Tag: hike

Scale of rate hike is shock therapy for UK’s inflation problem | Business News


The Bank of England was always going to increase its Bank rate this month. But every economist had expected only a quarter percentage point increase.

There was good reason for this.

Although inflation data had been higher than expected this week, the bank had been slowing down the rate at which it was lifting borrowing costs. So too had its counterpart central banks around the world, most notably the Federal Reserve in the US and the European Central Bank.

Typically a quarter percentage point increase is considered a “normal” increase. And while some investors had begun to bet on a bigger rate increase this month, most people expected another normal increase.

Well, the bank’s monetary policy committee (MPC) has surprised them with a bigger increase.

It’s a sign, if any were needed, of just how worried it is about inflation, which looks like it is becoming dangerously sticky.

The stickier it gets, the harder inflation is to bring down, hence why the bank is taking this more radical step.

It is a form of shock therapy that it hopes will send out a clear message: when it comes to inflation-fighting, it’s not messing around.

The problem is that some will depict it as a form of panic.

The bank has been roundly criticised for failing to forecast the sharp increase in inflation in the last couple of years. It has been criticised for being too slow to respond. Now it is responding far more quickly, but some will argue that this is a problem of its own making.

Please use Chrome browser for a more accessible video player

What’s keeping inflation so high?

And an increase like this will have a bearing on households. For as economic tools go, interest rates are a particularly blunt instrument.


US banks could face 20% capital hike under new global rules

WASHINGTON, June 5 (Reuters) – U.S. banks could face capital hikes of as much as 20% under new rules being prepared by U.S. regulators as part of a global effort to harmonize capital requirements, a person familiar with the matter said on Monday.

U.S. regulators, led by the Federal Reserve, are expected to unveil the proposed tougher requirements by the end of this month, according to this source, who spoke on condition of anonymity.

The proposal is expected to implement a final batch of global bank capital rules laid out by the Basel Committee of banking regulators that are due to take effect at the beginning of 2025.

The Wall Street Journal first reported the forthcoming proposal.

Michael Barr, the Fed’s top regulatory official, told Congress last month that the central bank would likely unveil its plan to ratchet up capital rules for banks this summer and ensure supervisors more aggressively police lenders following the bank failures. Barr, the Fed vice chair for supervision, added that the central bank was “carefully considering” rule changes for larger regional banks.

Randal Quarles, who led Fed regulations before Barr, cautioned in a 2021 speech that fully implementing the remaining Basel requirements could result in capital requirements increases of as much as 20% for the largest banks.

The Wall Street Journal reported that the precise amount of capital requirements will depend on a bank’s business, with U.S. megabanks with big trading businesses expected to face the largest increases.

Banks such as Morgan Stanley (MS.N) and credit card giant American Express (AXP.N) that are heavily dependent on fee income, such as from investment banking or wealth management, could also face large capital increases, the Journal reported.

Canada’s economy grew by more than expected in first quarter, upping odds of rate hike next week

The Canadian economy grew at an annualized rate of 3.1 per cent in the first quarter of 2023, Statistics Canada reported Wednesday.

The latest data shows growth beat out the federal agency’s own forecast of 2.5 per cent for the quarter. A preliminary estimate suggests the economy grew by 0.2 per cent in April, after remaining flat in March.

The ongoing resilience in the economy will likely spur discussions of a potential rate hike, as the Bank of Canada is expected to make its next interest rate announcement next week.

The relatively strong GDP showing had investors increasing the odds of a rate hike when the central bank meets next week. Prior to the GDP numbers, trading in investments known as swaps was implying a litle over a one-in-four chance of a hike. 

Now, those odds are better than one-in-three.

Statscan says growth in exports and household spending helped spur growth in the first quarter. On the other side of the ledger, slower inventory accumulations as well as declines in household investment and business investment in machinery and equipment weighed on growth.

Tuan Nguyen, an economist with consulting firm RSM Canada, says the GDP numbers “blew past expectations.”

“After a slow final quarter of last year, the Canadian consumers and businesses came out strong in the first quarter, defying rising recession concerns that most market participants have been talking about,” Nguyen said. “There is no doubt that the data pointed to a hot economy, explaining why underlying inflation has remained elevated.”

Stubbornly high inflation

The Canadian economy has managed to continue outperforming expectations, despite the Bank of Canada hoping high interest rates would cause a more profound pullback by consumers and businesses.

The household spending figures show spending up on both goods and services in the first three months of