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Ghana strike ends but election campaign to test IMF deal further

August 30, 2015 - reuters.com

* Govt set to negotiate 2016 pay round with labour * Wage growth ballooned in last election year * School teachers threaten to strike in Sept By Matthew Mpoke Bigg ACCRA, Aug 30 (Reuters) - Ghana faced down the first major challenge to an IMF austerity programme on Monday when doctors suspended a three-week strike but a bigger test of President John Mahama's commitment will come next year as he fights for reelection. The International Monetary Fund deal is designed to restore fiscal stability and kickstart growth in a country that recently lost its reputation as one of Africa's strongest economies after years in which its GDP grew at around 8 percent thanks to exports of gold, cocoa and oil. ID:nL5N10N2B9 The end of the strike by the Ghana Medical Association makes it easier for the government to honour the $918 million IMF programme in the short-term. It also strengthens Mahama's hand should other disaffected unions stage industrial action, political analysts said. But the decision by doctors to suspend their strike for better working conditions makes it harder for other civil servants to win redress for inequities and declining wages, potentially storing up grievances against Mahama's government. The moment of truth will come next year when he faces opposition leader Nana Akufo-Addo in an election in December expected to be a repeat of the tight contest in 2012. ID:nL5N10T2T2 "The pressure on authorities to appease popular demands will intensify as the elections draw nearer," said Cobus de Hart, of NKC African Economics. "The challenge for government will be to prevent the snowball from getting too large." Recent history shows the risk. Wage growth ballooned in 2012 ahead of the last election, causing a spike in the budget deficit and triggering a fiscal crisis that includes a debt-to-GDP ratio near 70 percent. To keep to its IMF commitments, the government needs to contain pay agreements with civil servants to under 10 percent in its pre-budget round of talks with unions and ministries, according to Eurasia Group. That may not be easy for Finance Minister Seth Terkper as he prepares the November budget. Inflation in July stood at 17.9 percent and the cedi currency has fallen sharply this year, undermining the real value of wages. However, the Fund deal was sanctioned by parliament so both of the main parties should support government measures to keep it on track even as pre-election tensions rise, said John Gatsi, a senior lecturer in finance at the University of Cape Coast. "The end of the strike provides ample opportunity for government to accommodate all the (labour) issues for the preparation of the 2016 budget process," he said. LIMITS TO UNION POWER The strike by Ghana's 2,800 doctors who were pushing for more clearly defined conditions of service including payments for additional work is not the only possible labour action. The Coalition of Concerned Teachers said it was laying the groundwork for a strike in September when schools reopen to push for better conditions of service and the National Association of Graduate Teachers has made similar threats. In particular, the Coalition wants to reform a system under which new teachers can work for up two years before receiving their first paycheck and then only receive a part of their arrears, said Ernest Opoku, president of the coalition. "We make our own decisions and we have issued threat upon threat. They (doctors) had to strike first, but it doesn't change the way we want to go about it," he told Reuters, adding that the coalition had about 20,000 members. Despite the threats, the chances of a broad strike that could shake the government are undermined by the fact that there are multiple unions and associations in Ghana even within the same profession and often they compete for membership and funds. For example, there are at least three associations of school teachers. The biggest and most established, the Ghana National Association of Teachers, has no plans to join CCT action. As a result, it is difficult for public service unions to achieve a consolidated challenge to government. High unemployment also reduces the leverage of private sector, non-professional unions because employees are easy to replace. "Professional associations can use their muscle but the threat of strike action leads quickly to negotiation," said Yao Graham, head of the Third World Network, a research and advocacy group. "There is a climate in Ghana to resolve differences quickly." (Editing by Daniel Flynn and Anna Willard) ((matt.bigg@thomsonreuters.com; +233)(0)(209 607-203; Reuters Messaging: matt.bigg.thomsonreuters.com@reuters.net)) Keywords: GHANA HEALTH/STRIKE

Tanzania's opposition vows to review mining, gas contracts

August 30, 2015 - reuters.com

* Tanzania sits on huge gas finds, mines gold * Lowassa was snubbed by ruling, switched to opposition * Government has said will review mining deals By Fumbuka Ng'wanakilala DAR ES SALAAM, Aug 30 (Reuters) - Tanzania's main opposition presidential candidate said he would review mining and gas contracts, and also scrap "unnecessary" tax exemptions for mining companies, if elected president of the east African nation in October. Former prime minister Edward Lowassa, 62, snubbed as the ruling party's candidate last month, switched to become the opposition coalition's contender. He could pose a tough challenge for the CCM, which has ruled since 1961. "My government will review all major energy and mining contracts and rectify shoddy deals," Lowassa said late on Saturday in a televised statement, without giving specifics. Some in the opposition say contracts with foreign firms are too generous, although investors' terms are fair. Experts say last year's weak response to a licensing round indicates that Tanzania needs to tread carefully to avoid deterring investors. Investors in Tanzania, Africa's fourth biggest gold miner with plans to develop huge new gas finds, have complained of shifting goal posts in contracts with the state. "My government will also eliminate unnecessary tax exemptions in the mining sector ... and use part of its stake in gas reserves as collateral for loans to finance construction of natural gas infrastructure," Lowassa said. Tanzania estimates it has more than 55 trillion cubic feet (tcf) of recoverable natural gas reserves off its south coast. BG BG.L , Statoil STL.OL , Exxon Mobil BG.L , Ophir OPHR.L and Petrobras are players in Tanzanian energy. Miners include Acacia Mining Plc, AngloGold Ashanti ANGJ.J and Petra Diamonds Ltd PDL.L . Rival camps have both launched campaigns for the Oct. 25 parliamentary and presidential elections. Lowassa, who boasts some popular support, quit as premier in 2008 over corruption allegations that he denies. Analysts said those allegations encouraged CCM officials to snub him, given their promises to fight graft. "My government will levy lower taxes and fees to joint ventures between local and foreign investors, while foreign investors who are not in joint venture with locals will face higher taxes and fees," Lowassa said. The government said in May it would review mining pacts to secure a bigger share of revenues. ID:nL6N0OG2TW Analysts said the ruling CCM's candidate, John Magufuli, 55, is still best positioned to win, in part because the party has control of state institutions and has broader national reach. "It is still very unlikely that the main opposition Chadema and other parties will unseat CCM at the presidential level, but parliamentary elections will be highly competitive," Ahmed Salim, an analyst at consultancy Teneo Intelligence wrote. (Reporting by Fumbuka Ng'wanakilala; Editing by Edmund Blair/Mark Heinrich) ((edmund.blair@thomsonreuters.com; +254 20 499 1232; Reuters Messaging: edmund.blair.thomsonreuters.com@thomsonreuters.net)) Keywords: TANZANIA ENERGY/

Zimbabwe relaxes empowerment law to boost investment-govt paper

August 30, 2015 - reuters.com

HARARE, Aug 30 (Reuters) - Zimbabwe, suffering from economic recession and lack of foreign investment, is relaxing a black economic empowerment law forcing foreign-owned firms to sell majority shares to locals in a bid to attract investment, a cabinet minister said on Sunday. Signalling a shift in policy, Christopher Mushohwe, minister for youth, indigenisation and economic empowerment, said the law would only be mandatory in the mining sector, which generates half of Zimbabwe's export earnings and contributes about 17 percent of GDP. Foreign investors in other sectors would be able to negotiate with the government what proportion of their businesses they could sell to locals, he said. "The only area where we do not entertain negotiations is mining, because as indigenous Zimbabweans, our contribution is the (mineral) resource," Mushohwe told the state-owned weekly Sunday Mail. "In other sectors, proposals are considered case by case. We are saying to the investors, if you come, your investment is safe, but we encourage you to partner locals," he added. The southern African country is struggling to recover from a catastrophic recession that was marked by billion percent hyperinflation and widespread food shortages. Foreign investors say the Indigenisation and Economic Empowerment Act signed into law in 2008 requiring foreign-owned firms to sell at least 51 percent shares to locals, is the biggest obstacle to investing in the mineral-rich country. President Robert Mugabe has defended the law, saying it aims to redress colonial-era imbalances. Anglo American Platinum AMSJ.J and Impala Platinum Holdings IMPJ.J are the two largest mining companies operating in Zimbabwe and have previously expressed reservations with complying with the empowerment law. Zimbabwe has the second largest reserves of platinum and chrome, but has lagged behind neighbours like Mozambique and Zambia in attracting foreign investment largely due to Mugabe's economic empowerment drive and high political risk. Outside mining, foreign investors are interested in Zimbabwe's manufacturing and tourism sectors and infrastructure projects like power generation, but are often discouraged by the indigenisation law and red tape. Zimbabwe has halved this year's growth target to 1.5 percent while labour unions say more than 20,000 workers have lost their jobs in the last month as firms close due to power shortages, high cost of capital and competition from cheaper imports. (Reporting by MacDonald Dzirutwe; editing by Clelia Oziel) ((macdonald.dzirutwe@thomsonreuters.com; +263 4 799 112; Reuters Messaging: macdonald.dzirutwe.thomsonreuters.com@reuters.net)) Keywords: ZIMBABWE EMPOWERMENT/

Egyptian pound steady at official auction, weaker at exchange bureaus

August 30, 2015 - reuters.com

CAIRO, Aug 30 (Reuters) - Egypt's central bank kept the pound EGP= steady at 7.73 per dollar at a foreign exchange auction on Sunday, and the currency was weaker at exchange bureaus. The central bank said it had offered $40 million and sold $37.8 million at a cut-off price of 7.7301 pounds per dollar CBEO , unchanged from the rate at the last auction on Thursday. The bank kept the pound at 7.5301 for five months until last month, when it allowed it to slide to 7.6301. On July 5, the bank let it slip a further 0.10 pounds. ID:nL8N0ZL0A1 Letting the pound weaken in a controlled way could boost exports and attract further investment, but also raises Egypt's already large bill for imported fuel and food staples. Two traders at exchange bureaus said the pound was changing hands at 8.015/8.02 pounds per dollar, weaker than the 8 quoted on Thursday. The central bank gave lenders permission in January to trade dollars up to 0.10 pounds above or below the official rate, with currency exchange bureaus allowed to trade at 0.15 pounds above or below the official rate. ID:nL6N0V83KE Egypt has sought to tame a once-thriving currency black market with measures such as a cap on dollar-denominated bank deposits. (Reporting by Eric Knecht; Editing by Mark Heinrich) ((Eric.Knecht@thomsonreuters.com; +20 2 23948181; Reuters Messaging: eric.knecht@thomsonreuters.com@reuters.net)) Keywords: EGYPT FOREX/

Saudi credit default swaps fall sharply on oil price recovery

August 30, 2015 - reuters.com

By Andrew Torchia DUBAI, Aug 30 (Reuters) - The cost of insuring against a Saudi Arabian sovereign debt default has dropped sharply in the past few days because of the rebound of global oil prices, market data showed on Sunday. Last Monday, five-year Saudi credit default swaps SAGV5YUSAC=MG soared as high as 120 basis points, from around 60 bps late last month. At their high, CDS implied the world's top oil exporting country had a probability of default during the next five years of close to 10 percent, roughly the same as the Philippines PHGV5YUSAC=MG - a dramatic sign of how the plunge of oil prices since mid-2014 has eroded investor confidence in the Saudi economic model. But in the last few days, oil prices have rebounded sharply and Brent LCOc1 , the global benchmark, finished Friday up $2.49 or 5 percent at $50.05 a barrel. It gained 10 percent on the week. This has left Saudi CDS quoted at 84 bps - about 30 bps below the Philippines' current level and 14 bps below Spain ESGV5YUSAC=MG . Saudi Arabia has not, however, returned all the way to the area of South Korea KRGV5YUSAC=MG , at 65 bps. With oil prices at $50, Saudi Arabia is still running a state budget deficit estimated by analysts at around 15-20 percent of gross domestic product, but it has huge fiscal reserves which could cover such a deficit for at least several years. ID:nL5N10L136 Saudi stock prices .TASI surged 4.2 percent early on Sunday in response to oil's rebound, bringing them 15 percent above last week's low but still down 13 percent month-to-date. One-year U.S. dollar/Saudi riyal forwards SAR1Y= have not dropped sharply, however, and were last quoted at 300 points, not far from last week's 12-year highs - suggesting there is still significant demand to hedge against the risk of riyal depreciation due to low oil prices. (Editing by William Hardy) ((andrew.torchia@thomsonreuters.com; +9715 6681 7277; Reuters Messaging: andrew.torchia.thomsonreuters.com@reuters.net)) Keywords: SAUDI CDS/

Swiss rates to stay negative for some time - SNB's Jordan

August 30, 2015 - reuters.com

ZURICH, Aug 30 (Reuters) - Swiss interest rates will stay negative "for some time" given many risks -- including China -- that could spark safe-haven buying of what is already a "clearly overvalued" Swiss franc, Swiss National Bank Chairman (SNB) Thomas Jordan said. Defusing the Greek debt crisis eased some upward pressure on the franc, Jordan told the NZZ am Sonntag paper in an interview, but he stressed the central bank's commitment to negative rates and readiness to intervene if needed on currency markets. The SNB in January removed its cap on the franc at 1.20 to the euro EURCHF= , sending the currency soaring and putting a major strain on the export-dependent Swiss economy. Swiss rates will have to stay negative to make the franc unattractive, he said, noting rates will remain low in other major currency areas as well. "But there are lights at the end of the tunnel. It is said that the U.S. central bank may under some circumstances start normalising monetary policy, and then possibly England could raise interest rates a bit. "There are signs that the economy is recovering in the euro area. Then monetary policy could normalise there. That would let us get away from negative rates," he said. Asked why the franc had eased of late to around 1.08 to the euro from 1.04, he said: "The Swiss franc is clearly overvalued, at the same time we have negative interest rates. This makes it less attractive to hold francs. The uncertainty in Europe is slightly lower because the crisis has been defused by Greece. All this suggests a further weakening of the Swiss franc." But he added: "Of course, there are still many risks in the world which may cause the franc to again take on the role of safe haven. In addition come the uncertain developments in the emerging markets, especially in China." Jordan made a rare public acknowledgement in June that the SNB had stepped into the market. Asked by the paper if it had intervened over the past two months, he said: "We have always stressed that we will be active in the currency market if necessary. In the second half of June, when the Greek (bailout) negotiations were at a critical stage, we intervened, for example, stabilising the foreign exchange market." Data last week showed the Swiss economy generated surprise growth in the second quarter, averting what would have been its first recession since 2009. ID:nL5N1130YI Jordan said the economy had developed more or less in line with the SNB's expectations since January. It will update its growth and inflation forecasts at its rate meeting on Sept. 17. It has said before it expects the economy to grow nearly 1 percent this year, with inflation staying negative until 2017. Jordan said it was "not optimal" that prices were falling but noted the strong franc made import prices lower at a time oil prices had halved. "Our forecasts assume that inflation in 2017 returns to positive territory." Jordan acknowledged that many companies were struggling to master the fallout from the strong franc, but added the ensuing structural change would be positive for Switzerland. He dismissed talk the SNB would have been better off using a basket of currencies rather than capping the franc against the euro alone. As to its willingness to intervene, he said: "We consider not a single currency, but exchange rates overall." (Reporting by Zurich newsroom; Editing by Raissa Kasolowsky) ((+41.58.306.7336)(zurich.newsroom@news.reuters.com)) Keywords: SWISS SNB/JORDAN

MIDEAST STOCKS - Factors to watch - Aug 30

August 30, 2015 - reuters.com

DUBAI, Aug 30 (Reuters) - Here are some factors that may affect Middle East stock markets on Sunday. Reuters has not verified the press reports and does not vouch for their accuracy. INTERNATIONAL/REGIONAL * GLOBAL MARKETS-Wild week for markets ends quietly MKTS/GLOB * MIDEAST STOCKS-Gulf up on stronger global trend, long-term outlook still murky ID:nL5N1122DF * Oil extends short-covering frenzy to second day, topping $50 O/R * Gold rises on technical dealings but posts worst week in a month ID:nL4N1132TK * Turkish jets join US-led coalition strikes on Islamic State ID:nL5N1140CD * Nationalist and pro-Kurdish opposition given Turkish cabinet posts ID:nL5N1134V3 * Local Syrian ceasefires break down as shelling resumes ID:nL5N11402X * Islamic State takes new ground near Turkish border ID:nL5N1121QG * Thousands rally in Beirut against political leaders, rot ID:nL5N1140A3 * Lebanon's Hezbollah, Christian allies boycott cabinet meeting ID:nL5N1121ZI * Rouhani says Iran's crude oil output stands at 2.9 mln bpd -Shana ID:nL5N1140F0 * Iran may have built extension at disputed site-UN nuclear watchdog ID:nL5N1123IF * Iraqi PM orders easier access to Baghdad's Green Zone as protests surge ID:nL5N1130XG * Libya arrests three suspected smugglers over migrant boat disaster ID:nL5N1140G9 * Eastern Libyan oil firm postpones Dubai conference to discuss contracts ID:nL5N1140FV * Saudi-led air strikes kill 10 people in central Yemen ID:nL5N1133YE * Yemeni government says to mount battle for Sanaa within 8 weeks ID:nL4N1124HK EGYPT * Egyptian court sentences 3 Al Jazeera journalists to prison ID:nL5N11405A * Egypt's GASC buys 55,000 tonnes of Ukrainian wheat ID:nL5N11341J * Egyptian pound steady at official auction, weaker at exchange bureaus ID:nL5N1122R2 * Egypt bans rice exports as of Sept. 1 ID:nL5N1121OI SAUDI ARABIA * Saudi July bank lending growth 9.4 pct, slowest since Sept 2011 ID:nL5N1124GC * Saudi King Salman to meet Obama at White House on Sept. 4 ID:nL1N1121O4 UNITED ARAB EMIRATES * Dubai pay-TV firm OSN signs $400 mln five-year loan - sources ID:nL5N11241Y * UAE lowers domestic gasoline, diesel prices in Sept ID:nL5N1121C5 OMAN * ACWA, Mitsui group secure financing for Oman power plant ID:nL5N11237D BAHRAIN * Policeman killed by blast in Bahrain village ID:nL5N113501 (Compiled by Dubai newsroom) ((dubai.newsroom@reuters.com)) Keywords: MIDEAST FACTORS/

Stronger greenback helps boost Australian gold

August 30, 2015 - reuters.com

By James Regan SYDNEY, Aug 30 (Reuters) - A stronger U.S. dollar is helping drive Australian gold production and buffeting local prospectors from the effects of a global sell-off in bullion, according to a sector survey released on Sunday. Production of the precious metal in Australia rose by 4 percent in the second quarter to 72 tonnes versus the previous quarter, second only to China, mining consultants Surbiton Associates Pty Ltd said in its latest tally of Australia's gold mining industry. A stronger greenback is playing into the hands of Australian prospectors, with the bullion price in Australian dollar terms XAUAUD=R relatively stable since the start of 2015, according to Surbiton's director, Sandra Close. "Despite lower gold prices in U.S. dollar terms, the depreciation of the Australian dollar is proving a blessing for Australian gold producers," Close said. "Although the gold price XAU= averaged U.S.$1,192 per ounce in the June quarter, the Australian dollar gold price averaged A$1,532 per ounce," she said. Australia's gold output over the 12 months to June 30 rose 1 percent to 285 tonnes, which at today's prices is worth about A$14 billion ($10.05 billion). China is estimated to have produced around 450 tonnes in calendar 2014. A looming U.S. rate hike has long dimmed the appeal of non-interest bearing assets such as precious metals, and gold on Friday posted its biggest weekly drop in five weeks after robust U.S. economic data suggested stronger growth. But in Australia, gold still shines. "We feel we are in terrific shape," said Jake Klein, executive chairman of Evolution Mining EVN.AX , which has spent close to A$800 million ($574 million) buying mines in Australia this year and reported an 112 percent rise in underlying profit in fiscal 2015. "The balance sheet is strong and the gold price is A$100 an ounce higher than we achieved last year," Klein said. ($1 = 1.3935 Australian dollars) (Reporting by James Regan in; Australia, Editing by Franklin Paul in New York) Keywords: GOLD AUSTRALIA/SURVEY

China crisis covers tracks of Japan

August 30, 2015 - reuters.com

* Only weak comparisons with global crisis or Asian crisis * China crash most closely matches Japan's in early 90s * Both booming, export-led economies had asset bubbles * Difference is global growth was strong when Japan crashed * China more active, Japan response too little, too late By Vidya Ranganathan SINGAPORE, Aug 30 (Reuters) - As China's stock markets have lurched wildly, seeding dramatic falls across the world, some have drawn parallels with the global financial crisis of 2008 or the Asian version a decade earlier. They are weak comparisons. The abrupt end of Japan's boom in the 1990s, complete with stock crash and property bust, offers the most striking similarities, and the most valuable lessons. China's stocks ran up gains of 150 percent in about a year before the mid-June crash, supercharged by margin lending and ignoring the drumbeat of disappointing economic data. That makes for facile comparisons with 2008, the most recent example of a credit-fuelled bubble. But there was no trigger like U.S. authorities' shock decision to let Lehman Brothers, at the heart of the global banking system, collapse in 2008. "If you look at the extremes in the equity market they are almost comparable with the Lehman days. In those days we had a trigger, a real event, something clearly defined," said Christian Lenk, rate strategist at DZ Bank in Frankfurt, on Tuesday. "What we saw yesterday was ongoing fears about China ... but there was no trigger, so we see a bit of normalisation today." And it was no surprise that China's stock bull run, like its property bubble a year earlier, came to an end, Japanese Finance Minister Taro Aso said this week. The anatomy of the Asian financial crisis was also quite different, as hot money deserted a region with high foreign debt and trade deficits and currencies they couldn't support. "There are few similarities to the Asian crisis in 1997 and 1998, which was driven more by large deficits in trade accounts," said John Vail, chief global strategist at Nikko Asset Management in New York. "What we're seeing now is more of a rapid change in sentiment around the world," he said. The comparisons between China now and Japan in the 1990s, however, are striking. Like Japan then, China was trying to cool frothy property and equity markets. Both economies were powered by massive investment, huge trade surpluses and overvalued currencies and were liberalising their financial sectors. China's share of the global economy now is roughly the same as Japan's was in 1990, about 12 percent. AVOIDING JAPAN'S MISTAKES Japan's real GDP growth averaged 5 percent in the run-up to the crash, while China's averaged 10 percent over the past decade. Credit growth was explosive in both, and the market crashes were triggered in part by efforts to temper exuberance. Policy response was stop-and-go in both cases, with China seesawing on IPO policies, market liquidity operations and its treatment of shadow banking loans. Chinese policymakers fear falling into the trap of deflation and stagnation that has gripped Japan ever since. "They aren't a single bit interested in Japan's successes. Their biggest interest is in Japan's mistakes," one China-based Japanese source in touch with Chinese regulators told Reuters in March. ID:nL4N0WA02P "Japanese and Chinese economies do share many similarities, so I assume there is quite a lot to learn from our experiences." Global investors will also see some threatening differences. Global growth is weak, and China accounts for two fifths of that. It also accounts for most of the growth of many multinationals. As the largest consumer of commodities, its slowdown is hammering the price of fuel resources and metals, unleashing deflationary pressure across the world. Japan's woes coincided with robust global growth and had fewer international consequences. "Japan's collapse in the 90s was very much reflected into itself with just some knock-on effect into the rest of Asia," said Adam Slater, lead economist at UK-based Oxford Economics. "The impact of China's slowdown will ... leave us in a very disappointing growth phase for the next year or two for the world as a whole." Some important differences, and lessons learned from Japan's experience, will be welcome to global investors and Chinese policymakers alike. China's stock market is much smaller relative to GDP than Japan's was - 40 percent versus 140 percent - so should have less economic impact. Per capita it is still a middle-income nation with only 55 percent urbanisation, so has plenty of scope for infrastructure spending to support the economy. While Japan was slow to act - monetary easing came too little, too late, fiscal stimulus was withdrawn early - and its capital markets at the mercy of international flows, while China, with tight control of its capital account, has been proactive to a fault. Its frequent monetary interventions and constant regulatory tinkering, whether in the stock or housing markets or in local government lending, are not always effective and sometimes counterproductive, but it rarely fiddles while Beijing burns. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Graphic-China and Japan crises http://link.reuters.com/ryg55w Graphic-Global markets http://graphics.thomsonreuters.com/15/globalmarkets/index.html ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Vidya Ranganathan; Additional reporting by Leika Kihara in Tokyo, Marius Zaharia in London, David Randall in New York; Writing by Will Waterman; Editing by Rachel Armstrong) ((vidya.ranganathan@thomsonreuters.com; +65-68703090; Reuters Messaging: vidya.ranganathan.thomsonreuters.com@reuters.net)) Keywords: GLOBAL MARKETS/CHINA PARALLELS

WRAPUP 1-Fed's Fischer sees inflation rebound, allowing gradual rate hikes

August 29, 2015 - reuters.com

* Fed, BoE sound confident notes in face of China fears * Fischer says pressure on U.S. inflation dissipating * Global markets edgy, awaiting Fed rate hike By Jonathan Spicer and Howard Schneider JACKSON HOLE, Wyo., Aug 29 (Reuters) - U.S. inflation will likely rebound as pressure from the dollar fades, allowing the Federal Reserve to raise interest rates gradually, Fed Vice Chairman Stanley Fischer said on Saturday in a speech careful not to overreact to a possible Chinese slowdown. The influential U.S. central banker was circumspect whether he would prefer to raise rates from near zero at a much-anticipated policy meeting on Sept. 16-17. But he said downward price pressure from the rising dollar, falling oil prices, and slack in the U.S. labor market is fading. The cautious confidence from Fischer, as well as from Bank of England Governor Mark Carney who spoke at a conference alongside him, suggests at least two major central banks are poised to look beyond a week of financial-market turmoil brought on by fears that China's economy is faltering. "Given the apparent stability of inflation expectations, there is good reason to believe that inflation will move higher as the forces holding down inflation dissipate further," Fischer told a central bankers' conference in Jackson Hole, Wyoming. "With inflation low, we can probably remove accommodation at a gradual pace," he added. "Yet, because monetary policy influences real activity with a substantial lag, we should not wait until inflation is back to 2 percent to begin tightening." Central banks and governments globally are bracing for the Fed decision, which could weaken foreign currencies and put even more pressure on emerging markets already reeling after the volatile global stocks selloff. At the same time, Fischer, Carney and other policymakers are wrestling with the world's stubbornly low levels of inflation, and recognizing that the rapid pace of globalization over the last quarter century may have made it harder for any individual country to move inflation higher. "There are profound secular and cyclical disinflationary forces at work in the global economy," Carney said, making it harder for central banks in London, Washington and elsewhere to reach the inflation targets they have set as a core policy goal. The Fed has said it wants to be reasonably confident that inflation, which has been stuck below its 2-percent target for a few years, will rebound in the medium term. The pickup in prices could stall, however, if a slowdown in China and falling commodity prices drag down the global economy. ID:nL4N1125BC "At this moment, we are following developments in the Chinese economy and their actual and potential effects on other economies even more closely than usual," said Fischer, a close ally of Fed Chair Janet Yellen. The Fed's preferred measure of inflation slipped to 1.2 percent in July, the lowest in more than four years. Fischer said the dollar's year-long rise played a big role in that weakness, and it could restrain U.S. gross domestic product growth through 2016 and even into 2017 - all the more reason to "proceed cautiously" in raising rates, he said. Outside the conference on Friday, Fischer made an impromptu television appearance to say it was too early to say whether the Fed should in September hike rates for the first time in nearly a decade. Markets, on alert for any sign policymakers were ruling out a September liftoff, read Fischer's remarks as suggesting a tightening would at least come this year. ID:nL1N1130HX While central banks in China, Japan, and Europe are ramping up monetary stimulus to fight off deflation or boost growth, the BoE, like the Fed, is plotting when to begin tightening policy. Carney said a slowdown in China could depress UK inflation further but it did not, for now, change his central bank's position on when and how it might raise rates. Economists predict the Bank of England is likely to start raising rates in the first quarter of next year. The developments "are unlikely to change the process of rate increases from limited and gradual to infinitesimal and inert," Carney told the conference, reiterating that the BoE's policy decision would become clearer "around the turn of the year." ID:nL1N1140F5 (Reporting by Jonathan Spicer and Howard Schneider; Additional reporting by William Schomberg in London; Editing by Andrea Ricci) ((jonathan.spicer@thomsonreuters.com)(+1 646 223 6253)(Reuters Messaging: jonathan.spicer.thomsonreuters.com@reuters.net www.twitter.com/jonathanspicer)) Keywords: USA FED/

UPDATE 1-Bank of England stance on rates unchanged by China - Carney

August 29, 2015 - reuters.com

(Adds details from speech, background) By Howard Schneider and Jonathan Spicer JACKSON HOLE, Wyo., Aug 29 (Reuters) - Bank of England Governor Mark Carney said on Saturday that a slowdown in China's economy could push down further on inflation but it did not change, for now, the central bank's position on when and how it might increase interest rates. Carney, speaking at an annual U.S. central banking conference in Jackson Hole, Wyoming, reiterated his view that the recovery in Britain's economy "will likely put the decision as to when to start the process of gradual monetary policy normalisation into sharper relief around the turn of this year." That comment echoed one he made in mid-July, before global financial markets took a hit in recent days over concerns about the health of China's economy. The BoE cut rates to 0.5 percent, a record low, at the height of the financial crisis in 2009. Although inflation in Britain is almost zero, the Bank is likely to start raising rates in the first quarter of next year as wage growth picks up, economists predict. Carney said on Saturday a Chinese slowdown could add to pressure pushing down on prices in Britain and risk aversion in global markets could make financial conditions in the country tighter, which would also weigh on inflation. "These are possibilities, not certainties. Their evolution needs to be monitored, not taken for granted," he said, before adding the direct exposure of Britain's economy to China was relatively modest. He also said the BoE could "look through" the temporary disinflationary impact on inflation from lower demand in China for commodities but would watch for any longer-lasting impact on Britain from a slowing of the world's No.2 economy. "Developments in China are unlikely to change the process of rate increases from limited and gradual to infinitesimal and inert," Carney said. The BoE's main guidance on interest rates has been that when the time comes to raise them, they will go up gradually and to a level lower than before the financial crisis. Carney stressed that his comment on the timing of a decision by the BoE on rates did not prejudge any particular decision. "But it does indicate that recent events do not yet, to my mind, merit changing the MPC's (Monetary Policy Committee's) strategy for returning inflation to target," he said. (Reporting by Howard Schneider and Jonathan Spicer; Writing by William Schomberg in London; Editing by Andrea Ricci) ((william.schomberg@thomsonreuters.com; +44 207 542 7778; Reuters Messaging: william.schomberg.reuters.com@reuters.net)) Keywords: USA FED/CARNEY

UPDATE 1-'Good reason to believe' U.S. inflation will rise -Fed's Fischer

August 29, 2015 - reuters.com

(Adds China comment, policy context) By Jonathan Spicer and Howard Schneider JACKSON HOLE, Wyo., Aug 29 (Reuters) - U.S. inflation will likely rebound as pressure from the dollar and other factors fade, allowing the Federal Reserve to raise interest rates gradually, Fed Vice Chairman Stanley Fischer said on Saturday. The influential U.S. central banker was circumspect whether he would prefer to raise rates from near zero at a much-anticipated policy meeting on Sept. 16-17. But he said downward price pressure from the rising dollar, falling oil prices, and slack in the U.S. labor market is fading. "Given the apparent stability of inflation expectations, there is good reason to believe that inflation will move higher as the forces holding down inflation dissipate further," he told a central bankers' conference in Jackson Hole, Wyoming. "With inflation low, we can probably remove accommodation at a gradual pace," he added. "Yet, because monetary policy influences real activity with a substantial lag, we should not wait until inflation is back to 2 percent to begin tightening." The Fed has said it wants to be reasonably confident that inflation, which has been stuck below a 2-percent target for a few years, will rebound in the medium term. Recent financial market turmoil and fears of a Chinese economic slowdown could stall that rebound. "At this moment, we are following developments in the Chinese economy and their actual and potential effects on other economies even more closely than usual," said Fischer, who on Friday said it was too early to decide whether September was the time to hike rates for the first time in nearly a decade. (Reporting by Jonathan Spicer and Howard Schneider; Editing by Andrea Ricci) ((jonathan.spicer@thomsonreuters.com)(+1 646 223 6253)(Reuters Messaging: jonathan.spicer.thomsonreuters.com@reuters.net www.twitter.com/jonathanspicer)) Keywords: USA FED/FISCHER

'Good reason to believe' U.S. inflation will rise -Fed's Fischer

August 29, 2015 - reuters.com

JACKSON HOLE, Wyo., Aug 29 (Reuters) - U.S. inflation will likely rise as the dollar and other influences fade, and the Federal Reserve can probably raise rates gradually, Vice Chairman Stanley Fischer said on Saturday. "Given the apparent stability of inflation expectations, there is good reason to believe that inflation will move higher as the forces holding down inflation dissipate further," he told a central bankers' conference in Jackson Hole, Wyoming. "With inflation low, we can probably remove accommodation at a gradual pace," he added. "Yet, because monetary policy influences real activity with a substantial lag, we should not wait until inflation is back to 2 percent to begin tightening." (Reporting by Jonathan Spicer and Howard Schneider; Editing by Andrea Ricci) ((jonathan.spicer@thomsonreuters.com)(+1 646 223 6253)(Reuters Messaging: jonathan.spicer.thomsonreuters.com@reuters.net www.twitter.com/jonathanspicer)) Keywords: USA FED/FISCHER

China's Commerce Ministry defends devaluation, sees 'limited' impact

August 29, 2015 - reuters.com

BEIJING, Aug 29 (Reuters) - China on Saturday defended the recent revamp of its foreign exchange regime that led to a sharp devaluation of the yuan, calling it a "normal adjustment". State news agency Xinhua quoted an unnamed Commerce Ministry spokesman as saying the devaluation will have "limited impact" on the country's foreign trade. On Aug. 11, in a move that stunned markets, China devalued the yuan CNY=CFXS by nearly 2 percent. The devaluation was meant to correct a "relatively large deviation" between the yuan's spot rate in the market and the daily midpoint fixing by the central bank, the spokesman said. China allows the yuan to rise or fall a maximum of 2 percent from a day's midpoint. The ministry spokesman said a country's exchange rate hinges on its competitiveness and China's economic reforms will help ensure the yuan can remain "basically stable" within a "reasonable" and "balanced" level. The remarks come on the heels of state media commentaries defending China's policymaking, showing Beijing's sensitivity to suggestions it may have fumbled economic policy. China has billed its currency devaluation as a free-market reform measure, and denies allegations that it has started a round of competitive currency devaluations between governments to help exporters. The ruling Communist Party has drawn much of its legitimacy in past decades from fostering economic growth and raising incomes, and wants to be seen as a responsible player in the global economy. On Thursday, Yao Yudong, head of the central bank's Research Institute of Finance and Banking, told Reuters the past week's global stock market rout was sparked by concerns over a possible interest rate rise by the U.S. Federal Reserve and not by the yuan's devaluation. He urged the Fed to delay any rate hike to give fragile emerging market economies time to prepare. China had said the revamp in its foreign exchange regime was an effort to let market forces play a greater role in setting the currency's value. Officials in Washington, who had long pressed Beijing to move toward a more market-determined exchange rate, greeted the shift with some scepticism and indicated they would watch to make sure it was not meant simply to prop up China's exports. Chinese exports tumbled 8.3 percent in July, their biggest drop in four months and far worse than expected. (Reporting by Koh Gui Qing and Benjamin Kang Lim; Editing by Richard Borsuk) ((guiqing.koh@thomsonreuters.com; +86 10 6627 1242; Reuters Messaging: guiqing.koh.reuters.com@reuters.net)) Keywords: CHINA ECONOMY/YUAN

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