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Indian economy's medium-term outlook remains uncertain – RBI Governor – The Guardian

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By Swati Bhat and Aftab Ahmed

NEW DELHI (Reuters) – The medium-term outlook for the Indian economy remains uncertain with supply chains and demand yet to be restored fully while the trajectory of the coronavirus spread and the length of its impact remain unknown, Reserve Bank of India Governor Shaktikanta Das said on Saturday.

According to most estimates, the Indian economy will register a record contraction of over 4.5% in the current fiscal year that started on April 1 due to the pandemic.

Starting late March, the country was placed under one of the strictest lockdowns in the world for over two months. Since early June, the government has started easing restrictions to help some revival in the economy even though the number of infections in the country continues to rise.

“The Indian economy has started showing signs of getting back to normalcy in response to the staggered easing of restrictions,” Das said in an address to an online forum.

“It is, however, still uncertain when supply chains will be restored fully. How long will it take for demand conditions to normalise and what kind of durable effects will the pandemic leave behind on our potential growth?” he said.

Das said that the 2008 global crisis and the current crisis show that such economic shocks have “fatter tails” than generally believed, and that the country’s financial system should have larger capital buffers.

A recapitalisation plan for Indian banks is necessary as the economic impact of the pandemic may result in higher bad loans and erosion of capital for banks, the RBI governor added.

The central bank has cut policy rates by 115 basis points in response to the pandemic, resulting in a total policy rate reduction of 250 basis points since February 2019, along with providing liquidity of 9.57 trillion rupees ($127.28 billion).

It has also eased some bad loan provisioning norms and allowed loan moratoriums for retail customers.

Das said that the central bank has to carefully unwind the unusual monetary and regulatory measures taken to cushion the economic shocks in the post pandemic world, as the financial sector should return to normal functioning without relying on the regulatory relaxations as the new norm.

India recorded 27,114 coronavirus cases in the last 24 hours, taking the total to 820,915 including 22,123 dead.

The RBI governor also said that inflation will continue to moderate going forward and investment activity will revive.

(Reporting by Swati Bhat and Aftab Ahmed; Editing by Raju Gopalakrishnan)

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BOE Has No Plans to Tighten Policy Before Economy All-Clear – Yahoo Canada Finance

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(Bloomberg) — The Bank of England sought to reassure investors that it won’t tighten monetary policy anytime soon despite the U.K. economy showing signs of a faster rebound than initially expected.

The pound gained after the central bank’s relatively robust projections and policy makers also hinted that they’re not ready to follow other central banks in taking borrowing costs below zero.

In a briefing to reporters following the decision, Governor Andrew Bailey said negative rates “are part of our toolbox, but at the moment we don’t have a plan to use them.”

Still, he also said the BOE is ready to do more if needed, and the Monetary Policy Committee stressed the economy is unlikely to fully recover before the end of 2021, slightly later than the previous scenario.

The committee voted unanimously to keep its asset purchase target at 745 billion pounds ($980 billion) while holding the benchmark interest rate at a record-low 0.1%. The pace of bond purchases will be slowed to 4.4 billion pounds a week from Aug. 11.

The MPC “does not intend to tighten monetary policy until there is clear evidence that significant progress is being made in eliminating” economic slack and “achieving the 2% inflation target sustainably,” it said.

The question is whether the comments will ultimately temper expectations that another round of bond purchases will be required before the end of the year, with renewed lockdowns in parts of the country and the government’s program to support jobs drawing to a close.

The mounting risks of a no-deal Brexit have also fueled speculation that the BOE might consider cutting interest rates below zero. Officials said that their review of such a policy is ongoing, but that its effectiveness could be hampered by the damage the crisis has wrought on bank balance sheets.

Investors are betting that rates will be cut below zero in about September 2021.

Inflation Target

The updated projections see inflation getting back to the 2% target within its forecast horizon, which could suggest it currently doesn’t see a need to ease further. The new guidance on the path of policy could be an attempt to offset any investor concern that it’ll tighten too soon.

What Bloomberg’s Economists Say

“The Bank of England delivered a surprisingly upbeat message at its August meeting. We still think its likely the central bank’s forecasts will prove too optimistic and more stimulus will be on the cards later in the year.”

-Dan Hanson. Read his BOE REACT

Officials said the downturn will be less severe than outlined in a scenario it published in May, but added that the risk to the outlook is skewed to the downside, with gross domestic product not expected to exceed pre-virus levels until the end of 2021.

That scenario meshes with the views of policy maker Silvana Tenreyro, who has said the sharp bounceback so far could flatten out toward the end of the year.

BOE Chief Economist Andy Haldane — who voted against the last increase in quantitative easing in June — has been slightly more optimistic about a quick recovery, saying last month that it’s proved to be V-shaped so far.

In the shorter term, inflation is expected to fall further below the target and average around 0.25% in the latter part of the year, before returning in about two years.

Policy makers expect unemployment to rise materially to about 7.5% by the end of the year. That’ll be accompanied by an increase in inactivity of about 400,000 people relative to before the crisis.

Most officials agree that the labor market will be key to the recovery. Economists are warning more than 3 million could be out of work before the end of 2020. That would be the worst since the de-industrialization of Britain under Margaret Thatcher in the 1980s.

“The Committee does not intend to tighten monetary policy until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably”

–Bank of England August Policy Decision

Consistent with the government’s stated policy aims, the BOE’s forecasts don’t include a second nationwide lockdown, but do assume a slow recovery with the possibility of more restrictions.

“In our view, economic developments will very likely fall short of this near-perfect scenario and inflationary pressure will remain subdued for longer than the BOE currently expects,” said Kallum Pickering, a senior economist at Berenberg. “As a result, policy makers may eventually need to do more to support the recovery.”

(Adds comments from Bailey’s press briefing starting in third paragraph)

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Spotlight on Indonesia's slow stimulus as economy shrinks – SaltWire Network

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By Maikel Jefriando and Tabita Diela

JAKARTA (Reuters) – Indonesia’s efforts to support its economy through the coronavirus crisis were being hampered by the slow disbursement of a $50 billion stimulus plan, economists said.The World Bank and Indonesian government have warned that millions more people risk being plunged into poverty amid the pandemic, as data showed the economy shrank for the first time since 1999 in the second quarter.

Five months after its launch, only 22.4% of the stimulus had been spent. The package had been split between health and economic recovery programmes ranging from corporate tax exemptions to food and cash aid for households.

David Sumual, Bank Central Asia’s chief economist, said that unless the stimulus was disbursed faster the economy risked contracting this year for the first time since 1998.

“Government spending is the only driver of growth right now, especially social programmes,” Sumual said.

Just 39% of the 2,739 trillion rupiah ($189 billion) state budget, which includes the stimulus, was spent in the first half of 2020, down from 42% at the same time last year.

In two videos released by his office, President Joko Widodo rebuked ministers for not spending faster.

But ministries are now beginning to focus on finalising next year’s budget.

The World Bank has welcomed Indonesia’s COVID-19 social programmes, about a third of the stimulus, but said minimal leakage and swift implementation was needed to curb the risk of 5.5 million to 8 million new poor being created.

Around 25 million of Indonesia’s 267 million people currently exist below the national poverty line and were living on around $1 a day, the World Bank said.

A flower seller at a cemetery in Padang in West Sumatra, told Reuters last month that his income had collapsed and he had yet to receive government aid.

“We eat what we can. All of our small savings we use to buy rice, eggs and milk for the kids,” said Fauzan, 70, who uses one name and is the breadwinner for four family members.

A survey by pollster Indikator Politik published in June showed 60% of Indonesians thought welfare programmes had not reached intended recipients and only 4% were satisfied.

Finance Minister Sri Mulyani Indrawati has cited challenges to spending such as red tape and social restrictions amid the pandemic. Indrawati on Wednesday detailed money spent so far on health programmes and tax incentives, but said financial support was yet to reach companies.

Authorities would reallocate $5 billion to assisting 10 million poor families and 12 million micro-businesses, while cash transfers for workers earning below $344 a month were also being considered, she said.

(Additional reporting and writing by Gayatri Suroyo; Editing by Ed Davies & Simon Cameron-Moore)

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Philippine economy dives into recession in worst slump on record – TheChronicleHerald.ca

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By Enrico Dela Cruz and Neil Jerome Morales

MANILA (Reuters) – The Philippine economy plunged by much more than expected in the second quarter, falling into recession for the first time in 29 years, as economic activity was hammered by one of the world’s longest and strictest coronavirus lockdowns.

The Southeast Asian nation’s economy shrank by 16.5% in April-June from the same period last year – the biggest slump in the government’s quarterly GDP data dating back to 1981, the Philippine Statistics Authority said on Thursday.

Gross domestic product fell by much more than the 9% contraction forecast in a Reuters poll and was worse than a revised slump of 0.7% in the first quarter. Seasonally adjusted GDP fell 15.2% in the second quarter from the first three months of the year.

The economic hit from the pandemic could worsen with the government reimposing tighter quarantine controls in the capital Manila and nearby provinces for two weeks from Tuesday amid resurging coronavirus cases.

“The Philippine economy crash-landed into recession with the 2Q GDP meltdown showcasing the destructive impact of lockdowns on the consumption-dependent economy,” said ING senior economist Nicholas Antonio Mapa.

“With record-high unemployment expected to climb in the coming months, we do not expect a quick turnaround in consumption behaviour, all the more with COVID-19 cases still on the rise.”

The Philippines main share index .PSI> showed little reaction to the data.

Some businesses have been ordered shut and movement restricted again in Manila and nearby provinces, which accounts for a quarter of the country’s population and most of its economic activity.

The Philippines recorded 115,980 confirmed infections as of Wednesday, just behind Indonesia’s 116,871 cases, which is the highest in East Asia.

With inflation expected to remain subdued throughout the year, the central bank has room for further policy easing if needed, analysts say.

It has slashed the benchmark interest rate by a total of 175 basis points this year to a record-low of 2.25%.

(Reporting by Neil Jerome Morales, Enrico Dela Cruz and Karen Lema; Editing by Ana Nicolaci da Costa)

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