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  • Turkey’s Erdogan signals economic U-turn in picking orthodox Simsek

    Turkey’s Erdogan signals economic U-turn in picking orthodox Simsek

    • Erdogan begins new five-year term after runoff win
    • Unorthodox rate cuts had exacerbated cost-of-living crisis
    • Economy under deep strain, Simsek seen reversing course

    ANKARA, June 3 (Reuters) – President Tayyip Erdogan signalled on Saturday his newly-elected government would return to more orthodox economic policies when he named Mehmet Simsek to his cabinet to tackle Turkey’s cost-of-living crisis and other strains.

    Simsek’s appointment as treasury and finance minister could set the stage for interest rate hikes in coming months, analysts said – a marked turnaround from Erdogan’s longstanding policy of slashing rates despite soaring inflation.

    After winning a runoff election last weekend, Erdogan, 69, who has ruled for more than two decades, began his new five-year term by calling on Turks to set aside differences and focus on the future.

    Turkey’s new cabinet also includes Cevdet Yilmaz, another orthodox economic manager, as vice president, and the former head of the National Intelligence Organisation (MIT) Hakan Fidan as foreign minister, replacing Mevlut Cavusoglu.

    Erdogan’s inauguration ceremony at Ankara’s presidential palace was attended by NATO Secretary-General Jens Stoltenberg, Venezuelan President Nicolas Maduro and other dignitaries and high-level officials.

    The apparent U-turn on the economy comes as many analysts say the big emerging market is heading for turmoil given depleted foreign reserves, an expanding state-backed protected deposits scheme, and unchecked inflation expectations.

    Simsek, 56, was highly regarded by financial markets when he served as finance minister and deputy prime minister between 2009 and 2018.

    Reuters reported earlier this week Erdogan was almost certain to put him in charge of the economy, marking a partial return to more free-market policies after years of increasing state control of forex, credit and debt markets.

    QUESTION OF INDEPENDENCE

    Analysts said that after past episodes in which Erdogan pivoted to orthodoxy only to quickly return to his rate-cutting ways, much would depend on how much independence Simsek is granted.

    “This suggests Erdogan has recognised the eroding trust in his ability to manage Turkey’s economic challenges. But while Simsek’s appointment is likely to delay a crisis, it is unlikely to present long-term fixes to the economy,” said Emre Peker, a director at Eurasia Group covering Turkey.

    “Simsek will likely have a strong mandate early in his tenure, but face rapidly increasing political headwinds to implement policies as March 2024 local elections draw near.”

    Erdogan’s economic programme since 2021 stresses monetary stimulus and targeted credit to boost economic growth, exports and investments, pressing the central bank into action and badly eroding its independence.

    [1/12] Turkish President Tayyip Erdogan shakes hands with the new Treasury and Finance Minister Mehmet Simsek as they are flanked by new Energy Minister Alparslan Bayraktar during a press conference where the new cabinet was announced, in Ankara, Turkey June 3, 2023. REUTERS/Umit Bektas

    As a result, annual inflation hit a 24-year peak beyond 85% last year before easing.

    The lira has lost more than 90% of his value in the last decade after a series of crashes, the worst in late 2021. It hit new all-time lows beyond 20 to the dollar after the May 28 vote.

    ‘WAYS TO RECONCILE’

    Turkey’s longest-serving leader, Erdogan won 52.2% support in the runoff, defying polls that predicted economic strains would lead to his defeat.

    His new mandate will allow Erdogan to pursue the increasingly authoritarian policies that have polarised the country, a NATO member, but strengthened its position as a regional military power.

    At the inauguration ceremony, attended by Hungarian Prime Minister Viktor Orban and Armenian Prime Minister Nikol Pashinyan, Erdogan struck a conciliatory tone.

    “We will embrace all 85 million people regardless of their political views … Let’s put aside the resentment of the election period. Let’s look for ways to reconcile,” he said.

    “Together, we must look ahead, focus on the future, and try to say new things. We should try to build the future by learning from the mistakes of the past.”

    Earlier, reading out the oath of office, Erdogan vowed to protect Turkey’s independence and integrity, to abide by the constitution, and to follow the principles of Mustafa Kemal Ataturk, founder of the modern secular republic.

    Erdogan became prime minister in 2003 after his AK Party won an election in late 2002 following Turkey’s worst economic crisis since the 1970s.

    In 2014, he became the country’s first popularly elected president and was elected again in 2018 after securing new executive powers for the presidency in a 2017 referendum.

    The May 14 presidential election and May 28 runoff were pivotal given that the opposition had been confident of ousting Erdogan and reversing many of his policies, including proposing sharp interest rate hikes to counter inflation, running at 44% in April.

    In his post-election victory speech, Erdogan said inflation was Turkey’s most urgent issue.

    Writing and additional reporting by Jonathan Spicer; Editing by Frances Kerry, Giles Elgood and Christina Fincher

    Our Standards: The Thomson Reuters Trust Principles.

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  • Exclusive: Chinese hackers attacked Kenyan government as debt strains grew

    Exclusive: Chinese hackers attacked Kenyan government as debt strains grew

    • Cyber spies infiltrated Kenyan networks from 2019
    • Hit finance ministry, president’s office, spy agency and others
    • Sources believe Beijing was seeking info on debt

    NAIROBI, May 24 (Reuters) – Chinese hackers targeted Kenya’s government in a widespread, years-long series of digital intrusions against key ministries and state institutions, according to three sources, cybersecurity research reports and Reuters’ own analysis of technical data related to the hackings.

    Two of the sources assessed the hacks to be aimed, at least in part, at gaining information on debt owed to Beijing by the East African nation: Kenya is a strategic link in the Belt and Road Initiative – President Xi Jinping’s plan for a global infrastructure network.

    “Further compromises may occur as the requirement for understanding upcoming repayment strategies becomes needed,” a July 2021 research report written by a defence contractor for private clients stated.

    China’s foreign ministry said it was “not aware” of any such hacking, while China’s embassy in Britain called the accusations “baseless”, adding that Beijing opposes and combats “cyberattacks and theft in all their forms.”

    China’s influence in Africa has grown rapidly over the past two decades. But, like several African nations, Kenya’s finances are being strained by the growing cost of servicing external debt – much of it owed to China.

    The hacking campaign demonstrates China’s willingness to leverage its espionage capabilities to monitor and protect economic and strategic interests abroad, two of the sources said.

    The hacks constitute a three-year campaign that targeted eight of Kenya’s ministries and government departments, including the presidential office, according to an intelligence analyst in the region. The analyst also shared with Reuters research documents that included the timeline of attacks, the targets, and provided some technical data relating to the compromise of a server used exclusively by Kenya’s main spy agency.

    A Kenyan cybersecurity expert described similar hacking activity against the foreign and finance ministries. All three of the sources asked not to be named due to the sensitive nature of their work.

    “Your allegation of hacking attempts by Chinese Government entities is not unique,” Kenya’s presidential office said, adding the government had been targeted by “frequent infiltration attempts” from Chinese, American and European hackers.

    “As far as we are concerned, none of the attempts were successful,” it said.

    It did not provide further details nor respond to follow-up questions.

    A spokesperson for the Chinese embassy in Britain said China is against “irresponsible moves that use topics like cybersecurity to sow discord in the relations between China and other developing countries”.

    “China attaches great importance to Africa’s debt issue and works intensively to help Africa cope with it,” the spokesperson added.

    THE HACKS

    Between 2000 and 2020, China committed nearly $160 billion in loans to African countries, according to a comprehensive database on Chinese lending hosted by Boston University, much of it for large-scale infrastructure projects.

    Kenya used over $9 billion in Chinese loans to fund an aggressive push to build or upgrade railways, ports and highways.

    Beijing became the country’s largest bilateral creditor and gained a firm foothold in the most important East African consumer market and a vital logistical hub on Africa’s Indian Ocean coast.

    By late 2019, however, when the Kenyan cybersecurity expert told Reuters he was brought in by Kenyan authorities to assess a hack of a government-wide network, Chinese lending was drying up. And Kenya’s financial strains were showing.

    The breach reviewed by the Kenyan cybersecurity expert and attributed to China began with a “spearphishing” attack at the end of that same year, when a Kenyan government employee unknowingly downloaded an infected document, allowing hackers to infiltrate the network and access other agencies.

    “A lot of documents from the ministry of foreign affairs were stolen and from the finance department as well. The attacks appeared focused on the debt situation,” the Kenyan cybersecurity expert said.

    Another source – the intelligence analyst working in the region – said Chinese hackers carried out a far-reaching campaign against Kenya that began in late 2019 and continued until at least 2022.

    According to documents provided by the analyst, Chinese cyber spies subjected the office of Kenya’s president, its defence, information, health, land and interior ministries, its counter-terrorism centre and other institutions to persistent and prolonged hacking activity.

    The affected government departments did not respond to requests for comment, declined to be interviewed or were unreachable.

    By 2021, global economic fallout from the COVID-19 pandemic had already helped push one major Chinese borrower – Zambia – to default on its external debt. Kenya managed to secure a temporary debt repayment moratorium from China.

    In early July 2021, the cybersecurity research reports shared by the intelligence analyst in the region detailed how the hackers secretly accessed an email server used by Kenya’s National Intelligence Service (NIS).

    Reuters was able to confirm that the victim’s IP address belonged to the NIS. The incident was also covered in a report from the private defence contractor reviewed by Reuters.

    Reuters could not determine what information was taken during the hacks or conclusively establish the motive for the attacks. But the defence contractor’s report said the NIS breach was possibly aimed at gleaning information on how Kenya planned to manage its debt payments.

    “Kenya is currently feeling the pressure of these debt burdens…as many of the projects financed by Chinese loans are not generating enough income to pay for themselves yet,” the report stated.

    A Reuters review of internet logs delineating the Chinese digital espionage activity showed that a server controlled by the Chinese hackers also accessed a shared Kenyan government webmail service more recently from December 2022 until February this year.

    Chinese officials declined to comment on this recent breach, and the Kenyan authorities did not respond to a question about it.

    ‘BACKDOOR DIPLOMACY’

    The defence contractor, pointing to identical tools and techniques used in other hacking campaigns, identified a Chinese state-linked hacking team as having carried out the attack on Kenya’s intelligence agency.

    The group is known as “BackdoorDiplomacy” in the cybersecurity research community, because of its record of trying to further the objectives of Chinese diplomatic strategy.

    According to Slovakia-based cybersecurity firm ESET, BackdoorDiplomacy re-uses malicious software against its victims to gain access to their networks, making it possible to track their activities.

    Provided by Reuters with the IP address of the NIS hackers, Palo Alto Networks, a U.S. cybersecurity firm that tracks BackdoorDiplomacy’s activities, confirmed that it belongs to the group, adding that its prior analysis shows the group is sponsored by the Chinese state.

    Cybersecurity researchers have documented BackdoorDiplomacy hacks targeting governments and institutions in a number of countries in Asia and Europe.

    Incursions into the Middle East and Africa appear less common, making the focus and scale of its hacking activities in Kenya particularly noteworthy, the defence contractor’s report said.

    “This angle is clearly a priority for the group.”

    China’s embassy in Britain rejected any involvement in the Kenya hackings, and did not directly address questions about the government’s relationship with BackdoorDiplomacy.

    “China is a main victim of cyber theft and attacks and a staunch defender of cybersecurity,” a spokesperson said.

    Reporting by Aaron Ross in Nairobi, James Pearson in London and Christopher Bing in Washington
    Additional reporting by Eduardo Baptista in Beijing
    Editing by Chris Sanders and Joe Bavier

    Our Standards: The Thomson Reuters Trust Principles.

    Aaron Ross

    Thomson Reuters

    West & Central Africa correspondent investigating human rights abuses, conflict and corruption as well as regional commodities production, epidemic diseases and the environment, previously based in Kinshasa, Abidjan and Cairo.

    James Pearson

    Thomson Reuters

    Reports on hacks, leaks and digital espionage in Europe. Ten years at Reuters with previous postings in Hanoi as Bureau Chief and Seoul as Korea Correspondent. Author of ‘North Korea Confidential’, a book about daily life in North Korea. Contact: 447927347451

    Christopher Bing

    Thomson Reuters

    Award-winning reporter covering the intersection between technology and national security with a focus on how the evolving cybersecurity landscape affects government and business.

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  • Canada housing market upturn could delay shift to BoC rate cuts

    Canada housing market upturn could delay shift to BoC rate cuts

    TORONTO, May 14 (Reuters) – Signs of recovery in Canada’s housing market after a year-long slump, just as higher borrowing costs are expected to slow much of the rest of the economy, could raise inflation and delay a shift by the central bank to interest rate cuts, analysts said.

    The housing market’s upturn comes after the Bank of Canada paused its interest rate hiking campaign last month, leaving the benchmark rate at a 15-year high of 4.50% since January.

    In addition, analysts say higher borrowing costs have so far caused less financial stress for homebuyers than they had expected, so the market has not had to accommodate a flood of supply from forced sellers.

    The BoC is counting on slower economic growth to return inflation to its 2% target. A rebound in the housing market could boost activity and contribute directly to price pressures.

    “The Bank of Canada at the end of the day is probably not going to be too thrilled if the housing market really starts to ramp up,” said Robert Kavcic, a senior economist at BMO Capital Markets. “From a shelter cost perspective, you are going to start to see more upward push on inflation in the second half of this year.”

    The cost of shelter has the highest weighting in Canada’s consumer price index, accounting for 30%. And, home prices tend to be highly visible, so an increase could have a pronounced impact on inflation expectations, analysts say.

    The average price for a home in the Greater Toronto Area, Canada’s most populous metropolitan region, rose in April on a month-over-month basis for a third straight month, while sales also moved higher. Other major markets have also showed gains.

    Despite higher borrowing costs, mortgage delinquency rates have remained low for now in Canada after mortgage borrowers were put through a stress test showing they could manage if interest rates were 2 percentage points higher than the rate on their loan.

    In addition, variable-rate borrowers have been sheltered from higher interest rates after lenders temporarily extended the period over which their debt is amortized, keeping their payments the same.

    “One of the reasons the market has been able to stabilize so quickly is because there’s just no forced selling,” Kavcic said.

    Things could change – Royal Bank of Canada recently warned of the risk that mortgage delinquencies rise by more than a third over the coming year.

    The other worry is that stress in the U.S. regional banking sector could spill over to Canada. Clues on that front could come from the BoC’s Financial System Review – an annual checkup of financial system tensions – which is due for release on Thursday.

    But there are also tailwinds to support a recovery, including supply shortfalls, record immigration and labor market strength, analysts said.

    Wage growth could cool over the coming months, helping to lower inflation, but the Bank of Canada “is unlikely to be in a rush to cut interest rates if house prices are roaring higher again,” Stephen Brown, senior Canada economist at Capital Economics, said in a note.

    Reporting by Fergal Smith; Editing by Steve Scherer and Jonathan Oatis

    Our Standards: The Thomson Reuters Trust Principles.

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  • China sets modest growth target of about 5% as parliament opens

    China sets modest growth target of about 5% as parliament opens

    • GDP target around 5% at low end of expectations
    • Work report focuses on consumption, jobs
    • Defence spending to rise 7.2%, up from 7.1% rise
    • Budget deficit target at 3%, wider than previous 2.8%

    BEIJING, March 5 (Reuters) – China set a modest target for economic growth this year of around 5% on Sunday as it kicked-off the annual session of its National People’s Congress (NPC), which is poised to implement the biggest government shake-up in a decade.

    China’s gross domestic product (GDP) grew by just 3% last year, one of its worst showings in decades, squeezed by three years of COVID-19 restrictions, crisis in its vast property sector, a crackdown on private enterprise and weakening demand for Chinese exports.

    In his work report, outgoing Premier Li Keqiang stressed the need for economic stability and expanding consumption, setting a goal to create around 12 million urban jobs this year, up from last year’s target of at least 11 million, and warned that risks remain in the real estate sector.

    Li set a budget deficit target at 3.0% of GDP, widening from a goal of around 2.8% last year.

    “We should give priority to the recovery and expansion of consumption,” said Li, who spoke for just under an hour in a speech to open the parliament, which will run through March 13.

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    “The incomes of urban and rural residents should be boosted through multiple channels. We should stabilize spending on big-ticket items and promote recovery in consumption of consumer services,” he said.

    This year’s growth target of around 5% was at the low end of expectations, as policy sources had recently told Reuters a range as high as 6% could be set. It is also below last year’s target of around 5.5%.

    “While the official growth target has been lowered for the second consecutive year, which might be a disappointment to the market, we reckon investors (should) pay attention to the underlying growth momentum to gauge the recovery pace,” said Zhou Hao, economist at Guotai Junan International.

    Li and a slate of more reform-oriented economic policy officials are set to retire during the congress, making way for loyalists to President Xi Jinping, who further tightened his grip on power when he secured a precedent-breaking third leadership term at October’s Communist Party Congress.

    [1/5] Chinese President Xi Jinping and Li Keqiang talk at the opening session of the National People’s Congress (NPC) at the Great Hall of the People in Beijing, China March 5, 2023. REUTERS/Thomas Peter

    During the NPC, former Shanghai party chief Li Qiang, a longtime Xi ally, is expected to be confirmed as premier, tasked with reinvigorating the world’s second-largest economy.

    The rubber-stamp parliament will also discuss Xi’s plans for an “intensive” and “wide-ranging” reorganisation of state and Communist Party entities, state media reported on Tuesday, with analysts expecting a further deepening of Communist Party penetration of state bodies.

    MILITARY BUDGET RISE

    Li said China’s armed forces should devote greater energy to training under combat conditions and boost combat preparedness, and the budget included a 7.2% increase in defence spending this year, a slightly bigger increase than last year’s budgeted 7.1% rise and again exceeding expected GDP growth.

    On Taiwan, Li struck a moderate tone, saying China should promote the peaceful development of cross-Strait relations and advance the process of China’s “peaceful reunification”, but also take resolute steps to oppose Taiwan independence.

    Beijing faces a host of challenges including increasingly fraught relations with the United States and a worsening demographic outlook, with plunging birth rates and a population drop last year for the first time since the famine year of 1961.

    China plans to lower the costs of childbirth, childcare and education and will actively respond to an ageing population and a decrease in fertility, the nation’s state planner said in a work report released on Sunday.

    The NPC opened on a smoggy day amid tight security in the Chinese capital, with 2,948 delegates gathered in the cavernous Great Hall of the People on the west side of Tiananmen Square.

    During the session, China’s legislature will vote on a plan to reform institutions under the State Council, or cabinet, and decide on a new cabinet line-up for the next five years, according to a meeting agenda.

    It is the first NPC meeting since China abruptly dropped its zero-COVID policy in December, following rare nationwide protests. Excluding the pandemic-shortened meetings of the previous three years, this year’s session will be the shortest in at least 40 years, according to NPC Observer, a blog.

    Additional reporting by the Beijing newsrooom; Writing by Tony Munroe; Editing by Himani Sarkar, William Mallard and Simon Cameron-Moore

    Our Standards: The Thomson Reuters Trust Principles.

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  • Host India doesn’t want G20 to discuss further Russia sanctions – sources

    Host India doesn’t want G20 to discuss further Russia sanctions – sources

    BENGALURU, Feb 22 (Reuters) – India does not want the G20 to discuss additional sanctions on Russia for its invasion of Ukraine during New Delhi’s one-year presidency of the bloc, six senior Indian officials said on Wednesday, amid debate over how even to describe the conflict.

    On the sidelines of a G20 gathering in India, financial leaders of the Group of Seven (G7) nations will meet on Feb. 23, the eve of the first anniversary of the invasion, to discuss measures against Russia, Japan’s finance minister said on Tuesday.

    The officials, who are directly involved in this week’s G20 meeting of finance ministers and central bank chiefs, said the economic impact of the conflict would be discussed but India did not want to consider additional actions against Russia.

    “India is not keen to discuss or back any additional sanctions on Russia during the G20,” said one of the officials. “The existing sanctions on Russia have had a negative impact on the world.”

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    Another official said sanctions were not a G20 issue. “G20 is an economic forum for discussing growth issues.”

    Spokespeople for the Indian government and the finance and foreign ministries did not immediately respond to requests for comment.

    On Wednesday, the first day of meetings to draft the G20 communique, officials struggled to find an acceptable word to describe the Russia-Ukraine conflict, delegates of at least seven countries present in the meetings said.

    India tried to form a consensus on the words by calling it a “crisis” or a “challenge” instead of a “war”, the officials said, but the discussions concluded without a decision.

    These discussions have been rolled over to Thursday when U.S. Treasury Secretary Janet Yellen will be part of the meetings.

    Indian Foreign Minister S. Jaishankar has previously said the war has disproportionately hit poorer countries by raising prices of fuel and food.

    India’s neighbours – Sri Lanka, Pakistan and Bangladesh – have all sought loans from the International Monetary Fund in recent months to tide over economic troubles brought about by the pandemic and the war.

    U.S. Deputy Treasury Secretary Wally Adeyemo said on Tuesday that Washington and its allies planned in coming days to impose new sanctions and export controls that would target Russia’s purchase of dual-use goods like refrigerators and microwaves to secure semiconductors needed for its military.

    The sanctions would also seek to do more to stem the trans-shipment of oil and other restricted goods through bordering countries.

    In addition, Adeyemo said officials from a coalition of more than 30 countries would warn companies, financial institutions and individuals still doing business with Russia that they faced sanctions.

    Indian Prime Minister Narendra Modi’s government has not openly criticised Moscow for the invasion and instead called for dialogue and diplomacy to end the war. India has also sharply raised purchases of oil from Russia, its biggest supplier of defence hardware.

    Jaishankar told Reuters partner ANI this week that India’s relationship with Russia had been “extraordinarily steady and it has been steady through all the turbulence in global politics”.

    Additional reporting by Krishn Kaushik; Writing by Krishna N. Das; Editing by Raju Gopalakrishnan and Nick Macfie

    Our Standards: The Thomson Reuters Trust Principles.

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  • Indian shares fall ahead of inflation data; Adani stocks slide

    Indian shares fall ahead of inflation data; Adani stocks slide

    BENGALURU, Feb 13 (Reuters) – Indian shares were off to a muted start on Monday, ahead of domestic retail inflation data due later in the day and U.S. inflation data due tomorrow, while the ongoing uncertainty and spillover effects from the Adani Group’s market rout continued to create an overhang.

    The Nifty 50 index (.NSEI) was down 0.29% at 17,804.60 as of 9:37 a.m. IST, while the S&P BSE Sensex (.BSESN) fell 0.35% to 60,472.28.

    Ten of the 13 major sectoral indexes declined, with information technology stocks (.NIFTYIT) falling nearly 2% amid worries of a growth slowdown in the U.S., from where they get a significant share of their revenue.

    On the flip side, metals (.NIFTYMET) gained with a 1% rise.

    Twenty-seven of Nifty 50 constituents advanced with Titan Co (TITN.NS) and Eicher Motors Ltd (EICH.NS) among top gainers.

    Wall Street equities closed lower on Friday, on fears of a longer-than-expected high-rate regime after hawkish comments from key Federal Reserve officials.

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    Asian markets fell, with the MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) sliding 0.63%.

    Investors await India’s retail inflation data for January, due today. A Reuters poll of economists showed that India’s annual retail inflation rose from a 12-month low in December, but stayed within the 6% upper limit of RBI’s tolerance band in January.

    The uncertainty over the Adani conglomerate added to concerns in domestic markets.

    “The Adani group saga continues to weigh on investors’ minds and hence the sentiment has been negative,” said Prashanth Tapse of Mehta Equities.

    The group has lost over $100 billion in market value since Jan. 24, when U.S. short-seller Hindenburg Research accused the conglomerate of stock manipulation and improper use of tax havens.

    India’s market regulator is probing the group’s links to some of the investors in its scrapped $2.5 billion share sale of the flagship Adani Enterprises.

    ($1 = 82.5250 Indian rupees)

    Reporting by Bharath Rajeswaran in Bengaluru; Editing by Janane Venkatraman, Nivedita Bhattacharjee

    Our Standards: The Thomson Reuters Trust Principles.

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  • Analysis: Loans to Russian soldiers fuel calls for European banks to quit

    Analysis: Loans to Russian soldiers fuel calls for European banks to quit

    BERLIN/LONDON, Feb 13 (Reuters) – A Russian scheme to grant loan payment holidays to troops fighting in Ukraine, and for banks to write off the entire debt if they are killed or maimed, has added to growing pressure for the remaining overseas lenders in Russia to leave.

    Almost a year since Moscow launched what it calls a “special military operation” in Ukraine, a handful of European banks, including Austria’s Raiffeisen Bank International (RBIV.VI) and Italy’s UniCredit (CRDI.MI), are still making money in Russia.

    The loan relief scheme has not only triggered criticism from Ukraine’s central bank, which said it had appealed to Raiffeisen and other banks to stop doing business in Russia, but also from investors concerned about any reputational impact.

    Raiffeisen and UniCredit are both deeply embedded in the Russian financial system and are the only foreign banks on the central bank’s list of 13 “systemically important credit institutions”, underscoring their importance to Russia’s economy, which is grappling with sweeping Western sanctions.

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    Their role in supporting the Russian economy at a critical time for President Vladimir Putin has prompted some investors to go public with their misgivings.

    “Companies should be very careful,” said Kiran Aziz, of Norwegian pension fund KLP, cautioning of a major risk that the banks could be used to “in other ways finance the war”. KLP funds hold shares in both Raiffeisen and UniCredit.

    At the time the payment holiday law was going through parliament in September, Vyacheslav Volodin, the influential speaker of the lower house, made clear its importance to Russia.

    “Soldiers and officers ensure the security of our country and we must be sure that they will be taken care of,” he said.

    Eric Christian Pederson of Nordea Asset Management, which has more than 300 billion euros ($320 billion) under management, said he too was concerned about Raiffeisen and UniCredit’s Russian presence and had raised this with them.

    The requirement that the banks grant payment holidays to soldiers “illustrates the dangers of operating in jurisdictions where companies can … be forced into actions that go directly against their corporate values,” he added.

    “We feel that it is right for companies to withdraw from Russia, given its unprovoked attack on Ukraine,” said Pederson. Refinitiv data shows Nordea owns shares in UniCredit.

    Banks restructured a total of 167,600 loans for military personnel or their family members, worth more than 800 million euros, between Sept. 21 and the end of last year, Russian central bank data shows.

    Raiffeisen said that only 0.2% of its Russian loans are affected by the “government-imposed loan moratorium”, a sum it described as “negligible”. The bank has a total of almost 9 billion euros of loans in Russia, where it has been for more than 25 years, including to companies.

    It made a net profit of roughly 3.8 billion euros last year, thanks in large part to a 2 billion euro plus profit from its Russia business.

    UniCredit, which entered the Russian market almost 20 years ago when it acquired an Austrian bank, said that the rule was “mandatory under the federal law … for all banks”, declining to say how many of its loans had been forgiven.

    The Italian bank added that its business in Russia was focused on companies rather than individuals. Of UniCredit’s more than 20 billion euro total revenue last year, Russia accounted for more than 1 billion euros.

    But despite an initial sharp fall, UniCredit’s shares are now significantly higher than before Russia moved its troops into Ukraine on Feb. 24 last year, while Raiffeisen’s, with a more limited free float, have not recovered.

    “Any profiteering on the ongoing war is not acceptable or aligned with our view of responsible investments,” said a spokesperson for Swedbank Robur, one of Scandinavia’s top investors, adding that reputational risk was a worry.

    Swedbank Robur said it has stakes in both banks, but did not disclose figures.

    Larger institutional investors, including France’s Amundi and Norway’s sovereign wealth fund, which advocates responsible investing, declined to comment when asked for their views.

    WINDOW CLOSING?

    Some foreign banks have made relatively quick exits.

    France’s Societe Generale (SOGN.PA) severed its Russia ties in May by selling Rosbank (ROSB.MM) to businessman Vladimir Potanin’s Interros Group.

    But the continued presence of two of Europe’s biggest banks is attracting the attention of regulators at the European Central Bank (ECB), one person familiar with the matter said.

    Andrea Enria, the ECB’s chief supervisor, said the window to quit was “closing a bit” because Russian authorities were taking a more “hostile” approach. But he also voiced support for any bank wanting to reduce their business there or leave.

    Raiffeisen and UniCredit confirmed they were in discussions about Russia with the ECB.

    UniCredit said it kept the ECB “fully and regularly up to date on our strategy of orderly de-risking our exposure to Russia”.

    But with money still to be made, Raiffeisen saw profit from its business in Russia more than triple last year.

    Meanwhile, Russian savers lodged more than 20 billion euros with the bank, which offers a place to deposit funds with fewer sanctions risks.

    This means there is no great impetus for banks to leave Russia, despite regulatory pressure.

    And in Austria, which has close historical and economic ties to eastern Europe and Russia, politicians are largely silent on Raiffeisen’s continuing Russian presence, which in recent months prompted protests outside its headquarters.

    Johann Strobl, Raiffeisen’s CEO, has said he is examining options for the Russian business, although points out that any move is complicated, having earlier said that the bank is not “a sausage stand” that could be closed overnight.

    For some the question is more about morality than money.

    Heinrich Schaller, head of RBI’s third largest shareholder Raiffeisenlandesbank Oberoesterreich and deputy chairman of Raiffeisen, is among those to have aired doubts about staying.

    “Of course it is a question of morals,” he said recently. “No doubt about it.”

    Whatever shareholders may say, a decree by Putin is likely to make getting out of Russia difficult. It banned investors from so-called unfriendly countries from selling shares in banks, unless the Russian President grants an exemption.

    ($1 = 0.9376 euros)

    Additional reporting by Alexandra Schwarz-Goerlich in Vienna and Tom Sims in Frankfurt; Writing by John O’Donnell; Editing by Alexander Smith

    Our Standards: The Thomson Reuters Trust Principles.

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  • Canada’s deep yield curve inversion adds to BoC rate hike dilemma

    Canada’s deep yield curve inversion adds to BoC rate hike dilemma

    TORONTO, Dec 4 (Reuters) – As the Bank of Canada considers ditching oversized interest rate hikes, it is dealing with an economy likely more overheated than previously thought but also the bond market’s clearest signal yet that recession and lower inflation lie ahead.

    Canada’s central bank says that the economy needs to slow from overheated levels in order to ease inflation. If its tightening campaign overshoots to achieve that objective it could trigger a deeper downturn than expected.

    The bond market could be flagging that risk. The yield on the Canadian 10-year government bond has fallen nearly 100 basis points below the 2-year yield, marking the biggest inversion of Canada’s yield curve in Refinitiv data going back to 1994 and deeper than the U.S. Treasury yield curve inversion.

    Some analysts see curve inversions as predictors of recessions. Canada’s economy is likely to be particularly sensitive to higher rates after Canadians borrowed heavily during the COVID-19 pandemic to participate in a red-hot housing market.

    “Markets think the Canadian economy is about to suffer a triple blow as domestic consumption collapses, U.S. demand weakens and global commodity prices drop,” said Karl Schamotta, chief market strategist at Corpay.

    The BoC has opened the door to slowing the pace of rate increases to a quarter of a percentage point following multiple oversized hikes in recent months that lifted the benchmark rate to 3.75%, its highest since 2008.

    Money markets are betting on a 25-basis-point increase when the bank meets to set policy on Wednesday, but a slim majority of economists in a Reuters poll expect a larger move.

    RESILIENT ECONOMY

    Canada’s employment report for November showed that the labour market remains tight, while gross domestic product grew at an annualized rate of 2.9% in the third quarter.

    That’s much stronger than the 1.5% pace forecast by the BoC and together with upward revisions to historical growth could indicate that demand has moved further ahead of supply, economists say.

    But they also say that the details of the third-quarter GDP data, including a contraction in domestic demand, and a preliminary report showing no growth in October are signs that higher borrowing costs have begun to impact activity.

    The BoC has forecast that growth would stall from the fourth quarter of this year through the middle of 2023.

    The depth of Canada’s curve inversion is signaling a “bad recession” not a mild one, said David Rosenberg, chief economist & strategist at Rosenberg Research.

    It reflects greater risk to the outlook in Canada than the United States due to “a more inflated residential real estate market and consumer debt bubble,” Rosenberg said.

    Inflation is likely to be more persistent after it spread from goods prices to services and wages, where higher costs can become more entrenched. Still, 3-month measures of underlying inflation that are closely watched by the BoC – CPI-median and CPI-trim – show price pressures easing.

    They fell to an average of 2.75% in October, according to estimates by Stephen Brown, senior Canada economist at Capital Economics. That’s well below more commonly used 12-month rates.

    “The yield curve would not invert to this extent unless investors also believed that inflation will drop back down toward the Bank’s target,” said Brown.

    Like the Federal Reserve, the BoC has a 2% target for inflation.

    “The curve is telling us the Bank of Canada will be forced into a reversal by late 2023, with rates remaining depressed for years to come,” Corpay’s Schamotta said.

    Reporting by Fergal Smith; Editing by Andrea Ricci

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  • Consumer inflation in Japan’s capital rises at fastest pace in 40 years

    Consumer inflation in Japan’s capital rises at fastest pace in 40 years

    • Tokyo Nov core CPI up 3.6% vs f’cast +3.5%
    • Tokyo CPI stays above BOJ’s 2% target for 6th straight month
    • Data underscores broadening inflationary pressure

    TOKYO, Nov 25 (Reuters) – Core consumer prices in Japan’s capital, a leading indicator of nationwide trends, rose at their fastest annual pace in 40 years in November and exceeded the central bank’s 2% target for a sixth straight month, signalling broadening inflationary pressure.

    The increase, driven mostly by food and fuel bills but spreading to a broader range of goods, cast doubt on the view of the Bank of Japan (BOJ) that recent cost-push inflation will prove transitory, some analysts said.

    The Tokyo core consumer price index (CPI), which excludes fresh food but includes fuel, was 3.6% higher in November than a year earlier, government data showed on Friday. The rise exceeded a median market forecast of 3.5% and the 3.4% increase seen in October

    The last time Tokyo inflation was faster was April 1982, when the core CPI was 4.2% higher than a year before.

    While the rise was driven mostly by electricity bills and food prices, companies were also charging more for durable goods as the weak yen pushed up the cost of imports, the data showed.

    “Price hikes are broadening and suggests the weak yen could keep inflation elevated well into next year,” said Mari Iwashita, chief market economist at Daiwa Securities.

    “Core consumer inflation may stay around the BOJ’s 2% target for much of next year, which would make it hard for the bank to keep arguing that the price rises are temporary.”

    The Tokyo core-core CPI index, which excludes fuel as well as fresh food, was 2.5% higher in November than a year earlier, picking up from the 2.2% annual gain seen in October.

    BOJ AN OUTLIER

    The BOJ has kept interest rates ultra-low on the view that inflation will slow back below its target next year when the boost from fuel price gains dissipate. The central bank has therefore remained an outlier from a wave monetary tightening around the world aimed at combating soaring inflation.

    Contrary to the experience of some western economies, where wages have surged with inflation, growth in wages and services prices remain muted in Japan.

    Of the components making up the Tokyo CPI data, services prices in November were up just 0.7% on a year earlier, after a 0.8% annual increase seen in October. That compared with a 7.7% spike in durable goods prices for November, which followed October’s 7.0% annual gain.

    Separate data released by the BOJ on Friday showed the corporate service price index, which measures prices that firms charge each other for services, had been 1.8% higher in October than a year earlier. That was slower than a 2.1% annual gain seen in September.

    BOJ Governor Haruhiko Kuroda has repeatedly said that, for inflation to sustainably hit his 2% inflation target, wages must rise enough to offset the rise in goods prices.

    Slow wage growth has been among factors delaying Japan’s recovery from the coronavirus pandemic. The world’s third-largest economy unexpectedly shrank an annualised 1.2% in the third quarter, partly because of soft consumption.

    The Tokyo CPI data heightens the chance of further rises in nationwide core consumer prices, which in October were 3.6% higher than a year earlier, also marking a 40-year high. The nationwide data for November is scheduled for release on Dec. 23.

    Reporting by Takahiko Wada and Leika Kihara; Editing by Sam Holmes and Bradley Perrett

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  • Ghana plans to buy oil with gold instead of U.S. dollars

    Ghana plans to buy oil with gold instead of U.S. dollars

    ACCRA, Nov 24 (Reuters) – Ghana’s government is working on a new policy to buy oil products with gold rather than U.S. dollar reserves, Vice-President Mahamudu Bawumia said on Facebook on Thursday.

    The move is meant to tackle dwindling foreign currency reserves coupled with demand for dollars by oil importers, which is weakening the local cedi and increasing living costs.

    Ghana’s Gross International Reserves stood at around $6.6 billion at the end of September 2022, equating to less than three months of imports cover. That is down from around $9.7 billion at the end of last year, according to the government.

    If implemented as planned for the first quarter of 2023, the new policy “will fundamentally change our balance of payments and significantly reduce the persistent depreciation of our currency,” Bawumia said.

    Using gold would prevent the exchange rate from directly impacting fuel or utility prices as domestic sellers would no longer need foreign exchange to import oil products, he explained.

    “The barter of gold for oil represents a major structural change,” he added.

    The proposed policy is uncommon. While countries sometimes trade oil for other goods or commodities, such deals typically involve an oil-producing nation receiving non-oil goods rather than the opposite.

    Ghana produces crude oil but it has relied on imports for refined oil products since its only refinery shut down after an explosion in 2017.

    Bawumia’s announcement was posted as Finance Minister Ken Ofori-Atta announced measures to cut spending and boost revenues in a bid to tackle a spiraling debt crisis.

    In a 2023 budget presentation to parliament on Thursday, Ofori-Atta warned the West African nation was at high risk of debt distress and that the cedi’s depreciation was seriously affecting Ghana’s ability to manage its public debt.

    The government is negotiating a relief package with the International Monetary Fund as the cocoa, gold and oil-producing nation faces its worst economic crisis in a generation.

    Reporting by Cooper Inveen and Christian Akorlie
    Writing by Sofia Christensen
    Editing by Estelle Shirbon and Elaine Hardcastle

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  • U.S. may skirt recession in 2023, Europe not so lucky – Morgan Stanley

    U.S. may skirt recession in 2023, Europe not so lucky – Morgan Stanley

    TOKYO, Nov 14 (Reuters) – Britain and the euro zone economies are likely to tip into recession next year, Morgan Stanley said, but the United States might make a narrow escape thanks to a resilient job market.

    At the same time, China’s expected reopening after almost three years of COVID-19 curbs is set to lead a recovery in its own economy and other emerging Asian markets, the investment bank’s analysts said in a series of reports published on Sunday.

    “Risks are to the downside,” the reports said, projecting the global economy to grow by 2.2% next year, lower than the International Monetary Fund’s latest 2.7% growth estimate. read more

    Next year, Morgan Stanley predicts a sharp split between developed economies “in or near recession” while emerging economies “recover modestly” but said an overall global pickup would likely remain elusive. China’s economy was predicted to grow 5% in 2023, outpacing the average 3.7% growth expected for emerging markets, while the average growth in the Group of 10 developed countries was forecast at just 0.3%.

    Central banks across the globe have raised interest rates this year to curb raging inflation, and in the United States, Morgan Stanley predicted the Federal Reserve to keep rates high in 2023 as inflation remains strong after peaking in the fourth quarter of this year.

    “The U.S. economy just skirts recession in 2023, but the landing doesn’t feel so soft as job growth slows meaningfully and the unemployment rate continues to rise,” the report said, predicting a 0.5% expansion next year.

    “The cumulative effect of tight policy in 2023 spills over into 2024, resulting in two very weak years,” the report added.

    Globally too, the peak in inflation should come in the current quarter, the analysts said, “with disinflation driving the narrative next year”.

    • U.S. core inflation to fall to 2.9% at end-2023, headline inflation to 1.9%
    • Asia growth to dip to 3.4% in 1H23 before recovering to 4.6% in 2H23, fuelled by domestic demand
    • Cross-asset returns – especially in fixed income – will look much better in 2023 than in 2022, driven by cheaper starting valuations
    • High-grade fixed income to outperform global equities
    • EM and Japan stocks to outperform, with U.S. shares lagging

    Reporting by Kevin Buckland, editing by Miral Fahmy

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  • UK’s Sunak reinstates Braverman as interior minister

    UK’s Sunak reinstates Braverman as interior minister

    LONDON, Oct 25 (Reuters) – British lawmaker Suella Braverman was reappointed as interior minister on Tuesday by Prime Minister Rishi Sunak, less than a week after she resigned from the role for breaching government rules.

    Braverman, 42, stepped down a day before former prime minister Liz Truss did after breaching email security rules, also voicing concerns about the direction of Truss’s government in her resignation letter.

    First elected to parliament in 2015, Braverman is regarded as being on the right wing of the governing Conservative Party.

    She supports Britain’s exit from the European Convention on Human Rights as what she calls the only way the country can solve its immigration problems, and says it was her “dream” to see a flight deporting asylum seekers to Rwanda take off.

    She has said Britain should replace the ECHR with a strengthened British Bill of Rights.

    A committed Brexit supporter, she was appointed as a minister in the Department for Exiting the European Union but resigned in protest at former prime minister Theresa May’s proposed divorce deal.

    After Boris Johnson became leader, she was later appointed Attorney General in 2020, when she was criticised by some lawyers over whether some government policies were legal.

    Reporting by William James, writing by Muvija M and Alistair Smout, editing by Elizabeth Piper

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  • UK justice secretary Brandon Lewis resigns – statement

    UK justice secretary Brandon Lewis resigns – statement

    LONDON, Oct 25 (Reuters) – British justice secretary Brandon Lewis resigned on Tuesday following the appointment of Rishi Sunak as prime minister.

    “The new PM will have my support from the back benches to tackle the many challenges we face – as a party and as a country,” Lewis said on Twitter.

    Reporting by Sachin Ravikumar, writing by William James

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  • As UK’s Truss fights for job, new finance minister says she made mistakes

    As UK’s Truss fights for job, new finance minister says she made mistakes

    • Truss sacked finance minister on Friday
    • New chancellor Hunt warns of tough decisions
    • ‘I’ve listened, I get it’, Truss says
    • BoE’s Bailey says agrees with Hunt on need to fix finances
    • Some Conservative lawmakers say Truss will be ousted

    LONDON, Oct 15 (Reuters) – Britain’s new finance minister Jeremy Hunt said on Saturday some taxes would go up and tough spending decisions were needed, saying Prime Minister Liz Truss had made mistakes as she battles to keep her job just over a month into her term.

    In an attempt to appease financial markets that have been in turmoil for three weeks, Truss fired Kwasi Kwarteng as her chancellor of the exchequer on Friday and scrapped parts of their controversial economic package.

    With opinion poll ratings dire for both the ruling Conservative Party and the prime minister personally, and many of her own lawmakers asking, not if, but how Truss should be removed, Truss is relying on Hunt to help salvage her premiership less than 40 days after taking office.

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    In an article for the Sun newspaper published late on Saturday, Truss admitted the plans had gone “further and faster than the markets were expecting”.

    “I’ve listened, I get it,” she wrote. “We cannot pave the way to a low-tax, high-growth economy without maintaining the confidence of the markets in our commitment to sound money.”

    She said Hunt would lay out at the end of the month the plan to get national debt down “over the medium term”.

    But, the speculation about her future shows no sign of diminishing, with Sunday’s newspapers rife with stories that allies of Rishi Sunak, another former finance minister who she beat to become leader last month, were plotting to force her out within weeks.

    On a tour of TV and radio studios, Hunt gave a blunt assessment of the situation the country faced, saying Truss and Kwarteng had made mistakes and further changes to her plans were possible.

    “We will have some very difficult decisions ahead,” he said.”The thing that people want, the markets want, the country needs now, is stability.”

    The Sunday Times said Hunt would rip up more of Truss’s original package by delaying a planned cut to the basic rate of income tax as part of a desperate bid to balance the books.

    According to the newspaper, Britain’s independent fiscal watchdog had said in a draft forecast there could be a 72 billion pound ($80 billion) black hole in public finances by 2027/28, worse than economists had forecast.

    Truss had won the leadership contest to replace Boris Johnson on a platform of big tax cuts to stimulate growth, which Kwarteng duly announced last month. But the absence of any details of how the cuts would be funded sent the markets into meltdown.

    She has already ditched plans to cut tax for high earners, and said a levy on business would increase, abandoning her proposal to keep it at current levels. But a slump in bond prices after her news conference on Friday still suggested she had not gone far enough.

    ‘MEETING OF MINDS’

    Kwarteng’s Sept. 23 fiscal statement prompted a backlash in financial markets that was so ferocious the Bank of England (BoE) had to intervene to prevent pension funds being caught up in the chaos as borrowing costs surged.

    British Prime Minister Liz Truss attends a news conference in London, Britain, October 14, 2022. Daniel Leal/Pool via REUTERS

    BoE Governor Andrew Bailey said he had spoken to Hunt and they had agreed on the need to repair the public finances.

    “There was a very clear and immediate meeting of minds between us about the importance of fiscal sustainability and the importance of taking measures to do that,” Bailey said in Washington on Saturday. “Of course, there was an important measure taken yesterday.”

    He also warned that inflation pressures might require a bigger interest rate rise than previously thought due to the government’s huge energy subsidies for homes and businesses, and its tax cut plans.

    Hunt is due to announce the government’s medium-term budget plans on Oct. 31, in what will be a key test of its ability to show it can restore its economic policy credibility.

    He cautioned spending would not rise by as much as people would like and all government departments were going to have to find more efficiencies than they were planning.

    “Some taxes will not be cut as quickly as people want, and some taxes will go up. So it’s going to be difficult,” he said. He met Treasury officials on Saturday and will hold talks with Truss on Sunday to go through the plans.

    ‘MISTAKES MADE’

    Hunt, an experienced minister and viewed by many in his party as a safe pair of hands, said he agreed with Truss’s fundamental strategy of kickstarting economic growth, but he added that their approach had not worked.

    “There were some mistakes made in the last few weeks. That’s why I’m sitting here. It was a mistake to cut the top rate of tax at a period when we’re asking everyone to make sacrifices,” he said.

    It was also a mistake, Hunt said, to “fly blind” and produce the tax plans without allowing the independent fiscal watchdog, the Office for Budget Responsibility, to check the figures.

    The fact that Hunt is Britain’s fourth finance minister in four months is testament to a political crisis that has gripped Britain since Johnson was ousted following a series of scandals.

    Hunt said Truss should be judged at an election and on her performance over the next 18 months – not the last 18 days.

    However, she might not get that chance. During the leadership contest, Truss won support from less than a third of Conservative lawmakers and has appointed her backers since taking office – alienating those who supported her rivals.

    The appointment of Hunt, who ran to be leader himself and then backed Sunak, has been seen as a sign of her reaching out, but the move did little to placate some of her party critics.

    “It’s over for her,” one Conservative lawmaker told Reuters after Friday’s events.

    ($1 = 0.8953 pounds)

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    Reporting by Michael Holden, Alistair Smout and William Schomberg
    Editing by Emelia Sithole-Matarise, Helen Popper, Ros Russell and Diane Craft

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  • Swiss National Bank monitoring Credit Suisse situation – Maechler

    Swiss National Bank monitoring Credit Suisse situation – Maechler

    ZURICH, Oct 5 (Reuters) – The Swiss National Bank (SNB) is following the situation at Credit Suisse (CSGN.S) closely, SNB Governing Board member Andrea Maechler told Reuters on Wednesday.

    Switzerland’s second-biggest bank saw its shares slide by as much as 11.5% and its bonds hit record lows on Monday, before clawing back some of the losses, amid concerns about its ability to restructure its business without asking investors for more money. read more

    “We are monitoring the situation,” Maechler said on the sidelines of an event in Zurich. “They are working on a strategy due to come out at the end of October.”

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    The SNB has declined to comment in the past about Credit Suisse, which has said it has a strong capital base and liquidity. It is due to announce details of a restructuring plan along with third-quarter results on Oct. 27.

    In July, Credit Suisse announced its second strategy review in a year and replaced its chief executive, bringing in restructuring expert Ulrich Koerner to prune its investment banking arm and cut more than $1 billion in costs. read more

    The bank is considering measures to scale back its investment bank into a “capital-light, advisory-led” business, and is evaluating strategic options for the securitised products business, Credit Suisse has said.

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    Reporting by John Revill
    Editing by Michael Shields and Mark Potter

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