Aurelia Butler

JAKARTA (Reuters) – The Group of 20 (G20) major economies aims to raise $1.5 billion this year for a fund set up to better prepare for future pandemics, the health minister of current G20 president Indonesia said on Friday.G20 countries have provisionally agreed to set up a multi-billion dollar fund that health officials have said will finance efforts like surveillance, research, and better access to vaccination for lower-to-middle income countries, among others.Indonesian Health Minister Budi Gunadi Sadikin said in an interview the United States, European Union, Indonesia, Singapore and Germany have pledged about $1.1 billion to the fund so far.”If we can get by the end of this year $1.5 billion of fresh funding, we will be very, very happy,” he told Reuters, adding he hopes the group can raise another $1.5 billion next year.Indonesia will host the G20 leaders summit in Bali in November.The World Bank, which will house the fund, and the World Health Organization (WHO), which is advising on the facility, estimated in a report https://thedocs.worldbank.org/en/doc/5760109c4db174ff90a8dfa7d025644a-0290032022/original/G20-Gaps-in-PPR-Financing-Mechanisms-WHO-and-WB-pdf.pdf that the annual funding gap for pandemic preparedness is $10.5 billion.Budi said he will start discussing contributions to the fund with countries like Japan and Britain at a G20 health ministers meeting in Indonesia next week.”Pandemic is a war, and we have to be ready with enough money when war happens,” he said.The United States and Indonesia have been pushing for the establishment of the fund to help the world be better prepared to tackle future pandemics, but the WHO has been concerned the fund could undermine its own efforts and those of other global health mechanisms.But Budi said the WHO will play “a leadership role” in identifying which countries would need the fund or provide other countermeasures. The World Bank has said the fund is expected to be operational this year, and Budi said the structure for the fund could be established in a few months’ time. More

The Bank of England has been accused of going soft on its core mandate after adopting a less aggressive stance on monetary policy than the US Federal Reserve — despite expecting inflation to hit 11 per cent this year.The UK central bank on Thursday dropped guidance that more interest rate rises were likely in the months ahead, even as it warned inflation would reach a high in October. It raised rates by an expected 0.25 percentage points to 1.25 per cent, as three Monetary Policy Committee members who called for a 0.5 percentage point increase were outvoted.The stance reflected its view that the UK economy will barely grow in the next three years and therefore there is less scope — or need — to raise rates as aggressively as elsewhere.By contrast, the Fed had exploded a grenade under financial markets a day earlier with a 0.75 percentage point rise in its benchmark interest rate to a target range of 1.5 to 1.75 per cent, even when the US has a smaller inflation problem than the UK. Fed chair Jay Powell was unequivocal about the intention that lay behind the move. “We’re strongly committed to bringing inflation back down and we’re moving expeditiously to do so,” he said. The BoE’s relative passivity proved contentious, even among former members of its MPC. Andrew Sentance, now a senior adviser at Cambridge Econometrics, said: “Actions speak louder than words. The action from MPC . . . was woefully short of what is needed to curb the biggest inflationary surge for 40 years.”By contrast, professor Danny Blanchflower of Dartmouth College in the US, criticised the BoE for tightening policy at all. Accusing the BoE of “incompetence”, he took to Twitter to say: “We are likely already in recession . . . made worse by the rate rise.”There is no doubt that the two central banks view the outlooks of their respective economies differently. The Fed is involved in taming a policy-induced boom and a high-pressure economy that has blown up into an inflationary period. It wants to cool things down with higher rates and still expects reasonable growth as it lowers the rate of price rises by making borrowing more difficult for Americans. While Powell was clear that the chances of achieving a “soft landing” had slipped and he wanted a “softish” landing, he still expects reasonable economic growth in the US.

The domestic central banks expect annual growth rates to be much weaker in the UK than the USCentral bank forecast202220232024 Bank of England0.7%0.2%0.5%Federal Reserve1.7%1.7%1.9%Year-on-year growth forecast for the fourth quarter of each year. Fed forecasts from June, BoE forecasts from May

The median prediction of the Fed’s interest rate setting committee was that the US economy would expand 1.7 per cent during 2022 and 2023.The BoE’s view, however, is that the UK’s coming period of very slow growth — with multiple quarters of contractions — is needed to get inflation down. It expects inflation to fall back to its 2 per cent target, partly as commodity prices stabilise “albeit at elevated levels” and partly as a result of “the combined impact of weaker real incomes and tighter monetary policy on domestic demand”. The BoE did not update its May forecasts at the meeting this week, but these are much weaker in comparison. Over the same time period, it expects growth to be only 0.7 per cent this year and 0.2 per cent next year. The stance makes life difficult for the UK government and Conservative MPs. Since the central bank thinks it is necessary to keep growth only at a snail’s pace until the next election to control prices, MPs cannot easily demand tax cuts. These would boost spending and potentially force the BoE to move more actively to control prices. Prime Minister Boris Johnson and chancellor Rishi Sunak have both said tax cuts will have to wait until inflation has come down.The passive nature of the BoE’s messaging is also difficult for the central bank itself. It is waiting to see whether companies decide that they feel they want to compensate their employees for rises in the cost of living and whether the UK has moved more persistently into an inflationary environment. It left open the option of acting “forcefully” if inflation did not subside naturally, and increasingly many in the City think it will have to adopt this approach in the months ahead. Steffan Ball, chief UK economist at Goldman Sachs, said: “We do not think the BoE is insulated from the recent swath of hawkish central bank shifts,” predicting that the BoE would be forced to raise rates by 0.5 percentage points at the next two meetings, leaving UK rates at 2.25 per cent by September. More

Ahead of the Bank of Japan’s meeting today there had been some chatter that governor Haruhiko Kuroda might bow down to market pressures and follow most other major central banks in tightening policy.But no. The BoJ’s not for turning. The Bank of Japan has renewed its pledge to keep bond yields at zero, sending the yen lower and widening the policy gap with other central banks that have raised interest rates to tame inflation. The BoJ’s decision to stick to its ultra-loose monetary policy exacerbates a global divergence in yields after the Federal Reserve raised its main interest rate by 0.75 percentage points this week, prompting Switzerland and the UK to also increase rates. The BoJ on Friday kept overnight interest rates at minus 0.1 per cent. It said it would conduct daily purchases of 10-year bonds at a yield of 0.25 per cent, showing no willingness to let bonds trade in a wider band.The pressure to do something must have been hefty. After all, the yen has careened to a 24-year low against the dollar, and keeping the 10-year Japanese government bond yield pinned below 25 basis points has meant a wild buying spree lately. Deutsche Bank estimates that the BoJ has spent $72bn buying bonds just this week, almost what Fed and ECB were doing in an entire month last year. Adjusted for the different sizes of their respective economies, the pace of Japanese QE this week is more than 20 times the pace of the Fed’s in 2021. Overnight, Evercore ISI’s Krishna Guha had therefore speculated that the Bank of Japan could buckle, with potentially huge ramifications for markets. BoJ YCC is the last anchor of the old global yield curve structure via arbitrage conditions and flows. If it breaks the ramifications would be global, putting further upward pressure on yields in the US, Europe and Asia. Foreign investors have been dumping JGBs aggressively this week testing the BoJ’s readiness to buy in unlimited quantities to defend the 25bp cap in anticipation that it might capitulate and scrap or reset YCC on Friday. Our best guess is that the BoJ holds the line now for reasons we discuss in this note. But this has been an extraordinary week in central banking and we do not feel that we should rule anything out.Extraordinary week or not, it seems the BoJ maintains a diamond-hand commitment to spraying money at markets, unlike the weaklings at the Federal Reserve, ECB, Bank of England and Swiss National Bank. The BoJ DID cautiously reference “developments in financial and foreign exchange markets”, and at the subsequent press conference Kuroda switched from talking about how a weaker yen was good to saying the sharpness of the tumble was “negative”. But policy-wise it mattered not. Perhaps the BoJ’s stance will change if the yen weakness deepens into a real currency crash. But we’d note that the inflation dynamics are pretty different in Japan, and the BoJ has regretted taking its foot off the accelerator prematurely before. More