Aurelia Butler

Five weeks after the collapse of Silicon Valley Bank, there is no consensus on whether the ensuing financial stress in North America and Europe has run its course or is a foretaste of worse to come. Equally pressing is the question of whether, against the backdrop of still high inflation, central banks in advanced economies will soon row back from monetary tightening and pivot towards easing.These questions, which are of overwhelming importance for investors, savers and mortgage borrowers, are closely related. For if banks and other financial institutions face liquidity crises when inflation is substantially above the central banks’ target, usually of about 2 per cent, acute tension arises between their twin objectives of price stability and financial stability. In the case of the US Federal Reserve, the price stability objective also conflicts with the goal of maximum employment. The choices made by central banks will have a far-reaching impact on our personal finances. If inflation stays higher for longer, there will be further pain for those who have invested in supposedly safe bonds for their retirement. If the central banks fail to engineer a soft landing for the economy, investors in risk assets such as equities will be on the rack. And for homeowners looking to refinance their loans over the coming months, any further tightening by the Bank of England will feed into mortgage costs. The bubble burstsSVB, the 16th largest bank in the US, perfectly illustrates how the central banks’ inflation and financial stability objectives are potentially in conflict. It had been deluged with mainly uninsured deposits — deposits above the official $250,000 insurance ceiling — that far exceeded lending opportunities in its tech industry stamping ground. So it invested the money in medium and long-dated Treasury and agency securities. It did so without hedging against interest rate risk in what was the greatest bond market bubble in history. The very sharp rise in policy rates over the past year pricked the bubble, so depressing the value of long-dated bonds. This would not have been a problem if depositors retained confidence in the bank so that it could hold the securities to maturity. Yet, in practice, rich but nervous uninsured depositors worried that SVB was potentially insolvent if the securities were marked to market. An inept speech by chief executive Greg Becker on March 9 quickly spread across the internet, causing a quarter of the bank’s deposit base to flee in less than a day and pushing SVB into forced sales of bonds at huge losses. The collapse of confidence soon extended to Signature Bank in New York, which was overextended in property and increasingly involved in crypto assets. Some 90 per cent of its deposits were uninsured, compared with 88 per cent at SVB.Fear spread to Europe, where failures of risk management and a series of scandals at Credit Suisse caused deposits to ebb away. The Swiss authorities quickly brokered a takeover by arch rival UBS, while in the UK the Bank of England secured a takeover of SVB’s troubled UK subsidiary by HSBC for £1. These banks do not appear to constitute a homogeneous group. Yet, in their different ways, they demonstrate how the long period of super-low interest rates since the great financial crisis of 2007-09 introduced fragilities into the financial system while creating asset bubbles. As Jon Danielsson and Charles Goodhart of the London School of Economics point out, the longer monetary policy stayed lax, the more systemic risk increased, along with a growing dependence on money creation and low rates.The ultimate consequence was to undermine financial stability. Putting that right would require an increase in the capital base of the banking system. Yet, as Danielsson and Goodhart indicate, increasing capital requirements when the economy is doing poorly, as it is now, is conducive to recession because it reduces banks’ lending capacity. So we are back to the policy tensions outlined earlier.Part of the problem of such protracted lax policy was that it bred complacency. Many banks that are now struggling with rising interest rates had assumed, like SVB, that interest rates would remain low indefinitely and that central banks would always come to the rescue. The Federal Deposit Insurance Corporation estimates that US banks’ unrealised losses on securities were $620bn at the end of 2022.A more direct consequence, noted by academics Raghuram Rajan and Viral Acharya, respectively former governor and deputy governor of the Reserve Bank of India, is that the central banks’ quantitative easing since the financial crisis, whereby they bought securities in bulk from the markets, drove an expansion of banks’ balance sheets and stuffed them with flighty uninsured deposits.Rajan and Acharya add that supervisors in the US did not subject all banks to the same level of scrutiny and stress testing that they applied to the largest institutions. So these differential standards may have caused a migration of risky commercial real estate loans from larger, better-capitalised banks to weakly capitalised small and midsized banks. There are grounds for thinking that this may be less of an issue in the UK, as we shall see. A further vulnerability in the system relates to the grotesque misallocation of capital arising not only from the bubble-creating propensity of lax monetary policy but from ultra-low interest rates keeping unprofitable “zombie” companies alive. The extra production capacity that this kept in place exerted downward pressure on prices. Today’s tighter policy, the most draconian tightening in four decades in the advanced economies with the notable exception of Japan, will wipe out much of the zombie population, thereby restricting supply and adding to inflationary impetus. Note that the total number of company insolvencies registered in the UK in 2022 was the highest since 2009 and 57 per cent higher than 2021.A system under strain In effect, the shift from quantitative easing to quantitative tightening and sharply increased interest rates has imposed a gigantic stress test on both the financial system and the wider economy. What makes the test especially stressful is the huge increase in debt that was encouraged by years of easy money. William White, former chief economist at the Bank for International Settlements and one of the few premier league economists to foresee the great financial crisis, says ultra easy money “encouraged people to take out debt to do dumb things”. The result is that the combined debt of households, companies and governments in relation to gross domestic product has risen to levels never before seen in peacetime.All this suggests a huge increase in the scope for accidents in the financial system. And while the upsets of the past few weeks have raised serious questions about the effectiveness of bank regulation and supervision, there is one respect in which the regulatory response to the great financial crisis has been highly effective. It has caused much traditional banking activity to migrate to the non-bank financial sector, including hedge funds, money market funds, pensions funds and other institutions that are much less transparent than the regulated banking sector and thus capable of springing nasty systemic surprises. An illustration of this came in the UK last September following the announcement by Liz Truss’s government of unfunded tax cuts in its “mini” Budget. It sparked a rapid and unprecedented increase in long-dated gilt yields and a consequent fall in prices. This exposed vulnerabilities in liability-driven investment funds in which many pension funds had invested in order to hedge interest rate risk and inflation risk. Such LDI funds invested in assets, mainly gilts and derivatives, that generated cash flows that were timed to match the incidence of pension outgoings. Much of the activity was fuelled by borrowing.UK defined-benefit pension funds, where pensions are related to final or career average pay, have a near-uniform commitment to liability matching. This led to overconcentration at the long end of both the fixed-interest and index-linked gilt market, thereby exacerbating the severe repricing in gilts after the announcement. There followed a savage spiral of collateral calls and forced gilt sales that destabilised a market at the core of the British financial system, posing a devastating risk to financial stability and the retirement savings of millions. This was not entirely unforeseen by the regulators, who had run stress tests to see whether the LDI funds could secure enough liquidity from their pension fund clients to meet margin calls in difficult circumstances. But they did not allow for such an extreme swing in gilt yields. Worried that this could lead to an unwarranted tightening of financing conditions and a reduction in the flow of credit to households and businesses, the BoE stepped in to the market with a temporary programme of gilt purchases. The purpose was to give LDI funds time to build their resilience and encourage stronger buffers to cope with future volatility in the gilts market. The intervention was highly successful in terms of stabilising the market. Yet, by expanding its balance sheet when it was committed to balance sheet shrinkage in the interest of normalising interest rates and curbing inflation, the BoE planted seeds of doubt in the minds of some market participants. Would financial stability always trump the central bank’s commitment to deliver on price stability? And what further dramatic repricing incidents could prompt dangerous systemic shocks? Inflation before all?The most obvious scope for sharp repricing relates to market expectations about inflation. In the short term, inflation is set to fall as global price pressures fall back and supply chain disruption is easing, especially now China continues to reopen after Covid-19 lockdowns. The BoE Monetary Policy Committee’s central projection is for consumer price inflation to fall from 9.7 per cent in the first quarter of 2023 to just under 4 per cent in the fourth quarter.The support offered by the Fed and other central banks to ailing financial institutions leaves room for a little more policy tightening and the strong possibility that this will pave the way for disinflation and recession. The point was underlined this week by the IMF, which warned that “the chances of a hard landing” for the global economy had risen sharply if high inflation persists. Yet, in addition to the question mark over central banks’ readiness to prioritise fighting inflation over financial stability, there are longer-run concerns about negative supply shocks that could keep upward pressure on inflation beyond current market expectations, according to White. For a start, Covid-19 and geopolitical friction are forcing companies to restructure supply lines, increasing resilience but reducing efficiency. The supply of workers has been hit by deaths and long Covid. White expects the production of fossil fuels and metals to suffer from recently low levels of investment, especially given the long lags in bringing new production on stream. He also argues that markets underestimate the inflationary impact of climate change and, most importantly, the global supply of workers is in sharp decline, pushing up wage costs everywhere.Where does the UK stand in all this? The resilience of the banking sector has been greatly strengthened since the financial crisis of 2007-08, with the loan-to-deposit ratios of big UK banks falling from 120 per cent in 2008 to 75 per cent in the fourth quarter of 2022. Much more of the UK banks’ bond portfolios are marked to market for regulatory and accounting purposes than in the US.The strength of sterling since the departure of the Truss government means the UK’s longstanding external balance sheet risk — its dependence on what former BoE governor Mark Carney called “the kindness of strangers” — has diminished somewhat. Yet huge uncertainties remain as interest rates look set to take one last upward step.Risks for borrowers and investorsFor mortgage borrowers, the picture is mixed. The BoE’s Financial Policy Committee estimates that half the UK’s 4mn owner-occupier mortgages will be exposed to rate rises in 2023. But, in its latest report in March, the BoE’s FPC says its worries about the affordability of mortgage payments have lessened because of falling energy prices and the better outlook for employment.The continuing high level of inflation is reducing the real value of mortgage debt. And, if financial stability concerns cause the BoE to stretch out the period over which it brings inflation back to its 2 per cent target, the real burden of debt will be further eroded. For investors, the possibility — I would say probability — that inflationary pressures are now greater than they have been for decades raises a red flag, at least over the medium and long term, for fixed-rate bonds. And, for private investors, index-linked bonds offer no protection unless held to maturity. That is a huge assumption given the unknown timing of mortality and the possibility of bills for care in old age that may require investments to be liquidated. Note that the return on index-linked gilts in 2022 was minus 38 per cent, according to consultants LCP. When fixed-rate bond yields rise and prices fall, index-linked yields are pulled up by the same powerful tide.Of course, in asset allocation there can be no absolute imperatives. It is worth recounting the experience in the 1970s of George Ross Goobey, founder of the so-called “cult of the equity” in the days when most pension funds invested exclusively in gilts. While running the Imperial Tobacco pension fund after the war he famously sold all the fund’s fixed-interest securities and invested exclusively in equities — with outstanding results. Yet, in 1974, he put a huge bet on “War Loan” when it was yielding 17 per cent and made a killing. If the price is right, even fixed-interest IOUs can be a bargain in a period of rip-roaring inflation. A final question raised by the banking stresses of recent weeks is whether it is ever worth investing in banks. In a recent FT Money article, Terry Smith, chief executive of Fundsmith and a former top-rated bank analyst, says not. He never invests in anything that requires leverage (or borrowing) to make an adequate return, as is true of banks. The returns in banking are poor, anyway. And, even when a bank is well run, it can be destroyed by a systemic panic. Smith adds that technology is supplanting traditional banking. And, he asks rhetorically, have you noticed that your local bank branch has become a PizzaExpress, in which role, by the way, it makes more money? A salutary envoi to the tale of the latest spate of bank failures. More

When Ghana defaulted on its debts and reached a preliminary agreement on a $3bn IMF bailout last December, the world’s lender of last resort imposed many familiar conditions to get the country’s finances back on track.One demand, however, was strikingly new, and analysts say it will change the debt landscape forever. The IMF said that before it asks its board to approve the support package, Accra must first address its domestic debts — money typically borrowed from local banks, pension funds and insurance companies.“This has opened a can of worms, in Ghana and elsewhere,” said Thys Louw, emerging market debt portfolio manager at investment company Ninety One. “Every restructuring is going to have this issue hanging over it.” The dilemma for governments is that as they fall into default they face a stark choice. If they force overseas creditors to shoulder all the pain, they risk losing access to foreign capital while struggling to restore their overall debt to a sustainable footing. Yet pushing losses on to domestic creditors risks wiping out local banks, pension funds and insurance companies. The cost to taxpayers of recapitalising a banking sector can be more than the savings achieved through debt restructuring.In Ghana, said Joe Delvaux, emerging markets distressed debt portfolio manager at Amundi, “if you just restructure the external debt, that’s not enough to get you back on a path to debt sustainability”.Back in the late 20th century, when emerging markets suffered two decades of almost continuous debt crises, domestic debt was barely an issue. In fact, the lack of local debt markets was a serious concern.Many countries had borrowed heavily by issuing bonds denominated in US dollars. These appealed to foreign investors because they shielded them from currency risk and other instabilities. For borrowers, they were cheaper than bonds issued at home, where lenders demanded compensation for risks such as high inflation. But borrowing in US dollars left countries exposed to shocks beyond their control, as the 1980s and ’90s brutally illustrated in Latin America, Asia and elsewhere. In 1999, economists Barry Eichengreen and Ricardo Hausmann described reliance on foreign-currency financing as “original sin”.Since then, urged on by the likes of the IMF and the World Bank, many emerging economies have developed deep domestic capital markets that allow them to borrow primarily at home. Brazil, India and South Africa have almost no foreign-currency public debts at all.During years of low global interest rates, the local currency debts of developing countries accumulated almost under the radar. For many governments, they became vital sources of funding. Some put limits on the amount local banks and others can invest overseas, obliging them to hold a big share of their assets in domestic government debt. This limits the capital that would otherwise be available for businesses to put to work in productive investments, stymying growth. “The more a country develops its financial markets, the more debt tends to be accumulated in its local market,” says Delvaux. “But the moment you are in debt distress, because local debt is a bigger component than it used to be, it becomes an integral part of what has to be considered in debt restructuring.” Local currency government debt is also often short term and expensive to service. In Ghana, according to IMF forecasts before the country’s default, the stock of external public debt this year was the equivalent of 45 per cent of gross domestic product, slightly larger than domestic debt, at 41 per cent of GDP.But the cost of interest payments on domestic debt was set to be much greater — roughly half of central government revenues, compared with about 13 per cent of revenues on external debt.Compared to some, Ghana’s case is relatively benign. Sri Lanka, which has reluctantly followed Ghana’s lead by preparing to restructure its domestic public debts alongside its external ones, has a roughly even split in its public debt stock between domestic and external. But the cost of servicing domestic debt was equal to 21.5 per cent of GDP last year, according to the IMF, compared with 9.4 per cent of GDP for external debt.Other examples are more extreme. Pakistan, which is teetering on the brink of default, has public debts equal to 75 per cent of GDP, according to the IMF, of which two-thirds is domestic. But its interest payments on domestic debts are six times those on external debts.In Egypt, public debt is 88 per cent of GDP, according to the IMF, of which three-quarters is domestic. Interest on domestic debt costs 10 times the interest on external debt.Pakistan and Egypt both have the backing of IMF programmes, although Pakistan’s is suspended. Other countries at similar levels of distress have no such backstop.Shortly before its external default in December, Ghana unveiled its “voluntary” restructuring of local government bonds on terms that finance minister Ken Ofori-Atta describes as “punitive” for banks and other lenders. Nevertheless, he told the Financial Times last week, there was no alternative if debt restructuring overall was to restore debt sustainability and put Ghana back on a path to growth.“The issue was, are we acknowledging that we are in a crisis and how are we going to share the burden to get us out of it,” he said. With debt service eating up 70 per cent of government revenues before the default, he added, spending on health, education and infrastructure “had come to a jagged halt”. “That is why we are battling now to get back to what we should be doing.” More

For about as long as countries have been having recessions, one pattern has consistently appeared in the jobs data: when the economy contracts, employment falls faster and further among men than women and the male employment rate takes longer to recover. In fact, in some instances female employment doesn’t even fall, merely experiencing a slowdown in growth instead.Economists have debated the reasons. The most commonly cited is that men are more likely than women to work in industries sensitive to contraction. But men tend to fare worse than women even within an industry.As countries entered and exited their pandemic-induced recessions, that particular pattern has been conspicuously absent. In country after country, employment rates dipped simultaneously and by the same magnitude for both sexes, and have since rebounded in near-lockstep.This makes sense: the pandemic recession was a special case. Jobs were lost or put on pause while people’s ability to go out and spend money was temporarily constrained. But as society and machinery whirred into motion, back came the jobs. In some senses, these were not true recessions — there was always a light at the end of the tunnel, meaning the usual cyclical swings were significantly damped.But there is one country where these tell-tale recession markers of different patterns in male vs female employment have appeared again: the UK.Female employment rates in the UK barely budged as the pandemic hit, while male rates plummeted. This is especially true if we focus on “prime-age” employment — people aged 25 to 54 — which is not subject to the effects of large numbers of early retirees.The employment rate among prime-age British men is 89 per cent, a full point below its pre-pandemic level, up slightly on the 2 point deficit of late 2020, but still a year or more away from a full recovery on current trends. By contrast, female employment had rebounded past its previous high by mid-2021.It’s a similar story if we use other indicators of bona-fide recessions such as the difference in employment rates by education levels. In the US, employment rebounded just as quickly (if not quicker) among people without a high school diploma as it did among the highly skilled. In the UK, employment among graduates is back above its pre-pandemic high, but the rate among those who left school at 16 is down by a huge 2 percentage points and still falling.To date, discussion of Britain’s faltering labour market recovery has focused on early retirement among the over-50s — a head-scratcher for policymakers to be sure, but mainly driven by comfortable Britons making a quality-of-life decision. Zoom out a little, though, and there is clear cause for concern.Britain may not dip back into recession this year, but while other countries clamber back on to their pre-pandemic trajectories, the age-old warning lights of a prolonged downturn are [email protected], @jburnmurdoch More

Tolstoy, one of east Africa’s few remaining Super Tusker elephants, roamed the open grasslands around Mount Kilimanjaro for more than five decades. That was until last year, when he died after being speared by a farmer seeking to protect his crops.“This is happening more and more,” said ranger Daudi Ninaai, standing over the animal’s carcass inside Kenya’s Amboseli ecosystem reserve, whose 2,000 elephants include just five of the Super Tuskers famed for their enormous tusks.The ranger fears other pachyderms will meet the same fate, as the increasingly frequent clashes between humans and wildlife in the Unesco-designated biosphere reserve are exacerbated by the proliferation of new commercial farms growing crops such as avocados for the west and China. Beijing opened its doors to Kenyan avocados in August and expects to import 20,000 tonnes of the fruit this year.Incidences of “crop raiding”, where elephants damage or trample cultivated land, more than doubled from 156 in 2020 to 363 last year, according to Big Life, a conservation group.Ranger Daudi Ninaai next to the carcass of the elephant Tolstoy. Only five Super Tusker elephants remain in the Amboseli ecosystem © Eduardo Soteras Jalil/FT“It’s skyrocketing . . . because the space is shrinking,” Samuel Tokore, a senior official at Kenya Wildlife Service, said of the human-wildlife conflicts.Kenya’s elephants, a must-see for tourists who contribute 10 per cent of the country’s gross domestic product, have traditionally been free to traverse through and between its national parks to find food and water, and roam over the border into neighbouring Tanzania.But the fenced farms growing cash crops have drastically reduced their ability to travel freely. Tall barriers have been thrown up across their ancient migration routes while farmers have shown a willingness to use lethal force to protect their crops.

Such incidents have caused the deaths of more than 50 Amboseli elephants over the past decade. The problem has been heightened by one of the worst droughts on record, which last year killed more than 200 elephants in Kenya alone.Benson Leyian, Big Life chief executive, said the animals were simply following traditional routes, but the new farms blocked “critical migratory corridors that are key to elephants moving between Amboseli” and nearby Chyulu and Tsavo national parks.His group has calculated that elephants used one particular route close to the new commercial farms almost 3,000 times last year. Other wildlife, including leopard and giraffe, crossed almost 18,500 times.Paula Kahumbu, chief executive of conservation group WildlifeDirect, said: “Nobody wants to wonder if they’re contributing to the deaths of elephants — their favourite animal — every time they bite into an avocado from Kenya.”

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The problem stems partly from a state-led move to split up 1.35mn acres in Amboseli used by generations of nomadic Maasai into private plots. After the communal land was divided up, some opted to sell them on to commercial farmers.In one instance, a company called KiliAvo Fresh was awarded a licence for a 180-acre avocado farm on land bought from the Maasai. The license was later revoked after protests, but the farm near the town of Kimana remains fenced off pending appeals.“We cannot celebrate yet because we want them to be completely defeated and the whole fence to be removed,” said Margret Nayieso, a local Maasai leader. KiliAvo Fresh declined to comment as the “matter is still in court”.The battle over commercial farming is a glimpse into the wider land use problems in east Africa. Jackson Mwato, head of the Amboseli Ecosystem Trust, an umbrella organisation, said the “mushrooming of farming in the middle of conservation areas or in wildlife corridors” was caused by the “big problem of human population growth”, and a desire to grow food and build homes where land planning was weak.About 8 per cent of Kenya’s land mass is protected, including 23 national parks and 28 national reserves. Yet WildlifeDirect’s Kahumbu said even this was not enough for the animals to live freely.“The destruction of wildlife buffer zones and corridors for industrial farming is at a tipping point. We need to reverse the damage, protect more land, secure our protected areas better and open up more corridors between national parks,” she said. Kenya has already lost about 70 per cent of its wildlife over three decades, according to the Kenya Wildlife Conservancies Association. Silvia Museiya, Kenya’s government’s principal secretary for wildlife, said clearer regulation and more inter-agency co-ordination was needed, but that “at some point everybody has some right to exercise their tenure land rights”.“But if we do that without a larger scale spatial planning, then we continuously close in the wildlife corridors and forget the fact that animals continuously have to move,” she said. The elephants then “find alternatives that come at a cost”, including destroying property and crops.Children collect water from a tank in the Maasai village of Eselenkei. The plight of the elephants has led some land owners to reconsider the use of electric fences © Eduardo Soteras Jalil/FTThe government said in February that Ks5.7bn ($45mn) would be paid to those, mainly farmers, affected by human-wildlife conflict as it rolled out a new insurance scheme. Conservationists have also been able to prevent clashes by erecting about 100km of electric fences to stop the elephants from entering the Maasai lands. Still, the plight of the elephants has led some to reconsider.Michael Kairu set up his Ngong Veg farming business in Amboseli five years ago only to find out later about the threat it posed to wildlife. His 500-acre farm is located in what was once an elephant breeding ground, according to locals.“Government agencies and communities should make it clear where you can farm,” said Kairu, whose customers include leading UK supermarkets. “We need to protect wildlife habitats and we also need agriculture.”His plan is to one day give up the land to conservation, allowing the animals to return. “I don’t want to be in the wrong place,” he said. “I care about elephants.” More

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever.Asian markets are poised to end the week on a positive note, spurred by a powerful rally on Wall Street and growing optimism that the Fed might achieve the holy grail of a ‘soft landing’ for the U.S. economy.Thursday’s surge across U.S. markets followed the stunning Chinese trade figures for March earlier in the day that suggested global demand may be stronger than most people had anticipated.The upside surprise to the export and trade balance figures was so big that China’s broader economic surprises index jumped to its highest in 17 years, and one of the highest on record. China economic surprises index https://fingfx.thomsonreuters.com/gfx/mkt/zjvqjaookpx/ChinaSurprises.png Little wonder investors in Asia go into the final day of the week in buoyant mood, especially after U.S. data on Thursday showed cooling inflation and labor market pressures, trends that could convince the Fed to pause its rate-hiking campaign.The Nasdaq surged 2% for its best day in a month, the VIX ‘fear gauge’ of S&P 500 index volatility fell to its lowest in over two months and U.S. bond market volatility fell back below the pre-banking shock levels of a month ago.Another good indication of how broad the ‘risk on’ rally is globally is the dollar. It continues to weaken and on Thursday fell to its lowest in over two months – it is a whisker away from a one-year low.The dollar is on track for its biggest weekly fall in three months and has weakened five weeks in a row – a downturn not recorded since mid-2020. Dollar index – weekly change https://fingfx.thomsonreuters.com/gfx/mkt/dwpkdjllgvm/USDindex.png Asian currencies are enjoying the ride too – Indonesia’s rupiah which hit an eight-month high on Thursday, and Singapore’s dollar rose to a two-month peak.The ‘Sing dollar’ is liable to move further on Friday, with traders braced for first quarter GDP growth data and the central bank’s semi-annual monetary policy decision.The Monetary Authority of Singapore (MAS) is expected to tighten monetary policy for the sixth time in a row, amid persistent price pressures in the Asian financial hub due to global supply chain disruptions.A slim majority of analysts polled by Reuters expect MAS to tighten, although this could be the last time if the growth picture is any guide – the first estimate of Q1 GDP is expected to show growth slowing sharply on an annual basis and shrinking from the previous quarter.Lastly, Indian wholesale price inflation is expected to virtually halve in March to a 1.87% annual rate from 3.85%. It was 16% less than a year ago. Indian WPI inflation https://fingfx.thomsonreuters.com/gfx/mkt/klvygmbmxvg/IndiaWPI.jpg Here are three key developments that could provide more direction to markets on Friday:- IMF/World Bank spring meetings in Washington- Singapore Q1 GDP and policy decision- India WPI inflation (March) (By Jamie McGeever; Editing by Josie Kao) More

WASHINGTON (Reuters) – Japan, India and France on Thursday announced a common platform for talks among bilateral creditors to coordinate restructuring of Sri Lanka’s debt, a move they hope would serve as a model for solving the debt woes of middle-income economies.It remains uncertain, however, whether Sri Lanka’s biggest bilateral creditor – China – will join the initiative launched by Japan, this year’s G7 chair, with the aim of kicking off a series of meetings among Sri Lanka’s creditors.”To be able to launch this negotiation process gathering such a broad-based group of creditors is a historical outcome,” Japanese Finance Minister Shunichi Suzuki told a briefing.”This committee is open to all creditors,” he said.French Director General of the Treasury Emmanuel Moulin told the briefing that the group was ready to hold the first round of talks “as soon as possible.”Sri Lanka’s central bank governor had told Reuters earlier this week that having a single platform for talks would be a welcome move that would make it easier to discuss and share information.The island nation of 22 million people last month secured a $2.9 billion programme from the International Monetary Fund to tackle its huge debt burden. But the middle-income economy could not apply for relief under the G20’s common framework for debt treatments, which targets only low-income countries.That has put the onus on major economies to come up with an alternative scheme, leading to the creation of the new platform.Sri Lanka owes $7.1 billion to bilateral creditors, according to official data from its government, with $3 billion owed to China, followed by $2.4 billion to the Paris Club and $1.6 billion to India.The government also needs to renegotiate more than $12 billion of debt in eurobonds with overseas private creditors, and $2.7 billion on other commercial loans. Sri Lanka kicked off talks to rework part of its domestic debt this month and aims to finalize the deal by May. More

WASHINGTON (Reuters) – Senior officials from the United States, Europe and Britain met on Thursday with financial institutions to brief them on efforts by Russia to evade Western sanctions imposed over its invasion of Ukraine, a senior U.S. Treasury official told reporters.The firms – from the United States, Britain and Europe – assured the officials that they were working hard to avert Russian efforts to evade sanctions and export controls, said the official, speaking on condition of anonymity.The meeting took place on the sidelines of the World Bank and International Monetary Fund spring meetings, where top U.S. intelligence officials shared information on how Russia is using its GRU military intelligence agency and Federal Security Service (FSB) to try to evade sanctions and export controls.Washington and its allies are ratcheting up their enforcement of the massive raft of sanctions they have imposed on Russia, and cracking down hard on any evasion efforts, the official said, noting Moscow was facing critical shortages of materials needed to produce ammunition.”To a person in that room, those financial firms demonstrated a willingness to do what they’ve been doing since the beginning of the war – which is to take seriously trying to prevent Russian evasion of those sanctions and export controls, not just in our jurisdictions, but also in third countries,” the senior official said of Thursday’s meeting.Treasury said participants included Deputy Treasury Secretary Wally Adeyemo; EU Commissioner Mairead McGuinness; and Britain’s Treasury Director General for International Finance Lindsey Whyte, along with CIA Deputy Director David Cohen and Deputy Director of National Intelligence Morgan Muir.”The officials shared information about the most critical goods sought by the Russian military and emphasized that the Kremlin has directed its intelligence services to find ways around sanctions in order to replenish badly depleted supplies,” Treasury said.Washington on Wednesday imposed sanctions on over 120 targets, including entities linked to Russian state-held energy company Rosatom and firms based in partner nations like Turkey in a sign of stepped-up enforcement.The sanctions, imposed by the Treasury and State departments in concert with Britain, hit entities and individuals in over 20 nations and jurisdictions, including a Russian private military company, a China-based firm and a Russian-owned bank in Hungary.Washington is also working closely with authorities in Switzerland, a major global banking center, which has made it clear that it does not want to be seen as a haven for the evasion of sanctions on Russia, the official said.”My hope is that in the coming weeks we’ll have announcements in terms of how we’re going to deepen that partnership even more,” the official added.Treasury’s top sanctions official, Undersecretary Brian Nelson, will visit Switzerland next week to discuss further moves to crack down on sanctions evasion, with additional stops in Italy, Austria and Germany, Reuters reported last week.Elizabeth Rosenberg, Treasury’s assistant secretary for terrorist financing and financial crime, will travel separately to Kazakhstan and Kyrgyzstan.”We know that right now we’re in a decisive period where Russia not only needs the electronics to create precision missiles, but they need the smaller things in their economy to build ammunition,” the official said.The official said U.S. officials had also looked at some specific cases involving a price cap imposed on Russian oil by Group of Seven countries and Australia, and had reached out to some insurance companies about actions they may want to take.”We are taking those actions on a regular basis,” the official said, adding that U.S. officials had not seen a great deal of evasion activity with regard to the price cap. More

WASHINGTON (Reuters) -International Monetary Fund Managing Director Kristalina Georgieva on Thursday warned policymakers against the danger of a new Cold War as they ramp up efforts to secure their industrial supply chains amid geopolitical tensions between major powers.”The question is, can we be more determined to enhance security of supplies but not push the world that far that we are into a second Cold War?” Georgieva told a news conference at the IMF and World Bank spring meetings in Washington. “I believe it is possible.”Georgieva, who grew up in Bulgaria during the Soviet era, said she experienced the Cold War and its impact in cutting off talented people from the world economy, and didn’t want to see that repeated.On Wednesday, Group of Seven (G7) finance leaders pledged to give low- and middle-income countries a bigger role in diversifying supply chains to make them more resilient and sustainable. Their communique did not mention China by name, but the supply chain language fit in with “friend-shoring” efforts championed by U.S. Treasury Secretary Janet Yellen and other Western leaders to trade more with allies and become less reliant on the Asian manufacturing powerhouse for battery minerals, semiconductors and other strategic goods.The IMF has warned that rising geopolitical tensions and the resulting fragmentation of the global economy could increase financial stability risks and potentially reduce global economic output by between 0.2% and 7%.It’s one of the key reasons that the IMF predicts the global economy will stay mired in low-growth mode for years. Georgieva said policymakers might have to accept that development of new, more separated supply chains would involve some cost.”Security of supplies and the reliable functioning of global supply chains is taking a new, higher priority seat in economic discussions,” she said, citing the impact of both the COVID pandemic and the war in Ukraine. But she warned against going overboard and harming global trade flows.”If we fail to be more rational, then people everywhere would be worse off. The middle class in each country would pay a price,” Georgieva said. “So a bit more cool-headedness would take us a long way.”DE-RISKING OR DE-COUPLING?The IMF has long warned of increased costs, economic friction associated with the global economy fragmenting into geopolitical blocs, with U.S.-led democracies on one side and China and other autocratic states on another. This can lead to competing technology systems and reduced trade. A new IMF working paper showed such rising tensions could also drive outflows of cross-border capital, including direct investment, from countries, with particularly high risks for developing and emerging market economies.But French Finance Minister Bruno Le Maire said it was important for France, the European Union and the United States to secure supply chains for crucial goods like electric vehicle batteries and reduce their dependence on China. But he drew a distinction between “de-risking” supply chains and “de-coupling” from China.”I think that we need to engage China if we want to craft responses to the greatest challenges of the 21st century,” including climate change and debt relief, he said.A senior U.S. Treasury official said that China also was contributing to fragmentation by keeping vast sectors of its economy off limits to foreign competition.”They are moving in a direction that is closing off the world and bifurcating themselves from things like the market-oriented policies that allowed them to rise so rapidly,” the official said of China. The IMF is forecasting a strong rebound in China in 2023 given its post-COVID opening, and it will account for about one-third of global growth this year, Georgieva said. More