Aurelia Butler

BANGKOK (Reuters) – Thailand’s central bank left its key interest rate at a record low on Wednesday, seeking to maintain support for a fragile economic recovery, and ruled out a need to adjust monetary policy for now despite a jump in inflation.The Bank of Thailand’s (BOT) monetary policy committee unanimously voted to hold the one-day repurchase rate at 0.50% for a 14th straight meeting after three rate cuts in 2020. The rate decision was expected by all 23 analysts polled by Reuters.”The committee assessed that the Thai economy in 2021 would expand faster than previously projected, and the recovery would continue into 2022 driven by higher merchandise exports, as well as a higher number of foreign tourist arrivals,” the BOT said in a statement after its first policy meeting of the year.”However, the recovery would remain fragile and uneven across sectors, especially in tourism,” it said. The BOT said monetary policy would remain accommodative to aid the economy, still its priority, though played down the economic impact the Omicron variant of the coronavirus would exert given the limited pressure on the health system.While headline inflation would be higher than previously assessed and could exceed the target range in the early part of the year, the average inflation for full-2022 would remain within target range, the BOT said.Inflation in January breached the BOT’s 1-3% target range, though assistant governor Piti Disyatat told a news conference “there was no need to adjust monetary policy yet”.Most economists do not see rates rising for at least a year and some see an even more distant horizon.Kobsidthi Silpachai, head of capital markets research of Kasikornbank, does not expect rates to rise until 2023 “once tourism improves sufficiently to have direct and indirect effects on income, wages, and inflation”.Capital Economics predicts rates will be left unchanged until the end of 2023.While the latest coronavirus outbreak had slowed economic activity early in the year, Thai authorities have been trying to kickstart the critical foreign tourism sector, which normally accounts for about 12% of gross domestic product.Nearly 40 million people visited Thailand in 2019 before the pandemic, but this slumped in 2020 after borders shut and as a reopening started edged up to 428,000 last year. The BOT has forecast economic growth of 3.4% this year, with 5.6 million foreign tourists visiting the country. More

PRAGUE (Reuters) – Meera Sankar knew it was time to give up her dream of buying a home in Prague when she looked at a flat barely big enough for one person but carrying a budget-busting price tag.The 31-year-old’s experience is a common one in Prague and other cities in central Europe where high prices, squeezed by acute supply shortages, have pushed home ownership out of reach for many potential first-time buyers. As the region’s central banks now hike borrowing rates, the problem is getting worse.”I decided to keep renting when I went to an apartment advertised as 60 (square) metres (646 sq. ft) but the apartment itself was only 20 metres and the rest was a garden,” Sankar, a special effects producer in the film industry, said about the property priced at 4 million crowns ($189,081).”There was barely enough space for one person and a few pieces of furniture. I spent two years actively looking for something but it is too expensive and not getting any cheaper.”Much has been made of eye-wateringly high house prices in western European cities such as London, Paris or Hamburg. But it is in central and eastern Europe where the disconnect between prices and local salaries – which on average are well below those in the west – is most acute.The Czech Republic ranks as the least affordable housing market in Europe with an average of 12.2 gross annual salaries needed to buy a 70-square-metre apartment, according to Deloitte’s housing affordability survey released in 2021. This compares to six average salaries to purchase a property in Germany and 5.1 in Norway. Czech housing prices also rose 22% year-on-year in the third quarter of 2021, the fastest rise in the European Union for a second quarter in a row, according to Eurostat data. “The people now getting into trouble are also the middle-income bracket, and even the slightly higher income,” said Vit Hradil, chief economist at Czech brokerage firm Cyrrus. “So if you think of essential (workers) such as teachers, policeman, firefighters, they are probably unable to afford any kind of apartment in Prague nowadays.”** For an interactive graphic: https://tmsnrt.rs/3gxNYeUMORTGAGE COSTS JUMPThe spiralling gains are similar across other Czech cities and central European countries, where since 2010 Hungarian home prices have more than doubled.In Warsaw’s city centre the average price per square metre runs at about 4,000 euros ($4,562.00) compared with 3,770 euros in Brussels where the average monthly net salary is a little more than double the wage in the Polish capital, according to Numbeo, a website comparing costs of living.An added problem in Prague is the long wait for developers to get construction permits, which has limited supply. In 2021 supply in the Czech capital hit a 10-year low, according to an analysis by developers Trigema, Central Group and Skanska Reality, with 3,300 new flats available on average in the year, 1,980 less than in 2020. Prices have also been driven up across the region by fast wage growth and a sustained period of low interest rates, until recent hikes, which made loans more accessible and spurred demand for investment properties.”If you think of first-time buyers, who had never entered the real estate market before and are only entering now, they pretty much stand no chance to buy unless they are supported by family members with a significant amount of cash,” Hradil said.Central Europe has been ahead of most of Europe in raising interest rates after the pandemic, pushing mortgage costs to levels not seen since before the 2008/09 global recession and further raising the bar for those seeking their first step on the housing ladder.Hungary’s central bank said in January it would continue rate hikes to curb inflation. Poland – emerging Europe’s biggest economy – raised rates again on Tuesday, by 50 basis points to 2.75%, and hinted at more tightening to come. The Czech National Bank, which is re-introducing mortgage lending limits such as loans at no more than 80% of a property’s value or ceilings on borrowers’ debt load relative to income, also lifted its main interest rate to a 20-year high of 4.50% last week.Experts estimate mortgage rates could soon near 5%, up from around 2% seen by the market monitor Fincentrum Hypoindex before the Czech bank began lifting its rate from 0.25% in June last year.”Around 20% of clients in my pipeline have pulled out of the search at least temporarily due to the increased costs,” said Prague-based mortgaged broker Robin Petrasek, who estimates borrowing costs for each million crowns borrowed with a 30-year term have risen more than 25% from a year ago. “With the increased rates it’s clear the amount of people able to buy properties will be getting lower.”** For an interactive graphic: https://tmsnrt.rs/3gwt7svHELP ON THE WAY?Officials are looking for ways to help first-time home buyers grapple with the soaring prices but limited supply of properties leaves them with few tools at their disposal.Hungary froze retail mortgage interest rates for a six-month period from January to shield borrowers with floating mortgages and has targeted grants and subsidized bank loans worth up to a combined 25 million forints ($80,707.64) available to families.In Poland, as part of the government’s “Polish Deal” economic programme, the state will guarantee the deposit on a property for up to 20% of its value, up to a maximum of 100,000 zlotys ($25,206.06) in order to help people who can’t save up for a deposit. Prague Mayor Zdenek Hrib told Reuters the city has focused on reconstructing municipal flats to increase supply and keeping a number in reserve for essential workers, such as teachers, police officers and social workers.”Housing affordability has been one of the main concerns of the current city council in Prague,” Hrib said. The dizzying price increases spurred Tomas Klima and his fiance into action after they had postponed their search when the pandemic began in hopes prices would fall.They rushed back into the market when prices kept climbing, only to find flats selling almost immediately or visited others that attracted multiple bids well over the asking price.”We thought with COVID everybody would lose jobs and prices would go down,” Klima,33, said. “We looked at the market and saw prices rising all the time. We couldn’t afford to wait.”($1 = 21.1550 Czech crowns)($1 = 0.8768 euros)($1 = 309.7600 forints)($1 = 3.9673 zlotys) More

LONDON (Reuters) – The seismic supply shocks and wild price distortions of the pandemic could finally call time on 30 years of strict inflation targeting by the world’s big central banks.Faced with headline and core inflation rates surging far above 2% target rates and at their highest in decades, central banks have scrambled to lift interest rates from historic lows or flag rate hikes ahead – even though they insist inflation will be close to or even below those targets within two years.U.S. Federal Reserve policymakers see their favoured measure – core annual gains in the personal consumption expenditures price index – back at 2.1% in 2024 even though it was more than twice that last year its highest in more than three decades.The European Central Bank sees euro zone inflation more than halving to 1.8% next year while the Bank of England sees UK inflation peaking at 7.25% this year before tumbling far below target within three years. Yet the hawks are out in force to show government and the public alike that they have things in hand.Perhaps these forecasts simply assume “normalisation” of monetary policy in the short term and a return to pre-pandemic settings as supply skews in energy and labour markets ease back.But the problem reopens the debate about whether strict inflation targeting – only in vogue since the 1990s – should continue to guide monetary policy and what should replace it.Many think the rising sovereign and household indebtedness means any flirtation with deflation – that effectively lifts the inflation-adjusted costs of accumulated borrowings over time and threatens prolonged depression – is simply unacceptable to most governments and economists.And if so, the long-established 2% norm may just be too close or too risky for comfort. Most Western economies have dallied with either deflation or sub-target inflation since the banking crash of 2008 – hence the rollout of extraordinary loose monetary policies from bond buying to negative rates and all the other distortions that that brings in asset prices elsewhere.While it may feel like the opposite problem today, it spotlights the flaw in point targeting inflation.If no one wants to brutalise economic activity now by dealing with the sudden inflation overshoots caused by pandemic supply jolts – also fearing potentially lingering price pressures in its wake – then maybe the solution would be to up those targets and “de-emphasise” them in favour of greater discretion. US core inflation and Fed target – https://fingfx.thomsonreuters.com/gfx/mkt/zgvomjzzgvd/One.PNG G7 inflation expectations – https://fingfx.thomsonreuters.com/gfx/mkt/akpeznxxbvr/Two.PNG ‘PAST SELL BY’Hedge fund manager Stephen Jen of Eurizon SLJ thinks that sort of pressure may well now build as the Fed acts hawkish but stays “behind the actual inflation curve” as the extent of supply distortions are assessed and many unwind.”My sense is that most economists may still prefer high inflation to low inflation,” Jen said. “The debate of whether central banks should adopt a higher inflation target of, say 3%, has not even started in earnest – but it will.”Financial markets doubt central banks will succeed in returning U.S. inflation to 2% targets any time soon – but inflation expectations in bond markets are 2.7% and 2.4% respectively over five- and 10-year horizons. Of course the Fed already bought itself a lot of wriggle room with its recent move away from a point inflation target in favour of aiming for a rather vague 2% average over time. And its mandate explicitly includes full employment as well as stable prices, balancing any tendency to stamp on inflation to the detriment of jobs.While ECB lent in that direction too, neither it nor the other central banks have moved as far and their remits remain far stricter on meeting the explicit price goals.Fears of an overreaction to missing the point target on the upside today in part mirrors the problem that largely sounded the beginning of the end for inflation targeting 15 years ago. Many accused central banks of the early 2000s of blowing the credit bubble that bust spectacularly in 2008 with overly loose monetary policy simply because headline inflation rates were well behaved are 2% targets and other metrics were ignored.In retrospect, inflation targeting was still new at the time – only a decade or so old and having replaced a range of post-World War Two monetary goals from the gold standard and fixed exchange rates to ranges for money supply growth. All these had failed too and were similarly prone to either supply shocks or speculation.The one untried alternative that’s been proposed for years is that central banks instead target nominal gross domestic product growth. Advocates say it allows central banks a measurable goal they can affect rather than over or under-reacting to supply shocks they have no control over – crucially avoiding assumptions about economic slack and potential that are impossible to read in real time.Former Goldman Sachs (NYSE:GS) chief economist and UK Treasury minister Jim O’Neill says he’s become a convert to the Nominal GDP target idea.”Single point inflation targeting is way past its sell date,” he said.The author is editor-at-large for finance and markets at Reuters News. Any views expressed here are his own (by Mike Dolan, Twitter (NYSE:TWTR): @reutersMikeD; editing by David Evans) More

Headline inflation rose to 5.7% in January, which is well above the central bank’s target of 2.5%.”It is assumed that headline inflation will ease when house price inflation slows down and global price hikes taper off; however, it is not expected to align with the target until the end of the forecast horizon,” the central bank said in a statement. The central bank, which raised the interest rate four times in 2021, now expects the economy to grow around 4.8% this year compared to the 5.1% it projected in November. More

TOKYO (Reuters) -China’s “zero-COVID” restrictions could weigh on world growth by prolonging supply chain disruptions and global inflationary pressures, a Bank of Japan policymaker said, warning of the broadening fallout from rising Omicron variant cases.Board member Toyoaki Nakamura also said it was premature for the BOJ to tighten monetary policy, as inflation and wage growth remain subdued compared with other economies.”I don’t think conditions have fallen into place for Japan to modify monetary policy,” Nakamura told a news conference.”If we raise interest rates now or before wages pick up, we would be taking away from companies money that would otherwise have been used to raise pay,” he said on Wednesday.A former executive at Japanese electronics giant Hitachi (OTC:HTHIY) Ltd, Nakamura said supply chain disruptions won’t disappear easily partly as China – the world’s factory – maintains strict curbs on economic activity to combat the pandemic.”There’s a risk China’s ‘zero-COVID’ policy amid widening Omicron infections could weigh on the global economy, as well as prolong global supply chain disruptions and inflationary pressures,” he said.His remark follows a warning last month by International Monetary Fund head Kristalina Georgieva that China should reassess its zero-COVID approach to the pandemic.”Semiconductor chips will probably be in short supply throughout this year,” Nakamura said.Japan’s long-term interest rates have crept up on market speculation the BOJ could follow in the footsteps of other major central banks executing or eyeing rate hikes.While global commodity and energy inflation is pushing up prices of some goods in Japan, such cost-push inflation will be short-lived unless accompanied by higher wages, Nakamura said.There is also uncertainty over how quickly companies will pass on rising raw material costs to households, he said.”We’ll patiently maintain our ultra-easy monetary policy until wages begin to rise sustainably,” Nakamura said.Japan has not been immune to the impact of global commodity price rises with wholesale inflation hitting record highs. But core consumer prices rose just 0.5% in December from a year earlier, well below the BOJ’s 2% target, as slow wage growth weighs on consumption and discourages firms from raising prices. More