The weak economic momentum, along with the hope for the Federal Reserve’s rate freeze next month and moderating inflation, may prod South Korea’s central bank to keep its policy rate unchanged again this week.

But the Bank of Korea (BOK) is likely to say that it will keep its restrictive monetary policy stance amid still high inflation and soaring household debts.

On Thursday, the BOK is widely predicted to leave the rate, which currently stands at 3.5 percent, unchanged, which would be the seventh straight rate freeze in the face of a murky growth outlook, according to a survey of 13 economists by Yonhap Infomax, the financial data firm of Yonhap News Agency.

The series of rate freezes comes after the BOK delivered seven consecutive hikes in borrowing costs from April last year to January.

South Korea’s economy has been dogged by slumping exports and sluggish consumer spending. For the year, the central bank had expected Asia’s fourth-largest economy to expand 1.4 percent this year, but it is still unclear whether such a forecast would be achieved in the face of a still murky economic outlook.

Weak global demand, led by China’s slowing economy, and a delay in the recovery of the IT sector have been blamed for a slump in the country’s outbound shipments.

But recently, the country’s exports have shown signs of recovering. South Korea’s exports rebounded for the first time in 13 months in October, driven by robust auto shipments, along with signs of an improvement in the chip sector.

Outbound shipments moved up 5.1 percent on-year to US$55 billion last month and logged a trade surplus of $1.64 billion in October, the fifth straight gain.

This week, the central bank will announce its updated growth outlook for the year and next year as well.

The economy grew 0.3 percent, 0.3 percent and 0.6 percent, respectively, in the first, second and third quarters.

Policymakers have also pinned hopes on easing inflation, helping the central bank take a breather in its rate hike moves.

South Korea’s inflation grew at a faster pace of 3.8 percent in October, staying above 3 percent for the third consecutive month, due to higher prices of energy and farm goods.

It is the third month in a row that the annual price growth has picked up pace.

But oil prices have been stabilizing in the face of the Israel-Hamas war, possibly helping inflation ease down the road, a development that supports the central bank’s rate freeze.

The central bank is also paying keen attention to rising household debts.

Household loans extended by banks in South Korea rose for the seventh straight month in October, led by rising home-backed loans amid high borrowing costs.

Banks’ outstanding household loans reached a record high of 1,086.6 trillion won (US$833.6 billion) at end-October, up 6.8 trillion won from a month earlier, accelerating from a 4.8 trillion-won rise the previous month and marking an on-month increase for the seventh month in a row.

Early this month, the Fed held its benchmark lending rate steady at a 22-year high for the second consecutive time as it keeps striving to bring down inflation to its 2 percent target.

The Fed kept the rate between 5.25 and 5.50 percent. But it left open the possibility of a rate change later to achieve “maximum” employment and its inflation target.

Next month, the Fed is widely expected to stand pat again.

Source : Yonhap News Agency

The post BOK Likely to Keep Policy Rate Unchanged on Slowdown, Hope for Fed’s Rate Freeze, Easing Inflation appeared first on Policy Print.

The Monetary Policy Committee (MPC) of the Reserve Bank may keep the repo rate — its key lending rate — unchanged at 6.5 per cent in its upcoming monetary policy review scheduled from December 6-8.

This may be because of rising inflationary risks, stemming from the recent spike in vegetable prices. The central bank is also expected to retain the stance of the monetary policy as ‘withdrawal of accommodation’. With better-than-expected second-quarter gross domestic product (GDP) print at 7.6 per cent, the RBI may revise upwards its FY ’24 growth estimate.

Why will RBI keep the repo rate unchanged?

Economists said that the six-member rate-setting panel of the RBI is unlikely to tinker with the repo rate — the rate at which RBI lends money to banks to meet their short-term funding needs — in the upcoming policy.

“There will be no change (in the RBI policy). The reason is that the inflation will start inching up because food inflation is going to increase. We have seen onion and tomato prices going up again. So, there is no case for even thinking of lowering the repo rate. At the same time, core inflation is around 4 per cent, and therefore, there is no reason for the RBI to increase the rate,” said Madan Sabnavis chief economist, Bank of Baroda.

Consumer price-based inflation (CPI) eased to 4.87 per cent in October from 5.02 per cent in September. The retail inflation, however, remains above the 4 per cent target of the RBI.

Last month, RBI Governor Shaktikanata Das said that though headline inflation has moderated, it remains vulnerable to recurring and overlapping food price shocks coming from global factors and adverse weather events. In such a scenario, the monetary policy needs to remain watchful and actively disinflationary while supporting growth.

“We are completely focused on the 4 per cent target. We maintain Arjuna’s eye on the inflation target (of 4 percent),” he had said at a banking event.

According to Kaushik Das, chief economist, India & South Asia, Deutsche Bank, with the strong July-September 2023 GDP print and upside risks to near-term inflation prints due to food price volatility, RBI is likely to remain hawkish in the upcoming monetary policy.

“RBI will likely keep repo rate and stance unchanged, persist with tight liquidity and ensure that short-term rates remain around 6.85-6.90 per cent, resulting in an ‘effective rate hike’,” Das said.

This will be the fifth monetary policy on the trot when the MPC is likely to leave the repo rate unchanged at 6.5 per cent. Last time, the repo rate was raised from 6.25 per cent to 6.5 per cent in February 2023. Between May 2022 and February 2023, the policy rate was raised by 250 basis points (bps). One basis point is one-hundredth of a percentage point.

Will the RBI change the policy stance?

The stance of the monetary policy may be retained as the ‘withdrawal of accommodation’, analysts said.

“In the last policy, the RBI stated that the transmission of (250 bps hike in) the repo rate has not happened. If you look at the weighted average lending rates and deposit rates of banks, there is still a 50 bps in the lending rates. Therefore, the stance will continue to be ‘withdrawal of accommodation’,” Sabnavis said.

In response to the cumulative 250 bps hike in policy rate since May 2022, banks have revised their repo-linked external benchmark-based lending rates (EBLRs) upward by the same magnitude. The one-year median marginal cost of funds-based lending rate (MCLR) increased by 152 bps from May 2022 to October 2023. The weighted average lending rates (WALRs) on fresh and outstanding loans of banks increased by 187 bps and 111 bps, respectively, from May 2022 – September 2023.

On the deposit side, the weighted average domestic term deposit rates (WADTDRs) on fresh and outstanding rupee deposits increased by 229 bps and 166 bps, respectively.

Will the GDP and inflation projections be revised?

With the Q2FY’24 GDP growth overshooting its estimate of 6.5 per cent, the RBI may revise its FY2024 growth forecast marginally. The real GDP growth for FY’24 is projected at 6.5 per cent. The RBI may not revise the headline inflation forecast, which has been kept at 5.4 per cent for the current fiscal.

“RBI will likely increase FY’24 GDP forecast to 6.8 per cent y-o-y, from 6.5 per cent y-o-y earlier, while holding the FY’24 CPI forecast unchanged at 5.4 per cent (as food inflation will come off sharply in January-March 2024, after picking up in October-December 2023),” Deutsche Bank’s Das said.

What will happen to lending rates in case of a pause by RBI?

As the RBI is expected to keep the policy rate unchanged at 6.5 per cent, all external benchmark lending rates linked to the repo rate will not rise. It will provide some relief to borrowers as their equated monthly instalments (EMIs) will not increase.

Source : The Indian Express

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With each passing year, the stark reality of a hotter planet becomes clearer and the ensuing risks to the global economy intensify. But as the world is waking up to the scale of the climate crisis, geopolitical tensions and fragmentation risks are undermining our ability to coordinate global actions to solve this planetary problem.

Eight years on from the Paris Agreement, policies remain insufficient to stabilize temperatures and avoid the worst effects of climate change. Collectively, we are not cutting emissions fast enough and are falling short on the needed investment, financing, and technology. The window is closing, but we still have time—just—to change our trajectory and leave a healthy, vibrant, and livable planet to the next generation.

Limiting global warming to 1.5 degrees to 2 degrees Celsius and reaching net zero by 2050 requires cutting carbon dioxide and other greenhouse gases by 25 percent to 50 percent by 2030 compared with 2019. But, as our new analysis shows, the current global commitments reflected in nationally determined contributions would reduce emissions by just 11 percent by the end of this decade.

To make matters worse, current policies are not consistent with commitments, which means that the world is set to fall short of even that meager goal. Business-as-usual policies would see annual global emissions increase by 4 percent by 2030 and reach a cumulative level sufficient to breach the 1.5-degree target by 2035.

More ambition, stronger policies

To get back on track with the global climate goals, we need more ambition now. A fair approach is for countries to target cuts in emissions in line with per capita incomes.

For example, to keep within 2 degrees of warming, high, upper-middle, lower-middle, and low-income countries will need emissions reductions of 39 percent, 30 percent, 8 percent and 8 percent, respectively, by 2030. To stay below 1.5 degrees of warming would entail more drastic emissions cuts of 60 percent and 51 percent for high- and upper-middle income countries.

Ambition alone is not enough. We also need major policy changes to achieve these more ambitious targets. These would ideally be centered on a robust carbon price—rising to a global average of at least $85 per ton by 2030—to provide broad incentives to reduce carbon-intensive energy, shift to cleaner sources, and invest in green technologies.

A carbon price also generates more than enough budget revenues to support vulnerable groups. Around 20 percent of carbon pricing revenues can more than compensate the poorest 30 percent of households. This is in direct contrast to damaging fossil fuel subsidies, which have risen to a record $1.3 trillion annually in explicit fiscal costs alone. Countries must act to phase out such subsidies.

At a global level, cooperation is needed to help assuage fears that carbon pricing would hurt national economic competitiveness. Here, an agreement among large emitters could spur other countries to follow—such as a progressive deal between China, the European Union, India, and the United States. This would cover over 60 percent of global greenhouse gas emissions and send a strong signal to the rest of the world.

Boosting climate finance

The path to net zero by 2050 requires low-carbon investments to rise from $900 billion in 2020 to $5 trillion annually by 2030. Of this figure, emerging and developing countries (EMDEs) need $2 trillion annually, a fivefold increase from 2020. Even if advanced economies meet or somewhat exceed their promise to provide $100 billion a year, the bulk of the financing for these low-carbon investments will need to come from the private sector.

Our analysis shows that private sector share of climate finance must rise from 40 percent to 90 percent of the total in EMDEs by 2030. That means a broad mix of policies to overcome barriers such as foreign exchange and policy risks, underdeveloped capital markets, and too few investable projects.

For example, targeted economic policies and governance reforms can lower capital costs. Meanwhile, blended finance that combines private capital with public and donor funding—including from multilateral development banks—can bring down the risk profile of green projects. Think of first-loss capital, credit enhancements, or guarantees.

At the same time, global policies to increase transparency and comparability of projects, standardize taxonomies and strengthen climate-related disclosure requirements are vital in helping investors make low-carbon choices. Again, this highlights the importance of international cooperation.

Scaling up innovation

Of the 50 percent cut to emissions needed by 2030 to stay on track for the 1.5-degree target, more than 80 percent can be achieved from technologies available today. Getting to net-zero by 2050 will, however, require technologies that are still under development or yet to be invented.

Unfortunately, patent filings for low-carbon technology peaked at 10 percent of total filings in 2010 and have since declined. Worse, key technologies aren’t spreading fast enough to emerging and developing countries.

How can this trend be reversed? Recent IMF analysis shows climate policies—such as feed-in tariffs and emissions trading schemes—boost green innovation and investment flows,and help spread low carbon technology across borders. Moreover, in some countries, lowering trade barriers can accelerate imports of low carbon technologies by 20 percent to 30 percent. Yet again this points to the importance of cooperation: to avoid protectionist measures that would impede the broader spread of low-carbon technologies.

Helping countries meet goals

Wherever climate policy intersects with macroeconomic policy, the IMF is here to help. Our new Resilience and Sustainability Trust provides long-term financing on affordable terms to help vulnerable middle- and low-income countries cope with threats such as climate change. The $40 billion trust has already supported programs for 11 countries, with twice that number in the pipeline.

For our wider membership, we add a climate lens to our economic analysis, policy advice, capacity development and data provision. Why? Because macroeconomic and financial sector policies are critical to harnessing the opportunities of the green transition: for low-carbon, resilient growth, and jobs.

But no country can tackle climate change on its own. International cooperation is more important than ever. Only with concerted action, now, will we bequeath a healthy planet to our children and grandchildren.

Source : IMF

The post World Needs More Policy Ambition, Private Funds, and Innovation to Meet Climate Goals appeared first on Policy Print.

The yen suffered its biggest daily fall against the dollar since April on Tuesday after the Bank of Japan made only modest changes to its policy of holding down government bond yields.

The Japanese currency fell 1.7 per cent against the dollar to ¥151.60, its weakest level since October last year, and close to the point at which the central bank last intervened by spending a record ¥6.35tn ($43bn) to push the yen back up.

Some investors had suspected the BoJ would take a more definitive step towards closing the gap between borrowing costs in the US and Japan by abandoning its yield curve control altogether, as the yen tests multi-decade lows and inflation has persisted above the central bank’s target for the past 18 months.

Instead, officials changed the 1 per cent limit on 10-year Japanese bond yields from a hard cap to a “reference point”. “The fact that the yen weakened by more than a percentage point is the market telling you that they still think the Bank of Japan is behind the curve,” said Ella Hoxha, head of fixed income at Newton Investment Management. “That’s fair because inflation is much higher than their 2 per cent target and they are the last central bank standing in terms of very loose policy.”

Analysts predict Japanese officials are poised to intervene and support the currency again if the currency continues to weaken to a 32-year low, estimating it might step in at levels between ¥152 and ¥155. “They are probably quite comfortable with where Japanese government bond yields are and relying on intervention to prevent the yen getting out of control,” said Chris Turner, head of global markets at ING.

The central bank maintained its policy rate at minus 0.1 per cent, the world’s only negative interest rate. But it significantly increased its inflation forecast, saying it expected 2.8 per cent core inflation in the 2024 fiscal year, instead of its previous forecast of 1.9 per cent. 

Analysts say the fall in the currency puts the BoJ in a bind, as it pushes up the cost of imported goods, when officials are focused on achieving domestically driven inflation for maintaining a 2 per cent target rate.

The yen has been the worst performing major currency this year, falling by over 13 per cent against the dollar, fuelled by the yawning gap between US and Japanese borrowing costs.  Intervention on its own would be unlikely durably to support the sliding yen — that would depend more on a switch in US monetary policy that pulls down the dollar or on a push higher in Japanese interest rates.

But that too brings potential risks. “They are trying to support the currency while not being seen as tightening,” said Eva Sun-Wai, fund manager at M&G Investments. “If they let yields run much higher when they have so much debt they run the risk of not being able to refinance at higher levels of interest.”  However, investors think it is inevitable that the BoJ will normalise policy as the economy remains buoyant and inflation remains persistently above target. Sun-Wai said that her worry is that the longer policymakers leave it to tighten, the tougher they will have to be. 

The normalisation of policy in Japan could have major ramifications for international bond markets, as Japanese investors own trillions of dollars of overseas debt following years of hunting for higher yields elsewhere.  

“Under Governor [Kazuo] Ueda’s leadership, the BoJ is moving to a more pragmatic approach,” said Iain Stealey, international CIO for fixed income at J.P. Morgan Asset Management. “We expect the BoJ to take a more active approach from here, potentially ending negative interest rates . . . as early as spring next year.”

Source : Financial Times

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The story of Germany in the years after the First World War is a striking reminder of how price stability and democracy go hand in hand.

The historian Gerald Feldman famously called those troubled years “the Great Disorder”. And although the relative contributions of the hyperinflation of the 1920s and the deflation of the 1930s are still debated, there is little doubt that wild swings in prices eroded the economic foundations of democracy.

One of the ways in which price instability does this is by triggering large distributional effects, which often hurt the poorest in society the most. For example, ECB analysis finds that the spike in inflation over the last 18 months has disproportionately affected low-income households as they spend more of their income on necessities like energy and food, which saw surging prices.

These are fundamental reasons why, in most liberal democracies, central banks have been entrusted with mandates to preserve price stability. And at the ECB, we will never compromise on our mandate. That is why, in response to rising inflation, we raised interest rates at the fastest pace in our history, by 450 basis points in just over a year. And we will return inflation to our medium-term target in a timely manner.

However, having made such a large and fast adjustment, we are in a phase of our policy cycle which I would characterise as being “attentive and focused”.

We need to be attentive to the different forces affecting inflation: the unwinding of past energy shocks, the strength of monetary policy transmission, the dynamics of wages and the evolution of inflation expectations. And we need to remain focused on bringing inflation back to our target, and not rush to premature conclusions based on short-term developments.

The forces pushing down inflation

There are two main forces pushing down inflation today.

First, the energy and supply chain shocks which played a substantial role in last year’s inflation surge are now unwinding.

At its peak, energy and food accounted for more than two-thirds of headline inflation in the euro area, despite representing less than one-third of the consumption basket. And together with supply chain disruptions, this also had a sizeable effect on core inflation – inflation excluding food and energy – as input costs rose for firms across the economy.

So, it is not surprising that as supply chains heal and energy prices fall, we are seeing the reverse effect, and both headline and core inflation are coming down.

We expect headline inflation to rise again slightly in the coming months, mainly owing to some base effects. This reflects the sizeable drops in energy costs observed around the turn of last year, and the reversal of some of the fiscal measures that were put in place to fight the energy crisis. But we should see a further weakening of overall inflationary pressures.

The second force is the impact of our monetary policy tightening.

We had to tighten monetary policy forcefully to bring demand into line with supply and keep inflation expectations anchored while inflation surged. And this policy adjustment has fed quickly into financing conditions. But its peak impact on inflation will only materialise with a lag – and given the unprecedented scale and speed of our tightening, there is some uncertainty about how strong this effect will be.

So, we need to be attentive to how these forces are working through the economy. But given the scale of our policy adjustment, we can now allow some time for them to unfold.

That is why, at our last meeting, we held interest rates at their present levels. And based on our current assessment, we consider that the key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to returning inflation to our medium-term target in a timely manner.

Avoiding persistent inflation

But this is not the time to start declaring victory. The nature of the inflation process in the euro area means that we will need to remain attentive to the risks of persistent inflation as well.

As wage-setting in the euro area is multi-annual and staggered, the high inflation rates that are now behind us are still having a significant influence on wage agreements today. For example, the annual growth rate of compensation per employee was 5.6% in the second quarter of 2023, a 1.2 percentage point increase compared with the average for 2022.

And the ability of workers to obtain higher wages is being supported by a tight labour market and strong demand for labour, which has proven surprisingly resilient to a slowing economy since the end of 2022.

For now, our assessment is that strong wage growth mainly reflects “catch-up” effects related to past inflation, rather than a self-fulfilling dynamic where people expect higher inflation in the future. But to assess how wages are evolving and whether they pose a risk to price stability, we will be closely monitoring a number of developments.

First, whether firms absorb rising wages in their profit margins, which would allow real wages to recover some of their past losses without the increase being fully passed through to inflation.

Second, whether there is some easing of labour market tightness, which would prevent excess demand for labour from becoming a driver of persistently high wage demands.

And third, that inflation expectations remain anchored, which ensures that, when the current shock passes, wage and price-setting will be guided by our 2% inflation target.

In other words, we will need to remain attentive until we have firm evidence that the conditions are in place for inflation to return sustainably to our goal.

That is why we have said our future decisions will ensure that our policy rates will be set at sufficiently restrictive levels for as long as necessary. And we have made those future decisions conditional on the incoming data, meaning that we can act again if we see rising risks of missing our inflation target.

Source : ECB

The post Monetary Policy in the Euro Area: Attentive and Focused appeared first on Policy Print.

The euro area economy remains weak. Foreign demand is subdued and tighter financing conditions are increasingly weighing on investment and consumer spending. The services sector is also losing steam, with weaker industrial activity spilling over to other sectors, and the impact of higher interest rates is broadening. Recent indicators point to continued weakness in the near term.

The labour market has been a bright spot supporting the euro area economy and has, so far, remained resilient to the slowdown in growth. But there are signs that it is turning. While unemployment stood at 6.4% in August, the lowest level recorded since the start of the euro, fewer new jobs are being created, including in services, which suggests that the cooling of the economy is gradually feeding through to employment.

Moreover, the risks to the growth outlook are tilted to the downside. Growth could be lower if the effects of monetary policy transmission turn out stronger than expected, or if the world economy weakens further. Furthermore, major geopolitical risks have intensified and are clouding the outlook. This may result in firms and households becoming less confident and more uncertain about the future, and dampen growth further.

At the same time, while remaining significantly above our medium-term target of 2%, recent inflation data have been in line with our expectations, confirming that our monetary policy is working. Inflation dropped sharply to 4.3% in September and the fall was visible in all its major components. Food price inflation decreased again, but – at 8.8% – remains high by historical standards. Energy prices fell by 4.6%, but have risen again more recently, and have become less predictable in view of the new geopolitical tensions. Inflation excluding energy and food also dropped to 4.5% in September, and we see continued declines in measures of underlying inflation. However, domestic inflation remains strong owing to the growing importance of wage pressures.

The inflation outlook remains surrounded by significant uncertainty. In particular, heightened geopolitical tensions could drive up energy prices and higher than anticipated increases in wages could drive inflation higher. By contrast, a stronger transmission of monetary policy or a worsening of the global economic environment would ease price pressures.

Longer-term interest rates have risen markedly since mid-September, reflecting strong increases in other major economies. The transmission of our monetary policy into broader financing conditions remains forceful. Bank funding costs have continued to rise, as have lending rates for business loans and mortgages. Banks also reported a further sharp drop in credit demand in the third quarter of the year, while credit standards for loans to firms and households tightened again, which was reflected in visibly weakened credit dynamics.

The monetary policy stance

Against this background, we decided to keep the three key ECB interest rates unchanged, at our meeting last week. The incoming information has broadly confirmed our previous assessment of the medium-term inflation outlook. Inflation is still expected to stay too high for too long, and domestic price pressures remain strong. At the same time, inflation dropped markedly in September and most measures of underlying inflation have continued to ease. Past interest rate increases continue to be transmitted forcefully into financing conditions, which is helping to push down inflation.

We consider that the key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to our 2% medium-term target. Our future decisions will ensure that policy rates will be set at sufficiently restrictive levels for as long as necessary. By the December meeting, we will have GDP growth data for the third quarter of the year, the inflation figures for October and November, and a new round of projections. We will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction.

As the energy crisis fades, governments should continue to roll back the related support measures. This is essential to avoid driving up medium-term inflationary pressures, which would otherwise call for even tighter monetary policy. Fiscal policies should be designed to make the euro area economy more productive and to gradually bring down high public debt. Structural reforms and investments to enhance the euro area’s supply capacity – which would be supported by the full implementation of the Next Generation EU programme – can help reduce price pressures in the medium term, while supporting the green and digital transitions. To that end, the reform of the EU’s economic governance framework should be concluded before the end of this year and progress towards capital markets union and the completion of banking union should be accelerated.

Source : ECB

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The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) has announced that it will use all available monetary policy tools to maintain restrictive monetary conditions and reach the desired inflation rates. The MPC also stated that its key interest rates depend on expected inflation rates, not current inflation rates and that it will monitor the economic developments and the risks surrounding inflation expectations.

The CBE has set its inflation targets at 7% (±2%) on average in the fourth quarter of 2024 and 5% (±2%) on average in the fourth quarter of 2026.

The MPC decided to keep the CBE’s basic interest rates unchanged at 19.25% for deposits, 20.25% for lending, and 19.75% for the credit and discount rates and the main operation of the CBE. The decision was made last Thursday, amid rising global commodity prices, especially energy prices, due to the geopolitical tensions in the region. The MPC noted that global inflationary pressures have decreased recently as a result of the tight monetary policies adopted by many major economies, as well as the positive impact of the base year. However, global inflation expectations remained above the target rates for those countries.

The MPC also pointed out that the restrictive monetary policies, along with the high degree of uncertainty caused by the recent geopolitical tensions, contributed to lower global economic growth expectations compared to the previous MPC meeting.

On the domestic front, the MPC said that the real GDP growth rate stayed at 3.9% in the first quarter of 2023, the same as the fourth quarter of 2022. The MPC explained that the economic activity in the first quarter of 2023 was driven by the positive contribution of consumption and net exports. The MPC added that net exports have been the main support for growth since the first quarter of 2022, in line with the exchange rate developments. The MPC expects the GDP growth rate to slow down in the fiscal year 2022/2023 compared to the previous fiscal year, which recorded 6.7%.

“Preliminary indicators for the third quarter of 2023 reflect general stability in economic activity compared to the second quarter of 2023,” it added.

The MPC also said that the unemployment rate decreased to 7.0% in the second quarter of 2023, compared to 7.1% in the previous quarter, mainly due to the increase in the number of workers at a faster pace than the increase in the labor force.

The MPC said that, as expected, the annual urban inflation rate continued to rise, reaching 38% in September 2023, driven by an increase in food inflation, while non-food inflation slowed down. The MPC attributed the rise in food inflation for the third month in a row to the continued increase in the prices of fresh vegetables and fruits, unlike the previous months, which were affected by the increase in the prices of basic food commodities.

According to the committee, the monthly changes for each of the previous three months ending in September 2023 reflected the impact of unfavourable climatic conditions that contributed to an increase in the amount of seasonal rise in prices of agricultural products, noting that the annual rate of core inflation witnessed a slowdown for the third month in a row to record 39.7% in September 2023, compared to 40.4% in August 2023.

The MPC explained that in light of the above, it decided to keep the CBE’s basic interest rates unchanged, stressing that it will continue to evaluate the impact of the restrictive monetary policy that was taken and its impact on the economy, according to the data to be received during the coming period.

Source : Daily News Egypt

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The United Kingdom’s Financial Conduct Authority targeted 146 crypto companies in a new warning, following the rollout of the new promotional rules which require companies to register with the FCA.

The warning, which is the first since the rules went into effect, is the latest in a series from the FCA to attempt curbing illegal financial promotions targeting UK customers. 

As part of the warning, the FCA published a warning list of those who have not registered with the FCA. The list includes KuCoin and Huobi, among others.

“We take a risk-based approach, so not all firms of potential concern will be added straight away. This list will be continually updated as we identify firms which may be illegally communicating crypto asset promotions and are failing to engage with us constructively,” the FCA said in its warning.

Some companies, including OKX and Binance, announced that they’re working to comply with the FCA’s promotional rules. 

Komainu joined the ranks of FCA-registered companies on Friday, Oct. 6. Under the new rules, Komainu is registered as a custodian wallet provider. 

“This is a key regulatory milestone as the UK remains one of the most important hubs for financial technology and innovation that will spur the convergence of traditional and decentralized finance,” CEO Nicolas Bertrand said.

PayPal announced in August that it was “temporarily” pausing the ability of UK customers to buy crypto on its platform so that it could ensure it followed the new regulations. PayPal is aiming to offer the services again in 2024, according to reports. 

ByBit also announced that it would be suspending services in late September. 

“Bybit has made a choice to embrace the regulation proactively and pause our services in this market,” it said in a blog post at the time. 

Source : Block Works

The post FCA Issues Another Warning to Unregistered Crypto Firms as Promotional Rules Take Effect appeared first on Policy Print.

The Inflation Reduction Act of 2022 (IRA) is widely considered to be the most ambitious climate policy action in U.S. history. Over the next decade and beyond, a broad array of new tax credits and direct government expenditures will provide substantial support for clean technologies and industries, as well as direct incentives for U.S. households and firms to invest in the equipment and capital needed to reduce their carbon emissions.

The financial sector will play a key role in financing this green transition, and forward-looking financial markets can provide a useful early indication of the IRA’s success. We take a climate finance perspective to investigate the financial market responses to the IRA.

We study U.S. stock market movements following two key climate policy news events. First, on July 14, 2022, the withdrawal of support for new climate spending by Senator Joe Manchin pushed the probability of any near-term climate policy action to almost zero. Then, on July 27, 2022, the IRA was unveiled, and it became obvious that sizable climate policy legislation would be enacted. The stock market strongly reacted to these two events but in very different ways across industries and firms. In particular, firm-level financial responses to these events differed across measures of greenness such as environmental scores and emission intensities. After the first event, which signaled no climate policy action in the near term, the stock market values of green firms—those with relatively low emission intensities and superior environmental scores—fell, and the values of brown firms rose. By contrast, with the announcement of a near-certain IRA, green firms benefited, and brown firms did not. The heterogeneous stock market responses across these measures of greenness are statistically and economically significant and support the use of such metrics in identifying climate policy exposure.

Our results also contribute to a growing literature on the pricing of climate risks in financial markets. The two events studied represent major realizations of climate policy transition risk. Such transition risks are of keen interest to central banks and other financial supervisory authorities that have started to quantify them through climate scenario analyses. The chief concern is that if investor expectations were to adjust precipitously to new climate policies, the resulting adverse revaluations of carbon-dependent assets could have severe implications for financial solvency and stability. While the financial market response to the IRA was economically significant, it did not lead to instability or financial stress, suggesting that transition risks posed by climate policies as ambitious as the IRA may be manageable.

Source : Brookings

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The Federal Reserve held interest rates steady on Wednesday but stiffened its hawkish stance, with a further rate increase projected by the end of the year and monetary policy kept significantly tighter through 2024 than previously expected.

Fed policymakers at the median still see the central bank’s benchmark overnight interest rate peaking this year in the 5.50%-5.75% range, just a quarter of a percentage point above the current range. But from there the Fed’s updated quarterly projections show rates falling only half a percentage point in 2024 compared to the full percentage point of cuts anticipated at the meeting in June.

Fed Jerome Powell, speaking after the rate decision, cautioned that new central bank forecasts showing monetary policy staying higher for longer are not a pledge for action.

MARKET REACTION:

STOCKS: S&P 500 lost 13.36 points, or 0.30%, to .4,430.59BONDS: The U.S. Treasury 10-year yield was last down 1.6 basis points at 4.35%.

FOREX: The dollar index trimmed losses after the rate decision, was last flat at 105.11.

COMMENTS:

GARRETT MELSON, PORTFOLIO STRATEGIST, NATIXIS INVESTMENT MANAGERS SOLUTIONS, BOSTON

“Consensus was a hawkish pause and that’s exactly what the decision, and more importantly the SEP delivered. The pause was fully baked and recent rhetoric has suggested they feel comfortable that they are at or very close to the appropriate level of rates – hence the unchanged 2023. It all comes down to the final policy lever – duration. How long do they keep rates restrictive?

“And that’s where the surprise was – the 2024 median dot moved up 50 basis points. But while all the focus will remain on whether the Fed is hawkish or dovish, really it’s the economy that remains hawkish…2024 is where the signal is and it continues to read like a soft landing: upward revisions to growth and downward revisions to unemployment despite keeping inflation projections largely unchanged in their continued path of moderation.”

“The data is in the driver’s seat and as the Fed sees the data unfolding at the moment is resilient growth and labor markets as inflation slowly returns to target over the next few years. But as always, the dots are more a messaging tool than anything else. Should the data unfold differently, with core PCE potentially declining faster than expected, the actual path of policy will look different. As for the presser, expect more of the same: progress, but the job isn’t done and risks remain. It’s all about data dependence, flexibility, and optionality. And as has become tradition during the quarterly meetings, expect some pushback from Powell on the dots as a prescribed path of policy. The data will dictate the path.”

GINA BOLVIN, PRESIDENT, BOLVIN WEALTH MANAGEMENT GROUP, BOSTON

“This pause was unanimous, and the Fed may stay at this current rate for quite some time. The economy is growing stronger than the Fed thought and no one- not even Powell- knows what they will do in the 4th quarter.”

“For sure the Fed is back to a neutral stance on balancing inflation vs employment.”

“We are far from the recession many have predicted. We are closer to a soft landing. In fact, GDP was revised upwards from 1.1 to 1.5%.”

“Regarding macro data, the next important dates are Oct 11 for PPI and Oct 12 for CPI. In my opinion, soft landing is very possible.”

BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN

“They went from a hesitant hike in July to a hawkish hold in September. While their dots say one more hike, we all know better. They’re going to try to hold rates where they are as long as possible, probably longer than necessary. The good news is that the Fed thins we’re just over two years away from it hitting its targets.”

KARL SCHAMOTTA, CHIEF MARKET STRATEGIST, CORPAY, TORONTO

“This wasn’t a “pause”, it was a “skip”. With the economy performing better than expected and inflation pressures remaining persistent, Fed officials chose to maintain a hawkishly data-contingent bias in this afternoon’s statement and dot plot.”

“Policymakers are clearly trying to shift from ‘higher’ toward ‘longer’ in their communications strategy as they work to prevent a counter-productive easing in financial conditions. But the fundamentals also support this strategy – signs of excess demand are everywhere in the U.S. economy, and headwinds remain remarkably subdued.”

“The dollar and Treasury yields are set to pop higher as traders push monetary loosening expectations further into 2024.”

GENNADIY GOLDBERG, HEAD OF U.S. RATES STRATEGY, TD SECURITIES, NEW YORK

“It looks as though the Fed is trying to send as hawkish as signal as it possibly can. It’s just a question of whether the markets will listen to them would without taking them with a grain of salt. At this point in the cycle, this is what the Fed wants us to believe and needs the market to believe. It’s just a question of how the data evolves from here.”

“To some extent, talk is cheap. I do think that they’ll remain data dependent and you’ll probably hear that from Powell at the 2:30 press conference and going forward as well. So yes, they’re talking about higher rates for longer, but it’s really the economy that matters. And if the economy starts to soften, I don’t think these dot-plot projections will actually hold up, so we’ll certainly be waiting and watching.”

TOM MARTIN, SENIOR PORTFOLIO MANAGER, GLOBALT INVESTMENTS, ATLANTA

“It was actually a good bit more hawkish than I thought it was going to be. It’s definitely higher for longer, and I just don’t think those kinds of metrics were expected.”

“You’re not going to get relief on rates anytime soon, and so that means that interest costs are going to remain elevated, probably for longer than people expected.”

MICHELE RANERI, HEAD OF U.S. RESEARCH AND CONSULTING, TRANSUNION, CHICAGO

“Previously, the Fed had seemingly signaled a commitment to being aggressive, potentially even again raising interest rates multiple times before the end of this year to continue efforts to drive down inflation. While they still very well may follow through with that before the end of this year, this week’s announcement indicates that the Fed may believe that the best course of action, for now, is to continue monitoring the economy, and the effects of previous hikes, to determine if and when additional rate hikes are necessary.”

“The decision not to raise rates at present will likely have impacts across the credit markets. In the mortgage market, for instance, consumers who have been holding off may begin to be motivated by the announcement to consider making the home purchase they have been waiting on.”

“Consumers who have credit cards will also likely see some short-term benefits by this announcement. This is because when the Fed announces an interest rate increase, credit card interest rates typically follow shortly thereafter, which may result in larger minimum monthly payments for credit card holders. While the decision not to raise interest rates this time round mitigates that for now, more interest rate increases may be on the horizon. For that reason, it’s a good idea for consumers to continue to maintain balances that are in alignment with what they know they will be able to make payments on each month, and take into consideration the possibility of further interest rate increases and how those payments may change as a result.”

Source : Yahoo

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