China Frees Bank Lending Rates 

Chinese authorities have given the banking industry greater freedom by allowing banks to set their own lending rates. Previously they were not allowed to lend at rates below a certain level set by the People's Bank of China (PBOC). The People's Bank said it hoped the move would lead to lower costs for companies. It is being seen as a significant part of the government's plan to make the economy more market-orientated. 

 

"When Chinese President Xi Jinping came to power in March, he promised to reform the country's economy to encourage more balanced growth," said BBC Beijing Correspondent Celia Hatton. "The announcement on bank interest rates is the first major change since that time," she added. 

 

Analysts agree that it marks an important development in policy. "It's a very big deal, probably more in terms of what it symbolises than the effect on the economy," said Mark Williams, chief Asia economist at Capital Economics. "China has been talking about interest rate liberalisation for a long time, this is one of the biggest steps they could have taken," he said. Even before this move, Chinese banks had some freedom to lend at rates below the official level, but very few chose to do so. (BBC)

 

 

‘Singapore Set to Replace Switzerland as Top Financial Hub’ 

Singapore will dethrone Switzerland in the next two years as the world's top centre for managing international funds, a study said , as a global tax crackdown and tighter regulation weaken the Alpine nation's appeal to investors. 

 

Switzerland, still the world's biggest offshore financial centre with $2 trillion in assets, came ahead of rivals Singapore, London, Hong Kong and New York in the 2013 ranking, compiled by PricewaterhouseCoopers as part of its Global Private Banking and Wealth Management Survey. But, respondents to the survey, which questioned 200 finance industry professionals from 51 countries, also said they expected Switzerland to lose ground, with Singapore taking the top spot in the next two years. 

 

Switzerland's tradition of banking secrecy has helped its financial sector thrive but is under massive pressure from the US and elsewhere, as cash-strapped governments seek to stop tax evasion and close loopholes. (Agency)

 

 

G-20 Backs New Tax Rules for Big Firms

For the first time in decades, the world's biggest powers look ready to close loopholes that big companies exploit to pay little or no tax. The Group of 20 leading developed and emerging economies gave its support on Friday, 19th July to an action plan drafted by the Organization for Economic Co-operation and Development that will be translated into specific measures over the next two years. 

 

"International tax rules, many of them dating from the 1920s, ensure that businesses don't pay taxes in two countries -- double taxation," OECD Secretary General Angel Gurria said in a statement. "This is laudable, but unfortunately these rules are now being abused to permit double non-taxation." 

 

Revelations that multinationals such as Apple , Google and Amazon have been paying very little, if any, tax in countries where they have substantial businesses has led to a storm of protest. A U.K. parliamentary committee called last month for a full investigation into Google's tax affairs, following a scathing report that also criticized Amazon and Starbucks . Apple has been grilled by lawmakers in Washington. 

 

Governments have pushed the issue up the global agenda as they struggle with falling revenue in the wake of the financial crisis, and find it ever harder to introduce more spending cuts and tax increases that weigh heavily on local firms and households. Last month, G-8 leaders pledged to take action, a commitment that was strengthened Friday by the adoption of the OECD plan by G-20 finance ministers meeting in Moscow. It will be discussed by G-20 leaders in September. 

 

Big companies say they operate within the law as it stands, and argue that current rules work in the vast majority of cases. But some organizations representing smaller firms have welcomed the bid to create new global standards. (www.money.cnn.com)

 

 

Detroit Legal Battle Over Bankruptcy Petition 

A judge in the US state of Michigan has ordered the city of Detroit to withdraw its application for bankruptcy over its debts of $18bn (£12bn). Judge Rosemarie Aquilina said the petition, filed on 18th July, violated the state's laws and constitution because it threatened pension benefits. But the state's attorney general immediately appealed against the order. 

 

Earlier, Governor Rick Snyder said the move towards bankruptcy would reverse decades of decay. Bankruptcy would allow Detroit's state-appointed emergency manager, Kevyn Orr, to liquidate the city's assets to try to meet the demands of creditors and pensioners. Mr Orr proposed a deal in June in which creditors would accept 10 cents for every dollar they were owed. 

 

But two pension funds representing retired city workers have resisted the bankruptcy plan, and - with tens of thousands of creditors - the city is already facing a number of lawsuits. In her ruling on 19th July, Circuit Judge Rosemarie Aquilina sided with the pension plaintiffs. She ruled that the 2012 law which allowed for bankruptcy to be filed was unconstitutional, as it enabled the state governor to jeopardise the pension benefits of public employees. But it remained unclear what impact the ruling would have on the proceedings. 

 

Detroit is the largest US city ever to file for bankruptcy. In 2012, three smaller California cities - Stockton, Mammoth Lakes and San Bernardino - took the step. It has been struggling for decades with spiralling debts - public services are nearing collapse and about 70,000 properties lie abandoned. 

 

Known as Motor City for its once-thriving automobile industry, Detroit stopped debt repayments to unsecured creditors last month to keep the city running. The city has $18 billion of unpaid debts. About $9bn of Detroit's debt is owed to the pension funds and retiree healthcare benefits of the city's 10,000 workers and 20,000 retirees. (Agency) 

 

 

India Makes Risky Bet with Rupee Defence 

India's boldest attempt yet to prevent a rout in the rupee delivered only a modest lift in the currency but shares slumped and bond yields jumped as investors worried that policymakers might overplay their hand and damage economic growth. 

 

The government said on 16th July, the moves were an attempt to stabilise the currency, which hit a record low last week and is down nearly 10 per cent since the start of May, but analysts said longer-term economic reforms were really what was needed. 

 

The measures unveiled on 15th July night in a rare display of tactical force by a conservative central bank would make it harder to speculate in the rupee and are intended to attract foreign inflows needed to fund a record current account deficit. 

 

They also increase the likelihood that the Reserve Bank of India's next move on policy interest rates will be a hike. The RBI raised short-term borrowing costs, restricted funds available to banks and said it would sell Rs 120 billion in bonds, effectively draining cash from the market, to protect a rupee that hit a record low last week. The moves will raise funding costs for banks and companies almost immediately, creating a ripple effect that could crimp growth in an economy expanding at its slowest in a decade. 

 

"We think that the measures, in effect, constitute a shift in monetary stance from pause to tightening," Goldman Sachs economist Tushar Poddar wrote in a note, putting the odds of a rate hike at the RBI's policy review on July 30 at one in three. 

 

The steps are risky and expected to be temporary, with Standard Chartered Bank saying they could only be maintained for up to six months. "The best case, or what we are all hoping for, is that these are short-term measures purely to drive home a point, that it does not endanger growth in the long term," said Ananth Narayan, co-head of wholesale banking for South Asia at Standard Chartered Bank. The rupee strengthened to 59.43/44 per dollar on 16th July from a close 59.89/90 after the moves of RBI. (The Times of India) 

 

 

US Crude Oil Trades Above Brent For First Time In 3 Years 

U.S. oil futures traded above the global crude-market benchmark, North Sea Brent, for the first time since 2010 on 19th July as signs of strong demand from U.S. refiners boosted spread trading and bets that the era of the U.S. discount was ending. While prices on both sides of the Atlantic fell for most of Friday's session as traders booked end-of-week profits, U.S. benchmark West Texas Intermediate (WTI) crude climbed in the final minutes of trade to close near a 16-month high above $108, while Brent settled lower. 

 

Trade data released late on 19th July by the U.S. Commodity Futures Trading Commission (CFTC) showed hedge funds had assisted the move, amassing record bets on rising U.S. crude oil prices in the week to July 16. In early afternoon trade, U.S. crude for September delivery reached a 5-cent premium over Brent in heavy trading volume, finally erasing a discount that has persisted for 33 months. The last time WTI traded above Brent was October 2010, but historically it was often the higher priced oil and served as the world's benchmark. (Agency)