Economy

Finance Minister Choo Kyung-ho told reporters emergency measures could include bond buy-backs, while Bank of Korea Governor Rhee Chang-yong said a big-step rate increase could be considered after reviewing incoming data.”Should there be any excessive movements in the bond market, (the authorities) will undertake measures such as emergency bond buy-backs at an appropriate time,” said Choo, adding the authorities will continue to closely monitor the foreign exchange market in order to prevent any excessive movements.When asked about a possibility of ‘big step’ rate increase, Rhee said “there are three to four weeks left until the next rate decision meeting, so it is a matter to decide after seeing how markets move until then.” The Bank of Korea is not considering holding any emergency policy review meeting for now, Rhee said. More

China is moving to consolidate the country’s iron ore imports through a new centrally controlled group by the end of this year, as Xi Jinping’s administration seeks to increase Beijing’s pricing power over the industry.The initiative, led by the China Iron and Steel Association and the planning ministry, involves large state-owned mining and steel groups such as Baowu, China Minmetals Corp and Aluminium Corporation of China, according to people familiar with the effort. China is the world’s biggest consumer of iron ore with its 1bn tonne a year steel industry absorbing about 70 per cent of global production, most of it supplied by Australia. Any move to gain control over prices will probably alarm Canberra given iron ore’s status as the country’s top export.Beijing hopes the new entity can secure lower prices through larger bulk purchases made on companies’ behalf.The project will also seek to boost domestic iron ore output and organise bigger investments in overseas mines.Government officials and policy advisers told the Financial Times that Xi’s administration had grown frustrated by large price swings over recent years in an industry dominated by Australian producers such as Fortescue Metals Group and BHP, which are likely to be highly concerned by the move.When Beijing sought to punish Australia after Canberra called for an international investigation into the origins of the Covid-19 pandemic, Chinese buyers boycotted Australian goods ranging from coal and rock oysters to wine. But they could not find enough alternative sources for iron ore, the key raw material needed to make steel. “The [world’s biggest] iron ore suppliers will have no one else to turn to when it comes to serving the world’s largest market,” said a Beijing-based policy adviser, who asked not to be named. “That would force them to give us a discount.”China could in theory reduce its dependency on Australian iron ore by increasing purchases from big Brazilian producers, such as Vale.

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It is also backing a consortium developing the large Simandou deposit in Guinea, which could produce 200mn tonnes if all of its blocks are mined. The project, however, will require at least $15bn in related infrastructure costs, according to analysts, including a 650km railway across the African nation with 169 bridges and four tunnels that will take years to build. A formal development agreement with the Guinean government is expected soon. Chinese industry executives and officials have been frustrated by the volatility of the benchmark Platts Iron Ore Index, which hit a record high above $230 a tonne a year ago before plunging more than 50 per cent in the second half of 2021 and then rebounding by two-thirds. It is currently trading at $134 a tonne.Sharp price rises, including a doubling in the cost of iron ore in 2020-2021, have reduced Chinese steel mills’ margins to the low single digits over recent years.“We are having trouble planning production because iron ore prices change so quickly,” said an official at Nanjing Iron and Steel, a state-owned producer based in the eastern Jiangsu province. Some analysts, however, are sceptical that Beijing can impose discipline on the hundreds of smaller mills scattered across the country.“Even if a price agreement is secured, smaller mills and traders may go and do deals with iron ore mines on the side,” said Tom Price, an analyst at Liberum, a London-based brokerage. “Then the whole thing breaks down.”

Under the centralised purchasing plan, Chinese steel mills would be told to report their consumption plans for consolidation into a combined figure for negotiation with big overseas suppliers.Yet Chinese demand projections are often wrong because domestic market conditions can shift rapidly. Since April, sentiment has deteriorated rapidly in the world’s second-largest economy because of the impact of rolling lockdowns on big economic centres such as Shanghai that were imposed to enforce Xi’s zero-Covid policy.In such circumstances many mills could be forced to scale back iron ore imports even if doing so violated bulk buying agreements. “We are going to do what’s in our best interests,” said an official at Delong Steel, a small mill in central Hebei province.Additional reporting by Tom Mitchell in Singapore More

GENEVA (Reuters) – The World Trade Organization negotiations on food, fisheries and vaccines stretched into the early hours on Thursday amid growing doubts that tough bargaining could deliver deals in the face of Indian intransigence. During the WTO’s ministerial conference this week, its first major meeting in over four years, the 164-member body is seeking to agree a response to the COVID-19 pandemic, a reduction of fishing subsidies, food security pledges and the launch of internal reform in a package of deals badly needed to prove the body’s relevance.”There’s not a single outcome yet,” said a source involved with the talks that are ongoing in the ‘Green Room’ of the WTO’s Geneva headquarters. Pakistan Commerce Minister Syed Naveed Qamar earlier told Reuters he thought the WTO was heading towards a “no-result ministerial”.A WTO spokesperson was more upbeat, saying there had been significant progress and that it was not far from agreements.WTO Director-General Ngozi Okonjo-Iweala told the more than 100 ministers present that time was running out and that they should “go the extra mile”. The June 12-15 conference has already been extended by an extra day into Thursday. The U.S. trade representative Katherine Tai leaves in the morning, a U.S. official confirmed, adding pressure to strike deals in the coming hours.The WTO takes decisions by consensus, so just one objection can sink a deal. Delegates said India, which has a history of blocking multilateral trade deals, appeared far from ready to compromise. That view was supported by comments Indian Commerce Minister Shri Piyush Goyal made in closed sessions and which New Delhi chose to publish. India and South Africa and other developing countries have sought a waiver of intellectual property rights for vaccines, treatments and diagnostics for over a year, but faced opposition from several developed nations with major pharmaceutical producers.A provisional deal between major parties – India, South Africa, the United States and the European Union – emerged in May, but drew criticism from campaign groups that it fell short of what is needed. Activists staged a “die-in” protest at the WTO building on Wednesday, coughing and pretending to drop dead to the floor to highlight the deaths they say are caused by the absence of a broad intellectual property waiver.Goyal echoed that view. “My own sense is that what we are getting is completely half baked and it will not allow us to make any vaccines,” he said.The WTO has also pushed hard for a global deal to cut fishing subsidies, which would be only the second multilateral agreement since its creation 27 years ago and a demonstration of its relevance in an era of growing trade tensions.Goyal, in comments to delegates, said India was a strong advocate of sustainability, but its fishing industry did not operate huge fleets and relied on small-scale and often poor fishers.The minister said India and similar countries should be granted a 25-year transition period to phase out fishing subsidies, far longer than what most other WTO members have suggested.”It’s not yet clear though that there is a deal to be had…. with the Indians throwing in even more objections to texts,” one diplomat close to the talks said.However, civil society groups said it was rich nations, with inflexibility towards the needs of the developing world, that were responsible for the impasse. More

WASHINGTON (Reuters) -The Federal Reserve on Wednesday approved its largest interest rate increase in more than a quarter of a century to stem a surge in inflation that U.S. central bank officials acknowledged may be eroding public trust in their power, and being driven by events seen increasingly out of their hands.The widely expected move raised the target federal funds rate by three-quarters of a percentage point to a range of between 1.5% and 1.75%, still comparatively low by historic standards.But the Fed’s hawkish commitment to controlling inflation has already touched off a broad tightening of credit conditions being felt in U.S. housing and stock markets, and likely to slow demand throughout the economy – the Fed’s intent.Officials also envision steady rate increases through the rest of this year, perhaps including additional 75-basis-point hikes, with a federal funds rate at 3.4% at year’s end. That would be the highest level since January 2008 and enough, Fed projections show, to slow the economy markedly in coming months and lead to a rise in unemployment. “We don’t seek to put people out of work,” Fed Chair Jerome Powell said at a news conference after the end of the Fed’s latest two-day policy meeting, adding that the central bank was “not trying to induce a recession.”Yet the Fed chief’s remarks were among his most sobering yet about the challenge he and his fellow policymakers face in lowering inflation from its current 40-year high, to a level closer to its 2% target, without a sharp slowdown in economic growth or a steep rise in unemployment.”Our objective really is to bring inflation down to 2% while the labor market remains strong … What’s becoming more clear is that many factors that we don’t control are going to play a very significant role in deciding whether that’s possible or not” Powell said, citing the war in Ukraine and global supply concerns.”There is a path for us to get there … It is not getting easier. It is getting more challenging,” he told reporters, noting that the rate hikes announced last month and in March so far had not only failed to slow inflation, but allowed it to continue accelerating to a level that recent data indicates have begun to influence public attitudes in a way that could make the Fed’s job even harder.’EYE-CATCHING’A survey released on Friday showed consumer inflation expectations jumped sharply in June, a result Powell called “quite eye-catching,” and enough to tilt policymakers towards a larger 75-basis-point hike in hopes of making faster progress on the inflation front and retaining public trust that price increases will slow.”This is something we need to take seriously,” Powell said of the change in consumer inflation expectations. “We’re absolutely determined to keep them anchored.”The faster pace of rate hikes outlined by officials on Wednesday more closely aligns monetary policy with the rapid shift that took place this week in financial market views of what it will take to bring price pressures under control.Bond yields fell after the release of Fed projections on Wednesday that showed economic growth slowing to a below-trend rate of 1.7%, and policymakers expecting to cut interest rates in 2024. Stocks on Wall Street ended the day higher. Interest rate futures markets also reflected about an 85% probability that the Fed will raise rates by 75 basis points at its next policy meeting in July. For September’s meeting, however, the greater probability – at more than 50% – was for a 50-basis-point increase. Powell, departing from the firmer guidance he has previously given about future rate increases, made no promises on Wednesday. Given an unexpected jump in a monthly inflation report on Friday and the jump as well in expectations, “75 basis points seemed like the right thing to do at this meeting, and that’s what we did,” he said.But he said rate hikes of that size were not likely to “be common,” and that when Fed policymakers gather in July an increase of either half a percentage point or three-quarters of a point would be “most likely.”NOT A ‘VOLCKER MOMENT’The tightening of monetary policy was accompanied by a downgrade to the Fed’s economic outlook, with the economy now seen slowing to a below-trend 1.7% rate of growth this year, unemployment rising to 3.7% by the end of this year, and continuing to rise to 4.1% through 2024.While no Fed policymaker projected an outright recession, the range of economic growth forecasts edged toward zero in 2023 – with an index of Fed opinion showing officials almost unanimous in thinking risks were for growth to be slower, and inflation and unemployment higher, than expected.Analysts, many of them critical of Fed projections in March that saw inflation easing with modest rate hikes and no increase in the unemployment rate, said the new outlook was more realistic.”The Fed is willing to let the unemployment rate rise and risk a recession as collateral damage to get inflation back down. This isn’t a Volcker moment for Powell given the magnitude of the hike, but he is like a Mini-Me version of Volcker with this move,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments, referring to former Fed Chair Paul Volcker, whose battle with inflation in the early 1980s involved sharp and unexpected rate increases of as much as four percentage points at a time.Even with the more aggressive interest rate measures taken on Wednesday, policymakers nevertheless see inflation as measured by the personal consumption expenditures price index at 5.2% through this year and slowing only gradually to 2.2% in 2024.Inflation has become the most pressing economic issue for the Fed and begun to shape the political landscape as well, with household sentiment worsening amid rising food and gasoline prices.Kansas City Fed President Esther George was the only policymaker to dissent in Wednesday’s decision, preferring a half-percentage-point rate hike. More

BRASILIA (Reuters) -Brazil’s central bank on Wednesday raised interest rates by 50 basis points, in line with prevailing market expectations, and signaled another increase coming in the world’s most aggressive rate-hiking cycle.The bank’s rate-setting committee, known as Copom, raised its benchmark Selic interest rate to 13.25%, the highest level since the beginning of 2017 and up sharply from a record low of 2% in March 2021. A Reuters poll last week found 25 of 30 economists expected the 50-basis-point increase.Still, there were doubts about whether policymakers would continue with a 12th straight increase in August, adding to the biggest current rate-hiking cycle among major economies.”For its next meeting, the Committee foresees a new adjustment, of the same or lower magnitude,” policymakers wrote in their decision statement.The decision to push on with aggressive rate hikes, expected to cool Latin America’s largest economy beginning in the second half of this year, came as the U.S Federal Reserve approved its largest interest rate increase in more than a quarter of a century to curb the impact of surging commodities prices and disarray in global supply chains. Copom also noted that Brazilian economic indicators since its meeting last month showed stronger economic growth than expected, while inflation data was worse than anticipated.Brazil’s consumer prices rose 11.7% in the 12 months through May, with persistent and widespread inflationary pressures throughout the Brazilian economy affecting expectations for next year.Pedro Hallack, an economist at Guide Investimentos, said Copom’s statement was more hawkish than expected, passing up the chance to signal an approaching end to the tightening cycle.”On the contrary, they already contracted a new hike as the most likely scenario,” Hallack said, forecasting another increase of 50 basis points in August.Copom flagged in its decision a wave of proposed tax breaks, which President Jair Bolsonaro has pushed in an effort to take the edge off inflation ahead of an October presidential vote. A Reuters analysis found most of those tax breaks are set to expire at the end of 2022, leading analysts to warn of looming inflationary pressures early next year.Policymakers highlighted in their decision that the tax measures would bolster inflation “in the relevant horizon for monetary policy … which includes 2023.”Copom said it sees inflation at 8.8% in 2022 and 4% in 2023, without incorporating the impact of the tax measures, above the official targets of 3.5% and 3.25% respectively. More

The Federal Reserve took its most aggressive step yet to try to tame rapid and persistent inflation, raising interest rates by three-quarters of a percentage point on Wednesday and signaling that it is prepared to inflict economic pain to get prices under control.The rate increase was the central bank’s biggest since 1994 and could be followed by a similarly sized move next month, suggested Jerome H. Powell, the Fed chair, underscoring just how much America’s unexpectedly stubborn price gains are unsettling Fed officials.As central bankers drive their policy rate rapidly higher, it will make buying a home or expanding a business more expensive, restraining spending and slowing the broader economy. Officials expect growth to moderate in the coming months and years and predicted that unemployment will rise about half a percentage point to 4.1 percent by late 2024 as their policy squeezes companies and workers.Mr. Powell acknowledged that it was becoming increasingly difficult for the Fed to slow inflation without causing a recession as outside forces, including the war in Ukraine and factory shutdowns in China, threaten to curb the supply of goods and commodities like oil. If the Fed has to quash demand to an extreme degree in an effort to bring it into line with limited supply, it could make for a slump that leaves businesses shuttered and people unemployed.“We’re not trying to induce a recession right now, let’s be clear about that,” Mr. Powell said, explaining that the Fed still wants to reduce inflation to its 2 percent goal while keeping the labor market strong — an outcome economists call a “soft landing.”But “those pathways have become much more challenging due to factors that are outside of our control,” he said, later adding that “the environment has become more difficult, clearly, in the last four or five months.”The latest move set the Fed’s policy rate in a range of 1.50 percent to 1.75 percent, and more rate increases are to come. Mr. Powell signaled that the debate at the Federal Open Market Committee’s next meeting in July will be over whether to raise rates half a point or to repeat an increase of three-quarters of a point, though he added that he did “not expect moves of this size to be common.”Officials expect interest rates to hit 3.4 percent by the end of 2022, according to economic projections they released Wednesday, which would be the highest level since 2008. They also foresee the Fed’s policy rate peaking at 3.8 percent at the end of 2023, up from 2.8 percent when projections were last released in March.As rates rise, policymakers anticipate that growth will slow and joblessness will climb slightly, starting this year.“What Powell and the rest of the F.O.M.C. are saying is that restoring price stability is the primary focus — if they risk a mild recession, or a bumpy soft landing, that would still be successful,” said Kathy Bostjancic, chief U.S. economist at Oxford Economics. “The focus is greatly on inflation right now.”Until late last week, investors and many economists expected the central bank to raise interest rates just half a percentage point at this week’s meeting. The Fed had lifted rates by a quarter point in March and half a point in May, and had signaled that it expected to continue that pace in June and July.But central bankers have received a spate of bad news on inflation in recent days. The Consumer Price Index jumped 8.6 percent in May from a year earlier, the fastest increase since late 1981. The pace was brisk even after the stripping out of food and fuel prices.While the Fed’s preferred price gauge — the Personal Consumption Expenditures measure — is climbing slightly more slowly, it remains too hot for comfort as well. And consumers are beginning to expect faster inflation in the months and years ahead, based on surveys, which is a worrying development. Economists think that expectations can be self-fulfilling, causing people to ask for wage increases and accept price jumps in ways that perpetuate high inflation.“What we’re looking for is compelling evidence that inflationary pressures are abating, and that inflation is moving back down,” Mr. Powell said at his news conference Wednesday, noting that instead the inflation situation has worsened. “We thought that strong action was warranted.”One Fed official, the president of the Federal Reserve Bank of Kansas City, Esther George, voted against the rate increase. Though Ms. George has historically worried about high inflation and favored higher interest rates, she would have preferred a half-point move in this instance.Some analysts found the Fed’s economic projections and Mr. Powell’s view that a soft landing may still be possible to be optimistic in light of the more aggressive policy path the central bank has charted. Economists at Wells Fargo announced after the Fed meeting that they expected a downturn to start midway through next year.“The Fed is becoming a bit more realistic about how difficult it is going to be to lower inflation without inflicting damage on the labor market,” said Sarah House, a senior economist at Wells Fargo. “There is that growing acknowledgment that a soft landing is increasingly difficult — I still think they’re painting a fairly rosy picture.”Stock prices have been plummeting and bond market signals are flashing red as Wall Street traders and economists increasingly expect that the economy may tip into a recession. On Wednesday, the S&P 500 rose 1.5 percent, climbing after the release of the decision and Mr. Powell’s news conference, most likely because investors had already expected the Fed to make a large move.The economy remains strong for now, but the Fed’s actions are beginning to have a real-world impact: Mortgage rates have risen sharply and are helping to cool the housing market; demand for consumer goods is showing signs of beginning to slow as borrowing becomes more expensive; and job growth, while robust, has begun to moderate.While the economic path ahead may be a rocky one, the Fed’s policymakers contend that things would be worse in the long run if they did not act. As prices surge, worker pay is not keeping up. That means that families are falling behind as they try to afford gas, food and rent, even in a very strong labor market.“You really cannot have the kind of labor market we want without price stability,” Mr. Powell said Wednesday, explaining that what officials want is a job market with lots of job opportunities and rising wages. “It’s not going to happen with the levels of inflation we have.”The White House has been emphasizing that the Fed plays the key role in bringing down inflation, even as the Biden administration does what it can to reduce some costs for beleaguered consumers and urges companies to improve gas supply.“The Federal Reserve has a primary responsibility to control inflation,” President Biden wrote in a recent opinion column. He added that “past presidents have sought to influence its decisions inappropriately during periods of elevated inflation. I won’t do this.” More

The Fed raised its target interest rate by three-quarters of a percentage point, the most by the U.S. central bank since 1994, as it seeks to tame red-hot inflation. [FED/]The central bank faces the task of charting a course for the economy to weather rate increases without a repeat of the 1970s-style predicament when the central bank’s interest hikes aimed at fighting inflation resulted in a steep recession.Inflation, which has become a hot-button political issue, has worsened with the Ukraine war, hitting market sentiment and piling pressure on to an already battered supply chain. However, since banks make money on the difference between what they earn from lending and payouts on deposits and other funds, they typically thrive in a high interest rate environment. More

Belousov, speaking to the agency in an interview, said year-on-year Russian inflation by the end of the year would be somewhere around 15%. As of June 10 it was 16.69%.The currency remains near multi-year highs thanks to Russia’s surging current account surplus and capital controls – recently softened – that Moscow introduced in a bid to stop a run on the rouble after the imposition of Western sanctions.”Our rouble is overstrengthened – 55-60 rubles per dollar is too strong a rate, especially against the background of deflation and high interest rates,” Tass quoted Belousov as saying.”The equilibrium, comfortable for our industry, is a rate between 70 to 80 roubles per dollar.” More