Aurelia Butler

MOSCOW (Reuters) -Russia’s central bank is unlikely to raise its key interest rate by more than 100 basis points in December even after inflation neared a six-year peak in November, Governor Elvira Nabiullina said on Thursday.She told the Reuters Next conference that challenges facing the economy are less dramatic than in 2014, when the Bank of Russia hiked by a huge 650 basis points at the height of the crisis over Russia’s annexation of Crimea from Ukraine.”In the baseline scenario, we estimate the highest increase in the key rate as 100 (basis points),” Nabiullina said in an interview. Analysts polled by Reuters in late November on average expected the central bank to raise the rate by 50 basis points on Dec. 17, to 8% from 7.5%, in what would be its seventh hike this year.But Nabiullina said it would be a harmful policy mistake to underestimate inflation risks, including any that might stem from the new Omicron variant of the coronavirus. “We see from the experience of the second half of 2020 that the new waves of pandemic may be more pro-inflationary than disinflationary,” Nabiullina said.”There is a lot of uncertainty about this new strain and what reaction it will require from the governments, authorities around the world. It is too preliminary to assess the exact impact on the economy and inflation.”She did not expect the key rate to reach double-digit levels as it did in late 2014, when the bank hiked from 10.5% to 17% as the rouble fell to record lows and inflation accelerated after the West slapped sanctions on Russia over its actions in Crimea.”The current situation is of course much less dramatic than the one we had then. Still, we are very concerned with the level of inflation and inflation expectations in Russia,” Nabiullina said. Nabiullina said inflation was expected to slow towards the bank’s 4% target in 2022, which would open the door for lowering the key rate in 2023 to a neutral range which the central bank has said it sees at 5-6%.She said the Bank of Russia was prepared for the U.S. Federal Reserve to start tightening policy. “We have been expecting this shift and I think everybody expects that the Fed will tighten monetary policy. “The question is when, how fast? Nowadays, tightening is quite well communicated … we know that this tightening will happen and we calibrate our monetary policy taking into account these movements,” Nabiullina said.To watch the Reuters  Next conference please register here https://reutersevents.com/events/next/ More

SAO PAULO (Reuters) – For years this maze of narrow alleyways and precariously stacked cinder block homes was off limits for Brazilian e-commerce delivery companies, deemed impassable and dangerous. Even as internet orders boomed during the pandemic, the residents of Paraisopolis, a poor community of 100,000 people in the heart of Sao Paulo, would often find their post codes rejected when they reached the online checkout. “They blocked this region, considering it a risky area,” 21-year-old resident Givanildo Pereira Bastos said in an interview on Reuters Next.To fix the problem Pereira started Favela Brasil Xpress, a delivery firm willing to go where others will not.Parcels arrive at a distribution center before being sorted and delivered to their final destination, sometimes navigating the narrow lanes by tuk-tuk or bicycle. On occasion, deliveries must be done on foot.Favela Brasil Xpress has 90 employees in Paraisopolis, all community residents. Across the country, the company operates in over half a dozen poor informal communities – known as favelas – in the states of Sao Paulo, Rio de Janeiro and Minas Gerais. Pereira expects to expand further. “We had no idea how much favela residents consume through e-commerce,” Pereira said. “Just in Paraisopolis, there are around 800 deliveries a day.”But finding addresses is not always easy, even for a resident like Pereira. “Even I had some difficulty in making deliveries,” he said, recalling a delay in locating the home of one man who had been waiting four months for a card payment machine. By the time it arrived, the man’s business had closed down.Pereira hopes his company can go some way towards reducing inequality here.”We don’t want there to be two Brazils. … We want to live in one Brazil, where a favela resident has the same rights as someone who lives in a wealthy neighborhood.”To watch the Reuters  Next conference please register here https://reutersevents.com/events/next More

The leadership of the World Trade Organization could, it seems, teach global supply chains a thing or two about resilience. After Omicron forced member countries to cancel this week’s big ministerial at short notice, director-general Ngozi Okonjo-Iweala was quick to come out and say that no one was giving up, and to start plans to resume talks. There’s some idea of rescheduling the ministerial for March, though that seems a bit ambitious to us. But in any case, Okonjo-Iweala said she would try to push forward the big issues such as fisheries subsidies and the intellectual property waiver for Covid-19 vaccines through negotiations at ambassador level in Geneva. A WTO deal on domestic services regulation, not huge but symbolically helpful, is also reaching fruition. We’re still highly sceptical about progress with the IP waiver, though there are some more hopeful noises about fisheries. At least they’re going to give it a shot. Today’s main piece looks at what the change of government in Berlin will mean for German and EU trade policy, while Charted waters shows us why the latest surge in Covid cases in Germany is set to feed into supply chain snags. The Greens are moving with the grainThe traffic light era is almost upon us, with the new Social Democrat/Free Democrat/Green coalition about to take power in Germany. On some issues, the parties come from, let’s say, contrasting perspectives — the fiscal sadism of the ordoliberal FDP versus the relative sanity of the SPD. You might predict a similar contradiction in trade between the traditionally free-market FDP and the Greens, who have been given the economy and climate ministry, which runs trade policy. The Greens have been critical of Angela Merkel’s strategy of friendly engagement with China, and they want to load up trade deals with concerns about human rights and the environment. In practice, there might be more coalition unity than that, and more continuity with Merkel. The German Greens in the Bundestag are actually quite pragmatic about relations with business: Mikko Huotari, executive director of the Merics think-tank, points out that they have a record at state level of supporting Germany’s export industry. The big industrial players such as Volkswagen are anyway pretty good at promoting their interests no matter who is in government. In any case, Olaf Scholz’s chancellery will no doubt retain a big say in trade policy. The most interesting part is the overall context. With disillusionment setting in within the German public and businesses about dealing with China, German policy has been drifting towards a mindset sceptical of traditional trade deals that are focused purely on access to export markets.Reinhard Bütikofer, the veteran German MEP and the China hawks’ China hawk, who was part of the Greens’ coalition negotiating team, this week improbably quoted former SPD chancellor Gerhard Schröder, not typically one of his political heroes. Regarding foreign policy, he said, “Wir wollen nicht alles anders, aber vieles besser machen” (“We don’t want everything different, but we want to do a lot better.”). His quote reflects an instinctive respect for consensus, given that the German electorate has placed a coalition government in power for the entire postwar period. Bütikofer argues that an emergent China-sceptic consensus is aligning the German business, human rights and national security communities. One salutary lesson was the fate of the EU-China Comprehensive Agreement on Investment (CAI) which Merkel’s government, doing the German export sector’s bidding, jammed through in the dying days of its EU presidency last year. China’s subsequent move to slam sanctions on parliamentarians across Europe (including Bütikofer, to his evident satisfaction), and even on think-tanks such Merics, meant that CAI was slung into the deep freeze.It’s possible that CAI could get support from Germany and a majority in the European parliament if sanctions were lifted and Beijing did some serious work on rapprochement. The SPD, with its roots in the industrial trade unions, instinctively wants to support German manufacturing. But China’s increasing belligerence and its “dual circulation” strategy, prioritising the domestic economy over exports, suggests CAI could be a pivot point in EU-China relations. “I’ve never advocated decoupling,” Bütikofer said. “On the other hand, we do see some decoupling with Chinese characteristics and we have to deal with that.”More broadly, the grain of EU policy in general, under continual pressure from France, has shifted towards scepticism about the traditional model of trade deals.A case in point is the stalling of the EU-Mercosur trade deal because of EU environmentalist concerns about Brazil burning down the Amazon, a view also conveniently espoused by French cattle farmers threatened by beef imports. Merkel, responding to public opposition, last year prudently expressed “considerable doubts” about the deal and stopped actively pushing for it. The new coalition statement goes further and explicitly demands strong measures against deforestation as a condition of ratifying.Another example: the European Commission has prepared an array of unilateral (sorry, “autonomous”) weapons against foreign skulduggery (not the technical term) including an anti-coercion instrument, new corporate due diligence responsibilities for environmental and human rights standards, and a tool to deter subsidised foreign companies from snaffling government procurement contracts in the EU.Germany has often been cautious about these tools, warning the commission not to put heavy burdens on industry or invite foreign retaliation against exports. Huotari said that, particularly with regard to procurement, “the message to the commission now will be that what you guys are doing is good, and we are not going to put as many blocks in your way as we have in the past”.There are other aspects of German trade policy we’ll examine in future newsletters, particularly carbon border pricing. But our preliminary conclusion is this: it’s not just the swapping of Scholz for Merkel we need to watch for but fundamental movements in the European centre of gravity on China and trade.Charted watersRegular readers will be aware of our view that much of the mess we’re seeing in supply chains is down to a huge shift in demand, away from services and towards consumer durables. With the world and his grandma using the pandemic as an excuse to stock up on everything from laptops to dumbbells, it’s little wonder the system is under pressure. To get a sense of the scale of the shift — and the degree to which it still matters — we present to you the chart below. It shows that the surge in Covid cases in Germany has triggered a cancellation in restaurant bookings. That will free up even more disposable income to be spent on physical goods in the run-up to Christmas. Claire JonesTrade linksScoop from Aime Williams and Andy Bounds in Brussels: the US is holding back from settling the dispute on steel and aluminium tariffs with the UK because it says London is threatening Northern Ireland’s Good Friday Agreement.The US Progressive Policy Institute’s trade fact of the week says that Donald Trump’s tariffs probably added about 0.5 per cent to inflation.Chad Bown, from the Peterson Institute, looks systematically at why Trump/Biden trade policy is the way it is.Intel’s chief executive said that, pending US legislation to secure semiconductor supplies, the government should invest more in American companies (Nikkei, $) than in Samsung and TSMC to keep intellectual property from “going back to Asia”. Good news for trade, less so for the planet. Large coal miners in Indonesia swung back to profit (Nikkei, $) in the first nine months of the year, with China, India and neighbouring south-east Asia as the main export destinations. Alan Beattie and Francesca Regalado More