Aurelia Butler

TOKYO (Reuters) -Bank of Japan Governor Kazuo Ueda said that he and prime minister Fumio Kishida held talks on Tuesday on economic developments but did not discuss recent volatile currency moves.The discussions took place in the wake of the dollar’s recent ascent above 145 yen, a level that in September 2022 triggered Japan’s first yen-buying operation since 1998.”There wasn’t anything in particular discussed today,” Ueda told reporters after the meeting, when asked whether the two held talks on recent exchange-rate volatility.Ueda also said he explained to Kishida the Bank of Japan’s decision last month to loosen its grip on long-term interest rates. “The premier said he well understood,” Ueda added.The dollar briefly slid against the yen on news the two were to meet, before bouncing back to around 145.98.Ueda said Tuesday’s meeting was a continuation of his predecessor Haruhiko Kuroda’s practice of conferring with the premier once every few months on economic and financial developments.It was the second such meeting since Ueda assumed the top BOJ post in April. The last one was held on April 10, when the two discussed the need to “guide policy flexibly” given uncertainty over the economic outlook.The BOJ last month tweaked its yield curve control (YCC) to allow long-term rates to rise more freely. But it stressed its resolve to maintain ultra-easy policy, keeping markets focused on the gap between U.S. and Japanese yields.Soaring U.S. Treasury yields pushed up the dollar to 146.565 yen on Thursday, the highest since Nov. 10, giving rise to market speculation Tokyo may step in again to prop up the yen.A week ago, Finance Minister Shunichi Suzuki warned against excessive volatility and said authorities would “respond appropriately to excessive moves.” But officials have mostly refrained from commenting on foreign exchange rates since then. More

As policy ideas go, the minimum wage has had a great run of it. Productivity might have been disappointing after the financial crisis, average pay growth might have been weak, but the minimum wage was one policy tool that seemed to help people at the bottom of the ladder. When Germany introduced a minimum wage in 2015, it reduced wage inequality without hurting people’s employment prospects. When the UK’s Conservative government supercharged the minimum wage for over-25s in 2016, it didn’t do much for productivity but it did reduce low pay while employment levels continued to rise. Other countries and regions took the same approach, from South Korea to a swath of US states. Then the pandemic and the war in Ukraine turned the macroeconomy upside down. So how has the minimum wage fared through this bout of high inflation — did it run into trouble?It could have gone wrong in a couple of ways. On the one hand, the various mechanisms that exist in different countries for uprating the wage floor might have proved too slow or too cautious to keep up with the surge in prices. That could have led to a sharp fall in real-terms pay for workers at the bottom — a bad outcome for people who are especially vulnerable to the price shock as they spend a bigger chunk of their incomes on energy and food.On the other hand, there was also a risk of the opposite problem: that minimum wages could rise quickly, particularly in countries where they are indexed to inflation rates, and fuel a self-reinforcing loop of higher pay and higher prices.The good news is that neither of these things appear to have happened, according to research by economists at the OECD. Most OECD countries have held their nerve and increased their minimum wages to try to keep up with inflation (the US is an exception: at the federal level, its $7.25 an hour minimum wage hasn’t increased since 2009). On average across OECD countries, nominal statutory minimum wages increased by 29 per cent between December 2020 and May 2023, while prices increased by about 25 per cent. In other words, minimum wages proved “a useful policy instrument to protect the most vulnerable workers from rising prices”, the researchers concluded. Nor did they find much reason to worry about wage-price spirals. Their calculations suggest that a 1 per cent increase in the minimum wage only adds up to 0.09 per cent in the US and 0.23 per cent in France to aggregate wage growth.Minimum wages seem to have passed the test of high inflation, then. But it’s worth noting that employers have been so hungry for staff that the dynamics of supply and demand have pushed up wages for people in lower-paid jobs anyway.Take the UK. For most of this century, the number of minimum wage jobs has been growing, from less than half a million in 2000 to well over 1.5mn by 2019. As the pay floor has risen, more people have found themselves bunched up on it. But between 2019 and 2022, the number of minimum wage jobs fell unexpectedly by about 400,000 — the first time that has happened in 20 years.Why? Analysis by the UK Low Pay Commission suggests wage growth has been faster for people paid slightly above the minimum wage. In particular, between 2019 and 2022 (when the minimum wage rose to £9.50 an hour), the number of jobs that paid exactly £10 an hour more than doubled from 190,000 to 420,000. Employers in low-paying sectors told the LPC there had been so much competition for scarce workers, they just had to pay up. The Association of Convenience stores, for example, reported that its members “‘tend to employ store colleagues at or just above” the minimum wage but it had proved “increasingly difficult to recruit staff at this level”. When I read the UK data, I was reminded of a conversation I had last year with a warehouse worker in the US, who argued that the “whole decade-long battle over raising the minimum wage to $15 an hour” had been superseded. “The free market already decided,” he said. “Now no one takes a job for under $15 an hour.” And employers desperate for staff haven’t just raised pay — an OECD analysis of online job adverts shows there has also been an increase in the number of US employers promising health insurance and paid time off.None of this is to say that wage floors aren’t necessary. Job markets aren’t always hot, after all. But it is a reminder that — for all the good a minimum wage can do for workers — nothing beats simply being in [email protected] More

The development bank set up by the Brics nations plans to begin lending in the South African and Brazilian currencies as part of a plan to reduce reliance on the dollar and promote a more multipolar international financial system, according to its president.Dilma Rousseff, the former Brazilian leader who heads the New Development Bank, also said the Shanghai-based lender was considering applications for membership from about 15 countries and was likely to approve the admission of four or five. She declined to name the countries but said it was a priority for the NDB to diversify its geographic representation. “We expect to lend between $8bn-$10bn this year,” Rousseff told the Financial Times in an interview. “Our aim is to reach about 30 per cent of everything we lend . . . in local currency.”She said the NDB would issue debt in rand for lending in South Africa and do “the same thing in Brazil with the real. We’re going to try to either do a currency swap or issue debt. And also in rupees.” The bank already lends in renminbi.The expansion of lending in local currency supports a wider objective agreed by the Brics nations of encouraging the use of alternatives to the dollar in trade and financial transactions.The Brics nations — Brazil, Russia, India, China and South Africa — set up the NDB in 2015 as an alternative to US-dominated financial institutions such as the IMF and World Bank.The NDB has lent $33bn for infrastructure and sustainable development projects and has incorporated non-Brics nations Egypt, Bangladesh and the United Arab Emirates as additional members, with Uruguay in the final stages of admission.Rousseff said lending in local currency would allow borrowers in member countries to avoid exchange rate risk and variations in US interest rates. “Local currencies are not alternatives to the dollar,” she said. “They’re alternatives to a system. So far the system has been unipolar . . . it’s going to be substituted by a more multipolar system.”The Brics bank has also tried to distinguish itself from the World Bank and IMF by not setting lists of political conditions on loans. “We repudiate any kind of conditionality,” Rousseff said. “Often a loan is given upon the condition that certain policies are carried out. We don’t do that. We respect the policies of each country.”Despite its intention to offer an alternative to the US-based financial order, the NDB has been forced to suspend all operations in member country Russia to avoid being sanctioned and cut off from the international financial system. “You can’t deny that [the international financial system] exists,” Rousseff admitted. “You have to live with it.”

Fitch downgraded the NDB’s debt from AA+ to AA last year with a negative outlook because of the bank’s Russia exposure, saying it “could face challenges to issue a long-term bond on US capital markets”.This was because of reputational risks associated with its part-Russian ownership structure, the rating agency said, with Moscow holding 19.4 per cent of capital at the end of 2021. Fitch revised the NDB’s outlook to stable in May after the bank succeeded in issuing a $1.25bn green bond but did not restore the AA+ rating. Rousseff said she believed the bank had plenty of room to grow, saying that at seven years old it was the newest of the world’s development banks. “We’ll transform ourselves into an important bank for developing countries and emerging markets,” she said. “Our focus has to be that: a bank made by developing countries for themselves.”  More

When Xi Jinping, China’s leader, delivered an “important speech” at the UN in September 2021, it appeared to be little more than a list of feelgood clichés. He said that the world needed “harmony between man and nature” and added that economic development should bring “benefits for all”. So short on specifics was his address that the international media mostly ignored it. Through subsequent elaborations, however, that speech has taken on a crucial significance. This is because Xi used it to propose a new scheme called the Global Development Initiative, which is now gaining recognition as a foundation stone in China’s blueprint for an alternative world order to challenge that of the US-led west.Ostensibly, the GDI is a Chinese-led multilateral programme to promote development, alleviate poverty and improve health in the developing world. But along with two follow-up initiatives also announced by Xi — the Global Security Initiative and the Global Civilisation Initiative — it represents China’s boldest move yet to enlist the support of the “global south” to amplify Beijing’s voice on the world stage and build up China’s profile in the UN, Chinese officials and commentators say.“[Xi’s initiatives] show China’s clearest intention yet to update the rules of global governance that were written by the collective west in the aftermath of world war two,” says Yu Jie, senior research fellow at Chatham House, a think-tank in London.“The initiatives illuminate Beijing’s moves to carve out its own space in international affairs because it is firmly convinced that China’s relations with the collective west will remain turbulent for a decade to come,” she adds. The key to China’s blueprint is to steadily institutionalise its leadership over the developing world by creating, expanding and funding a raft of China-led groupings of countries, according to Chinese officials and commentators. They add that the aims of this strategy are largely two-fold: to ensure that a broad swath of the world remains open to Chinese trade and investment and to use the voting power of developing countries at the UN and in other forums to project Chinese power and values.The crucial context to this strategy is that by seeking increased leadership over the global south, China is throwing in its lot with the largest and fastest-growing part of the world. The 152 countries classified as developing at the UN vastly outstrip their developed counterparts on yardsticks such as population size and population growth, GDP growth rates over the past two decades and overall contribution to global GDP growth as measured by purchasing power parity.For the first time ever, China exported more in the early part of this year to the developing world — as represented by the countries that make up the Belt and Road Initiative — than it exported to the US, EU and Japan combined (see chart), according to data collected by Dongwu Securities, a Chinese brokerage.“China will always be a member of the family of developing countries,” Xi told a forum in 2021. “We will continue to do our utmost in raising the representation and voice of developing nations in the global governance system.”The list of international institutions in which Beijing hopes to magnify its influence and, by extension, that of the developing world is getting longer. It includes the UN, the World Trade Organization, the G20 and others, Chinese officials say. In addition, Beijing also intends to expand the membership and raise the profile of several groupings in which it already plays a leading role, including the Shanghai Cooperation Organisation, the Brics group and others.Chinese president Xi Jinping remotely addresses the UN General Assembly in September 2021. Xi used the speech to propose a new scheme called the Global Development Initiative © Mary Altaffer/Pool/Reuters“We should not take the Chinese Communist party’s endeavours to establish a new world order lightly,” says Xu Chenggang, senior research scholar at Stanford University’s Center on China’s Economy and Institutions.“Developing countries with authoritarian regimes, particularly those in conflict with the US and other democracies, are finding that China’s new order is beneficial to their domestic authoritarian rule and their foreign policy,” he adds.Multilateralism with Chinese characteristicsThe UN — with its 15 specialised agencies that exercise global governance in several areas such as finance, telecoms, health and hunger alleviation — lies at the “very centre” of China’s worldview and its plans to boost its influence, says one senior Chinese official, who declined to be identified. It is also a focus of Beijing’s attempt to gain influence through Xi’s three initiatives. The most important move so far has come in the form of a new UN forum that China founded in 2020. Called the “Group of Friends of the Global Development Initiative”, it has about 70 member countries, has held its first ministerial meeting and has won the endorsement of UN secretary- general António Guterres, according to official Chinese documents.The full list of member countries in the group is confidential, a UN spokesperson and Chinese officials say. However, a list compiled by the Financial Times of 20 countries believed to be members, shows that the group includes many of China’s biggest debtors under the BRI. Through the initiative, Chinese financial institutions have lent nearly $1tn mainly for infrastructure projects in the developing world since 2013.A study by AidData, a US-based research lab, shows that the 20 countries on the list have displayed impressive loyalty to China in the form of votes at the UN. Between 2013 and 2020, each of them have voted with China on at least 75 per cent of occasions in the UN General Assembly (see chart), the main policymaking body which issues recommendations on global crises, manages internal UN appointments and oversees the UN’s budget.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

In the case of Cambodia, Pakistan, Tajikistan, Uzbekistan and Zimbabwe — all of which owe hefty debts to China — their voting alignment with China in the assembly registered at 80 per cent or above, according to the research.The correlation between increased lending and greater voting fealty was consistent across the sample. “When countries vote with China in the UN General Assembly, they are richly rewarded,” says Bradley Parks, executive director of AidData. “Beijing is dusting off an old playbook and using its largesse to purchase foreign policy favours.“On average, a 10 per cent increase in voting alignment with China in the UN General Assembly yields a 276 per cent increase in aid and credit from Beijing,” he adds, quoting research on voting patterns from a new book by Axel Dreher and colleagues called Banking on Beijing.These correlations do not prove that countries vote with China purely because of the debts they owe. Several other factors may also be in play such as political allegiances, trade and investment ties and agendas common to developing countries. Nevertheless, such loyalty represents a resource that China can draw on in future UN votes, says Courtney Fung, a UN expert at the Lowy Institute, a think-tank based in Australia.“China can harness these relationships in UN votes or debates to support and underline just how well-accepted China’s positions are within the UN system,” Fung says.One focus of China’s UN strategy is lobbying. If Beijing can secure the allegiance of the majority of 152 developing countries — out of 193 UN member states — it stands to prevail and correspondingly amplify its voice in world affairs, Chinese officials say.Recent general assembly resolutions have covered a gamut of issues, including financing for peacebuilding, pandemic prevention and a “new partnership” for Africa’s development.But, as China’s recent experience shows, it is not only in the broadest forums such as general assembly where the votes of developing countries loyal to China have turned out to be crucial.In October last year, the UN Human Rights Council voted down a western-led motion to hold a debate on China’s human rights abuses after a cohort of developing countries backed Beijing. The council has 47 members, of whom 19 voted against the motion, 17 for and 11 abstained. A Uyghur man sits on a park bench in Kashgar city in Xinjiang province. Developing countries last year backed Beijing in a UN vote on human rights © Pedro Pardo/AFP/Getty ImagesIt was only the second time in the council’s 16-year history that a motion had been rejected. But what made the defeat even more extraordinary was that it came just weeks after a finding by the UN Office of the High Commission for Human Rights that “serious human rights violations” had been committed by Beijing against Muslim minorities in Xinjiang, a region in north-west China.Following that victory, China then enlisted 66 countries — most of them recipients of Chinese lending under the BRI — to support a statement at the UN praising its human rights record. Its signatories outnumbered the 50 mostly western countries that endorsed a rival statement which condemned China.Beyond such one-off battles, China is starting to use the “Group of Friends of the Global Development Initiative” to promote its own definitions of key concepts in an effort to undercut those used by the US-led west. One of these is “true multilateralism”, which it defines as equal status for all countries.

This vision is distinct from what China sees as the abuses of the US-led world order, which it characterises as “bloc politics under the disguise of multilateralism” or attempts to impose the “rules made by a few countries” under the pretext of multilateralism, according to an official Chinese document.“The whole idea of [China’s definition of] multilateralism is to oppose what Beijing sees as American hegemony,” says Collin Koh, senior fellow at the Institute of Defence and Strategic Studies at the Nanyang Technological University in Singapore.Another key Chinese strategy is to present itself as a global peacemaker, partly to counter the reputational damage it suffered when its strategic partner, Russia, invaded Ukraine last year. Crucial to this ambition is the Global Security Initiative (GSI), which was launched this year by Xi and is designed as a China-led multilateral forum. Its aim is to wrest influence away from the US on global security issues while elevating its own role, officials say. Part of the strategy to achieve this is to call for a “bigger UN role in security affairs” while expanding Beijing’s own role within the UN peacekeeping hierarchy.This focus on the UN echoes that of the GDI and highlights a crucial feature of Xi’s three initiatives: rather than seeking to create a whole new world order, Beijing’s aim is to repurpose the UN’s authority to more squarely serve China.China is the second largest contributor — after the US — to the UN’s peacekeeping budget and it supplies more UN peacekeeping troops than the other four permanent members of the UN Security Council combined, according to Courtney Fung’s research. Over a dozen Chinese officers have had top military posts in the UN’s Department of Peace Operations, a foundation stone in the UN architecture, Fung adds.Although the DPO has been led by French officials since 1997, Beijing hopes that in time one of its officials will be chosen either to lead the DPO or one of its three main offices, Chinese officials say.Chinese peacekeepers deployed by the UN Mission in South Sudan patrol the UN Protection of Civilians site in Juba in 2016. Beyond the UN, China plans to boost the participation of developing countries in international forums © Albert Gonzalez Farran/AFP/Getty ImagesFor Beijing, the prestige it accords UN peacekeeping is part of a bigger push to align itself with the cause of peace. In March, it brokered a landmark deal between Saudi Arabia and Iran, ending a seven-year rift. In May, Xi proposed a four-point plan aimed at working towards peace between Israel and the Palestinian Authority. Officials from Beijing also attended a forum held this month in Saudi Arabia on resolving the conflict in Ukraine. European officials told the FT that China’s participation had been “constructive” and said that Beijing had signalled its willingness to attend further talks.Institutional expansionIn spite of its official adherence to “true multilateralism” — the concept of equal status for all states — China has a complex position on reforming the UN. It relishes its position as one of the five permanent members — along with the US, UK, France and Russia — of the UN Security Council “P5”, which allows it to veto resolutions.It is understood to be open to the idea of expanding the permanent membership from the current five. But it privately opposes the inclusion of Japan and India, both of which are strategic rivals to China, according to diplomats, who declined to be identified. This opposition in effect stymies a proposal to accept the “G4” — Germany, Brazil, India and Japan — as permanent members.To Collin Koh, this stance lays bare the hollowness of China’s claim to want to bring true multilateralism to the UN decision-making process. “I don’t think China is trying . . . to devolve major decision-making authority from the P5,” Koh says. “But of course this would not stop Beijing from continuing to put itself up as the unwavering, faithful leading advocate of the global south.”Beyond the UN, China has a raft of plans to boost the participation of developing countries in international forums and, in so doing, to bolster its own standing. In the G20, which Beijing treats as a key forum to engage with the west, China became the first country last year to push for membership for the African Union, which comprises 55 member states from the continent. If membership is granted at a summit scheduled for September in New Delhi, the G20’s membership will expand to 21 and developing world representation will grow close to parity with that of the developed world.A street food vendor serves customers next to a sign for a Pak China supermarket in Gwadar, Balochistan, Pakistan. The Shanghai Cooperation Organisation embraces both Pakistan and India, which acknowledge their mutually hostile ties © Asim Hafeez/BloombergChina is also hoping to expand the Brics group beyond its current members — Brazil, Russia, India, China and South Africa — so that it becomes a counterweight to the G7, a group of developed powers. More than 20 countries have submitted applications to join the grouping at a summit this week in South Africa, diplomats said.Another multilateral organisation in the throes of expansion is the Shanghai Cooperation Organisation, a security grouping founded by China that has nine countries as full members and is due to absorb Belarus as its tenth. Four of the members — China, Russia, India and Pakistan — are nuclear powers and Moscow sees the group “as the core of a China- and Russian-led anti-western bloc,” according to a paper from the European Council on Foreign Relations think-tank.Nevertheless, the SCO’s membership also betrays a common flaw with Chinese multilateralism. The opaque parameters it uses to launch its initiatives and institutions allows countries to look past the rivalries they have with others in the group. But it does nothing to heal the rifts. Thus the SCO embraces both Pakistan and India, which acknowledge their mutually hostile ties. India’s relationship with China itself is also tense on several fronts.“The vague language of most of the initiatives made it easy for countries to pay lip service to them. China could then point to this rhetorical support as evidence that a large number of countries backed its world view,” says Yun Sun, director of the China Program at the Stimson Center, a think-tank in Washington.“However, these countries would only be willing to accommodate China’s demands up to a certain point. When push came to shove, they would follow their own interests,” she adds.Additional reporting by Joseph Leahy in Beijing More

A Chinese billionaire who controls a key part of the battery supply chain is in talks to list some of his empire in South Korea, a step that could help his company invest and sell in the US despite Joe Biden’s policies aimed at cutting reliance on China.Bai Houshan’s Shanghai-listed Ronbay Technology dominates part of the global market for high-nickel cathode electrodes and is expanding rapidly in South Korea. The company is weighing plans to separate its Korean operations from its Shanghai entity in a bid to avoid tariffs of up to 25 per cent on Chinese-made components and access subsidies under Washington’s Inflation Reduction Act, according to three people familiar with the matter.The company has told investors that an IPO in South Korea in the next two years is one option under consideration to work around the “crisis” caused by the new legislation, according to a presentation viewed by the FT. The company declined to comment. Bai’s plans to split his group, which had revenues of more than $4bn in 2022, shows how companies are restructuring and exploring new licensing and partnership arrangements in response to deepening US-China tension.Biden is doling out hundreds of billions of dollars in subsidies to boost American domestic manufacturing and cut US economic dependency on China.Under the law, components from so-called foreign entities of concern, which includes China, are blocked from generous consumer tax credits and subject to additional tariffs.Ronbay’s factory in Chungju, in the landlocked Korean province of North Chungcheong, produces high-nickel cathode materials, a product for which it holds about a third of the global market share, according to Bernstein data. In a stock exchange filing in March, the company said it believed that shipments from its South Korean factory did not fall under the prohibitions of the new US laws. According to separate disclosures over the past two weeks, the company plans to raise Rmb5.42bn ($750mn) through a new share issuance in Shanghai for its Korea expansion. It has signed a memorandum of understanding with “either a Japanese or Korean” company to sell 100,000 tonnes of high-nickel cathode materials for use in the North American market.Ronbay’s strong market position reflects Chinese dominance across scores of materials and products critical to the world’s transition to cleaner energy systems, including electric vehicles, batteries, wind turbines and solar panels.In the coming weeks, the Biden administration is expected to more explicitly define a “foreign entity of concern”, a decision that could further limit Chinese investments and the use of China-made components in the US clean-tech sector.According to one person familiar with Ronbay’s plans, the timing of any Korean share sale will hinge on the outcome of that decision. In an example of how US and Chinese companies are finding new ways to co-operate, the world’s biggest battery producer, China’s CATL, signed a deal in February with Ford to license the Chinese group’s technology for use in the US company’s $3.5bn Michigan factory.

However, the Ford-CATL deal has been met with opposition from US Republicans. Florida senator Marco Rubio has said the arrangement “will only deepen US reliance on the Chinese Communist party for battery tech”.Chinese battery companies have forged a series of alliances with counterparts in US free trade partner countries, including South Korea, which is home to some of the world’s top battery makers, including LG and Samsung. Korean battery maker SK On and materials producer EcoPro this year partnered with China’s GME Resources to produce battery components in South Korea, while Korean conglomerates LG and Posco have both partnered with Zhejiang Huayou Cobalt. In June, Posco announced joint ventures worth $1.2bn with China’s CNGR Advanced Material. More

(Reuters) -Australia’s Coles Group (OTC:CLEGF) on Tuesday posted a 4.8% rise in full-year profit, helped by increased supermarket, sales but missed market expectations, sending the shares down nearly 4%.The country’s No. 2 grocer reported a net profit after tax of A$1.10 billion ($705.54 million) for the year ended June 30, compared with A$1.05 billion a year earlier. That marginally missed Refinitiv’s estimate of A$1.11 billion. The Melbourne-based company also said it expects cost-of-living pressure to remain for Australian households in fiscal 2024. Analysts at Jefferies called the results “disappointing”, while those at UBS expect further labour and operational costs to be headwinds for the company in future. The company announced a final dividend of A$0.30 per share, the same as last year’s A$0.30 per share.Coles flagged modest supermarket sales for early fiscal 2024 alongside early signs of customers shifting from out-of-home dining.Shares of Coles Group Ltd are down 3.8 % at A$16.63 as at 0002 GMT, making it one of the top losers on the benchmark. The broader market was down 0.2%. Coles’ higher profit comes on the back of higher supermarket sales, which help offset flat liquor sales revenue for the year. The supermarket division, Coles’ biggest revenue-generating segment, incurred A$36,746 million revenue during the year, 6.1% higher than a year ago. Total supermarket inflation was 6.7% for the year, significantly higher than 1.7% a year ago, the company said in a statement. Supermarket chains are benefiting from passing on high shelf prices to the shoppers, as decades-high inflation and sky-high borrowing costs push more consumers to eat at home and cut discretionary spending. However, the company’s liquor sales revenue for the year was flat compared with the prior year, as it grappled with COVID-19- related on-premise closures and restrictions for the first half of the year, before returning to growth of 2.7% in the second half. ($1 = 1.5591 Australian dollars) More

BENGALURU (Reuters) – The Bank of Korea will leave its key policy rate unchanged at 3.50% for a fifth consecutive meeting on Thursday and hold it steady for the rest of this year as inflation continues to ease and household debt remains high, a Reuters poll found.With inflation easing to 2.3% in July, the lowest in over two years and close to the BOK’s 2.0% target, financial markets are also indicating a tightening cycle that took rates up 300 basis points in 17 months is over.Despite the central bank’s expectation inflation will rise in coming months, slowing economic growth and high household debt will likely deter the BOK from further hikes, instead opting for a hawkish stance to deter markets from pricing in rate cuts.All 43 economists in the Aug. 14-21 Reuters poll expected no change to the 3.50% base rate at the Aug. 24 meeting.”After the last hike in January, the base rate is expected to remain unchanged at the current level until the end of this year … As the consumer price inflation rate has entered the 2% range, the room to respond to inflation is gradually weakening,” said Kong Dong-rak, economist at Daishin Securities. “However, if concerns about a slowdown in economic indicators grow, expectations for a base rate cut will continue to rise, especially in the financial market. But it will only be possible in 2024.”Among economists who had rate forecasts until end-2023, over three-quarters, 31 of 40, expected rates to remain unchanged at 3.50% until then, while the rest predicted the base rate to be 3.25% or lower.Like many of its Asian peers also probably done with their policy tightening cycles, the BOK is not expected to respond to rising inflationary risks or to slower economic growth following a 25.1% fall in exports to China last month.”Although the Bank of Korea has left open the possibility of further rate hikes, we believe that actual hikes are unlikely. Excluding external factors, internal sources of interest rate hikes are limited,” said Paik Yoon-min, economist at Kyobo Securities.”It is difficult to preemptively respond to either policy, but if inflation does not deviate significantly from the BOK’s projected path, demand for easing monetary tightening will grow amid growing downward pressure on the economy and financial instability.”A strong majority of economists, 26 of 34, forecast at least one 25 basis point rate cut to 3.25% in the first quarter of next year, when other central banks in the region are also expected to ease policy. [ID/INT][PH/INT]Median forecasts showed the BOK would gradually reduce the base rate next year, to 3.00% in the second quarter and then to 2.75% and 2.50% in the third and fourth quarters. More