Economy

The world’s top central bankers have warned that the era of low interest rates and moderate inflation has come to an end following the “massive geopolitical shock” from Russia’s invasion of Ukraine and from the coronavirus pandemic. Speaking at the European Central Bank’s annual conference, Christine Lagarde, its president, Jay Powell, chair of the Federal Reserve, and Andrew Bailey, Bank of England governor, called for rapid action to curb inflation. They said failing to raise interest rates quickly enough could allow high inflation to become embedded and ultimately require more drastic action by central banks to bring price growth back to more moderate levels. “The process is highly likely to involve some pain, but the worst pain would be from failing to address this high inflation and allowing it to become persistent,” said Powell. Speaking in Sintra, Portugal, the central bank bosses said the pandemic and the Ukraine war were reversing many of the factors that had spurred more than a decade of ultra-low inflation among most developed economies. They warned that the splintering of the global economy into competing blocs risked fracturing supply chains, reducing productivity, raising costs and reducing growth.Global inflation tracker: See how your country compares on rising pricesDo you think central bankers are taking the right approach to curb inflation? Why or why not? Tell me at [email protected]. Thanks for reading FirstFT Asia. Here’s the rest of today’s news — EmilyThe latest from the war in Ukraine: China: The Biden administration placed five Chinese companies on an export blacklist for allegedly supporting Russian military and defence companies.US defences: The US will significantly increase military deployments in Europe in response to Russia’s invasion of Ukraine.Nato: The Biden administration expressed support for Turkey’s purchase of US fighter jets after Ankara dropped a veto to Finland’s and Sweden’s Nato bids.Sanctions: The UK has imposed sanctions on Vladimir Potanin, one of Russia’s richest oligarchs, along with several other individuals.Kremenchuk attack: The shopping centre attack is likely to lead to one of the worst civilian death tolls in a single strike since Russia’s invasion of Ukraine. Five more stories in the news1. Mukesh Ambani prepares to hand Reliance empire to his children Asia’s richest man Mukesh Ambani has begun executing a succession plan for his oil-to-telecoms conglomerate Reliance Industries, with his twin children Akash and Isha to head the telecoms and retail businesses. 2. Hedge fund manager Jim Chanos’s next ‘big short’ The short seller, best-known for predicting the collapse of energy group Enron two decades ago, is raising several hundred-million dollars for a fund that will take short positions in US-listed real estate investment trusts, he told the Financial Times.3. Philippines SEC orders shutdown of Rappler news website The Philippine securities watchdog has ordered the shutdown of Rappler, the media website run by Nobel laureate Maria Ressa, in a move that will mark a further blow to independent journalism in the south-east Asian country.4. Pro-China group attacks US rare earths plant in fake social posts The pro-Chinese government group Dragonbridge impersonated environmental campaigners on social media in an effort to undermine rare earths producers in the US and Canada, according to a cyber security consultancy. Mandiant said the group used Facebook and Twitter to claim a US government-funded rare earths refinery would “expose the area to irreversible environmental damage”.5. Japan, South Korea and US agree to closer co-operation on North Korea Leaders of the three nations met on the sidelines of the Nato summit, agreeing to deepen their joint “extended deterrence” against North Korea following deep concerns over Pyongyang’s missile tests. (Reuters) The day aheadFerdinand “Bongbong” Marcos Jr takes office The son and namesake of the notorious late dictator, takes office as the Philippines’ new president.Economic data Japan will publish its May industrial production data. In the UK, final Q1 GDP figures and a consumer trends report will become public. Walgreens Boots Alliance earnings The pharmacy chain will be in the spotlight when it reports results today, just days after the Walgreens Boots Alliance announced it had abandoned the sale process for the Boots chain in the UK after the upheaval in credit markets resulted in bids that were below its initial expectations.What else we’re reading Ships going dark A new Financial Times investigation tracks vessels exporting food from Crimea, in ways that sidestep international sanctions — and potentially smuggle goods out of Ukraine. The shipments have become even more contentious after Ukrainian authorities claimed Crimean ports were being used to export grain looted from parts of the country occupied by Russian forces.

© Satellite images of ports

Hong Kong elite descends on Tokyo for bargain property buys Property brokerage JP Invest will fly a group of Hong Kong investors to Tokyo in August for the shopping trip of a lifetime. The group will embark on a real estate bargain hunt fuelled by the historic weakness of the yen, the unwavering policies of the Bank of Japan and $440-per-head sushi. China’s Marxism majors prosper amid labour market woes Chinese university graduates are struggling to find work in the country’s worst labour market in years — unless they have degrees in Marxism. The one-time obscure major for students is enjoying a revival under President Xi Jinping, who has urged Chinese Communist party cadres to “remember the original mission”.Armed robbery shocks Tefaf art fair in Maastricht There were shocking scenes at the venerable Tefaf fair in Maastricht as a man with a sledgehammer smashed the glass-lined booth of the ultra-high-end jewellers Symbolic & Chase on Tuesday morning. The offender was in a group of four well-dressed men, at least one of whom was witnessed carrying a gun, who stole unspecified items from the stand.Open trade is at risk We have moved into a third epoch of the postwar global economic order, writes Martin Wolf. The first was in the context of the cold war. The second followed the fall of the Soviet Union. Now, in this era of disorder, we need to shore up the global commons — and less powerful countries must take the initiative.More on trade: None of the advanced economies really has a coherent policy combining trade with geopolitics in the Indo-Pacific, writes Alan Beattie. Premium subscribers can sign up for Alan’s weekly newsletter Trade Secrets. NFTsFrench footballer Kylian Mbappé is following fellow superstars Cristiano Ronaldo and Lionel Messi into the world of non-fungible tokens by becoming an investor in a SoftBank-backed fantasy football platform. Mbappé, 23, will also become a brand ambassador for Sorare, which operates an online game where players can create football teams based on the digital trading cards they own. More

Consumer spending was weaker in early 2022 than previously believed, a sign that cracks may be forming in a crucial pillar of the U.S. economy.Spending, adjusted for inflation, increased 0.5 percent in the first three months of the year, the Commerce Department said Wednesday. That was a sharp downward revision from the government’s earlier estimate of 0.8 percent growth, and a slowdown from the 0.6 percent growth in the final quarter of 2021. Spending on services rose significantly more slowly than initially reported, while spending on goods actually fell.Gross domestic product, the broadest measure of economic output, shrank 0.4 percent in the first quarter, adjusted for inflation, the equivalent of a 1.6 percent annual rate of contraction. That was only slightly weaker than previously reported, because the government raised its estimate of how much companies added to their inventories, partly offsetting the weaker consumer spending.Even after the revision, consumer spending remained solid in the first quarter. But any deceleration is significant because consumers have been the engine of the economic recovery. Spending had appeared resilient in the face of the fastest inflation in a generation — a picture that looks at least somewhat different in light of the latest revisions.“That prior estimate of first-quarter G.D.P. was much more comfortable than today’s look,” said Michelle Meyer, chief U.S. economist for the Mastercard Economics Institute. “There is reason for more concern after looking at today’s report.”Economists in recent weeks have steadily lowered their forecasts of economic growth for the rest of the year. IHS Markit estimated on Thursday that G.D.P. would grow at a 0.1 percent annual rate in the second quarter; earlier this month, it expected the economy to grow at a 2.4 percent rate this quarter. Some forecasters now say it is possible that economic output will shrink for the second consecutive quarter — a common, though unofficial, definition of a recession.The National Bureau of Economic Research, the nation’s semiofficial arbiter of when business cycles begin and end, defines recessions differently, as “a significant decline in economic activity that is spread across the economy and lasts more than a few months.”Most economists agree that, by that definition, the United States is not yet in a recession. But a growing number of economists believe that a recession is likely in the next year, as the Federal Reserve raises interest rates in a bid to tame inflation. More

The governor of the Bank of England warned on Wednesday that Britain’s economy is suffering more from the energy crisis than other countries with UK inflation likely to stay higher for longer. Speaking with other central bankers at a European Central Bank conference in Sintra, Portugal, Andrew Bailey said the BoE needed the option of half-point interest rate rises to address inflation but did not commit to further increases. But he was adamant that the BoE would curb rapidly rising prices even if that meant pain for households. “The key thing for us is to bring inflation back down to target and that is what we will do,” Bailey said. The governor’s comments underscore how necessary he and the BoE think it will be for households to suffer financial pain if the UK is to bring inflation, which hit 9.1 per cent in May, to the target level of 2 per cent. The BoE has said it expects inflation will rise above 11 per cent in the autumn. Bailey declined to attribute the worsening economic outlook to Brexit or sterling’s drop against the dollar this year. But, he added, the fall in the currency had not surprised him because it reflected a weak UK economic outlook.“I think the UK economy is probably weakening rather earlier and somewhat more than others,” Bailey said, attributing the problems to the energy price shock that all European economies faced alongside a UK problem of people dropping out of the labour market. Bailey said that in the latest inflation data, he had seen a shift in the causes of high inflation from high prices of goods that were in short supply after Covid-19, towards goods and services affected by Russia’s invasion of Ukraine.He said inflation would persist at a higher level in the UK than elsewhere, lengthening the pain felt by households across Britain. “Unfortunately, there is going to be a further step-up in UK inflation later this year because that’s a product of the way the energy price cap interacts with the energy prices we have observed over the last few months,” Bailey said. He said the energy price cap, which moves slowly to reflect gas price rises in the US, would widen the gap between higher UK inflation and lower rates in much of Europe later this year. “I would imagine that will put a bit more persistence [into the UK inflation rate] and we will have to explain that,” Bailey said, noting that the BoE would be looking at underlying price pressures in setting interest rates. Monetary policy has been tightened from a 0.1 per cent rate in December last year to 1.25 per cent rate set in June. Financial markets expect rates to rise further to around 3 per cent in a year’s time. Bailey said that this latest market expectation appeared steeper than previous BoE forecasts suggested because it contained a risk element, and that the risks to both inflation and to interest rates were still on the upside. “I would agree with that,” he said referring to the markets properly pricing in the risk that rates would have to rise more than expected.

As Bailey was speaking in Portugal, Swati Dhingra, the LSE professor who will join the Monetary Policy Committee in August, took a more dovish tone in evidence to the Treasury committee, saying there was room to take a “very gradual approach” to raising interest rates, given the latest data on consumer confidence.Dhingra said the decision to raise interest rates by 25 basis points rather than 50bp last month showed the MPC was operating in a small range, relative to the bigger rate moves it had made at the time of the financial crisis. She added that in light of the latest data — which showed consumer confidence at its lowest in a half century of records — she favoured a “very nuanced” response to the evolving situation. Additional reporting by Delphine Strauss More

Good evening,Finally some better news in the fight against inflation. Germany reported today that CPI fell from 8.7 per cent last month to a better than expected 8.2 per cent in the year to June, helped by government measures such as cuts in fuel taxes and a special discount on public transport.The data was not yet a turning point, “but rather evidence that it is currently governments and not central banks that can bring down inflation”, said Carsten Brzeski, head of macro research at ING.The news contrasted sharply with data from Spain earlier in the day that showed prices rising at their fastest rate for 37 years, hitting 10 per cent in June, driven by surges in energy and food. The underlying rate, excluding these two volatile items, hit 5.5 per cent — the country’s highest level since 1993.Prime Minister Pedro Sánchez has announced proposals to extend and increase Spain’s €16bn package of relief by €9bn, including reductions in electricity tax and public transport costs, help for pensioners and one-off payments for lower earners.The easing of inflation growth in Germany will be given a cautious welcome by European Central Bank policymakers at their forum for central banks in Sintra, Portugal. Yesterday, ECB president Christine Lagarde hardened its message on inflation, saying the central bank would act in “a determined and sustained manner”, especially if price expectations rose sharply among consumers and businesses.Today, she added: “I don’t think we are going to go back to that environment of low inflation . . . there are forces that have been unleashed . . . that we’re facing now that are going to change the picture and the landscape within which we operate.” Inflation data for the combined eurozone are expected to hit a new record of 8.3 per cent when released on Friday.The ECB is planning to start raising interest rates in July for the first time since 2011, beginning with a quarter percentage point increase, followed by a bigger rise in September. However, its new tool to address fragmentation of financial markets across the eurozone could spark a new crisis if it comes up short, argues commentator Megan Greene.US Federal Reserve chair Jay Powell also spoke at a panel discussion at Sintra ahead of tomorrow’s core personal consumption expenditure data, the Fed’s preferred measure of inflation.Powell said the US economy was in “great shape” but warned: “If you look across the broad scope of short, medium and long-term expectations, you’d still say that we have credibility [and] that they are well anchored, but there’s a clock running here.”Examine country by country data with our global inflation trackerLatest newsRevised US GDP data indicate less consumer spending and weaker economyUK imposes sanctions on Russian oligarch and Norilsk chief Vladimir PotaninConsumer group General Mills lifts dividend as higher prices boost salesFor up-to-the-minute news updates, visit our live blogNeed to know: the economyG7 countries have agreed to do more to prevent Russia profiting from soaring energy prices. Here’s our explainer on their plan. The UK said it would cut off gas supplies to mainland Europe if it was hit by severe shortages. However, blocking the two-way interconnector pipelines risks undermining international co-operation on energy.Latest for the UK and EuropeThe UK said it would extend tariffs on steel imports for two years to protect domestic manufacturers in a move that risks a legal challenge from the World Trade Organization.The UK is also having second thoughts about imposing a windfall tax on electricity generators. Electricity distributors, however, have been targeted by the energy regulator, which ordered them to invest more while keeping customer charges stable.Trade body UK finance warned of a fraud “epidemic” after a surge in scams where victims are tricked into parting with their cash. Consumer editor Claer Barrett examines why the country is so susceptible and what can be done about it.Businesses in Northern Ireland say Westminster’s intention to rip up post-Brexit trading arrangements, which have helped the province’s economy outperform much of the rest of the UK, will do real damage.UK public finances have been given a boost by the rise in inflation, writes economics editor Chris Giles, but the temporary advantage will soon be lost under the pressure of rising debt interest payments, falling wages and pressure on service.Our latest Big Read is an investigation into how Russia is exporting food out of Crimea in defiance of international sanctions.© FT/Planet LabsGlobal latestThe G7 was accused of “backsliding” on climate goals as member countries attempt to beef up energy security. Criticism is particularly strong in the UK, where a parliamentary report said there was “scant evidence” of the government implementing climate change targets. The EU, meanwhile, is pushing ahead with measures, including a ban on the sale of combustion engines by 2035.ExxonMobil chief executive Darren Woods told the Financial Times that investment in fossil fuel production would enjoy a resurgence as global efforts to cut production ran ahead of efforts to cut consumption, pointing to an “optimistic view” of the speed of the transition to cleaner energy.Our new newsletter The Climate Graphic: Explained, which launches on Sunday, helps you understand the most important climate data of the week, with insight and analysis from FT specialists. Sign up hereAfter the period of liberalisation from the late 1940s to the 1970s and the “neoliberalism” that began in the 1980s, we are now experiencing a new era of world disorder, says chief economics commentator Martin Wolf. Open trade is now at risk, he argues, unless action is taken to shore up the global commons.China has halved quarantine restrictions for international travellers to one week as it tries to revive an economy badly hit by pandemic curbs. The country’s Covid health apps have been criticised for being used as “digital handcuffs”, or tools of social control.On the other hand, the erosion of wider freedoms in Hong Kong is doing little to deter companies and investors, says Beijing bureau chief Tom Mitchell. Meanwhile, the city’s elite are snapping up bargain properties in Tokyo.Need to know: businessHedge fund manager and renowned short seller Jim Chanos is betting against “legacy” data centres, which he predicts will fall victim to cloud services from the trio of Amazon Web Services, Google Cloud and Microsoft Azure.The latest casualty of turbulent markets is Walgreen’s sale of the UK’s Boots pharmacy chain, which has been pulled because of a lack of suitable offers. Boots accounts for about 5 per cent of Walgreen’s yearly sales of $132bn.More encouraging were results from H&M, the world’s second-largest clothing retailer, which beat quarterly profit expectations by cutting back on discounts. Chief executive Helena Helmersson said supply chains were still strained and that ending activity in Russia, Ukraine and Belarus would account for 5 percentage points of an expected 6 per cent year-on-year decrease in June sales.The shift to electric cars is putting more than 20,000 UK jobs at risk, the industry’s trade association has warned, as jobs in engines, exhaust systems and fuel tanks fall by the wayside while the country gears up for the end of petrol and diesel-powered vehicle sales by 2035. A UK start-up is set to become one of Europe’s first refineries for lithium, one of the key materials used in electric car batteries.London’s Heathrow airport was ordered by the UK regulator to cut its landing charges after a big row with airlines. Business columnist Helen Thomas says the system of allocating take-off and landing slots needs an overhaul.It’s all smiles at the top end of the aviation market though, at least in the US, as company spending on private jets for personal use has hit a 10-year high.The World of WorkPositive employment trends for young women are masking a rise in the proportion of inactive young men, writes employment columnist Sarah O’Connor on the changing demographics of the UK workforce.If you often feel underqualified and plagued by self-doubt at work, you may be suffering from imposter syndrome. In our latest Working It podcast, Isabel Berwick and guests discuss how in some cases it might actually improve your performance.Get the latest worldwide picture with our vaccine trackerAnd finally . . . Ever suffer from jet lag? Here are some tried and tested tips from a source you can trust: a long-haul airline pilot.A pilot’s guide to beating jet lag © Universal Images Group/Getty More

The world’s top central bankers have warned that the era of low interest rates and moderate inflation has come to an end following the “massive geopolitical shock” from Russia’s invasion of Ukraine and from the coronavirus pandemic. Speaking at the European Central Bank’s annual conference, Christine Lagarde, its president, Jay Powell, chair of the Federal Reserve, and Andrew Bailey, Bank of England governor, called for rapid action to curb inflation.They said failing to raise interest rates quickly enough could allow high inflation to become embedded and ultimately require more drastic action by central banks to bring price growth back to more moderate levels.“The process is highly likely to involve some pain, but the worst pain would be from failing to address this high inflation and allowing it to become persistent,” said Powell.Speaking in Sintra, Portugal, the central bank bosses said the pandemic and the Ukraine war were reversing many of the factors that had spurred more than a decade of ultra-low inflation among most developed economies. They warned that the splintering of the global economy into competing blocs risked fracturing supply chains, reducing productivity, raising costs and reducing growth.“I don’t think that we’re going to go back to that environment of low inflation,” said Lagarde. “There are forces that have been unleashed as a result of the pandemic [and] as a result of this massive geopolitical shock that are going to change the picture and the landscape within which we operate.” “Some would argue that the place where you manufacture [or] the place from which you provide services is going to be decided by different factors than just cost,” the ECB president added. Whether certain locations were politically “friends or foes” was likely to be relevant, she added.Powell said these shifting dynamics would force a rethink over how the world’s central banks operate given that the low-inflation environment “seems to be gone now”. “We’re living with different forces now and have to think about monetary policy in a very different way,” he said. Forecasting inflation in this environment had become a much more challenging task, he added. “We understand better now how little we understand about inflation.”Bailey said there had been “a sea change” in the way economies work, and in the UK Covid was “leaving a structural legacy on labour markets and the way they behave”, with lower employment and higher risks of excessive pay increases. Lagarde said the Ukraine war was hitting Europe harder than most other regions in the form of higher energy and food prices, meaning the continent was “not in the same situation” as the US and other countries. But she warned that “what happens on the energy front [and] what happens on the war front” will affect inflation expectations. This could require the ECB to shift from its current “gradual” approach to raising interest rates — starting with a quarter percentage point rise in July — to a “more determined” policy stance.Powell vowed to prevent a “higher inflation regime” from taking hold in the US, underscoring the central bank’s willingness to rapidly raise rates this year. The Fed has resorted to measures last used more than 30 years ago, raising interest rates by 0.75 percentage points earlier this month to bring the federal funds rate to a new target range of 1.5 to 1.75 per cent.

Top officials have signalled another big rate rise at the next policy meeting in July, with the benchmark policy rate reaching roughly 3.5 per cent by year-end.Lagarde said Europe’s economy was also being buffeted by a shift from higher spending on goods during the pandemic to more spending on services such as tourism and travel, which was propping up eurozone growth but also creating “a series of shocks” that fuel extra price pressures.The ECB president said central banks and governments were no longer working “hand-in-hand” as they had done during the pandemic and instead it was now important for fiscal policy to become more “targeted” and “sustainable”. More

Fed ChairJerome Powell vowed Wednesday at an ECB forum that U.S. policymakers would not allow inflation to take hold of the economy over the longer term.
“There’s a clock running here, where we have inflation running now for more than a year,” the central bank leader noted.
Powell reiterated his tough talk on inflation in the U.S. that is currently running at its highest level in more than 40 years.

The U.S. Federal Reserve increased its benchmark interest rate by 75 basis points to a range of 1.5%-1.75% in June — the biggest increase since 1994. Fed Chair Jerome Powell (above) flagged there could be another rate hike in July.
Mary F. Calvert | Reuters

Federal Reserve Chair Jerome Powell vowed Wednesday that policymakers would not allow inflation to take hold of the U.S. economy over the longer term.
“The risk is that because of the multiplicity of shocks you start to transition to a higher inflation regime. Our job is literally to prevent that from happening, and we will prevent that from happening,” the central bank leader said. “We will not allow a transition from a low-inflation environment into a high-inflation environment.”

Speaking to a European Central Bank forum along with three of his global counterparts, Powell continued his tough talk on inflation in the U.S. that is currently running at its highest level in more than 40 years.
In the near term, the Fed has instituted multiple rate hikes to try to subdue the rapid price increases. But Powell said that it’s also important to arrest inflation expectations over the longer term, so they don’t become entrenched and create a self-fulfilling cycle.
“There’s a clock running here, where we have inflation running now for more than a year,” he said. “It would be bad risk management to just assume those longer-term inflation expectations would remain anchored indefinitely in the face of persistent high inflation. So we’re not doing that.”
Since the Fed started raising rates in March, market indicators of inflation expectations have fallen considerably. A measure of the outlook over the next five years that compares inflation-indexed government bonds to standard Treasurys fell from nearly 3.6% in late March to 2.73% this week.
However, other surveys show that consumers expect prices to continue to climb. One such measure, from the University of Michigan, helped pressure the Fed into raising its benchmark interest rate 0.75 percentage point at its meeting earlier this month.

The Fed now is charged with bringing down those expectations while not crashing the economy. Powell said he’s confident that will happen, though he acknowledged the risks ahead.
“We’re strongly committed to using our tools to get inflation to come down. The way to do that is to slow down growth, ideally keeping it positive,” he said. “Is there a risk that would go too far? Certainly, there’s a risk. I wouldn’t agree that it’s the biggest risk to the economy. The bigger mistake to make … would be to fail to restore price stability.”

WATCH LIVEWATCH IN THE APP More

The writer is chief economist at the European Bank for Reconstruction and DevelopmentMyopia is a byproduct of democracy. Politicians facing short electoral cycles have every incentive to focus on what they can deliver to please voters before the next election. But applying a band-aid to a bullet wound can make a problem worse in the long run.Voters are wounded by high energy prices and rising interest rates. Predictably, many governments are responding with band-aid solutions of temporarily suspending fuel taxes and introducing mortgage moratoriums.Assisting insecure households should be a priority for every government, with means-tested transfers for those in greatest need. Instead, governments in Canada, Germany, Italy and the UK are resorting to across-the-board temporary suspensions or cuts to fuel taxes and VAT on energy. Such measures are also popular in central and eastern Europe where rising heating costs have hit households harder. An average household in Romania spends a quarter of its budget on utility bills, compared with 7 per cent in Germany and 12 per cent in Italy.Across-the-board measures are popular with voters and may help incumbent governments in the next election, but they have many downsides. They add to existing pressure on public finances from post-Covid strain. They damp price signals and give wealthier households with larger properties little incentive to save energy. Such price signals, leading to lower energy consumption, are urgently needed if Europe wants to wean itself off energy dependence on Russia and slow down climate change.Once introduced, temporary measures often stick around. Futures markets expect the price of Brent crude to be $97 a barrel in December 2023. That is 18 per cent higher than the spot price in early January. Thus, the pressure to extend tax relief will not go away soon.Similarly, a case can be made that poorer households need assistance with debt servicing in an environment of rapidly increasing interest rates. But here again governments are tempted to help everyone, not just those affected by job losses or temporarily unable to service their debts. This option is politically attractive if many beneficiaries tend to vote for opposition parties. Governments can use debt relief to lure these voters at the next elections.From August 1, an across-the-board mortgage debt moratorium will be launched in Poland. It involves “debt service holidays” of up to four months in the second half of 2022 and an additional four months in 2023. This essentially means extending mortgage loans for free.The help is available to all borrowers, but only one mortgage contract per person is allowed and it must cover “own use” real estate. If all eligible borrowers join the scheme, the cost will exceed 20bn zlotys ($4.5bn), according to the National Bank of Poland. The Polish Banking Association, using somewhat different assumptions, estimates it at 23bn-27bn zlotys. Whatever the cost, the banking sector will in effect finance it.Romania is working on a similar scheme, also to start this summer, but the legislative process is less advanced. It appears, moreover, that Romania’s moratorium will be at least notionally restricted to households severely hit by inflation. Nevertheless, all such measures are distortions that use a different distortion as an excuse. The problem is that excess liquidity in the banking system has kept deposit rates very low. This creates an impression that banks are now unfairly raising interest rates on mortgages and other loans.Moratoriums are expensive for banks and disproportionately benefit large property owners. They may weaken a central bank’s monetary policy transmission mechanism and require even higher rate hikes in the future. They create incentives for reckless borrowers by raising expectations that, when the next shock comes, the government will again rush to help. Finally, they may induce banks to increase loan costs as they, too, expect more debt relief measures in the future. Both Poland’s central bank and the Polish Banking Association have criticised the moratorium.A cheaper, more sensible scheme in Poland is a Borrowers’ Support Fund for people who lose their jobs or whose mortgage payments exceed 50 per cent of monthly household income. This fund, financed from bank contributions, is set to expand to 2bn zlotys. Extending it to cover more households in need would limit the costs expected to arise from the across-the-board moratorium. But perhaps the government would receive less of an election boost.The choices policymakers make today matter. Bad policies will make the already devastating impact of the pandemic and the Ukraine war last for much longer than necessary.  More

MADRID (Reuters) – World Bank chief economist Carmen Reinhart said it could take many more years before the growing number of heavily indebted countries see any substantive reduction in their debts.Reinhart, who returns to Harvard University on July 1 after a two-year public service leave, said the economic woes facing Sri Lanka were just the tip of the iceberg and more countries would likely join its ranks.”Be prepared for the long haul,” Reinhart told Reuters in a remote interview. “My fear – but I think it’s fear founded on the basis of the historical experience – is that to have a comprehensive approach that actually delivers substantive debt reduction will take a long while. Years,” she said, noting that the historical average was around eight years.Reinhart said Sri Lanka’s woes reflected the balled force of a currency crisis, high inflation, a collapse in output, financial strains and a debt crisis, but other countries were also facing major problems.“There are more Sri Lankas on the way. You have countries like Myanmar, Laos. These are not major players in global markets, but they are falling,” she said, noting that others, including Ghana and Egypt, were facing significant shocks as a result of the war in Ukraine and surging food and energy prices.”There are a lot of countries in precarious situations,” she said.Reinhart said the Common Framework for debt treatments agreed to by the Group of 20 major economies and the Paris Club of official creditors in October 2020 had proven to be a disappointment, resulting in not even a single debt restructuring since its launch in October 2020.She said the lack of progress was not surprising.“The historical experience has been like pulling teeth, and slow moving at that,” she said. “Every creditor has for their own reasons engaged in foot dragging. China and private creditors have their own incentives to delay.”Reinhart downplayed the prospects for any significant change in the approach of advanced economies to the mounting issues facing the developing world, including the snowballing impact of the COVID-19 pandemic on learning outcomes and poverty rates. “This ain’t going away quickly. Everyone is preoccupied with their own problems. There’s a tendency to focus on the domestic issues and everything else goes on the back burner,” she said.“I hate to be like a wet rag, but I do think things will get worse before they get better. We’re still trying to sort out what the new normal is,” she said. “My sense is that we will see more difficult times before we turn the corner.” More