Aurelia Butler

The bill, submitted to parliament on Friday, also requires companies and individuals to make additional contributions to the fund via their tax statements and it envisages additional fees for Turks buying and selling real estate and vehicles.But the changes concerning credit cards – which envisage an annual contribution fee of 750 Turkish lira ($22) for cards with limits set above 100,000 lira – have prompted particularly strong criticism from consumers and economists.Three bankers who spoke to Reuters said that measure could reduce the number of credit cards in use in Turkey.”We are observing an increase in requests for lowering credit card limits. Banks have started to discuss and plan for the impact of the regulation draft. They will see what they can do to limit the impact,” said one of the bankers, who spoke on condition of anonymity.Some users on social media argued that such a fee is unfair because the credit card limit a bank assigns to a customer does not mean that amount of money will be spent.Economist Mahfi Egilmez said on his X account that the thinking behind the proposals was muddled.”Tax cannot be collected from credit card limits or loans. A loan is a debt. Tax is something collected from the creditor, not the debtor,” he wrote. “As we move away from science, we are entering into a terrible confusion of concepts.”There are some 126 million credit cards in use in Turkey, a country of about 85 million people, and some 1.25 trillion lira ($36.48 billion) transactions were made in August, according to Interbank Card Center (BKM) data.Turks have increasingly relied on credit cards for purchases to survive through years of high inflation that eroded household income and savings, with less access to loans.Due to high borrowing costs with loans extended to consumers at around an annual 70%, consumers are more inclined to purchase items in installments, a common feature of credit cards in Turkey.($1 = 34.2644 liras) More

BENGALURU (Reuters) – Bank Indonesia (BI) will leave interest rates unchanged on Wednesday despite inflation falling to its lowest level since 2021, as receding expectations of aggressive U.S. Federal Reserve easing weaken the rupiah, a Reuters poll found.Inflation eased to a multi-year low of 1.84% in September and has been within BI’s target of 1.5% to 3.5% throughout 2024, suggesting the central bank could further lower rates before year-end.Despite BI’s intervention to stabilise the rupiah last week, the currency has fallen more than 3% from a September peak following a strong U.S. employment report.That suggests the Asian central bank is unlikely to implement back-to-back rate cuts having surprised markets with its first easing in more than three years in September.Marking a shift in expectations, over 75% of economists, 24 of 31, in an Oct. 7-14 Reuters poll predicted the central bank would keep its benchmark seven-day reverse repurchase rate at 6.00% on Oct. 16.In the previous poll, taken after the central bank’s cut last month, more than 50% of respondents anticipated another reduction this week.BI was also forecast to keep the overnight deposit facility and lending facility rates unchanged at 5.25% and 6.75%, respectively.”Recent market developments have shifted the odds in favour of BI keeping its policy rate unchanged … Stronger-than-anticipated U.S. labour market data triggered a market repricing of U.S. rate expectations and renewed pressure on the rupiah,” ANZ said in a note to clients, adding that longer-term they continued to see 5.00-5.25% as a reasonable range for the terminal policy rate.”BI has an easing bias, and further rate cuts are just a matter of time. Should global risk sentiment rebound in the days leading up to BI’s October meeting, a 25 bp rate cut is certainly possible.”Among those who predicted BI will hold rates this week, a majority, 12 of 20, were expecting a half-point cut by year-end. Median projections showed rates were expected to fall to 5.00% by end-June – consistent with the previous poll – while the Fed was seen cutting rates by 150 basis points by the end of 2025. “We anticipate that BI will only proceed with a rate cut when signals from the Fed on a rate cut … become more definitive,” said Josua Pardede, chief economist at Bank Permata.Inflation was expected to average 2.5% this year and 2.6% next year while economic growth was seen steady at 5.0% in 2024 and 5.1% in both 2025 and 2026. The growth forecasts were broadly unchanged from a July survey but the inflation outlook was lowered.(Other stories from the October Reuters global economic poll) More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.It’s now almost exactly a quarter-century since the economists Barry Eichengreen and Ricardo Hausmann first argued that the “original sin” of the developing world was borrowing in overseas currencies like the dollar.For centuries, this led to periodic financial crises. But countries like China, India, Brazil, Mexico and smattering of other smaller developing countries such as Chile and Poland have worked hard to develop their own local bond markets over the past two decades. This is arguably one of the under-appreciated developmental success stories of the past generation. As Goldman Sachs highlights in a new report on “lessons from two decades of EM fixed income investing”, EM local bonds are now a $7tn asset class, vastly outstripping the ca $1.2tn EM dollar bond universe.(zoomable version)Of course, progress is not uniform. Many smaller emerging markets remain dependent on overseas borrowing, and probably always will, as they lack the scale to build healthy local debt markets. And as we’ve noted before, the growing international involvement in local bond markets comes with downsides The currency mismatch risk has simply migrated from borrowers to lenders. That’s better, but it doesn’t eliminate the dangers of financial crises.But after weathering a lot of major shocks over the past two decades, what was once a risky asset class has now grown up. Goldman Sachs notes that while local-currency EM bonds have had a cruddy decade, they actually did no worse than developed market bonds when the Fed started jacking up interest rates, and have now recovered more of the lost ground. Likewise with dollar EM bonds. (zoomable version)Goldman has made the report public for us, so you can read the whole thing here. But here are its main points:What have we learnt from two decades of performance? A more mature asset class, with less outperformance but more resilience. Growing up is not all it’s made out to be. After a blistering start in the 2000s, returns across EM fixed income have been more modest over the past decade. But while that outperformance has faded, EM fixed income has demonstrated an impressive resilience in the face of several large shocks, including the Global Financial Crisis, the Covid pandemic and the subsequent inflation surge.In what macro/markets environment does EM fixed income flourish? Differentiated risk betas with a high yield. EM debt offers a high yield — indeed, a higher yield than for many other sovereign fixed-income assets — but uniquely embeds positive cyclical exposure. At the same time, EM fixed income tends to benefit more from global rate relief than other cyclical fixed-income assets. So the best periods often tend to be a combination where rates are stable or easing and growth prospects are being re-rated higher.What role can EM fixed income play in broader portfolios? Hard currency EM, in particular, allows for higher returns primarily for somewhat higher volatility/risk tolerance portfolios. For local currency EM, however, the more differentiated risk exposure compared with other non-US Dollar fixed income portfolios implies that there are benefits of holding GBI-EM even in portfolios that target lower volatility outcomes.To hedge or not to hedge? Mind the currency risk. For EM local debt investors, management of FX risk has been a key consideration, especially through long persistent periods of Dollar strength. Hedging Dollar risk has been important to total returns in EM and DM. But for EMs, hedging currency exposure completely comes at the cost of giving up cyclical upside. More

SINGAPORE (Reuters) -Singapore’s central bank on Monday left its monetary settings unchanged, as expected, as data showed the economy perked up in the third quarter though analysts are betting on a loosening in policy early next year to guard against external risks.The Monetary Authority of Singapore (MAS) said it will maintain the prevailing rate of appreciation of its exchange rate-based policy band known as the Nominal Effective Exchange Rate, or S$NEER.The width and the level at which the band is centred would also be maintained, the MAS said. “The risks to Singapore’s inflation outlook are more balanced compared to three months ago,” MAS said in a statement, adding that growth momentum has picked up.Separately, advance trade ministry data earlier showed gross domestic product (GDP) grew 4.1% year-on-year in the third quarter underpinned by a boost in manufacturing, accelerating from 2.9% in the second quarter, and policymakers expressed optimism about the 2025 outlook. “The growth outlook is more sanguine,” said OCBC economist Selena Ling, but added that geopolitics and trade conflicts are concerns for the city state and that MAS has an opportunity to loosen policy at its next review in January.Capital Economics markets economist Shivaan Tandon concurred, saying “the risk of keeping monetary policy too tight for too long will take centre stage soon prompting the central bank to pivot”.MAS said it expects the economy to grow at the upper end of the trade ministry’s adjusted GDP growth forecast range of 2.0% to 3.0% for 2024, but cautioned that external risks posed “significant” uncertainty for next year. “A sharp escalation in geopolitical and trade conflicts could exert sizeable drags on global and domestic investment and trade,” the central bank said. Singapore is often seen as a bellwether for global growth as its international trade dwarfs its domestic economy.MAS expects core inflation to decline further to around 2% by the end of 2024.Core inflation has tapered from a peak of 5.5% in early 2023, and hit a 2-1/2 year low of 2.5% in July before edging up to an annual 2.7% in August.As a heavily trade-reliant economy, Singapore uses a unique method of managing monetary policy, tweaking the exchange rate of its dollar against a basket of currencies instead of domestic interest rates like most other countries. It adjusts policy via three levers: the slope, mid-point and width of the policy band.The MAS tightened policy five times between October 2021 and October 2022, including in two off-cycle moves, to tame inflation during the pandemic and amid global geopolitical instability. Since then, it has held steady as concerns over economic growth trumped inflation.Capital Economics’ Tandon expects the manufacturing-led uptick in economic growth to fade amid slowing global demand, prompting the MAS to respond. “With policy very tight by historical standards, the economy set to weaken and the MAS now appearing less concerned about inflation, we expect the central bank to loosen policy in January.” More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is former vice-chair of the Federal Reserve and global economic adviser at PimcoWith the first Federal Reserve rate cut now behind us, the conversation has shifted from “when” the central bank will start cutting rates to “where” rates are heading. This transition is not just a matter of semantics. The level at which interest rates eventually settle matters to the entire economy. However, the discussion often too narrowly focuses on the neutral real Fed policy rate, known as R-star. This is the interest rate that neither stimulates nor restrains economic growth. Think of it as the Goldilocks zone for interest rates — not too hot, not too cold — just perfect to maintain price stability and maximum employment once the economy has arrived there. While R-star is crucial for understanding how monetary policy will evolve in the coming years, estimates of it are imprecise. It is unobserved, varies over time and is driven by a myriad of forces both domestic and global.Let’s take a look at what happened in 2018, when inflation was on target at 2 per cent and the economy was humming along at full employment. That year, the Fed raised the federal funds policy rate to 2.5 per cent. This translated to a real rate of 0.5 per cent, marking what many considered a “new neutral” for monetary policy. In contrast, before the global financial crisis, the real policy rate averaged around 2 per cent, with the nominal funds rate hovering near 4 per cent. Fast forward to today and the Fed’s dot plot, a visual representation of policymakers’ interest rate projections, suggests a target for the funds rate of about 3 per cent once inflation stabilises at 2 per cent and the labour market is fully employed.Some content could not load. Check your internet connection or browser settings.I concur with the view that the neutral policy rate will have likely increased from its pre-pandemic 0.5 per cent, but I think this increase will be modest. Others argue that neutral real rates may need to be significantly higher than the approximately 1 per cent projected by the Fed and currently reflected in financial markets. They cite a reversal of the factors that kept interest rates low before the pandemic and a concerning fiscal outlook for the US with rising deficits and debt. The US could also be on the brink of an AI-driven productivity boom, which might increase the demand for loans from US companies.But which real neutral rates? There is, of course, an entire yield curve along which the Treasury and private sector borrowers issue, and historically that yield curve has a positive slope — rates increase over time to compensate investors for the risk of holding the debt longer. This is the so-called term premium.Inversions — such as we’ve seen in the US curve until recently — are rare and are not the new normal. The US yield curve, relative to the “front end” rate set by the Fed, will adjust in the years ahead by steepening relative to the pre-pandemic experience to bring the demand for US fixed income into balance with the gusher of supply. This is because bond investors will need to earn a higher term premium to absorb the debt offerings that will continue to flood the market. As with R-star itself, the term premium is unobserved and must be inferred from noisy macro and market data. There are two ways to do this. The first is to use surveys of market participants to estimate the expected average federal funds fed policy rate over the next 10 years and to compare that estimate with the observed yield on a 10-year Treasury. In the most recent survey available, the implied term premium using this approach is estimated to be 0.85 percentage points.The second way to estimate the term premium is to use a statistical model of the yield curve, and this method delivers a current estimate of about zero. I myself prefer the approach that relies on surveys of market participants, and the belief that the term premium at present is positive and will probably increase from here.  Given the vast and growing supply of bonds markets must absorb in coming years, rates will probably be higher than they were in the years before the pandemic. But I believe most of the required adjustment will occur through the slope of the yield curve and not so much from a much higher destination for the fed funds rate itself.If the view is correct, it augurs well for fixed income investors. They will be rewarded for bearing interest rate risk in good times and will also benefit from the hedging value of bonds in their portfolio when the economy weakens. Rates will then have more room to fall and thus for bond prices to rise.     More