Economy

OTTAWA (Reuters) – The Bank of Canada on Wednesday is expected to announce its first half-point interest-rate increase in over 20 years, as the central bank accelerates its tightening timeline to tackle an overheating economy, analysts said. Canada’s six largest banks all foresee a half-point increase to 1.0% from 0.5% when the central bank releases its rate decision at 10 a.m. ET (1400 GMT), rather than the quarter-point increment the bank usually favors. Money markets see about a 85% chance of the larger increase. “Inflation is running well above the BoC’s target, the economy has fully recovered pandemic losses, and the jobless rate is the lowest since at least the mid-1970s, leaving absolutely no rationale for monetary policy to still be stimulative,” said Benjamin Reitzes, Canadian rates & macro strategist at BMO Economics, in a note. “It’s time for the BoC to play catch-up.”The Bank of Canada last hiked by 50 basis points (bps) in May 2000. The Bank has signaled it will act “forcefully” to tackle red-hot inflation and Governor Tiff Macklem, last month, left the door open for a 50-bps hike.Inflation hit 5.7% in February, its 11th consecutive month above the Bank of Canada’s 1-3% range. The Bank last month hiked rates for the first time in three years, increasing them to 0.5% from a record low 0.25%.The policy rate will be the main lever for the central bank’s drive to rein in inflation, with Canada’s big bank economists all anticipating a second half-point hike in June. The Bank is also widely expected to start quantitative tightening on Wednesday, allowing the large stake of government bonds it amassed during the pandemic to roll off as they mature.Reducing its share of the bond market could transmit monetary policy more effectively to the economy, as borrowing costs tend to be determined by longer-term rates rather than the very short-term rate set by the BoC.Still, the relative late start to tightening, coupled with the risk of inflation expectations becoming unhinged as prices continue to rise sharply, will force the Bank of Canada to move more aggressively than it has in the past, said economists.”Whereas in the past they would start to tighten sooner and go slowly, this time they are tightening later, but they’re probably going to go a lot quicker,” said Stephen Brown, senior Canada economist at Capital Economics.    “What the topic is fast becoming now is where will rates end up,” he added. Money markets see rates peaking at about 3% next year. More

James Bullard, president of the St Louis branch of the Federal Reserve, has warned it is a “fantasy” to think the US central bank can bring down inflation sufficiently without raising interest rates to a level where they constrain the economy.Bullard, a voting member of the policy-setting Federal Open Market Committee and one of its foremost hawks, said the central bank needed to be more aggressive in its efforts to root out the highest inflation in four decades as he called for rates to rise to a point where they actively curtail growth.That is the level at which rates neither fuel nor restrict economic activity and is estimated to be about 2.4 per cent. Bullard said the central bank would need to get beyond that threshold as quickly as possible this year if it wanted to bring inflation closer to the Fed’s longstanding 2 per cent target.“There’s a bit of a fantasy, I think, in current policy in central banks,” Bullard said in an interview with the Financial Times. “Neutral is not putting downward pressure on inflation. It’s just ceasing to put upward pressure on inflation.”His comments came on the day it was confirmed that consumer price growth had surged to 8.5 per cent in March, its fastest pace since 1981.However, there were signs that rises in “core” CPI, which strips out food and energy prices, were beginning to slow. It rose 0.3 per cent last month, the slowest rise since September and equivalent to an annual rise of 6.5 per cent.Read more on US inflationAnalysis: Robert Armstrong breaks down the inflation report in his daily Unhedged email. He calls the report “surprisingly benign” and points to falling used car prices as one of the reasons for the lower than expected increase in core CPI.Do you think core inflation has peaked? Email me at [email protected]. Compare international prices rises with our inflation tracker.Thanks for reading FirstFT Europe/Africa. Here’s the rest of the day’s news — GordonFive more stories in the news1. Police seek ‘person of interest’ in New York subway shooting The New York Police Department named Frank R James, 62, as a “person of interest” after a gunman opened fire on commuters on a Brooklyn subway car. Police said they recovered a key to a U-Haul moving van rented in Philadelphia that they believed was linked to the incident. The shooter remains at large.Read more: The subway has become a particular cause for concern for authorities in New York wrestling with rising levels of crime, report Joshua Chaffin and Sara Germano.

The New York City Police Department released photos of Frank R James as a “person of interest” in connection to yesterday’s subway shooting © AP

2. Exclusive: Peloton activist investor takes aim at new chief executive Blackwells Capital, which called in January for Peloton to fire co-founder John Foley, has taken aim at its new chief executive. The activist investor argues that Barry McCarthy has failed to reform the connected-fitness company’s governance or justify its continued independence.3. Biden describes Putin’s actions in Ukraine as ‘genocide’ Speaking at an event in Iowa yesterday, the US president referred to Vladimir Putin’s actions in Ukraine as “genocide” for the first time, in an apparent escalation in the White House’s rhetoric against Russia.4. Yen falls to 20-year low against the dollar The Japanese currency fell to its lowest level since 2002 against the greenback after the Bank of Japan said it would continue with its stimulus measures in order to bolster the economy at a time when central banks around the world were beginning to tighten monetary policy — the Reserve Bank of New Zealand today raised rates by half a percentage point.5. British prime minister fined for Covid breaches Boris Johnson became the first UK prime minister found to have committed a criminal offence while in office after police fined him alongside his wife Carrie and chancellor Rishi Sunak for an illegal birthday party held at Downing Street during a Covid-19 lockdown.The day aheadUkraine war Top arms makers, including Lockheed Martin, Raytheon and L3 Technologies, will meet Biden administration officials at the White House today to discuss increasing lethal aid to Ukraine. The US has so far provided more than $1.7bn in security assistance to Kyiv.Banking earnings season begins JPMorgan Chase kicks off the US banks earning season. Revenues are expected to have fallen compared with the same quarter a year ago linked to a slowdown in investment banking activity. Asset manager BlackRock and Delta Air Lines also report first-quarter results.Economic data The US producer price index, which tracks prices businesses receive for their goods, is forecast to have risen 1.1 per cent in March from February. The annual increase in March is expected to rise to 10.6 per cent from 10 per cent in February. Monetary policy The Bank of Canada is expected to raise its benchmark interest rate by 0.5 percentage points to 1 per cent, according to economists polled by Refinitiv, to combat surging inflation.What else we’re reading and listening toBiden and Ukraine: from climate champion to oil price panic US president Joe Biden was elected with bold plans for the green transition. But ahead of midterm elections he is facing an energy crisis, writes our US energy editor Derek Brower.Russia’s new commander in Ukraine Alexander Dvornikov was promoted to an army general by Vladimir Putin after overseeing Russia’s brutal military operations in Syria. He has now been charged by Moscow with rebooting Russia’s Ukrainian war effort.‘The rest of the world should watch what is happening in Shanghai’ The total Covid lockdown of China’s predominant business hub will affect the economies of the entire world, writes the FT’s Asia editor Robin Harding, and yet it is happening at a time when many people in Europe and the US are ready to ignore the whole thing.The future of antibiotics This special report examines increasing global resistance to antibiotics, the pressures doctors are under to prescribe, what new treatments are in the pipeline, and the role the consumer can play in reducing their use in the food chain.Breaking the silence on disability in the workplace The FT’s Working It podcast is about doing work differently. This week, host Isabel Berwick argues that while we have heard a lot about diversity and inclusion in workplaces, one group is often left behind: people with disabilities.PropertyMérida, the capital of Yucatán state, has preserved its colonial-era architecture and boasts proximity to beaches and Mayan ruins. No surprise, then, that international homebuyers are flocking to Mexico’s safest city.

Mérida has one of the largest preserved historical town centres in the Americas © Megapress/Alamy More

WASHINGTON (Reuters) – Countries that are seeking advantage by failing to condemn Russia’s “heinous war” against Ukraine are being short-sighted and will face consequences if they undermine Western sanctions, U.S. Treasury Secretary Janet Yellen said on Wednesday.The United States and its partners “will not be indifferent” to actions that undermine the sweeping sanctions they have imposed on Moscow and Russian President Vladimir Putin over the invasion, she warned in wide-ranging remarks prepared for an event hosted by the Atlantic Council think tank.Yellen said the war between Russia and Ukraine had redrawn the world economic outlook and the Biden administration was resolute in its commitment to hold Russia accountable for its “horrific conduct” and its violations of international law.”Rest assured, until Putin ends his heinous war of choice, the Biden Administration will work with our partners to push Russia further towards economic, financial, and strategic isolation,” she said.The Russian invasion had galvanized many countries and companies to take a unified stance and severe business ties with Moscow, in a way that could help shape the global response to other “unmet global challenges,” Yellen said.But some countries were still “sitting on the fence, perhaps seeing an opportunity to gain by preserving their relationship with Russia and backfilling the void left by others,” Yellen said, without naming any specific countries.”Such motivations are short-sighted. The future of our international order, both for peaceful security and economic prosperity, is at stake,” Yellen said. “And let’s be clear, the unified coalition … will not be indifferent to actions that undermine the sanctions we’ve put in place.”Yellen’s remarks come days after President Joe Biden warned India, which has not imposed sanctions on Moscow, that buying more oil from Russia was not in India’s interest and could hamper the U.S. response to the war in Ukraine.Washington and its allies have sought to pressure India, China and other “fence-sitters” to take a clear stance opposing Russia and what it has called a “special military operation.”Yellen said Biden’s multilateral approach had enabled the Group of Seven advanced economies to impose significant costs on Russia, and made clear they were acting in support of a rules-based global order that protects peace and prosperity.She said the same approach – and shared values – could help solve other big issues, such as climate change, ending the COVID-19 pandemic, and supporting low-income countries.Yellen said changes were also needed to “modernize our existing institutions — the (International Monetary Fund) and the multilateral development banks — so that they are fit for the 21st century.” Her calls come after Biden said Russia to be excluded from the Group of 20 major economies.”Some may say that now is not the right time to think big,” she said, citing the war and the lingering pandemic. “Yet, I see this as the right time to work to address the gaps in our international financial system that we are witnessing in real time.”U.S. officials began crafting proposals to create the IMF, the World Bank and the post-war international financial architecture in 1941, early in World War Two, and a new architecture was needed now, she said.”As then, we ought not wait for a new normal. We should begin to shape a better future today,” she said. More

WASHINGTON (Reuters) – The International Monetary Fund hopes to mobilize around $45 billion for a new trust to help a broader range of countries, including some middle-income economies, deal with climate change and other longer-term challenges, a paper prepared by IMF staff and reviewed by Reuters shows.The IMF’s executive board is expected on Wednesday to approve plans for the new Resilience and Sustainability Trust (RST) that were hammered out by IMF staff after the Group of 20 major economies backed creation of the instrument in October.Nearly three-quarters of the IMF’s 190 members would be eligible to borrow from the new trust, the global lender’s first facility set up expressly to help countries manage balance of payments risks posed by longer‐term challenges, the paper said.”Today, even as IMF member countries confront the immediate challenges of rising inflation, constrained fiscal space and pandemic recovery — heightened by risks associated with the war in Ukraine — they are also calling on the Fund to help respond to longer-term challenges such as climate change and pandemic preparedness,” the paper said. Currently, the IMF offers low-cost and zero-interest rate financing to help countries deal with short-term challenges, such as capital flight, inflation or high commodities prices, and medium-term fiscal and financial challenges.But it lacks a facility to help countries manage risk to balance of payments posed by longer-term threats, build economic resilience to shocks, and tap opportunities to achieve sustainable, inclusive growth.The IMF’s Poverty Reduction and Growth Trust is also open only to low-income countries.The RST, first proposed by IMF Managing Director Kristalina Georgieva in June, would fill that gap and offer countries affordable financing over extended repayment periods. The IMF has said it plans to begin lending under the program by October.It would be available to low-income and vulnerable middle-income countries, including small states, many of which were hit particularly hard by the pandemic and its economic impact.To qualify for lending from the new RST, countries would still need to develop “credible policy and reform measures,” have sustainable debt and adequate capacity to repay the IMF, and be part of a concurrent financing or non‐financing IMF-supported program, the paper said.In addition to providing loans, the IMF also has policy-coordination arrangements with other countries, including Serbia, Rwanda and Senegal, that do not entail funding. The eligibility criteria were set up to “preserve economic stability” while mitigating financial risks to the fund, the paper said.Richer IMF member could contribute to the trust by donating their unneeded Special Drawing Rights, the IMF’s own currency reserves, from a $650 billion allocation approved last August. The funding is also expected to serve as a catalyst for additional public and private financing, the paper said. More

Weekly inflation in Russia slowed to 0.99% in the week to April 1 from 1.16% a week earlier, taking the year-to-date increase in consumer prices to 9.99%, data from statistics service Rosstat showed last week.Rosstat is due to publish the latest weekly inflation data later on Wednesday. More

TOKYO (Reuters) -Bank of Japan Governor Haruhiko Kuroda on Wednesday warned the recent rise in inflation driven by higher import costs could hurt the economy, stressing the central bank’s resolve to keep monetary policy ultra-loose.Consumer inflation is likely to clearly accelerate as energy prices rise sharply and companies steadily pass on higher raw material costs to households, Kuroda said.While the BOJ chief said the world’s third-largest economy was expected to recover as consumption shows signs of improvement, and robust overseas demand underpin exports, he also warned of risks.”The outlook, however, remains highly uncertain due to the impact of the pandemic, as well as developments regarding Ukraine and the impact on commodity prices,” Kuroda said in a speech to an annual meeting of trust banks. He stressed the need to maintain the BOJ’s massive stimulus to support an economy yet to recover to pre-pandemic levels.”Recent rising inflation, driven by higher import costs, weighs on Japan’s economy by reducing households’ real income and corporate profits,” Kuroda said.The spike in global commodity prices, fuelled by the war in Ukraine, and a weak yen have inflated the cost of imports for resource-poor Japan, threatening to derail a fragile economic recovery.Finance Minister Shinichi Suzuki jawboned markets against pushing down the yen too much, saying earlier on Wednesday that rapid moves in the yen were “undesirable.”The remark, however, failed to prevent the yen from sliding below 126 to the dollar on Wednesday, the first time it breached that level since May 2002. More

Fiji’s government did not immediately respond to requests for comment on the presence of the Amadea, owned by Russian billionaire Suleiman Kerimov, at Lautoka Wharf.The Marine Traffic website showed Amadea moored on Wednesday, after leaving Mexico 18 days ago.The Fiji Times newspaper published a photograph of the superyacht at the wharf where it said it docked on Tuesday. More

TAIPEI (Reuters) -Taiwan central bank governor Yang Chin-long said on Wednesday inflation would slow by the third quarter and any rate rise decisions would depend on consumer price data, but the bank would be very cautious on the pace of tightening.In a surprise move last month, the central bank raised its benchmark interest rate and by a much bigger margin than some expected, citing concerns about inflation, which have been driven by supply chain disruptions from the war in Ukraine.Taiwan’s March consumer price index (CPI) rose an annual 3.27%, a more than nine-year high and the eighth month in a row it had increased beyond the central bank’s 2% warning line, driven largely by rising global energy costs.Taking lawmaker questions in parliament, Yang declined to provide details on future rate rise decisions. Asked whether each future increase would be a 12.5 basis point jump, he replied: “At present, I wouldn’t dare to say that.”Yang, who has previously flagged the bank would continue to move in the direction of tightening this year, said they would be “very cautious” on the speed of rate rises.”We have our considerations and won’t be like the United States,” he said, when asked if they would be as aggressive as the Federal Reserve in mapping out rate rises. He noted U.S. inflation was far higher than it was in Taiwan.Yang said the depreciation of the Taiwan dollar, down around 5% so far this year against the greenback, did add to inflationary pressures, but that the effect was mild so far.The central bank will intervene to ensure the currency’s stability, but it was normal for a currency to both rise and fall, he added.He also said Taiwan’s economic fundamentals were very good, with listed companies reporting good profits.But firms need to be aware monetary policy tightening is the direction the bank is going in, Yang added.”They definitely need to be careful with their financial planning.”The bank holds its next scheduled rate setting meeting on June 16. More