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FX market expectations with definitive measures – Industry roundup: 28 September

Bank of America to streamline businesses’ cash management sign-in process with biometrics

Bank of America has launched the availability of QR sign-in for CashPro to ease the organizations’ processes for accessing their payments, cash management and trade finance operations. The new option aims to eliminate the need to manually enter account information. Clients utilizing the bank's CashPro system can expect to log onto the website with their mobile device by scanning a QR code and using biometrics via the CashPro App.

According to Tom Durkin, Global Product Head, CashPro Platform in Global Transaction Services, Bank of America, the QR sign-in technology is the first in a series of improvements to include upgrades such as user functionality and enhanced security, which he states are planned for the next eighteen months.

Patented technology reportedly underpins the QR sign-in, enabling the use of a mobile device as a means of computer verification, and is designed to decrease dependence on conventional user credentials while improving user convenience and security.

Channel implements AI-powered risk decisioning solutions for SMEs

Channel Digital Holdings (Channel), a UK-based alternative investment fund manager, and AdviceRobo, a predictive analytics service provider, have partnered to expedite the use of artificial intelligence (AI) within Channel’s decision-making system to help support the capital requirements of SMEs.

Channel has reportedly managed over US $20 billion in credit assets over the last 15 years, including loans, working capital facilities, and securities, with a current emphasis on fintech lending. With Channel’s new fintech business, launched four months ago, the company aims to help remove obstacles for SMEs in accessing loans through their new technology-powered AI decisioning tool, currently established in certain markets, according to reports.

The partnership will allow Channel to leverage AdviceRobo’s machine learning capabilities and data sources, providing SMEs with AI-driven risk decisioning and automated portfolio management in an accelerated and efficient manner, as well as enabling SMEs to make faster, more transparent credit decisions and allowing investors to have lower risk profiles.

DBS unveils PnP financial APIs for corporate treasurers via FinLync

DBS has joined forces with FinLync, a global and privately-held fintech firm, to integrate global banking APIs and embed real-time payments and cash management in efforts to help transform corporate finance and treasury offices.

By utilizing the comprehensive plug-and-play (PnP) API suite RAPID from DBS, corporates can expect to digitalize their corporate treasury functions into a more streamlined and effective manner. The DBS-FinLync collaboration is expected to provide corporates with simple interconnections and to eliminate many of the typical difficulties and complications of implementations, which are frequently time-consuming and expensive.

Furthermore, corporates, with the PnP capabilities that integrate banking services through the bank's APIs into their workflows, can expect to connect and leverage DBS' extensive suite of cash management, workflow, trade, information and foreign exchange services in real-time, said reports. Additionally, businesses will be able to automate their treasury operations and make decisions quickly, both of which are essential to maximizing working capital. Corporates can also expect to implement numerous treasury and finance functions on their platforms.

RBI to potentially replenish reserves as the rupee declines further

In efforts to stabilize the depreciating rupee, the Reserve Bank of India (RBI) is seeking ways to bolster its foreign exchange reserves, urging non-residents (NRIs) in India to deposit more funds into the system, according to Abheek Barua, Chief Economist, HDFC Bank, a Mumbai-based banking and financial services company.

The Indian rupee has reportedly fallen 9.5% this year, with the central bank stating it has sold dollars to justify the rupee, causing its foreign exchange reserves to decrease to US $545 billion, down from their peak of $642 billion in 2021. Barua further commented that the central bank should ensure that a declining currency does not overshadow India's underlying principles. While a depreciated currency may benefit in resolving the trade imbalance, the capital account losses in terms of investor confidence are said to outweigh this benefit.

Furthermore, Barua added that the central bank may need to consider ways to increase its foreign exchange reserves if the pool falls below $500 billion in the months to come. More capital is needed now to stabilize the rupee and allow the RBI to replenish its reserves, he claims.

Reports indicate that the RBI allowed banks to increase foreign currency non-resident deposits at higher costs in July as well as enable foreign investors to purchase shorter term local debt in efforts to stimulate capital inflows. According to analysts, these measures have only had a minor impact.

When the US Federal Reserve approved a plan to wean its bond purchases in 2013, the rupee was said to be under pressure, indicating that the central bank needed to consider other options, such as subsidizing forwards or depositing lumpy non-resident funds. Barua added that NRIs are aware of India's strong fundamentals and might be persuaded to deposit their dollars there at enticing rates.

The World Bank reduces growth forecasts to 3.2% in East Asia and the Pacific in 2022

The World Bank has reduced growth projections for the emerging East Asia and the Pacific to 3.2% in 2022. The World Bank’s recently released East Asia and Pacific Economic Update report states that the region's growth is expected to slow down this year from 7.2% in 2021 before boosting to 4.6% in 2023.  However, in April 2022, the developing East Asian and Pacific countries were forecasted to grow by 5% in 2022 according to the Xinhua news agency.

The report noted that the global economic slowdown is starting to reduce demand for the region's exports of manufactured goods and raw materials. Additionally, rapidly rising inflation across the world has prompted interest rate increases, which have reportedly resulted in capital outflows and currency depreciations in some East Asian and Pacific countries. The report also claims that as a result of these developments, countries that entered the pandemic with a heavy debt load have struggled from increased debt servicing costs as well as reduced financial stability.

Aaditya Mattoo, Chief Economist for East Asia and the Pacific, World Bank, stated that the Fed's reaction to higher inflation in the US has placed significant pressure on all developing nations, adding that the capital outflows have contributed to the depreciation of exchange rates. Mattoo also commented that the region will need to stiffen its interest rates more heavily, which have been minimal compared to other regions of the world. Additionally, Mattoo pointed out that the majority of the region's developing countries have shifted their borrowing primarily to their domestic market, with a smaller share of debt denominated in foreign currencies, making them less vulnerable.

The report noted that current policy measures, while offering much-needed relief from rising food and energy prices for households and businesses, exacerbate already-existing policy distortions. To combat inflation and aid in the economic recovery, policymakers must make a difficult trade-off between the two, said Mattoo.

J.P. Morgan’s global index to delay inclusion of India’s government bonds

Indian government bonds will not be included in J.P. Morgan’s emerging market global index until early 2023 due to New Delhi’s operational issues such as local bond settlement rules, tax complexities, and how investors will repatriate dollars, said reports. Index investors reportedly prefer international settlement platforms such as Euroclear, but India, similar to China, has stated settlement bonds onshore as the preferred method.

Reports indicate that India has pursued inclusion in global bond indexes since 2013. However, a variety of factors have deterred this objective. J.P. Morgan reportedly began considering India's inclusion in its global bond index in 2021. India would be the last significant emerging market to be included in the J.P. Morgan index if successful.

According to a Morgan Stanley estimate from earlier this month, India’s inclusion could result in up to US $30 billion in additional flows into the Indian government bond market over the course of 10 months, compared to last year’s forecast, which projected between $170 billion and $250 billion over the following ten years.

The majority of J.P. Morgan's index investors are said to support India’s inclusion in the index; however, investor verification and settlement rules must be resolved first, said reports. Reports indicate that India opposes granting any capital gains tax exemptions to overseas debt investors, requesting that global bond index operators take into account the local settlement of its government securities if they are included in their indexes.

PBoC to stabilize FX market expectations with definitive measures

The People's Bank of China (PBoC) reinstated the reserve requirement rule for banks' forward sales of Chinese yuan (CNY) by raising the required ratio from 0% to 20% effective today, 28 September. As a result, reports indicate that the plan will raise the cost of FX purchases through forwards, reducing the incentive for bearish CNY bets, which will reportedly help to stabilize expectations in the foreign exchange market.

The central bank also reduced the reserve requirement ratio for foreign currency deposits this year by a total of 300 basis points. The most recent 200 basis point cut to 6% went into effect on 15 September. Given the Fed's more aggressive interest rate increases and China's weakening economic forecast, the series of steps aims to slow the pace of CNY depreciation, stated economists.

As the Fed is likely to continue its hawkish rate hikes in the upcoming quarter, economists forecast that the CNY will continue to decline against the USD along with other trading peers in the fourth quarter of 2022, with the USD/CNY likely to sustain a higher level than 7.0 in the upcoming weeks.

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