Aurelia Butler

Mishustin said entities from a list of 25 countries would be allowed to open bank accounts in Russia and make deposits via a simplified procedure.”Creating more convenient conditions for foreign enterprises and entrepreneurs is an important part of the government’s systemic efforts to achieve financial sovereignty as part of the implementation of the national goals set by our president,” Mishustin said in a statement.It said the procedure would apply to 25 “friendly” countries including China, India, Brazil, Saudi Arabia, Turkey, Kazakhstan and Belarus.Moscow defines “unfriendly” countries as those that have joined a barrage of Western-led economic sanctions in response to Russia’s war in Ukraine. More

FRANKFURT (Reuters) – The European Central Bank has kept up pressure on banks to loosen ties with Russia but it knows that it is not easy to secure approval from local authorities, ECB supervisor Andrea Enria said in an interview published on Monday.”We continue putting pressure on banks to downsize and potentially exit,” Enria told the Financial Times. “We acknowledge that there are legal constraints and that, in order to exit the business, you need to find suitable buyers and you need to get an approval from the local authorities in Russia, which is not always easy.” More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.It’s no secret that the Biden administration is trying to orchestrate a new global trade agenda. The White House had a setback in those efforts a couple of weeks ago when the US-EU steel and aluminium talks were pushed to end of the year. But it has another chance to make good on its promise of a “postcolonial” trade system at an inaugural summit of twelve countries within the Americas, being held in Washington this week. The Americas Partnership for Economic Prosperity (APEP) — which includes not only the US but Barbados, Canada, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Mexico, Panama, Peru and Uruguay — was set up to put human rights and climate change at the heart of economic policy. One of the many topics up for discussion will be the investor-state dispute settlement process, or ISDS, and its threats to those goals. There are many ways in which the current global trade system is designed to favour large multinational companies over countries. But ISDS is one of the most egregious. It is a very common part of free trade agreements and bilateral investment treaties, in essence allowing foreign companies investing in particular nation states to sue governments for anything that stops them making profits — including climate regulations, financial stability measures, public health policy, and any number of other areas that are typically the purview of the state.The idea originated in the early 1990s, the era of nonstop globalisation, as a way to draw foreign investment into developing countries while also protecting rich country investors from the weak legal and governance systems in those nations. As of 2022, 1,257 ISDS cases had been launched, according to Unctad, with 18 per cent of those against APEP nations. There are 73 pending disputes in those countries, with a combined claim sum of $46.9bn. But the asymmetries of the system have always been stark. Only foreign investors have rights and only foreign investors can initiate claims. And claims can include not just actual losses but future ones, too.As a new white paper co-authored by academics from Georgetown and Columbia universities, as well as trade experts from the American Economic Liberties Project, points out, “corporations rarely invoke ISDS to protect against blatant expropriation or gross denial of justice”. Instead, they have been “consistently successful in exploiting the vaguely worded provisions within ISDS-enforced trade and investment agreements” to “initiate or threaten claims against democratic measures taken in the public interest that they believe have harmed their business interests.”Multinational airport operators have used ISDS to challenge Chile’s pandemic shutdown measures; a Canadian company has argued that mining rights should trump environmental protection measures in Colombia. Huawei has launched a case against Sweden over measures limiting its participation in 5G because of security concerns. In the US, the Keystone pipeline is the classic example. TransCanada sued the US during the Obama presidency because they weren’t allowed a permit to build, then revoked it under Trump (who allowed it) then sued again under Biden.So ISDS is also a pain for rich countries, but their companies usually benefit. For poorer countries, it can be devastating. Actions deemed to be in the public interest (such as raising health or labour standards) can lead to billions of dollars in claims that they can’t afford to pay. The big worry now is that such agreements could be used to prevent the clean energy transition. Fossil fuel companies and investors have filed numerous ISDS cases, totalling billions. Academics have estimated that global climate change efforts could result in $340bn of claims (the Keystone XL suit alone is for $15bn)Given all this, it’s little wonder that a lot of countries, including the US, Canada, Mexico, some EU member states, South Africa, India, Indonesia, and Ecuador are limiting or ending future ISDS agreements and even attempting to pull out of existing ones. The USMCA trade agreement, for example, which replaced Nafta, has a provision that requires companies to exhaust all domestic remedies before resorting to ISDS.But if President Biden were to use the APEP summit as a way to end the ISDS system multilaterally, it would make a big statement about the postcolonial trade paradigm that US trade representative Katherine Tai has been advocating: one that would put inclusive and equitable growth, rather than GDP growth alone, at the heart of a reformed trade system.Some academics and policymakers have advocated for such a group exit as a way to alleviate the fear that investors would see individual countries leaving the system as a sign of weakness. According to Nobel laureate Joseph Stiglitz, there is little evidence that countries signing ISDS treaties saw more or better foreign direct investment than those that didn’t: “These deals just haven’t lived up to their promise.”The white paper authors lay out a number of ways that countries, including the APEP nations, could legally exit even existing agreements. This would undoubtedly raise investor concerns about the rule of law and continuity of agreements, which could have market impact. But the deals themselves have had too many negative real world impacts. It’s time for a fairer [email protected] More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is a former managing director of the IMF, former governor of the Banque de France and former president of the European Bank for Reconstruction and DevelopmentA sovereign currency represents the quintessence of the issuing country: the collective characteristics of the nation. The single currency of the EU, the euro, is far removed from this status. Rather than demonstrating unity, it is a continuing source of tension and dispute among the eurozone’s constituents.At a time when the European Central Bank needs to go further in “normalising” interest rates to counter persistent inflation, member states and the European Commission must demonstrate the will for corrective action. Unless new policies are forthcoming, a new euro crisis could erupt sooner or later.The euro is the second global currency after the dollar. But this success cannot hide deep internal divisions. The reasons are manifold. There are as many budgetary policies as member states. Perceptions of the need to tackle inflation vary widely. Since the 1960s, the EU has become less guided by strong structural policies in areas such as industry, agriculture, energy competition. Instead, it has moved to a single market without community preferences, often overridden by powerful national trends.Euro area growth has lagged behind that of the US. Since 1995, real US gross domestic product has increased more than 90 per cent, against the euro area’s more than 50 per cent. Eliminating the risks of fluctuating exchange rates favours product specialisation. As a result, the euro has reinforced the more industrialised euro area members at the expense of those in industrial decline.Macroeconomic divergence is further demonstrated by the so-called Target-2 imbalances that represent the national central banks’ intra-euro area claims and liabilities. Spain and Italy register liabilities of around 28 per cent of gross domestic product, while Germany has a net claim of about 26 per cent. What can be done? One way forward would be to solve EU banking fragmentation. This would require harmonising national rules and overcoming host-country ringfencing practices. Steps are needed to drive forward capital market union. The same is true of the need for a safe European financial asset, held back by the absence of a common tax policy.Another basic problem has been ultra-accommodative ECB monetary policies. These have disincentivised structural reforms, particularly in France and Italy. Near-zero interest rates have made public deficits easily financeable. The ECB’s quantitative easing reduced problems caused by spreads in bond yields but heightened general indebtedness and the vulnerability of the financial system.How should the ECB take into account the risks of financial fragmentation? To tackle persistent inflation, it would be wise to start a resolute process of quantitative tightening to eliminate excess liquidity. Fears of rising European spreads must not dominate monetary decision-making. But sooner or later, structural spreads — reflecting accumulating fiscal and structural deficiencies — will reappear.Member states must adjust their economic and fiscal policies accordingly. The revision of the stability and growth pact must be ambitious and immediately effective to prevent an imminent euro crisis. There must be a gradual convergence of member states’ budgetary polices. The Commission’s proposed case-by-case framework seems a good approach. The pace of return to public debt below 60 per cent of GDP should be specifically adapted to each country.The macroeconomic imbalance procedure must be rigorously respected within the framework of equal treatment and multilateral surveillance, either by the Commission or by an independent budgetary authority. Current account adjustments should concern countries with both structural deficits and surpluses. It is neither possible nor honest to expect the countries of the south indefinitely to reduce economic growth to rein in deficits to compensate for northern surpluses. A symmetrical adjustment mechanism is needed where surpluses are treated in the same way as deficits.Europe’s complex system of attempting to manage monetary union without a credible economic stability mechanism is unsustainable in the long term. Policymakers, and above all the Commission, must assume responsibilities in respecting economic discipline. This requires independence, competence, vision and courage. At present we see a process of fiscal, inflationary and economic slippage — and the danger that the more “virtuous” countries of the north end up paying for the ensuing problems. It is time for Europe to take its destiny into its own hands.  More

The Bank of England is likely to hold rates unchanged at their highest levels since before the financial crisis this week, signalling the battle against stubborn inflation is far from over despite evidence of weakening growth. The bank’s Monetary Policy Committee will opt to keep the benchmark rate at 5.25 per cent, according to pricing in financial markets. Four-fifths of economists polled by Reuters believe rates will remain steady on Thursday, with the rest predicting an increase as the BoE weighs signs of cooling activity against continued evidence of rapid rises in both consumer prices and wages. The MPC meeting, after which BoE governor Andrew Bailey will lay out the central bank’s latest forecasts for the UK economy, will come after the European Central Bank and the Bank of Canada held rates unchanged in recent days. The US Federal Reserve is set to announce its latest decision on Wednesday, and the majority of economists predict it too will sit tight.Central banks around the world are treading a fine line as they attempt to quell the worst inflationary upsurge in a generation without tipping their economies into deep recessions. The BoE held its benchmark rate at 5.25 per cent in its September meeting after an unexpectedly weak inflation reading the previous day. Andrew Goodwin, chief UK economist at consultancy Oxford Economics, cautioned that while there was no immediate need for a rate rise in the UK, inflation remains “uncomfortably strong”. The bank’s critical message, he predicted, will be that “rates are going to be on hold for a long time”. That is partly because the most recent snapshot of year-on-year consumer price inflation, released this month, was firmer than many analysts expected at 6.7 per cent. Services inflation, which is closely watched by rate-setters as a guide to underlying price pressures in the domestic economy, accelerated to 6.9 per cent from 6.8 per cent. UK headline inflation is expected to remain higher this year and next than in many of the country’s biggest trading partners, including the US, Germany and France, according to IMF forecasts. Inflationary pressures also remain more widespread in the UK, according to Goldman Sachs, with 67 per cent of the categories comprising the consumer prices basket running above a 4 per cent annualised pace in the past six months. BoE decision makers including Huw Pill, the bank’s chief economist, have said monetary policy will have to remain tight in response. The bank said after its September meeting, when it held rates after 14 consecutive rises, that policy will need to be “sufficiently restrictive for sufficiently long” to return inflation to the 2 per cent target sustainably. Pill has set out a strategy he dubs “Table Mountain”, named after the flat-topped South African landmark, in which there would be a long period of relatively high but steady rates. That reflects in part a recognition that the impact of the rate rises since 2021 has only partly fed through into the wider economy. Estimates vary, but Swati Dhingra, one of the most dovish members of the MPC, has argued against further rises, saying just 20-25 per cent of the tightening has hit home. Rate-setters have also signalled they are watching wage growth closely as they gauge underlying price pressures. Pay growth excluding bonuses was 7.8 per cent in the June-to-August period, close to its highest level since records began in 2001. By contrast, a survey from KPMG, S&P and the Recruitment & Employment Confederation points to the softest starting salary inflation in two and a half years. You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Unemployment has, meanwhile, ticked higher, reaching 4.2 per cent in the three months to August compared with 4 per cent previously. However, flaws in the survey underpinning the official jobs data — which have forced the Office for National Statistics to instead put out “experimental” figures — will reduce the weight of that dovish reading in the MPC’s debate, according to George Buckley, chief UK economist at Nomura. “The unemployment rate has risen a lot but the Bank of England can no longer put as much weight on that dovish piece of evidence as they did before, because of the question marks about the quality of the data,” he said. Other indicators also point to some cooling in UK activity, including the S&P Global/Cips Composite index of purchasing managers’ output, a gauge of activity in manufacturing and services that has pointed to contraction for three months. The UK could, according to some economists, already be in the early stages of a shallow recession. In September, the MPC voted five to four in favour of leaving rates unchanged, and this week’s vote could also be divided. While deputy governor Jon Cunliffe, one of the hawks on the committee, will have left the BoE, there will still be three members — Megan Greene, Jonathan Haskel and Catherine Mann — who called for rates to be raised to 5.5 per cent at the last meeting. Mann has been particularly hawkish, arguing that it is better to err on the side of over-tightening, saying that the longer the current overshoot to the 2 per cent target continues, the bigger the threat of a “departure from the old ‘low inflation, low volatility’ steady state”. Even if the majority of the MPC opts to leave rates unchanged on Thursday, the BoE has not ruled out the option of another rise if there is evidence of more persistent inflationary pressures. The most prominent upside risk stems from the potential for the Israel-Hamas conflict to further inflame energy prices and thus inflation — and the BoE is likely to echo those concerns. Given previous false dawns in the central bank’s attempts to drag inflation back to its 2 per cent target, economists widely expect the bank to hold firm on monetary policy until well into 2024. “The bank knows that high inflation has dented its credibility so it will want to be absolutely sure that inflationary pressures are consistent with the 2 per cent inflation target before cutting rates,” said Paul Dales, chief UK economist at Capital Economics. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Expectations are rising that Japan’s central bank will relax its grip on the bond market this week as the yen tests a 33-year low and government bond yields touch the highest levels in a decade.But investors’ bigger focus may be whether Bank of Japan governor Kazuo Ueda will offer crucial signals on inflationary trends that could pave the way for Japan to end the world’s last negative interest rates.The yield on the benchmark 10-year Japanese government bond hit 0.89 per cent last week, the highest since July 2013. As a result, the BoJ is widely anticipated to revise — for the third time in 12 months — its unconventional “yield curve control” policy of buying government bonds to hold yields below a fixed level.“It feels like the market is anticipating a modification to yield curve control and is starting to price that already,” said Jim Leaviss, chief investment officer for public fixed income at M&G.The BoJ last revised the band within which 10-year JGB yields are allowed to trade in July. UBS now expects the bank to widen the band further on Tuesday, to 1.5 per cent from 1 per cent, and expects the 10-year JGB target yield of zero to be raised to about 0.5 per cent.Barclays expects the BoJ to scrap yield curve control entirely on Tuesday.However, Goldman Sachs, Nomura and Morgan Stanley MUFG say the central bank is likely to stick to its current monetary policy framework. The BoJ has been the only major central bank not to raise interest rates over the past two years, keeping its policy rate at minus 0.1 per cent despite 18 months of above-target inflation.But the growing gap between borrowing costs in Japan and the US and Europe, as 10-year US Treasury yields surged to their highest levels in 16 years, has put pressure on the BoJ to tighten policy as the yen weakens.The yen weakened past ¥150 against the dollar last week, raising concerns about inflation as the cost of imported goods rises. The ¥150 level has previously prompted currency intervention by Japanese authorities.Although the yen has stabilised, currency traders see that as temporary and predict more severe tests if the BoJ does nothing following its two-day meeting on Monday and Tuesday, or makes only a cosmetic tweak to yield curve control.Forex analysts said the Japanese government might be resigned to the idea that ¥152-¥153 is a fair level against the dollar. The widening differential between Japanese and US interest rates means intervention is likely to be less effective than in 2022.Mid-October comments by the IMF, which said it saw no factors to justify intervention, add to a belief in markets that the ¥150 level no longer represents a “line in the sand” for Japan, even as the weaker yen keeps inflation above the BoJ’s target rate of 2 per cent.The central bank has argued that the main factor pushing up prices in Japan has been the rise in imported costs and that it needs to wait for more sustainable signs of wage growth, to ensure that the economy does not fall back into decades of deflation.In a speech in September, Ueda noted that wage growth was starting to have an impact on prices. Economists are paying attention to whether Ueda will acknowledge a stronger correlation between wages and prices.“Even if the BoJ did not make any move this time, it will not be surprising if it started to deliver hawkish messages to prepare the public for a future rate hike,” UBS economist Masamichi Adachi said. Japan’s core inflation in September fell below 3 per cent for the first time in more than a year on the back of lower imported fuel prices. Stripping out energy and fresh food prices showed inflation also slowed to 4.2 per cent from the previous month’s 4.3 per cent.Still, some economists warn that Japan’s above-target inflation could be stickier than the BoJ is forecasting. In October, the Japanese Trade Union Confederation said it was seeking bigger wage increases during next year’s negotiations. Prime Minister Fumio Kishida has also pledged to raise minimum wages from ¥1,000 an hour to ¥1,500 by the mid-2030s.Investors around the world watch Japanese bond yields closely because Japanese institutions are some of the biggest owners of US and European debt. More attractive returns at home could trigger a wave of selling in other bond markets.“We think scrapping the YCC could trigger Japanese investors, but the more important driver is likely to be when the BoJ terminates the negative interest rates and starts raising short-term policy rates,” said Yusuke Miyairi, an economist at Nomura. “The level of JGB yields is still not attractive enough for them to repatriate their capital from overseas into Japan,” he added. More