Bank of England poised to push rates above crisis lows

LONDON (REUTERS): The Bank of England looks set to pass a post-financial crisis milestone next week by finally raising interest rates above their emergency levels set more than nine years ago. But with a potentially messy Brexit nearing, Governor Mark Carney may sound cautious about the pace of further moves away from the BoE’s still-powerful stimulus programme. In March 2009, when the financial crisis was raging, the BoE slashed its benchmark rate to 0.5 percent to stave off the risk of a depression. Bank Rate has sat there since, apart from a 15-month period after the shock referendum vote in 2016 for Britain to leave the European Union, when it was cut again to 0.25 percent - the lowest in the three-century history of the central bank. Now, Carney and his colleagues are expected to nudge rates up to 0.75 percent on Aug. 2, going beyond last November’s increase back up to 0.5 percent. However, taking rates above their crisis levels will not be a vote of confidence in the world’s fifth-biggest economy.

Britain has gone from having the strongest growth of the Group of Seven rich nations to being one of the slowest after the Brexit decision.

The terms of Britain’s future relationship with the EU are still unclear, eight months before Brexit, and Prime Minister Theresa May could yet be unseated by her own Conservative Party which is split on how close the country should remain to the bloc.

At the same time, consumers are still feeling a squeeze on their spending power. And inflation, while above the BoE’s 2 percent target at 2.4 percent, has been weaker than expected.

Nonetheless, the BoE says the economy cannot grow even at its current sluggish rate without causing too much inflation, given Britain’s chronically weak productivity growth.

A BoE decision to raise borrowing costs could also be backed up by a new estimate of what it considers the neutral interest rate for Britain’s economy, which neither stimulates nor suppresses demand and which is likely to be rising in the coming years as the effects of the financial crisis fade.

BoE officials have tried to soothe concerns about raising rates, something they promise will be gradual and limited.

“Voting for a 25 basis-point rate rise, a full decade after monetary policy was first placed on an emergency setting, is hardly either surprising or radical,” Chief Economist Andy Haldane said in late June.

But some analysts believe raising borrowing costs is an unnecessary risk that the central bank is taking because it failed to deliver on previous signals that a hike was coming.

John Wraith, a strategist at UBS, said domestic inflation pressure — chiefly from wage growth — was very benign while tighter monetary conditions risked triggering a squeeze on indebted consumers and cooling domestic demand.

“If and when that happens, the interest rate market may start to anticipate a reversion by the (BoE) to a neutral policy stance, especially if there are ongoing headwinds and downside risks to the outlook emanating from the UK’s protracted exit from the EU,” he said in a note to clients, adding that investors might even start to bet on a rate cut ahead.

Yet the chance of an increase on Thursday is rated at 80 percent by financial markets, and eight of the BoE’s nine monetary policymakers are likely to back a rise, analysts say.

Investors will be listening closely for whatever signals Carney gives about the outlook for further increases.

Markets are not pricing in an increase in borrowing costs to 1 percent for at least another year.

In the past, Carney has warned investors they are being too relaxed about the prospect of further hikes.

Victoria Clarke, an economist with Investec, said the BoE might want to send another reminder to the market to remain on guard, as long as Britain manages to secure a deal with the EU and avoid a damaging “cliff-edge” Brexit.

“We don’t know what politics will bring but I think Carney would want to push those expectations up a bit,” Clarke said.

ADB launches ‘Strategy 2030’ to tackle changing needs

MANILA (APP): The Asian Development Bank (ADB) has approved a new long-term corporate strategy, dubbed Strategy 2030, that sets out the institution's broad vision and strategic response to the evolving needs of Asia and the Pacific. Under Strategy 2030, ADB President Takehiko Nakao said the bank "will combine finance, knowledge, and partnerships to sustain our efforts to eradicate extreme poverty and expand our vision towards a prosperous, inclusive, resilient, and sustainable region." The Manila-based bank said it will focus on seven operational priorities, including addressing remaining poverty and reducing inequalities; accelerating progress in gender equality; tackling climate change, building climate and disaster resilience, and enhancing environmental sustainability; making cities more livable; promoting rural development and food security; strengthening governance and institutional capacity; and fostering regional cooperation and integration.

"ADB will strengthen its country-focused approach, promote the use of innovative technologies, and deliver integrated interventions that combine expertise across a range of sectors and themes and through a mix of public and private sector operations," the bank said.

Across these country groups, ADB said it will also prioritize support for lagging areas and pockets of poverty and fragility. "Infrastructure investments - particularly those that are green, sustainable, inclusive, and resilient - will remain a key priority. At the same time, ADB will expand operations in social sectors, such as education, health, and social protection."

US, China clash at WTO over state’s role in economy

GENEVA (REUTERS/AFP): Chinese and US envoys presented radically differing visions of China’s economic model at the World Trade Organization on Thursday, a choice between “the world’s most protectionist economy” and a growth story that had benefited all countries. U.S. Ambassador Dennis Shea was presenting a paper entitled “China’s trade-disruptive economic model” to the last WTO meeting before a summer break, overshadowed by a nascent multi-billion dollar trade war between the two economic giants. “Despite China’s repeated portrayal of itself as a staunch defender of free trade and the global trading system, China is in fact the most protectionist, mercantilist economy in the world,” Shea said, according to a transcript of his remarks. In a blistering attack delivered to the World Trade Organization's top body, US Ambassador Dennis Shea rejected Chinese assertions that it had satisfied the conditions of WTO membership.

"China has not been moving toward a fuller embrace of market-based policies and practices since it joined the WTO in 2001," Shea told a General Council meeting.

"In fact, the opposite is true. The state's role in China's economy has been increasing," he added, according to prepared remarks distributed by the US mission. 

"For China, economic reform means perfecting the government's and the Communist Party's management of the economy."

Shea then turned to China's presentation at the country's WTO trade policy review earlier this month, where a senior delegation said Beijing was committed to "open, transparent, inclusive and non-discriminatory" trade.

"China's portrayal of itself is not accurate, of course, as we all know," Shea said.

President Donald Trump's trade team has expressed multiple frustrations with the 164-member WTO, but in recent weeks the organisation's failure to properly discipline China has taken centre-stage.

Washington has argued that WTO's rules, which have not been meaningfully updated since the body's founding in 1995, are inadequate to deal with an economy like China -- a global powerhouse where the government, ruling party and military are invested in the economy with limited transparency about their activities.

And, unlike with other Trump initiatives, the US has allies in its bid to modernise the WTO to check the China's private sector involvement.

While the reform push remains in its early stages, the European Union and Japan are reportedly working on proposals tailored to force a change in Chinese behaviour.

WTO director general Roberto Azevedo told reporters on Wednesday that the current scrutiny of China was natural given its mounting strength.

"I think people are just looking at everything that China does," he said.

Azevedo added that while the WTO has rules in place restricting a state's private sector influence, the Chinese economy may have evolved in ways that circumvent those rules.

After rules are written, "you begin to have grey zones, grey areas, because new practices come up," Azevedo said.

"I think that is the situation with China."

Shea called on WTO members to recognise that without reform the organisation would be irrelevant, while putting the onus to act squarely on Beijing.

"The WTO itself does not currently provide the tools needed to bring about... change.  Rather, if the necessary change is to take place, it's up to China," Shea said.

Bank of England poised to push rates above crisis lows

LONDON (REUTERS): The Bank of England looks set to pass a post-financial crisis milestone next week by finally raising interest rates above their emergency levels set more than nine years ago. But with a potentially messy Brexit nearing, Governor Mark Carney may sound cautious about the pace of further moves away from the BoE’s still-powerful stimulus programme. In March 2009, when the financial crisis was raging, the BoE slashed its benchmark rate to 0.5 percent to stave off the risk of a depression. Bank Rate has sat there since, apart from a 15-month period after the shock referendum vote in 2016 for Britain to leave the European Union, when it was cut again to 0.25 percent - the lowest in the three-century history of the central bank. Now, Carney and his colleagues are expected to nudge rates up to 0.75 percent on Aug. 2, going beyond last November’s increase back up to 0.5 percent. However, taking rates above their crisis levels will not be a vote of confidence in the world’s fifth-biggest economy.

Britain has gone from having the strongest growth of the Group of Seven rich nations to being one of the slowest after the Brexit decision.

The terms of Britain’s future relationship with the EU are still unclear, eight months before Brexit, and Prime Minister Theresa May could yet be unseated by her own Conservative Party which is split on how close the country should remain to the bloc.

At the same time, consumers are still feeling a squeeze on their spending power. And inflation, while above the BoE’s 2 percent target at 2.4 percent, has been weaker than expected.

Nonetheless, the BoE says the economy cannot grow even at its current sluggish rate without causing too much inflation, given Britain’s chronically weak productivity growth.

A BoE decision to raise borrowing costs could also be backed up by a new estimate of what it considers the neutral interest rate for Britain’s economy, which neither stimulates nor suppresses demand and which is likely to be rising in the coming years as the effects of the financial crisis fade.

BoE officials have tried to soothe concerns about raising rates, something they promise will be gradual and limited.

“Voting for a 25 basis-point rate rise, a full decade after monetary policy was first placed on an emergency setting, is hardly either surprising or radical,” Chief Economist Andy Haldane said in late June.

But some analysts believe raising borrowing costs is an unnecessary risk that the central bank is taking because it failed to deliver on previous signals that a hike was coming.

John Wraith, a strategist at UBS, said domestic inflation pressure — chiefly from wage growth — was very benign while tighter monetary conditions risked triggering a squeeze on indebted consumers and cooling domestic demand.

“If and when that happens, the interest rate market may start to anticipate a reversion by the (BoE) to a neutral policy stance, especially if there are ongoing headwinds and downside risks to the outlook emanating from the UK’s protracted exit from the EU,” he said in a note to clients, adding that investors might even start to bet on a rate cut ahead.

Yet the chance of an increase on Thursday is rated at 80 percent by financial markets, and eight of the BoE’s nine monetary policymakers are likely to back a rise, analysts say.

Investors will be listening closely for whatever signals Carney gives about the outlook for further increases.

Markets are not pricing in an increase in borrowing costs to 1 percent for at least another year.

In the past, Carney has warned investors they are being too relaxed about the prospect of further hikes.

Victoria Clarke, an economist with Investec, said the BoE might want to send another reminder to the market to remain on guard, as long as Britain manages to secure a deal with the EU and avoid a damaging “cliff-edge” Brexit.

“We don’t know what politics will bring but I think Carney would want to push those expectations up a bit,” Clarke said.