Aurelia Butler

Struggling western central bankers should spare a thought for their Turkish counterparts. There, unorthodox policies are both stoking inflation and crimping bank lending. To boost the latter ahead of May’s election, three state-owned banks underwent a $5.8bn recapitalisation on Friday.Real interest rates remain deeply negative at the insistence of leader Recep Tayyip Erdoğan. Since 2018, the country’s unorthodox approach to fighting inflation has instead focused on shrinking bloated foreign debts. Turkey has shrunk its current account deficit and pursued a forced “Lira-isation” to reduce dollar dependence. Its rationale is that the latter makes domestic prices more vulnerable to external shocks.To an extent, this policy has worked: banks have managed to shrink their foreign exposures. But it has also left the lira dangerously overvalued. Bank deleveraging abroad has also shrunk lending at home, by 15 to 20 per cent of GDP, thinks Capital Economics. A loan to deposit ratio of 0.9 is at a decade low. But banks are in a stronger position today than for many years. Lending rates have decoupled sharply from the central bank rate of 8.5 per cent. Net interest income at Halkbank and Vakifbank, two of the state lenders recapitalised, soared by more than $2bn respectively last year. In lira terms, net profits rose at least fivefold.Further falls in the currency should be manageable. But tighter external financing poses a risk. Banks must meet some $80bn of foreign debt and interest payments this year. Their foreign exchange buffers could help meet these but lending would be further constrained. An opposition win at May’s election is a chance to return to economic orthodoxy. That would mean higher rates to fight inflation. But it would also require the policies that are keeping the lira artificially high to be unwound. A banking crisis may be unlikely but further economic pain appears unavoidable. More

The writer is an FT contributing editor and writes the Chartbook newsletterFaced with a rash of banking crises it is tempting to declare, plus ça change. There is nothing more inevitable than death, taxes and bank failures. But what about the bailouts? The publicly subsidised takeover of Credit Suisse by UBS and the hasty extension of guarantees to all SVB’s depositors are just the latest in a recent series of such actions. They suggest that we have entered a new era, one in which thoroughgoing liquidation of financial bubbles is politically unthinkable and so moral hazard and zombie balance sheets pile up.Both these interpretations are superficially plausible. Put them together and you have a vision of ever larger balance sheets, inevitable crisis and no less inevitable bailout, opening the path to even greater leverage and risk.But in focusing on the morality play of bad bank managers and lax supervision, they mischaracterise the drama we are living through. What defines our current moment is neither the bank failures nor the relatively modest bailouts, but the astonishing macro-financial switchback of 2020-23. This began with mega-quantitative easing in response to the truly unprecedented shock of the Covid-19 lockdowns. The combination of stimulus, supply-chain disruption and Vladimir Putin’s war in Ukraine unleashed the biggest surge in inflation in half a century, which was met not with monetary easing, but with the most comprehensive tightening of monetary policy since the beginning of the fiat money era.This is not a case of “plus ça change” but of polycrisis. We would not be here but for the pandemic. And the central bank response too is novel. They are doing what is necessary to stave off further contagion from SVB, but on rates they are sticking to their guns. Since early 2022, in the face of a market rout, the Federal Reserve has shown a resolve few people credited them with. Fed chair Jay Powell even half-hinted that a crisis or two might help to take the steam out of the economy. Certainly, those counting on the Fed to soothe their pain over huge losses on bond portfolios have had a rude awakening.Containing the fallout from SVB and Credit Suisse does involve some element of public subsidy, but those transfers are tiny in comparison with the trillion-dollar balance sheet shift from bond investor to bond issuers triggered by the post-Covid pile-up of inflation and interest rate rises. As David Beckworth, of the Mercatus Center think-tank, has pointed out, in the US the ratio of public debt to gross domestic product has plummeted by more than 20 percentage points from its pandemic peak. This spectacular balance sheet shift between debtors and creditors is happening as a result of three forces: the rebound in real output following the Covid shock, the rise in prices and wages, which inflates nominal GDP, and the downward revaluation of the stock of bonds as a result of higher interest rates.As recently as 2021, we were still worried about how we would cope with insuperable debt levels in a world of secular stagnation and chronic low inflation. Now the nominal GDP of debt-ridden Italy is increasing so fast that, to the third quarter of 2022, its debt-to-GDP ratio fell year on year by almost 7 per cent. Though no one wants to be seen to be celebrating the inflationary wave, we are, beneath a decent veil of silence, living through one of the most dramatic and powerful episodes of financial repression ever.This is what lies behind the trillions of dollars in unrealised losses on the balance sheets of financial institutions around the world. The figure would be even greater were it not for the fact that central banks, thanks to QE, are also big holders of government debt and are thus sharing the paper losses. Beyond the narrative of feckless banks and bailout-happy regulators, the truly systemic question is how we see our financial institutions through this giant trillion-dollar rebalancing. That is what will define this historical episode.Though debtors benefit from inflation and the revaluation of debts, they need to brace for the surging costs of debt service. Those who did not stretch the maturity of their obligations in the era of low rates now face an interest rate cliff.But if we can adjust to higher debt service and avoid a rash of bank crises, the one-off shock to the price level opens up unexpected fiscal space. We must use this wisely. We need public investment so as to escape the reactive cycle we are locked in and to begin anticipating the challenges of the polycrisis, whether in public health, climate change or destabilising geopolitics. We must also provide relief to that part of society which is least well equipped to handle these financially turbulent times. Those in the bottom half of income and wealth distribution are bystanders in the great balance-sheet reshuffle. They hold few, if any, financial assets and pay relatively little tax. They have lived the drama of Covid and its aftermath as a shock to jobs and a cost of living crisis. Unlike bondholders or investors, their interests are not represented by lobbyists. Their households are not too big to fail.But if those who run the system imagine they can be ignored, that they are not systemically important, those elites should not be surprised by the strike waves and populist backlash coming their way. More

NUSA DUA, Indonesia (Reuters) – Central bank governors and finance ministers of the Association of Southeast Asian Nations (ASEAN) meeting in Bali have agreed to strengthen cooperation between them to better withstand future global crises, chair Indonesia said on Friday. The gathering of finance leaders of ASEAN, a region of about 650 million people, comes amid a backdrop of recent global banking turmoil after the collapse of Silicon Valley Bank and the bailout and takeover of Credit Suisse.”We recognise more and more regional cooperation (is needed) to be able to respond any possible crises, whether food, energy or pandemic,” said Sri Mulyani Indrawati, finance minister of Indonesia, which is chairing ASEAN this year.”We think that this is going to be an issue for any next cycle of crises, then the fiscal need to be also ready and strong,” she told a news conference. The finance cooperation would focus on areas like trade, investment and bilateral tax agreements, Sri Mulyani said.The meeting also recognised the need for ASEAN countries to direct their monetary policy focus on controlling inflation, especially core inflation, Indonesia’s central bank governor Perry Warjiyo said.”The interest rate policy should be the main instrument, but could be complemented with foreign exchange intervention, as well as capital flows management if deemed necessary,” he said.Furthermore, the meeting also agreed to boost the use of local currencies for settlements, or LCS, to reduce volatility and exposure to major currencies.”The more the country use LCS, the better we can withstand global financial crises,” Warjiyo added.They also agreed to continue the discussion on crypto assets, including how to regulate it, the governor said. At a meeting on the sidelines of the event, the central bank governors of Indonesia and the Philippines said their banking systems were resilient and that stricter regulations were in place to prevent a repeat of the Asian financial crisis in the late 1990s. More

BEIJING (Reuters) -China’s top lithium producers agreed this week to set a floor price of 250,000 yuan ($36,380) per tonne of lithium carbonate, six people familiar with the matter said, in an effort to slow a plunge in the price of the battery raw material.The price was agreed on Tuesday by around 10 companies including Tianqi Lithium and Ganfeng Lithium that met on the sidelines of a conference in Nanchang in southern China, said one person who attended the meeting and five others briefed on the discussions.The people declined to be named because of the sensitivity of the topic, which was discussed in a closed-door meeting.Ganfeng said in a response to Reuters that no discussions on a floor price had taken place.”Ganfeng always insists that product prices should be determined by the market, and will never take the initiative to control prices to influence the market,” a company representative said in an email.It added that no company in the industry has such capabilities.Tianqi declined to comment. Zhicun Lithium, one of the top lithium carbonate producers in China, was also represented at the meeting, said four of the people, but could not be reached for comment.The move comes as lithium prices plunge on a significant slowdown in demand for electric vehicles (EV) in China, the world’s largest EV market.Spot prices have slumped by more than 60% since their peak in late November, with the decline picking up pace in recent weeks on a growing price war in China’s auto market. It is not clear how long the companies, which account for over half China’s lithium carbonate output, will follow the floor price.Spot prices dropped to 220,000 yuan a tonne on Friday, according to a weekly price assessment by Fastmarkets, down from 260,000 yuan a week earlier.Offers as low as 150,000 yuan were also heard in the market this week as traders sought to offload mounting stocks, said a buyer for a battery manufacturer who did not attend the meeting of lithium producers.”Setting a floor price should strengthen the market sentiment and hold the prices from falling further,” said the person who attended the meeting. However, some buyers were sceptical that producers would stick to the floor price, given the sluggish demand.”If we don’t buy, someone will eventually drop the price,” said a lithium carbonate buyer briefed on the decision. Participants at the meeting also discussed the planned launch later this year of lithium carbonate futures on the Guangzhou Futures Exchange, according to two of the people, another move that could help stabilise prices. ($1 = 6.8718 Chinese yuan renminbi) More

(Reuters) – Wall Street’s main indexes were set to open higher on Friday after data showed inflation slowed in February, supporting hopes of a softer monetary policy approach from the Federal Reserve.The Commerce Department’s report showed the personal consumption expenditure (PCE) index, which is the Federal Reserve’s preferred inflation gauge, rose 0.3% in February, on a monthly basis, compared with a 0.6% rise in January.Traders’ bets of a 25-basis-point rate hike in May stand at 55.5%, with odds of a pause at 44.5%, according to CME Group’s (NASDAQ:CME) Fedwatch tool.”As the Fed rate hikes are now kind of starting to take hold right about a year later since they first began perhaps it is a sign that their hikes are starting to cool inflation,” said Brandon Pizzurro, director of public investments at Guidestone Capital Management.”But in terms of the Fed’s calculus, they’ll have to have more confirmation that disinflation is really taking hold beyond just a few data points here and there.”U.S. 10-year Treasury yields fell to a session low of 3.534% after the data.Friday will cap a turbulent first quarter for stocks, marked by sticky inflation, shockwaves from the collapse of two regional U.S. banks and signs of trouble in some European banks, as well as a repricing of interest rate expectations from the Fed. The Nasdaq is set for its biggest quarterly percentage gain since the end of 2020 given a rotation into major technology and growth stocks from financial stocks amid fears of a bank contagion, while the cyclicals-heavy Dow Jones is in the red.The benchmark S&P 500 is up nearly 6% so far in the first quarter, with the technology sector up about 20% while the financials index is set for its worst quarter since June.Some Fed officials have noted a potential hit to the economy from banking sector problems, while recent data including an uptick in weekly jobless claims has supported hopes that the central bank is close to the end of its market-punishing rate hikes aimed at cooling demand.The KBW Regional banking index and the S&P 500 banks index, which houses major banks, have lost 19% and 14%, respectively, so far during the quarter.Consumer sentiment data from the University of Michigan is due later in the day, while New York Federal Reserve Bank President John Williams and Fed Governor Lisa Cook are also scheduled to speak.At 8:45 a.m. ET, Dow e-minis were up 122 points, or 0.37%, S&P 500 e-minis were up 11.5 points, or 0.28%, and Nasdaq 100 e-minis were up 18.5 points, or 0.14%.Among specific stocks, Virgin Orbit Holdings tanked 41.8% premarket, a day after the rocket maker said it was cutting about 85% of staff because it had not been able to raise new investment.Rumble Inc jumped 11.0% after the video-sharing platform reported a surge in fourth-quarter revenue. More

Operations at the bank’s UAE branch, which is licensed in the emirate of Abu Dhabi, will be wound down within six months under UAE central bank supervision.A statement from MTS Bank said it will fulfil all settlement obligations to existing customers and guarantee the safety of their funds for six months.  “This decision comes after considering the available options regarding the new status of the MTS Bank and taking into account the sanctions risks associated with the bank,” the UAE central bank’s statement said. During the winding down process the branch will not be allowed to open new accounts or conduct transactions apart from clearing prior obligations, for which it will be allowed to use the central bank’s payment systems, it said. The UAE, a member of the OPEC+ oil alliance that includes Russia, has maintained good ties with Moscow despite Western pressure to help to isolate Russia over the invasion of Ukraine. It has not matched global sanctions imposed on Moscow. Large numbers of Russians have sought a safe haven in the UAE since the Ukraine conflict began. U.S. officials have visited the UAE to discuss with regulators including the central bank the importance of clamping down on sanctions evasion. MTS Bank, a fintech unit of Russia’s largest mobile operator Mobile TeleSystems, was part of a broader sanctions package against 200 entities and individuals announced in February on the first anniversary of Russia’s invasion of Ukraine. Russian conglomerate Sistema holds a 42.09% stake in MTS. Russian billionaire Vladimir Yevtushenkov last year relinquished formal shareholder control of Sistema after Britain imposed sanctions on him, transferring a 10% stake to his son. More