Aurelia Butler

BENGALURU (Reuters) – The Bank of Canada will hike its overnight rate by 50 basis points on June 1, according to all 30 economists polled by Reuters, who see interest rates at least a half-point higher by year-end than predicted just one month ago. The BoC seems set to follow an aggressive path similar to that taken by the Federal Reserve to tame soaring inflation, which hit over a three-decade high of 6.8% in April and has now been above the central bank’s 1-3% range for more than a year.After a 50 basis-point hike in April, its biggest single increase in 22 years, BoC Governor Tiff Macklem said interest rates may need to go above the neutral range – currently estimated to be between 2% and 3% – for a period of time to get inflation back to target.The BoC was expected to lift its overnight rate by another half a percentage point at its June 1 meeting, taking its lending rate to 1.50%, according to all respondents in a May 20-25 poll. That was in line with money markets pricing. Just a month back, economists forecasted a 25-basis-point hike in June. cf8ff7e6-0022-4765-aef6-2cedd974b6441Reuters Poll: Canada monetary policy outlook: https://fingfx.thomsonreuters.com/gfx/polling/dwvkrnjozpm/Reuters%20Poll-%20Canada%20monetary%20policy%20outlook.png “The BoC is laser-focused on taming inflation but once the overnight rate reaches a more neutral level, it will be more conscious of the potential trade-off between returning inflation expediently to target and prolonging the economic cycle,” said Josh Nye, senior economist at Royal Bank of Canada.”We don’t expect the BoC will make monetary policy restrictive but if stubbornly high inflation forces it to do so that would amplify recession risk.”A smaller sample of economists who answered an additional question were nearly split on whether the current tightening campaign would lead to a recession, with seven of 14 saying it would not and the remaining it would trigger one. 3b027676-eac9-431b-a886-40d58ab52c3e2Reuters Poll- Canadian recession sentiment: https://fingfx.thomsonreuters.com/gfx/polling/klpykomxdpg/Reuters%20Poll-%20Canadian%20recession%20sentiment.png Canada’s economy is likely to be particularly sensitive to higher rates after Canadians borrowed heavily during the pandemic to participate in a red-hot housing market.Thirteen of 30 respondents in the poll forecasted rates to rise to 2.25% in the third quarter, 10 expected rates to be 2.00% and six expected 2.50%. Only one economist expected rates to be 1.75% by end-September.After that, 25 of 30 respondents expected rates to rise to 2.50% or more in the fourth quarter, including six predicting them to reach 2.75% and another six expecting rates at 3.00% by end-2022. Only four expected rates to be 2.25% and one predicted rates to be 1.75%.Poll medians showed rates at 2.25% next quarter and 2.50% in the fourth quarter. The BoC was expected to hike rates to 2.75% in the first quarter of 2023 and stay on the sidelines at least until the end of next year.Inflation was expected to average 5.9% this quarter before easing to 5.0% and 4.4% in the next two quarters, according to a separate poll. [ECILT/CA]While inflation was expected to cool significantly next year it was still forecast to stay above the central bank’s target until at least 2024.”Right now, the BoC’s attention remains firmly focused on inflation. Governor Macklem hinted that market expectations of a 50-basis-point hike in June would likely be met as he promised to restore price stability ‘forcefully’ if needed,” noted Christian Lawrence, senior cross-asset strategist at Rabobank. “That said, the dangers of hiking into a recession are not lost on the bank, but dampening demand is the only tool they have to try to slow inflation, and that spending needs to be moderated to try to reach an equilibrium. Rising inflation expectations are a core concern,” Lawrence said.(For other stories from the Reuters global economic poll:) More

DAVOS, Switzerland (Reuters) – The World Economic Forum will revert to January for its 2023 annual meeting in the Swiss ski resort of Davos after moving to the spring for the first time due to the coronavirus pandemic. After a hiatus of more than two years, the annual gathering this year attracted a mix of global political and business leaders, who met amid the usual high security.By returning to the start of the year, the privately-funded WEF will hope to regain its place where the global agenda for the months ahead is discussed and in some cases set.For those attending this year’s summit the main talking points included Russia’s invasion of Ukraine, threats to the global economy and investment shifts prompted by climate change.”This is not a place that even the most optimistic person expects to come to and get all the answers. In fact they might leave with more questions. This is the place to build the relationships that lead to long-term engagement and hopefully a focus on strategy,” Nela Richardson, Senior Vice President and Chief Economist for HR services firm ADP, said. Many participants at this year’s event, which wrapped up on Thursday, have welcomed occasional sunshine, alpine spring flowers and screeching swifts circling overhead as a welcome change from sub-zero temperatures and perilous icy sidewalks. Others have missed the winter wonderland atmosphere.”There’s never been anything like this, walking around not slipping and falling on the ice and bundling up with coats and jackets in the snow, it’s actually fun,” Jay Collins, Citigroup (NYSE:C)’s Vice Chairman of Banking, Capital Markets and Advisory, said this week. “I love winter in Davos, I’ve been doing it for years, but I definitely think springtime has been a nice change,” The event is scheduled for Jan. 15-20 in 2023, provided that there are no problems as a result of COVID or other issues, a WEF official told Reuters.After a coronavirus-enforced cancellation in 2021 and the postponement of the event from January 2022, many participants asked by Reuters about its relevance said the WEF event remains a unique talking shop.”The WEF and Davos is a unique forum for leaders from across industry – public, private – from across the globe to come together to talk about some of the most pressing issues that face the globe,” Dave Fredrickson, AstraZeneca (NASDAQ:AZN)’s Executive Vice-President of Oncology, told Reuters this week.’CRISIS OF TRUST’ There are also questions about the relevance of the WEF event at a time of global fragmentation and public scepticism.The final day of the 2022 meeting was marked by a demonstration by activists calling for more urgent action on climate change. Their protest echoed previous ones at the last WEF meeting in January 2020, when Swedish activist Greta Thunberg warned participants that the world was “still on fire”. by international research agency Glocalities found public mistrust of the WEF just months before the event.The poll in February and March of more than 26,000 respondents in 25 countries found nearly four out of 10 said they did not trust the WEF, compared to slightly fewer than three out of 10 who said they did, with the rest undecided.”The survey data clearly show that trust in the WEF is closely related to the larger crisis of trust,” said Martijn Lampert, research director at Amsterdam-based Glocalities. But attendees at the event say it has much to offer.”It’s the last place where people can gather and say what they think,” Akash Shah, Bank of New York Mellon’s Chief Growth Officer, told Reuters this week. More

Russia has relaxed some capital requirements for banks in response to sweeping Western sanctions levied against the Russian financial sector following Moscow’s move to send thousands of troops into Ukraine.Central Bank governor Elvira Nabiullina dismissed on Thursday the idea of ditching the Basel requirements – international standards that dictate the levels and kinds of assets lenders must keep on their balance sheets – and instead called for a readjustment in how they are applied in Russia.Nabiullina told a forum that the central bank was considering extending a number of the support measures until the end of the year but acknowledged that some banks may require a capital injection. She did not provide details. “It seems that sanctions-hit banks will have to focus on domestic rouble operations, primarily on lending to the state sector, sanctioned companies… Keeping in mind a risk of secondary sanctions, this is important to avoid splitting the banking system into two isolated parts,” she said. Kostin told the same forum that by his estimates, the entire sector could get a capital boost of 3.3 trillion roubles if Basel rules are abandoned, of which VTB alone would gain 550 billion roubles.Nabiullina also said the central bank is considering allowing banks to group together and form banking associations, without buying out each others’ shares, in order for smaller banks to team up with bigger lenders and benefit from their support. ($1 = 63.5000 roubles) More