Interest Rates Archives

The European Central Bank Cuts Interest Rates March 2025

Written by IntaCapital Swiss on March 10, 2025. Posted in News & Reports. Leave a Comment

On Thursday 6^th March 2025 and for the sixth time since June 2024, the ECB (European Central Bank) cut interest rates by a ¼ of 1% (25 basis points) to 2.5%. The ECB’s Governing Council released a statement saying, “The disinflation process is well on track, inflation has continued to develop broadly as staff expected, and the latest projections closely align with the previous inflation outlook”. The vote by the governing council was unopposed except for Austria’s Robert Holzmann who abstained. The ECB now sees inflation averaging 2.3% in 2025, 1.9% in 2026, and 2.0% in 2027.

Experts suggest that the ECB’s thoughts on interest rates is not as clear cut as it was a few weeks ago as there is increased geopolitical uncertainty plus a large fiscal stimulus looming large on the horizon. As President Trump withdraws backing for Ukraine, the President of the European Union, Ursula von der Leyen, suggested that the funds needed to rearm Europe could easily reach as much as Euros 800 Billion. Experts suggest that such an outlay could well have implications for economic expansion, and inflation.

The President of the ECB noted that the risk to economic expansion was still leaning towards the downside. However, the President pointed out that increased defence spending should give the economy a lift after President Trump turned against Europe and Ukraine leaving the Europeans to drive forward their own defence and that of the Ukraine. The President also went on to say that the ECB would be even more data-dependent and said that they would pause quantitative easing should the data/numbers suggested that was needed in order to hit their inflation target of 2%.

At their next policy meeting in April, it would appear that bank officials are heading for a showdown over interest rate cuts and are preparing for some difficult negotiations. Interestingly, the doves on the governing council appear to see little reason to pause, whilst the hawks feel they should hold interest rates to study the implications of increased European defence spending and the on-going up-coming geopolitical risks.

Experts suggest the financial markets are also undecided with traders and investors feeling that the upcoming defence outlays will fan inflation and push economic expansion. One financial expert said that in the Euro bloc there is an expectation of higher growth rates and a slowdown in the disinflationary process. This will reduce the scope for further interest rate cuts at the next meeting of the ECB in April and the rhetoric of President Lagarde shows she is sitting on the fence as to whether or not there will in fact be an interest rate cut. There is also the spectre of tariffs from President Trump which undoubtedly clouds the thinking of officials.

Reserve Bank of India cuts Interest Rates for the First Time in Five Years

Written by IntaCapital Swiss on February 19, 2025. Posted in News & Reports. Leave a Comment

On Friday 7^th February 2025, the Central Bank of India, the RBI (Reserve Bank of India), for the first time in five years cut its key policy rate by 25 basis points to 6.25%. Officials advised that the decision was unanimous and that the interest rate cut was in response to a downturn in the highest populated country in the world, and to shore up economic growth. The bank further advised that it was going to be proactive with liquidity measures given the banking system has had negative liquidity for the last two months.

Experts on the Indian economy suggested that the effect of the interest rate cut will be felt mainly by new loans and on those floating rate loans that are linked to external benchmarks such as SMEs (small and medium enterprises) and in the housing sector. Elsewhere, analysts predict the interest rate cut will have a negative effect on NIMS (net interest margins being the difference between interest paid and interest earned), in the NBFI* (Nonbank Financial Institution) arena. It is suggested that NIMS will come under pressure in areas where there is direct competition with banks such as the commercial loans or near-prime urban housing/ affordable housing sectors.

*NBFI – A nonbank financial institution does not have a full banking licence and cannot accept deposits from the public. A NBFI is not regulated by the government and are therefore not subject to the same laws and regulations as banks.

The rate cut comes on the heels of an injection into the domestic banking system by the RBI of USD18 Billion in an effort to ease a cash shortage in the economy and the February 1^st, 2025, Union Budget where struggling middle classes received a tax cut of USD12 Billion. The governor of the RBI Sanjay Malhotra was quoted as saying “ the bank was keeping its policy stance neutral” with markets interpreting this statement as opening more pace for economic growth thereby signalling further rate cuts of 50 basis points to a full 1% in 2025.

Some economists predict that in Q4 2025 inflation will remain steady at 4.4% rising to 4.6% in Q1 2026, however it is estimated that from Q2 onwards inflationary pressures are expected to ease. This is the first rate cut by the RBI since the Covid-19 Pandemic crisis which is indicating a more dovish stance by the bank. This is possibly the main reason why Governor Malhotra was elected in December 2024 ousting his more hawkish predecessor Governor Shaktikanta Das, depriving him of a third term. Experts suggest that this was perhaps an intervention by Prime Minister Narendra Modi, who had decided the cost of borrowing had remained too high over a substantial period.

Sadly for the RBI, their current and future policies (like a number of countries around the world) may be somewhat stymied by the tariff policies of the US President Donald Trump. The Indian Rupee is trading close to record lows, there are record outflows by foreign investors, plus and further geopolitical and economic headwinds could see further complications for the Central Bank and government economic policy.

Bank of England Cuts Interest March 2025

Written by IntaCapital Swiss on February 10, 2025. Posted in News & Reports. Leave a Comment

On Thursday 7^th February 2025 the BOE (Bank Of England) cut interest rates by 25 basis from 4.75% to 4.5% with the MPC (Monetary Policy Committee) voting 7 to 2 in favour of the cut. The two dissenting external policymakers Swati Dhingra and Catherina Mann (she has been the most hawkish member of the MPC), voted for a full ½% or 50 basis point cut, whilst the remaining members voted for the smaller cut. The signals coming out of Threadneedle Street were that of a more careful and gradual approach to future rate cuts with suggestions they needed only two more rate reductions to reach their benchmark target of 2% inflation.

However, in yet another blow to the somewhat beleaguered Chancellor Of the Exchequer the BOE has halved its projections for growth in 2025 to 0.75% citing the impact of the 2024 Autumn Budget, which will reflect weaker consumer and business sentiment and increased sluggishness in growth. In further bad news for the Chancellor, policymakers advised the possibility of a stagnating economy and rising unemployment thanks to a GBP40 billion tax raid that will hit the lower paid workers the hardest. If that was not enough, the BOE also advised that later this year inflation will rise to 3.7% compared with the projection of 2.8%.

Due to these latest projections the Chairman of the Bank of England reaffirmed “The importance of taking a gradual approach to the withdrawal of monetary policy restrictiveness”. Despite the short-term increase in inflation policymakers still anticipate two further reductions in interest rates though financial markets have, according to experts,factored in three rate cuts for 2025. Yet despite on-going inflationary pressures, comments from the MPC suggest a deteriorating job market and weakening growth means inflation should recede in the future but it won’t be until 2027 that the benchmark target figure of 2% will be reached.

The economic outlook is now worse for the United Kingdom since the last full set of figures were announced by the BOE in November 2024. Analysts advise if the forecasts coming out of Threadneedle street if taken at face value suggest that in 2025 there is only room for one rate cut, but as mentioned above the financial markets have taken a differing view. Elsewhere the pound plunged 1.1% against the US Dollar to $1.237 however, by the end of the day it had recovered by 0.6% to trade at $1.244 and against the Euro the pound fell to around 83.74 pence compared to earlier trading of 83.40 pence.

Finally, when asked if the word “careful” which has been added to the BOE’s core guidance for rate cuts in the future reflected uncertainties and questions with regard to the global economy, Chairman Bailey “We live in an uncertain world, and the road ahead will have bumps”. A cautious answer, but perhaps a finger pointed at President Trump and his potential tariffs leading to a trade war.

The European Central Bank Cuts Interest Rates January 2025

Written by IntaCapital Swiss on February 3, 2025. Posted in News & Reports, Uncategorized. Leave a Comment

For the fifth time since June 2024 on January 30^th, 2025, the ECB (European Central Bank) once again cut interest rates to the key deposit rate by 25 basis points to 2.75%. ECB officials announced that they will continue to describe their stance on monetary policy as restrictive, indicating there are further interest rate cuts to come especially as their target inflation of 2% is within reach. Officials went on to say that disinflation is on track, but services inflation remains sticky at 4% but they expect that to come down during the course of 2025.

The President of the ECB Christine Lagarde advised that the vote by the governing council on cutting interest rates was unanimous, however ECB officials reiterated that they were not pre-committing to a particular rate path. President Lagarde followed up on her officials by saying “We know the direction of travel, and for those who would like to have solid forward guidance, it would be totally unrealistic to do anything of that nature, simply because we are facing significant and probably rising uncertainty at the moment”. Experts suggest that statement may well be directed at President Trump and his tariffs and a possible trade war.

Indeed, the major source of uncertainty at the moment is President Donal Trump’s threats of tariffs and the ensuing trade war. It has been noticed by all in the financial world that the United State’s very own Federal Reserve is already limiting rate cuts until they see the outcome of the new administration’s policies. Sadly the eurozone’s economy is currently in the doldrums and a trade war with the United States could well have a negative impact on inflation.

Currently the prospects for the eurozone’s economy are dim, mainly due to the two powerhouses Germany and France who underpin the economy, are both suffering from political and economic turbulence. Indeed, recently released GDP (Gross Domestic Product) figures showed the eurozone unexpectedly stagnating at the end of 2024 and President Lagarde was noted as saying “Europe’s economy will remain frail in the near term, with risks to the outlook still tilted to the downside due to the possibility of greater global frictions”

Analysts suggest that the restrictive policy wording from the ECB and President Lagarde’s positive words on inflation has encouraged investors to think that there are more interest rate cuts coming in 2025. In the financial markets traders have increased bets on three further interest rate cuts in 2025 at 25 basis points per cut, with experts predicting the first of these at the next policy meeting of the ECB on the 5^thand 6th of March 2025.

On a different note, whilst President Trump is pro-Bitcoin and crypto in general, ECB President Lagarde rejected the idea of incorporating Bitcoin into European reserves on the basis that it is too volatile and associated with anti-money laundering. She went on to say that “Reserves have to be liquid, reserves have to be secure, they have to be safe, they should not be plagued by the suspicion of money laundering or other criminal activities.”.

Federal Reserve Holds Interest Rates Steady January 2025

Written by IntaCapital Swiss on February 3, 2025. Posted in News & Reports. Leave a Comment

On Wednesday 29^th January 2025, the Federal Reserve announced that after lowering interest rates by 100 basis points in the last few months of 2024, they were holding interest rates steady in a range of 4.25% – 4.50%. The FOMC (Federal Open Market Committee) had no dissenting voters as they agreed unanimously to press the hold button on interest rates. The Chairman of the Federal Reserve said “We do not need to be in a hurry to adjust our policy stance” adding that the Federal Reserve was pausing interest rates in order to see further progress on inflation which currently remains somewhat elevated but has moved closer to the goal of 2%.

Currently some analysts are saying that the US economic landscape appears stable but at the same time wildly uncertain especially as recent macroeconomic fundamentals have been unchanged and healthy. However, with the elevation of Donald Trump to the White House Chairman Powell noted “Federal Officials are waiting to see what policies are enacted” and what effect such policies (tariffs, taxes, immigration) will have on inflation. Experts have said that the prospects of tariffs on Mexico and Canada, who are two key trading partners with the United States, have cast a shadow over the economy of the United States.

Following the announcement that the Federal Reserve were holding interest rates, President Donald Trump renewed his attack on the central bank saying they had “failed to stop the problem they created with inflation”. Previously, President Trump had demanded that interest rates come down further, but Chairman Powell, who is doing his best to keep himself and the Federal Reserve above political machinations noted that keeping interest rates on hold was not political despite the fact it may look that way. The president also went on to say that the Federal Reserve has “done a terrible job on bank regulation” and insisted he will put this responsibility solely within the purview of the Treasury Department. However, some legal experts have said that this would be against the law.

In December 2024 Federal Officials advised that they expected only two rate cuts throughout the whole of 2025, which was a reduction in policy that had not been previously anticipated by the financial markets. Recent data released showed that in December 2024, an underlying measure of consumer prices rose by less than anticipated being the first decrease since June 2024. Analysts have looked back at President Trump’s first stint in the White House where he promised more tariffs on countries exporting to America, taxes on workers and companies will come down, and a massive number of jobs and factories will come home. In the end the exact opposite happened, and the Federal Reserve faced a slowing economy led by factories announcing many redundancies. So perhaps Chairman Powell and his officials can feel somewhat vindicated by keeping rates on hold.

The Euro Under Pressure in January 2025 Doldrums

Written by IntaCapital Swiss on January 6, 2025. Posted in News & Reports. Leave a Comment

c The Eurozone currency fell by 0.5% to USD1.0306, a decline of circa 8% since late September 2024. There are a number of factors that have dragged the Euro lower, and experts agree one factor is the eurozone’s export-leaning economies. which will suffer under tariffs as promised by the US President-elect Donald trump.

Other factors include economic and political uncertainties in Germany and France, whose economies underpin and are the driving force behind the European Union, plus monetary policy discrepancies between the ECB (European Central Bank) and the United States Federal Reserve. Furthermore, recent economic data coming out of France showed the sharpest decline in manufacturing activity since May 2020 whilst data from Germany showed output hitting a three month low.

The Euro’s slump has driven some analysts to predict that in 2025, the Euro will not only achieve parity with the US Dollar but may well fall below that figure. The last time this key threshold was passed was July 2022, after Russia’s illegal invasion of Ukraine in February of that year. Experts described 2022 as the worst year in the Euro’s history, with the Euro falling under parity In July but reached a year-to-date low on 27^th September 2022 falling to 1 Euro = USD 0.960.

On Thursday 2nd January 2025, the financial markets factored in further energy problems attributed to the eurozone compounding on-going woes for the Euro. Russian gas exports to Europe via Ukraine were halted on January 1^st, 2025, bringing to an end the five year transit agreement with neither side entering into new negotiations whilst the two countries are still at war. Central European countries will now have to find more expensive gas, just as depletion of winter storage is moving at its fastest pace in years.

A number of commentators have asked if the ECB will intervene to support the Euro, however financial markets are of the opinion that exchange rates are not on the ECB’s radar and therefore are not currently part of ECB policy. Interestingly, The ECB has only intervened to support the Euro a few times, the first was back in 2000 to support the Euro and the second was in 2011 as part of a coordinated effort by the G7* to weaken the Japanese Yen.

*G7 – Also known as the Group of Seven is an intergovernmental political and economic forum consisting of Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. The European Union has a seat at the table but as a non-enumerated member.

Elsewhere, data released showed hedge funds have held bearish positions on the Euro since the last week of September 2024. It further showed that on the last day of December 2024, circa 2.5 Billion in euro options wagers changed hands targeting parity and below, which was four times more than the previous month.

This year, analysts predict the ECB will cut interest rates by a full percentage point, whilst the Fed appears to be on a more hawkish stance of 50 basis points for 2025. Many experts agree the eurozone has a bleak economic forecast for 2025, with persistent economic and political instability, a Chinese economy that is slowing and implications of a Trump2 Presidency, all of which will negatively impact the Euro.

European Central Bank Cuts Interest Rates: December 2024

Written by IntaCapital Swiss on December 16, 2024. Posted in News & Reports. Leave a Comment

As 2024 draws to a close, the ECB (European Central Bank) on Thursday 12^th December cut interest rates for the fourth time this year. This is the third back-to-back interest rate cut, bringing total quantitative easing to 100 basis points for the year. As inflation draws closer to the key benchmark figure of 2%, the ECB cut its key deposit rate by 25 basis points (1/4 of 1%) from 3.25% to 3%.

It is interesting to note that there has been a change in rhetoric coming out of the ECB, where the statement “keeping rates sufficiently restrictive for as long as necessary” has been dropped, indicating a more dovish attitude to interest rate cuts. The ECB said in a statement “The Governing Council is determined to ensure that inflation stabilises sustainably at its 2% medium target, and it will follow a data-dependent and meeting-by-meeting approach determining the appropriate monetary policy stance”.

Despite no firm commitment from the ECB, and whilst the economy remains weak and inflation is closing in on the target of 2%, financial markets feel the door has been left open for further cuts in 2025. The ECB has also cut its prediction for growth next year, with President Lagarde seeing risks to growth tilted to the downside, leaving many analysts convinced that there will be more rate cuts in 2025.

The ECB also produced their quarterly staff macroeconomic projections, lowering their inflation forecast for 2024 from 2.5% down 0.1% to 2.4%, with the outlook for 2025 also being lowered by 0.1% from 2.2% down to 2.1%. Meanwhile, growth predictions for 2025 have been lowered by 0.2% to 1.1% down from 1.3%. Growth, as mentioned above, is tilted to the downside, with President Lagarde saying this will be partly due to “greater friction in global trade”. However, potential forecasts are definitely more difficult with experts citing President elect Donald Trump’s tariffs policy as the main reason for lack of clarity.

Experts said that messages from the ECB on Thursday 12 December showed a clear commitment to further interest rate cuts. However, there is uncertainty over where the Bank sees what they call the “Neutral Rate”, where their monetary policy is boosting or restricting growth. However, a number of economists have noted that weak PMIs* could push the ECB into a bigger cut of 50 basis points at their next policy meeting on Thursday 30^th January 2025.

*PMI – This is an acronym for the Purchasing Managers Index and is an indicator of the prevailing direction of economic trends and service sectors. It looks at key indicators that show signs of retraction of growth in the economy such as production, employment, and inventory levels.

Will the Bank of England Reduce, Hold or Even Increase Interest Rates in December?

Written by IntaCapital Swiss on November 26, 2024. Posted in News & Reports. Leave a Comment

The next meeting of the Bank of England’s MPC (Monetary Policy Committee) is on December 19^th, 2024, where it will be decided what the policy will be on interest rates. However, data released from the ONS (Office for National Statistics) shows inflation rose more than forecast in October (well above the Bank of England’s benchmark target of 2%) and has been interpreted by the financial markets as a reduction in the prospects for another interest rate cut before the end of 2024.

The ONS went on to say that in September consumer-price inflation rose from 1.7% to 2.3% due to an increase in energy bills and was above the Bank of England’s forecast of 2.2%. Furthermore, service inflation, which is always monitored closely by the MPC as a sign of domestic pressure, remained elevated at 5% up from 4.9% in September, but in line with forecasts from the Bank of England.

This is the first sign of a predicted increase in inflation for the coming year, and will no doubt be a precursor to a more cautious approach to interest rates by the Bank of England. Markets suggest that the MPC, in light of inflationary pressures both at home and abroad, may well hold interest rates and the predicted three cuts for next year have now according to experts been priced in at two cuts.

The pick-up in headline inflation between two months marks the biggest increase since October 2022 and the Bank of England has advised they expect inflation to hit the 3% mark by Q3 2025. The Bank went on to explain that this forecast is made up of last year’s fall in energy prices having now dropped out of annual calculations and the expansionary budget laid down by the Chancellor of the Exchequer. Inflation in October increased due to the UK’s households energy cap rising by 10% as opposed to a drop this time last year.

The Bank of England has previously advised that there will be a cautionary approach to cutting interest rates, and this is now backed up by the latest UK budget which should boost growth and inflation, plus there is now uncertainty surrounding the global economy with the threat of a Trump administration setting off a trade war.

The ONS has also advised that service inflation remained sticky and kept high by high prices in hotels and restaurants, plus a 6.3% increase in airlines fares on a month-on-month basis, the highest jump for any October since 2001, when records were first kept. Some analysts are even suggesting that if President elect Trump comes good on his tariff promises, combined with an inflationary UK budget, the Bank of England may even be compelled to raise interest rates.

President Elect Trump and his potential effect on Geopolitics

Written by IntaCapital Swiss on November 13, 2024. Posted in News & Reports. Leave a Comment

On Tuesday 5^th November 2024 America had a presidential election, and by Wednesday 6^th the world knew for certain that the Republican Nominee ex-President Trump was now President elect Donald Trump. Beating Kamala Harris by 312 electoral votes to 226 electoral votes, President elect Donald Trump also won the popular votes by over 3.5 million votes. In Congress, the Republican party controls the Upper House (the Senate) and is the leading party for control of the lower house (the House of Representatives). If indeed the Republican party ends up controlling both the lower and upper houses, this will make it easier for President elect Trump to successfully pursue his policy agenda.

Geopolitics

With President elect Donald Trump due to take the office of President of the United States of America on Monday January 20^th, 2025, political experts have been suggesting which world leaders will be the winners and losers when it comes to dealing with the new president. Below are a number of leaders whom the experts feel will either benefit or lose out under a Trump presidency,

Winners

Vladimir Putin – The President of Russia has already exchanged a number of calls from President elect Trump, where apparently the President elect urged him not to escalate the war. He further added he was interested in future discussions to discuss a resolution to the war. Political experts suggest that despite any rhetoric to the contrary both Presidents remain close, and that President Putin will benefit from a Trump presidency.

Mohammed Bin Salman (MBS) – The Crown Prince is the de facto leader of Saudi Arabia and experts suggest he will use a Trump presidency to obtain a security pact with the United States. Under his last presidency Trump opened diplomatic ties with a number of Arab states and Israel, and he is expected to expand that to Saudi Arabia. Political experts suggest that MBS is close to Trump, (apparently MBS called Trump in the early hours of Wednesday 6^th November to express his joy at The Donald returning to power) and he and Saudi Arabia will benefit from a Trump presidency.

Benjamin Netanyahu – The Prime Minister of Israel and President elect Trump have long been allies and Netanyahu will welcome the return of Donald Trump as he has a somewhat fractious and tense relationship with the current incumbent of the White House, President Joe Biden. Indeed, Prime Minister Netanyahu has already spoken with President elect Trump three times since the election and announced that both he and Donald Trump see eye to eye on Iran.

Giorgia Meloni – Experts advise that the Prime Minister of Italy has an affinity with Elon Musk which, it is believed, will give her good opportunities to interact with Donald Trump. She is essentially a right wing politician, and with President elect Trump’s negative views on NATO she could well become a conduit between the EU and the White House.

Kim Jong Un – During his last presidency Donald Trump managed to have a relatively warm relationship with the North Korean Dictator, through various exchanges of written correspondence and two summit meetings. The return of Trump should be welcomed by Kim especially as he has rebuffed approaches from the United States during the Biden presidency. He has allied himself closer to President Putin and experts suggest that Putin’s relationship with Trump may well foster a renewed relationship with the United States. In his first presidency, as a show of goodwill, Trump reduced military exercises with South Korea and Kim will be hoping for much of the same again.

Narendra Modi – Political experts advise that the Prime Minister of India and Donald Trump have a close personal relationship and in public are seen to praise each other and confirm that they are friends. However, the Biden Presidency has expressed disappointment and frustration with the Indian government for their close ties with Russia who supply them with military equipment and cheap oil. President elect Trump has promised a deal to end the Russia/Ukraine war which may well give Modi space to continue dealing with Russia.

Javier Milei- The Argentinian President met Trump back in February for the first time and wasted no time in telling him what a great president he had been when he first took office. Furthermore, President Milei has also wasted no time getting to know Elon Musk who has told him that he is looking for ways his companies can invest in his country. Argentina is also hoping to secure are replacement for the currently in place USD44 Billion IMF (International Monetary Fund) programme which a Trump presidency might just help to get over the line.

Viktor Orban – The Prime Minister of Hungary is considered by many in the European Union to be the black sheep of the family (for his pro-Russian leanings), but at the same time President Elect Trump has praised Orban for his strong-man style of leadership. Prime Minister Orban has made known his dislike for the European Union and has enhanced that view by making a trip to Georgia’s capital Tbilisi, where despite protests against the recent government election, he congratulated the country on not becoming the next Ukraine.

Losers

Volodymyr Zelenskiy – The President of Ukraine is, so say a number of political experts, worried that under a Trump presidency there could be a cut back in military aid and in the event of peace talks, be forced to give up land to Russia. Furthermore, the relationship between the two presidents has been somewhat combustible ever since their telephone conversation on 25^th July 2019 where Trump allegedly leaned on Zelensky to investigate Joe and Hunter Biden in order to damage their reputations. This led to Donald Trump’s first impeachment trial, and with President elect Trump promising a swift end to the war, (which he blames on President Biden, not Russia), the new administration may not prove to be beneficial to Ukraine.

Xi Jinping – The President of China is already under pressure at home due to the state of the economy especially in the commercial and residential property sectors. His government has just rolled out a massive stimulus package to calm investor nerves and to boost growth, and President elect Trump’s threat of a 60% tariff on all Chinese exports to America would decimate trade and remove one of the main planks that support China’s economy. However, a ray of light comes in the form of Elon Musk, who has extensive business interests in China, and Musk is close to the President elect so he might be able to persuade Donald Trump not to be too fierce with China.

Keir Starmer – The British Prime Minister has got off on the wrong foot with President elect Trump. First, his left wing government was accused by the Republican campaign of sending volunteers to help Vice President Kamal Harris in her bid for the White House. The second gaffe comes from Britain’s Foreign and Commonwealth Secretary who called the President elect a “Woman-hating neo-Nazi-sympathising sociopath”. So, a great start to the United Kingdom’s relationship with the soon to be new President of the United States; interfering in a sovereign country’s election process and insulting their new leader. Despite murmurings from the President elect that the United Kingdom might be safe from the increase in tariffs (there will of course have to be concessions by the UK), political experts suggest that Starmer might find it difficult to persuade the soon to be incumbent of the White House that the US/UK relationship is still special.

Claudia Sheinbaum – The Mexican president is waiting to find out if the President elect will make good on his threats regarding tariffs. If Mexico are hit with new tariffs, it will become a barrier to the goal of increasing exports to the United States through nearshoring*. There are other dark clouds on the horizon as the USMCA (United States-Mexico-Canada trade agreement, used to be called NAFTA- North American Free Trade Agreement) comes up for review in July 2026. Mexico is currently the largest exporter to the United States: as of July 2023, China’s share of American imports was 14.6% whilst Mexico led the way with 15%. Immigration is also at the top of the President elect’s list, and no doubt pressure will be put on the Mexican government to continue to curtail illegal immigration. President Sheinbaum has already issued a rebuke to the President elect for his negative comments regarding her economy minister Marcelo Ebrard, and many experts agree that under the Trump administration Mexico could be in for a tough time.

*Nearshoring – This where a supply chain or production is shifted from overseas to a neighbouring country or nearby country, usually within the same continent or region. The above scenario where Tesla moved their supply chain to Monterey to supply computers to their Texas factory is a prime example.

Masoud Pezeshkian – The president of Iran and his government do not seem bothered by any potential impact a Trump administration may bring to bear. However, with the President elect coming down firmly in Israel’s favour he may well revert to the “Maximum Pressure” policy towards Tehran as he did when he was last in the White House. Certainly, Donald Trump will look without favour on Iran, but a ray of light could be both the UAE and Saudi Arabia, who have repaired relations with Iran, and last time round were both supporters of the Maximum Pressure Policy. The President elect may wish to impose the strictest of penalties on Iran, but without the support of the UAE and Saudi Arabia, this task may well have become more difficult.

Emmanuel Macron – The President of France has already posted on X “Ready to work together as we did four years ago”. From an economic standpoint France has little to gain, but if trade tensions are reignited then France certainly has a lot to lose. The last time Donald trump was ensconced in the White House, tariffs on make-up, sparkling wine and cheese were just about avoided, but the core of that dispute still remains unresolved. The Trump/Macron relationship in the past has been very hit and miss, but with the President elect’s position on the Russia/Ukraine war at odds with the leader of France, and a possible trade war in the offing, a Trump administration may not be exactly what President Macron is looking for.

Olaf Scholz – The German Chancellor was finance minister when Angela Merkel ruled the roost in Germany, and it is no secret that Donald Trump loathed him. Chancellor Scholz may well find it difficult to forget about the Trump/Merkel connection, plus the President elect has always been fixated on German cars and their trade surplus, so they may well be in the firing line of the new administration. Scholz and his government openly supported the Kamala Harris bid for the White House and President elect Trump will probably not forget the comments made by the Chancellor and his team. Some political experts are suggesting that a Trump presidency is a nightmare for them. Germany has the largest economy in Europe, and within that economy the automotive sector is the largest, which will be exposed to the President elect’s tariffs. On top of all that, the chancellor has a diametrically opposed view to Trump over support for Ukraine.

Luiz Inacio Lula da Silva – The President of Brazil on the 4^th November 2024 (the eve of the US election) stated that he was praying for a Harris victory and named Trump as the instigator of the antidemocratic riots in Washington DC, having lost the election to Joe Biden. Furthermore, the previous President of Brazil, Jair Bolsonaro, is the main political rival of da Silva and a staunch ally of Donald Trump. Bolsonaro is dubbed the “Trump of the Tropics”, and a Trump presidency is emboldening the far right in Brazil. Experts suggest that under a Trump presidency, Brazil will face new challenges in regard to inflation, trade and environmental issues. Brazil is also an avid member of BRICS* which aspires to a new world order away from America and the US Dollar, and the new President when in office may not look too kindly on this country.

*BRICS is an acronym for five regional countries and their economies and is made up of Brazil, Russia, India, China, and South Africa. Their common belief is that by 2050, they will be the world’s dominant supplier of raw materials, manufactured goods, and services. The UAE have since joined along with Iran, Egypt, Ethiopia, with Saudi on the cusp of joining along with Thailand and Malaysia. Their aim is to challenge the economic and political monopoly of the West. Interestingly, if Saudi Arabia does indeed accept membership of BRICS, the bloc will represent 42% of the global oil supply.

Shigeru Ishiba – The Prime Minister of Japan is in the President elect’s sights because of their trade surplus, and the United States’ wish for Japan to pay more for the US military presence which is circa 55,000 personnel. The deal for the US military is up for renewal in 2026, where no doubt the Trump administration will demand an increase in payment. Furthermore, and with Trump’s sights firmly set on China, Japan will be asked again to curtail their exports of chip making equipment to that country. Previous dealings with the President elect were amiable due to the closeness of the late premier Prime Minister Shinzo Abe. Sadly Ishiba does not enjoy such closeness, but if Japan plays their cards right they could become an even better friend by becoming a mediator in trade hostilities between the United States and China.

Final Thoughts

Overall, the election of President Trump may well signal defeat for Ukraine in their on-going war with Russia. The European support for Ukraine was never going to amount to much without the United States being on-board. Donald Trump has proposed a quick exit to this war, which basically means no longer supporting Ukraine, and the will to resist will ebb away as the US withdraws their support. If the Europeans are firmly on Ukraine’s side, they will have to up the ante and increase their support, possibly alienating the Trump administration.

As for the Middle East, Trump has come down firmly on the side of Israel, so we will wait and see what response comes from the USA if Iran decides to increase their attacks on Israel. The new administration may ignore calls for a ceasefire with Hamas and let the Israeli government decide this issue. How this will play out with Saudi Arabia, the UAE and Qatar again, we will have to wait and see.

Elsewhere the Trump administration is focused on tariffs, and it seems a trade war is certainly in the offing. China is top of the President Elect’s hit list with a mouth watering 60% tariff on all China’s exports to the USA, with a maximum of 20% for the rest of the world.

NATO is next on the Trump hit list, as defence spending collectively by EU governments was budgeted at USD 326 Billion for 2024, that is circa one third of what the USA spends. In 2017 the EU committed to increase spending on defence equipment to 35%, today only circa 17% has been achieved. The big question is will Donald Trump pull out of NATO, experts are at loggerheads on this, as some feel he will and the Europeans will have to make NATO Trump proof, or he won’t but will make life very difficult.

The Bank of England Cuts Interest Rates: November 2024

Written by IntaCapital Swiss on November 13, 2024. Posted in News & Reports. Leave a Comment

Amidst the hubbub of Ex-President Donald Trump becoming President Elect Donald Trump, the Bank of England announced on Thursday 7^th November that they were cutting interest rates by 25 basis points. This is the second time this year that the MPC (Monetary Policy Committee) has cut interest rates, this time voting by a majority of eight to one. This cut came as data released showed inflation down to 1.7% in September, down from 2.2% in August. However, policymakers were quick to point out that the recent budget presented by Chancellor Reeves, which contained £70 Billion of extra spending (backed by higher taxes), would add 0.5% to headline inflation and 0.75% to GDP (Gross Domestic Product).

The single dissenting voice in the MPC was external economist Catherine Mann who voted for interest rates to be held steady at 5%. This was due to the Bank of England announcing that the increase in the national wage and National Insurance Contributions (NICs) could possibly be responsible for adding inflationary pressure in the form of higher prices and and reduced wages. Policymakers further implied that due to the budget, the cost of borrowing will decrease at a slower rate in 2025.

[A] gradual approach to cutting borrowing costs [is] required
Andrew Bailey, Governor of the Bank of England

Some experts have predicted that the slower pace in cutting interest rates will have a negative impact on many households. The Governor of the Bank of England, Andrew Bailey, in a separate statement cautioned that whilst borrowing cost would still be coming down in the future, the markets should not expect any rapidity in this area. Indeed, with President Elect Trump, who will be firmly ensconced in the White House next January, the Governor went on to say a “gradual approach to cutting borrowing costs was required” as US policies could also encourage inflationary pressure in the world economy.

Analysts now advise that that interest rates will probably not fall below 4% in 2025 .Some experts suggest that borrowers should lock in borrowing costs now with interest rates staying higher for longer, with the added influence of American policy having a negative impact on UK inflation. The Bank of England further announced that they expect inflation to be around 2.5% by close of business December 2024, up from the 1.7% figure in September, adding their oft repeated message that monetary policy would have to stay “restrictive for sufficiently long” to return inflation to 2% on a sustained basis.

Tag: Interest Rates