Economy

Galipolo said foreign exchange rates and oil prices have trended well recently but flagged caution is still needed as the international scenario remains unclear. Brazil has been cutting rates at a pace of 50 basis points per meeting since August. More

BRASILIA (Reuters) – Brazil’s central bank chief Roberto Campos Neto said on Tuesday that policymakers believe there is still a significant interest rate differential in Brazil compared to advanced economies, which does not greatly limit their room for maneuver. Speaking at an event hosted by Bradesco Asset Management, he cautioned that the liquidity environment will dry up, which is why the country needs to do its “homework” and have its fiscal situation in order. More

“When activity continues to run this hot, that makes me question if policy is as tight as we assume it currently is,” Kashkari said in an interview with Bloomberg Television. “So if you saw inflation tick back up and you saw continued very strong economic activity in the real side of the economy that would tell me we might need to do more.”He added he does not currently see a lot of evidence the economy is weakening.The U.S. central bank last week held its benchmark interest rate steady at between 5.25% and 5.50% but signaled it remained open minded on the need to raise borrowing costs further to bring inflation back down to the target rate.Kashkari’s comments echo those he gave on Monday in which he said the Fed had more to do to tame price pressures. More

The research found that 88% of leaders agree that globalization is succeeding across five pillars: trade, capital, technology, talent, and sustainability. Nearly all respondents (95%) supported free capital flow and 86% believed that global trade positively impacts sustainable development. The leaders advocated for the role of trade in driving economic growth and resilience in supply chains and called for a collaborative approach to international trade agreements and complementary domestic policies.Technology emerged as a significant theme with 75% of leaders stating that the free global data flow has positive outcomes. They also called for a safe digital future of finance. Chinese business leaders expressed optimism about the role of digital assets in solving challenges around moving money.On the topic of talent mobility, 74% agreed it’s beneficial for businesses to hire talent from anywhere globally. UK business leaders were most likely to say that globalized services have created significant opportunities where they reside.The survey also revealed that 70% of respondents approve of global governance mechanisms for sustainability, but only 56% agreed on the need for global efforts to tackle climate change. Reflecting on these figures, Bill Winters, Group Chief Executive of Standard Chartered, emphasized the need for a reset to make globalization fairer, more inclusive, and more sustainable. He stressed the need for resilient and inclusive trade, greater capital flows to bridge funding gaps in growing markets, technological progress benefits for more people, and a just transition to achieve collective sustainability goals.The study aims to identify catalysts to foster a more inclusive, transparent globalization model favoring smaller businesses and emerging markets. Despite skepticism due to current global issues, a majority of leaders affirm the success of globalization and express optimism for its future.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

NAIROBI (Reuters) -The International Monetary Fund has agreed to increase Kenya’s lending programme by $650 million, the Kenyan president’s chief economic adviser said on Tuesday. Sovereign debt investors are paying close attention to the East African nation due to a $2 billion Eurobond that is maturing next June, amid persistent weakness in its foreign exchange rate that is weighing on Kenya’s hard currency reserves. “As of now the 2024 Eurobond is fully funded. The refinancing is fully funded,” David Ndii, the adviser, told an economic forum hosted by a local commercial bank.”It (IMF) can augment our programme as of now up to $650 million, that they have agreed to do,” Ndii said.The government plans to buy back up to a quarter of the bond this year, the governor of the central bank Kamau Thugge told Reuters last month, to be financed by new borrowing.An IMF team arrived in Nairobi last week to conduct the sixth review of a lending programme approved in 2021. The fund has not yet commented on the outcome of the mission, which is yet to be completed.However, the weakening of the shilling is likely to maintain pressure on government finances, said ratings agency Fitch in a statement issued on Tuesday.”There remains a significant risk of further fiscal slippage, particularly if the exchange rate weakens further,” Fitch said. The Washington-based Fund has been criticised by some Kenyans on social media for supporting government policies they blame for a worsening cost of living crisis.Such policies include an increase in direct and indirect individual taxes from July.Ndii defended the role of the IMF in the management of the economy.”Without the IMF programme we would probably default,” he said, adding that they also have the option of accessing the IMF’s exceptional access window, which is used by nations in acute need of balance of payments support. Kenya’s international bonds traded flat to a touch lower, as markets awaited confirmation of Ndii’s remarks about the increase in IMF funding. “It is definitely a positive sign. If it is followed quickly by an IMF statement, it will be more reassuring,” said a senior trader at a Nairobi commercial bank. More

The NDB has sanctioned $7.5 billion for India, disbursing $4.2 billion thus far. This includes a $2-billion loan for emergency response to Covid-19. In addition, NDB’s Vice-President and Chief Risk Officer, Anil Kishora, revealed upcoming approvals for rural road projects in Bihar and Gujarat. These new projects will supplement the previously approved initiatives such as Metro and RRTS (OTC:RRTS) projects in Mumbai, Indore, and Chennai, water sector initiatives in Rajasthan and Manipur, ecotourism in Meghalaya, and rural roads in Madhya Pradesh and Bihar.The IEO report showed that NDB’s near $10 billion Covid-19 emergency loans have benefited 400 million people across its founding nations. The India-focused Covid-19 response alone generated 5.4 billion person-days of employment and ensured WHO-standard training for all district hospital doctors and nurses.On another note, the NDB plans to issue rupee denominated bonds by 2024 with the intention of mobilizing 30% of its resources in local currency. This move aims to mitigate forex risk and simplify financing procedures. The bank has previously utilized South African rand for fundraising.In 2021, the NDB expanded its membership to include Bangladesh, Egypt, UAE, and Uruguay.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

Despite the optimistic outlook, the IMF also identified potential risks within China’s financial and property sectors. Gita Gopinath of the IMF expressed concerns about the struggling housing sector, which has been characterized by falling prices, declining sales, and loan defaults by major developers. A second downturn in this sector could hinder the country’s economic recovery.To facilitate recovery, the IMF suggested that insolvent developers should exit the industry. It also questioned the adequacy of financial reserves within China’s banking system in light of the ongoing housing deflation. In response to these concerns, Zhang Qingsong from China’s central bank acknowledged these issues and advocated for new growth strategies, including increased lending for factory construction and other industrial investments.In addition to domestic issues, a report by the AidData institute at William and Mary brought attention to China’s substantial rescue loans to developing countries that are indebted due to infrastructure projects. Despite criticism, Wang Wenbin, a spokesman for China’s Ministry of Foreign Affairs, defended these overseas lending practices.Meanwhile, China reported a 6.6% drop in exports last month attributed to Renminbi depreciation. This occurred alongside an increase in imports, despite a global decrease in interest for manufactured goods. These developments underscore the complex challenges facing China as it navigates its economic future amidst both domestic and international pressures.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

This article is an on-site version of our Chris Giles on Central Banks newsletter. Sign up here to get the newsletter sent straight to your inbox every TuesdayCentral banks have had one consistent message over the past two weeks — “we are not close to cutting interest rates”. Financial markets were listening, of course, but they heard something different. They picked up the message, “we’re done with raising rates”. This week I am going to look at three difficult aspects of communication arising from the recent policy meetings. I’d love to hear what you think central bankers should say to get their message across better. Email me at [email protected] you write that email, get your diaries out for the latest instalment of the FT’s (free to view) Global Boardroom virtual conference. Among many highlights, your central bank fixes will come from the European Central Bank’s Christine Lagarde on Friday November 10 at 12.30 GMT and the Bank of Japan’s Kazuo Ueda on Thursday November 9 at 08.35 GMT. I’ll be chatting with FT colleagues about UK prospects tomorrow at 10.00 GMT. Register here. We’re not going to cut rates . . . (honestly we’re not)Leaving the Bank of Japan to one side, central bankers had one message they sought to land at their most recent meetings. Tiff Macklem, Bank of Canada’s governor, started the ball rolling in late October, saying the central bank needed to “stay the course” with high interest rates. The top officials of the other central banks had their own ways of saying the same thing. At the ECB, Lagarde insisted that “even having a discussion on a cut is totally premature” before Jay Powell pronounced that, as far as the Federal Reserve was concerned, “the Committee is not thinking about rate cuts now at all”. Bringing up the rear at the Bank of England, Andrew Bailey chose, “it’s much too early to be thinking about rate cuts” as his phrase of choice. In the US and eurozone, central bankers’ words did not appear to convince financial markets. The implied market probability of a US rate cut as soon as May 2024 rose from 29 per cent on Tuesday evening before Powell spoke to 41 per cent after his news conference a day later. In Europe, Lagarde’s words also appeared to raise expectations of a cut within six months, with the expected future interest rate next May falling 0.1 percentage points in the week after she said discussions were totally premature. Now, of course, what I don’t know what these market interest rate expectations would have been if the central bankers had said that they had talked about cutting rates but had rejected the idea for now. What is clear, however, is that the “we won’t be cutting” words do not seem to carry much weight at the moment. As I see it, the problem is that coming out so strongly against the possibility of rate cuts is frankly a bit odd from the same central bankers who have talked a lot about responding to the data and avoiding making commitments they subsequently feel obliged to fulfil. It was Lagarde who told the FT over lunch last month that what she regretted most about her time at the ECB was having “felt bound by our forward guidance”, which prevented the bank from raising interest rates quickly. Similarly, Powell would have preferred not to have called inflation “transitory” in 2021 and retired the words because they made the Fed slow in responding to price rises. Here is a pretty safe prediction you can hold me to and I am sure you will. If inflation comes down rapidly (as expected) in the months ahead and economic activity slows rapidly, the large central banks will soon face huge pressure to cut rates. “You were slow to raise, and you’re again asleep at the wheel,” people will say. Communication is not going to get any easier from here for central banks wedded to “higher for longer” if inflation falls fast. This might happen sooner than you think. Look at the seasonally adjusted three-month annualised inflation rate for the eurozone below. The core measure is already down to 2.3 per cent. You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.False balanceThe Fed statement on November 1 was almost identical to the previous one in September. The Federal Open Market Committee noted this month that the economy had been expanding at a “strong pace”, while in September, it had thought the pace of growth was only “solid”. This upgrade in the assessment of economic strength would normally be an indication from the Fed that it needed to do more to quell inflationary pressure because its interest rate rises had not slowed economic activity sufficiently. But this month things were different. The statement on growth was balanced by adding the word “financial” to the following sentence from the September statement. “Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring and inflation.”The November FOMC statement read:“Tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring and inflation.” Chair Powell explained in his news conference that tighter financial conditions “would need to be persistent” for the balance to work “and that remains to be seen”. As so often, financial markets were not helpful and they promptly removed much of the tighter financial conditions in the aftermath of the Fed’s meeting. The 10-year US Treasury yield plummeted from more than 4.9 per cent before the Fed meeting to under 4.6 per cent at the end of the week, which made the Fed’s statement obsolete within a few hours of the central bank issuing it.Luckily for the Fed, non-farm payrolls came in much weaker on Friday than expected too, undermining the “strong pace” description of the US economy and restoring the balance. The episode shows how risky it is to communicate what was probably a “wait and see” interest rate decision by reference to one financial market price and some volatile economic data. Weird forecasting decisionsJust as you probably are better off not knowing what goes on inside a sausage factory, it is often best not to look too closely at central bank forecasts, but I can’t resist bringing to you something really weird from the BoE.There has been a massive 2 per cent upward revision in real UK GDP levels and this meant the BoE boffins in Threadneedle Street had to think again about the relationship between growth and inflation in the UK. It described its thinking in Box C of its latest monetary policy report. Perfectly reasonably, officials decided that the upward revisions were in the past and inflation data stayed the same, so this meant that they judged the UK economy had been able to grow faster without stoking inflation. It said:“The MPC has judged it appropriate to revise up potential supply in line with the revisions to measured GDP, such that the balance between them over the past is unchanged.”So far, so normal. Then things took a strange turn. You might think that if the BoE had learnt that the UK economy was able to grow faster than it previously thought without generating more inflation, the same would apply today. But you and I would be wrong. Instead, the BoE revised down its estimate of potential supply growth consistent with stable inflation for the year ahead. As far as the BoE is concerned, the trends in the past have inverse implications for the future, which is . . . an innovation in forecasting methodology. This isn’t a mean reversion thing, just two bits of the forecast not talking to each other (the BoE promises to look at it properly in February). Let me know of other forecasting oddities you’ve spotted from the central banking world. What I’ve been reading and watchingYou must read Soumaya Keynes trying and failing to find anything good in published estimates of r* — the real interest rate that neither buoys nor depresses demand. But it’s OK, people, because Jean Boivin, head of the BlackRock Investment Institute, says the nominal equivalent (R*) is 5.5 per cent. Thanks Jean, that’s settled a long-running debate.Martin Wolf attempts to answer the big question about how the war in the Middle East will affect the global economy. Most likely it will be “insignificant”, but if the conflict is not contained, it would be “far more serious”, he writes in what is about the best assessment possible at the moment. Claudia Sahm, formerly of the Fed, very sensibly requests that people take the eponymous “Sahm rule” dating when the US is in recession seriously, but not literally in this series of posts on X, formerly Twitter.If you are at all interested in the UK and the BoE and weren’t at the second BoE watchers’ conference last Friday, watch it.A chart that mattersIf you want beauty and huge uncrowded sandy beaches, go to Lithuania’s Curonian Spit. I was there in the summer. But the Baltic nation’s wonders do not extend to its banks. The latest ECB data for September shows the country to have the largest gap between lending rates and deposit rates. Given the national divergences shown in the chart, European banking competition and regulation are not working well. You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Recommended newsletters for you Free lunch — Your guide to the global economic policy debate. Sign up hereUnhedged — Robert Armstrong dissects the most important market trends and discusses how Wall Street’s best minds respond to them. Sign up here More