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    IMF says U.S. should raise taxes, wait until late 2024 to cut rates

    The prescriptions came in the detailed staff report from the IMF’s annual “Article IV” review of U.S. economic policies released on Thursday. The Fund has been emphasizing in recent weeks the need for more fiscal prudence as U.S. deficits continue to grow despite robust economic growth and as Republicans and Democrats formulate tax and spending proposals ahead of November’s presidential election.IMF Chief Economist Pierre-Olivier Gourinchas told Reuters on Tuesday that the Fed could afford to wait longer to start easing monetary policy due to a strong labor market. But the staff report specifies that this shift should come in “late 2024,” to avoid more upside surprises in inflation data.”Given salient upside risks to inflation — brought into stark relief by data outturns earlier this year — it would be prudent to lower the policy rate only after there is clearer evidence in the data that inflation is sustainably returning to the FOMC’s 2 percent goal.” More

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    Instant View: ECB leaves rates unchanged, markets look to ECB’s Lagarde for clues

    The euro held steady at around $1.0931, little changed from levels seen just before the statement. Government bond yields across the euro area pulled back slightly , so did Europe’s broad STOXX 600 share index — last trading around 0.4% higher on the day. Focus now turns to ECB chief Christine Lagarde’s 1245 GMT news conference.COMMENTS:SAMUEL ADAMS, EUROPEAN ECONOMIST, UBS GLOBAL WEALTH MANAGEMENT, LONDON:”Today’s lack of action does not mean, however, that the easing cycle has come to a halt. With signs that the economic recovery is already underway, the ECB can afford to accumulate more evidence that disinflation remains on track before lowering policy rates further. “And while the recent inflation data is unlikely to have strengthened the Governing Council’s confidence much further, it remains consistent with a gradual easing of price pressures. This trend should allow the ECB to resume rate cuts in September and at a quarterly pace thereafter, in our view.”Current returns on cash, while attractive, will not be around for much longer. We favour reducing holdings of cash and cash-like investments in favour of those that can offer more durable returns, such as a portfolio of quality bonds.”KYLE CHAPMAN, FX MARKETS ANALYST, BALLINGER GROUP, LONDON:”The pause itself surprised no-one, of course, with markets having priced it at a near certainty. Data in the inter-meeting period had not supported the case for further cuts at this stage, with the renewed momentum in services inflation a good justification for caution.”This statement represents a dramatic shift from the heavy signalling prior to June, and the central theme now is non-commitment.” “The picture will be much clearer by September, where a new set of projections should arm policymakers with enough confidence in the outlook to cut again.”MARK WALL, CHIEF EUROPEAN ECONOMIST, DEUTSCHE BANK RESEARCH, LONDON:”The ECB remains on course for a second rate cut in September. Despite some recent inflation data being less friendly, the ECB has excused some as one-offs and others as absorbed in profit margins. The ECB is taking comfort from the trends and looking through the noise, consistent with being ‘data dependent, not data-point dependent’.”YAEL SELFIN, CHIEF ECONOMIST, KPMG, LONDON:”Today’s statement was largely unchanged from last month, with the ECB striking a cautious tone and opting to limit any forward guidance. This will give the Governing Council flexibility in line with their data dependent approach ahead of the September meeting, in contrast to last month, when the ECB largely pre-committed to a cut.”Limited data since the last meeting, alongside elevated short-term domestic inflationary pressures, made a pause today highly likely. Market pricing implied less than a 10% probability of a cut ahead of the meeting today. Nonetheless, the ECB will be wary of keeping rates in restrictive territory for too long, particularly with recent survey data signalling a slowdown in euro zone economic activity.”MARCHEL ALEXANDROVICH, ECONOMIST, SALTMARSH ECONOMICS, LONDON: “The ECB is being more cautions than expected. In April, it prepared the markets for a 25-bp cut at the June meeting. “However, there was no such explicit guidance for another move in September in today’s announcement.””Let’s see if Lagarde keeps the door open to a move for a rate cut in September during the press conference. But this is clearly on the hawkish side.”JAN VON GERICH, CHIEF MARKET STRATEGIST, NORDEA, HELSINKI:”They (ECB policymakers) have been vague about what will happen going forward.”Their base line is that there will be a cut in September and I think that’s what we’ll see if the data confirms the baseline they set out in June.”I wouldn’t expect any big signals at the press conference as we have a lot of data ahead of September.”ARNE PETIMEZAS, SENIOR ANALYST, AFS GROUP, AMSTERDAM”As expected, the ECB simply repeated its assessment for inflation and growth from the June meeting. Furthermore, they still don’t pre-commit to further rate cuts. However, as we’ve seen with the U.S. CPI release, the writing is on the wall. Inflation is in retreat, and disinflation will resume in the euro zone too. The Fed will cut in September, and I think the ECB will cut too. While during the presser Lagarde is unlikely to guide for a September cut, I think the undertones will. As such, a cut is likely that month.” More

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    India cenbank pegs natural rate higher, analysts caution on policy easing

    MUMBAI (Reuters) -India’s central bank said on Thursday that the economy’s natural rate of interest has increased since the pandemic and will rise further, driven by the growth of potential output, which analysts said could limit the scope to ease monetary policy.The natural rate of interest is associated with an economy operating at full capacity without generating inflationary pressures, and though not observable, it serves as a reference point for monetary policy, the Reserve Bank of India said in its monthly bulletin.It estimated the natural rate was 1.4-1.9% in the fourth quarter of 2023-24, higher than the 0.8-1.0% in the third quarter of 2021-22, the last time it made an estimate, the central bank said.”When the policy rate is set below the natural rate, the stance is regarded as accommodative, and the converse signifies a restrictive stance. The policy stance is neutral when the real policy rate is at the level of the natural rate,” the RBI said.Currently, with inflation at 5.1% and the central bank’s key lending rate set at 6.5%, the real rate stands at 1.4%. That could increase to 2% based on the RBI’s estimate of an average inflation rate of 4.5% for this fiscal year.As such, the RBI’s wide estimate for the fourth quarter fed into the narrative of both its hawkish and dovish monetary policy committee members, said Gaura Sen Gupta, chief economist at IDFC First Bank (NASDAQ:FRBA).”The lower range of the neutral rate indicates space to cut interest rates by 50 basis points in FY25, while the upper range indicates no space to cut rates. We maintain expectations of a shallow rate cut cycle starting from October/December,” she said.The RBI said the forces propelling rising investment demand will likely also drive the natural rate of interest and estimated the growth of potential output at 5.9% to 8.3%.On prices, the central bank said disinflation has been grudging and uneven, and that it was important to “stay the course” to ensure inflation drops to its target of 4% from around 5% currently.”The argument that food price shocks are transitory does not seem to be borne out by the actual experience over the past one year – too long a period for a shock to be termed as transitory!,” the RBI said.Still, inflation does not have to reach and stay at 4% for it to consider changing its monetary policy stance, but even an “enduring movement” to the target can be a signal for a pivot, the RBI said. More

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    China’s leaders warn of economic risks and call for stronger social controls

    Standard DigitalWeekend Print + Standard Digitalwasnow $85 per monthBilled Quarterly at $199. Complete digital access plus the FT newspaper delivered Monday-Saturday.What’s included Global news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print editionWeekday Print EditionFT WeekendFT Digital EditionGlobal news & analysisExpert opinionSpecial featuresExclusive FT analysisFT Digital EditionGlobal news & analysisExpert opinionSpecial featuresExclusive FT analysisGlobal news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts10 monthly gift articles to shareGlobal news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print editionEverything in PrintWeekday Print EditionFT WeekendFT Digital EditionGlobal news & analysisExpert opinionSpecial featuresExclusive FT analysisPlusEverything in Premium DigitalEverything in Standard DigitalGlobal news & analysisExpert opinionSpecial featuresFirstFT newsletterVideos & PodcastsFT App on Android & iOSFT Edit app10 gift articles per monthExclusive FT analysisPremium newslettersFT Digital Edition10 additional gift articles per monthMake and share highlightsFT WorkspaceMarkets data widgetSubscription ManagerWorkflow integrationsOccasional readers go freeVolume discountFT Weekend Print deliveryPlusEverything in Standard DigitalFT Weekend Print deliveryPlusEverything in Premium Digital More

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    ECB keeps interest rate at 3.75%

    Standard DigitalWeekend Print + Standard Digitalwasnow $85 per monthBilled Quarterly at $199. Complete digital access plus the FT newspaper delivered Monday-Saturday.What’s included Global news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print editionWeekday Print EditionFT WeekendFT Digital EditionGlobal news & analysisExpert opinionSpecial featuresExclusive FT analysisFT Digital EditionGlobal news & analysisExpert opinionSpecial featuresExclusive FT analysisGlobal news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts10 monthly gift articles to shareGlobal news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print editionEverything in PrintWeekday Print EditionFT WeekendFT Digital EditionGlobal news & analysisExpert opinionSpecial featuresExclusive FT analysisPlusEverything in Premium DigitalEverything in Standard DigitalGlobal news & analysisExpert opinionSpecial featuresFirstFT newsletterVideos & PodcastsFT App on Android & iOSFT Edit app10 gift articles per monthExclusive FT analysisPremium newslettersFT Digital Edition10 additional gift articles per monthMake and share highlightsFT WorkspaceMarkets data widgetSubscription ManagerWorkflow integrationsOccasional readers go freeVolume discountFT Weekend Print deliveryPlusEverything in Standard DigitalFT Weekend Print deliveryPlusEverything in Premium Digital More

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    Analysis-Dark days for Turks as Erdogan atones for economic errors

    ISTANBUL (Reuters) – Many Turks feel anxious and ashamed about their eroding living standards, paying the price for President Tayyip Erdogan’s past economic missteps even as there are signs that the country is beginning to exit its cost-of-living crisis. Six years of punishing inflation, combined with a sharp clampdown on credit over the last year, has given retirees and salaried workers a chilling brush with poverty, data shows, testing Turkey’s social fabric more than at any other time during Erdogan’s more than two decade rule. Turks say they are now slipping cash to retired parents and grandparents, in a reversal of Turkish custom, even as they themselves struggle to pay monthly bills and forgo modest luxuries such as restaurants. Erdogan has urged patience but 2024 is emerging as the most trying in a generation for Turks, whose economic fortunes have rapidly deteriorated since the first in a series of currency crashes in 2018. “I may still be walking, but I am not really living,” said Fettah Deniz, 73, whose monthly pension of 13,000 lira ($393) is three times below the designated poverty line of a person in his situation, so his children help him out.At holiday gatherings he has even avoided his grandchild because he had no extra cash to give – “the plight of many honourable and traditional people in our society,” said Deniz, who helps run a retirees association in Istanbul’s working class Bayrampasa neighbourhood. Another retiree, Mustafa Yalcin, 69, said he stayed overnight in a hospital during a trip to Gaziantep because he couldn’t afford a hotel and didn’t want to burden relatives there who would feel obliged to feed him. The government proposed a boost this month that should raise the average monthly pension to about 14,000 lira from 12,000.More than half of workers meanwhile live on or around the minimum wage of 17,002 lira, which is not expected to rise despite calls from the political opposition. That compares to an estimated poverty line that has shot up to 61,820 lira ($1,870) for a family of four in Ankara, Turk-Is, a top union, said in a report last month. Another union, DISK, found that last year’s average pension was one-sixth of those in central European countries. REINVENTING ERDOGANSuch hardship could erode support for Erdogan, pollsters say, especially after pensioners helped hand his conservative AK Party its worst ever loss in March local elections. As the economy slows further and employers trim jobs as expected in coming months, it could also test Erdogan’s patience with the turnaround programme that he launched last year when he picked Mehmet Simsek as finance minister. Since June 2023, the central bank’s new leadership has hiked interest rates from 8.5% to 50% – the highest in emerging markets – in order to cool inflation that topped 75% in May. It’s a shock reversal of the preceding five years in which Erdogan – describing himself as an “enemy” of interest rates – pushed an easy-money policy to boost economic growth despite soaring prices, and sacked five central bank governors. Largely as a result of this unorthodoxy, the lira shed more than 85% to the dollar since 2018, foreign investors mostly fled the country and FX reserves touched all-time lows before finally rebounding this year. Erdogan has repeatedly backed the new programme, while the central bank says rates will remain high. Analysts say inflation began what will be a sustained fall in June, while ratings agencies have upgraded Turkish assets and many foreign investors have returned. ‘TRAPPED’But on the streets, fallout is harsh. Silan, 28, has earned regular pay rises working in the private sector but says she still cannot live comfortably in Istanbul on only 50,000 lira a month and cannot afford to leave.”I feel trapped,” she said. “It’s not possible to live the life we think we deserve.” Renters and landlords often quarrel bitterly over prices given housing inflation nearly doubled over the last year, while house prices jumped nearly 50%, data shows. In Istanbul, restaurant prices are approaching those of London and Dubai. “Eating out and vacationing is entirely out of the question,” said Aynur, 58, who works at a financial firm.”You don’t want people to come over because you can’t afford to host them. My social life has ended.” A recent poll by Konda found half of respondents could “barely” make ends meet, while 30% fared worse still. Some 83% said Turkey was in an economic crisis.The rate hikes have left credit unaffordable for many, but have also left lira deposit rates attractive for those with assets. The annual rate has roughly doubled to more than 60% in a year, data shows.Gulseren, 64, said she sold a few properties in Izmir and invested in some high-interest accounts “to maintain” living standards. “But even this is not sustainable because our total savings are also diminishing against inflation,” she said. ($1 = 33.0689 liras) More

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    China reaffirms lofty policy goals, offers no implementation details

    BEIJING (Reuters) – Chinese leaders reiterated their wide-ranging economic policy goals on Thursday, from modernizing industry to expanding domestic demand and curbing debt and property sector risks, without detailing implementation steps. The pledges were published in the official news agency Xinhua’s account of a key meeting of the Communist Party’s Central Committee led by President Xi Jinping, known as a plenum, which takes place roughly every five years. The report said Beijing wanted to improve social security, healthcare and income distribution systems and introduce land, tax, and financial system reforms – promises that have been made in other official documents in the past decade.The sweeping list of old policy goals re-emerges at a time of financial hardship for an increasing number of people at home and as its trade partners in Europe, the United States and elsewhere are raising import barriers against Chinese goods.Low wage growth and job market uncertainty have depressed consumer sentiment to almost record low levels, while industrial overcapacity in many sectors has forced businesses into price wars, squeezing profits and fuelling fears of deflation.The world’s second-largest economy grew at a slower than expected pace in the second quarter, leaning hard on industrial output and external demand, while the crisis-hit property sector and household consumption continued to disappoint.”There is really little in the initial statement that leaves room for an optimistic interpretation,” said Max Zenglein, chief economist at Merics, a China studies institute.”Easing concerns of foreign business – or the middle class – were clearly not high on the list. I am to some extent a bit surprised that the initial statement doesn’t even really try to ease their concerns.”Xi was shown on state broadcaster CCTV walking into the meeting to applause from party members before taking his place at the centre of a long table to deliver a speech.INDUSTRIAL PUSHThe Xinhua release did not say what changes Beijing intends to implement, but said the “tasks” should be completed by 2029. A document with more detailed policy plans is expected to be published in coming days.Analysts said that the plenum outcome pointed to continuity, rather than any shifts in policymaking or the economic growth model China pursues. Global markets did not react to the release.”There is no clear signal of change in macro policies,” said Zhang Zhiwei, chief economist at Pinpoint Asset Management. China pledged to resolve the deepening imbalance between high investment and output levels and tepid demand more than a decade ago at a similar plenum. However, rather than directing resources towards consumers, it poured money into infrastructure and real estate, accumulating debt at an unsustainable pace.Thursday’s communique reiterated that China wanted to “actively expand domestic demand,” without giving details.It remains unclear how Beijing intends to boost consumer demand while favouring production-oriented policies.”There still appears to be a tension between policies aimed at boosting economic security and expanding the supply-side of the economy, and those aimed at giving market forces a greater role and rebalancing growth toward consumption,” said Julian Evans-Pritchard, head of China economics at Capital Economics.In fact, the communique re-emphasised China’s quest for “new productive forces”, a term coined by Xi last year that envisions scientific research and technological breakthroughs that could modernise manufacturing and kickstart a new era of high growth. “Supply-side policy will continue to prevail,” said Tommy Wu, senior economist at Commerzbank AG (OTC:CRZBY).The leadership also said China will “enhance the role of market mechanisms in the economy, create a fairer and more dynamic market environment and optimise the efficiency of resource allocation”. The previous wording in official documents was that markets would “play a decisive role” in the economy.”Restrictions on the market will be lifted, while effective regulation will be ensured to better maintain order in the market and remedy market failures,” the report said. More

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    ECB keeps rates on hold, leaves options open for Sept

    With the worst bout of inflation in a generation now largely behind it, the ECB began lowering rates last month and is expected to continue doing so in a gradual way through to the end of next year at least. But the euro zone’s central bank once more stressed that further easing would depend on incoming data and particularly on domestic inflation, where progress has been slow in recent months. “The incoming information broadly supports the Governing Council’s previous assessment of the medium-term inflation outlook,” the ECB said.Thursday’s decision leaves the rate that the ECB pays on bank deposits at 3.75%. Banks can continue to borrow at the central bank’s weekly and daily cash auctions for 4.25% and 4.50%, respectively.ECB President Christine Lagarde will be certain to face questions about the future path for rates at a news conference due to start at 1245 GMT.She is also likely to be asked whether France would qualify for ECB help in a scenario in which fiscal and political turmoil upsets its bondholders. More