China and Russia are rallying to finish developing a new payment system for BRICs nations ahead of schedule as they see more nations’ interest in pulling forces together. Currently, 25 more nations want to join the bloc to reduce their reliance on the US Dollar.
BRICS nations to get a new payment system soon
The new yet-to-be-launched payment system developed by China and Russia will integrate the upcoming BRICS digital currency soon and get used to settling cross-border transactions. The payment system will also incorporate the Shanghai Cooperation Organization (SCO) group to transfer money internationally seamlessly.
The new payment system is set to put the block of five nations at an advantage when trading with other countries, as there won’t be any economic restrictions on what they can or cannot buy with the currency.
More nations want to join BRICS as USD remains in jeopardy
BRICS is set to become even bigger after 25 more nations showed interest in joining. The nations are seeking to be part of the economic bloc to reduce their dependence on the US dollar.
The move adds more pressure to an already affected and struggling US Dollar and other leading Western currencies like the Euro and Sterling Pound.
The 25 countries seeking to join the BRICS bloc and trade using the yet-to-be-released currency are Afghanistan, Algeria, Argentina, Bahrain, Bangladesh, Belarus, Egypt, Indonesia, Iran, Kazakhstan, Mexico, Nicaragua, Nigeria, Pakistan, Saudi Arabia, Senegal, Sudan, Syria, The United Arab Emirates, Thailand, Tunisia, Turkey, Uruguay, Venezuela, and Zimbabwe.
Keep watching Fintech Express for updates on this and other finance-related news.
Bank of England boss, Andrew Bailey, announced that the bank expects a fall in UK’s inflation this year but pushed its 2% target to the Q4 of 2024. Thus, price surges might continue but the economy will not plunge into recession as previously predicted. This unprecedented shift from BoE’s previous forecast follows the growth of the UK economy by 0.1% in Q1 of 2023.
Bailey vows to “stay the course” as BoE battles UK’s worst inflation in almost five decades
The warning came as the BoE boss announced the 12th straight interest rate hike, increasing its benchmark by 0.25% to 4.5%. He reiterated that the central bank was keen on maintaining its firm stance against inflation until it achieved the 2% target. The country’s inflation remained over 10% in March, and the central bankers expect it to fall more slowly than anticipated.
Consequently, Bailey announced the hike as BoE scrambled to curb the crippling inflation hurting its citizens. He owed the high inflation rates to a persistent rise in food prices and unrelenting wage growth, which will keep inflation high for a while.
Even so, he claimed that the central bank was not signaling its next moves and would rely on future data. Economists predict two more interest rate hikes before the BoE enforces a pause like Jerome Powell, the Fed chairman, did.
In his briefing, Bailey noted that the bank’s decision to hike rates would impact households within the UK adversely, particularly the lower-income ones. In his explanation, the lower income families spend more on food and are thus more prone to be affected by over-the-roof food prices.
In addition, Chancellor Jeremy Hunt pointed out that even with the evasion of recession, the BoE’s announcement would be bad news for families paying mortgages. The central bank explained that the high rates have not yet affected mortgage holders. However, with a scheduled expiration of mortgages belonging to 1.3 million households before the year ends, an average of £200 will be added to their monthly expenses.
UK economy infers a positive outlook as GDP grows in Q1 by 0.1%
The UK economy showed signs of recovery as its GDP grew by 0.1%, in line with forecasts for Q1. Bailey affirmed that contrary to the central bank’s prediction of “a shallow but long recession six months ago,” the revised growth forecast indicates “modest but positive growth.”
He attributed the growth to a fall in energy prices, “better than expected” economic activity, and “lower unemployment.” Even so, the unprecedented March shrinkage by 0.3% underscores its fragility. This fall was a result of widespread decreases within the service sector.
Despite having one of the highest living costs within any major economy due to out-of-control inflation, Bailey claimed, “The economy has turned out to be more resilient than we expected it to be.” He added that were it not for strikes and the recent coronation of King Charles, which led to an extra bank holiday, the growth would have been +0.2% in Q1 and Q2 of 2023.
The Prime Minister, Rishi Sunak, had vowed to halve the inflation earlier this year. Therefore, the government aims for about 5.3% inflation by the end of the year. With the continued rate hikes, households may be affected more by efforts to curb inflation than by modest economic growth.
British lawmakers launch a probe into the country’s food supply chain as inflation remains high
According to official data, the UK saw a 19.1% increase in food prices in March compared to last year. Thus, UK residents are experiencing some of the highest food prices since the 70s. Questions have been raised regarding the continued rise in wholesale food prices within the UK when there is a global decrease.
Because of this, legislators from the Environmental, Food, and Rural Affairs (EFRA) have expressed dissatisfaction with the situation. Additionally, they investigated the country’s wholesale food supply chain on Friday to understand the root cause of the 4-decade high prices. EFRA aimed to examine the sharing of profits and risks along the supply chain from “farm to fork.”
UK inflation has been around 10% since last summer. Source: Bank of England
Moreover, lawmakers will also consider the level of regulation and impacts of external factors like the Russia-Ukraine war and the unprecedented OPEC oil production cuts. The chair of EFRA, Robert Goodwill, expressed that his committee knew the pain felt by UK consumers but was still determining if the inflation affected the other parties up the chain or if they were benefiting from it. He added that EFRA sought to “get to the bottom of what’s going on” and give households within the UK “reasonable prices.”
One Union blamed retailers for excessively “profiteering” from the high prices by “fueling inflation.” However, in his announcement, BoE’s Bailey dismissed the claims that the central bank did not think such manipulation was going on. The central bank chief emphasized that the BoE was not directing blame on workers or enterprises but on the COVID-19 pandemic and the Russian invasion of Ukraine, which are the primary causes of UK inflation.
In addition, supermarkets across the UK have defended their high prices claiming that there is a lag of three to nine months (about the global price change) before the lower prices reflect in shops.
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Brits to endure more pain as leaks reported by Fintech Express yesterday prove right as 25 basis point interest hike gets announced in the U.K. Now, the Bank of England has made it official, which marks a record 4.5% range which was last seen 15 years ago. At the moment, these hikes are already causing pain among Brits as many can now not pay their debts in time.
BoE announces the expected 25 basis points hike
The cost of living in the U.K. is set to rise again following an announcement by the Central Bank that it is raising the interest rates further to help fight inflation. It has announced a 25 basis points hike, the 12th consecutive bump, and a peak since 2008.
As expected, the Monetary Policy Committee voted for the hike by a margin of 7 to 2, saying that the inflation, particularly food costs, has failed to fall as fast as previously anticipated. The MPC also suggested that PM Rishi Sunak is on the edge of missing his target of halving the rate of the price rise by the end of Q4 2023, as CPI is projected to be 5.1 percent by that quarter.
However, BoE has upgraded its views on the market, saying that GBP is projected to be higher by 2.25 percent by the end of the three-year forecast period than predictions made in their February meeting.
More pain to already struggling Brits
Though raising interest rates is calming down inflation, it is heavily impacting the lives of British Citizens. At the end of April, over 700K homes could not pay their mortgages. It is predicted that the new raise will immediately impact the bills of around 2.2 million people signed into variable mortgages.
MPs who condemned the biggest high street banks for stepping off the loyal savers via financing plans like variable mortgages have noticed this continued trend of inflicting pain on citizens.
Keep watching Fintech Express for updates on this and other macro finance stories.
The Bank of England is expected to propose a 12th consecutive hike in interest on Thursday to keep the fight against inflation lively. The nation’s Core inflation remains unchanged, highlighting the possibility of entrenchment. As such, analysts expect the bank to announce a 7-2 split vote pushing the hikes trend upwards to hit 4.25% to 4.5%.
More pain in Britain Markets?
The Bank of England is expected to hike the interest rates again on Thursday, marking the 12th time the hike has happened. This hike will most likely happen as inflation continues to roar though there are signs to slow down soon.
The U.K. economy has been performing well this year though its GDP flatlined in February owing to strikes due to the rising cost of living. However, now the country’s job market looks resilient and promising.
As such, the market almost unanimously expects the Monetary Policy Committee to opt for another 25 basis point hike on Thursday, taking the total interest rates to a 4.5% high, close to U.S.’s 5%, which was hit last week. Market analysts also expect the U.S. to pause hiking rates starting June.
Similarly, last week, the European Central Bank slowed down its hiking cycle and went for a 25 basis point increment. However, the decision still lifted the rates to levels not seen since November 2008.
Keep watching FinTech Express for updates on this story and other FinTech-related developments.
The ongoing banking collapse is sending shivers down the spines of US investors as they are losing trust in the policies that the Fed has been issuing. This has been seen via an increasing number of Short sellers in the stock market and bank withdrawals sending major banks under.
Where is this money going? Is it going into crypto? The answer is no. Most US citizens are still wary of the crypto industry, which the continued bear market has shown. A firm survey by Goldman Sachs shows that 62% of the firms do not intend to enter crypto, which is a long way from 2021’s 39%.
Dwindling trust in the US banking system
About half of US citizens are confirming that they no longer have trust in banks and are afraid to keep their money there. The main reason behind this decision is the looming financial crisis and the harsh rates hike by the Federal Reserve (Fed) that directly impacts their day-to-day lives.
Interest rate hikes are meant to slow down inflation rates. However, they impact normal citizens greatly by making borrowing money more expensive. As a result, fewer people are interested in borrowing, so the net spending falls. The Federal TReserve has been raising interest rates continuously since 2022 to combat inflation to a range of 5%, only to indicate signs of slowing down recently.
One of the side effects of continuous hikes is the increased cost of living and other strings of economic damages like bank collapse. However, the US is still posting strong job statistics, and the inflation rates are slowing down, showing that all is not lost yet.
Crypto isn’t safe, either
Investors still need to be convinced about getting into the crypto space. Recent figures from Goldman Sachs show that even more institutions are willing to stay away from the crypto space in this market cycle.
The banking institution’s findings show that roughly 26% of family offices are currently invested in crypto, up from 16% recorded in 2021. However, among those not invested in the crypto industry, the number willing to stay away from the crypto space has grown from 39% in 2021 to 62 % now.
The number of respondents potentially interested in crypto fell from 45% to 12% over the same span. Family offices are wealth management firms that work with high-net-worth individuals and families. Goldman Sachs conducted the survey discussed in this article using 166 family offices worldwide between January and February 2023.
While these findings come from a market in distress of a looming financial meltdown, they clearly show how interest in both banks and crypto industries is fairing at the moment. However, it doesn’t mean that any of the information covered here is financial advice. Keep watching FinTech Express for updates on this and other FinTech-related news.
Standard Charted CEO has commented on the likelihood of the U.S. Federal Reserve ( Fed) temporarily pausing interest rate hikes temporarily. However, he has added that he does not expect the end of the rate hikes cycle to be anytime soon as inflation is still running wild.
Analysts expect a pause or slowdown of US rates hikes
Via a statement shared with CNBC, CEO Bill Winters claims that the Central Bank will most likely use its June meeting to explain how its latest battle with inflation has been going and offer the country’s wage data.
“If we can get the regular wage growth cycle back under control, then I think the Fed can stop here. But it’s not done yet,” he said.
Bill Winters’s words echo a report by Fintech Express from last week that expected both the ECB and the U.S. federal reserve to rethink the recent hikes in interest rates. This aggressive money-tightening agenda by the two banks has contributed to increased pains in the markets and needs a break though the work is yet to be done.
Winters explain that Central Bankers in the U.S. and other locations are wary about the rising wage rates. As such, they fear such occurrences could prompt a wage-price spiral, which would embed inflation.
To avoid such, the Central Banks need to ensure that job and wage rates growth is cooling before they end the rates hiking cycle entirely.
“The fact is, job growth is still pretty strong, wage growth is still pretty strong. And that’s not just in the U.S., that’s in Europe and the U.K. as well, as in many other parts of the world,” Winters said.
“So, if we can control the regular wage growth cycle, then I think the Fed can stop here. But it’s not done yet,” he added.
Fed pausing the rates hikes could be a mistake-Fed Historian
As the rumors of the possibility of the Fed pausing the rates hike rage, a Fed Historian is not happy with it. He claims that the possibility of such a decision being taken would mean a slower sliding of the inflation rates. The rates have been falling following the 10 consecutive hikes that have been done by the Fed.
Now, Gary Richardson, a Fed historian is worried that the authority has still not learned from its past mistakes. He says that the longer the rates hikes are paused the longer it will take to tame inflation.
“The more times you pause [rate hikes], the longer the problem is going to go on,” he told me. “That’s a worry here.”
He explained that a premature retreat could cause a series of problems for the country’s economic stability as the Fed could lose its grip on inflation. He noted how the Chair of the Federal Reserve in 1972 hiked interest rates till 1974 only to retreat when he noticed an improvement.
However, the decision proved wrong as the inflation roared back forcing the inevitable change of the administrators and Paul Volcker took over. He tamed double-digit inflation — but only by raising borrowing costs high enough to trigger back-to-back recessions in the early 1980s that at one point pushed unemployment above 10%.
Richardson, who is also an economics professor at the University of California added that if the Fed doesn’t stop the inflation now, history might repeat itself. Keep watching Fintech Express for updates on Macro-Finance and other Fintech-related stories.
