Tag: delta

‘Govts must accept what they don’t do well, like banking’, BFSI News, ET BFSI

Banking & Finance

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NEW DELHI: JP Morgan’s longest serving CEO Jamie Dimon is a regular visitor to India where his firm has 40,000 employees, most of them doing global work.

Since the pandemic, he is back on the road and has made a couple of trips to Europe and is hoping to visit India in six to nine months. In an online interview with TOI, he shared his assessment of the global economic situation and India. Excerpts:

How do you see the state of the US economy, particularly in light of (US treasury secretary) Janet Yellen’s statements, saying that there is a risk of default?

In the US, the Delta variant is kind of a wet blanket, but the economy is doing quite well. The rest of this year is going to grow something like 5-6%. The table is set rather well, consumers are in very good shape, they have a lot of extra cash, they have paid down debt.

Usually, when debt gets paid down, it’s a sign of a recession. This is more a sign of the pump being primed. The spend today is 20% over what it was pre-Covid. Travel is coming back up, albeit slower. Even if they spend at this level, confidence is going up equally.

Companies are in very good shape. There is a lot of cash and a lot of capability. Capex is starting to go up again, because of the demand. The debt ceiling — we’ve had this before. It’s irresponsible on our part to even get close to it. No one assumes there will be a default. If we did, that would be bad, but I think they’ll get over that.

So you don’t see any risks right now?

There are always risks, but people sometimes overestimate the risk just like sometimes they underestimate them. Geopolitics has always been a risk. The biggest geopolitical risk today is China. But that won’t necessarily derail the economy. And while we are coming out of the Delta variant, if you have another deadly variant, all bets are off on that one. So, hopefully, that won’t happen.

Which are the economies you’re bullish on? How do you look at China the way things are unfolding there?

America is coming out of it…pretty good growth, which can go on for a while. I think Europe is probably six months behind us. For the rest of the world, you really can’t put it in one category because every country is different. But in general, the more developed markets look okay. China’s growth has slowed. But the real issue with China is people got to look a little bit more long-term, and they do a pretty good job managing their economy.

The big fear in the market is inflation and the withdrawal of all the liquidity that is floating around…

It is a legitimate concern. The world has embarked on massive amounts of quantitative easing and fiscal stimulus. They are powerful drugs into the system and drive growth in slightly different ways. We need growth. Growth is the antidote for everything. Inflation is probably a transitory piece. It is currently 3.5% or 4% and as they start to taper, you’ll read about it. It’ll be November, December, January, based upon the Delta variant.

But if that happens, and inflation goes up, long rates will go to 3% or 3.5% over the next 18 months or so, we’ll be fine. Growth is far more important than that inflationary number or bond rates going up. The stock market anticipates healthy growth and earnings.

The bond market may not anticipate that, and that may be because the flows of money and liquidity are so high — it’s like a tsunami coming over them. So, I expect rates to go up. I’ve been wrong on that one before. But we’ll see.

Have your plans for India changed after Covid?

Absolutely not. India has a great long-term growth capability. And how good that growth will be, will be predicated upon the seriousness and detail of your policies and the implementation of policies.

JPMorgan invests for the long run. The bankruptcy code, taxes and reducing bureaucracy & building infrastructure and privatising are critical to growth. I still say that India has great long-term potential. We have 40,000 employees and we have built massive centres.

We just finished one in Hyderabad, which will eventually have 8,000 people. The policy you implement over the next 10 or 20 years will determine the growth rate. A healthy rate of growth is good for all your citizens.

The Indian government has announced a very ambitious asset monetisation and divestment programme that needs about $80 billion. Do you think there’s an absorption capacity for this?

I do. It’s not the money, per se, it’s the regulations. It is the transparency, the ability to buy and sell freely. it is the consistency of law. It makes a lot of sense to sell a lot of assets. Governments should acknowledge the things they don’t do well. Like banking. If you start making loans for political purposes, they will be bad loans. I’m optimistic because your government has generally tried to do the right things, and this is one of them. India could attract a lot more foreign direct investment, if it does a lot of things properly around financial market transparency, international banks, etc.

Bank privatisation is part of the agenda for the first time. How do you see this?

It relates to what rules are imposed upon those banks. Can you operate them properly? Do you have constraints? It’s not just privatisation. Transparency, rule of law, ability to operate governance, accounting, all those various things — if they do it right, you could have very vibrant banks.

People tend to think that’s just good for the wealthy. But it’s really good for the lower-income, jobs and wages go up with healthy economies. And then you can also afford a lot more social programmes. I’m very supportive of ways in raising minimum wages in the US, but if you don’t do it wisely, it will be worse in the long run.

There’s a debate happening here on bitcoins and cryptocurrencies, whether they should be banned or regulated… How do you view this?

I don’t really care about bitcoin. I think people waste too much time and breath on it. But it is going to be regulated. Governments regulate just about everything. I don’t know if it’s an asset. I don’t know if it’s foreign exchange. I don’t know if it’s a currency. I don’t know if it’s the securities laws, but they’re going to do it. And that will constrain it to some extent. But whether it eliminates it, I have no idea and I don’t personally care. I am not a buyer of bitcoin. I think if you borrow money to buy bitcoin, you’re a fool.

That does not mean it can’t go 10 times in price in the next five years. But I don’t care about that. I learned a long time ago figure out what you want, do what you want and be successful yourself. I remember when beanie babies were selling for $2,000 a pop. We all know about tulip bulbs. We all know about internet stocks. Speculation happens in every market around the world, including in communist countries. So, I don’t know why there is a surprise with a lot of speculation, particularly when there’s as much liquidity in the system.



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Central banks’ shift from crisis policies gathers momentum, BFSI News, ET BFSI

Banking & Finance

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While the financial world waits for the Federal Reserve to start reversing its ultra-loose policy stance, recent moves by a clutch of other central banks signal the days of pandemic-era accommodation are already numbered even as COVID-19 continues to impede smooth economic recoveries around the world.

South Korea’s central bank on Thursday raised its benchmark interest rate by a quarter of a percentage point to blunt rising financial stability risks posed by a surge in household debt, becoming the first major monetary authority in Asia to do so since the coronavirus broadsided the global economy 18 months ago.

Even before the rate hike in South Korea, though, central banks in Latin America and eastern and central Europe had begun lifting interest rates this year to beat back inflation that is building on the back of currency fluctuations, global supply chain bottlenecks and regional labor shortages.

And larger-economy central banks also are getting into the swing. The Bank of Canada has already cut back on its bond purchases and could proceed to raise borrowing costs in 2022, and the Reserve Bank of New Zealand (RBNZ) is expected to lift rates by the end of this year despite balking at an expected hike last week in the face of a snap COVID-19 lockdown.

For its part, the Fed is lumbering toward tapering its $120 billion in monthly asset purchases, with an announcement expected before the end of 2021, possibly as early as next month. An actual US interest rate increase is likely a year or more away, however.

Fed Chair Jerome Powell is set to speak later on Friday on the economic outlook at the US central bank’s annual Jackson Hole summer research conference, which is being held virtually for the second year in a row. His remarks may color expectations at the margin for when the Fed makes its move but are not likely to offer any concrete signal.

THE DIFFERENCE A YEAR MAKES
When Powell spoke at last year’s conference – unveiling a new policy framework that is just starting to be tested – fewer than half of the 22 million US jobs lost to coronavirus shutdowns in the spring of 2020 had been recovered and inflation was running at half the Fed’s 2% target rate. The outlook outside the United States was no less bleak, with lockdowns still widespread.

The situation in the United States and other economies could hardly be more different a year later.

The US economy has more than fully recouped all of its lost output, roughly 9 million more jobs have been regained and inflation is well above target. Elsewhere, most of the world’s economies are back squarely in growth mode, albeit unevenly so in many cases as COVID-19 outbreaks fueled by the highly contagious Delta variant trigger localized lockdowns.

In South Korea, the economy grew 5.9% on a year-over-year basis in the second quarter, the fastest pace in a decade , and young people are bingeing on debt and kindling financial stability concerns at the Bank of Korea. The export-reliant Asian nation’s key factory sector expanded in July for a 10th straight month, even as the Delta variant crimped manufacturing output for rivals like China, Vietnam and Malaysia.

Central Europe’s recovery also accelerated in the second quarter as lockdowns in the region eased. The improvement – along with an upswing in inflation – has already spurred the Czech and Hungarian central banks to raise interest rates twice this summer, the first increases across the European Union. Both are expected to deliver more tightening, and Czech officials are debating if they need to deliver more than the standard quarter-percentage point increase.

While the earliest movers have been emerging market countries where inflation is often aggravated by movements in choppy currency markets, the gears of tightening are also starting to move in top-tier economies.

The RBNZ opted not to raise rates last week because of the messaging complications that would have arisen from such a move alongside a hastily-called lockdown after the island nation reported its first local COVID-19 infection in six months. Central bank officials, however, appear determined to get a rate hike in before the year runs out.

Meanwhile, Norway’s central bank is signaling it will not veer from its plan for its first rate hike next month despite a recent rise in infections, putting it on course to be the first of the Group of 10 (G10) developed economies to raise borrowing costs.

“In the committee’s current assessment of the outlook and balance of risks, the policy rate will most likely be raised in September,” Norges Bank Governor Oeystein Olsen said in a statement last week.

While the Fed and several other G10 banks now appear on course to start reducing their pandemic accommodation measures this year, tightening moves by the Fed’s two largest peers – the European Central Bank and Bank of Japan – look much further off.

Still, that doesn’t mean they don’t see some improvement in conditions even as the Delta variant spreads.

Japan was among the Asian economies to experience factory sector growth last month even as COVID-19 cases hit a record high. And a key ECB policymaker sees only a limited headwind to the euro zone’s recovery due to the variant.

“I would say we’re broadly not too far away from what we expected in June for the full year,” Philip Lane, the ECB’s chief economist, told Reuters on Wednesday. “It’s a reasonably well-balanced picture.”



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