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How global central banks are leaning as Fed taper talk grows

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While the U.S. Federal Reserve is publicly committed to keeping interest rates near zero for some time, there are growing expectations that accelerating inflation could pressure the central bank to begin seriously debating the withdrawal of monetary stimulus.

At the same time, central banks in other parts of the world are already adjusting monetary settings or preparing to dial back pandemic crisis-mode stimulus measures.

JAPAN

The Bank of Japan has maintained ultra-easy monetary policy for years in a long battle to revive stagnant consumer prices.

A Fed tapering is unlikely to change that outlook. The key concern among BOJ policymakers is the risk of market turbulence that could boost investors’ demand for the safe-haven yen.

CANADA

The Bank of Canada became the first among Group of Seven nations to withdraw its pandemic era stimulus and signalled rates could begin to rise in 2022.

CHINA

China’s central bank is trying to cool credit growth to help contain debt risks, but is treading warily to avoid hurting the economic recovery that remains uneven as consumption lags.

A Chinese central bank official said signals from the Fed on future policy shifts will have limited impact on China’s financial markets.

NORWAY

The Norwegian central bank plans to raise rates in the third or fourth quarter of 2021, likely making it the first among its G10 peers to increase the cost of borrowing since the pandemic began.

SWEDEN

Sweden’s central bank has said it intends to complete its 700-billion Swedish crown asset purchase programme as planned by the end of 2021.

But the pace of asset purchases will decrease throughout the year. After that, the Riksbank has said it will keep its balance sheet roughly unchanged, at least during 2021, replacing bonds that mature.

NEW ZEALAND

The Reserve Bank of New Zealand has held rates at record lows but hinted at a hike as early as September next year as the country rapidly emerges from its pandemic slump.

SOUTH KOREA

The Bank of Korea signaled an eventual tilt towards tightening to end its run of record-low rates, and upgraded its growth and inflation projections.

TURKEY

Double-digit inflation, persistent currency weakness and badly depleted reserves prompted Turkey’s central bank to begin aggressively tightening policy in September last year, well before emerging market peers. Its key rate is now one of the highest globally at 19%.

The World Bank and others say premature Fed tightening is the biggest risk for Turkey. The central bank is not expected to tighten any more in part due to public pressure from President Tayyip Erdogan to maintain monetary stimulus.

BRAZIL

Brazil’s central bank raised its benchmark rate at its past two policy meetings and has indicated it will do so again with inflation expected to surge.

SOUTH AFRICA

South Africa’s central bank has kept rates low to support its economic recovery, but said upside inflation risks were beginning to emerge.

Its governor said the recent spike in consumer prices was temporary, but that the bank would not hesitate to tighten policy if it became permanent.

INDONESIA

Indonesia’s central bank governor said in May it must be prepared for a potential Fed tightening next year, warning that such a move could have an impact on local financial markets.

Bank Indonesia has cut rates by a total of 150 basis points and injected more than $50 billion in liquidity since the pandemic began.

PHILIPPINES

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno has said the central bank is prepared for any change in Fed policy but does not think the U.S. bank will “rock the boat” ahead of U.S. mid-term elections next year.

The BSP kept rates at record lows and pledged to maintain loose policy until it was sure the economy was on a path to recovery.

INDIA

The Reserve Bank of India (RBI) has kept rates at record lows as its economy struggles with a devastating new wave of COVID-19 infections.

RBI Governor Shaktikanta Das said its growing foreign exchange reserves, which now exceed $600 billion, will help deal with “challenges arising out of global spillovers.”

(Reporting by Swati Bhat in Mumbai, Neil Jerome Morales in Manila, Gayatri Suroyo in Jakarta, Jamie McGeever in Brasilia, Praveen Menon in Wellington, Leika Kihara in Tokyo, Cynthia Kim in Seoul, Jonathan Spicer in Istanbul, Mfuneko Toyana in Johannesburg; Editing by Kim Coghill)

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G7 nations to boost climate finance

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G7 leaders agreed on Sunday to raise their contributions to meet an overdue spending pledge of $100 billion a year by rich countries to help poorer countries cut carbon emissions and cope with global warming, but only two nations offered firm promises of more cash.

Alongside plans billed as helping speed infrastructure funding in developing countries and a shift to renewable and sustainable technology, the world’s seven largest advanced economies again pledged to meet the climate finance target.

But climate groups said the promise made in the summit’s final communique lacked detail and the developed nations should be more ambitious in their financial commitments.

In the communique, the seven nations – the United States, Britain, Canada, France, Germany, Italy and Japan – reaffirmed their commitment to “jointly mobilise $100 billion per year from public and private sources, through to 2025”.

“Towards this end, we commit to each increase and improve our overall international public climate finance contributions for this period and call on other developed countries to join and enhance their contributions to this effort.”

After the summit concluded, Canada said it would double its climate finance pledge to C$5.3 billion ($4.4 billion) over the next five years and Germany would increase its by 2 billion to 6 billion euros ($7.26 billion) a year by 2025 at the latest.

There was a clear push by leaders at the summit in southwest England to try to counter China’s increasing influence in the world, particularly among developing nations. The leaders signalled their desire to build a rival to Beijing’s multi-trillion-dollar Belt and Road initiative but the details were few and far between.

Johnson, host of the gathering in Carbis Bay, told a news conference that developed nations had to move further, faster.

“G7 countries account for 20% of global carbon emissions, and we were clear this weekend that action has to start with us,” he said as the summit concluded.

“And while it’s fantastic that every one of the G7 countries has pledged to wipe out our contributions to climate change, we need to make sure we’re achieving that as fast as we can and helping developing countries at the same time.”

PLEDGE OVERDUE

Some green groups were unimpressed with the climate pledges.

Catherine Pettengell, director at Climate Action Network, an umbrella group for advocacy organisations, said the G7 had failed to rise to the challenge of agreeing on concrete commitments on climate finance.

“We had hoped that the leaders of the world’s richest nations would come away from this week having put their money their mouth is,” she said.

Developed countries agreed at the United Nations in 2009 to together contribute $100 billion each year by 2020 in climate finance to poorer countries, many of whom are grappling with rising seas, storms and droughts made worse by climate change.

That target was not met, derailed in part by the coronavirus pandemic that also forced Britain to postpone the U.N. Climate Change Conference (COP26) until later this year.

The G7 also said 2021 should be a “turning point for our planet” and to accelerate efforts to cut greenhouse gas emissions and keep the 1.5 Celsius global warming threshold within reach.

European Commission President Ursula von der Leyen said the G7 leaders had agreed to phase out coal.

The communique seemed less clear, saying: “We have committed to rapidly scale-up technologies and policies that further accelerate the transition away from unabated coal capacity, consistent with our 2030 NDCs and net zero commitment.”

The also pledged to work together to tackle so-called carbon leakage – the risk that tough climate policies could cause companies to relocate to regions where they can continue to pollute cheaply.

But there were few details on how they would manage to cut emissions, with an absence of specific measures on everything from the phasing out of coal to moving to electric vehicles.

Pettengell said it was encouraging that leaders were recognising the importance of climate change but their words had to be backed up by specific action on cutting subsidies for fossil fuel development and ending investment in projects such as new oil and gas fields, as well as on climate finance.

British environmentalist David Attenborough appealed to politicians to take action.

“We know in detail what is happening to our planet, and we know many of the things we need to do during this decade,” he said in a recorded video address to the meeting.

“Tackling climate change is now as much a political and communications challenge as it is a scientific or technological one. We have the skills to address it in time, all we need is the global will to do so.”

($1 = 1.2153 Canadian dollars)

(Reporting by Elizabeth PiperAdditional reporting by William James and Kate Abnett in Brussels and Andreas Rinke in BerlinEditing by William Maclean, Raissa Kasolowsky and Frances Kerry)

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Canadian dollar goes up from Friday’s 4-week low

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Canadian dollar

The Canadian dollar edged higher against its U.S. counterpart on Monday as oil prices climbed and investors looked past domestic data showing factory sales falling in April, with the loonie clawing back some of Friday’s decline.

Canadian factory sales decreased by 2.1% in April from March, Statistics Canada said. Still, sales were up 1.1% after excluding vehicles and parts.

“Zooming out from the disruptions seen in the auto industry, the outlook for manufacturing sales is not all that bad,” Omar Abdelrahman, an economist at TD Economics, said in a note.

“The reopening of provincial economies and strength in Canada‘s largest export market (the U.S.) should provide a lift to demand,” Abdelrahman added.

The price of oil, one of Canada‘s major exports, was supported by economic recovery.

U.S. crude prices rose 0.9% to $71.56 a barrel, while the Canadian dollar was trading 0.2% higher at 1.2143 to the greenback, or 82.35 U.S. cents. On Friday, it fell to its weakest since May 14 at 1.2177.

Speculators have cut their bullish bets on the Canadian dollar, the strongest G10 currency this year, data from the U.S. Commodity Futures Trading Commission showed on Friday. As of June 8, net long positions had fallen to 45,281 contracts from 48,772 in the prior week.

A stronger Canadian dollar is usually seen hurting exporters, but the nature of the global economic recovery could help firms pass on their higher costs from the currency to customers, leaving exporters in less pain than in previous cycles.

Investors were awaiting a Federal Reserve policy announcement on Wednesday. Expectations that the Fed would stick to its dovish course have helped cap U.S. and Canadian bond yields.

Canada‘s 10-year yield touched its lowest level since March 3 at 1.365% before recovering to 1.381%, up 1.3 basis points on the day.

 

(Reporting by Fergal Smith; Editing by Bernadette Baum)

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Toronto stock exchange dips as losses in miners

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Toronto Stock Exchange

Toronto stock exchange index edged lower on Monday, as losses in mining stocks and dismal domestic manufacturing data overshadowed gains in energy stocks.

* The materials sector, which includes precious and base metals miners and fertilizer companies, lost 0.7% as gold futures fell 1.6% to $1,848.2 an ounce. [GOL/]

* Canadian factory sales slipped by 2.1% in April from March on lower sales of transportation equipment, as well as subdued petroleum and coal products sector, Statistics Canada said.

* At 9:43 a.m. ET (13:43 GMT), the Toronto Stock Exchange’s S&P/TSX composite index was down 14.52 points, or 0.07%, at 20,123.83.

* The energy sector climbed 1.4% as U.S. crude prices were up 1% a barrel, while Brent crude rose 0.9%. [O/R]

* Financials slipped 0.3%, while industrials fell 0.1%.

* On the TSX, 120 issues were higher, while 107 issues declined for a 1.12-to-1 ratio favouring gainers, with a trading volume of 22.35 million shares.

* TSX’s top gainers were paper and packaging company Cascades Inc <CAS.TO> and IT firm Kinaxis Inc <KXS.TO>, jumping 4.1% and 4.0%, respectively.

* Biggest decliners were uranium producers Nexgen Energy Ltd <NXE.TO>, down 5.9%, followed by Cameco Corp falling 5.5%.

* The most heavily traded shares by volume were Canadian Natural Resources Limited <CNQ.TO>, BCE Inc <BCE.TO>, and Hut 8 Mining Corp <HUT.TO>

* Twenty-two stocks hit fresh 52-week highs on the TSX, while there were no new lows.

* Across all Canadian issues, there were 95 new 52-week highs and four new lows, with total volume of 43.57 million shares.

 

(Reporting by Amal S in Bengaluru; Editing by Rashmi Aich)

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