Aurelia Butler

The head of Italy’s central bank has exposed a growing rift at the European Central Bank by criticising comments from fellow eurozone rate-setters about how much higher interest rates will need to rise to tame inflation.Ignazio Visco said in a speech in Rome on Wednesday that he did not “appreciate statements by my colleagues about future and prolonged interest rate hikes” as tensions grew over the pace of monetary policy tightening. The ECB has signalled it is likely to raise its deposit rate by half a percentage point to 3 per cent at its meeting next week. It also said no prior commitments would be made to any further moves.But some members of the ECB’s rate-setting governing council have reacted to higher-than-forecast inflation data in February and wider signs of economic resilience to say rates are set to rise much higher in the coming months. Robert Holzmann, Austria’s central bank governor, said this week he expected the ECB to raise rates by half a percentage point at each of its four meetings between now and July, which would take its deposit rate from 2.5 per cent to 4.5 per cent. That would be higher than the 4 per cent peak for the benchmark rate priced in by futures markets.Highlighting the war in Ukraine, Visco said the “serious geopolitical situation makes it difficult to forecast future macroeconomic trends”. Monetary policy needed to be “prudent and driven by the data . . . so as to bring inflation back to 2 per cent in the medium term without putting financial stability at risk and minimising the effects on the fragile economy”, he said.Italy’s central bank governor is one of the more dovish members of the ECB council, many of whom fear the more hawkish rate-setters will use the persistently high inflation data to press for a commitment to further rate rises. Fabio Panetta, the most dovish ECB board member, last month warned that pre-committing to future rate rises would be the policy equivalent of “driving like crazy at night with our headlights turned off”. Eurozone inflation has fallen for four consecutive months since hitting a record 10.6 per cent in October. But it fell less than expected to 8.5 per cent in February, while core price growth — excluding energy and food — hit an all-time high of 5.6 per cent.

Economists are divided on how fast inflation will fall and whether the eurozone will this year enter a technical recession, defined as two consecutive quarters of contracting output. Recent surveys of businesses and consumers point to resilient growth, but data showing weak retail spending and business investment indicate a downturn is likely.“The evidence on the health of the eurozone has been mixed so far,” said Franziska Palmas, economist at research group Capital Economics. “But we still think that depressed real incomes and rising interest rates will weigh heavily on consumption and investment, pushing the eurozone into recession.”The eurozone economy stagnated in the fourth quarter of last year, according to official figures published on Wednesday that were revised down from January’s flash estimate of 0.1 per cent growth after cuts to estimates in Germany and Ireland. A drop in household spending and lower business investment were offset by increases in government spending, the trade surplus and inventories, according to Eurostat, the EU’s statistics office.But Melanie Debono, economist at Pantheon Macroeconomics, said the quarterly data was still better than was expected in December, “so it does more for ECB hawks’ calls to continue on a steep tightening path than for the doves’ call for prudence”. More

LONDON (Reuters) -Bank of England rate-setter Swati Dhingra said on Wednesday that it would be prudent not to raise interest rates further, as previous increases in borrowing costs are yet to feed through into an already weak economy.Despite recent signs that Britain’s economy may be holding up better than some economists had feared, Dhingra stuck to her view that the BoE risked harming the economy unnecessarily by raising rates too high.”In my view, a prudent strategy would hold policy steady amidst growing signs external price pressures are easing, and be prepared to respond to developments in price evolution,” Dhingra said a speech to the Resolution Foundation think tank.”This would avoid overtightening and return the economy sustainably to our 2% inflation target in the medium-term,” she added, in her first major speech since joining the BoE’s Monetary Policy Committee in August.Along with Silvana Tenreyro, Dhingra voted last month to leave interest rates on hold at 3.5%, while the other seven members of the Monetary Policy Committee voted through an increase to 4%.Financial markets now fully price in a further 0.25 percentage point increase on March 23 and see a greater than 50% chance that BoE rates will reach 5% later this year after Federal Reserve chief Jerome Powell signalled further interest rate hikes in the United States were likely.Dhingra on Wednesday stressed that the risk of too-high interest rates were a larger threat than the risk of embedded inflation pressure.”My conclusion is that, given little evidence of further cost-push inflation, further tightening is a bigger risk to output and the medium-term inflation target,” she said.Her views contrast with those of Catherine Mann, another external member of the MPC, who on Tuesday doubled down on her view that higher interest rates are likely needed to lessen the risk that double-digit inflation becomes ingrained.Dhingra – an associate professor at the London School of Economics who specialises in trade issues – said her analysis of supply chains suggested more of Britain’s inflation overshoot was due to global factors than domestic pressures than previously thought.INFLATION EXPECTATIONSThe BoE is currently divided over how great the risk is that inflation falls more slowly than forecast, for example if last year’s surge in energy prices leads to persistent upward shifts in wage growth and businesses’ price setting.Pay excluding bonuses in the final quarter of 2022 grew at its fastest rate since records began in 2001, excluding distortions during the COVID-19 pandemic.Businesses surveyed by the BoE last month expect inflation in a year’s time to be 5.9%, and 3.4% in three years in contrast to the BoE’s forecast last month that inflation would be below its 2% target by the second half of next year.Dhingra said she did not think either wage growth or inflation expectations offered good evidence of persistent domestically generated inflation pressures.Wage growth tended to lag broader economic developments, and more forward-looking wage data was slowing. Better data on productivity and businesses’ profit margins were needed to gauge its inflation impact.Inflation expectations were often driven by current inflation, rather than having predictive power, she said.”Those who put too much weight on those numbers, I think should have that in mind as well,” she said. More

LONDON (Reuters) – OakNorth is leaning towards the United States for a prospective stock market listing, as the British bank considers ways to grow in the world’s largest economy, including securing a local U.S. financial licence, chief executive Rishi Khosla told Reuters.The prospect of a U.S. listing for one of Britain’s biggest and most successful financial technology companies would come as a blow to London, after chipmaker Arm said it would float in New York despite government efforts to keep it at home.Sources with knowledge of the matter told Reuters that OakNorth, whose UK banking arm has been profitable since 2017, could be in a position to go public as soon as in the next 12 months.Khosla downplayed that timeline for an initial public offering (IPO), saying instead that the company will look to float “sometime in the future” but is in no rush to do so.Japanese conglomerate SoftBank Group, which holds an undisclosed stake in OakNorth and controls Arm, declined to comment.Khosla said the lack of a domestic investor base focused on high-growth technology made London unappealing as a listing venue for OakNorth.The comments mark a significant shift from previous interviews, in which Khosla had indicated a preference for London as a listing venue.OakNorth runs a business bank in Britain with more than 4 billion pounds ($4.73 billion) in assets, and supplies its technology to lenders elsewhere, including U.S. credit institutions such as PNC Financial Services Group (NYSE:PNC) and Modern Bank.It is looking to win further technology clients in the U.S. and is keeping an “open mind” about seeking a banking licence there, suggesting this could be achieved through an acquisition, Khosla said.OakNorth declined to comment on the type of licence it could seek. Foreign banks can operate in the U.S. through either state or federal banking charters, which they can apply for or obtain by acquiring a local credit institution.OakNorth, which is due to file its 2022 accounts in the next few weeks, has so far seen almost no credit defaults despite Britain’s slowing economy and sharply rising inflation. The lender reported a loan default rate of 0.07% against a sector average of 0.32% in 2021. Khosla said the figure would rise, “but not materially”, in the 2022 figures to be reported soon.That leaves it in a strong position to buy another bank in Britain, possibly snapping up one of its digital-only neobanks, Khosla said, without being more specific.”We feel good about our business, we are in a robust place… it would be easy for us to make a nine-figure acquisition in cash,” he said, adding the group could also use its own shares to help finance a deal.OakNorth was most recently valued at $2.8 billion in 2019 when SoftBank led a $440 million cash injection into the “fintech” group.Since then, technology valuations soared before plunging last year on the back of rising interest rates and slowing economic prospects. European banking stocks have rallied nearly 40% in the last year on the back of rising interest rates, whereas the Dow Jones US Banks Index has dropped 8% over the last 12 months.OakNorth declined to comment on its valuation but said it sees New York-listed Nubank as its closest peer.($1 = 0.8448 pounds) More

COLOMBO (Reuters) -The Export-Import Bank of China has told Sri Lanka it will try to finalise in the months ahead how it treats debt owed by the crisis-hit nation, according to a letter seen by Reuters which also reiterated a moratorium for debt due in 2022 and 2023.The International Monetary Fund said on Tuesday that Sri Lanka had secured financing assurances from China, India and all its major bilateral creditors, setting the stage for final approval of the IMF’s $2.9 billion, four-year bailout for the island nation on March 20.Sri Lanka is facing its worst economic crisis in more than seven decades and a shortage of dollars has disrupted imports of essentials, though the situation has improved this year from last year when protesters ousted its president.China has extended its “firm support to Sri Lanka through a debt treatment”, EXIM Bank wrote in the letter to the Sri Lankan government on March 6.The bank’s Vice President, Zhang Wencai, said in the letter that the island nation would not have to immediately repay the principal and interest due on its loans for the two years, “so as to help relieve your short-term debt repayment pressure”.”Meanwhile, we would like to expedite the negotiation process with your side regarding medium- and long-term debt treatment in this window period, with a view to finalising the specifics of a debt treatment in the coming months. We will make our best efforts to contribute to the debt sustainability of Sri Lanka.”The letter mirrors what EXIM Bank sent to Sri Lanka in January, except for the target of finalising debt-treatment specifics in the coming months.By end-2020, Sri Lanka owed EXIM $2.83 billion, or nearly 9% of external central government debt, according to IMF data.The letter added that China would call on “commercial creditors to provide debt treatment in an equally comparable manner, and encourage multilateral creditors to do their utmost to make contributions to help you better respond to the crisis and emerge from it”.A Chinese foreign ministry spokesperson confirmed the contents of the letter.”It fully reflects our sincerity and efforts to support Sri Lanka in achieving debt sustainability, and we hope that relevant parties will respond positively to Sri Lanka’s loan application as soon as possible,” Mao Ning told a regular news conference.LONG TALKS WITH CHINASri Lanka’s international bonds slipped on Wednesday with most issues down around 1 cent on the dollar, though that only partially offset stellar gains in the previous session, Tradeweb data showed. Winning the support of China, the world’s and Sri Lanka’s biggest sovereign creditor, was crucial for the IMF deal to go ahead.Sri Lankan President Ranil Wickremesinghe told parliament on Tuesday that the government received the China letter on Monday night and soon after, he and the central bank governor sent a letter of intent to the IMF.A source at Wickremesinghe’s office said the president had been expecting the letter from EXIM Bank from Thursday.”Sri Lanka has been talking, discussing and negotiating with China EXIM Bank for weeks, mostly virtually, because that was what we were tasked with doing,” said the source, declining to be identified as he was not authorised to talk to the media.He said the support from the international community, especially Japan and the United States talking to the Chinese government, helped Sri Lanka. Sri Lanka’s case was also boosted by a G20 meeting in India last month, said the source.Sri Lanka cabinet spokesperson and transport minister, Bandula Gunawardena, told a weekly news briefing that the possible final IMF approval was a “great achievement”.”Sri Lanka has worked hard and spent months to fulfill requirements for the IMF programme, at certain times the president engaged at personal level to get support,” he said.”Without the IMF programme, Sri Lanka cannot turn around its economy.” More

OTTAWA (Reuters) – The Bank of Canada is expected to keep rates on hold on Wednesday, becoming the first of the world’s major central banks to suspend their tightening campaign, after economic growth stalled in the fourth quarter of last year.When the bank last met to set policy in January, it lifted rates by 25 basis point, as expected, to 4.50%, and said it would seek to leave rates unchanged for a while to let previous rate hikes sink in. Over the past year, the bank raised rates by a total of 425 basis points to tame inflation, which peaked at 8.1% and slowed to 5.9% in January, still almost three times the 2% target.”We expect the Bank of Canada to be the first G10 central bank to hold rates,” said Jay Zhao-Murray, a forex analyst at Monex Canada.The majority of the 32 economists surveyed by Reuters last week said the Bank of Canada (BoC) would likely keep rates on hold through the end of this year, and all of them forecast the bank to stay on hold on Wednesday.Money markets expect the policy rate to be left on hold on Wednesday but are pricing in another tightening by September.While some data have been particularly strong since the bank’s last policy meeting, including a blockbuster January jobs report, gross domestic product stalled in the fourth quarter – far weaker than the 1.3% annualized growth forecast by the BoC.”Look for the Bank of Canada to point to slowing GDP growth and inflation when justifying its decision to maintain the level of rates,” said Royce Mendes and Tiago Figueiredo, Desjardins economists, in a note. “The central bank is unlikely to do much to endorse the view that further rate hikes will be necessary,” they said.Macklem has left the door open to raising rates further, but he has also said that if inflation comes down as the bank has forecast, then higher borrowing costs will not be needed. Macklem said in January inflation would slow to about 3% by mid-year, and then reach 2% in 2024. He also said he expects near-zero growth for the first three quarters of 2023.Senior Deputy Governor Carolyn Rogers (NYSE:ROG) will deliver a speech, titled “Economic Progress Report” and take questions from the media on Thursday in Winnipeg. There will be no speech or news conference on Wednesday after the rate decision.Minutes from this week’s meeting are due to be published on March 22. More