Aurelia Butler

BENGALURU (Reuters) -The Reserve Bank of Australia will keep its key interest rate unchanged at 4.10% on Tuesday as inflation shows signs of easing, according to a Reuters poll of economists who do however largely expect a final hike next quarter.While consumer inflation slowed to a 17-month low of 4.9% in July, from 5.4% in June, it was well above the central bank’s target range of 2-3%, keeping expectations for future rate hikes alive.Unlike the past few Reuters polls where respondents have been mostly divided just days before an RBA decision, the latest poll showed them nearly unanimous for no move, but still with a lack of consensus on the level at which rates would peak.With the recent decline in inflation and a slight rise in unemployment, all but two of 36 economists said the RBA would hold its official cash rate at 4.10% on Sept. 5, in line with interest rate futures pricing.Two respondents in the Aug 30-Sept 1 poll expected a 25 basis point (bps) hike.”In August, the RBA saw a credible path to get inflation back to target with rates of 4.10% and when we look at the data flow since then we don’t see anything that would have pushed them off that assessment,” said Taylor Nugent, economist at NAB. “There are still risks on the inflation outlook and the data queues through Q3 will show some of that strength in service inflation persisting … and (we) see them feel the need to tighten monetary policy a little bit further.”Among major local banks, ANZ, CBA, and Westpac expected rates to remain unchanged until at least end-2023, while NAB predicted one more rate hike to 4.35% in November.Slightly less than two-thirds of respondents, 21 of 35, said rates would reach 4.35% or higher by end-year. Those results are similar to an August poll, which had a slightly smaller sample. The remaining 14 forecast the cash rate to stay at 4.10%.Of the 21 economists who are expecting at least one more rate hike, two are expecting a move on Tuesday, while the rest are expecting it to come next quarter, likely after the next detailed quarterly inflation data is released in November.Three economists expected two more 25 bps hikes in the fourth quarter. While BlackRock (NYSE:BLK) and Deutsche Bank expected hikes in November and December, Citi expected moves in October and November.A decision to hike in November would be Michele Bullock’s first potential increase after taking over as governor in mid-September.Median forecasts showed rates will then stay at 4.35% through end-March 2024. “We think they’ll maintain the tightening bias and there may be further risk of a rate hike later in the year,” said Benjamin Picton, senior strategist at Rabobank.”We’re seeing house prices going up again and we’re seeing the currency pretty weak recently. So there’s justification for the RBA to tweak it a little bit higher.”The Australian housing market, which has rebounded faster than expected due to a lack of supply, will further add to inflationary pressures.Average home prices were forecast to rise 4.4% this year, an upgrade compared to stagnation predicted in June, a separate Reuters poll showed. More

HONG KONG/NEW YORK (Reuters) – Country Garden’s deal with creditors for an extension on onshore debt payments worth 3.9 billion yuan ($537 million) has brought the developer and China’s crisis-ridden property sector some much-needed respite.But while investors in the company and China economy-watchers alike may be heaving sighs of relief, it remains to be seen whether a raft of government stimulus measures will soon help revive demand and ease the sector’s cash squeeze.The financial woes of China’s top private developer have only further highlighted the fragile state of the country’s real estate industry which accounts for roughly a quarter of the economy and has been in dire debt straits since 2021.Considered financially sound compared to peers, Country Garden had not missed a debt payment obligation, onshore or offshore, until coupon payments on dollar bonds last month after slowing home demand hurt its cash flow.Since then, Chinese authorities have rolled out a number of measures, the most significant being the lowering of existing mortgage rates and preferential loans for first-home purchases in big cities.”We will see in the coming months if these supply-side measures are able to revive homebuying demand, which is crucial for the fate of China’s developers and their ability to handle their upcoming debt maturities,” said Tara Hariharan, managing director at global macro hedge fund NWI Management in New York. She noted that Country Garden and other developers face payments for sizeable maturities this year.In the deal reached after a vote on its proposal late on Friday, Country Garden is now allowed to repay the onshore debt in instalments over three years, instead of meeting its obligations by Sept. 2.It also has another immediate, albeit much smaller, debt payment challenge – the ending of a grace period on Tuesday for last month’s missed coupon payments worth a total of $22.5 million on two offshore dollar bonds.That Country Garden was able to avert an onshore default has raised hopes it will be able to make the interest payments on those bonds, said three of its offshore creditors, declining to be named as they were not authorised to speak to the media.After that, the creditors said they expect Country Garden to enter into restructuring negotiations for its entire offshore debt to avoid a “hard default”, similar to what it did with the onshore creditors.Country Garden did not immediately respond to a request for comment.While China property industry may have gained some respite, some market participants said they plan to stay away from the sector until there is a rebound in home sales.”We sold all our Chinese real estate stocks in April 2020 and haven’t bought back any since,” said Qi Wang, CEO of Hong Kong-based MegaTrust Investment. “Wouldn’t touch the private developers with a ten-foot pole right now.”($1 = 7.2606 Chinese yuan) More

BEIJING (Reuters) – Chinese President Xi Jinping’s first major reform plans a decade ago were also his boldest, envisaging a transition to a Western-style free market economy driven by services and consumption by 2020.The 60-point agenda was meant to fix an obsolete growth model better suited to less developed countries – however, most of those reforms have gone nowhere leaving the economy largely reliant on older policies that have only added to China’s massive debt pile and industrial overcapacity.The failure to restructure the world’s second-largest economy has raised critical questions about what comes next for China.While many analysts see a slow drift towards Japan-style stagnation as the most likely outcome, there is also the prospect of a more severe crunch.”Things always fail slowly until they suddenly break,” said William Hurst, Chong Hua Professor of Chinese Development at University of Cambridge.”There is a significant risk in the short term of financial crisis or other degree of economic crisis that would carry very substantial social and political costs for the Chinese government. Eventually there’s going to have to be a reckoning.”China came out of its Maoist planned economy in the 1980s as a largely rural society, badly in need of factories and infrastructure. By the time the global financial crisis hit in 2008-09, it had already met most of its investment needs for its level of development, economists say.Since then, the economy quadrupled in nominal terms while overall debt expanded nine times. To keep growth high, China in the 2010s doubled down on infrastructure and property investment, at the expense of household consumption.That has kept consumer demand weaker as a portion of GDP than in most other countries and concentrated job creation in the construction and industrial sectors, careers increasingly spurned by young university graduates.The policy focus also bloated China’s property sector to a quarter of economic activity and made local governments so reliant on debt that many now struggle to refinance.The pandemic, a demographic downturn and geopolitical tensions have exacerbated all these problems to the point that the economy has found it hard to recover this year even as China reopened.”We’re at a moment when we are seeing some structural shifts, but we should have seen these coming,” said Max Zenglein, chief economist at MERICS, a China studies institute.”We’re just beginning to be confronted with the reality. We’re in untested territory.”The end of China’s economic boom will likely hurt commodity exporters and export disinflation around the world. At home, it will threaten living standards for millions of unemployed graduates and many whose wealth is tied up in property, posing social stability risks.CRISIS VS STAGNATIONAside from short-term solutions, which would likely only perpetuate debt-fueled investment, economists see three options for China.One is a swift, painful crisis that writes off debt, curbs excess industrial capacity and deflates the property bubble. Another is a decades-long process in which China winds down these excesses gradually at the expense of growth. The third is switching to a consumer-led model with structural reforms that cause some near-term pain but help it re-emerge faster and stronger.A crisis could unfold if the massive property market collapses in an uncontrolled way, dragging the financial sector with it.The other high-stress point is local government debt, estimated by the International Monetary Fund at $9 trillion. China promised in July to come up with a “basket of measures” to address municipal debt risks, without detailing.Logan Wright, a partner at Rhodium Group, says Beijing has to decide which portion of that debt to rescue, as the amount is too large to provide full guarantees of repayment, which the market currently regards as implicit.”Crisis is going to occur in China when government credibility falters,” he said.”When all of a sudden funding is cut off for the remaining investments that seem subject to market risk, that’s a huge moment of uncertainty in China’s financial markets.”But given state control of many developers and banks and a tight capital account that limits outflows into assets abroad, that is a low risk scenario, many economists say.Alicia Garcia Herrero, chief economist for Asia Pacific at Natixis, expects there would be plenty of buyers if Beijing consolidates debt given limited investment alternatives.”I am more in the slow growth camp,” she said. “The more debt is piled up for projects that are not productive, the lower the return on assets, particularly public investment, and that really means that China cannot grow its way out.”Avoiding a crisis by extending the adjustment period, however, has its own stability risks with youth unemployment topping 21% and around 70% of household wealth invested in property.”One of China’s biggest success stories, building a strong middle class, is also becoming its biggest vulnerability,” said MERICS’ Zenglein. “If you look at it from the perspective of a younger person, you are now at risk of being the first post-reform generation whose economic wellbeing might hit a wall. If the message is tighten up your belts and roll up your sleeves, that’s going to be kind of a hard sell.”REFORMS, THIS TIME?The third path, actively switching to a new model, is considered very unlikely, based on what happened to Xi’s 60-point programme.Those plans have barely been mentioned since 2015 when a capital outflows scare sent stocks and the yuan tumbling and engendered an official aversion to potentially disruptive reforms, analysts say.China has since backed away from major financial market liberalisation while plans to rein in state behemoths and introduce universal social welfare never quite materialised.”Right now is a time in which there’s a potential for the train to change direction to a new model, and I think there’s appetite to do that,” said Hurst.”But at the same time there’s a great fear of the short-term political and social risk, especially of provoking an economic crisis.” More

HONG KONG/BEJING (Reuters) -Country Garden has won approval from its creditors to extend payments for an onshore private bond, according to sources and a document seen by Reuters, in a major relief for the embattled Chinese developer as well as the crisis-hit property sector.Country Garden was seeking approval from its creditors to extend the maturity on a 3.9 billion yuan ($540 million) onshore private bond in a vote that ended on Friday night.An unprecedented liquidity crisis in China’s vast property sector is a major risk to a sputtering post-COVID recovery in the world’s second-biggest economy, which has rattled global markets.Country Garden debt payment extension buys time for China’s largest private developer to avoid default, and is good news for financial markets and the Chinese government, which has announced a raft of measures to support the property sector.The extension means the developer can repay the debt in instalments over three years, instead of meeting its obligations by Saturday. The bond is not publicly traded.In Friday’s vote, 56.08% of participating Country Garden onshore creditors approved the extension, 43.64% opposed and 0.28% abstained, an official document shared with bondholders showed.Country Garden did not immediately respond to a request for comment. The sources, who have direct knowledge of the matter, asked not to be named as they were not authorised to speak to the media.China’s property sector, which accounts for roughly a quarter of the economy, has lurched from one crisis to another since 2021 after the authorities cracked down on developers’ debt-fuelled building boom.As Country Garden’s financial woes spiralled over the past month, Beijing has rolled out a string of support measures including cutting mortgage rates and removing some curbs on home purchases.The authorities are set to take further action, including relaxing home-purchase restrictions as they scramble to tackle a deepening crisis in its massive debt-riddled property sector, Reuters reported on Friday.Country Garden’s reprieve may give onshore bondholders some relief, but there is still a long way to go as China tries to defuse risks in the crisis-hit property sector and bolster the economy, analysts said.”Sales in the biggest cities in China may see meaningful improvement over the next couple of months as Beijing cuts mortgage rates and makes them more easily available to buyers,” said Guotai Junan International’s chief economist Zhou Hao.”However, how the improvement will trickle down to help the cash flow of developers remains to be seen. Plus different types of developers are likely to benefit from it very unevenly. Those with more projects in the first-tier cities may benefit first.”The slump in the Chinese property market is driven by more fundamental factors than the cost of borrowing, including broader debt worries in the economy, white-collar workers taking pay cuts and a demographic downturn, analysts say.DEFAULT RISKUntil this year Country Garden was the largest Chinese developer by sales. The company was considered financially sound compared with peers like China Evergrande (HK:3333) Group, which defaulted on its debt in 2021.While Country Garden’s liabilities are only 59% of Evergrande’s, it has 3,103 projects across China, compared with around 800 for Evergrande – making the company matter to systemic stability.A default by Country Garden would have exacerbated the real estate crisis and put more strain on its onshore lenders.The developer’s financial woes became public last month after it missed two dollar-coupon payments totalling $22.5 million, raising fears that the country’s deepening property debt crisis would spill over to the broader financial sector.Country Garden still faces another major challenge next week, when the grace period ends for last month’s missed coupon payments worth a total of $22.5 million on the two offshore dollar bonds.The developer also has dollar coupon payments on its other offshore bonds coming due each month for the rest of 2023. And it has onshore bond payments totalling 12.6 billion yuan by the end of the year, according to CreditSights.Moody’s (NYSE:MCO) slashed Country Garden’s credit rating by three notches to Ca from Caa1 on Thursday due to worries it could be on the brink of default. It said the firm was facing tight liquidity and recovery prospects for bondholders could be weak.Country Garden warned on Wednesday of default risks if its financial performance continued to deteriorate, and said it “felt deeply remorseful” for its record loss in the first half. More

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(Reuters) – A look at the day ahead in Asian markets from Stephen Culp, financial markets journalist.Asian markets have a tough act to follow on Monday – their own.On Friday, Asian stocks wrapped up a mixed August with robust weekly gains. The Shanghai SE Composite, the blue-chip Shenzhen, the Hang Seng and the broader MSCI Asia Pacific index all enjoyed their biggest weekly percentage gains in five, while the posted its largest week-on-week advance since June.Renewed risk appetite was largely fueled by a series of actions taken by Beijing to shore up the economy, jump-start languid Chinese demand and stanch a mounting real estate crisis.”Clearly, we’ve seen a significant slowdown in the Chinese economy the last couple of months,” said Ryan Detrick, chief market strategist at Carson Group in Omaha. “The government is pulling some levers to bring economy back, but they need to do more, and their consumers need to show more confidence than they are currently showing.”China will begin the week assessing the human and economic damage left in the wake of Typhoon Saola, which slammed into Guangdong province on Saturday, lashing Shenzhen, Hong Kong and Macau.This, even as Typhoon Haikui barreled into southeastern Taiwan, prompting the evacuation of thousands.In the week ahead, Chinese Premier Li Qiang is slated to attend a summit of the Association of Southeast Asian Nations (ASEAN), according to Beijing’s foreign ministry.On the economic front, South Korea’s CPI is expected to heat up on Tuesday, China and India post services PMI reports and China trade balance is expected on Wednesday.On Thursday, Japan is due to release revised second-quarter GDP data and CPI and PPI reports from China are on deck for Friday.Here are key developments that could provide more direction to markets on Monday:- South Korea CPI (August)- Australia Judo Bank services PMI (August)- Japan household spending (July) More

Chinese lenders stepped in to extend billions of dollars to Russian banks as western institutions pulled back their operations in the country during the first year of Moscow’s invasion of Ukraine.The moves by four of China’s biggest banks are part of Beijing’s efforts to promote the renminbi as an alternative global currency to the dollar.China’s exposure to Russia’s banking sector quadrupled in the 14 months to the end of March this year, according to the latest official data analysed for the Financial Times by the Kyiv School of Economics. The lenders took the place of western banks, which came under acute pressure from regulators and politicians in their home countries to exit Russia, while international sanctions made doing business much harder.The Industrial and Commercial Bank of China, Bank of China, China Construction Bank and Agricultural Bank of China increased their combined exposure to Russia from $2.2bn to $9.7bn in the 14 months to March, according to Russian central bank data, with ICBC and Bank of China accounting for $8.8bn of the assets between them.During the same period, Austria’s Raiffeisen Bank — the foreign bank with the biggest exposure to Russia — increased its assets in the country by more than 40 per cent, from $20.5bn to $29.2bn.Raiffeisen has said it is looking at ways of pulling out of the country and has reduced its assets to $25.5bn since March.The moves by Chinese banks are part of a shift by Russia to adopt the renminbi rather than the US dollar or euro as a reserve currency.“The loans by Chinese banks to Russian banks and credit institutions, which are for the most part a case of the yuan taking the place of dollars and euros, show the sanctions are doing their job,” said Andrii Onopriienko, deputy development director at the Kyiv School of Economics, who compiled the data. The rise of renminbi trading highlights Russia’s economic pivot to China as trade between the two countries hit a record $185bn in 2022.Before last year’s invasion, more than 60 per cent of Russia’s payments for its exports were made in what the country’s authorities now refer to as “toxic currencies”, such as the dollar and euro, with renminbi accounting for less than 1 per cent.“Toxic” currencies have since dropped to less than half of export payments, while the renminbi accounts for 16 per cent, according to data from Russia’s central bank.Raiffeisen is one of the few western banks that has kept a significant presence in Russia, after several other foreign lenders cut ties and sold subsidiaries last year.But reforms brought in by the Kremlin last summer have made it much harder for foreign banks to sell their Russian subsidiaries. On Friday, Russia’s deputy finance minister Alexei Moiseev reaffirmed the government’s position to obstruct foreign bank sales.Profits at Raiffeisen’s Russian business rose 9.6 per cent to €867mn in the first six months of this year, with the Austrian lender raising pay for its Russia-based staff by €200mn.The European Central Bank is increasing pressure on lenders it supervises, including Raiffeisen, to exit Russia.Raiffeisen said it was trying to find ways of selling or spinning off its Russian business, while staying compliant with local and international laws and regulations.“We are committing to further reducing business activity in Russia whilst we continue to progress such potential transactions,” the bank added.Overall, the proportion of Russian banking assets held by foreign lenders reduced from 6.2 per cent to 4.9 per cent in the 14 months to March.ICBC, Bank of China, China Construction Bank and Agricultural Bank of China all declined to comment. More