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Traders see a method to Turkish lira’s recent slide

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© Reuters. FILE PHOTO: A money changer counts Turkish lira banknotes at a currency exchange office in Ankara, Turkey September 27, 2021. REUTERS/Cagla Gurdogan/

By Nevzat Devranoglu

ANKARA (Reuters) – A six-day slide in Turkey’s lira has left traders predicting that authorities are now targeting a new level, as weak as 15.5 to the dollar, in a months-long effort to stabilise the exchange rate using its depleted reserves together with other measures.

Four Turkish traders said the central bank has likely set a new trading band of 15 to 15.5, allowing some depreciation in the face of a global flight to the dollar and to relieve pressure on the bank’s dwindling foreign reserves.

One bank trader said more depreciation would be allowed so that the lira remains between 15.5 and 16 to the dollar, which has risen as the U.S. Federal Reserve raises interest rates to head off inflation, hurting emerging markets.

The lira has returned to lows last hit in late December, after a series of unorthodox interest rate cuts sparked a currency crisis that rattled the economy.

On Thursday, it weakened as far as 15.4295 and was at 15.382 as of 0832 GMT. It has lost more than 14% of its value this year, following a 44% plunge last year.

Given that the central bank’s reserves are actually negative when swaps are accounted for, traders said lira weakening was necessary if the bank plans to keep trying to steady the exchange rate as it has done since the December crisis.

“If the government sets a firm level in exchange rates without taking into account international developments, the reserves cost will be massive. The exchange rate cannot sit at a certain level for long with negative reserves,” a senior banker told Reuters.

“Even though we do not think this policy is right, we see the lira’s recent weakening as a necessity. Otherwise it could have gotten out of control.”

The central bank’s forex reserves have dropped sharply in recent years, most recently due to billions of dollars the bank sold in market interventions to stem the crisis, only some of which were announced publicly.

The bank’s net foreign reserves were $17 billion at the end of April.

The central bank says the exchange rate is determined by the market. But bankers’ calculations show central bank reserves are not rising as much as they should given rules such as the requirement for exporters to sell 40% of their hard currency profits to the central bank, suggesting the bank is still intervening.

Investors describe the FX rate as a “government-controlled” regime. Many say it cannot last in the long run given Turkey’s inflation and current account deficit have soared, and funds are fleeing emerging markets in general.

Still, the currency has been notably stable this year, apart from just after Russia’s invasion of Ukraine, which sent Turkey’s energy import costs soaring.

In its latest stabilising effort, authorities asked banks to carry out trades with corporate clients between 10 a.m. (0700 GMT) and 4 p.m. (1300 GMT) when the market is most liquid to help avoid price swings, Reuters reported this week.

At the height of the December crisis the lira touched 18.4 to the dollar, leading the central bank to intervene and the government to announce measures including a scheme to protect lira deposits against depreciation.

Economy

Japan’s Nomura targets up to 90% jump in core pretax income in 3 years

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© Reuters. FILE PHOTO: A logo of Nomura Holdings is pictured in Tokyo, Japan, December 1, 2015. REUTERS/Toru Hanai

TOKYO (Reuters) -Nomura Holdings Inc, Japan’s biggest brokerage and investment bank, said on Tuesday it is targetting an up to 90% jump in pretax income in three years as it plans to beef up digital and advisory services.

Setting out guidance in a mid-term presentation, Nomura said it would target annual pretax income of between 350 billion yen and 390 billion yen ($2.7 billion and $3.0 billion) for its three core divisions in the year to end-March 2025.

That compared to 205.2 billion yen it posted for the year ended in March 2022.

Nomura also said it will create a new digital asset company later this year that will allow institutional investors to trade products linked to cryptocurrencies, stablecoins, decentralized finance and non-fungible tokens.

($1 = 128.9100 yen)

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Economy

Analysis-Alarmed by Solomon Islands-China pact, NZ finds its voice on security

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© Reuters. FILE PHOTO: A car with a New Zealand flag waits for New Zealand Prime Minister Jacinda Ardern outside the Great Hall of the People during her visit in Beijing, China, April 1, 2019. REUTERS/Jason Lee

By Lucy Craymer

WELLINGTON (Reuters) – New Zealand has long been seen as the moderate, even absent, voice on China in the “Five Eyes” western alliance, so much so that its commitment to the group was questioned just 12 months ago.

The recent signing of a security pact between China and nearby Solomon Islands appears to have changed that.

New Zealand’s tone on both security and Beijing’s growing presence in the South Pacific has toughened, a shift analysts say reflects concerns the agreement will give Beijing a strategic foothold and potentially a military presence in the Pacific that could destabilise Western influence.

“It’s a real challenge to New Zealand’s sense of where the Pacific is heading,” said Robert Ayson, Professor of Strategic Studies at Victoria University of Wellington.

Prime Minister Jacinda Ardern described the pact as “gravely concerning” and called on Solomon Islands to discuss it within the Pacific Islands Forum.

“What is really changing around us is the level of assertiveness and aggression we see in the region,” Ardern said later at a United States-New Zealand Business Summit.

New Zealand has previously often shied away from such criticisms, which analysts put down to the country’s heavy trade reliance and close economic relationship with China.

Both China and the Solomon Islands have said the new pact will not undermine peace in the region. Details of the final agreement have not been released but Chinese foreign ministry spokesman Wang Wenbin said the agreement called for China to help the Solomon Islands maintain social order and cope with natural disasters, and did not pose a risk to the United States.

SOFT POWER

But statements by Ardern and Foreign Minister Nanaia Mahuta were a clear signal they shared U.S. and Australian concerns about Chinese security engagement in the Pacific, said Anna Powles from the Centre for Defence and Security Studies at Massey University.

“It also sent a signal to the Pacific that New Zealand supported regional collective security initiatives, and to third parties, specifically China, that regional crises in the Pacific would be managed by the region,” she said.

While small and with limited military capabilities, New Zealand’s soft power in the Pacific is arguably stronger than its allies. It has a large Pacifika population and strong family, business, sporting and cultural ties along with territories in the region.

New Zealand sees itself as a Pacific country and wants stability and prosperity for its neighbours, and needs a free and open Indo-Pacific to protect trade and telecommunication connections.

David Vaeafe, programme manager at non-governmental organisation Pacific Cooperation Foundation, said the relationship with the Pacific was not all about money but about listening and understanding what the region needs.

“New Zealand’s foreign policy towards the Pacific is slowly evolving and engaging from being ‘you shouldn’t do this’ to consulting and being part of that process,” he said.

FIVE EYES CRITICISMS

A year ago, there were questions over Wellington’s commitment to the Five Eyes alliance with Australia, Britain, Canada and the United States, after Mahuta said Wellington was uncomfortable with expanding the role of the group.

There had been criticism after New Zealand opted not to sign joint statements from other Five Eyes members, including one on Hong Kong and another on the origins of COVID-19.

White House Indo-Pacific coordinator Kurt Campbell told a business summit earlier this month that New Zealand’s underestimation of security risks in the past appeared unlikely to be an issue.

“I think there is an understanding that the challenges that are presenting themselves on the global stage are not so distant – they’re closer and they have direct implications,” he said.

Already New Zealand and Japan have announced plans to increase security ties and other moves are afoot.

Mahuta visited Fiji at the end of March and signed an agreement that among things will facilitate information on shared security challenges.

At the start of the month, a partly New Zealand-backed tuna processing plant for the Solomon Islands that is set to create more than 5,500 jobs was announced.

The Ministry of Foreign Affairs and Trade has quietly shuffled more money into Pacific development cooperation budget for 2021-2024, according to changes made on its website. The fund has been increased since December by nearly NZ$120 million ($75 million) to $1.55 billion.

New Zealand’s budget on Thursday will likely give further detail on Pacific spending with New Zealand’s defence minister previously highlighting the region as a priority.

“New Zealand is quite strongly aligned to the United States and Australia,” VUW’s Ayson said. “That doesn’t mean we always see eye-to-eye and it doesn’t mean the we’re as closely aligned as Australia, but New Zealand’s security alliance is quite strong.”

($1 = 1.6038 New Zealand dollars)

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Economy

After delay, U.S. Senate edges toward passing $40 billion Ukraine war aid

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© Reuters. FILE PHOTO: Military aid, delivered as part of the United States’ security assistance to Ukraine, is unloaded from a plane at the Boryspil International Airport outside Kyiv, Ukraine February 13, 2022. REUTERS/Serhiy Takhmazov/File Photo

By Patricia Zengerle

WASHINGTON (Reuters) – The U.S. Senate voted on Monday to advance $40 billion more aid for Ukraine in its war against Russia, setting the stage for a vote on the bill possibly later this week, after the military and humanitarian assistance was delayed due to opposition from one Republican senator.

The tally was 81 to 11 on the first of a potential three procedural votes paving the way for final Senate passage of the funding, requested by President Joe Biden’s administration to keep aid flowing and boost the government in Kyiv nearly three months after the start of the Russian invasion.

All 11 “no” votes were from Republicans.

The House of Representatives approved the aid on May 10. But it stalled in the Senate after Republican Senator Rand Paul refused to allow a quick vote. Biden’s fellow Democrats narrowly control both the House and Senate, but Senate rules require unanimous consent to move quickly to a final vote on most legislation.

Paul said he wanted an inspector general to be appointed to oversee the funds, but declined an offer from Senate leaders to hold an amendment vote on his proposal. Changing the bill would force the House to vote on it again, causing further delay.

There is strong support from both parties for assisting Ukraine. The House passed the measure by 368 to 57, with substantial Republican support, despite all 57 of the “no” votes in the House coming from Republicans.

Mitch McConnell, the top Republican in the U.S. Senate, led a small delegation to Ukraine this weekend. He said on Sunday the Senate could approve the aid on Wednesday.

The Biden administration had said additional money for Ukraine must be approved by Thursday in order to avoid a lapse in U.S. assistance.

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