Aurelia Butler

A top IMF official has called on seven of the world’s largest economies to bring their government borrowing under control more quickly, saying this would help the fight against high inflation and financial instability.Vítor Gaspar, head of fiscal policy at the IMF, told the Financial Times that Brazil, China, Japan, South Africa, Turkey, the UK and the US were likely to push public debt up by more than 5 percentage points of gross domestic product over the next five years. By 2028, the world’s public debt burden was on course to match the value of goods and services produced in the world. “By the end of our projection horizon — 2028 — public debt in the world is expected to reach almost 100 per cent of GDP,” Gaspar said, adding that this was “back to the record levels set in the year of the pandemic”.China and the US, the world’s two largest economies, were the two main drivers of the global increase in public debt. Yet there was little discipline from financial markets to improve their finances. “Neither country has a weak [economic] growth performance,” Gaspar said. “Eventually, policies will have to change to bring debt back down to earth, but the two largest economies in the world do have capacities and resources that most other economies lack.”Ahead of the launch of the IMF’s fiscal monitor report, Gaspar said advanced economies and the largest emerging markets could help reduce banking turmoil and contain inflation by getting a grip on their finances. “Fiscal tightening can help by moderating the growth of aggregate demand and therefore contributing to more moderate increases in policy rates,” he said, adding that this in turn would “ease the pressures on the financial system” triggered by the surge in borrowing costs over the course of 2022. The surge contributed to the demise of Californian lender Silicon Valley Bank, which has placed pressure on other midsized lenders in the US.It has also pushed several sovereigns into default and sparked concern among IMF officials that other poorer countries could fall into distress. Gaspar said about six in 10 of the world’s economies, mostly the poorest countries, already had to keep their public finances under control because they had little access to debt markets. He called on creditor nations, which had been locked in lengthy negotiations over debt restructuring, to help ensure the situation of sovereigns in distress was manageable. “[Poorer countries] are having to reduce debt in a way that is very painful,” he said. Some countries were doing well and reaping the benefits of sound fiscal policies, Gaspar said. He singled out Serbia, which has an IMF programme, for praise along with Costa Rica and Uganda. Among richer countries, he noted that New Zealand had a persistently strong fiscal position since the late 1980s, and there had been large reductions in public debt in Greece, Cyprus, Ireland and Portugal. All four countries had needed emergency loans during the eurozone crisis of the early 2010s. More

Annual retail inflation eased to 5.66% in March from 6.44% in the previous month, government data showed on Wednesday. The Reserve Bank of India targets a range of 2%-6%.A Reuters poll of 39 economists had forecast an annual inflation rate of 5.80% in March.The March consumer price index (CPI) inflation came a week after the RBI’s Monetary Policy Committee (MPC) maintained a surprise status quo on interest rates. However, Governor Shaktikanta Das said that “it is a pause, not a pivot”.COMMENTARY:KUNAL KUNDU, INDIA ECONOMIST, SOCIETE GENERALE, BENGALURU”India’s March CPI came exactly in line with our expectation of 5.66% Y/Y, aided by slowing food prices and easing core inflation. In fact, CPI ex-food dropped to 6.2%, a thirteen-month low. While spice prices continue to drive food inflation, milk and products too remain elevated.”    “On the positive side, cereal prices, which has been the biggest contributor to food inflation for quite some time now, has recorded its first month-on-month contraction in twenty-one months, although the elevated prices mean Y/Y inflation still remains high and at double digits.”     “Within core inflation, goods prices still remain quite elevated, albeit inflation is showing a declining trend. Also, coupled with declining service inflation, core inflation dropped to 6.15 Y/Y, a 10-month low, much to the relief of the RBI.    “With the RBI opting for a pause in April, exactly in line with our expectation, we now continue to believe that the central bank has come to the end of its rate hike cycle and expect it to effect its first policy rate cut in 4Q23 to support the flagging economy.”VIVEK KUMAR, ECONOMIST, QUANTECO RESEARCH, MUMBAI”CPI inflation decelerated to a 15-month low as price pressures moderated on the food, fuel, and core fronts. What comes as a big relief is the sequential drop in the price of cereals, which is reflective of open market sales by the FCI in a bid to cool wheat prices. Spices too have lost considerable momentum in the last two months. The preliminary forecast of a ‘normal’ monsoon by the IMD for June-September offers comfort.””Having said so, any extrapolation of comfort on food inflation would be difficult as El Nino risks continue to lurk on the horizon, while cereals could require continued administrative intervention. Besides, milk is showing a build-up of price pressure on lagged impact of elevated input prices.”Having said so, the moderation in core inflation forms the silver lining. Going forward, core inflation is expected to grind lower at a slow pace on the anticipated slowdown in domestic growth momentum and the lag impact of monetary tightening.    “The incoming prints in the near term will capture these dynamics along with a favorable statistical base effect that will help pull headline inflation lower.SREEJITH BALASUBRAMANIAN, ECONOMIST, IDFC AMC, MUMBAI    “India’s March CPI of 5.7% year-over-year was in line with our expectation, reflecting mild positive momentum in the food and beverages category and lower momentum (vs. February) in core inflation. Within food, sequential price growth of fruits, milk, vegetables (reversal after seasonal winter disinflation) and pulses picked up while that of cereals (FCI recently offloaded some of its wheat stock), eggs and vegetable oils eased.”     “Core inflation moderated mildly to 5.8% Y/Y in March, with core-goods inflation averaging 7.1% and services-ex-housing inflation averaging 5.9% during April-February.””Going ahead, April real-time price momentum in food items appear mixed but the base effect will turn favourable and, structurally, the impact of global and domestic growth dynamics will be crucial in FY24.”DEVENDRA PANT, CHIEF ECONOMIST, INDIA RATINGS, MUMBAI”The decline in March inflation was on expected lines and was due to a strong base effect, which will be even stronger in April 2023. The good part of th e inflation number is the reversal of an increasing trend of nine months of rising cereals and products inflation. It appears that government interventions have helped in arresting the increasing inflation of cereals and products. However, the impact of unseasonal rains and the likely impact of monsoons may give some temporary shocks to inflation.”Inflation in the near term is likely to be lower than 6% due to the base effect. This will give some solace to monetary authorities. We, therefore, believe that the growth-inflation dynamics at the current juncture do not warrant further rate hikes at present. However, the RBI will continue to monitor inflationary trends and should a situation arise, it may take necessary action.” SAUGATA BHATTACHARYA, EXECUTIVE VP AND CHIEF ECONOMIST, AXIS BANK, MUMBAI”The March CPI inflation printed at 5.66%, close to the markets’ median of 5.8%. Core inflation was 5.95%, led by a drop in transport as well as clothing and footwear. This is likely to keep the MPC on pause even at the next review meeting in June, given that disinflation is likely to continue on the forecast glide path. A key data point to watch will be the US CPI due later evening today” RADHIKA RAO, SENIOR ECONOMIST AND EXECUTIVE DIRECTOR, DBS BANK, SINGAPORE”March CPI inflation eased in line with our forecast to a three-month low, validating the central bank’s pause last week. The headline print is likely to average sub-5% this quarter on base effects, convincing the MPC to leave rates unchanged at the next review.”Food inflation also eased in year-on-year terms but picked up on a month-on-month basis, owing to the impact of unseasonal rains and firm protein, while administrative measures helped to soften cereals prices. Imported pressures, however, continued to moderate as global oil/ commodity prices retreated. Excluding the volatile segments, core inflation moderated to a six-month low, below 6% yoy.” MADHAVI ARORA, LEAD ECONOMIST, EMKAY GLOBAL, MUMBAI”The easing of headline and core inflation in near-expected lines, while positive, is still implying inflation average has overshot RBI’s Q4 estimate.”Inflation trends ahead should ease and we see headline inflation averaging 5.3% in FY24 and core undershooting headline to average around 5.1%. Factors like better rabi output and easing cost conditions would be countered by weather-related vagaries, milkflation, higher global financial market volatility and ongoing pass-through of input prices to output prices, impacting core services inflation.” SAKSHI GUPTA, PRINCIPAL ECONOMIST, HDFC BANK, GURUGRAM”The base effect worked its charm and pulled down headline retail inflation in March as expected. It was encouraging to see that apart from food inflation, core inflation also dropped in the month below 6%.”This print aligns with RBI’s recent policy pause and the central bank is expected to stay on hold for the rest of the year.”Inflation is likely to trend lower in the coming quarter as the impact of a high base effect lingers on. The recent projection by IMD of a normal monsoon bodes well for the inflation trajectory. However, the impact of heat waves and any disruption in the progress of monsoon due to El Nino could upset the disinflation trend and remains a risk.” GARIMA KAPOOR, ECONOMIST, INSTITUTIONAL EQUITIES, ELARA CAPITAL, MUMBAI”Retail inflation came in at 5.66%, nearly in line with our expectations of 5.7% YoY and vs 6.44% YoY in Feb 23, as housing inflation subdued and core price increase moderated sequentially. For FY24, expect the base effect to play its part in allowing CPI inflation to cool towards an average of 5.2-5.5%.”Even as Governor Shaktikanta Das asserted that the April 2023 policy pause should not be viewed as a pivot, we believe the bar for future rate hikes has been raised, especially since near-term prints of CPI will be sub-6%. “Unless CPI inflation rises above 6% on a sustainable basis, we expect the MPC to maintain a prolonged pause hereafter and assess the lag impact of previous rate hikes amid global macro uncertainty and the tail end of the global rate hike cycle.”UPASNA BHARDWAJ, CHIEF ECONOMIST, KOTAK MAHINDRA BANK, MUMBAI”The March inflation figures have moderated broadly in line with expectations. Much of the softness was expected on account of the base effect along with moderation in prices of cereals and core inflation. While favourable base effects should continue to ease the headline inflation in the quarter ahead, we remain wary of food inflation in the months ahead given weather adversities. However, the RBI is expected to remain on an extended pause evaluating the impact of the past rate hikes.” More

Consumer prices in the 12 months to March reached their lowest point since January 2021, at 4.65%, according to data released on Tuesday, which led to a significant rise in the Brazilian stock exchange and a strengthening of the currency against the dollar.In a presentation to investors organized by XP (NASDAQ:XP) Investimentos in Washington and released by the central bank, Campos Neto also highlighted that the demand-driven component of inflation in the country remains “relatively strong.”This assessment contrasts with that of President Luiz Inacio Lula da Silva and his political allies, who have argued that the country is not experiencing demand-driven inflation, fueled by consumption, and therefore the restrictive monetary policy of the central bank is not justified. Policymakers have kept the interest rate unchanged at a six-year high of 13.75% since September, despite frequent criticism from Lula.Campos Neto further noted that long-term inflation expectations were anchored towards official targets in 2022, but there has been a deterioration process since November, which led markets to star pricing rate hikes on a six-month horizon. Nevertheless, he admitted that financial markets have started in February pricing in cuts to the bank’s benchmark interest rate again. More

LONDON (Reuters) – Board members at banks have urgent questions to answer about basic risk management following recent turmoil, the head of a global banking standards committee said on Wednesday, but said regulators should not rush into remedial action.Pablo Hernandez de Cos, chair of the Basel Committee of banking regulators, said work has begun on what lessons could be learned from the collapse last month of Silicon Valley Bank and two other U.S. lenders, and the forced takeover of Credit Suisse by UBS, echoing other global regulators.These events marked the first real stress test of banks since the global financial crisis of 2007-09, de Cos told an Institute of International Finance roundtable in Washington.While it was unlikely a single culprit was to blame, he said the “whodunnit” task should start with bank boards.The first step is to ask why the boards of some banks fail to check on basic risk management and governance practices or respond to “excessive reliance” on limited funding sources or growing misconduct incidents, said de Cos, who is also governor of the Bank of Spain.”A bank’s board, senior management and risk management function should be asking themselves questions in a timely fashion and taking credible measures to shore up resilience,” de Cos said.De Cos also said supervisors should also ask tough questions and take “decisive action” to ensure safety and soundness of banks.Mark Carney, former governor of the Bank of England and former chair of the Financial Stability Board (FSB), the G20 watchdog that drove through post-global financial crisis reforms of banking rules, has called for a rethink of bank liquidity rules.Banks’ holdings of liquidity have more than doubled since 2011 to 12.5 trillion euros ($13.66 trillion), helping to contain fallout from recent stresses, though stakeholders’ influence meant liquidity rules ended up being less conservative than originally drafted, de Cos said.”So my first observation today is that we should be humble and open-minded at this stage when it comes to assessing recent developments and the implications for banks, regulators and supervisors,” de Cos.”We should not hastily jump to conclusions, nor should we close any doors. Nevertheless, once our stocktake is completed, remedial actions should be taken if deemed necessary.”($1 = 0.9154 euros) More

Analysts in a Reuters poll had forecast an expansion of 5.1%. In January, the output rose 5.2%. In April-February, industrial output grew 5.5% from the same period a year earlier. Manufacturing, which accounts for about 15% of the Indian economy, rose 5.3% year-on-year in February. Electricity generation during February rose 8.2% over the same period a year earlier, while mining activities increased 4.6%, the data showed. More