China surprises with interest rate cut – Industry roundup 23 July
by Graham Buck
China’s central bank cuts interest rates in bid to stimulate growth
China’s central bank has cut key interest rates in a surprise move aimed at reviving its ailing property sector, while the ruling Communist Party released details of a top-level meeting focused on strategies for revving up the slowing economy.
The People's Bank of China (PBOC) cut the five-year loan prime rate, a benchmark for mortgages, by 10 basis points to 3.85% from 3.95%. The one-year loan prime rate (LPR) was reduced to 3.35% from 3.45%.
The expanded summary of the party's plenum last week included ambitious targets for accomplishing leader Xi Jinping's goal of making China a “high-standard socialist market economy in all respects” by 2035.
The lengthy document promises to beef up social welfare such as pensions, improve the tax system and protect private property rights. Rural migrants should have the same access to public services as long-term city dwellers, it says.
It also pledges equal market access and support for private enterprises and state-owned companies and establishing better “international coordination” of economic policies.
The document released at the weekend was more detailed than a communique released after the party meeting ended last week. But the actual reforms and laws it outlined in what amounts to a policy roadmap will come much later.
“We think these measures, if well implemented promptly, should help improve resource allocation, contain financial risks, unleash some growth potential, and underpin investors’ confidence, while the actual implementation and policy clarity and sustainability will be the key,” UBS economists Nina Zhang and Tao Wang said in a report.
The world’s second-largest economy has struggled to regain momentum since the Covid-19 pandemic, and a slump in the property market has been a major hindrance. Economic growth fell to 4.7% in the last quarter but remained at the government’s target rate of about 5% for the first half of the year.
The central bank reduced collateral requirements for its medium-term lending facility for banks. It said that was intended to ease pressure on the bond market. The PBOC also cut the interest rate on its purchases of securities from commercial banks through bidding, with a promise to sell them back in the future. The rate on seven-day “reverse repos” was cut to 1.7% from 1.8% to help put more cash into the banking system, it said.
China to raise retirement age to ease pension costs crisis
China has announced plans to gradually raise its statutory retirement age, which is among the world’s lowest.
The move will allow people to work longer, as policymakers struggle to relieve growing pressure on pension budgets, which was described last year as a “time bomb”. Many provinces already face welfare deficits.
The reform has become an urgent issue as life expectancy had risen in China to 78 years by 2021, from about 44 years in 1960, outstripping the United States. It is projected to exceed 80 years by 2050.
The news is expected to be welcomed by mature-age and elderly people, with recent reports of growing ranks of elderly workers who cannot afford to retire.
The announcement came in a key policy document that also rolled out plans to sharpen a strategy to combat the country’s declining birth rate and an ageing population that fell for a second straight year in 2023, and is seen falling for decades.
“In line with the principle of voluntary participation with appropriate flexibility, we will advance reform to gradually raise the statutory retirement age in a prudent and orderly manner,” the authorities said.
The reforms outlined in the document are envisaged to be completed by 2029, they added.
The retirement age is now 60 for men, or five to six years below that in most developed economies, while for women in white-collar work it is 55, and 50 for women who work in factories.
Policymakers have said over the past two years they aimed to raise the age of retirement, but the change will be the first time that workers are able to choose to continue working.
National health authorities expect the cohort of those aged 60 and older to rise from 280 million to more than 400 million by 2035, or the equivalent of the entire current populations of the United Kingdom and the United States combined.
ANZ launches Australia’s first real-time payment service
ANZ announced that it has become the first major Australian bank to execute a cross-border payment into Australia in near real-time, following the introduction of ‘Express Payments’ that utilise the New Payments Platform (NPP) network.
The initial transaction was conducted for BNP Paribas on 2 July, showcasing ANZ’s capacity to complete the final stage of inward international AUD payments to eligible non-ANZ beneficiaries swiftly.
ANZ Managing Director Transaction Banking Lisa Vasic said “We see this as a game changer, which will help make sending payments simpler and faster for our financial institution customers. It will significantly improve the customer experience by reducing wait times, improving cash flow and increasing operational efficiency.
“As the largest Australian dollar clearing bank in Australia, both individuals and businesses stand to benefit from receiving their international payments in near-real time. We’re particularly pleased that the infrastructure was built using in-house capability without relying on third party solutions.”
For the transaction, BNP Paribas transmitted an international payment to ANZ via SWIFT, which ANZ processed and cleared into the NPP network, enabling the recipient to access the funds almost immediately.
BNP Paribas’ Global Head of Cash Management, Payments, Trade Solutions and Factoring, Pierre Fersztand said, “This partnership marks a significant step in BNP Paribas’ strategy to achieve instant and frictionless international payments. By strengthening our relationship with an established local partner, we are leveraging the local instant clearing framework allowing cross-border payments to settle instantly in order to enhance our clients’ experience.
Our approach aligns fully with the G20 roadmap for improving cross-border payments. As we continue to expand, BNP Paribas is actively working to enable additional payment corridors, subject to the capabilities of local clearing systems.
This collaboration underscores our commitment to innovation in global transaction banking, ensuring we meet the evolving needs of our clients in an increasingly interconnected world.”
Singapore commits US$74.3 million for quantum and AI in finance
The Monetary Authority of Singapore (MAS) has committed S$100 million (US $74.36 million) to beef up its finance sector’s quantum computing and artificial intelligence (AI) capabilities.
The latest injection of funds by Singapore’s central bank and financial regulatory authority is aimed at helping local financial institutions establish quantum computing infrastructure and speed up AI development and adoption.
The MAS introduced the Financial Sector Technology and Innovation Scheme (FSTI 3.0) in 2022 to strengthen Singapore’s position as a fintech hub. Adding to its initial commitment of S$150 million over three years, the regulator committed a further S$74.36 million on July 18.
Eligible financial institutions will receive up to 50% co-funding for building quantum computing technology centres and viable institutional use cases. Companies building quantum-based cybersecurity solutions will be eligible for up to 30% co-funding.
A part of the fund will be diverted toward building AI innovation centres where AI models can be built, trained and deployed across various use cases. The regulator said: “There are strong prospects for the financial industry to apply AI to solve industry-wide problems beyond what each financial institution can do individually.”
MAS confirmed that the first AI pilot project is dedicated to scam and fraud detection use cases. The regulator will involve banks, technology solution providers and public agencies in the AI pilot.
The FSTI scheme is valid until March 2026. However, the Singapore government may consider extending the scheme based on its impact on the island nation’s fintech landscape.
The news comes after the MAS granted full regulatory approval to the Singapore wing of Paxos, the gold-backed stablecoin Pax Gold (PAXG) issuer, on 2 July that will enable Paxos to launch a stablecoin that aligns with MAS’s upcoming regulatory framework.
The Development Bank of Singapore (DBS), Southeast Asia’s largest bank by assets under management, will be Paxos’ primary banking partner. According to the announcement, DBS will be responsible for cash management and custody of the Paxos stablecoin reserves.
Bank of Canada expected to cut rates three more times in 2024
The Bank of Canada (BoC) will cut its overnight interest rate on Wednesday by 25 basis points to 4.50% amid expectations that inflation will continue to fall, according to a poll of economists by Reuters.
With the economy slowing and unemployment edging higher, the central bank is then expected to cut rates twice more in 2024, although only a slim majority of economists are forecasting a policy rate of 4.00% by the end of this year, with risks tilted toward fewer rate cuts rather than more.
While forecasters have consistently predicted at least three Bank of Canada rate cuts in 2024 since early this year, the chance of a fourth reduction in borrowing costs now rests on a knife's edge, in part because the US Federal Reserve has yet to begin reducing rates.
Although Canadian inflation has eased further to within the BoC's 1%-3% target range amid a weakening of the job market and softening corporate outlook, sticky core inflation and wage growth could warrant caution.
However, nearly three-quarters of the economists surveyed in the 16-19 July poll, or 22 of 30, expect the BoC will cut its policy rate again to 4.50% on July 24. That is in line with interest rate futures pricing. The Canadian central bank trimmed borrowing costs in early June, marking its first rate cut in four years.
The BoC is expected to pause its easing cycle at its September meeting before resuming the rate cuts in October and December. That would suggest the BoC will cut rates twice before the Fed begins its easing cycle, now widely expected to happen in September.
Andrew Kelvin, head of Canadian and global rates strategy at TD Securities, said second-quarter CPI inflation ʺis tracking below what the Bank (of Canada) had forecast in April and the business outlook survey was extremely dovish ... the pieces are in place for the BoC to cut rates again at its meeting next week.ʺ
AMF and Banque de France call for coordinated move to T+1 settlement
France’s financial regulator the Autorité des Marchés Financiers (AMF) and the Banque de France have issued a call for a well-coordinated and efficient transition to a T+1 settlement cycle for transactions on securities across the European Union (EU).
This initiative comes at a time when the European Commission has confirmed that the principle of T+1 has been accepted. This shift brings substantial challenges, in particular due to EU market specificities that must be managed smoothly and requires a careful calibration of the timeline.
The AMF and the Banque de France stress the significance of close cooperation, particularly with the UK and Switzerland given the interdependencies between EU and these markets. Both the US and Canada moved to T+1 settlement nearly two months ago.
The two bodies also believe that a two-phased approach is the most pragmatic way forward. As a first step, in a T+2 settlement cycle environment, all trades on securities should be confirmed and allocated by the end of the trade date, which implies essential operational and technical upgrades in the industry, such as standardising data exchanges and automating manual processes. As a second step, the settlement cycle could then be reduced to T+1, with a satisfactory level of trade confirmations on the trade date.
Moreover, the forthcoming T+1 framework should encompass regulatory aspects but also be accompanied by incentives, both regulatory and economic, to facilitate it.
This comprehensive strategy aims to ensure a smooth and effective transition to the T+1 settlement cycle, safeguarding the stability, efficiency and competitiveness of European financial markets.
Indonesia and South Korea to strengthen cross-border payment connectivity
Bank Indonesia (BI) and Bank of Korea (BoK) signed a memndum of understanding (MoU) to propel cross-border payments in both countries.
The MOU, reflecting the implementation of the 2022 bilateral cooperation agreement on central banking, was signed by Perry Warjiyo, the governor of BI, and Rhee Chang Yong, the governor of the BoK.
The MOU aims to accelerate closer cooperation on the interoperability of cross-border payments. BI and the BoK also seek to establish a framework to facilitate cross-border payment connectivity between the two countries. The MOU serves as a basis for the two countries to implement cross-border payments with industry players from each country.
The implementation of the MOU will support cross-border transactions between the two countries, promote the digital economy and finance in Indonesia and South Korea and significantly benefit the tourism sector, especially considering the high number of tourists travelling between the two countries. This cooperation will enhance the economies of both countries, particularly in the tourism sector.
The MOU, a testament to the ongoing efforts of BI and the BoK, is expected to create cheaper, faster, more inclusive, and more transparent cross-border payments between Indonesia and South Korea, a release stated. More importantly, it is set to play a pivotal role in promoting the digital economy and finance in both countries, marking a significant step towards a more interconnected and efficient financial landscape.
Toyota Financial Services Italy and Fabrick collaborate on embedded finance
Toyota Financial Services Italy, part of the Toyota Group, has become a corporate partner of the Fintech District, an Italian community for fintech and techfin innovation. The collaboration, which aims to explore new growth and investment opportunities with fintech entities, includes working with payment orchestration platform Fabrick to integrate embedded finance services into vehicles.
Mauro Caruccio, CEO of Toyota Financial Services Italy and KINTO Italy, said, “The collaboration with Fabrick is part of a broader strategic direction for the Toyota Group, aiming to enhance a multi-technological approach in vehicle electrification by offering a comprehensive and integrated range of financial and mobility services.”
Caruccio added thathighlighted that promoting credit interoperability across all Toyota Group companies will “offer simple and accessible purchase or usage options to ensure ease and flexibility throughout the entire lifecycle of the automobile and customer usage.” He also emphasised the central role of service components in the energy transition towards carbon neutrality.
Paolo Zaccardi, CEO of Fabrick, said: “This partnership validates the growth path we have pursued over the years and solidifies our position as one of the leading Embedded Finance operators in Italy and Europe. It’s no longer just a matter of managing transactions; it’s about creating a user experience that simplifies payments and serves as a touchpoint for the end customer.”
The collaboration between the two companies originates within the framework of Finmobility, which focuses on the convergence of the financial and mobility sectors and represents one of today’s fastest-growing trends.
Standard Chartered joins HKMA's stablecoin sandbox
The Hong Kong Monetary Authority (HKMA), which recently said that it was processing the applications for participation in its stablecoin issuer sandbox, has announced five entities, including Standard Chartered Bank (Hong Kong) and Animoca Brands.
JINGDONG Coinlink Technology Hong Kong, RD InnoTech and Hong Kong Telecommunications (HKT) Limited are the other three entities.
HKMA also said that it plans to present a bill on fiat-referenced stablecoins to the Legislative Council later this year.
In March, the HKMA set up a regulatory sandbox to give potential stablecoin issuers immunity in testing certain operations.
ʺDuring the assessment process, these institutions were able to demonstrate genuine interest in developing a stablecoin issuance business in Hong Kong with a reasonable business plan, and that their proposed operations under the sandbox arrangement would be conducted within a limited scope and in a risk-controllable manner,ʺ the announcement said.
For the present, the participants will not handle the general public’s funds and will not solicit funding from the public or offer any products associated with the sandbox but the HKMA did not rule out this could happen at a later stage. It also suggested there could be new participants who join the sandbox in the future.
GDS Link and Atto partner on instant credit decisions
Credit risk management specialist GDS Link is partnering with open banking provider Atto and will use Atto’s data and insights to enhance credit decision processes for global financial institutions.
ʺIn the ever-changing economic landscape, the ability to make instant credit decisions is essential for businesses serving consumers and enterprises,ʺ a release noted. ʺGDS Link has assisted numerous institutions worldwide to achieve consistent growth while effectively managing risk. The recent successful implementation of GDS Link’s multi-bureau solution with Shawbrook Bank in the UK underscores this.ʺ
“For GDS Link, partnering with Atto is not just a strategic move; it’s a leap towards transforming how credit decisions are made globally,ʺ added Kate Bullman, VP of Global Partnerships at GDS Link.ʺWe will harness the power of data and insights to make instant, data-driven decisions a reality for businesses around the world.ʺ
GDS Link will use Atto’s insights to streamline decisions across the credit risk life cycle. This partnership combines GDS Link’s risk management technology with Atto’s open banking data and insights to support businesses in making well-informed decisions.
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