Bank of Russia raises interest rates to 15% to fight inflation – business live | Business
Russia hikes interest rates to 15% to battle inflation
Newsflash: The Bank of Russia has raised its key interest rate from 13% to 15%, a larger rise than expected.
Announcing the 200 basis point hike, the Bank of Russia says current inflationary pressures have significantly increased to a level above its expectations.
This is the third tightening of monetary policy since the summer. In August, Russia’s central bank lifted rates from 8.5% to 12%, after the rouble weakened through the 100-to-the-dollar mark, and followed this up with a rise to 13% in mid-September.
The Bank of Russia says it now expects annual inflation will range from 7.0 to 7.5% this year, well over its 4% target.
It expects inflation will decline to betwen 4% and 4.5% next year, “and stay close to 4% further on”.
Inflation has been lifted, in part, by the weak rouble, which has fallen from 75 to the dollar at the start of 2023 to around 100/$ earlier this month.
The central bank says:
Higher inflationary pressures are seen across an increasingly broader range of goods and services. This means that a steady rise in domestic demand is progressively exceeding the capabilities to expand the production of goods and the provision of services.
These conditions boost businesses’ appetite to pass higher costs on to consumers, which is driven among others by the weakening of the ruble and labour shortages.
Key events
The drop in the oil price compared to the highs after Russia’s invasion of Ukraine has hit earnings at two US energy giants.
Exxon Mobil has posted a $9.1bn profit for the third quarter of the year, a 54% drop from its record earnings a year ago.
Third-quarter profit was $2.25 a share, down from $4.68 in the same quarter a year ago.
That’s an increase on the second quarter of this year, though, when Exxon made $1.94 per share.
Rival oil firm Chevron has missed Wall Street expectations for its third-quarter profits.
It made $6.5bn, or $3.48 per share, in July-September, down from $11.2bn or $5.78 per share in the same period last year.
Adjusted profit was $3.05 a share, below forecasts of $3.75 per share.
Just in: The US central bank’s favourite inflation measure has fallen.
The core personal consumption expenditures (PCE) price index rose by 3.7% in the year to September, down from 3.8% in August. This measure is closely watched by the US Federal Reserve, as it assesses inflationary pressures.
The headline PCE price index was unchanged at 3.4%, on an annual basis.
In September alone, prices rose by 0.4%, including a 0.2% increase in goods, a 0.5% rise in services, a 0.3% increase in food costs and a 1.7% jump in energy.
🇺🇲 Core PCE cooled in September.
👛The Fed’s preferred gauge for inflation eased to 3.7%, in line with forecasts.
📊 Personal spending rose 0.7%, up from 0.4%#USD 🔼 0.10% (1d)
RW: Forex trading involves significant risk.#tradingdotcom #marketupdates
— Trading.com (@tradingdotcom) October 27, 2023
Russia’s central bank chief Elvira Nabiullina is holding a press conference now to explain today’s interest rate decision.
Nabiullina says prices are rising faster than the Bank of Russia expected, and that high pricing pressures have continued into October.
She also explains that budget expenditure is fueling economic growth.
Nabiullina also says the situation in the Middle East is an “uncertainty factor”.
Returning of cap controls, ⬆️ expenditures and growing pressure on @bank_of_russia require Nabiullina to strike back. Besides key rate hikes up to 15% (too big step) she sends a clear message on further hikes and another one:CBR is independent yet and has tools to fight for it pic.twitter.com/bw9Tnsgenb
— Alexandra Prokopenko (@amenka) October 27, 2023
Russia’s central bank also says the country’s economy is expanding faster than it expected in September.
It says that “high domestic demand” is lifting growth, but also adding to persistent inflationary pressures.
The Bank of Russia says:
The steady growth of domestic demand is caused by expanding private demand, while public sector demand remains high and fiscal stimulus is expected to increase again.
The growth in consumer activity is boosted by rising real wages and high credit growth. Significantly increased profits of companies and positive business sentiment, including due to the fiscal stimulus, support high investment demand.
In its baseline scenario, the Bank of Russia forecasts that GDP will grow at 2.2–2.7% in 2023, 0.5–1.5% in 2024, 1.0–2.0% in 2025, 1.5%—2.5% in 2026.
Today’s larger-than-expected rise in Russian interest rates shows that Moscow’s central bank is alarmed that inflationary risks are still on the rise, even after a reimposition of capital controls took pressure off the ruble, reports Bloomberg.
The decision brings borrowing costs to the highest since April 2022 and risks tipping the economy into recession.
But stabilizing the ruble to get a better grip on inflation has emerged as a key priority for Russia at a time when Vladimir Putin prepares for presidential elections while the war against Ukraine rages into a 21st month.
Russia hikes interest rates to 15% to battle inflation
Newsflash: The Bank of Russia has raised its key interest rate from 13% to 15%, a larger rise than expected.
Announcing the 200 basis point hike, the Bank of Russia says current inflationary pressures have significantly increased to a level above its expectations.
This is the third tightening of monetary policy since the summer. In August, Russia’s central bank lifted rates from 8.5% to 12%, after the rouble weakened through the 100-to-the-dollar mark, and followed this up with a rise to 13% in mid-September.
The Bank of Russia says it now expects annual inflation will range from 7.0 to 7.5% this year, well over its 4% target.
It expects inflation will decline to betwen 4% and 4.5% next year, “and stay close to 4% further on”.
Inflation has been lifted, in part, by the weak rouble, which has fallen from 75 to the dollar at the start of 2023 to around 100/$ earlier this month.
The central bank says:
Higher inflationary pressures are seen across an increasingly broader range of goods and services. This means that a steady rise in domestic demand is progressively exceeding the capabilities to expand the production of goods and the provision of services.
These conditions boost businesses’ appetite to pass higher costs on to consumers, which is driven among others by the weakening of the ruble and labour shortages.
US announces new sanctions targeting Hamas financing
Just in: The US has issued a second round of sanctions on the Palestinian group Hamas following its attack on Israel this month.
The new sanctions target a Hamas official in Iran and members of Iran’s Islamic Revolutionary Guard Corps.
They also target additional assets in Hamas’s investment portfolio and individuals who are facilitating sanctions evasion by Hamas-affiliated companies, the Treasury says.
Deputy Secretary of the Treasury Wally Adeyemo explains:
“Today’s action underscores the United States’ commitment to dismantling Hamas’s funding networks by deploying our counterterrorism sanctions authorities and working with our global partners to deny Hamas the ability to exploit the international financial system.
We will not hesitate to take action to further degrade Hamas’s ability to commit horrific terrorist attacks by relentlessly targeting its financial activities and streams of funding.”
Speaking in London now, Adeyemo says the US is taking a three-way strategy against Hamas.
First, stepping up the use of financial sanctions including today’s measures; second, increasing information-sharing and collaboration globallly to tackle terrorist financing; thirdly, ensuring financial institutions take steps to prevent illicit financial flows to these organizations.
Last week, the US sanctioned a Gaza-based virtual currency exchange which was being used to transfer funds to Hamas.
Wilko stores are set to return to the High Street
Wilko stores are set to return to the High Street in time for the festive season, just weeks after the chain’s collapse with the loss of thousands of jobs.
The parent company of The Range, which also snapped up Wilko’s website and intellectual property following the discount chain’s administration, has announced it will open five shops before Christmas.
CDS Superstores said the first two standalone Wilko “concept stores” will be opened in Plymouth and Exeter.
Wilko, which sold a range of household and garden products, called in administrators in August after rescue efforts failed. That led to the closure of all its 400 stores by early October, leading to the redundancy of almost all its 12,500 workers.
Alex Simpkin, chief executive officer of CDS Superstores, said:
“The public reaction to the loss of Wilko stores was undeniable.
“It’s clear that there’s a huge love for Wilko and we’ve seen an encouraging demand for the return of its own-brand products.
“That’s why we’ve taken the decision to reintroduce Wilko back to many of the high streets and communities that it used to so proudly serve.”
Full story: NatWest decision to close Nigel Farage’s bank accounts was lawful, says report
Kalyeena Makortoff
NatWest’s decision to close Nigel Farage’s bank accounts was lawful but there were “serious failings” in how it treated the former Ukip leader, an independent review commissioned by the bank has found.
Lawyers hired by NatWest Group said the lender had acted “in accordance with the relevant bank policies and processes” when it decided to shut the accounts Farage held at its private bank Coutts.
However, the initial report also identified “a number of shortcomings”, related to how it reached that decision, how the bank communicated with Farage, and how it treated his confidential information.
The Financial Conduct Authority said it had reviewed the findings of the initial independent report, and said it highlighted “potential regulatory breaches” and a number of areas for improvement.
That included how the bank considers the potential closure of accounts, handles complaints from customers, and the effectiveness of its “governance mechanisms”.
The NatWest chair, Howard Davies, said:
“This report sets out a number of serious failings in the treatment of Mr Farage. Although Travers Smith confirm the lawful basis for the exit decision, the findings set out clear shortcomings in how it was reached as well as failures in how we communicated with him and in relation to client confidentiality.
“We apologise once again to Mr Farage for how he has been treated. His experience fell short of the standards that any customer should expect. Our job now is to make sure that does not happen again.
“The bank is committed to implementing all the recommendations made by Travers Smith and we are making substantive changes to our policies and procedures, in particular to ensure that the lawfully protected beliefs or opinions of customers do not play any role in our decision-making.”
More here.
Alison Rose, NatWest’s former CEO, has commented on the independent legal inquiry into the Nigel Farage debanking row, whose key findings were released this morning.
Rose says:
“I note the Travers Smith report this morning.
This confirms everything I told the Board in July was correct. Both Travers Smith and the Information Commissioner’s Office have concluded that I inadvertently confirmed what had already been widely reported, that Mr Farage held an account at Coutts. The ICO also concluded the ‘impact around this specific disclosure was minimal’.
“Travers Smith is clear that ‘there was no leak of specific detailed financial information’.
Travers Smith also confirmed I knew nothing about the comments made by Coutts staff about Mr Farage, which were deeply unpleasant and unfair.”
Travers Smith concluded that Rose’s comments to the BBC “probably amounted to a Personal Data Breach for the purposes of GDPR”, adding;
They might also amount to a regulatory breach by members of the NatWest Group, but this is a matter for the regulator to decide.
Over in the eurozone, growth in Spain’s economy has slowed, but remained faster than expected.
Spanish GDP grew by 0.3% in the July-September quarter, compared to Q2, data from the National Statistics Institute showed this morning.
That’s a slowdown on the 0.4% growth in the April-June, but ahead of the 0.2% expansion which economists expected.
Trading in NatWest shares was just briefly halted, due to volatility as traders react to today’s financial results.
They’re trading again now, though, and are down 8% – a partial recovery from the 16% plunge at the start of trading.
Shares in IAG have dropped by over 1% this morning, despite the airline group posting a 40% increase in operating profits this morning.
Victoria Scholar, head of investment at interactive investor, says there are concerns about weaker customer demand:
The company says it expects 2023 to be a year of strong recovery in margins, operating profit, and its balance sheet, heading back towards pre-covid levels. However it warned of ‘wider macroeconomic and geopolitical uncertainties that might affect the remainder of the year.’
British Airways’ parent company enjoyed record quarterly earnings thanks to strong demand for leisure travel during the busy summer holiday season. There was particular strength across European holiday destinations. Over the summer, it reported a rebound in passenger revenue thanks to a recovery in long-haul travel after China’s covid restrictions ended. IAG has been focusing on bringing down its debts after concerns about its debt levels sparked a sell-off in February.
However there is nervousness about weaker consumer demand ahead, particularly over the quieter winter months and the risk of rising energy prices that could push up its costs. IAG said it has 73% of its fuel cost hedging in place for the fourth quarter. The airline group also said it is well-hedged on jet fuel into the first and second quarter next year.
Shares initially opened higher but have since turned lower with the stock now down around 6% in the past month weighed down by the threat of rising oil prices on the back of the Israel-Hamas war.”
IAG’s CEO Luis Gallego has also said the Israel-Hamas conflict has had an impact on revenue for flights to Egypt’s capital, Cairo, and also to Amman, the capital of Jordan.
British Airways has suspended flights to and from Israel since October 11.
After reporting IAG’s results this morning, Gallego told reporters:
“We are very mindful of the geopolitical and macroeconomic uncertainties and in particular now the events that are happening in the Middle East.
“Regarding this terrible situation we see some limited revenue impact on flights to Cairo and Amman, and for sure Israel, but it’s too early to conclude if we’re going to have a wider strain and implications.”
