Economy

South Africa’s central bank has ended a long run of monetary policy hikes, keeping its benchmark rate at 8.25 per cent after inflation in Africa’s most industrialised economy returned to its target range.The South African Reserve Bank said on Thursday that it was pausing rate increases, after a cumulative 4.75 percentage points since 2021 made it one of the earliest central banks in emerging markets to tighten policy over the global surge in inflation of the past two years.South African inflation slowed to 5.4 per cent in June, according to official statistics, falling below the upper end of a bank target of 3-6 per cent for the first time since April 2022. Excluding food and non-alcoholic beverages, the measure fell below 4.5 per cent.Overall price rises are “forecast to sustainably revert to the midpoint of the target range by the third quarter of 2025,” the bank said. “Serious upside risks to the inflation outlook remain,” it added.“The job is not done,” said Lesetja Kganyago, central bank governor. “We’re ready to deploy our tools to tackle this monster that’s eating the income of South Africans. We believe we’ve turned the corner [but] there are still risks on the horizon.” Policymakers are at the same time facing further signs of weakness in South Africa’s stagnant economy, which is battling intense rolling blackouts imposed by the broken Eskom state power monopoly. Indicators from retail sales to mining data have deteriorated in recent weeks.The central bank slightly raised its forecast for growth to 0.4 per cent this year, but warned that “energy and logistical constraints remain binding on the growth outlook, limiting economic activity and increasing costs.” The bank expects 280 days of rolling blackouts in 2023.Several developing economies have experienced signs of disinflation over recent months as global goods prices have calmed. Yet many of their central banks are under pressure to remain hawkish, particularly as long as the US Federal Reserve is signalling a tightening of interest rates, which influence demand for investing in emerging markets.While three members of the bank’s monetary policy committee voted for the pause, two advocated for a further increase of 0.25 percentage points. “The split vote suggests that inflation concerns continue to linger and it’s likely to take some time before a majority on the MPC are in favour of rate cuts,” said Jason Tuvey, deputy chief emerging markets economist at Capital Economics.Mamello Matikinca-Ngwenya, chief economist at South African bank FNB, said: “To insulate their ability to reach the 4.5 per cent inflation target in the medium term, the hiking cycle may be resumed. Most likely, interest rates will remain higher for longer.” More

The UK’s largest asset manager has been buying bonds and selling equities in preparation for a “significant” economic downturn, warning that the Bank of England will be forced to tip the economy into a recession despite signs of cooling inflation.Sonja Laud, chief investment officer at Legal & General Investment Management, which manages £1.3tn of assets, said this week’s slowdown in inflation was not a sign that the UK would be able to dodge a recession, while the labour market remained tight and the impact of higher borrowing costs had yet to feed through.“It’s a big relief that inflation in the UK is lower than expected but if you look at the actual number it’s still very high and we should not forget this,” she said in an interview with the Financial Times. “We have no doubt that interest rate rises will slow down the economy because, otherwise, inflation will not come down sufficiently for central banks to take their foot off the pedal.”The UK’s annual inflation rate sank to a 15-month low of 7.9 per cent last month, data released on Wednesday showed, sparking relief in markets after a four-month run of unexpectedly high price rises. Still, the BoE remains far behind its international counterparts in its efforts to bring inflation down to its 2 per cent target. US consumer prices climbed at an annual rate of 3 per cent in June, according to figures earlier this month, while eurozone inflation is running at 5.5 per cent.Laud said she was positioning for a UK recession as part of a broader global downturn, including in the US, where the sharp fall in inflation has prompted widespread predictions of a “soft landing” for the economy. However, she said the UK housing market, where increases in BoE rates feed swiftly through to mortgage borrowers, was particularly vulnerable to higher interest rates. While UK government debt and stocks both tend to suffer in a rising rate environment, Laud expects fixed income to benefit from a renewed appetite for safety.“Whenever inflationary worries are dominating the narrative you have a positive bond equity correlation, but when growth dominates you have a negative one,” she said. “In a recession our expectation is that bonds will work as they always have.”

Sonja Laud said political uncertainty in the UK had deterred foreign investors from investing in the country © Bloomberg

Given the dramatic repricing of UK debt in recent months, Laud said she “likes gilts” and the firm had been buying recently, but warned that their appeal was more limited for investors who were not based in the UK.“The attractiveness of gilts depends on whether you have to hedge the currency or not,” she said. “If you are not in the UK and you have to consider the currency it might not be that interesting.”While gilts have led a bond market rally this week, sterling has fallen 1.7 per cent against the dollar from its peak on Tuesday.Laud’s comments echo a wider trend of domestic investors turning to gilts to scoop up higher yields, while big international investors have been more cautious, fearing the country’s outsize inflation problem and uncertain policy outlook. Figures from BNY Mellon, custodian to about a fifth of the world’s financial assets, show net inflows of £13.4bn for 10-year UK bonds this year, the majority of which are gilts, while cross-border trades have seen net outflows of £6bn.

Laud said political uncertainty in the UK had deterred foreign investors from investing in the country, with questions around how post-Brexit relationships will affect trade flows prompting some investors to wait for more clarity.LGIM is the UK’s largest defined contribution pension provider, and is preparing to implement chancellor Jeremy Hunt’s initiative to invest 5 per cent of such pension funds into unlisted equities by 2030. While Laud said this move would be “helpful” in attempts to revive the ailing UK stock market, she would “like to see an approach that covers all the other aspects as well”.“We can definitely do more to provide the financing initially, but we need to make sure we provide the right environment for these companies to stay, to grow, to have the right labour markets, the right support tech structures — the whole framework matters before a company decides where to list,” she said. More

The writer is executive director of American CompassRonald Reagan and Margaret Thatcher’s agenda of tax cuts, deregulation, trade expansion and union busting emerged more than 40 years ago as a remedy for the economic struggles of the 1970s. But with success came elevation to dogma, as a generation of conservatives believed that “economic freedom” was all that capitalism required.Such blind faith inevitably fostered policy failures. Unnecessary tax cuts fuelled deficits rather than growth. Lax regulation invited a global financial crisis that led to a great recession. Free trade with China yielded massive imbalances and deindustrialisation. With worker power gutted, wages stagnated. Now this stale orthodoxy, unresponsive to the challenges of a new era, has begun fading into obscurity.The problem is not with this trajectory — there’s no shame in the intellectual exhaustion of a successful ideological project — but with the frustration for those left behind. A movement premised on the belief that victims of a changing economy could simply shift into new industries and jobs now faces that challenge itself.A statement of principles released last week by a veritable who’s who of the “old right” personifies the plight. The group includes leaders from business-aligned institutions like the American and Competitive Enterprise Institutes, editors from National Review, anti-tax crusader Grover Norquist, strategist Karl Rove, and commentator George Will. They have a brand, “Freedom Conservatism,” and even a logo. What they lack is anything to say.The statement is, like a classic episode of the sitcom Seinfeld, a show about nothing. Who, for instance, disagrees that “the President should only nominate policymakers and judges who are committed to upholding [constitutional] rights” or that “most individuals are happiest in loving families”?Principles are not policy proposals, but to be useful they must acknowledge trade-offs and give some direction when applied. Instead, the signatories deliver lofty paeans that invariably dissolve into vague mumbling. “The skyrocketing federal debt . . . is an existential threat to the future prosperity, liberty, and happiness of Americans.” Freedom conservatives thus “commit to building a constructive reform agenda that can restore America’s fiscal sustainability”, without giving the slightest indication of how to approach that task.The statement declares that “America is exceptional because anyone — from any corner of the earth — can seek to live in America and become an American”. But it calls only for immigration policy to be “rational” and “built on the rule of law”. Under the heading, “the shining city on a hill”, the statement says: “Americans are safest and freest in a peaceful world, led by the United States, in which other nations uphold individual liberty and the sovereignty of their neighbours.” This is the think-tank equivalent of ageing rockers singing “We Are the World”.The issues here are important ones, hotly debated on the American right. After decades spent pushing tax rates ever lower, does fiscal responsibility now demand increases? Should immigration be accelerated in pursuit of higher growth and lower prices, or restricted in those segments of the labour market where wages have lagged? Nations do not in fact always uphold liberty and sovereignty, so what best ensures the safety and freedom of Americans? Other conservatives are working on more robust responses to contemporary challenges that might actually address America’s problems. But there is little substantive thinking in freedom conservatism beyond a desire to appear thoughtful.They also, to be fair, have a desire to defeat “authoritarianism”, which the statement warns “is on the rise both at home and abroad”. From that vantage point the exercise is perhaps more understandable. Freedom conservatives are promoting an aesthetic — one that affirms their tribal loyalty and virtue. Market fundamentalism has little to say about the economic challenges of the 21st century but, by changing the conversation to one about creeping authoritarianism, the reciters of uncontroversial truisms can proclaim themselves brave truth-tellers. Insofar as they really just wish to remind us of their disdain for Donald Trump, they needn’t have used so many words. The irony is that, to the extent that a destabilised politics has opened the door to anti-democratic forces, the old right’s market-based dogmas bear a substantial portion of the blame for the destabilisation. And in their refusal to offer any coherent alternative to what they see as authoritarianism, freedom conservatives only make its rise more likely. More

Russia has bombed Ukraine’s port cities for a third consecutive night after warning that it would treat grain ships as military targets, a threat the EU said demonstrated Moscow’s “barbarian attitude” as it attacks food supplies. The strikes on the Black Sea port city of Odesa and nearby Mykolayiv early on Thursday killed at least two people while at least 23 were injured, Ukrainian authorities said.The three nights of air strikes targeting Ukraine’s ports came after Moscow said on Monday that it would withdraw from an agreement that has allowed grain to be exported by ship to global markets. Andriy Yermak, Ukrainian president Volodymyr Zelenskyy’s chief of staff, said they were “an attempt to destroy the ability to supply food to the countries of the global south”.Moscow’s move to pull out from the Black Sea Grain Initiative, which since last August has allowed 33mn tonnes of grain to be exported by sea, and its announcement that it would treat any inbound vessels as military threats, has driven up global food prices. Wheat prices have risen 12 per cent in the past week, based on the US benchmark hard red winter wheat for September delivery.Ukraine announced on Thursday that it would also treat Russian vessels as targets. In a formal notification, it said all maritime vessels in the Black Sea heading towards ports in Russian-occupied territory “can be considered by Ukraine as . . . carrying military cargo with all the associated risks”.Diplomatic conversations on grain have now shifted to “stopping [the] escalation”, according to a person briefed on the negotiations. Negotiators expect Turkish president Recep Tayyip Erdoğan, who has retained strong ties to Vladimir Putin even after Russia’s full-blown invasion of Ukraine, will need to do the “heavy lifting” in persuading his Russian counterpart to re-engage on the grain corridor, the person said. Erdoğan has said he expects to speak to Putin by phone this week, when he arrives back in Turkey after international engagements. Putin is also expected to visit Turkey in August. Josep Borrell, the EU’s foreign and defence chief, said 60,000 tonnes of grain had been burnt as a result of Russia bombing the storage facilities in Ukraine’s port infrastructure.“If this grain is not only stopped but [also] destroyed . . . this is going to create a huge food crisis in the world,” he said on Thursday. “It is a very grave situation. This consideration that any ship [is considered as] a war ship and so a target for the military activities of Russia, is a step further in order to continue preventing Ukraine from exporting their grains,” he said ahead of a meeting of EU foreign ministers that will discuss the growing crisis.He said the “massive air attacks” showed Russia’s “barbarian attitude which will be taken into consideration by the Council [of foreign ministers] today”.“The ministers will have to discuss how to proceed, but there is only one solution: to increase the military support to Ukraine. If they are being bombed, we have to provide anti-aerial capacities,” he added.Ukraine’s air force said that the attacks overnight on Wednesday and into Thursday “targeted ports, piers, residential buildings and trade networks” in the southern regions of the country.Before the war, Ukraine accounted for around a tenth of global wheat exports. The latest air strikes indicate Russia will not shy away from directly attacking wheat-export infrastructure and stocks, according to analysts. “Even if the [Black Sea Grain] deal were now to be renewed, it would not be as effective as it was before, due to the damage at the ports,” said Carlos Mera, agricultural analyst at Rabobank. While Ukraine does have alternative export routes for its grain, these involve significantly higher transportation costs. In response to the Russian attacks, Annalena Baerbock, Germany’s foreign minister, said that work was under way to ensure grain would not rot in Ukraine as a result.“Hundreds of thousands of people, not to say millions, urgently need the grain from Ukraine, which is why we are working with all our international partners so that the grain in Ukraine does not rot in silos in the next few weeks, but reaches the people of the world who urgently need it,” she added. Additional reporting by Adam Samson in Ankara More

The UK competition watchdog has warned supermarkets that it will examine any attempts to rebuild profit margins after the recent fall in inflation and called on the government to reform pricing policies to help consumers.The Competition and Markets Authority said in a report on Thursday that it had found high food price inflation was not being driven by weak retail competition, but noted that competitive pressure would be important as input costs fell. Official data this week showed that the rate of consumer price rises declined to 7.9 per cent in June from 8.7 per cent in May, a bigger than expected drop. The CMA said that now some grocery retailers’ input costs were starting to decline, it had detected signs during its probe that they were planning to begin rebuilding their profit margins. The watchdog said it would “monitor this carefully in the months ahead to ensure that people benefit from competitive prices as input costs fall”. Although food price inflation is at near all-time highs, evidence collected by the CMA suggested that it had not been driven up by competition issues in the sector, which registered a fall in operating profits in the past year. That decline was due to retailers’ costs increasing faster than revenues, it said, indicating they had not passed on rising costs in full to consumers.The CMA’s findings in part echo those of the Bank of England, which does not believe that “greedflation” — where companies increase prices beyond the extent that their own price pressures would demand — has played a significant role in the surge in food prices.However, the regulator said rules on unit pricing — which sets out the cost of weighed foodstuffs, helping shoppers compare prices — needed tightening at a “time when food and other grocery prices are rising”.In a study of 18 retailers, the CMA found compliance concerns relating to how some displayed unit pricing, but said these were in part the result of rules that allowed for inconsistencies in practices and left scope for interpretation. 

The watchdog cited as one example tea bags “being priced per 100 grams for some products and others being unit priced per each tea bag”, and found “missing or incorrectly calculated unit pricing information both in store and online”.The CMA urged the government to reform legislation around unit pricing and said it had written to companies that were not fully complying with current rules, warning them of enforcement action. In response, the government said it would consult on the law in this area, which is retained EU legislation, “to make it work for consumers”. A change in the regulation would mean unit prices would have to be clearly displayed in promotions, including loyalty card price per unit. More

ISTANBUL (Reuters) – Turkey’s central bank hiked its policy rate by 250 basis points to 17.5% on Thursday, continuing to reverse President Tayyip Erdogan’s low-rates policy, but the tightening fell short of expectations with inflation expected to rise sharply.It was the second meeting under new Governor Hafize Gaye Erkan, who is leading a change of course after the one-week repo rate was cut to 8.5% from 19% since 2021 despite soaring inflation.The bank said after its monetary policy committee meeting that it will continue to tighten monetary policy and expected further upwards pressure on inflation due to recent tax hikes.”Monetary tightening will be further strengthened as much as needed in a timely and gradual manner until a significant improvement in the inflation outlook is achieved,” it said.The less-than-expected tightening comes despite expectations that inflation, which fell to 38.21% in June, will rise in the rest of the year. Economists are revising their year-end forecasts to as high as 60% due to the lira’s continued decline and various tax hikes in July.The bank had raised its key rate by 650 basis points to 15% in June and had been expected to hike to 20% this time, according to the median estimate in a Reuters poll. Economists expect the policy rate to rise further to 25% by year-end, still leaving real rates negative. They warn that Erdogan’s influence over the central bank limits how far it can go in tightening policy.The lira traded at 26.9345 against the dollar after the announcement, little changed from beforehand. It has weakened 30% so far this year. However, some markets have performed rather well since Erdogan’s re-election.The low-rates policy advocated by Erdogan sparked a currency crisis in late-2021, with the lira losing 44% that year. In 2022it weakened another 30% despite central bank efforts to counter forex demand by using its forex reserves.The lira depreciation has stoked inflation, sending it to a 24-year high of 85.5% in October last year. The continued decline this year is expected to feed into inflation in coming months given Turkey’s reliance on imports. More

WASHINGTON (Reuters) -A plan by the top U.S. banking cop to make the sector more resilient may have gotten a boost from the recent banking crisis, but still faces numerous challenges. Fed Vice Chair for Supervision Michael Barr has laid out a plan to increase capital requirements for the nation’s largest banks in the wake of recent bank failures and is expected to unveil the broad proposal to implement new risk-based capital requirements on July 27, according to three industry officials.The proposal, which will kick off an ambitious agenda for Barr, plans to fully implement the globally agreed Basel bank capital agreement. He has said subsequent efforts will include expanding annual “stress tests” of banks’ health, and pursuing tougher rules around liquidity, compensation and interest rate risk.Banking lobbyists, who declined to be named, and analysts, admit Barr should have enough support to advance his priorities at the relevant agencies. A trio of regulators — the Fed, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency — would have to sign off on proposed and finalized versions of new bank rules, including votes by the boards of the Fed and FDIC.”The mini-liquidity crisis just poured gasoline on Michael Barr’s fire and gave him an enormous amount of political capital,” said Isaac Boltansky, director of policy research for brokerage BTIG. Still, the industry and its allies plan to make it difficult, as Barr must grapple with their complaints, dissent from fellow regulators, skeptical Republican lawmakers, and a crowded schedule, according to analysts and six banking lobbyists.”Vice Chairman Barr is going to face economic, political, procedural and even personal hurdles in getting these regulatory changes done. But there is no reason to believe that he will be stopped,” added Boltansky.Spokespeople for the Fed and the FDIC declined requests for official comment.BANKING OPPOSITION The banking industry is not waiting for details before trying to disrupt the effort, arguing it could hinder economic activity, curb lending, and kill lines of business.Members of the industry are leaning on lawmakers as a way of pressuring Barr, according to three industry lobbyists, without specifying which lawmakers. At the center of the industry’s complaints is a belief the capital hikes are not justified, and that Barr’s process of reviewing existing rules has been opaque.”We don’t think there’s any substantiation of the need to raise capital,” said Kevin Fromer, president and CEO of the Financial Services Forum, which represents large global banks. That message is already resonating with some members of Congress, particularly Republicans. When Fed Chair Jerome Powell testified in June, he was pressed repeatedly on the pending rules. Powell, who in the past has said he would defer to Barr on regulatory matters, acknowledged there are tradeoffs that come with higher capital, but said stronger capital meant a stronger system and regulators need to find the right balance.Earlier this month, two members of the House Financial Services Committee, Republican Andy Barr and Democrat Bill Foster, sent a letter to Barr seeking more details and for testimony to explain the effort. Spokespeople for the lawmakers declined or did not respond to requests for comment.“This is a broad and sweeping proposal. The changes laid out today should be based on a formal quantitative impact analysis rather than anecdotes,” said a spokeswoman for Senator Tim Scott, the top Republican on the Senate Banking Committee. The criticism is also emerging among some Republican bank regulators, who appear likely to oppose the plans. Fed Governor Michelle Bowman has warned in several speeches against Barr’s approach, and Republican members of the FDIC board have also warned against sweeping changes.A group of five of the industry’s largest trade groups said they had “serious concerns” with Barr’s plans in a letter sent last Thursday to Powell. They argued they need at least four months to digest and comment on the proposal, which is expected to be technical and lengthy.CROWDED CALENDARBeyond external pressure, Barr must also contend with a crowded calendar. Barr is already one year into his four-year term, and is also looking to propose changes to accounting and long-term debt requirements for smaller firms, annual bank stress tests, liquidity and compensation rules, and Fed bank supervision. The initial rewrite is expected to take substantial time. Regulators will have to digest numerous and voluminous comments from the banking industry dissecting their plans.And there is only so much time. Elections in the fall of 2024 could see Republicans take full control of Congress and the White House, which would up pushback. A Republican-held Congress could even vote to throw out recently completed rules under the Congressional Review Act. The Fed would likely need to complete rules in the summer of 2024 to ensure they could not be repealed by that route, according to one bank lobbyist.And in the meantime, banks are expected to continue hammering that higher capital requirements means a smaller economic role for banks and are not needed.”It’s kind of hard for me to sit here and say that we won’t be commenting forcefully that we are very well capitalized,” said Morgan Stanley (NYSE:MS) CEO James Gorman on a quarterly earnings call Tuesday. “I would hope and expect that they’re going to listen,” he added later. More

The BoE launched the weekly STR last year as tool to help keep money market rates close to its official Bank Rate, while the BoE drains reserves from the financial system as it unwinds its quantitative easing (QE) programme.So far the STR – through which banks can access cash in exchange for the highest grade of collateral – has been used sparingly, but BoE officials expect it will be used more in future years when reserves become scarcer.Last week 15 million pounds of funds were allotted via the STR. The peak allotment was 1.5 billion pounds on Jan. 26.Deputy Governor Dave Ramsden said on Wednesday that the BoE should speed up the pace at which it is unwinding its 800 billion-pound ($1 trillion) QE stockpile of government bonds.($1 = 0.7748 pounds) More