Economy

The central bank has raised its two-week repo rate by 425 basis points since June, tightening aggressively to tackle inflation that hit a 24-year high of 11.1% in February. Price pressures are still building, spurred on by rising energy costs following the Ukraine conflict.A Reuters poll showed most analysts expected the central bank to deliver one more big interest rate increase when it meets on Thursday, and only a few predicted borrowing costs would rise again later this year.Nine out of the 12 analysts polled predicted an increase of 50 basis points this week and two expected a rise of 25 basis points. One expected no change.Of the six respondents giving an outlook beyond March, three forecast the main rate would peak at 5.50% this year. In a January poll, only one forecast rates would rise above 5%.The central bank will announce its decision at 2:30 p.m. (1230 GMT) on Thursday, followed by a news conference at 3:45 p.m. where Governor Jiri Rusnok will comment on the vote.Prior to Russia’s Feb. 24 invasion of Ukraine, which Moscow calls a “special military operation”, central bankers thought it unlikely rates would climb above 5%. But opinions have changed.Board member Tomas Holub told Reuters last week that he expected to be in the camp favouring a larger rather than smaller move at Thursday’s meeting, but also said he was open to debate about raising to 5.00% now and further in May.Vice-Governor Marek Mora said that he saw rates going “well above” 5%.The central bank may also debate using its large international reserves, which stood at about 64% of gross domestic product in February, to fight inflation and not just as a tool to stabilise exchange rate fluctuations.The bank announced on March 4 it had intervened in markets after the crown had weakened sharply with other currencies in central Europe amid the fallout from the Ukraine conflict.Holub said this month he would prefer to tighten monetary policy through rates rather than currency interventions. More

The finance ministry offer on Eurobonds maturing on April 4, Russia’s biggest debt payment this year, follows Western moves to tighten sanctions against the country over its invasion of Ukraine and to freeze Moscow out of international finance.Moscow, which calls its actions in Ukraine a “special military operation”, says Western measures amount to “economic war”. In response, it has already demanded foreign firms pay for Russian gas in roubles rather than dollars or euros.It was not immediately clear if bondholders would be forced to accept roubles if they rejected the offer, a move that would break the terms of the bond and would again raise the prospect of Russia’s first external sovereign default in a century.”It’s important to note that this is tender offer and not a final decision that these bonds will be paid in roubles. Perhaps, Russian authorities want to gauge investors’ willingness to accept payment in roubles?” said Seaport Global credit analyst Himanshu Porwal.Tim Ash of BlueBay Asset Management, which is not a bondholder, said the move was part of a fight bank by Russia’s central bank and finance ministry “to fend off default and stabilise markets and the rouble”.Ash said the United States’ Office of Foreign Assets Control (OFAC), which enforces U.S. sanctions, “should make clear it will not extend the general licence when it falls due on May 25″, the current deadline for U.S. individuals or entities to receive payments on Russian sovereign bonds.Russia’s finance ministry said in its statement on Tuesday that bondholders should submit requests to sell their holdings to the National Settlement Depository between 1300 GMT on March 29 and 1400 GMT on March 30.SECURING PAYMENTThe Eurobonds would be bought at a price equivalent to 100% of their nominal value, it said.”I think this is to allow Russian investors to get the payment,” said one fund manager, adding that it would help them given Euroclear has been blocking dollar payments to the Russian clearing system.The finance ministry did not say how much of the $2 billion in outstanding Eurobonds it planned to buy back or what its actions could be should bondholders refuse to accept the offer. The bond has a 30-day grace period and no provisions for payments in alternative currencies, JPMorgan (NYSE:JPM) said.According to Refinitiv database eMAXX, which analyses public filings, major asset managers such as Brandywine, Axa, Morgan Stanley (NYSE:MS) Investment Management, BlackRock (NYSE:BLK) were recently among the holders of the bond coming due on April 4.The finance ministry had said earlier on Tuesday it had fully paid a $102 million coupon on Russia’s Eurobond due in 2035, its third payout since Western sanctions called into question Moscow’s ability to service its foreign currency debt.Russian payments have so far gone through, staving off a default. Sanctions have frozen a chunk of Moscow’s huge foreign reserves and Russian officials have said any problem with payment that led to a formal declaration of default would be an artificial default.The rouble tumbled in value after the West imposed sanctions over the Ukraine crisis, plunging as much as 40% in value against the dollar since the start of 2022. It has since recovered, trading in Moscow at around 83 roubles to the dollar, down about 10%.Russia’s next payment is on March 31 when a $447 million payment falls due. On April 4, it also should pay $84 million in coupon a 2042 sovereign dollar bond. More

UK consumers borrowed a record amount in February, with some economists saying it was a sign of the cost of living crisis hitting wallets even before Russia’s invasion of Ukraine pushed energy prices higher.Individuals borrowed a net £1.5bn on credit cards in February, the highest monthly amount since records began in 1993, according to data published by the Bank of England on Tuesday.The figure was more than three times higher than the average of £400mn borrowed in the previous six months and pushed total consumer credit, which includes personal loans and car dealership finance, to £1.9bn net — the highest level in five years.Consumer borrowing is usually considered a measure of spending growth, but with inflation at a 30-year high and falling consumer confidence, some economists have warned that it was increasingly a sign of consumers running into debt to maintain their standard of living.“Weak sentiment also indicates that the big rise in consumer borrowing in February likely reflects households attempting to maintain their consumption at a time when real disposable income is falling sharply, rather than them going on a spending spree,” said Samuel Tombs, chief UK economist at consultancy Pantheon Macroeconomics.He added that the data “suggest that the economic recovery is about to shift down a gear”.The latest money and credit figures “suggest that consumers are increasingly borrowing more to protect their lifestyles from the surge in inflation”, echoed Thomas Pugh, UK economist at the accountancy firm RSM UK.However, Paul Dales, chief UK economist at consultancy Capital Economics, said it was more likely that the rise reflected households having “the confidence to borrow and spend a bit more”. As a result, he forecast that “the economy may have a bit more near-term momentum than we thought”.A fortnightly survey by the Office for National Statistics showed last week that 12 per cent of respondents were using credit cards more than usual to cope with increased prices in the first half of March. The proportion rose to 18 per cent for those aged 30 to 49 and to 21 per cent among renters. Another one in 10 people said that they were also borrowing more from family and friends.Debt charity StepChange on Tuesday reported a rise in the proportion of people seeking advice who said that cost of living pressure was a reason for their debt in February.Peter Tutton, StepChange’s head of policy, research and public affairs, said: “More and more, what we are seeing is that people experiencing problem debt have problems meeting not just their credit repayments, but also their priority bills.”He called on UK chancellor Rishi Sunak to “find a way to provide more and more targeted support for those who are simply unable to absorb the cost of living increases into their household budgets”.BoE governor Andrew Bailey said on Monday that the UK was facing “a historic” hit to real incomes this year, as spiralling energy costs following the Russian invasion of Ukraine contributed to eroding households’ spending power.The BoE data showed that consumers also deposited less money in bank accounts than before the pandemic. Households deposited £4bn in banks and building societies, less than the £6.3bn average in the previous six months and down from the monthly average of £4.6bn in 2019. More

NEW DELHI – Russian Foreign Minister Sergei Lavrov is set to fly to India this week, sources said, finding time to visit to one of the biggest buyers of Russian commodities since the international community began isolating Moscow for its invasion of Ukraine.There is little sign that buying will slow down any time soon, as more deals get signed. One source said the two countries could discuss smoothening trade payments disrupted by Western sanctions on Russian banks. Media have said he could hold talks in the Indian capital on Friday.It will only be Lavrov’s third visit overseas since Russia’s Feb. 24 invasion of Ukraine, after a trip to Turkey for talks with his Ukrainian counterpart earlier this month and a scheduled meeting in China on Thursday.Russia is India’s main supplier of defence hardware but overall annual trade is small, averaging about $9 billion in the past few years, mainly fertiliser and some oil. By comparison, India’s bilateral trade with China is more than $100 billion a year.But given sharp discounts on Russian crude oil since the attack on Ukraine, India has bought at least 13 million barrels, compared with nearly 16 million barrels imported from the country for the whole of last year. Many European countries have also continued to buy Russian energy despite publicly criticising Moscow.New Delhi has called for an immediate ceasefire in Ukraine but has refused to explicitly condemn Moscow’s actions. It has abstained from voting on multiple U.N. resolutions on the war.India is now considering doubling its imports of Russian coking coal used in making steel, the Indian steel minister said on Sunday. Reuters reported on Tuesday that India recently contracted to buy 45,000 tonnes of Russian sunflower oil for April delivery after supplies from Ukraine stopped. Last year, India bought about 20,000 tonnes from Russia a month.”India will import more items from Russia, especially if it is at a discount,” one senior Indian government official said.The government has been looking to establish a rupee-rouble trade system and discussions between Indian and Russian financial officials are ongoing, said the source. All the sources declined to be named as the talks were private.The Indian government and the Reserve Bank of India (RBI) did not immediately respond to requests for comment.OTHER MECHANISMSBesides the rupee-rouble trade window, several other options are on the cards, including settling all government and quasi-government payments directly through the central banks of the two countries, said the source.”India has made up its mind to continue trading with Russia, one way or the other,” said Happymon Jacob, a professor of international studies at New Delhi’s Jawaharlal Nehru University.”During the Russian foreign minister’s visit, the bureaucracy could definitely bring up the issue of how to continue looking for alternative mechanisms to smoothen trade relations between the two sides.”Russia’s embassy in New Delhi said it could not confirm the visit. India’s foreign ministry said it had no information to share.In a sign of sustained ties despite the Ukraine crisis, India is considering allowing Russia to use its funds lying with the Reserve Bank of India (RBI) to invest in Indian corporate bonds, said another Indian government source.Russia has retained about 20 billion rupees ($263 million) of Indian payments for Russian defence equipment with the RBI.But another Indian government official said New Delhi would have to diplomatically tackle pressure from the West to be able to maintain its ties with Russia.U.S. President Joe Biden said this month India was “somewhat shaky” in acting against Russia. A U.S. diplomat said last week after meeting Indian officials in New Delhi that the United States had not asked partners like India to suddenly stop energy purchases from Russia. More

LONDON (Reuters) -Britain has detained a Russian-owned $50 million superyacht hours before it was due to leave London where it had docked for a meeting of the superyacht awards, saying the move was part of its sanctions package aimed at punishing Moscow. The 58.5 metre Dutch-built yacht, named Phi, was detained in the Canary Wharf financial district of London under the government’s Russian sanctions, the first time the regulations have been used to detain a ship. The government said Phi was owned by a Russian businessman that it did not name, but that ownership was “deliberately” hidden, with the company the ship is registered to based in St Kitts and Nevis, and the ship carrying Maltese flags.The National Crime Agency (NCA) said the owner of the vessel had not been sanctioned in Britain but that under the law a ship owned, controlled, chartered or operated by persons connected with Russia could be subject to detention. The yacht, which features a fresh-water swimming pool and what it described as an “infinite wine cellar”, was built by shipbuilders Royal Huisman.”Today we’ve detained a 38 million pound superyacht and turned an icon of Russia’s power and wealth into a clear and stark warning to Putin and his cronies,” Transport Secretary Grant Shapps said in a statement.”Detaining the Phi proves, yet again, that we can and will take the strongest possible action against those seeking to benefit from Russian connections.”Britain has, along with international allies, introduced waves of sanctions on institutions, businesses and wealthy elites, seeking to cripple the Russian economy and punish those with links to the Kremlin for the invasion of Ukraine.Phi was first identified as being potentially Russian owned on March 13, the government said, and a subsequent investigation by the NCA led to its detention. “Today’s activity demonstrates the NCA’s ability to react at pace,” Andy Devine from the NCA said. The government said it was also looking at a number of other vessels. ($1 = 0.7651 pounds) More

ROME (Reuters) – Italy plans to confirm its 2022 budget deficit target at 5.6% of national output, two sources close to the matter told Reuters, despite coalition pressure to sharply hike borrowing as the growth outlook deteriorates.Mario Draghi’s government is preparing to slash its growth forecast for this year to 2.8% from a previous 4.7% goal made in September, the sources said, amid surging energy costs and turmoil linked to Russia’s invasion of Ukraine.In confirming the 5.6% deficit goal, Draghi is helped by the fact that on current trends the deficit is on track for 5.3%, according to the sources, allowing potential leeway of 4 billion to 5 billion euros ($4.4 billion to $5.5 billion) of additional spending without increasing the current target. Last year’s deficit came in at 7.2%.The new figures will be published by the Treasury next week in its annual Economic and Financial Document (DEF).Draghi has been facing pressure from his ruling coalition to approve a major new spending package to support growth in the euro zone’s third largest economy, and some party chiefs may keep seeking to overcome his intransigence.The figures are still subject to marginal changes as the Treasury awaits final data on public finances for the fourth quarter of 2021, to be published by national statistics bureau ISTAT on April 5, the sources said.For 2023, Rome now sees GDP rising by around 2.5%, the sources said, asking not to be named due to the sensitivity of the matter. The new forecast is down from an official goal of 2.8% made in September.The growth forecasts are based on an unchanged policy scenario and so do not include the impact of new supportive measures to be funded through the budget leeway.For this reason, the final GDP targets will be somewhat more ambitious.Italy grew 6.6% last year following a record contraction of 9.0% in 2020 caused by extended coronavirus lockdowns.This year did not begin well. Italian industrial output dived 3.4% in January from the month before, its steepest fall for more than a year, even before the headwinds generated by the Ukraine war. Consumer and business sentiment both slumped in March.The Ukraine conflict has exacerbated already sky-high energy costs and triggered supply crunches for agriculture.The government has so far has set aside more than 19 billion euros since last July to try to soften the increase in energy and fuel prices for firms and households.Italy, whose top two banks have sizeable exposure to Russia and which relies heavily on Moscow for its energy needs, could see its growth outlook deteriorate further if the West ramps up its sanctions against Russia.The Kremlin has warned that Rome could face “irreversible consequences” if it follows this path.($1 = 0.9059 euros) More

Investing.com — Risk assets rise and havens fall as peace talks between Russia and Ukraine appear to get closer to a major breakthrough. European economic data remain alarmingly weak, however. U.S. house price figures and the Labor Department’s monthly Job Openings survey are due, as are earnings from Lululemon (NASDAQ:LULU) and chipmaker Micron (NASDAQ:MU). Oil edges higher as OPEC and its allies prepare for another phantom production increase. Here’s what you need to know in financial markets on Tuesday, 29th March.1. Peace talks make progressPeace talks between Russia and Ukraine appeared to be on the verge of a breakthrough. Diplomatic negotiations between the two sides resumed in Istanbul earlier and an aide to Ukraine’s President Volodymyr Zelensky promised a statement “in several hours.”At the same time, Russia’s Defense Minister Sergei Shoigu announced that Russia had achieved its main objectives with what it calls a “special military operation,” namely the degrading of Ukraine’s military capability and the ‘liberation’ of eastern Ukraine’s Donbas region, part of which had seceded with Russia’s assistance eight years ago.Western officials have expressed suspicion that Russia may only be using the peace talks to buy time to regroup, having suffered far higher casualties than expected over the last month. However, Kremlin spokesman Dmitry Peskov was quoted by newswires as saying that the fate of the talks could be decided “today or tomorrow.”2. Europe makes strong gains on peace hopesEuropean assets responded strongly to the signs of progress toward a diplomatic settlement, while safe haven assets retreated.By 6:15 AM ET (1015 GMT), the euro had gained 0.6% against the dollar to $1.1042, while European stock markets were up by as much as 2.3%. The Euro Stoxx 50 advanced 2.2%. Gold futures, by contrast, touched a two-week low of $1,906 an ounce before recovering slightly to trade at $1,913, down 1.4% on the day.The biggest gainers included stocks that are directly dependent on supplies of Russian gas for their operations. German chemicals giant BASF (DE:BASFN), one of whose board members warned that it might have to shut its Ludwigshafen headquarters even if Russian gas supplies only fall by 50%, saw its stock rise by 3.8%. Russia has threatened to suspend deliveries if European buyers don’t agree to pay in rubles from the end of the month. G7 Energy Ministers roundly rejected the demand on Monday.3. U.S. Stocks set to open higher; Lululemon, Micron eyed – as well as Fed speakersU.S. stock markets are set to open higher later, supported by the more friendly global tone, but with one eye on the day’s round of speeches from Federal Reserve officials. New York Fed President John Williams and his Philadelphia counterpart Patrick Harker are both due to speak in the course of the day.By 6:20 AM ET, Dow Jones futures were up 134 points, or 0.4%, while S&P 500 futures were also up 0.4%, and Nasdaq 100 futures were up 0.3%.There’s a reasonably full data calendar, with house price data due at 9 AM ET, and the Labor Department’s monthly job openings survey and the Conference Board’s consumer confidence index at 10 AM ET.Stocks likely to be in focus include Apple (NASDAQ:AAPL). Apple’s streaming win at the Oscars on Sunday is sustaining its longest winning streak in years despite signs that it’s struggling with weakening consumer demand, as rises in the cost of living leave less money available for its premium-priced products.Micron and Lululemon report earnings.4. Europe still low on confidence as cost of living hitsCost of living issues were unmistakably at work in data releases overnight, with sharp drops recorded in German and French consumer confidence in March. Food and energy prices have risen markedly in recent months, and consumers tend to attribute more importance to items that are bought frequently.Elsewhere, the U.K. reported the biggest monthly rise in over five years in household borrowing, suggesting that consumers are rapidly running down their pandemic-era savings as inflation runs at the highest rate in 30 years. Mortgage approvals and mortgage lending both resumed their downward trends, too, falling well short of expectations.British consumers at least had the entertaining spectacle of the Metropolitan Police handing out fixed penalty notices to Downing Street officials who had organized a series of lockdown-busting parties during the pandemic. The Met refused to name any individuals involved, although newspapers had reported that Prime Minister Boris Johnson was unlikely to receive a fine, despite attending at least two of the banned events. As such, he’s likely to avoid getting a criminal record.5. Oil prices edge up as OPEC stands firmMinisters from OPEC countries again refused to budge from their long-standing position of gradual increases in output to bring down crude prices that are still well above $100 a barrel.OPEC and allies, including Russia, are due to meet later this week and are expected to stick with their plan for an increase of 400,000 barrels a day from May. However, they seem even less likely to achieve that than usual, given supply problems in both Russia and Kazakhstan. The Caspian Pipeline Consortium, which ships Kazakh oil to world markets via the Black Sea, will be shipping at reduced rates for at least the next three to four weeks due to storm damage to its export terminal.By 6:30 AM ET, U.S. crude prices were up 1.4% at $107.39 a barrel, while Brent futures were up 1.4% at $110.98.The API reports its weekly inventory data at 4:30 PM ET as usual. More

Australia has announced a giveaway budget aimed at easing cost-of-living pressures while investing in defence and infrastructure projects ahead of a general election in May. Josh Frydenberg, Australia’s treasurer, detailed a series of measures including a temporary cut to fuel excise, A$38bn (US$28bn) of regional and rural investment, A$17.9bn of road and rail projects — many in marginal seats — and a A$9.9bn investment in bolstering the country’s cyber-security capability as part of “a new chapter in Australia’s economic story”.Tuesday’s budget was delivered with Prime Minister Scott Morrison’s coalition government trailing the opposition Labor party, led by Anthony Albanese, in the polls. But Frydenberg denied he had unveiled a “spendathon” budget, which included measures to ease the cost of living in the form of a petrol tax cut as well as a one-off $250 payment to 6mn low-income Australians, ahead of the election. He said the government was instead “banking the dividend of a strong economy”.The Australian economy has been bolstered by the sharp rise in the price of iron ore, coal, gold and nickel in the wake of Russia’s invasion of Ukraine. The budget included a forecast of a big drop in the price of iron ore and coal by the end of September, but stated that if prices remained at current levels then tax receipts would increase by A$29.5bn. The Ukraine invasion has also strengthened Morrison’s campaign to increase military spending amid rising regional tensions. The budget included a push to establish a cyber security centre dubbed “Redspice”, which will employ 1,900 data scientists and software engineers. The government said Redspice would support other military initiatives, such as the Aukus nuclear submarine agreement with the US and UK, and a A$38bn investment in expanding the size of Australia’s armed forces. “The lesson of history is that weakness invites aggression. It leaves nations vulnerable to coercion. This is the reality we must confront. The world is less stable. We must invest more in the defence of our nation,” said Frydenberg.

The treasury has tried to strike a balance between boosting public spending ahead of the election without triggering a further increase in inflation. Australia’s net debt is forecast to rise to A$865bn by 2026 from A$592bn in 2021. Frydenberg said the ratio of debt to gross domestic product remained well below other advanced economies, including Japan and the US. Australia is expected to record a deficit of $78bn in the next financial year, or 3.4 per cent of GDP, which the treasurer said would fall to 1.6 per cent within three years. Other measures in the budget included more funding to protect the Great Barrier Reef, money to restore koala habitats after the 2020 bushfires and support for small-scale renewable energy projects. Frydenberg said a low-emissions future was critical to building a strong economy, in a rare reference to climate change by his government. “Australia is on the pathway to net zero emissions by 2050 and [is] playing its part in responding to the critical global challenge of climate change,” he said. “Technology, not taxes, will get us there.” More