Economy

PRETORIA (Reuters) -South Africa’s central bank cut its main interest rate for the first time in more than four years on Thursday, as it said it saw inflation staying below the midpoint of its target range as far out as 2026.The South African Reserve Bank (SARB) lowered the repo rate by 25 basis points to 8.00%, as predicted by economists polled by Reuters.South Africa’s headline consumer inflation came in at 4.4% year-on-year in August, just below the 4.5% midpoint of the target range the central bank aims for.The rate cut follows the U.S. Federal Reserve’s decision on Wednesday to begin lowering rates, and makes South Africa the latest emerging market to embark on an easing cycle after early movers in Latin America and central Europe.Prior to Thursday’s cut, the SARB had kept the repo rate unchanged at seven policy meetings in a row. Before that it raised rates 10 times consecutively.For much of the past three years annual inflation has been near the top of the central bank’s target band or above it, averaging 5.9% in 2023 and 6.9% in 2022.But it dropped sharply in July and further in August. The SARB said on Thursday that it thought progress bringing down inflation would be sustained, “with inflation contained below the 4.5% midpoint of our range through to the end of the forecast horizon, in 2026″.On inflation expectations the bank noted they were slowly moving in the right direction, as shown in a recent quarterly survey.”As long as headline inflation stabilises at lower levels, we anticipate further progress in re-anchoring expectations around the middle of our target range,” the SARB said in a statement.Economic growth is expected to improve in the final two quarters of this year, bolstered by power utility Eskom suspending rolling power blackouts and higher consumer spending spurred by the government’s “two-pot” pension reform. The rand currency has also benefited from confidence linked to the formation of a coalition government following May’s election, when the African National Congress party lost its majority in parliament. More

The Fed slashed borrowing costs to a range of 4.75% to 5.0% on Wednesday and indicated that it would announce further cuts this year, signaling the beginning to an easing cycle aimed at shoring up the economy following a prolonged battle against surging inflation. Rates had previously been at a more than two-decade high for over a year.Speaking to reporters at a Bitcoin bar in New York City following the decision, Trump said the reduction, which was the Fed’s first since 2020, shows that “the economy would be very bad, or they’re playing politics, one or the other.” He added it was a “big cut.”At a closely-watched press conference, Fed Chair Jerome Powell downplayed concerns about a recession, pointing to resilient economic growth, cooling price gains and a “solid” labor market.”The US economy is in a good place and our decision today is designed to keep it there,” Powell said.He also stressed that the Fed was only carrying out a “recalibration” of its rate policy and is not instituting a “new pace” of cuts. He added that the rate-setting Federal Open Market Committee (FOMC) was not in a “rush” to slash borrowing costs.Along with the drawdown, an updated “dot plot” of officials’ policy forecasts indicated that policymakers now expect the benchmark fed funds rate to dip to 4.25% to 4.5% by the end of 2024. This would suggest either another jumbo half-point rate cut or two smaller quarter-point cuts at the Fed’s two remaining gatherings this year.Powell, who was nominated to his current position by Trump in 2017 and is a registered Republican, also responded to claims that the 50-basis point cut was politically motivated. He said the FOMC only concerns itself with doing “the right thing […] for the people we serve.””[W]e do that, and we make a decision as a group, and then we announce it. And that’s always what it is. It’s never about anything else. Nothing else is discussed,” Powell said.Powell was a target of criticism during Trump’s previous term in the White House, particularly after the then-President called on the Fed to cut rates during a time of rising global trade tensions. In one instance, Trump lashed out at Powell, questioning whether he was a “bigger enemy” to the US than Chinese President Xi Jinping.Brad Case, Chief Economist at Middleburg Communities, suggested that other Republicans would rally to support Trump’s claim, and potentially encourage some GOP members in Congress to purpose legislation reducing the Fed’s independence.For its part, the Fed has said that it was created as an independent and non-partisan central bank — a position that Powell reiterated again on Wednesday.”Our job is to support the economy on behalf of the American people. And if we get it right, this will benefit the American people significantly. So this really concentrates the mind,” Powell said. “And, you know, it’s something we all take very, very seriously. We don’t put up any other filters. I think if you start doing that, I don’t know where you stop.”Elsewhere, Kamala Harris, Trump’s Democratic rival in November’s all-important presidential election, called the rate cuts “welcome news for Americans who have borne the brunt of high prices.”Recent polls have pointed to inflation, which has moderated in the US after a post-pandemic surge, as one of the major financial concerns for voters prior to the vote. More

LONDON (Reuters) – The Bank of England kept interest rates at 5.0% on Thursday, saying it would be careful about future cuts, and also held off from running down its bond holdings at a faster pace, avoiding extra budget strains for finance minister Rachel Reeves.      The Monetary Policy Committee voted 8-1 to keep rates on hold. Only external member Swati Dhingra voted for a further quarter-point rate cut after the BoE last month delivered its first reduction to borrowing costs since 2020.Economists polled by Reuters had forecast a 7-2 vote for a hold after last month’s tight 5-4 decision to cut rates from their previous 16-year high.Sterling briefly jumped above $1.33 to its highest since March 2022, and investors scaled back bets on further Bank Rate cuts.On Wednesday, the U.S. Federal Reserve cut rates by a larger than expected 0.5 percentage points, reflecting the Fed’s confidence that inflation pressures are cooling.BoE Governor Andrew Bailey struck a more cautious tone as wage growth looked set to remain too high for comfort and policymakers remained divided over how fast long-term inflation pressures were fading.”It’s vital that inflation stays low, so we need to be careful not to cut too fast or by too much,” he said.Investors think the BoE will cut rates at a somewhat slower rate than the Fed.”Clearly, the Bank’s relative caution stands in some contrast to the Fed’s strong start to its easing cycle,” said Luke Bartholomew, Deputy Chief Economist at fund manager abrdn.”Underlying inflation pressures in the UK remain elevated, while the labour market is sending quite mixed messages about the health of the economy,” he added.The BoE said inflation was likely to rise to around 2.5% by the year’s end from 2.2% in the most recent data, moving further away from its 2% target but by less than a previous forecast for an increase to around 2.75%. Lower oil prices contributed to the change.BoE staff also estimated that unemployment had probably risen more in recent quarters than suggested by official data, which has suffered from very low response rates.After Thursday’s announcement, investors no longer fully priced two rate cuts by the end of 2024, as they had done earlier in the day, and they expected the BoE to cut rates in quarter-point steps four or five more times by June.By contrast, they see around seven such cuts in the U.S. QT CONTINUESThe MPC voted 9-0 to maintain the pace of its programme for reducing its stockpile of British government bonds purchased in past attempts to stimulate the economy.The 100 billion-pound pace of quantitative tightening over the coming 12 months will be the same as over the past year, in line with most market expectations.Some investors had predicted an acceleration of QT, as the BoE holds 87 billion pounds of gilts that are due to mature naturally over the next year, leaving just 13 billion pounds for active gilt sales at the current pace.Lawmakers and think tanks have criticised QT because it brings forward losses sustained by the BoE, which purchased gilts in past years at much higher prices than their current sale value. Those losses are underwritten by the taxpayer.The BoE also makes losses from paying interest on the reserves it issued to finance the purchases of gilts, which now far outstrips the returns generated by the bonds.Many economists think finance minister Rachel Reeves  will change Britain’s fiscal rules to exclude the impact from QT in her inaugural budget on Oct. 30 – something that could give her several billion pounds of extra fiscal space.James Sproule, UK chief economist at Swedish bank Handelsbanken, said the lower level of active sales compared with the previous year would help Reeves as it would reduce compensation due to the BoE.($1 = 0.7515 pounds) More

LONDON (Reuters) – Sri Lanka reached a draft deal with creditors to restructure $12.5 billion of international bonds, it said on Thursday, in a major boost to the island nation’s fragile recovery just two days before its presidential election. The country defaulted on its foreign debt for the first time ever in May 2022, engulfed in a severe crisis and buckling under its high debt burden and dwindling foreign exchange reserves.The agreement comes after Sri Lanka began a third round of formal debt restructuring talks with bondholders last week. The country had to renegotiate parts of a previous draft deal, which it announced in July, after objections from the International Monetary Fund and official creditors. Getting sign off from both is a prerequisite to executing the deal. It also finalized a preliminary deal to restructure $3.3 billion in debt with China Development Bank, one of Beijing’s two main trade policy banks.”Sri Lanka now expects to receive formal confirmation from IMF staff that the Agreement in Principle and the Local Option, taken together, are fully consistent with the parameters of Sri Lanka’s IMF-supported Program,” the Sri Lankan government said in a statement. “Sri Lanka will continue to work with the OCC and its secretariat to secure confirmation of compliance of the Agreement in Principle and the Local Option with the Comparability of Treatment principle,” it added, referring to the Official Creditor Committee.Once Sri Lanka gets the formal sign-off from both parties, it said it would commit “its best efforts to expedite the implementation of the restructuring in respect of the bonds.”President Ranil Wickremesinghe said the IMF is likely to visit Sri Lanka two weeks after the election. Its international bond prices rallied as much as 2 cents by 1004 GMT to bid between 53.3-54.5 cents on the dollar, Tradeweb data showed. But the country’s tight presidential race on Saturday cast some doubt over the fate of the final deal, as two front-runners have expressed interest in changing some terms of the country’s IMF bailout, which could also impact restructuring efforts. REVISED TERMSThe latest draft agreement raised the GDP thresholds under which bondholders would get bigger payments under so-called macro-linked bonds. The previous agreement would have triggered at a GDP of $92 billion-$100 billion, while Thursday’s agreement increased those targets to $94 billion-$107 billion. It also lowered some of the coupon payments. But the haircut on the nominal amount of existing bonds is 27% under the new deal, from 28% under the agreement announced in July.In a nod to its local investor base holding international bonds, the proposal offers those an option to swap into a mix of U.S. dollar denominated bond and local currency bonds. It would also allow the government to pay local holders in Sri Lankan rupee if it is unable to make a payment in dollars.The new deal also included a number of other clauses, giving bondholders the option to change the law underpinning them from New York to Briatin or Delaware. Lawmakers in the U.S. state of New York, whose laws cover a vast chunk of international emerging market debt issuance, have mooted a controversial bill that would make significant changes to debt restructuring and bondholder rights. Sri Lanka’s leaders hailed the agreements as major steps forward in the country’s efforts to emerge from more than two years of debt default. “With this Sri Lanka will be officially out of temporary moratorium of servicing foreign debt,” Foreign Minister Ali Sabry said in a post on X. “In other-words as some people have referred, out of bankruptcy!”Spokespersons for the Paris Club Secretariat, which handles communications for Official Creditors, the IMF and the Local Consortium of Sri Lanka did not immediately respond to a request for comment. The Steering committee of the Ad Hoc Group of Bondholders declined to comment. More

LONDON (Reuters) – The U.S. Federal Reserve has joined a global easing cycle with a larger-than-anticipated half-point interest rate reduction.Seven of the 10 big developed-market central banks tracked by Reuters have now started easing policy. Japan is the outlier, as it starts to lift its rates from ultra-low levels.Here’s where major rate-setters stand and what traders expect next.1/ SWITZERLAND The Swiss National Bank, the first among Western peers to lower borrowing costs in March, cut rates again in June to 1.25%. It has signaled it intends to keep going.Money markets view another cut on Sept. 26 as certain, and are pricing almost 30% odds of a 50 basis point (bps) reduction, after Swiss annual inflation dropped to 1.1% in August. Outgoing SNB chair Thomas Jordan believes a stronger franc threatens exports.2/ CANADA The Bank of Canada is expected to deliver a fourth consecutive cut in October. A 25 bps reduction is fully priced in and markets attach a roughly 60% chance of a bigger 50 bps cut.Annual inflation has slowed to 2% and the BoC has mused about price rises dropping below this target level after the economy slackened and strong population growth helped lift unemployment to 6.6%. 3/ SWEDEN Sweden’s Riksbank, which started cutting rates in May after its successive hikes crushed inflation but weakened the economy, is tipped to lower borrowing costs by another 25 bps on Sept. 25.Swedish rates stand at 3.5% but annual inflation has steadied at below the Riksbank’s 2% target.4/ EURO ZONE The ECB cut rates again on Sept. 12 as the euro zone economy faltered and inflation slowed, providing scant clues on what it might do next.Investors expect roughly 40 bps of further easing by year-end and see about a 30% chance of another 25 bps cut in October.5/ BRITAIN The Bank of England left its key rate unchanged at 5% on Thursday after cutting it in August from a 16-year high of 5.25%.Britain’s services inflation remains sticky, meaning the BoE is expected to lower rates far more slowly than in the United States or the euro zone.Markets price in roughly 40 bps of rate cuts by year-end and see around a 65% chance of a quarter-point cut in November.6/ UNITED STATES The Federal Reserve on Wednesday kicked off an easing cycle with a big 50 bps rate cut, the first reduction in over four years.Money markets now price in roughly 70 bps worth of further easing by year-end, suggesting traders think another big reduction is likely. 7/ NEW ZEALANDA convention for quarterly instead of monthly GDP and inflation data has baffled New Zealand’s central bank and domestic market watchers. The Reserve Bank of New Zealand in August cut rates for the first time this cycle to 5.25%, a year earlier than its own projections had stated. Markets forecast another quarter point drop in October.8/ NORWAYNorway’s central bank remains in the hawkish camp.It left its policy rate unchanged at 4.50% on Thursday and said any cuts must wait until the first quarter of 2025, boosting the crown currency.Markets price in a roughly 70% chance of a move in December, meaning Norway’s easing cycle will likely start well after those of its peers.9/ AUSTRALIA Another in the hawkish camp is Australia.The Reserve Bank of Australia has held rates at 4.35% since last November and believes inflation is still sticky, although data suggests the economy is struggling.Markets do not expect any cuts until at least December. 10/ JAPANRising inflation prompted longtime outlier the Bank of Japan to nudge borrowing costs up to 0.25% in July, a move that wreaked havoc on global trades that were underpinned by its ultra-loose monetary policies. The yen has surged, Japanese stocks are flailing and the BoJ, now keen to protect domestic industry from further market ructions, is expected to hold rates steady on Friday and keep them below 0.5% until at least October 2025. More

This is an on-site version of the US Election Countdown newsletter. You can read the previous edition here. Sign up for free here to get it on Tuesdays and Thursdays. Email us at [email protected] morning and happy Thursday! Today let’s dive into:Democrats’ growing confidence in North CarolinaA major union declining to endorsePolitical implications of the Federal Reserve’s rate cutAt one point in the White House race, North Carolina seemed like the swing state that posed the toughest challenge for the Democrats, but the party is growing more confident that it’s in play for Kamala Harris.Donald Trump is still up by 1.4 percentage points in the state, according to the FT’s poll tracker, but when I was in Charlotte last week, local Democratic politicians and operatives told me that Harris’s presence at the top of the ticket has reinvigorated support for the party in North Carolina. The state last went blue in 2008, when Barack Obama was first elected president.To flip the state, Democrats need to heed lessons learnt in the 2022 midterms, especially in the party stronghold of Mecklenburg County, which encompasses Charlotte, North Carolina’s most populous city.Mecklenburg is the party’s best opportunity to shore up votes since it’s the county with the most Democrats, but it has had low turnout in recent years. “It’s simply untenable if Democrats want to have a real shot at winning the state,” said Drew Kromer, the 27-year-old chair of the Mecklenburg County Democratic Party. Particular attention needs to be paid to Black voters, who make up 55 per cent of registered Democrats in the county, he added.He said the party “wasn’t particularly active” in the county two years ago, but over the past 16 months Democrats have “built a much more robust party infrastructure”.“If Mecklenburg can fix its turnout problem, we will become North Carolina’s Fulton County,” Kromer said, referring to the Georgia county incorporating Atlanta, which was pivotal in Biden’s 2020 win.“It’ll be close, whatever [the result] is, but I think that we’re going to be able to do it,” said state representative Mary Belk, whose district is in Mecklenburg County. “We understand that we’ve got to reach out and talk to [voters] that we haven’t been talking to,” she added, including young people in the fintech sector who are moving to the state. The most important thing for the party to do in deeply divided North Carolina is make sure people get the message that their vote matters, said state senator Natasha Marcus, who also represents Mecklenburg County. That includes ensuring they are prepared for the first presidential election in which they must present a valid form of identification to vote in North Carolina.Campaign clips: the latest election headlinesBehind the scenesThe International Brotherhood of Teamsters, an influential US union, said it would not endorse a presidential candidate, a sign that a core part of the Democrat’s voting bloc might be drifting to the right.The decision not to endorse came after a phone poll of union members — who are heavily concentrated in the swing states of Pennsylvania, Michigan and Wisconsin — showed that 58 per cent wanted the Teamsters to endorse Trump, with 31 per cent preferring Harris. The move was basically a “tacit endorsement” of Trump, union board member John Palmer told the FT’s Taylor Rogers.Referencing Trump’s history of animosity with unions, Palmer said:It was a cowardly political move by people who wanted to pander to the membership instead of taking up what would have been a hit by telling the truth.Harris has won the endorsement of other big unions, but the Teamsters’ decision comes as Democrats and some labour leaders fear that Trump has made inroads with working-class voters.This is the first time in almost 30 years that the union hasn’t endorsed a candidate, and it last backed a Republican in 1988. “Unfortunately, neither major candidate was able to make serious commitments to our union to ensure the interests of working people are always put before Big Business,” union president Sean O’Brien said in a statement.DatapointThe Federal Reserve opted for a chunky half-point rate cut yesterday, and signalled that borrowing costs will fall further this year [free to read].The decision could provide a boost for Harris, who has been campaigning on bringing down everyday costs, a top voter concern. Some content could not load. Check your internet connection or browser settings.Trump — who has been critical of Fed chair Jay Powell — said the Fed’s move showed the US economy was either “very bad” or that it was “playing politics”. “I guess it shows the economy is very bad to cut it by that much, assuming that they are not just playing politics,” he said on Wednesday. “The economy would be very bad, or they are playing politics, one or the other. But it was a big cut.”It was a milestone for the central bank, marking the first time it has cut rates in more than four years.The federal funds rate is now between 4.75 per cent and 5 per cent, and officials’ latest dot plot — in which they sketch out their rate forecasts — showed they expect that to fall to 4.25 per cent to 4.5 per cent by the end of the year.Policymakers are expecting rates to drop by another percentage point next year, and fall just below 3 per cent by the end of 2026.Some content could not load. Check your internet connection or browser settings.ViewpointsRecommended newsletters for youFT Exclusive — Be the first to see exclusive FT scoops, features, analysis and investigations. Sign up hereBreaking News — Be alerted to the latest stories as soon as they’re published. Sign up here More

(Reuters) – Traders on Thursday added to bets the U.S. Federal Reserve’s next rate cut will be smaller than the one it delivered on Wednesday, after economic data showed an unexpected drop in unemployment insurance claims.Interest-rate futures contracts now price in about a 30% chance that the Fed, which cut rates by half a percentage point on Wednesday, will deliver a second cut of the same size in November. The market-based probability of a quarter-point rate cut in November is now about 70%, up from around 65% before the data. More

(Reuters) -BofA Global Research was the only major brokerage to raise its forecast for the Federal Reserve’s anticipated interest-rate cuts for the rest of 2024, a day after the U.S. central bank delivered an outsized cut. The Wall Street brokerage said it expects a 75-basis point reduction in the fourth quarter, compared with its earlier forecast for two 25-bp cuts in the Fed’s November and December meetings. Fed policymakers themselves have projected the benchmark interest rate will fall by another half a percentage point by 2024-end. The central bank announced a larger-than-usual 50 bps reduction on Wednesday that Chair Jerome Powell said was meant to show policymakers’ commitment to sustaining a low unemployment rate now that inflation has eased.Following the bigger rate cut, “we are skeptical that the Fed will want to deliver a hawkish surprise”, BofA economists said.The brokerage expects another 125 bps of cuts in 2025 to bring the terminal rate to 2.75%-3.00%, from the current federal funds target rate of 4.75%-5.00%. That compares with Fed policymakers projecting a full percentage point cut for next year, and half a percentage point in 2026, while cautioning the outlook that far into the future is necessarily uncertain. Goldman Sachs, meanwhile, retained its forecast of two 25- bp cuts in the November and December meetings this year, but said it now expects consecutive 25 bps cuts from November 2024 through June 2025, bringing the terminal rate to 3.25%-3.50% by mid-2025.It earlier expected quarterly pacing of cuts in 2025. Citigroup maintained its expected size of cuts this year at 125 bps, but now expects a 25 bps reduction in December against its earlier forecast of a 50 bps cut. Other brokerages like Macquarie and Deutsche Bank have retained their calls of two 25 bps rate cuts this year. More