Business

Bank of Canada seen on hold even as economy accelerates

Published

1 year ago

April 10, 2023

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The Bank of Canada is expected to take in stride surprising recent economic strength and leave interest rates unchanged at its meeting on Wednesday, pinning its hopes on activity cooling as higher borrowing costs sink in, analysts said.

Last month, the Bank of Canada became the first major global central bank to pause its rate-hiking campaign, after lifting its benchmark rate to a 15-year high of 4.50%. It said no further tightening would be needed if the economy slows, or even moves into a slight recession, as it expects.

While inflation has cooled in recent months, other economic indicators are pointing to an economy that is picking up pace from a sluggish fourth quarter.

Preliminary data last week showed that gross domestic product (GDP) rose by 0.3% month-over-month in February, building on a stronger-than-expected 0.5% gain in January. Employment data for March showed a seventh consecutive job gain.

“The economy is showing renewed momentum, with more people working and seeing their incomes rise,” said James Orlando, a senior economist at TD Economics. “They are out spending again. This will carry through to higher economic growth.”

That is welcome news for most, but not for Bank of Canada (BoC) Governor Tiff Macklem, as it could call into question his decision to announce a conditional rate pause in January.

Macklem is seeking to rebuild public trust after facing criticism for acting too slowly to tame inflation, which spiked after pandemic restrictions were lifted. The central bank has admitted to having initially misjudged the price pressures.

That effort could be complicated by Prime Minister Justin Trudeau’s recent budget, which has outlined billions of dollars in new spending.

CONCERNED BUT HOPEFUL

February’s surprisingly strong figures have led economists to revise up their GDP estimates, with the median forecast of six economists surveyed by Reuters pegging first-quarter growth at 2.5%, far higher than the BoC’s projection of 0.5%.

“For the BoC, we still expect a hold,” Orlando said. “They will likely be concerned about the rebound in economic activity, but we think they are still hopeful of a deceleration over the remainder of 2023.”

All 33 economists polled by Reuters agree that the BoC will hold its key overnight rate steady on Wednesday when it makes its next policy announcement. Money markets are betting that the central bank’s next move will be a cut.

Investors reason that the full impact of higher borrowing costs has yet to be felt, and recent stress in the global banking system has fueled concern of a credit crunch, including in the United States. Canada sends 75% of its exports to its southern neighbor.

“We see growth being driven largely by an easing of prior supply constraints … rather than a significant strengthening in domestic demand,” said Andrew Grantham, a senior economist at CIBC Capital Markets.

“We suspect that the Bank of Canada will view the apparent strength in Q1 GDP similarly, and increase its estimate of potential growth.”

Potential growth is the rate at which activity in the economy can increase without causing inflation, so a rise in the estimated level could reduce the need for a hawkish shift from the central bank.

Economists say that rapid population growth as well as easing supply chain disruptions could add to Canada’s potential growth, which was last estimated by the BoC to be 2.25% on average over 2023 and 2024.

Canada’s economy faces headwinds from higher borrowing costs and financial stability concerns, while inflation has cooled more than in the United States, said Nathan Janzen, assistant chief economist at Royal Bank of Canada.

“So still good reasons on both sides for the BoC to stick with a wait-and-see approach for now,” Janzen said.

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Business

Chinese firm aims to expand investments in Pakistan, shows interest in mining sector

Published

16 hours ago

May 17, 2024

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Chinese firm aims to expand investments in Pakistan, shows interest in mining sector

A notable Chinese company has expressed keen interest in expanding its investment in Pakistan, in yet another sign of investor confidence boost in the leadership of Prime Minister Shehbaz Sharif.

A delegation from Chinese firm MCC Tongsin Resources led by its Chairman Wang Jaichen called on PM Shehbaz here on Friday.

The premier invited the Chinese company to invest in Pakistan’s mining sector and manufacturing of export goods.

Shehbaz assured the delegation that his government would extend all-out facilitation to the company from minerals exploration and processing to the export of goods.

The PM instructed the relevant federal ministers and officers to continue consultation with the Chinese firm, taking the Balochistan chief minister, provincial departments and stakeholders on board.

The delegates reposed trust in PM Shehbaz’s leadership, and expressed keen interest in enhancing their investment in Pakistan’s mining and minerals sectors.

The delegation briefed Prime Minister Shehbaz about the construction of a mineral park in Pakistan and their future investment plans.

The premier welcomed the Chinese firm and highlighted the priority steps by his government to promote foreign investment in Pakistan.

He said that being a time-tested friend, China supported Pakistan in every difficult hour for which the Pakistani nation was grateful to the leadership and people of China.

Federal ministers Ahad Khan Cheema, Dr Musaddik Malik, Rana Tanveer Hussain, Jam Kamal Khan and relevant senior officers attended the meeting.

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Business

Govt jacks up power price by Rs1.47 per unit

Published

16 hours ago

May 17, 2024

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Govt jacks up power price by Rs1.47 per unit

The government on Friday increased the electricity tariff by Rs1.47 per unit.

According to Nepra sources, the collection from consumers will take place in August, September, and October.

The electricity companies had requested the funds as part of the third quarter adjustment for 2023-2024, seeking Rs 31.34 billion under capacity charges.

Sources said that Rs5.57 billion were requested for operation and maintenance costs, and Rs12.38 billion were requested for the transmission and distribution impact under monthly fuel cost adjustment.

Previously, Nepra had completed the hearing on the electricity companies’ request under the quarterly adjustment.

Nepra approved the Power Division’s request, allowing an increase of Rs 1.45 per unit in electricity prices.

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Business

Hong Kong allows China’s digital yuan to be used in local shops

Published

16 hours ago

May 17, 2024

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Hong Kong allows China's digital yuan to be used in local shops

Hong Kong will allow mainland China’s pilot digital currency to be used in shops in the city, the head of its de facto central bank said on Friday, marking a step forward for Beijing’s efforts to internationalise the yuan amid rising geopolitical tensions.

The programme, backed by Beijing, will allow mainland Chinese and Hong Kong residents to open digital yuan wallets via a mobile app developed by China’s central bank and will permit them to make payments in retail shops and some online stores in Hong Kong and in mainland China.

Transactions using e-CNY, predominantly for domestic retail payments in China, hit 1.8 trillion yuan ($249.27 billion) as of end of June 2023, with 120 million digital wallets opened, according to the latest disclosure from China’s central bank.

Using the wallet, users can make payments at over 10 million merchants in 17 provinces and cities in the mainland.

Each wallet used in the city will be subject to a balance limit of 10,000 yuan, with single transactions and daily payments capped at 2,000 yuan and 5,000 yuan, respectively, officials from the Hong Kong Monetary Authority said.

Peer-to-peer transfers will not be allowed at the moment, according to the HKMA.

“By expanding the e-CNY pilot in Hong Kong .. users may now top up their wallets anytime, anywhere without having to open a mainland bank account, thereby facilitating merchant payments in the mainland by Hong Kong residents,” HKMA Chief Eddie Yue said.

Currently, users of other digital yuan wallets such as those operated by Ant Group and Tencent can make payments in the city.

Industrial and Commercial Bank of China, Bank of China Ltd, China Construction Bank Corp and Bank of Communications Co have been selected as e-CNY wallet operators.

The yuan’s use in global finance remains low, though it has shown steady increases.

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