Aurelia Butler

ACCRA (Reuters) -Ghana’s central bank maintained its main interest rate at 29.5% on Monday, saying tight monetary policy and relative exchange rate stability were helping inflation fall.The cocoa-, gold- and oil-producing West African nation is grappling with its worst economic crisis in a generation.The International Monetary Fund’s executive board last week approved a $3 billion three-year support programme, allowing for an immediate disbursement of about $600 million and a potential path out of the crisis.Ghana’s consumer inflation slowed for the fourth consecutive month in April after reaching a more than two-decade high of 54.1% in December, to 41.2% year-on-year from 45.0% in March.”The committee further noted the significant decline in headline inflation from the beginning of the year … The percentage of items in the CPI (Consumer Price Index) basket with inflation of more than 50% is receding,” Bank of Ghana Governor Ernest Addison told a news conference.  More

Touche! The tech battle between the US and China continues at the leaden pace of two heavily armoured knights biffing each other with yard brooms. China has banned its big infrastructure operators from buying the memory chips of America’s Micron Technology. It is retaliating against expansive sector controls introduced by the US last year. The US is aiming to slow China’s technological progress. Beijing’s latest tit-for-tat move may have the same effect.On the face of it, the ban is a big deal for Micron. Mainland China generated about a tenth of its sales for the 2022 fiscal year. Beijing said on Sunday that Micron’s products “pose significant security risks to China’s critical information infrastructure”. Beijing’s wording suggests the ban would mostly be limited to telecommunications and transportation. Micron’s chips are not widely used in these sectors in China. Instead, they are mostly deployed in mobile devices and consumer electronics. Moreover, Micron has successfully diversified its sources of income. Its computer and networking business, which makes products used in cloud servers, enterprise and networks, accounts for more than half of its operating income, significantly outpacing earnings from consumer electronics. That should shield Micron if Beijing decides to tighten restrictions to include electronic devices as well as infrastructure. For Chinese clients of Micron, though, such a ban would mean less price competition. That risk would explain a rise in Chinese memory chipmakers’ stocks on Monday. It also explains larger declines in the shares of Micron’s Chinese clients, including flash memory device manufacturer Shenzhen Longsys Electronics, whose shares fell 4 per cent. China’s dominance in a wide range of industries such as electric-car batteries and materials means it has the ability to leave lasting damage through trade retaliation. But when it comes to chips, its high dependence on the US means it has little leverage. More

ORLANDO, Florida (Reuters) -The curious dance between markets and the Federal Reserve now underway – Wall Street on a roll even as Fed officials say the most aggressive interest rate-hiking cycle in decades may need to go further – can partly be traced to the communications debacle of the “taper tantrum” exactly 10 years ago. On May 22, 2013, then Fed Chair Ben Bernanke revealed for the first time that the central bank might soon begin scaling back its asset purchase program, triggering a wave of panic, volatility and uncertainty that crashed over world markets.As much as asset prices got slammed, greater damage was done to the Fed’s credibility. Fear of a repeat influenced subsequent policy signaling, and ultimately helped shape the Fed’s eventual shift to twin rate hikes, ending so-called quantitative easing (QE) and starting quantitative tightening (QT).The Fed was much more meticulous after 2013 in laying out its various moves to withdraw stimulus. Markets were far better prepared when the time came in 2022 for the Fed to simultaneously raise rates and reduce its balance sheet. But as some argue, in its quest to avoid another taper tantrum, the Fed delayed that two-pronged tightening too long, which has partly contributed to the stickiness of inflation today.Paul McCulley, adjunct professor at Georgetown University and former chief economist at bond giant Pimco, notes that the communications groundwork for rate hikes and QT began in September 2020. The first rate increase was in March 2022 and QT began three months later.This lengthy buildup may have averted another taper tantrum, but tied the Fed’s hands on raising rates even as inflation was roaring back. “The ‘cure’ for what happened a decade ago – the market jumping the gun on liftoff — itself became a problem this cycle: a forward guidance straight jacket that delayed the much-needed policy rate liftoff,” McCulley said.COMMUNICATION BREAKDOWNAnswering a lawmaker’s question during an appearance before Congress’ Joint Economic Committee on May 22, 2013, Bernanke said: “If we see continued improvement and we have confidence that that’s going to be sustained then we could in the next few meetings … take a step down in our pace of purchases.”Markets thought this not only meant the Fed would soon “taper” its bond purchases, but also raise interest rates. They went into a frenzy. In a matter of weeks, the S&P 500 fell 8%, world stocks fell 10%, emerging market currencies and stocks fell 5% and 15%, respectively, and the 10-year Treasury yield shot up to 3% from 2%. Emerging markets were hit especially hard, due to their exposure to dollar-denominated debt and U.S. borrowing costs. They have also been at the sharp end of the Fed’s current tightening campaign of 10 consecutive rate hikes worth 500 basis points and the launch of “quantitative tightening” or QT.U.S. markets, however, have been less rattled. The S&P 500 is only 5% off where it was in March last year when the hikes started and is up nearly 10% this year. So far this year, the Nasdaq is up more than 20% and Treasury yields are lower.Willem Buiter, a former policymaker at the Bank of England, said markets have taken the rate hikes and QT in their stride because the policy changes were well signaled. The Fed and markets have learned their lessons from the taper tantrum.”Markets have learned about the conditions under which QT and multiple rates hikes will take place and proceeded. And the Fed has improved its communications relative to what we saw 10 years ago, which was a bit of an own goal,” Buiter said.Bernanke and his peers can be cut a fair amount of slack. May 2013 was a fragile time – less than five years since the collapse of Lehman Brothers, and less than a year since then European Central Bank chief Mario Draghi saved the euro with his “whatever it takes” remarks.Deflation, not inflation, was the fear. As other central bankers discovered, getting out of the zero interest rate policy (ZIRP) and QE regime was a whole lot more complicated than getting into it. Former Bank of England governor Mark Carney infamously said once UK unemployment fell below 7% interest rates would go up – it did, they didn’t – earning him the sobriquet “the unreliable boyfriend.”Andrew Sentence, a former BoE rate-setter and one of the most consistently hawkish policymakers in recent times, says the taper tantrum was just one example of many miscommunications at the time from central banks trying to unwind stimulus.”If you want to signal a change in policy it has to be planned and part of a consistent communications strategy form the central bank. Maybe the taper tantrum illustrates that it wasn’t as planned and consistent as it should have been,” he said.(The opinions expressed here are those of the author, a columnist for Reuters.) (By Jamie McGeever) More

Ireland says it will become the world’s first country to label alcoholic drinks with comprehensive health warnings, linking them to a slew of fatal illnesses and stating their calorie count in a move that has incensed some of its trading partners and set up a clash at the World Trade Organization.The new legislation, signed into law by health minister Stephen Donnelly on Monday, will take effect in three years to give producers the time to add the detailed warnings about calorie content, grammes of alcohol and the risk of cancer, liver disease and drinking while pregnant to drinks’ labels.“I welcome that we are the first country in the world to take this step and introduce comprehensive health labelling of alcohol products,” Donnelly said. “I look forward to other countries following our example.”Other countries include partial warnings, for example on drinking while pregnant, or alcohol’s link to cancer, but Ireland says none provide such wide-ranging information about the risks on the label.Ireland, the home of Guinness, says the move is consistent with health warnings on other food and drink products. The government has said that even low levels of alcohol consumption are associated with cancer risks.However, more than 10 countries, including the UK, US, New Zealand, Australia, Mexico and Cuba have already lodged complaints with the WTO and the move will be discussed at its next Technical Barriers to WTO Committee on June 21. Thirteen EU member states including Italy, France and Spain have raised their concerns with the European Commission and lobby groups have called for Brussels to open infringement proceedings against Dublin for breaching EU law.The EU has argued that Ireland’s unilateral labelling flouts a planned harmonised EU-wide approach and could distort trade. The country, which enjoyed solidarity from its EU partners on trade rules in the wake of Brexit and this month celebrated the 50th anniversary of its membership of the bloc, has also faced criticism at home. “Unfortunately this is an example of zealotry rather than evidence-based legislation,” said Cormac Healy, director of the trade body Drinks Ireland. “We would call on government to urgently address these significant international concerns from the EU and beyond and explain why Ireland is going alone on alcohol labels at a time when harmonised labels are being planned across the EU.”The Irish government “cannot afford to be hypocritical as we have been significant beneficiaries of the [EU] single market”, he added, predicting the legislation would harm the reputation of Ireland’s drinks products and push up costs.Ireland’s alcohol consumption peaked at more than 14 litres of pure alcohol per capita in 2001, but has fallen to 10.2 litres now. Nevertheless, Irish consumers still have a penchant for French wine and British beer.Italy’s government and producers are irate. Albiera Antinori, president of Marchesi Antinori, one of the country’s biggest winemakers, said it made a mockery of the idea of the EU as a single market.“The European Community is based on free trade,” she said. “The turnover of Italian wine is very small in Ireland, but it’s the principle — you cannot do something like this inside the European Community.” “It’s a limit to trade,” she added. “The issue has to be addressed. They need to find a solution. If not, the whole European idea — which begins in free trade — will be at an end.” More

So the G7 happened, and Volodymyr Zelenskyy turned up at short notice, and the general vibe was an American high school where the dominant but ageing clique invites along the new supercool kid at the last minute as a power play. Did it work? Will it backfire? I guess we’ll have to wait for the end of senior year to find out. Today I look at what the G7 said this weekend on the issue of economic coercion. I also issue a Told You So encyclical on my thesis that the UK Is probably better off not doing trade negotiations at all unless they’re about rejoining the EU. Charted waters looks at the wisdom of government action to cap food inflation.Standing up to ChinaThe deterioration (or perhaps improvement, take your pick) of international relations into a daily popularity battle between the rich democracies on one side and China on the other is getting really quite entertaining. Dragging ourselves away from the riveting details of whether or not Brazil had procured a Ukrainian flag for a Lula-Zelenskyy bilateral meeting that didn’t actually happen, something closer to actual substance came out of the G7 in the form of a 1,600-word statement on economic security covering forced tech transfer, trade-distorting subsidies, cybertheft and so on.As I wrote the other week, there were extensive discussions during preparations for the G7 on resisting economic coercion, with the activities of China in regard to countries such as Australia and Lithuania very much in mind. In the event, that section of the statement was softened a lot from the idea (espoused particularly by the US) that the G7 should form itself into a mutual defence society ready automatically to spring to each other’s aid.In the end the G7 promised to create a co-ordination platform against economic coercion as follows:“[W]e will use early warning and rapid information sharing, regularly consult each other, collaboratively assess situations, explore co-ordinated responses, deter and, where appropriate, counter economic coercion, in accordance with our respective legal systems.”All a bit vague, but the next bit is more promising.“We will also co-ordinate, as appropriate, to support targeted states, economies and entities as a demonstration of solidarity and resolve to uphold the rule of law.”There’s no automaticity there and no new legal powers either individually or collectively. But it’s a substantive signal even to have a rhetorical commitment to stand by countries (including those outside the G7) affected by coercive trade blockades. Said support could include defensive support like emergency credit lines, temporary tariff concessions and so on to enable affected companies to adjust rather than aggressively hitting back at Chinese exports. Of course, whether it’s a good idea for a government bullied by a trade blockade to start a diplomatic incident by sending up the G7 bat-signal is a separate decision. Someone in the field noted to me the other day that Australia’s main tactic in response to the Chinese trade embargoes — its exporters simply found other markets — was all the more effective because the companies by and large just got on with it rather than making lots of noise and showing they’d been hurt. The UK needs to get a grip and focus on EuropeA while back I wrote that all UK trade negotiations apart from preparing to align with or rejoin the EU were basically either wasting time or actually destructive. I got pushback on this, including from some sensible people, but I’d contend my case strengthens by the month.Last week a long-simmering problem boiled over — the UK’s, ahem, let’s say nascent electric vehicle and battery industry being clobbered by planned rules of origin changes in its post-Brexit deal with the EU. (See excellent explanations of the context by my FT colleague Helen Thomas and longtime Trade Secrets favourite “Big Sam” Lowe.)The government response to the car company Stellantis’s threat to quit the UK was bizarre and revealing. Kemi Badenoch, the trade secretary, riposted with a total non sequitur in Parliament (10:19:22 onwards here): “This isn’t to do with Brexit: this is to do with supply chain issues following the pandemic and the war in Russia and Ukraine.” (Eh?) Badenoch also — of course! — tried to muddy the waters by talking about the UK joining the Asia-Pacific CPTPP agreement.And there’s the problem. If you’re going to distract from Brexit by chuntering about fast-growing Pacific Rim . . . something . . . supply chains . . . something, it’s going to reduce focus on trading with the EU in substantive, bureaucratic and political terms. The UK isn’t going to build a high value-added domestic EV supply network on its own or meshed only with Asia-Pacific producers that can compete in that region or sell into the vast rich European market on its doorstep. Pretending it can may be more than a harmless indulgence.The talking point about booming Asia-Pacific vs sclerotic Europe will obviously surface in any debate about rejoining the EU. For my money the tiny benefit of joining CPTPP is outweighed by the chance that the prospect of losing membership of the deal (and similarly oversold Brexit benefits) could sway minds. Remember some people really did vote Leave because they believed the bent banana myth.Brexit isn’t set to bed in and to fade as a trade issue: probably the opposite. Underperformance compared with China (and the EU) over EVs will become more obvious; there’s a new EU entry/exit system coming to make passport control even worse; ditto new food inspection controls on imports. See FT colleague Peter Foster’s no doubt excellent forthcoming book on all of this.As time goes on, CPTPP and anything that isn’t focused on realigning with the EU will seem increasingly irrelevant. The UK needs to forget the distraction of creating Brexiter talking points and get a grip.Charted watersFood inflation is a problem. On that we can all agree. However, there is little consensus about the causes of this or on what the solution should be.The chart below shows how significant the problem has been for Hungary. Its government’s solution, like that of some other eastern European countries hit by high cost of living increases, has been to cap the prices of certain essential food items.

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The measures may have been effective in keeping a lid on prices for some items, but the World Bank has come out against their use. A report by the multilateral lender last week called on European governments to provide more “targeted policy interventions and social safety nets” to support those suffering from the cost of living crisis. But it stressed that price controls and subsidies were “suboptimal as they distort price signals for consumers and producers”. (Jonathan Moules)Trade linksChina went there, banning products from the US chipmaker Micron Technology from its critical infrastructure, the news coming out yesterday just in time to disrupt the G7 narrative about economic security.The Peterson Institute’s Chad Bown writes in the IMF’s Finance and Development publication about how the WTO needs to help its developing members comply with the increasingly far-reaching export controls and sanctions regimes.Barry Eichengreen, one of the world’s great experts in currency regimes, says that recent moves towards the world diversifying away from the dollar are minimal and have little to do with the US’s use of sanctions.Trade Secrets is edited by Jonathan Moules More