Aurelia Butler

BRASILIA (Reuters) – Brazil’s central bank kicked off an interest rate-hiking cycle on Wednesday with a 25 basis-point increase, as expected, and signaled more increases ahead to tackle a challenging inflation outlook driven by stronger-than-expected economic activity.The bank’s rate-setting committee, known as Copom, voted unanimously to raise the benchmark Selic interest rate for the first time in over two years to 10.75%, in line with most forecasts.While the U.S. Federal Reserve initiated its highly anticipated easing cycle earlier in the day, Brazil’s central bank began moving in the other direction and left the door open to larger increases.”The pace of future adjustments of the interest rate and the total magnitude of the cycle that just started will be determined by the firm commitment of reaching the inflation target and will depend on the inflation dynamics,” Copom wrote in its policy statement.Policymakers said the balance of inflation risks is now tilted to the upside, flagging a stronger-than-expected labor market and robust growth.”The scenario, marked by resilient economic activity, labor market pressures, positive output gap, an increase in the inflation projections, and unanchored expectations, requires a more contractionary monetary policy,” they wrote.Gustavo Sung, chief economist at Suno Research, said he expected two more rate hikes of the same size in November and December, bringing the benchmark rate to 11.25% at year-end.The central bank had held its policy rate steady at 10.50% in June and July after a series of cuts since last year to bring it down from a six-year high of 13.75%. Expectations for a rate hike, the bank’s first since August 2022, firmed after second-quarter activity significantly exceeded forecasts, driven by a robust labor market and rising wages in Latin America’s largest economy.However, bets on tighter policy had been building since late July, when central bank minutes indicated that policymakers would not hesitate to raise borrowing costs if needed amid growing upside risks for inflation.Since then, the central bank’s communication has turned more hawkish, including prominent messaging from monetary policy director Gabriel Galipolo, who was confirmed as President Luiz Inacio Lula da Silva’s nominee to lead the central bank after Campos Neto’s term expires in December.Galipolo has shown discomfort with the bank’s inflation models showing consumer prices surpassing the annual 3% target and indicated a rate hike was on the table.Brazil’s 12-month inflation reached 4.24% in August.The central bank raised its baseline inflation forecasts to 4.3% for this year and 3.7% for 2025, up from 4.2% and 3.6% previously.For the first quarter of 2026, considered the relevant horizon for monetary policy, the projection was 3.5%, up from the previous 3.4%.In all three cases, estimates are above the 3% target, which has a tolerance margin of 1.5 percentage points on either side.(This story has been corrected to show that the last interest rate hike was in August 2022, not June 2022, in paragraph 6) More

(Reuters) – The Bank of England looks set to keep interest rates on hold on Thursday as it awaits signs that inflation risks are quashed, putting the focus instead on a decision about bond sales that could feed into Finance Minister Rachel Reeves’ first budget.British inflation held steady in August but sped up in the services sector, which is key for the BoE, showing why forecasters expect interest rates to fall more slowly than in the United States and the euro zone.The Federal Reserve went on Wednesday for an unusually large half-percentage-point reduction, a move that reflected “growing confidence” about the outlook for inflation, according to Chair Jerome Powell.The BoE’s Monetary Policy Committee is likely to strike a far more cautious tone on Thursday.All 65 economists in a Reuters poll published last week said it was likely to hold rates at 5.0%, after cutting them in August from a 16-year high of 5.25%.Financial markets pointed to a roughly 1-in-4 chance of a cut after Wednesday’s inflation data, compared with 1-in-3 the day before.News on price pressures has been mixed. Wage growth – another key metric for MPC members – cooled as they had expected last month and the economy stagnated in July.But the Decision Maker Panel – a business survey favoured by the MPC – showed a downward trend in wage growth expectations has halted. Furthermore, services inflation crept up in August, albeit in large part due to volatile air fares.Tim Graf, head of macro strategy at State Street (NYSE:STT) Global Markets, said the inflation data “solidifies the belief, largely priced by markets, that the Bank of England will stand pat at (the) policy meeting”.The consensus of economists polled by Reuters pointed to a 7-2 split in favour of holding rates. Last month, the MPC voted 5-4 to cut, but said some of the five saw the decision as finely balanced.QT CRUNCH TIMEBond investors are watching for Thursday’s annual decision on the pace of the BoE’s quantitative tightening programme – the sale of hundreds of billions of pounds of British government bond purchased under past attempts to stimulate the economy.In September 2023, the MPC voted to run down the BoE’s stock of gilts by 100 billion pounds ($130 billion) via active sales and bonds maturing, up from 80 billion in the previous 12 months. Some lawmakers have criticised the QT programme because it crystallises losses sustained by the BoE, which purchased gilts in past years at much higher prices than their current sale value. Those losses are paid for by already-stretched taxpayers.But the BoE could announce a QT acceleration on Thursday. Around 87 billion pounds of its gilts are due to mature over the next year, leaving just 13 billion pounds for active sales.Citi and JPMorgan expect the BoE to expand the programme to 120 billion pounds so it can keep up the volume of active gilt sales.Francis Diamond, head of UK, euro and global inflation strategy at JPMorgan, said in a research note that market reaction to such a move would be limited.Governor Andrew Bailey has said QT is needed to restore BoE firepower if it has to stimulate the economy with bond purchases again.Given its impact on the state’s budget, Finance Minister Reeves will be watching Thursday’s decision. When pressed by lawmakers, she said QT was an operational matter for the BoE.But many economists think Reeves will change the government’s fiscal rules to exclude the impact of the BoE’s QT programme. That could give her several billion pounds of extra fiscal space in her inaugural budget, due on Oct. 30, when she is under pressure to increase public spending.The New Economics Foundation think tank said maintaining the BoE’s bond sales at the current pace would cost taxpayers just under 24 billion pounds per year until 2028/29. It said 13.5 billion pounds could be saved annually by ceasing active sales. “The Bank of England should reflect on the value for money from such choices and the chancellor should reconcile the fact that her fiscal rules are imposing arbitrary constraints on her spending decisions,” said NEF economist Dominic Caddick.($1 = 0.7648 pounds) More

Hong Kong’s monetary policy moves in lock-step with the United States as the city’s currency is pegged to the greenback in a tight range of 7.75-7.85 per dollar.On Wednesday, the U.S. central bank kicked off an anticipated series of interest rate cuts with a larger-than-usual half-percentage-point reduction and policymakers see another 50 basis points of cuts in 2024. More

The City of London Corporation has repeated calls for a financial and professional services plan to convert interest in British assets into cash as Prime Minister Keir Starmer prepares to host his first international investment summit next month.Britain needs to provide a “streamlined and organised system” led by a public-private council chaired by the Chancellor, Britain’s finance minister, said Chris Hayward, Policy Chairman of the City of London, which administers Britain’s main financial centre.The City of London report said sovereign wealth and public pension funds had more than doubled their UK investments in the five years after opening an office in Britain, compared to the five years before.This has resulted in an additional 13.4 billion pounds of investment, involving 92 deals, into key areas such as innovative technology, infrastructure and renewable energy, it said.”The road to economic growth passes through the City, therefore there must be a plan to both prioritise and capitalise on the contribution of financial services to foreign investment,” Hayward said.($1 = 0.7572 pounds) More

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(Reuters) – A look at the day ahead in Asian markets.”Go big, and go bold,” was the advice to Fed Chair Jerome Powell and colleagues from some U.S. policy watchers and even former policymakers, and didn’t they do just that.The Federal Reserve’s half percentage point interest rate cut on Wednesday was a statement of intent that the Fed stands ready to protect the labor market and steer the economy away from anything approaching recession.Investors liked it, at first. The S&P 500, Dow and gold all leaped to fresh record highs, the Russell 200 small caps index rallied nearly 2%, and the dollar fell across the board. But stocks’ and gold’s gains melted away and the dollar bounced back from a 14-month low to close the U.S. session up on the day. What gives? Maybe the bond market reaction was most prescient. Treasury yields rose across the curve, more so at the longer end, perhaps on underlying worries over inflation and easier financial conditions, or because the Fed slightly revised up its long-run forecast for the fed funds rate. This sends mixed signals for Asian markets on Thursday. Who says central banks no longer retain the element of surprise? Bank Indonesia’s quarter-point rate cut on Wednesday was not on the cards – only three of the 33 economists polled by Reuters predicted the move, with the remaining 30 expecting the policy rate to be left at 6.25%.Perhaps surprisingly, the rupiah didn’t move much and stuck close to its strongest levels against the dollar in about a year. Now that the Fed has taken its first step on its easing path also, other central banks in Asia are likely to feel more comfortable loosening policy. But not Taiwan, not yet at least.Taiwan’s central bank is expected to keep its policy interest rate unchanged on Thursday, according to all 32 economists surveyed in a Reuters poll, and stay the course until late next year as it deals with lingering inflation concerns.The central bank left the benchmark discount rate at 2% as expected at its last quarterly meeting in June, having hiked it to that level from 1.875% at the prior meeting in March.Investors in Asia also have New Zealand GDP, unemployment figures from Australia and Hong Kong, and trade data from Malaysia on their plate on Thursday. Traders may also be adjusting positions ahead of Japanese inflation figures and rate decisions on Friday from the Bank of Japan and People’s Bank of China. The dark cloud of deflation hangs heavily over China, especially the property sector. Previous housing market crashes around the world suggest it could take China a decade to recover from the bubble currently bursting. And that’s if prices even get back to their pre-bubble peaks. Here are key developments that could provide more direction to Asian markets on Thursday:- Taiwan interest rate decision – New Zealand GDP (Q2) – Australia unemployment (August) More