Aurelia Butler

SEOUL (Reuters) -South Korea’s central bank raised its key interest rate by a quarter-percentage point as expected on Thursday, in a bid to contain inflation and prevent capital outflows as the U.S. Federal Reserve gears up for more hikes.The Bank of Korea raised its benchmark policy rate by 25 basis points to 2.50%, resuming normal-sized increments after delivering an unprecedented 50-basis point hike in July to curb inflation now at an almost 24-year high.All but one of 36 analysts in a Reuters poll expected the bank to go for the quarter-point hike, while one expected a half-point hike.The bank also upgraded this year’s inflation forecast to 5.2% from 4.5%, which would be the fastest rate since 1998, and cut its projections for economic growth to 2.6% this year from 2.7% previously.It sees growth slowing to 2.1% in 2023. September futures on three-year treasury bonds extended losses after the announcement, falling as much as 0.25 point to 104.41.The BOK was among the first central banks to abandon pandemic-era monetary stimulus and has hiked a total of two full percentage points since August last year.South Korean policymakers are now trying to rein in the fastest inflation in over two decades without cratering the economy.Signs of moderation in the economy are already visible, said Kang Seung-won, an economist at NH Securities.”Projections for chip-related revenue are already declining from local semiconductor industry, while recession fears in the U.S. and China are clouding the exports outlook,” said Kang, who sees the terminal rate for the BOK at 2.50%.”The BOK is likely to focus more on supporting growth especially towards the end of this year.”Economists were divided on where rates would be by the year-end. Among the 36 surveyed, three said the central bank would stop at 2.50%, half of respondents said at 2.75%, 14 said 3.00% and one had a 3.25% forecast.Governor Rhee Chang-yong will hold a news conference at 0210 GMT. More

BENGALURU (Reuters) – It will be a chilly winter for global stocks, according to analysts in a Reuters poll who cut year-end predictions for most major indices from three months ago and warned the risks to that already-dull outlook were skewed to the downside.Equities had a dream run for the better part of the last decade but are struggling to shake off deep losses from the first half of this year on worries about the global economy, suggesting a fundamental shift may be afoot.Most indices hit their year lows in Q2 and have made some headway since then, but they are still some distance from recouping year-to-date losses. The MSCI global stock index is still down 16% for the year.”As enticing as this rally has been … it is still no more than a bear-market rally. We caution investors about getting drawn into harm’s way,” said Lisa Shalett, Chief Investment Officer at Morgan Stanley (NYSE:MS) Wealth Management.”Inflation is far from tamed, earnings estimates need to be adjusted and stock market enthusiasm just isn’t supported by other market dynamics.”The Aug. 9-23 Reuters polls of over 150 equity market analysts showed nearly all of the 17 indices surveyed marking only single digit gains for the remainder of the year.If realised, those would all fall short of covering the double-digit losses they’ve racked up so far this year. GRAPHIC – Reuters Poll – Equity market outlook There is also plenty of uncertainty over whether bourses would even reach those median estimates, which were already lowered from previous polls.Over a 60% majority of strategists who answered a separate question, 58 of 95, said the risks to their end-2022 forecasts were skewed to the downside. The remaining 37 said they were to the upside. Slowing global growth, coupled with central banks across the world hiking interest rates to achieve price stability, were likely to keep stock prices from scaling previous peaks or touching new ones. “We expect a continued fade in growth momentum, implying equity market downside. While a number of recent macro data points have been favourable, we believe this does not change the underlying narrative,” said Sebastian Raedler, head of European equity strategy at BofA.Raedler highlighted aggressive tightening from the U.S. Federal Reserve, potential European gas supply shortages and China’s property debt crisis as major risks for equity markets.While those factors were expected to keep volatility high for the year there was a near-split among strategists over an outright sell-off in their local markets for the same period.An over three-quarters majority, 83 of 108, of analysts who answered an additional question expected volatility in their local market to rise over the next three months.Just over half, 57 of 108, said there was a low chance of another major sell-off in the final quarter.While global equities were largely expected to end the year in the red, European markets, facing a deepening economic crisis, will fare the worst.A recent recovery in European shares looks set to stall and not reclaim end-2021 levels for well over a year, capped by fears of an energy supply crunch, slowing growth and sky-high inflation, a Reuters poll found. Even the benchmark U.S. S&P 500 index was expected to end 2022 nearly 10% lower from where it started.Only emerging market stocks such as India, Brazil and Mexico were forecast to post any meaningful gains across 2022. Britain’s FTSE was expected to rise around 1% over this year.(Other stories from the Reuters global stock markets poll package:) More

WASHINGTON (Reuters) -President Joe Biden said on Wednesday the U.S. government will forgive $10,000 in student loans for millions of debt-saddled former college students, keeping a pledge he made in the 2020 campaign for the White House.The move could boost support for his fellow Democrats in the November congressional elections, but some economists said it may fuel inflation and some Republicans in the U.S. Congress questioned whether the president had the legal authority to cancel the debt.Debt forgiveness will free up hundreds of billions of dollars for new consumer spending that could be aimed at homebuying and other big-ticket expenses, according to economists who said this would add a new wrinkle to the country’s inflation fight. The actions are “for families that need them the most – working and middle class people hit especially hard during the pandemic,” Biden said during remarks at the White House. He pledged no high-income households would benefit, addressing a central criticism of the plan.”I will never apologize for helping working Americans and middle class, especially not to the same folks who voted for a $2 trillion tax cut that mainly benefited the wealthiest Americans and the biggest corporations,” Biden said, referring to a Republican tax cut passed under former President Donald Trump.Borrower balances have been frozen since the beginning of the COVID-19 outbreak, with no payments required on most federal student loans since March 2020. Many Democrats had pushed for Biden to forgive as much as $50,000 per borrower. Republicans mostly opposed student loan forgiveness, calling it unfair because it will disproportionately help people earning higher incomes. “President Biden’s student loan socialism is a slap in the face to every family who sacrificed to save for college, every graduate who paid their debt, and every American who chose a certain career path or volunteered to serve in our Armed Forces in order to avoid taking on debt,” Senate Minority Leader Mitch McConnell said Wednesday. The administration has yet to determine the price tag for the package, which will depend on how many people apply for it, White House domestic policy adviser Susan Rice told reporters. Student loans obtained after June 30 this year are not eligible, she said.White House Press Secretary Karine Jean-Pierre told reporters the administration has legal authority to forgive the debt under a law allowing such action during a national emergency such as a pandemic. Earlier, Republican U.S. Representative Elise Stefanik had called the plan “reckless and illegal.” American university tuition fees are substantially higher than in most other rich countries, and U.S. consumers carry $1.75 trillion in student loan debt, most of it held by the federal government. Biden said other countries could bypass the United States economically if students are not offered economic relief.PANDEMIC PAUSE, PELL GRANTS The administration will extend a COVID-19 pandemic-linked pause on student loan repayment to year end, while forgiving $10,000 in student debt for single borrowers with annual income under $125,000 a year or married couples who earn less than $250,000, the White House said. Some 8 million borrowers will be affected automatically, the Department of Education said; others need to apply for forgiveness.The government is also forgiving up to $20,000 in debt for some 6 million students from low-income families who received federal Pell Grants, and proposing a new rule that protects some income from repayment plans and forgives some loan balances after 10 years of repayment, the Education Department said.A New York Federal Reserve study shows that cutting $10,000 in federal debt for every student would amount to $321 billion and eliminate the entire balance for 11.8 million borrowers, or 31% of them. INFLATION IMPACTA senior Biden administration official told reporters the plan could benefit up to 43 million student borrowers, completely canceling the debt for some 20 million.After Dec. 31, the government will resume requiring payment on remaining student loans that were paused during the pandemic. The official said this would offset any inflationary effects of the forgiveness. Payment resumptions could even have a dampening effect on prices, the official said.Former U.S. Treasury secretary Larry Summers disagreed. He said on Twitter (NYSE:TWTR) https://twitter.com/LHSummers/status/1561701544600428545 that debt relief “consumes resources that could be better used helping those who did not, for whatever reason, have the chance to attend college. It will also tend to be inflationary by raising tuitions.”Similarly Jason Furman, a Harvard professor who headed the Council of Economic Advisers during the Obama administration, said debt-cancellation would nullify the deflationary powers of the Inflation Reduction Act. “Pouring roughly half trillion dollars of gasoline on the inflationary fire that is already burning is reckless,” he said.Moody’s (NYSE:MCO) analytics chief economist Mark Zandi sided with the White House, saying the resumption https://twitter.com/Markzandi/status/1560267089180753922?s=20&t=NLcHCM-XfKX8Z_7MOBanDQ of billions of dollars per month in student loan payments “will restrain growth and is disinflationary.” More

HOW MUCH WILL BE CANCELED AND FOR WHOM? The government will cancel up to $10,000 in student loan debt for borrowers making less than $125,000 a year, or $250,000 for married couples. Students who received Pell Grants, low-interest federal loans to benefit lower-income college students, will have up to $20,000 of their debt canceled. Cancelling $10,000 in student loan debt for every borrower would cost the U.S. government $321 billion, the New York Federal Reserve calculated https://libertystreeteconomics.newyorkfed.org/2022/04/who-are-the-federal-student-loan-borrowers-and-who-benefits-from-forgiveness in April, but the income cap means the actual cost will be lower than that. The New York Fed estimated that forgiving $10,000 per borrower would eliminate student debt for 11.8 million borrowers, or 31% of the total number. The White House said that figure will be 20 million borrowers. Nearly 90% of those borrowers will make under $75,000 a year, the White House said. HOW MUCH WILL THIS COST?Biden administration officials declined to provide a specific bottom-line figure on the total cost of the student debt relief plan, saying it depended on how many people apply and qualify for it. But private economists have estimated that it could add $300 billion to $600 billion to the federal debt.The University of Pennsylvania-Wharton Budget Model estimated https://budgetmodel.wharton.upenn.edu/issues/2022/8/23/forgiving-student-loans that a one-time $10,000 debt forgiveness would cost $300 billion, while former Harvard University economist Jason Furman tweeted https://twitter.com/jasonfurman/status/1562503985529233410 a figure of “roughly” $500 billion. The Committee for a Responsible Federal Budget think tank estimated https://www.crfb.org/blogs/new-student-debt-changes-will-cost-half-trillion-dollars that with $20,000 in debt relief for some borrowers, the cost would reach $440 billion to $600 billion over 10 years. HOW BIG IS AMERICA’S STUDENT DEBT PROBLEM? U.S. borrowers hold about $1.75 trillion in student debt, according to the latest Federal Reserve figures https://www.federalreserve.gov/releases/g19/HIST/cc_hist_memo_levels.html. The vast majority of that, some $1.62 trillion, is held by the federal government. The cost of higher education has skyrocketed in the United States in the past three decades, doubling at private four-year colleges and universities and rising even more than that at public four-year schools, according to research https://research.collegeboard.org/media/pdf/trends-college-pricing-student-aid-2021.pdf from the nonprofit College Board. The debt is split among 43 million borrowers, a figure that includes students and their parents or other family members, but is dominated by borrowers under age 40, the New York Fed said. WHEN WILL BORROWERS WITH REMAINDER NEED TO REPAY?A COVID-19 pandemic-related program that paused federal student loan payments, started under Biden’s Republican predecessor Donald Trump, will be extended until the end of this year. Any borrowers with remaining balances after debt forgiveness would start making payments again in January.The Education Department is also proposing a rule to halve the amount undergraduate borrowers need to pay monthly to 5% of discretionary income, and forgive any remaining loan balances after 10 years.IS THERE A TAX PENALTY? Student loan amounts forgiven under the program will not be treated as taxable income, unlike other canceled debts, according to a U.S. Treasury official. This exclusion is consistent with a provision in last year’s American Rescue Plan COVID-19 relief act that made any student loan forgiveness tax-free through 2025. WHO WILL NOT BENEFITExcluded from the program are borrowers who earn more than $125,000 a year, or $250,000 for married couples. The White House said no high-income individual or high-income household, which it defines as in the top 5% of incomes, will qualify. HOW COULD THIS IMPACT INFLATION? Republicans opposed to the plan and some economists, including former Treasury Secretary Larry Summers, have argued that new consumer spending power unleashed by forgiving loans could drive up prices for homes, cars and other consumer goods. The White House and some economists including Moody’s (NYSE:MCO) Mark Zandi have said they believe the impact of restarting loan payments in 2023 will be deflationary. More

British companies face a “cost of doing business crisis”, ministers have been warned, with many commercial energy bills poised to rise more than fourfold this autumn.The majority of UK companies are due to renegotiate their electricity and gas rates in October, the month fixed prices for businesses have been set since energy markets were privatised. Many companies have contracts that expire this year, according to energy brokers. New estimates by consultancy Cornwall Insight show that businesses looking for a new contract this autumn will have to pay more than four times the price they paid for their electricity in 2020.Paul Wilson, policy director at the Federation of Small Businesses (FSB), said the government needed to intervene to prevent thousands of companies from going to the wall.“We don’t have the luxury of waiting any longer . . . winter could spell the end for many businesses and they need help now,” he said. “If we don’t address the cost of doing business crisis we’ll keep on seeing costs being passed on to hard-hit consumers, or even worse people will lose their jobs.”The British Chambers of Commerce issued its own warning in a letter to the government and the two Conservative candidates in the race to become the next prime minister.The lobby group proposed a five-point plan to help its members, including giving Ofgem, the energy regulator, more power over the market for businesses. It also wants the planned rise in the national insurance contributions reversed, a temporary cut in VAT to 5 per cent and expansion of overseas work visas to ease the labour shortage crisis.“In June, we gave the government until the autumn budget to get its house in order, but the latest economic projections released since then have been worse than expected,” said Shevaun Haviland, BCC director-general. The FSB also wants Ofgem to intervene and has called for an energy price cap for small businesses with 10 employees or fewer, similar to the one for households.Households are braced for Ofgem to double the retail energy price cap to an estimated £3,600 from October. Without a corporate price cap companies are more exposed to the sharp jump in wholesale energy markets.Cornwall Insights calculated that a business would have to pay £634 per megawatt hour for electricity this autumn, more than four times the price in 2020 and more than twice the price of last year.Unlike domestic bills, electricity usually accounts for a much larger share of energy costs for small businesses than gas, according to the FSB. The trade body estimated that since February last year, a typical company in London with 30kWh annual consumption would expect its annual electricity bill to surge from just over £4,700 to more than £21,200. The cost of gas would have jumped from £1,350 to just under £7,050, a more than five-fold increase over the same period.Haviland said the BCC plan was “about protecting jobs, securing livelihoods, and creating a vibrant and prosperous society for everyone.” Around 1,800 companies in England and Wales registered for insolvency in July, up 27 per cent on the same month in 2019 before the pandemic struck, according to the latest official data.Gareth Fulford, who runs a restaurant employing eight staff in Cheltenham, said his business was “in jeopardy” because of energy price hikes. Energy costs had already made trading on slower days during the middle of the week unviable, he said. “I’m more concerned for my business over the next 12 to 18 months than I was during the pandemic. It’s going to be a bloodbath unless there’s government help.”The government has so far only provided support for households with a £15bn package announced in May. But as wholesale prices have continued to rise, minister have been warned by energy suppliers much more help will be needed.Liz Truss, frontrunner to become prime minister when the Conservative leadership race ends on September 5, initially expressed reluctance to provide “handouts” to help people deal with the cost of living crisis.But at the weekend she acknowledged the difficulties facing businesses and said she would provide assistance “across the board”. Rishi Sunak, her rival, has said he would “look at all options” to help companies deal with rising energy bills, with small businesses likely to receive the most generous help.Nadhim Zahawi, the current chancellor, has asked officials to draw up a list of options for the next prime minister and chancellor to help companies facing a sudden leap in bills.

Officials are expected to recommend options, including grants to small companies, business rate holidays and temporary exemptions from VAT and the recrafting of Covid-19 loan schemes to help companies deal with energy prices.A government spokesperson said: “We understand that people are struggling with rising prices, and while we can’t shield everyone from the global challenges we face, we’re supporting British businesses to navigate the months ahead.”Are we heading towards a global recession? Our economics editor Chris Giles and US economics editor Colby Smith discussed this and how different countries are likely to react in our latest IG Live. Watch it here. More