm’s 2021 IPO valuation which faced backlash from investors and analysts when the stock plummeted on debut, one startup industry executive who spoke on condition of anonymity described him as “too bombastic”.After Paytm’s market debut burned many investors and critics railed against lofty valuations India’s market regulator took steps to tighten scrutiny of IPOs.The company’s rapid rise owed as much to Sharma’s ambitions as to a major policy shift in Asia’s third-largest economy in 2016 when Prime Minister Narendra Modi stunned markets by banning high-value currency notes overnight.Sharma, who launched Paytm in 2009 offering mobile recharges, immediately saw the opportunities of the demonetisation move that would end up transforming the firm as the nation’s premier digital payments platform.The government decision angered many Indians who for years used cash as their main mode of payments, but Sharma took out front-page ads with Modi’s photo, calling it the “boldest decision in the financial history of independent India”.Today with 330 million wallet accounts, Paytm has garnered widespread acceptance. Along with its rivals like Google Pay and Walmart (NYSE:WMT)’s PhonePe apps, many Indians use the digital services for candy payments as little as 10 rupees (12 U.S. cents) to household items and groceries. Even beggars in India have been spotted using Paytm or other digital QR codes to seek alms.Paytm currently trades at 487.2 rupees versus its 2021 market listing of 1,950 rupees. In recent months, the firm’s big backer SoftBank (TYO:9984) pared its stake, while other key investors Alibaba (NYSE:BABA) and Buffett’s Berkshire Hathaway (NYSE:BRKa) sold their holdings.UNDETERREDHailing from the small town of Aligarh in the nation’s most populous state of Uttar Pradesh, Sharma, a trained engineer, once said he didn’t have money to travel, and used to set up internet connections at homes to make a living. Years after Paytm’s humble beginnings in 2009, the stars aligned for him when he raised billions from Alibaba’s Jack Ma and SoftBank’s Masayoshi Son after 2015, and posted regular selfies with them. As India’s regulators took aim at Paytm this week, many entrepreneurs backed him to emerge from the crisis stronger. Vishal Gondal, his friend and CEO of Indian preventive-health company GOQii, told Reuters the Paytm boss performs best during adversities.”We all see a little bit of us in what Vijay does,” said Gondal. “The question everyone is asking is – if such a harsh step was necessary?”In a 2021 interview with Reuters, Sharma said his dream was to take the “Paytm flag to San Francisco, New York, London, Hong Kong and Tokyo.”Fast forward to 2024, and that dream might have a fight on its hands. In a note on Paytm titled “Is this the end of the road?”, Macquarie said the regulatory action “significantly hampers Paytm’s ability to retain customers” and restricts it from selling payment and loan products.Sharma remains undeterred.”For every challenge, there is a solution and we are sincerely committed to serve our nation in full compliance,” he wrote on X on Friday. More