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FILE PHOTO: Bank of Canada Governor Tiff Macklem takes part in a news conference after announcing an interest rate decision in Ottawa, Ontario, Canada April 12, 2023.
No rate cut just yet
The Bank of Canada held interest rates steady at 5% for the fourth time in a row on Wednesday, signaling that cuts may be coming, as analysts expect, in the spring. The bank is now focused on “how long it needs to stay at the current level,” Bank of Canada Governor Tiff Macklem said.
In the United States, investors are waiting to see what the Fed does next week when policymakers meet. Some investors have warned that a hot stock market could cause the Federal Reserve to keep rates higher for longer than expected.
Both Joe Biden and Justin Trudeau will be hoping that inflation continues to slow, stabilizing consumer prices and allowing central bankers in both countries to stop restricting the supply of money before voters go to the polls again.
Chinese Yuan banknotes are seen behind illuminated stock graph in this illustration taken February 10, 2020.
China takes on a trillion yuan debt
On Tuesday, China approved a 1 trillion yuan ($167 billion) increase in sovereign debt in a rare midyear budget reassessment as sluggish growth and local governments’ lopsided balance sheets pose major challenges for Beijing.
Half the money will be spent before the end of 2023, mostly on infrastructure projects related to flood mitigation and drainage. That might seem highly specific, and not necessarily the kind of investment that spurs economic growth, but it advances both the political and economic interests of Chinese President Xi Jinping, according to Lauren Gloudeman, Eurasia Group’s director for China.
Flooding hit China hard this year, particularly in the northeast, and cash-strapped local governments were on the hook for the damage, aggravating their extensive debt problems. The damage to agriculture also jeopardized China’s food security — a red line for Beijing — leading Xi to chair a Politburo Standing Committee meeting in August on flood control and reconstruction.
While the debt issuance is likely to help Beijing meet its growth targets, Gloudeman said the decision is not oriented toward kick-starting the economy per se.
“It’s about trying to put a floor under how bad growth could be,” she said “The government is looking ahead to the first quarter of 2024 and realizing, ‘Growth is probably gonna slow down, and we need to be prepared with some spending to ensure that some economic activity is happening.’”