Day: October 3, 2022

As countries across the world gear up to deal with surging inflation and living costs, with many driving up interest rates, a US-based economist has urged nations to set their monetary policies according to the specific challenges they face.

 

“Each country has different challenges. I would say that each country has to learn from its successes and mistakes,” Joshua Aizenman, the economics chair at the University of Southern California, told Anadolu Agency during an event in Istanbul on the economic transformation the world is undergoing.

 

There is no mantra on reducing or increasing interest rates, Aizenman said at the Economic Transformation and New Paradigms Summit, adding it is why rates are not set by a computer.

 

While the hawkish central bank stances and aggressive interest rate hikes that started to be discussed at the end of the last year were obvious in most countries, some countries remained more hesitant about adjusting rates.

 

This year, several central banks have raised rates, especially the US Federal Reserve, the Bank of England, and the European Central Bank, while some countries, including Russia, China, and Türkiye, have decided to cut rates.

 

Meanwhile, the Bank of Japan and some others have kept rates unchanged.

 

The Fed has increased its rates gradually from 0.25% to 3.25% since its March meeting, while the Bank of England has raised rates from 0.1% to 2.25% since last November.

 

The European Central Bank, whose policy rate was at 0%, raised the rate to 0.5% in July and to 1.25% in September in a decision later than other banks.

 

The Bank of Japan has kept its policy rate at minus 0.1% for a long time.

 

Russia, whose policy rate was at 8.5% last December, raised it to 20% in February but has gradually reduced it to 7.5% since April.

 

China, where the rate was at 3.85% last year, reduced it to 3.7% in January and to 3.65% in August.

 

While Türkiye began 2022 with a policy rate of 14%, the country’s central bank lowered it to 13% in August and 12% in September.

 

Monetary, and fiscal policies

 

Aizenman underlined that policies cannot be replicated in other countries, as they should be approached locally, and the main thing should be prioritizing the challenges.

 

“I suggest that each country invests in the best institutions as their priorities.”

 

He said monetary policy should be integrated with fiscal policy, adding there is close interaction between them and other policies like macro-prudential rules and financial policies.

 

The key focus used to be on central banks, but this period is over and all institutions should be integrated for more cooperative solutions, Aizenman added.

 

He said central banks can overcome problems but not overnight, and central banks and treasuries should invest in a defensive posture.

 

The pain will continue for several years, but there is a way to mitigate it and make the crisis easier and less tragic, he said.

 

The US, China, and the EU should lead the way in easing by focusing on a brave new global economy where everyone, especially emerging markets, should be focused, he argued.

 

Countries with the ability to help with the adjustment should back the cooperative solution, he urged.

 

Source: Anadolu Agency

Global natural gas markets are set to remain tight next year, with lower gas flow from Russia to Europe, high gas prices, lower demand and the impact of energy saving measures, according to the International Energy Agency’s Gas Market Report Q4 2022 published Monday.

 

As Russia’s curtailment of natural gas flow to Europe leads to new highs of international prices, it also disrupts trade flow, leading to fuel shortages in some emerging and developing economies, the IEA said.

 

Russia’s reduced flows to Europe deepens market tensions and uncertainty ahead of the coming winter, not just for Europe but also for all markets that rely on the same supply pool of liquefied natural gas (LNG), according to the report.

 

“Russia’s invasion of Ukraine and sharp reductions in natural gas supplies to Europe are causing significant harm to consumers, businesses and entire economies, not just in Europe but also in emerging and developing economies,” said Keisuke Sadamori, the IEA’s director of Energy Markets and Security.

 

“The outlook for gas markets remains clouded, not least because of Russia’s reckless and unpredictable conduct, which has shattered its reputation as a reliable supplier. But all the signs point to markets remaining very tight well into 2023,” he said.

 

Record gas demand reduction in Europe

 

The record high prices seen in European and Asian spot LNG markets reduced gas demand and incentivized the switch to other fuels such as coal and oil for power generation, according to the report.

 

Europe’s gas consumption dropped by more than a record 10% during the January-August period this year compared with the same period of 2021, driven by a 15% fall in the industrial sector as factories curtailed production.

 

Europe increased LNG imports, as well as alternative pipeline supplies from Norway and elsewhere, to offset the sharp falls in Russian gas supplies.

 

Europe’s demand for LNG grew by 65% in the January-August 2022 period from a year earlier. This demand has drawn supply away from the traditional buyers in the Asia-Pacific Region, where demand contracted by 7% over the same period due to high prices, mild weather and continued COVID-19 lockdowns in China.

 

Although natural gas prices in the US hit their highest summer levels since 2008, North America was one of the few regions where demand increased, supported by demand from power, the report found.

 

With the impact of market tightness and high prices, a 0.8% decline in global gas consumption is expected this year, with a record 10% contraction in Europe and unchanged demand in the Asia Pacific region.

 

Global gas consumption is expected to grow by only 0.4% in 2023. However, the outlook is subject to a high level of uncertainty, particularly in terms of Russia’s future actions and the economic impacts of sustained high energy prices, the IEA said in the report.

 

Europe’s growing LNG inflows imply lower Asian LNG imports

 

The IEA forecasts that Europe’s LNG imports will increase by over 60 billion cubic meters this year, or more than double the amount of global LNG export capacity additions, keeping international LNG trade under strong pressure for the short to medium term.

 

“This implies that Asia’s LNG imports will remain lower than last year for the rest of 2022. However, China’s LNG imports could rise next year under a series of new contracts concluded since the beginning of 2021, while a colder-than-average winter would also result in additional demand from northeast Asia, further adding to market tightness,” the IEA said in the report.

 

The IEA’s resilience analysis of the EU’s gas market finds that the EU’s gas storage would be less than 20% full in February 2023, assuming a high level of LNG supply in the case of a complete Russian supply shutdown starting from Nov. 1, 2022, and without demand reductions in place or if Russian pipeline supply is completely cut.

 

Storage levels drop to 5% full capacity, assuming low LNG supply as storage falling to these levels would increase the risk of supply disruptions in the event of a late cold spell.

 

A reduction of 9% from the average level of the past five years in EU gas demand through the winter period would be necessary to maintain gas storage levels above 25% in the case of lower LNG inflows, according to the analysis.

 

A reduction in demand of 13% from the five-year average would be necessary through the winter period to sustain storage levels above 33% in the case of low LNG inflows.

 

“Therefore, gas saving measures will be crucial to minimize storage withdrawals and keep inventories at adequate levels until the end of the heating season,” the IEA warned.

 

Source: Anadolu Agency

Commodity markets have been volatile as high interest rate environment continues amid rising inflation and recession concerns.

 

As part of efforts to rein in soaring inflation, central banks of the UK, Norway, Switzerland, Taiwan, South Africa, Indonesia and the Philippines have made aggressive interest rate hikes recently.

 

The turmoil experienced in the bond and foreign exchange market came to a halt, albeit temporarily, after the Bank of England announced its bond purchase move.

 

Another positive development was the British government’s move to scrap a proposed tax cut for high-earners which saw the British pound rise sharply on Monday morning before dipping to $1.1212 by 7:30 a.m. London time after the news was confirmed.

 

Last week, the British pound plummeted against the dollar, falling 1.6% to $1.0538 despite Bank of England’s intervention in the bond market.

 

A Bank of England statement said temporary purchases of long-term UK government bonds started in order to restore the functioning of the market.

 

The increased risk appetite after the loosening in the bond market showed its effect in the foreign exchange market, while the pressure on commodity prices decreased with the decline in the dollar index.

 

The dollar index fluctuated at 112.2 from a 20-year high of 114.8.

 

Some commodities rose with the news of fresh European sanctions against Russia.

 

The ounce price of gold closed the week at $1,662 with an increase of 1.1% after seeing the lowest level since April 2020 with $1,615 last week.

 

Analysts said gold prices rose due to the dollar’s depreciation versus emerging market currencies and commodities after the BoE’s bond purchase program and the European Central Bank (ECB) officials’ market guidance with hawkish tone.

 

Silver gained 0.9%, platinum 0.7% and palladium 4.7%.

 

In the over-the-counter market, copper rose 1.2% and lead 1.8%, while aluminum fell 0.8%, nickel 8.9% and zinc 2.2%.

 

The increase in nickel production in Indonesia caused a depreciation in nickel prices.

 

On agricultural commodities side, wheat traded on the Chicago Mercantile Exchange rose 4.7 % and corn gained 0.1%, while rice and soybeans fell 1.2% and 4.3%, respectively.

 

Coffee increased by 0.5%, sugar by 0.2% and cocoa by 4.8%, while cotton decreased by 8%.

 

Source: Anadolu Agency