Economy
ECB rate pause now may be too early: policymaker
© Reuters. Latvian central bank governor Martins Kazaks adresses economic conference in Riga, Latvia November 3, 2022. REUTERS/Ints Kalnins/File photo
By Balazs Koranyi
JACKSON HOLE, Wyoming (Reuters) – It may be too early for the European Central Bank to pause interest rate hikes now as an early stop in the fight against inflation could force the bank to exert even more pain on the economy later, Latvian policymaker Martins Kazaks said on Saturday.
The ECB has raised rates at each of its past nine meetings to arrest runaway inflation but policymakers are now contemplating a pause as recession risks loom, inflation slows and wage growth remains moderate.
“Given the information that we have now – and there is of course more data to come – I would say that another modest increase would be playing it safer, rather than delaying it and then risking having to do much more later in the year or early next year,” Kazaks told Reuters on the sidelines of the annual gathering of central bankers and economists in Jackson Hole, Wyoming.
Markets see a roughly 50% chance of another hike in September but a move by the end of the year is seen as very likely.
“We can cut rates if we raise them too much and we can cut quite soon,” he said, “But if we’ve done too little, then we may have to raise them even more, so it’s cheaper to do it sooner than later.”
Still, the Latvian central bank governor added that he will go into the Sept. 14 policy meeting with an open mind and needs to see new staff projections before committing.
Even if the ECB opts for a hold, it needs to make clear that its job is not yet done and more policy tightening could be on the cards, Kazaks added.
ECB projections currently see inflation returning to its 2% target only in late 2025 and Kazaks argued this was too late.
A key reason why some are contemplating a pause is that economic growth indicators are now pointing to a contraction in the third quarter, despite what could be a record-breaking tourism season.
Industry is already in recession and services are also softening, with both survey and hard indicators coming below expectations.
While growth will be flat over the rest of the year, Kazaks said a deep recession was not on the cards as the bloc is still displaying resilience and some softening of the labour market was actually desirable to tame inflation.
Once rates peak, a plateau should be held for some time and the ECB should only start cutting rates when projections start showing inflation was at risk of coming back below 2%.
“I would be happy to start cutting the rates when the inflation projection – so the outlook and not actual data – starts to undershoot our 2% target in a consistent manner,” he said.
Markets see a rate cut only in the second half of 2024 and Kazaks said he did not consider this inconsistent with the macroeconomic outlook.
© Reuters. Russian Central Bank Governor Elvira Nabiullina attends a news conference in Moscow, Russia June 14, 2019. REUTERS/Shamil Zhumatov/File Photo
MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.
The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.
Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.
“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.
Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.
“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.
The bank will next convene to set its benchmark rate on Feb. 16.
The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.
© Reuters. FILE PHOTO: Workers walk past an under-construction area with completed office towers in the background, in Shenzhen’s Qianhai new district, Guangdong province, China August 25, 2023. REUTERS/David Kirton/File Photo
SHANGHAI (Reuters) – China’s top planning body said on Saturday it had identified a second batch of public investment projects, including flood control and disaster relief programmes, under a bond issuance and investment plan announced in October to boost the economy.
With the latest tranche, China has now earmarked more than 800 billion yuan of its 1 trillion yuan ($140 billion) in additional government bond issuance in the fourth quarter, as it focuses on fiscal steps to shore up the flagging economy.
The National Development and Reform Commission (NDRC) said in a statement on Saturday it had identified 9,600 projects with planned investment of more than 560 billion yuan.
China’s economy, the world’s second largest, is struggling to regain its footing post-COVID-19 as policymakers grapple with tepid consumer demand, weak exports, falling foreign investment and a deepening real estate crisis.
The 1 trillion yuan in additional bond issuance will widen China’s 2023 budget deficit ratio to around 3.8 percent from 3 percent, the state-run Xinhua news agency has said.
“Construction of the projects will improve China’s flood control system, emergency response mechanism and disaster relief capabilities, and better protect people’s lives and property, so it is very significant,” the NDRC said.
The agency said it will coordinate with other government bodies to make sure that funds are allocated speedily for investment and that high standards of quality are maintained in project construction.
($1 = 7.1315 renminbi)
© Reuters. Russian Central Bank Governor Elvira Nabiullina attends a news conference in Moscow, Russia June 14, 2019. REUTERS/Shamil Zhumatov/File Photo
MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.
The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.
Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.
“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.
Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.
“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.
The bank will next convene to set its benchmark rate on Feb. 16.
The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.
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