Economy

Bank of Canada hikes rates, says prepared to raise them further

Published

1 year ago

July 13, 2023

Bank of Canada hikes rates, says prepared to raise them further

By Steve Scherer and Ismail Shakil

OTTAWA (Reuters) -The Bank of Canada (BoC) on Wednesday hiked its key overnight rate by a quarter of a percentage point to a 22-year high of 5.0%, and said it could raise rates further because inflation risks are seen stalling above its 2% target.

The move to increase borrowing costs by 25 basis points for the second time in as many months was expected by analysts and markets. After a five-month pause, the BoC raised its overnight rate in June, saying monetary policy was not sufficiently restrictive.

The BoC in its statement dropped the line saying rates were not restrictive enough but it revised higher its growth forecast for this year and pushed back its expectations for getting inflation to target by six months to mid-2025.

“If new information suggests we need to do more, we are prepared to increase our policy rate further,” BoC Governor Tiff Macklem told reporters after the decision. “But we don’t want to do any more than we have to.”

Canadian money markets increased bets for another rate increase after the move, seeing an almost 30% probability of another hike at the next policy announcement in September.

“I think they’re just taking the summer off,” said Derek Holt, vice president of capital markets economics at Scotiabank.

The Canadian dollar strengthened to a two-week high at 1.3144 per U.S. dollar, or 76.08 U.S. cents, before pulling back to 1.3180, up 0.4% on the day.

“Governing Council remains concerned that progress towards the 2% target could stall, jeopardizing the return to price stability,” the BoC said in a statement.

Despite nine previous rate increases totaling 450 basis points since March of last year, the economy regained momentum in May, likely growing 0.4% on the month, after stalling in April.

“Today’s tone does communicate a risk of another possible hike in September,” said Andrew Kelvin, chief Canada strategist at TD Securities.

The BoC raised its forecast for second-quarter annualized quarterly growth to 1.5% from 1.0% in April, and growth is seen expanding 1.5% also in the third quarter. Overall 2023 real gross domestic product growth is seen at 1.8% compared with its April forecast of 1.4%.

“The rebalancing of supply and demand is now expected to happen in early 2024,” the BoC said it its report containing new forecasts also released on Wednesday.

Though headline inflation slowed to 3.4% in May, less than half of last year’s 8.1% peak, the three-month annualized rates of the BoC’s core measures have not been coming down.

Surprisingly persistent demand, higher-than-expected housing costs and a more gradual decline than expected in goods prices, excluding food and energy, are fueling inflation, the BoC said.

“Inflation is expected to return to 2% in the middle of 2025, although the timing is uncertain given the gradual movement of inflation toward the target,” the BoC said.

The BoC’s overnight target rate was last at 5.00% in March and April of 2001.

Twenty of 24 economists surveyed by Reuters had expected the central bank to lift rates by a quarter of a percentage point. Money markets had seen a more than a 70% chance of a rate hike before the announcement.

Economy

Russian central bank says it needs months to make sure CPI falling before rate cuts -RBC

Published

12 months ago

December 26, 2023

Russian central bank says it needs months to make sure CPI falling before rate cuts -RBC

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.

Economy

China identifies second set of projects in $140 billion spending plan

Published

12 months ago

December 25, 2023

China identifies second set of projects in $140 billion spending plan

© 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)

Economy

Russian central bank says it needs months to make sure CPI falling before rate cuts -RBC

Published

12 months ago

December 25, 2023

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.