Aurelia Butler

BENGALURU (Reuters) – The European Central Bank will raise its deposit rate in the second half of this year, and not wait until 2023 as previously expected, according to a Reuters poll of economists who also sharply upgraded their inflation forecasts for this year. The change in view followed a shift in the ECB Governing Council to concerns about consumer price inflation, rising rapidly across much of the world and which hit a record high of 5.1% in the 19-member euro zone in January on a year earlier.While a majority of ECB watchers polled between Feb. 7 and 14 expected the central bank to lift the deposit rate to -0.25% by end-year from a record low of -0.50%, financial markets are already pricing in a return to zero by that time.Even that would leave the ECB well behind the U.S. Federal Reserve, expected to raise its federal funds rate from a range of 0%-0.25% in March, possibly by half a point, with some banks expecting as many as seven Fed rate rises by the end of 2022. Poll respondents were split on when the first ECB rate rise would take place, with one economist expecting a move in the second quarter, 16 of 51 forecasting a hike in Q3, and another 21 expecting it to come in Q4.A quarter of respondents, 13 of 51, still see no deposit rate rise this year, and only about 20%, or 11 of 51, expect it to reach zero at any point in 2022.”Given the underlying inflation outlook and the risks the ECB is juggling, tightening is likely to be gradual and moderate, and the size of recent market moves still look overdone to us,” wrote Simon Wells, chief European economist at HSBC, in a note to clients. Graphic: Reuters poll graphic on euro zone inflation and interest rates- https://fingfx.thomsonreuters.com/gfx/polling/jnpwelowbpw/Reuters%20poll%20graphic%20on%20euro%20zone%20inflation%20and%20interest%20rates.PNG The ECB is meanwhile widely expected to end its Pandemic Emergency Purchase Programme in March. More than two-thirds of respondents, or 31 of 45, also said the parallel Asset Purchase Programme, launched before the pandemic, will be shuttered by September.Disruptions related to the Omicron variant wave of COVID-19 infections slowed euro zone economic growth to 0.3% last quarter. It was barely expected to pick up from there this quarter to 0.4%.Growth was then expected to accelerate to a peak of 1.2% in Q2 before slowing to 1.0% and 0.7% in Q3 and Q4, respectively. In the January poll, those numbers were 0.5%, 1.1%, 0.9%, and 0.6%.The economy was forecast to grow 3.9% on average this year, versus 4.0% in last month’s poll. It was then forecast to clock 2.5% next year, slightly up from the 2.4% predicted in January.Euro zone inflation was forecast to average 3.8% this year and fall below the ECB’s 2% target to 1.8% in 2023 versus 3.0% and 1.7% predicted in January.On a quarterly basis, inflation was predicted to average 5.1% and 4.7% this quarter and next. It was then forecast at 3.9% and 2.7% for Q3 and Q4, respectively.A like-for-like analysis showed more than 80% of nearly 20 economists had revised those inflation forecasts up by at least one-fifth on average.Over 80% of respondents, or 34 of 42, said inflation would peak this quarter.”We expect inflation to fall again quite sharply over the next few quarters, and so it will be very unlikely the ECB will hike rates every quarter next year,” said Martin Weder, senior economist at ZKB, the most accurate forecaster for the euro zone economy in Reuters polls for 2021 according to Refinitiv Starmine.(For other stories from the Reuters global economic poll:) More

HONG KONG (Reuters) – Tensions in eastern Europe weighed on the euro on Tuesday and pushed demand for the dollar and the safe-haven yen, while the greenback was also helped by debate about more aggressive U.S. interest rate hikes.The euro was at $1.1308 in early Asia having touched $1.1278 the day before, its lowest in a week-and-a-half. The yen was at 115.33 per dollar, after briefly hitting 114.99 on Monday, its strongest in a week.Moves were slightly more cautious elsewhere and the overall result was that the dollar index, which tracks the greenback against six peers was at 96.244, just off Monday’s two-week high. Investors were spooked somewhat overnight by Ukrainian President Volodymyr Zelenskiy calling on citizens to fly the country’s flags from buildings and sing the national anthem in unison on Feb. 16, a date that some Western media have cited as a possible start of a Russian invasion.Ukrainian officials stressed, however, that Zelenskiy was not predicting an attack on that date, but responding with scepticism to foreign media reports.Away from geopolitics, U.S. Federal Reserve officials continuing to spar over how aggressively to begin upcoming interest rate increases at their March meeting.Hawkish Fed official James Bullard, who last week broke ranks to call for a large 50 basis point increase, reiterated calls for a faster pace of interest rate hikes on Monday, though other officials were more cautious in their public remarks. Tensions in Ukraine and the more aggressive outlooks for the Fed funds rate are both supportive for the dollar in the near term, said Kim Mundy, senior currency strategist at Commonwealth Bank of Australia (OTC:CMWAY). “Your best bet for seeing which is having a greater impact is to look at USD/JPY and we have seen that trading a little bit weaker in the last day or two, which suggests markets are very conscious of what’s happening on the Ukraine border,” Mundy said.”We just have to keep watching the headlines and see what happens.”The safe-haven yen typically benefits when investors are nervous, while the contrast between U.S. interest rate hikes and a dovish Bank of Japan ought to push the yen lower. The BOJ, last week, said it would buy an unlimited amount of 10-year government bonds at 0.25%, underscoring its resolve to prevent rising global yields from pushing up domestic borrowing costs too much. Investors did not test this 0.25% line on Monday. Russia’s rouble remained volatile but strengthened overall on Monday, and gained 1.1%, though it was slightly weaker again in early Asia. More

SYDNEY (Reuters) – Australia’s central bank is closer to meeting its economic goals than it has been for years, but is prepared to be patient on policy as wage growth continues to lag even as inflation picks up.Minutes of the Reserve Bank of Australia’s (RBA) February meeting released on Tuesday showed its Board was yet to be convinced that the acceleration in inflation would be sustained and wanted to see wages respond before moving on interest rates.”The Board is prepared to be patient as it monitors how the various factors affecting inflation in Australia evolve,” the minutes showed.RBA Governor Philip Lowe last week said it was plausible a rate rise could come later this year should the economy continue to beat expectations, a shift from former guidance that a move in 2022 was highly unlikely.Investors are wagering on a hike as early as June given how inflationary pressures are building across the globe. Markets are fully priced for the 0.1% cash rate to rise to 0.25% in June, and to reach 1.25% by Christmas.The economy did hit a speed bump in January as the rapid spread of the Omicron variant curbed consumer mobility, but spending has since recovered as cases leveled off.The labour market remains tight with unemployment at a 13-year low of 4.2% and vacancies at record highs.Wage growth has picked up somewhat to 2.2% but is still running at less than half the pace of the United States or UK and policymakers would prefer to see it up at 3.0% or more before withdrawing stimulus.”After a long period of below target inflation, the RBA seems keen to run the economy ‘hot’ for a while,” said HSBC’s chief economist for Australia, Paul Bloxham.”In particular, the RBA wants to reset inflation and wage expectations, such that wage rises of 3-4% become the norm, after many years of wages growth averaging 2%.”He expects the first rate hike in the third quarter of this year, with another before year end. More

“Despite difficult social and economic conditions, which have been exacerbated by the COVID-19 pandemic, Suriname’s homegrown economic recovery program is on track, IMF mission chief Ding Ding said in a statement. “All quantitative targets assessed at end-December 2021 have been met.The IMF approved Suriname’s three-year, $688 million Extended Fund Facility program on Dec. 23, making some $55 million immediately available. The program aims to rebuild Suriname’s foreign reserves and return the country to a market-determined exchange rate.The IMF said inflation, while still high at 60.6% year-on-year in December, has fallen since August, with the fiscal deficit and external imbalances falling.”The Surinamese economy is expected to gradually recover during the course of 2022,” Ding said. “Real GDP growth is projected to reach 1.8 percent with an unwinding of fiscal and external imbalances and a stabilization of the macro economy.”He added that Suriname had shown commitment towards reducing inflation and maintaining a free floating-market determined exchange rate.The country will soon submit a revised 2022 budget to the National Assembly that aims for a primary surplus of 1.7 percent of GDP, higher cash transfers for the country’s most vulnerable and higher electricity rates.”The government is also working to advance discussions on debt relief with private and official creditors,” Ding said.The agreement on policy reforms is subject to approval from the IMF Executive Board. More

Manchin, who often clashes with his own party, told reporters his view was consistent with his view when Republican President Donald Trump nominated Amy Coney Barrett to the Supreme Court a little over a month before the 2020 presidential election.Manchin voted against Barrett’s confirmation, though he said he had supported her nominations for a previous post. He added it would be “hypocritical” for him to support a similar move by Biden.Manchin has emerged as a key vote in the evenly divided Senate, willing to buck Biden and the Democratic party by opposing nominees and legislation, including Biden’s priority social spending bill.Biden is expected to name his first pick for a Supreme Court seat at the end of the month, after Justice Stephen Breyer announced his retirement. Biden has pledged to nominate a Black woman to the seat.Senate Republican leader Mitch McConnell, who could return to power as majority leader in that chamber if Republicans win in the 2022 midterm elections that decide control of Congress, has said he would block any Supreme Court confirmations if a vacancy opened up before the 2024 presidential election.He also was noncommittal when asked, in the same interview with radio host Hugh Hewitt, if he would allow a confirmation vote in 2023 if Republicans held the Senate majority.In 2016, when Supreme Court justice Antonin Scalia died during then-President Barack Obama’s term, Senate Republicans refused to consider Obama’s nominee, Merrick Garland, who now serves as the attorney general.The move held little precedent in U.S. history, but cleared the way for Trump to nominate Neil Gorsuch to the seat, the first of three justices he named to the Supreme Court, giving it a 6-3 conservative majority. More