Bloomberg News - IMF Praises Spain’s Economic Reforms, Warns Against Backtracking

The International Monetary Fund said Spain is seeing the benefit of economic reforms and repeated a warning that backtracking would be a mistake.

In a report published Friday, the Washington-based fund noted the recovery has gathered speed due to a combination of structural reforms, a rebound in consumption and faster job creation. It maintained its forecast for expansion of 3.1 percent this year and 2.5 percent in 2016, outpacing the euro-area average.

“A key risk is a reversal of reforms already carried out, which would create uncertainty and could hamper the recovery,” the IMF said.

Despite the positive environment, the IMF sees persistent structural problems, including “very high” unemployment, low productivity and high levels of debt. It recommended further action on the labor-market and, noting that budgetary efforts have lost pace, said credible fiscal consolidation must be maintained.

“Acting while economic activity is strong and monetary policy is very supportive will make these measures easier to implement and add to their effectiveness,” the fund said.

Spain is due to hold a general election before the end of the year, pitting Prime Minister Mariano Rajoy’s People’s Party against the Socialists and the anti-austerity Podemos. Pegging its re-election hopes to the economy, the government has vowed to continue cutting taxes and unemployment while keeping public debt under control.

Recent polls showed the PP extending its lead as support for Podemos slipped, but remaining short of a majority.

by  Maria Tadeo

BBC News - China allows yuan currency to drop for third day

The lower yuan is likely to help Chinese exports

China has set the guiding rate for its yuan currency lower for a third consecutive day.

But Thursday's rate of 1% down against the dollar was a smaller margin than the shock cuts earlier in the week.

The bank had on Tuesday announced it would start setting the daily rate based partly on the previous day's trading, bringing the yuan closer to a free-floating currency.

The move triggered concerns over a currency war to boost China's exports.

Recent economic data had seen a decline in Chinese exports, adding to the worries that the world's second largest economy was headed for a prolonged slowdown.

A weaker yuan will make products cheaper abroad, meaning Chinese companies are more competitive on international markets.

The Thursday midpoint rate set by the People's Bank of China (PBOC) - the central bank - was 6.4010 yuan for $1, a 1.1% rise from the previous day's 6.3306.

The midpoint is a guiding rate, from which trade can rise or fall 2% during the day.

The national lender again tried to calm concerns over the direction of the yuan, repeating Wednesday's assertion that there was no basis for further depreciation given strong economic fundamentals.

It said the country's strong economic environment, sustained trade surplus, sound fiscal position and deep foreign exchange reserves provided "strong support" to the exchange rate.

But in light of the weak economic data and Tuesday's policy change to set the daily midpoint based on the previous day's trading, market forces could well pull the currency even lower in the next days.

Should the yuan trade in the lower end of its 2% margin below the midpoint, the central bank would likely lower its reference rate once again on Friday.

Reuters News - Greece and lenders agree bailout, shares rally

Greek Prime Minister Alexis Tsipras attends a meeting at the Agriculture Ministry in central Athens, Greece, August 5, 2015.

REUTERS/YIANNIS KOURTOGLOU

ATHENS | BY GEORGE GEORGIOPOULOS AND MICHELE KAMBAS

Greece and its international lenders reached an 85 billion euro bailout agreement on Tuesday after nailing down the terms of new loans needed to save the country from financial ruin.

The deal, which came after 23 hours of talks that continued through the night, must still be adopted by Greece's parliament and by euro zone countries.

The currency bloc's finance ministers are expected to give their approval on Friday in time for Greece to make a crucial 3.2 billion euro debt repayment that falls due next week.

Greek shares rallied, with the banking index climbing 3 percent, while the government's two-year borrowing costs fell to a five-month low.

The agreement gives Greece some respite after a turbulent year marked by acrimonious talks with lenders, the imposition of capital controls and a three-week shutdown of its banks before Athens capitulated last month to creditors' demands for deep austerity measures in order to receive new loans.

But the deal has caused a rebellion within Prime Minister Alexis Tsipras's Syriza party, forcing him to rely on opposition support in parliament and raising talk of early elections in the autumn.

Tsipras wants parliament to approve the deal by Thursday, before the euro zone finance ministers reconvene. This would pave the way for aid disbursements by Aug. 20, when a 3.2 billion euro debt payment is due to the European Central Bank.

But he could face an obstacle from Parliament Speaker Zoe Constantopoulou, one of the creditors' fiercest critics, who may delay a parliamentary committee expected on Wednesday till Thursday, potentially pushing back the vote, Mega TV reported.

Doubts remain about whether a leftist government elected on a pledge to reverse austerity can implement the punishing terms of a deal critics say compromises the left's basic principles.

"It is a very tough deal. The left had to either escape or take huge responsibilities and prove it can help society," Health Minister Panagiotis Kouroublis told local radio, calling for snap elections to lock in popular support.

RELATED COVERAGE

• › Berlin says Merkel, Tsipras spoke over phone on Tuesday

"After this deal the prime minister should call for elections, so that the Greek people can vote on whether they approve the program or want something else," he said.

The European Commission confirmed a deal had been struck at a technical level and that political assessment would follow.

Euro zone finance ministry officials taking part in the so-called 'euro working group' agreed to recommend approval of the bailout when euro zone finance ministers meet on Friday, a source at the Italian Treasury said.

Still, officials in skeptical northern European countries remained cautious, pending final approval of the deal.

"ONE STEP AT A TIME"

"There remains work to be done with details," said Finnish Finance Minister Alexander Stubb. "We must take one step at a time. Agreement is a big word."

European Commission President Jean-Claude Juncker was due to hold talks later on Tuesday with German Chancellor Angela Merkel and French President Francois Hollande.

Misgivings about giving yet more money to Athens run deep in Germany, the euro zone country that has contributed most to Greece's two bailouts since 2010.

German Deputy Finance Minister Jens Spahn told Reuters the deal should be able to stand for the next few years rather just a few months.

RELATED COVERAGE

• › Greek PM seeks parliament approval of bailout by Thursday
• › FACT BOX: Reforms Greece must make for its bailout

Approval of the agreement would close a painful chapter for Greece, which resisted the austerity terms demanded by creditors for much of the year before relenting under threat of being bounced out of the euro zone.

After a deal in principle last month, talks began in Athens three weeks ago to craft an agreement covering details of reform measures, the timeline for their implementation and the amount of aid needed.

A Greek Finance Ministry official said the pact would be worth up to 85 billion euros ($94 billion) in fresh loans over three years. Greek banks would get 10 billion euros immediately and would be recapitalized by the end of the year.

An EU diplomat said the agreement was worth between 82 billion and 85 billion euros.

The latest round of talks with inspectors from four creditor institutions -- the European Commission, European Central Bank, the European bailout fund and the International Monetary Fund -- progressed smoothly, in contrast to the bad-tempered encounters of earlier in the year.

In talks that dragged through Monday night, the sides agreed on the three main sticking points - dealing with non-performing loans held by banks, setting up an asset sales fund, and deregulation of the natural gas market.

The talks also agreed on final fiscal targets that should govern the bailout effort, aiming for a primary budget surplus -- which excludes interest payments -- from 2016, a government official said.

($1 = 0.9074 euros)

(Additional reporting by Karolina Tagaris and Lefteris Papadimas in Athens, Giselda Vagnoni in Rome; Writing by Michele Kambas and Deepa Babington; Editing by Giles Elgood and Gareth Jones)

Reuters News - China central bank devalues the yuan after poor economic data

An employee seals a stack of yuan banknotes at a branch of Industrial and Commercial Bank of China in Huaibei, Anhui province April 6, 2011.

REUTERS/STRINGER

China devalued the yuan on Tuesday after a run of poor economic data, guiding the currency to its lowest point in almost three years in a move it billed as free-market reform.

The central bank described it as a "one-off depreciation" of nearly 2 percent, based on a new way of managing the exchange rate that better reflected market forces, but economists said the timing suggested it was also aimed at helping exporters.

Data released at the weekend showed that China's exports tumbled 8.3 percent in July, hit by weaker demand from three huge trading partners - Europe, the United States and Japan.

"We think the move is aimed to ease pressure on China's weak exports performance in recent months and relieve imported deflation pressure," said Guo Lei, economist at Founder Securities in Shanghai.

The world's second-largest economy has slowed markedly this year and some economists believe it is expanding at much less than the official 2015 target of 7 percent. Even if it meets the target, growth will come in at a 25-year low.

"Since China's trade in goods continues to post relatively large surpluses, the yuan's real effective exchange rate is still relatively strong versus various global currencies, and is deviating from market expectations," the central bank said.

"Therefore, it is necessary to further improve the yuan's midpoint pricing to meet the needs of the market."

China manages the exchange rate CNY=CFXS through an official midpoint, from which it can vary 2 percent each day. On Tuesday, the People's Bank of China (PBOC) said it was now basing the midpoint CNY=SAEC on market makers' quotes and the previous day's closing price.

The bank then weakened the midpoint to 6.2298 per dollar on Tuesday morning, compared with Monday's 6.1162 fix - the biggest-ever one-day adjustment to the midpoint.

In the past, the central bank set the midpoint using formula based on a basket of currencies, but the methodology has never been publicized and many believed that in practice the midpoint was frequently used as a way to bend the market to policy goals.

Under the new method, market forces would have more ability to take the yuan lower in the weeks ahead, raising the possibility of competitive currency depreciations world-wide.

However, Beijing would still have a large say in setting the new midpoints, given the heavy influence of state banks in daily trade of the yuan.

GLOBAL CURRENCY JITTERS

The Australian dollar AUD=D4 lost 1 percent against the dollar on China's devaluation, and the South Korean won also lost ground, though traders suspected authorities in Seoul were selling dollars to smooth that currency's fall. [USD/]

But talk of a global currency war was mooted.

"What is really important is for markets to observe where the renminbi really goes over the next few days to see whether this is indeed a one-off adjustment or a sustained trend," said Vishnu Varathan, economist with Mizuho Bank in Singapore.

Tuesday's move marks a retreat from China's strong-yuan policy, which had been designed to support domestic demand, help Chinese firms to borrow and invest abroad, and encourage foreign firms and governments to make greater use of the currency.

Until Tuesday, yuan volatility had vanished and traders suspected that the PBOC, with state-owned banks, had been propping up the currency against depreciation pressure.

It had been locked in an extremely narrow intraday range since March, with rates varying over a range of only 0.3 percent. On Tuesday, the spot yuan price touched its weakest point since September 2012 in early trade.

In addition to the weak export data, China also reported a continuing slide in producer prices at the weekend to a near six-year low in July, increasing the pressure on manufacturers.

However, one economist doubted Beijing was reacting only to the weak data and said the move was part of its reform agenda to help the yuan become an international reserve currency.

"I don't think this is a reaction to the weak trade data over the weekend, I think it's because of the SDR," said Zhou Hao of Commerzbank AG in Singapore, referring to Beijing's push for the yuan to be included in a basket of reserve currencies known as Special Drawing Rights (SDR), which are used by the International Monetary Fund to lend money to sovereign borrowers.

The Chinese government "needs to have a market-based mechanism and it needs volatility," he said.

The IMF proposed in a report this month to put off any move to add the yuan to its benchmark currency basket until after September 2016, and it gave mixed reviews of Beijing's progress in making key financial reforms to its currency market.

(Additional reporting by Samuel Shen and Kazunori Takada in SHANGHAI and Vidya Ranganathan in SINGAPORE; Editing by Mark Bendeich and Richard Borsuk)

BBC News - UK interest rates still at record low

UK interest rates have been held at 0.5% again by the Bank of England's Monetary Policy Committee.

The UK's bond-buying programme is also frozen at £375bn.

MPC members voted 8-1 to keep rates on hold, with only Ian McCafferty voting to raise rates.

The decision marks the 78th consecutive month of record-low interest rates. In its report, it said the outlook for inflation was "muted".

BBC News - Global economic growth to slow, NIESR predicts

Global economic growth will slow this year to the lowest rate since the financial crisis, according to the National Institute of Economic and Social Research (NIESR).

NIESR identifies the Greek economy as a key risk to global growth

The think tank cut its 2015 forecast to 3.0% from the 3.2% it predicted in May.

It has cut growth forecasts for the US and many emerging market economies, although its forecast for the eurozone has only been cut slightly.

Its growth forecast for the UK economy was unchanged at 2.5%.

The full-year growth prediction for the UK remained unchanged despite the NIESR cutting its growth estimate for the three months to the end of September from 0.8% to 0.4%.

NIESR identifies the Greek economy as a key risk to global growth. Its forecast is based on the assumption that there will be "large-scale debt relief" for Greece, which is currently far from certain.

It says that the latest Greek crisis has revived doubts about whether the eurozone currency union can succeed without greater integration.

The NIESR also says that the slowdown in China may threaten its forecast, with official figures predicting growth of 7%, while some analysis suggests growth of 3% is more likely.

'Domestic risk'

While NIESR was generally upbeat about the UK economy, it believed that weak productivity would remain a challenge.

Simon Kirby, an economist at the institute, said: "It's the major domestic risk."

NIESR expects inflation to remain about zero until the end of the year due to low oil prices and the strong pound, but that it will return to the Bank of England's target of about 2% a year by 2017.

Mr Kirby said the rise in the value of sterling and a fall in oil prices would be temporary.

The think-tank expects the Bank of England to finally raise interest rates in February next year.

Economists polled by Reuters last month mostly expect the Bank to raise rates in the first quarter of 2016.

The Bank's Monetary Policy Committee (MPC) is expected to leave rates unchanged at its meeting this week.

However, there is expected to be a split among MPC policymakers for the first time this year on the need to raise borrowing costs immediately.

Bloomberg 'News - In Cash-Starved Greece, Plastic Casts Light Into Shadow Economy

Greece’s banking crisis is having at least one positive outcome, and it’s made of plastic.

In a country where cash is king and undeclared transactions still make up about a quarter of the economy, about 1 million debit cards have been issued by banks since the government closed lenders for three weeks and imposed controls on euro bills. Emergency measures that some officials warned might spur the black market are showing signs of doing the opposite.

Alpha Bank SA issued about 220,000 cards in July, more than all of last year, as mainly pensioners realized that they had to access their money at cash machines and elsewhere, said Leonidas Kasoumis, general manager for household lending. Supermarket and gasoline sales paid by debit cards doubled in the wake of controls; usage in the countryside tripled, he said.

“Capital controls were a big trigger,” Kasoumis said. “It’s good for merchants, because cash is limited; it’s good for banks because it reduces operational costs. But the best news is for the economy.”

The restrictions on cash were introduced in late June as banks hemorrhaged money and were kept alive by a drip-feed from the European Central Bank. Greeks can withdraw 420 euros ($460) a week, though there’s no limit on spending with debit cards provided the transaction is within the country.

Collecting Taxes

What’s occurred is a shift that’s unprecedented for a country with the smallest number of electronic payments per head in the European Union, according to ECB figures.

The cash culture contributed to the country’s poor record in curbing the shadow economy and collecting taxes, one of the reasons that led Greece to seek its first bailout from its euro area partners and the International Monetary Fund in 2010.

Until last month, the vast majority of Greek pensioners didn’t even have a cash card, which led to the scenes in July of elderly Greeks lining up in despair outside banks

The increase in cards coming into circulation will help combat that, as more buying and selling of goods and services goes through the books, according to Theodore Kalantonis, deputy chief executive officer for retail banking at Eurobank Ergasias SA. Until now, payments on plastic accounted for 6 percent of the total, one of the lowest rates in Europe, he said.

Demand from businesses for card payment systems has surged, even from non-traditional customers such as dentists and doctors, according to Kalantonis.

Visa Cards

The largest bank, National Bank of Greece SA, issued more than 400,000 debit cards during the last four weeks.

The number of active Visa debit cards in Greece more than doubled in July from previous months, said Nikos Kabanopoulos, the country manager for Visa Europe.

The company, which processes almost 60 percent of Greek point-of-sale card payments, saw a 135 percent increase in card transactions in the two weeks immediately after the capital controls were imposed, Kabanopoulos said. In 2014, spending on Visa cards was 1 euro for every 37 euros compared to 1 euro for 6 euros in Europe as a whole, he said.

Until last month, the vast majority of Greek pensioners didn’t even have a cash card, which led to the scenes in July of elderly Greeks lining up in despair outside banks to get their pensions when the banks were shut down.

Now, the scenes are more likely to be that of family members helping the new cardholders.

More people have been asking to pay by card at the café where Alexandros Papadakis works at in central Athens since the controls were imposed. The establishment is looking into getting a system installed, the 31-year-old said.

“I hope it becomes a habit among all Greeks,” he said.

by Maria Petrakis