In recent years, emerging markets have often raised interest rates in anticipation of the Fed’s slow and steady moves to avoid big swings in their currency values, which depend partly on interest rate differences across borders. But this set of rate increases is different: Inflation is running at its fastest pace in decades in many places, and a range of developed-economy central banks, including the European Central Bank, the Swiss National Bank, the Bank of Canada and the Reserve Bank of Australia, are joining — or may join — the Fed in pushing rates quickly higher.

“It’s not something we’ve seen in the last few decades,” said Bruce Kasman, chief economist and head of global economic research at JPMorgan Chase.

The last time so many major nations abruptly raised rates in tandem to fight such rapid inflation was in the 1980s, when the contours of global central banking were different: The 19-country euro currency bloc that the E.C.B. sets policy for did not exist yet, and global financial markets were less developed.

That so many central banks are now facing off against rapid inflation — and trying to control it by slowing their economies — increases the chance for market turmoil as an era of very low rates ends and as nations and companies try to adjust to changing capital flows. Those changing flows can influence whether countries and businesses are able to sell debt and other securities to raise money.

“Financial conditions have tightened due to rising, broad-based inflationary pressures, geopolitical uncertainty brought on by Russia’s war against Ukraine, and a slowdown in global growth,” Janet L. Yellen, the U.S. Treasury secretary, said in speech last week. “Now, portfolio investment is beginning to flow out of emerging markets.”

fastest pace since 1983. In the United Kingdom, it is similarly at a 40-year-high.

kick off rate increases back in December and has been steadily raising rates since. Policymakers are increasingly worried about inflation creating a cost-of-living crisis in Britain and worry that higher rates could compound economic pain. At the same time, they have signaled that they could act more forcefully, taking their cue from their global peers. There is a “willingness — should circumstances require — to adopt a faster pace of tightening,” Huw Pill, the chief economist of the Bank of England, said this month.

“Many central banks are looking at this as a sort of existential question about getting inflation and inflation expectations down,” said Matthew Luzzetti, chief U.S. economist at Deutsche Bank.

The Fed raised rates by a quarter point in March, half a point in May, and three-quarters of a percentage point in June. While its officials have predicted that they will maintain that pace in July, they have also been clear that an even bigger rate increase is possible.

“Inflation has to be our focus, every meeting and every day,” Christopher Waller, a Fed governor, said during a speech last week. “The spending and pricing decisions people and businesses make every day depend on their expectations of future inflation, which in turn depend on whether they believe the Fed is sufficiently committed to its inflation target.”

The Bank of Canada has already gone for a full percentage point move, surprising investors last week with its largest move since 1998, while warning of more to come.

said in a statement.

of other central banks have made big moves. More action is coming. Central banks around the world have been clear that they expect to keep moving borrowing costs higher into the autumn.

“I wouldn’t say we’re at peak tightening quite yet,” said Brendan McKenna, an economist at Wells Fargo. “We could go even more aggressive from here.”

A key question is what that will mean for the global economy. The World Bank in June projected in a report that global growth would slow sharply this year but remain positive. Still, there is “considerable” risk of a situation in which growth stagnates and inflation remains high, David Malpass, head of the World Bank, wrote.

If inflation does become entrenched, or even show signs of shifting expectations, central banks may have to respond even more aggressively than they are now, intentionally crushing growth.

Mr. Kasman said the open question, when it comes to the Fed, is: “How far have they gone toward the conclusion that they need to kick us in the teeth, here?”

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Airbus loses bid to use French blocking law in Qatar row

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Surface damage seen on Qatar Airways’ airbus A350 parked at Qatar airways aircraft maintenance hangar in Doha, Qatar, June 20, 2022. REUTERS/Imad Creidi//File Photo

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LONDON, July 15 (Reuters) – (Amends paragraph 6 of July 15 story to show that Airbus’ comment on French legal risks is paraphrased testimony, not a direct quote)

A UK judge on Friday rejected an attempt by Airbus (AIR.PA) to invoke a De Gaulle-era law restricting the way it responds to foreign courts, as a high-profile dispute with Qatar Airways became mired in a growing debate over cross-border legal powers.

Qatar Airways is suing France-based Airbus for $1.4 billion over damage to the painted surface and anti-lightning system on A350 jets, saying safety could be at risk from a design defect. Airbus acknowledges quality flaws but insists the jets are safe.

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Now, the two sides must provide each other with thousands of pages of documents as their dispute heads towards a rare London aerospace trial in mid-2023, barring an elusive settlement.

Airbus says it is prevented from directly handing over documents sought by Qatar Airways by a 1968 law that stops French companies from handing over sensitive economic details to foreign courts, without a special mechanism in place.

The planemaker applied to a UK judge for permission to appoint a special commissioner responsible for transmitting the documents to Qatar Airways, something it had already done to assist UK authorities during a bribery investigation.

Airbus said that failing to set up such a conduit would expose the company to criminal charges in France.

“This is not something entirely novel, weird or wacky that we are proposing,” its lawyer Rupert Allen told a division of the High Court in an online hearing on Friday.

Judge David Waksman, however, rejected the request, awarding costs to Qatar Airways.

The 1968 law – widely referred to as the “French blocking statute” – was designed to protect French companies from oppressive foreign court demands especially from the United States, with which Paris was locked in an economic Cold War.

“That in my judgment is a million miles away from what this case is all about,” Judge David Waksman said.

“This is hardly the example of an unwilling, vulnerable French company that has now found itself having to cope with a highly intrusive and oppressive form of discovery,” he said.

JURISDICTION DEBATE

He also criticised the planemaker for slowness over the request for a special disclosure mechanism.

The jurisdictional row coincides with a simmering political debate in the UK over the rights of British and foreign courts following Britain’s exit from the European Union.

Tensions flared again last month when the European Court of Human Rights, which is separate from the EU, blocked Britain’s move to deport some asylum seekers to Rwanda.

At least one of the candidates to replace Boris Johnson as UK prime minister has pledged to withdraw from the court.

Deputy Prime Minister Dominic Raab, who is not standing in the Conservative leadership race, has said Britain will stay in the ECHR but that it is “legitimate to push back”. read more

In France, a corruption case that led to a record 3.6 billion euro $3.63 billion) fine against Airbus from Britain, France and the United States in 2020 also fuelled a debate over the extra-territorial reach of U.S. prosecutors against French companies.

Airbus said throughout the four-year investigation that it was co-operating with all domestic and foreign agencies.

Friday’s ruling came after Qatar Airways urged the judge to invoke the authority of English courts, which both sides had chosen to settle any disputes in their jetliner contracts.

“Complying with a foreign law is no defence against non-compliance” with English courts, Qatar’s lawyer Philip Shepherd said.

Airbus said in an emailed statement it had sought to comply with applicable laws rather than limit disclosure. Qatar Airways had no immediate comment on the judgment.

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Reporting by Tim Hepher
Editing by Barbara Lewis and Mark Potter

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Europe’s central banks jack up interest rates to fight inflation surge

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  • SNB unexpectedly hikes by half a percent
  • Bank of England raises rates by 25 bps
  • Hungary unexpectedly lifts one-week deposit rate
  • Inflation painfully high and not yet peaking

BERN/LONDON, June 16 (Reuters) – Central banks across Europe raised interest rates on Thursday, some by amounts that shocked markets, and hinted at even higher borrowing costs to come to tame soaring inflation that is eroding savings and squeezing corporate profits.

Fuelled initially by soaring oil prices in the wake of Russia’s invasion of Ukraine, inflation has broadened out to everything from food to services with double digit readings in parts of the continent.

Such levels have not been seen in some places since the aftermath of the oil crisis of the 1970s.

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The Swiss National Bank and the National Bank of Hungary both caught markets off guard with big upward steps, just hours after their U.S. counterpart the Federal Reserve lifted rates by the most in almost three decades. read more

The Bank of England meanwhile lifted borrowing costs by the quarter point markets had expected. read more

The moves come just a day after the European Central Bank agreed plans in an emergency meeting to contain borrowing costs in the bloc’s south so it could forge ahead with rates rises in both July and September. read more

“We are in a new era for central banks, where lowering inflation is their only objective, even at the expense of financial stability and growth,” George Lagarias, Chief Economist at Mazars Wealth Management said.

The day’s biggest moves came in Switzerland where the SNB raised its policy rate to -0.25% from the -0.75%, a step so large, not a single economist polled by Reuters had predicted it.

The first SNB hike since 2007 is unlikely to be the last, however, and the bank could be out of negative territory this year, some economists said.

“The new inflation forecast shows that further increases in the policy rate may be necessary in the foreseeable future,” SNB Chairman Thomas Jordan told a news conference.

The Swiss franc jumped almost 1.8% against the euro on the decision and was headed for the biggest daily rise since January 2015 when the SNB unhooked the franc from its euro peg.

TIGHTROPE

In London, the Bank of England was more cautious but said it was ready to act “forcefully” to stamp out dangers posed by an inflation rate heading above 11%. read more

It was the fifth time that the BoE has raised borrowing costs since December and the British benchmark rate is now at its highest since January 2009.

Three of nine rate setters however voted for a bigger, 50 basis point increase, suggesting that the bank will be under pressure to keep raising rates, even as economic growth slows sharply.

“Central bankers are teetering along a tightrope, with the biggest concern that raising rates too quickly could tip economies into recession,” Maike Currie, Investment Director for Personal Investing at Fidelity International said.

“Monetary policy tightening is a very blunt tool to manage a very precarious situation.”

Despite the hike, sterling fell sharply as some in the market had bet on a bigger move given the Fed’s 75 basis points hike the previous evening. The weaker currency, however, means higher imported inflation and further pressure to raise rates. read more

The pound was last at $1.2085 against the dollar, down three quarters of a percent on the day.

In Budapest meanwhile, the Hungarian central bank unexpectedly raised its one-week deposit rate by 50 basis points to 7.25% at a weekly tender, also to tame stubbornly rising inflation now running in double-digits.

Barnabas Virag, the bank’s deputy governor said the increase far was from the last and the bank would continue its rate hike cycle with “predictable and decisive” steps until it sees signs that inflation is peaking, probably in the autumn.

The hike also comes as the nation’s currency has lost close to 7% of its value this year, increasing inflation further via higher import prices.

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Writing by Balazs Koranyi in Frankfurt; Additional reporting by William Schomberg in London, Krisztina Than in Budapest, Mike Shields and Silke Koltrowitz in Zurich; Editing by Toby Chopra

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Central banks opt for shock and awe to tame inflation

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The exterior of the Marriner S. Eccles Federal Reserve Board Building is seen in Washington, D.C., U.S., June 14, 2022. REUTERS/Sarah Silbiger

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LONDON, June 17 (Reuters) – The Federal Reserve this week delivered its biggest interest rate rise in over a quarter of a century and even the Swiss National Bank took markets by surprise with an aggressive rate hike.

It leaves the Bank of Japan the only major developed world central bank still clinging to the inflation-is-transitory mantra.

Here’s a look at where policymakers stand in the race to contain red-hot inflation.

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Reuters Graphics Reuters Graphics

1) UNITED STATES

The Federal Reserve vaulted to the top-hawk spot on June 15, raising the target federal funds rate by three quarters of a percentage point to a 1.5%-1.75% range.

It acted days after data showed 8.6% annual U.S. inflation, triggering a market frenzy over potentially even more aggressive responses in the coming months.

The Fed is also reducing its $9 trillion stash of assets accumulated during the pandemic.

Central bank balance sheets are starting to shrink — slowly

2) NEW ZEALAND

The Reserve Bank of New Zealand raised its official cash rate by 50 basis points (bps) to 2% on May 25, a level not seen since 2016. That was its fifth straight rate hike. read more

It projected rates to double to 4% over the coming year and stay there until 2024. New Zealand inflation reached a three-decade high of 6.9% in the year to Q1, versus a 1-3% target.

New Zealand among the most aggressive central banks

3) CANADA

The Bank of Canada delivered a second consecutive 50 bps rate increase to 1.5% on June 1, and said it would “act more forcefully” if needed. read more

With April inflation at 6.8%, Governor Tiff Macklem has not ruled out a 75 bps or larger increase and says rates could go above the 2%-3% neutral range for a period.

Deputy BoC governor Paul Beaudry has warned of “galloping” inflation and markets price an unprecedented third consecutive 50 bps increase in July.

Major central banks are hiking rates

4) BRITAIN

The Bank of England (BoE) raised interest rates by 25 bps on Thursday and pledged to act “forcefully” to stamp out dangers posed by a UK inflation rate heading above 11%. read more

The British benchmark interest rate is now at its highest since January 2009. The BoE has now raised borrowing costs five times since December.

Sterling

5) NORWAY

Norway’s Norges Bank was the first big developed economy to kick off a rate-hiking cycle last year and has raised rates three times since September. It is expected to increase its 0.75% rate again on June 23 and plans seven more moves by end-2023.

6) AUSTRALIA

With the economy recovering smartly and inflation at a 20-year high of 5.1%, the Reserve Bank of Australia (RBA) raised rates by a surprise 50 bps on June 6. It was the RBA’s second straight move after insisting for months policy tightening was way off. read more

Money markets price in another 50 bps rise in July.

7) SWEDEN

Another late-comer to the inflation battle, Sweden’s Riksbank raised rates to 0.25% in April in a quarter-point move. With inflation at 6.4%, versus its 2% target, the Riksbank may now opt for bigger moves.

Having said as recently as February that rates would not rise until 2024, the Riksbank expects to hike two or three more times this year.

8) EURO ZONE

Now firmly in the hawkish camp, and facing record-high inflation, the European Central Bank (ECB) said on June 9 it would end bond-buying on July 1, hike rates by 25 bps that month for the first time since 2011 and again in September.

But without details on a tool to prevent borrowing costs for Southern European nations diverging too much above those of Germany, markets will test the ECB’s resolve.

The bank now plans to accelerate work on a potential new tool to contain so-called bond market fragmentation, and skew proceeds from maturing pandemic-era bond holdings into stressed markets. read more

Euro zone inflation is at record highs

9) SWITZERLAND

On June 16, the Swiss National Bank (SNB) unexpectedly raised its -0.75% interest rate, the world’s lowest, by 50 bps, sending the franc soaring read more .

Recent franc weakness has contributed to driving Swiss inflation towards 14-year highs and SNB governor Thomas Jordan said he no longer sees the franc as highly valued. That has opened the door to bets on more rate hikes; a 100 bps move is now priced for September.

10) JAPAN

That leaves the Bank of Japan (BoJ) as the holdout dove.

On Friday, it maintained ultra-low interest rates and vowed to defend its cap on bond yields with unlimited bond-buying. It holds 10-year yields in a 0%-0.25% range.

BoJ boss Haruhiko Kuroda stressed commitment to maintaining stimulus, warning of risks to the economy from tighter policy read more .

In a nod to yen weakness, Kuroda called its rapid decline to 24-year lows “undesirable” as it heightened uncertainty.

The BoJ may come under political pressure, however, given inflation may exceed the 2% target for the second straight month and elections loom in July. Hedge funds, meanwhile, are betting it can’t keep up huge bond-buying for ever.

Japan keeps yield curve control, but pressure for change is building
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Reporting by Sujata Rao, Dhara Ranasinghe and Yoruk Bahceli Additional reporting by Tommy Wilkes and Saikat Chatterjee
Editing by Mark Potter

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German Brewers Face ‘Unprecedented’ Beer Bottle Shortage

Stefan Fritsche, who runs a centuries-old German brewery in Neuzelle, near the Polish border, has seen his natural gas bill jump a startling 400 percent over the past year. His electricity bill has increased 300 percent. And he’s paying more for barley than ever before.

But the soaring inflation for energy and grains in the wake of the Ukraine war is no match for the biggest challenge facing Mr. Fritsche’s brewery, Klosterbrauerei Neuzelle, and others like it across Germany: a severe shortage of beer bottles.

The problem is “unprecedented,” Mr. Fritsche said. “The price of bottles has exploded.”

The issue is not so much a lack of bottles. Germany’s roughly 1,500 breweries have up to four billion returnable glass bottles in circulation — about 48 for every man, woman and child.

recycling, it comes with one major problem: getting people to return their empties.

Dragging a crate — or several — of empty glass bottles back to a store can be a hassle, even if it means getting back the deposit fee. So people tend to let them stack up, in the basements of their homes or on the balconies of their apartments, biding their time until they are running out of either space or spare cash.

“It is deadly for small brewers,” Mr. Fritsche said. The brewery he runs sells 80 percent of its beer in bottles. (In 2003, a recycling law was expanded to focus on reducing waste in the beverage industry, meaning most beer sold for the domestic market is in returnable bottles, not cans.)

annual survey by Kirin, the Japanese brewer. (The United States ranked 17th.) But on the whole, Germans are cutting back. Since the Federal Statistics Office began keeping records in 1993 — a year after Mr. Fritsche’s family took over the brewery in Neuzelle — national consumption of beer has dropped nearly 24 percent, as people embrace a wider diversity of soft drinks.

Lockdowns surrounding the coronavirus over the past two years also contributed to the trend, as bars remained closed and sporting and cultural events were canceled.

The difficult environment makes management of the breweries all the more important. Mr. Fritsche said he had relied for decades on a combination of tradition and creativity.

A willingness to push the boundaries and think around the corner is essential to surviving in a tougher business environment, he said. For example, the brewery has a bottle of its signature product, Schwarzer Abt, or Black Abbot, that has been blessed by Pope Francis. The bottle is now dipped into each fresh batch of Schwarzer Abt.

What helps, too, is taking a long view of the history that comes with running a business founded in 1589, the events that it has witnessed and withstood over time.

“Nazis, Communists, government takeovers — in the past, we’ve had just about everything here,” Mr. Fritsche said. “And we have survived it all. We will get through this as well.”

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Rouble extends losses after rates slashed; Eurobonds in focus

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A picture illustration shows Russian rouble banknotes of various denominations on a table in Warsaw, Poland, January 22, 2016. REUTERS/Kacper Pempel/File Photo

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May 27 (Reuters) – The Russian rouble extended its losses on Friday after plunging in the previous session as the country’s central bank slashed interest rates, signalling more cuts, and the prospect of easing capital controls and a possible sovereign default hammered the currency.

The rouble slumped around 10% to the dollar and euro on Thursday after the central bank lowered its key rate to 11%, the third 300-basis-point cut in a row, as inflation slows from more than 20-year highs. read more

As the rouble continued swinging this way and that on Friday, Prime Minister Mikhail Mishustin said the government wanted to avoid currency volatility, a sign that Moscow is not entirely comfortable with the rouble’s seemingly uncontrollable moves.

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By 1316 GMT, the rouble was 1.3% weaker against the dollar at 66.09, swinging during the session from 64.89 to a more than two-week low of 67.4950. On Wednesday, the rouble had hit its strongest level since February 2018 of 55.80 against the greenback.

Versus the euro, the rouble lost 1.4% to trade at 68.93 , sliding further away from the seven-year high of 57.10 hit on Wednesday.

Propped up by capital controls, the rouble had artificially risen to become the world’s best-performing currency so far this year until this week’s slide. New gas payment terms requiring conversion of foreign currency into roubles and a fall in imports have also helped.

But it has now lost the support of the month-end tax period that usually sees export-focused companies convert foreign currency into roubles to pay local liabilities.

ROUBLE BALANCE

Economy Minister Maxim Reshetnikov said excessive rouble appreciation posed deflation risks, adding to his comments on Thursday that the currency’s strength, which has raised concerns about the negative impact on Russia’s budget revenue from exports, was making Russian goods uncompetitive abroad.

“The rouble has to be within some reasonable limits,” he said.

Reshetnikov, who also praised the central bank’s rate cut hoping it will spur lending activity, has said he expects the mandatory proportion of foreign currency revenue that exporters must convert into roubles to be cut further from 50%.

Market eyes are focused on Russia’s National Settlement Depository (NSD), which has promised to make interest payments on Friday worth $71.25 million and 26.5 million euros ($28.5 million) on two Eurobonds , . read more

That is in spite of Washington deciding against extending a key licence that had allowed Moscow to keep paying bondholders despite the sanctions imposed over its actions in Ukraine, putting Russia on the cusp of a unique kind of debt crisis. read more

Russian stock indexes were falling.

The dollar-denominated RTS index (.IRTS) was down 2.3% at 1,153.9 points. The rouble-based MOEX Russian index (.IMOEX) was 0.2% lower at 2,406.5 points.

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