Aurelia Butler

LONDON (Reuters) – The Bank of England is expected to offer a first hint on Thursday that it is tentatively moving towards cutting interest rates, having raised them to their highest since 2008 over the past couple of years. Governor Andrew Bailey and his colleagues have previously stressed it is too early to talk about lower borrowing costs.But with the European Central Bank and the U.S. Federal Reserve starting to signal a change in their stance, the BoE may be looking for a different tone too without going too far and suggesting that its fight against inflation is done.Inflation has dropped from a 41-year high of 11.1% touched in October 2022 but it remains double the BoE’s 2% target at 4%.Similarly, underlying price pressures and wage growth have lost of some of their heat recently but remain strong.Investors and economists expect it will take another three or four months before the BoE actually cuts borrowing costs.Below are five ways that it might show it is changing its stance. VOTE COUNTThree of the nine members of the BoE’s Monetary Policy Committee voted to raise Bank Rate in December and November, while the other six decided to keep it on hold. Economists polled by Reuters this month expected eight members will vote to hold Bank Rate at 5.25% this week, with only one still backing an increase.Around one in four of the economists predicted that one MPC member – mostly likely Swati Dhingra, who has expressed concern about the risk of keeping rates high for too long – might cast the first vote for a rate cut since September 2021.TIGHTENING BIASThe BoE could send another signal that its stance is changing by dropping the guidance that it has used for a year that warns of possible need to raise rates higher if evidence emerges of more persistent inflationary pressures.GUIDANCE CHANGEA more explicit acknowledgement that the time for rate cuts is approaching could come if there are changes to another key line from recent BoE statements about how the MPC judges that monetary policy is likely to need to be restrictive for “an extended period of time”.INFLATION FORECASTSWhile the BoE is expected to hint at a future turn in policy, it might also send a message to investors that they have gone too far by betting on four quarter-point rate cuts in 2024. An increase in its forecasts for inflation to above the BoE’s 2% target in two and three years’ time – which are based on market pricing for the future course of interest rates – would suggest Bailey and his colleagues want to rein in those investors’ bets.BAILEY’S PRESS CONFERENCEBailey will have the chance to put his own spin on the BoE’s central message when he chairs a news conference. In December, he told reporters: “Don’t get me wrong, I’m very encouraged by the progress we’ve seen. But it’s too early to start speculating that we’ll be cutting soon.” More

In the interim budget ahead of general elections by May, Modi’s government is expected to focus on infrastructure spending to improve the economy’s long-term prospects, officials said.The economy is projected to grow 7.3% in the fiscal year ending March, the highest rate among major global economies. However, growth in farm output, which contributes about 15% of GDP and employs more than 40% of the workforce, was seen slowing to 1.8% in the current fiscal year, from 4% a year ago.ECONOMIC OUTPUTThe Indian economy is projected to grow around 7% in the next financial year that starts from April 1, and there is “considerable scope” for India to grow above 7% by 2030, according to government estimates.INFLATIONAfter low retail inflation during the first term of Modi till mid-2019, the economy has seen rises in retail prices, driven by post-pandemic global supply disruptions, higher import tariffs and an increase in global commodity prices. Retail inflation in 2022/23 accelerated to 6.7% from 5.5% in 2021/22, and 6.2% the year ago. The cost of living for the poor has sharply risen in last five years due to a surge in food prices. FISCAL DEFICITModi’s administration has justified higher government borrowing to fund a widening fiscal deficit – the gap between income and spending – to combat the impact of the COVID-19 pandemic and to boost infrastructure spending. The fiscal deficit could remain at 5.9% of GDP in 2023/24 after ballooning to 9.3% in 2020-21, during the pandemic. The federal fiscal deficit in 2013/14 was 4.6% of GDP when Modi took charge. UNEMPLOYMENTModi faces criticism for not creating enough jobs despite offering billions of dollars in subsidies to boost manufacturing. The unemployment rate rose to 5.4% in 2022/23, from 4.9% in 2013/14, according to government estimates. Nearly 16% of urban youth in the age group of 15-29 years remained unemployed in 2022/23, due to poor skills and lack of quality jobs, government data showed. Estimates by private agencies are much higher.RISING DEBTIndia’s public debt remains elevated and is expected to rise to 82.3% of GDP by 2024/25, according to IMF estimates.Government payouts for servicing its debt are estimated to increase to over 40% of total revenue receipts in the current fiscal year. General government debt, which includes federal and state government debt, could be 100% of GDP under adverse circumstances by fiscal 2028, the IMF said. PRIVATISATIONThe government met its privatisation target only twice in the last decade, with the notable sale of Air India while it deferred stake sales in state-run banks and companies.In 2023/24, the government may not be able raise even 300 billion rupees through stake sales, less than 40% of budget target. HOUSING BOOM Modi’s government has subsidised construction of concrete houses for around 40 million impoverished households in a decade, and raised spending to build rural roads.The federal and state governments have spent $29 billion over the last five years on housing subsidies. Opposition parties, however, say the programme missed its original deadline of 2022.DOUBLING FARMERS’ INCOME Modi’s critics said his government has not fulfilled the poll promise of doubling farmers’ income by 2022. However, the government says steps like cash payouts to farmers, and raising crop procurement prices, among others, has helped in augmenting farmers’ income. More

PARIS/BRUSSELS (Reuters) – French and Belgian farmers set up dozens of blockades on highways and on access roads to a major container port on Wednesday to press governments to ease environmental rules and protect them from rising costs and cheap imports.Protests have spread across Europe. Spanish farmers said they would join the movement, while 1,000 Italian farmers were planning to take part in rallies in Brussels on Thursday, to press EU leaders meeting in the capital to act. German and Romanian farmers with similar grievances have also taken action.Farmers say they are not being paid enough, are choked by taxes and green rules and face unfair competition from abroad.”If we keep on like this, the end of agriculture will mean the end of civilisation,” 28-year-old Belgian farmer Adelin Desmecht said, blaming too much regulation and paperwork.In France, long lines of tractors edged closer to Paris and its Rungis international food market, a hub for produce for France and beyond and a red line for the government, which has so far not intervened to remove the blockades. In total, there are about 100 blockades, Interior Minister Gerald Darmanin said, warning protesters not to try to block airports, Rungis or the capital. BFM TV showed standoffs near the Loire river, with tractors stopped by police from getting closer to Paris.In Belgium, farmers blocked access roads to the Zeebrugge container port. One of the protest organisers, Bruno, who had briefly gone back home to tend to his cows, said more than 100 tractors were taking part in the blockade. A major highway in Belgium was also blocked, according to local media.French farmers have already won several concessions, including the government dropping plans to gradually reduce subsidies on agricultural diesel.On Wednesday, European Commissioners proposed limiting agricultural imports from Ukraine and greater flexibility on rules on fallow land in a bid to quell protests.Imports from Ukraine, on which the EU has waived quotas and duties since Russia’s February 2022 invasion, and renewed negotiations to conclude the Mercosur trade deal with South American countries, have fanned farmers’ discontent about unfair competition in sugar, grain and meat. EU farmers must normally meet certain conditions including devoting 4% of farmland to “non-productive” areas where nature can recover, though there is already a temporary exemption in response to the Ukraine war and food security concerns.GROWING DISCONTENTThe protests across Europe come ahead of European Parliament elections in June in which the far right, for whom farmers represent a growing constituency, is seen making gains.In Italy, farmers have blocked traffic with hundreds of tractors near motorway access points near Milan, in Tuscany and elsewhere in recent days.Farmers’ lobby Coldiretti said in a statement that more than 1,000 of its members would travel to Brussels to take part in a demonstration on Thursday outside the European Parliament.While a deal looks possible on fallow land, the question of talks on a major trade deal with the Mercosur group is more contentious.French Finance Minister Le Maire repeated on Wednesday that Paris does not want the deal to be signed as it is now, due to a lack of guarantees that imported products would have to meet EU rules. But the European Commission has said it was still aiming to conclude a free trade agreement with the South American bloc.Le Maire also said in an interview with French radio CNews/Europe 1 that he would step up checks on big French and European retailers to ensure they pay French farmers fairly under a law designed to safeguard farm-gate prices.In another step to try to subdue farmer anger, the agriculture ministry announced 230 million euros in additional aid for French wine producers, who have been squeezed by declining consumption.The authorities already offered subsidies last year to distil surplus wine stocks into industrial alcohol and to let Bordeaux producers pull up some of their vines. More

(Reuters) – Federal Reserve Chair Jerome Powell has a tough task on Wednesday as he wraps up the U.S. central bank’s first policy meeting of 2024: signaling an end to interest-rate hikes and teeing up future cuts without unleashing financial market exuberance that could undermine progress on inflation.On one level the job is straightforward. Though the Fed has left its benchmark rate at between 5.25% and 5.5% since July and is expected to keep it there on Wednesday, its policy statement has continued to include a reference to “additional policy firming” as a reminder that any future adjustments would be upward. Many analysts expect the Fed to delete that phrase this time around. Powell laid the groundwork for the change last month, when he said policymakers think another rate hike is unlikely to be needed. “It’s become dated,” said Oxford Economics’ Ryan Sweet, citing quickly cooling inflation. Dropping it would give room to cut rates as soon as March if price pressures or economic growth ease faster than expected, said High Frequency Economics’ Rubeela Farooqi – though she, like many economists, believe rate cuts won’t start until June. But analysts disagree on what the Fed will say instead, in part because there is such wide agreement that removing the phrase will be seen not just as opening the door to a rate cut, but practically walking through it. A resulting rally in markets could ease financial conditions and encourage spending and investment that could potentially reignite waning price pressures. To forestall that possibility, Fed policymakers may opt to characterize current policy as “sufficiently restrictive” or add a word like “patient” or “cautious” to signal a longer hold at the current policy-rate level, analysts said.Several economists expect the Fed simply to swap in a more neutral phrase for coming moves, such as “in determining appropriate policy” or “any future adjustments,” and rely on Powell, in his post-meeting press conference, to clarify what that means.But change is fraught. “The risk is for markets to run with a generic ‘adjustments’ line as a signal that March is very much on the table,” wrote economists at BNP Paribas (OTC:BNPQY), whose view is that while it’s a close call they think the “firming” phrase will stay, given recent Fed official commentary. Removing it, even with the addition of a promise of patience, “would heighten focus on the press conference, potentially complicating Powell’s task,” they wrote.CURBING ENTHUSIASMPowell is known for his plainspoken explanations of complicated economic dynamics and an unruffled demeanor in the face of sharp political criticism. Dealers on Wall Street assess communications under his watch as being more effective than under either of his two most recent predecessors. But he’s had his share of miscues and miscalculations. In October 2018 he signaled more rate hikes ahead despite what investors perceived as a swiftly weakening outlook. Then in 2021 he stuck with calling inflation “transitory” despite accumulating data that it was gaining more lasting traction. Toward the end of that year he retired “transitory” and moved to slow the Fed’s bond purchases to prepare for eventual rate hikes, but critics blame the subsequent climb in inflation to 40-year highs in part on the Fed not starting its rate-hike campaign until March 2022.The picture is now dramatically different. By some measures inflation has been at the Fed’s 2% target for months now, though by the yardstick the Fed targets, the annual change in the personal consumption expenditures price index, it is still above target at 2.6%. But complicating matters is the strong consumer spending that helped the economy grow 3.1% last year, measured on a fourth quarter to fourth quarter basis, versus the 2.6% Fed officials penciled in at their last public projections, published mid-December. That’s despite the Fed’s aggressive interest rate hikes that, at the start of 2023, most economists and the Fed’s own staff thought would trigger a recession.”The consumer has been downright defiant,” says KPMG’s Diane Swonk, and that will keep officials from projecting too much confidence in the timing of rate cuts. “Powell will be cautious to curb his enthusiasm at the press conference so that he does not inadvertently trigger a major financial market rally,” she said. Last month Fed policymakers signaled they saw 75 basis-points of rate cuts this year as likely appropriate; Swonk says that by March, they may up that forecast to a full percentage point, and start delivering reductions in May. “The Fed is trying to normalize rates for a robust economy, not overstimulate,” she said. “That is a tough line to walk.” More

WASHINGTON (Reuters) – U.S. Federal Reserve policymakers are expected to cut interest rates later this year, but like any policy turn made outside of a crisis the shift is evolving over time. Fed Chair Jerome Powell oversaw a prior pivot to rate cuts in 2019. While circumstances are different – inflation at that time was below the Fed’s 2% target and policymakers wanted to increase it, not contain it by slowing the economy – their language changes then may show how Powell and his colleagues could come to characterize their plans.DECEMBER 2018: MORE HIKES? NOT SO FASTAs of December 2018, the Powell-led Fed was expecting to push ahead with the rate hikes that had continued over two years of stronger-than-expected economic growth.Markets rebelled after the central bank followed through with a quarter-of-a-percentage-point hike at that month’s meeting and said “some further gradual increases” would likely be needed. Powell’s comment in a press conference that reductions of the Fed’s massive balance sheet would stay on “automatic pilot” added to the sell-off in financial markets and the pressure on the central bank to shift gears in an economy felt to be weaker than policymakers acknowledged. JANUARY 2019: A ‘PATIENT’ FEDAt its first meeting of 2019, the central bank put its policy stamp on an approach Powell already had flagged in public comments.The U.S. unemployment rate remained low, inflation was tame and while the economy had slowed near the end of 2018, it grew as a whole by 3% that year, the fastest annual reading since 2005.The central bank’s Federal Open Market Committee (FOMC) said in its policy statement that it saw “sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes.”But it pointed to the background context of risks from then-President Donald Trump’s trade wars, announcing that its bias had shifted from tightening.”In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate,” it said.Many analysts expect a comparable shift to a neutral policy stance at the conclusion of the Fed’s latest two-day meeting on Wednesday. JUNE 2019: ‘UNCERTAINTIES’ AND RISKThe policy direction remained unchanged at the Fed’s March 19-20 and April 30-May 1 meetings in 2019, but new language in the statement issued after the June 18-19 meeting said while ongoing growth was the baseline outlook, emerging risks put the central bank in a different posture of possibly having to defend what it regarded as a healthy status quo.”Uncertainties … have increased,” the FOMC’s statement said.It then went on to spell out the logic of coming rate cuts: “In light of these uncertainties and muted inflation pressures, the Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2% objective.”JULY 2019: SUPPORTING GROWTHThe Fed acted at its July 30-31 meeting, cutting its policy rate by a quarter of a percentage point, a step that it said supported an ongoing economic expansion in light of continued “uncertainties.” No firm commitment to further cuts was made, but officials pledged to “act as appropriate to sustain the expansion.”The economy indeed remained on track until the COVID-19 pandemic struck in early 2020, the sort of outside shock that has derailed the last three expansions.In the current environment the Fed may shy away from language about stimulating the economy and instead characterize cuts as accommodating slowed inflation. The potential for a growing gap between the inflation rate and the Fed’s benchmark overnight interest rate, currently set in the 5.25%-5.50% range, means the central bank may in effect be further tightening borrowing conditions if it doesn’t cut rates. More

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