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Zimbabwe central bank says bank lending freeze is temporary

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© Reuters. FILE PHOTO: People walk past the Reserve Bank of Zimbabwe building in Harare, Zimbabwe, February 25, 2019. REUTERS/Philimon Bulawayo

HARARE (Reuters) – Zimbabwe’s freeze on bank lending is a temporary measure which is meant to contain inflation and stabilise its economy, central bank governor John Mangudya told state television on Tuesday.

President Emmerson Mnangagwa on Saturday ordered the suspension with immediate effect, saying the move was meant to stop speculation against the Zimbabwean dollar, which has been rapidly devalued on a thriving black market.

“We know this is a painful, but necessary, measure. It was necessary because of the increase in inflation. Some entities were now using funds from banks to purchase foreign currency,” Mangudya told ZBC.

“It’s a temporary, necessary measure to ensure that there is sanity in terms of taming inflation.”

Zimbabwe’s inflation has started to rise again, with year-on-year inflation at 96% in April, up from 61% at the beginning of the year, mainly due to a rapidly weakening local currency.

Analysts from BancABC, the local unit of pan-African financial group Atlas (NYSE:ATCO) Mara, said in a research note that the lending freeze threatens the survival of the country’s banks.

“The government is using a blunt approach to try and address a long-standing currency conundrum,” the analysts said, adding: “Banning lending activities will threaten survival of Banks as this will wipe out 20-50% of their incomes.”

The BancABC note said that the freeze could lead to shortages of goods, further price increases and job losses.

Forex

Qatar Investment Authority cannot exit Russian market

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© Reuters. FILE PHOTO: A general view shows oil treatment facilities at Vankorskoye oil field owned by Rosneft north of Krasnoyarsk, Russia, March 25, 2015.

DOHA (Reuters) – The Qatar Investment Authority cannot exit the Russian market and is waiting to assess its position there because of the Ukraine crisis, the sovereign wealth fund’s chief investment officer for Europe, Russia and Turkey said Tuesday.

“We can’t do much in Russia…We have to really assess where to stand on those opportunities there. I think it is a very difficult position for us, being an investor with one name.”

QIA owns a 19% stake in Russian state-backed oil giant Rosneft, which Al-Hammami said is the fund’s only holding “of significance” in Russia.

(Reporting and writing by Andrew Mills in Doha, Editing by Louise Heavens)

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Pound Tumbles as Rate-Hike Bets Cut on Renewed Recession Fears

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© Reuters. Pound Tumbles as Rate-Hike Bets Cut on Renewed Recession Fears

(Bloomberg) — The pound tumbled and investors rushed to the safety of government bonds after an index of UK private sector growth unexpectedly slid in May to reawaken fears of a recession.

That led traders to rein in bets on further interest-rate hikes from the Bank of England, given the risk that higher borrowing costs will halt growth. The pound fell nearly 1% against the dollar, reversing Monday’s gains and making it the most volatile Group-of-10 currency this week.

Traders piled into short-dated government debt, driving down the two-year gilt yield by 12 basis points to 1.45%, its biggest drop in two weeks. Bonds are benefiting as money markets expect about 15 basis points fewer rate increases this year, a day after BOE Governor Andrew Bailey said a cost-of-living crisis will be factored into policy decisions.

“After Governor Bailey’s not-so-hawkish comments yesterday, today’s PMI figures underscore the real income shock on the UK economy,” said Geoffrey Yu, a senior foreign-exchange strategist at Bank of New York Mellon. “If we had to pick one G-10 central bank most likely to pause soon, it would likely be the BOE.”

Read more: UK Faces Risk of Recession as Firms Wilt Under Soaring Costs

S&P Global’s index of private sector growth unexpectedly slumped in May to levels last seen in February 2021, when coronavirus lockdowns were still in place, the firm said Tuesday. The speed of the slowdown was the fourth-largest on record and worse than anything seen before the pandemic hit. 

“These are stunning decreases over such a short period of time,” said Christopher Dembik, head of macro analysis at Saxo Bank, adding that inflation is still “out of control” and a technical recession is likely in the UK this year.

The data gives policy makers bandwidth for just one more 25 basis-point hike at June’s meeting at a maximum, according to Simon Harvey, head of currency analysis at Monex Europe. The BOE has already implemented four back-to-back hikes to deal with surging inflation. 

©2022 Bloomberg L.P.

 

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Dollar Weakens After Lagarde Props Up Euro; Risk-Off Tone Still Dominant

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© Reuters.

By Geoffrey Smith

Investing.com — The dollar fell again in morning trade in Europe after European Central Bank President Christine Lagarde chose not to rule out a 50 basis point interest rate hike at the bank’s July meeting.

By 3:30 AM ET (0730 GMT), the euro traded up 0.3% at $1.0724, its highest level in nearly a month. The dollar index, in which the EUR/USD rate has the biggest weighting, was down 0.2% at 101.86.

The greenback has lost its momentum in recent days since the ECB shifted more clearly to signaling what would be its first interest rate hike in a decade at its July meeting, narrowing the distance in policy terms between it and the Federal Reserve.

Lagarde had published a blog on the ECB’s website on Monday, saying that the ECB would be out of negative interest rate territory by the end of the third quarter. While that confirmed a shift toward tightening, the euro had weakened later in the day on perceptions that the timeframe was chosen in order to rule out a 50 basis point hike already in July, which the ECB’s more hawkish policymakers say is necessary.

Talking to Bloomberg on the sidelines of the World Economic Forum in Davos, Lagarde pushed back against such suggestions, saying that nothing was off the table, but repeated that the ECB’s moves should be gradual.

The ECB’s deposit rate currently stands at -0.5%, while its refinancing rate stands at 0%. In the current environment of high excess liquidity, it is the deposit rate that effectively sets a lower bound for market interest rates.

Lagarde was speaking just before the publication of the first of the preliminary purchasing managers indices for May from S&P Global. Both the manufacturing and services PMIs for France came in a little below expectations, but nonetheless, both stayed clearly in the territory signaling growth. Germany’s manufacturing PMI surprisingly managed its first gain in three months.

More broadly, the market tone has shifted back to risk-off after a reassessment of China’s fiscal stimulus announcement on Monday. While markets welcomed the idea of over $20 billion worth of tax rebates for corporates, the overall volume was disappointing for many and still offered no convincing way out of the growth trap created by Beijing’s ‘Zero Covid’ strategy.

The offshore yuan fell 0.4% to 6.6857, after rising sharply in response to Monday’s news.

Elsewhere, the Turkish lira weakened above 16 to the dollar for the first time this year amid ongoing fears about rampant inflation. The country is a big net importer of energy and consequently highly exposed to the leap in oil and gas prices this year. By contrast, the tightly-managed Russian ruble rate continued to go from strength to strength, hitting another four-year high of 56.91 against the dollar.

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