Investing.com-- The People’s Bank of China held its benchmark loan prime rates at record lows on Wednesday, as it moved to strike a balance between supporting an economic recovery and stemming further weakness in the yuan. 

The PBOC kept its one-year LPR at 3.45%, while the five-year LPR, which is used to determine mortgage rates, was left unchanged at 4.20%. Both rates were at historic lows, after three cuts over the past year.

Markets had broadly expected the PBOC to keep rates on hold, given that it left its medium-term lending rates unchanged last week. 

The LPR is determined by the PBOC based on considerations from 18 designated commercial banks, and is used as a benchmark for lending interest rates in the country.

The PBOC had disappointed markets with a smaller-than-expected cut to the one-year LPR in August, while the five-year LPR was left unchanged. The move came amid growing discomfort in Beijing over weakness in the yuan, which is among the worst-performing Asian currencies this year. 

Weakness in the yuan was driven chiefly by concerns over a slowing Chinese economic recovery this year, as manufacturing activity stalled and as domestic consumption struggled to reach pre-COVID levels.

While this trend has attracted a slew of monetary stimulus measures from the PBOC, it has maintained a largely conservative stance towards cutting interest rates. 

China’s economy showed some signs of improvement through August, particularly in industrial production and consumer spending. Inflationary conditions also improved after the country slipped into deflation earlier this year.

But the overall outlook for the Chinese economy remains dour, especially as it grapples with slowing overseas demand for exports. The country’s real estate sector, which accounts for nearly a quarter of overall economic growth, is also struggling with a brewing debt crisis, which threatens to spill over into the broader economy. 

The yuan also faces an uphill battle from a widening gulf between local and U.S. yields, following a string of interest rate hikes by the Federal Reserve over the past year. The U.S. central bank is expected to keep rates at over 20-year highs for longer, pressuring most Asian currencies. 

By Rodrigo Campos and Harry Robertson

NEW YORK/LONDON (Reuters) -Global debt hit a record $307 trillion in the second quarter of the year despite rising interest rates curbing bank credit, with markets such as the United States and Japan driving the rise, the Institute of International Finance (IIF) said on Tuesday.

The financial services trade group said in a report that global debt in dollar terms had risen by $10 trillion in the first half of 2023 and by $100 trillion over the past decade.

The latest increase has lifted the global debt-to-GDP ratio for a second straight quarter to 336%. A slowdown in growth, alongside a deceleration in price increases, have caused nominal GDP to expand less slowly than debt levels and were behind the debt ratio rise, the report said.

"The debt-to-GDP ratio actually has resumed its upward trajectory," said Emre Tiftik, director of sustainability research at the IIF at a news conference.

"Notably this rise comes after seven consecutive quarters of declining debt ratios and it mostly reflects the impact of easing inflationary pressures."

The IIF said that with wage and price pressures moderating, even if not to their targets, they expect the debt to output ratio to surpass 337% by year-end.

Experts and policy makers have warned in recent months of rising levels of debt, which can force countries, corporations and households to tighten their belts and rein in spending and investments, in turn crimping growth and hit living standards.

More than 80% of the latest build up had come from the developed world with the U.S., Japan, Britain and France registering the largest increases. Among emerging markets, the biggest rises came from the largest economies, namely China, India, and Brazil.

"For the first time in a long time there's a better trend among emerging markets than there has been among developed markets," said Todd Martinez, co-head of the Americas sovereign team at Fitch Ratings, which sponsored the IIF report.

"Developed markets after the pandemic, they're taking longer to get back to their pre-crisis fiscal positions than EM did, and then a lot of them got hit by this energy shock (from the war in Ukraine)."

The report found that household debt-to-GDP in emerging markets was still above pre-COVID-19 levels, largely due to China, Korea and Thailand. However, the same ratio in mature markets has dropped to its lowest level in two decades in the first six months of the year.

"The good news is that consumer debt burdens appear to have remained largely manageable," Tiftik said. "If inflationary pressures persist, the health of the household balance sheet, especially in the U.S., will provide a cushion against further Fed rate hikes."

Markets are not pricing in a U.S. Federal Reserve rate hike in the near future, but the target rate of between 5.25% and 5.5% is currently expected to remain in place until at least May of next year, according to the CME FedWatch tool.

U.S. rates are expected to remain high for a long period, which could pressure emerging markets as needed investment is funnelled to the less-risky developed world.

The Fed is expected to leave rates unchanged on Wednesday, but could signal that it is open to further rate hikes.

JAKARTA (Reuters) - Indonesia's parliamentary budget committee on Tuesday approved President Joko Widodo's budget for 2024, his final year in office with a total spending of 3,325.1 trillion rupiah ($216.27 billion, the committee chair said.

The agreed spending is representing a fiscal deficit equal to 2.29% of gross domestic product or slightly lower than 2023's outlook of 2.30%.

The president had in August proposed spending of 3,304.1 trillion rupiah. The 2024 budget assumes economic growth of 5.2%, unchanged from the government's proposal.

The revenue target was approved at 2,802.3 trillion rupiah ($182.24 billion) or larger than the proposed 2,781.3 trillion rupiah, as the government expects higher income from the oil and gas sector. committee chair Said Abdullah said in a livestreamed meeting with the government on its budget proposal.

The budget committee's decision is expected to be approved by a wider parliamentary vote at a later date.

Other economic assumptions were unchanged from previous approval from the committee earlier this month.

($1 = 15,375.0000 rupiah)

By Huw Jones

LONDON (Reuters) - Most leading euro zone banks have met a January 2024 target for issuing special debt to replenish capital in a crisis, but some need to do more to ensure they can, if necessary, be wound up quickly, a European Union regulator said on Wednesday.

Recent banking crises in the United States, where Silicon Valley Bank collapsed, and in Switzerland where UBS was forced to acquire Credit Suisse, show that banks and regulators need to increase preparedness for rapidly unfolding crises, the Single Resolution Board (SRB) said.

Forcing banks in the EU's banking union to have minimum requirement for own funds and eligible liabilities (MREL) was a lesson from the 2008 global financial crisis where taxpayers had to bail out banks.

MREL debt is written down in a crisis to "bail in" the bank and help stop it from being "too big to fail".

The SRB, which sets MREL targets, said that by the end of 2022, two-thirds of banks met their final target.

The shortfall is 0.3% of total risk exposures or 20.5 billion euros ($21.87 billion). Some 2.7 trillion euros has been issued so far, and 24 banks have an MREL shortfall, though 14 of them have been given an extension until the end of 2024 or 2025 to meet their targets.

"While holding sufficient loss-absorbing resources at all times is key, it is equally important for banks to be able to use these funds in a crisis," the SRB said in a report.

Its focus is shifting to ensuring banks can credibly demonstrate by the end of this year that they can be smoothly "resolved" or wound down, restructured, or sold without disruption to customers.

"The SRB will review whether material shortcomings remain and take remedial action where needed," it said, though there is no sign so far that it will need to intervene.

Evaporating liquidity was a hallmark of recent banking turmoil and is being scrutinised in resolution plans of banks.

"In order to foster consistency across banks’ scenarios to be considered while integrating lessons learnt from recent crisis cases, the SRB will develop further guidance on the assumptions to be used," the watchdog said.

($1 = 0.9373 euros)

GUATEMALA CITY (Reuters) -The United States urges Guatemalan authorities to end their "intimidation efforts" targeting election officials and members of the party voted to power in last month's presidential elections, the U.S. Ambassador to the Organization of American States said on Monday.

Speaking to the OAS permanent council, Ambassador Francisco Mora said the U.S. was concerned about efforts to undermine democracy in Guatemala, including the prosecutor's office recently raiding electoral storage facilities and opening sealed ballots.

"In a healthy democracy, institutions don't tamper with ballot boxes after election results have been officially certified by the appropriate authority," Mora said, adding the act represented "an assault on the rule of law."

Last week, the top prosecutor's office in the Central American country raided facilities run by Guatemala's main electoral tribunal as part of an investigation into the lead-up to the elections which saw anti-graft candidate Bernardo Arevalo and his Semilla Party overwhelmingly come out on top.

Arevalo suspended his participation in the transition of power last week until "necessary institutional (and) political conditions are reestablished."

He said on Monday he would analyze the possibility of restarting the transition process, speaking to press as he presented a legal challenge against the investigation to Guatemala's Supreme Court.

Hundreds of protesters gathered in front of the court to accompany Arevalo, waving flags and holding signs that read "out with the coup-mongers."

More protests are expected to continue on Tuesday, with roadblocks planned throughout the country in support of Arevalo and to demand the resignation of the prosecutor investigating him.

By Andrea Shalal

WASHINGTON (Reuters) - The International Monetary Fund (IMF), the World Bank and Morocco on Monday announced the annual meetings of the two global institutions would proceed in October in Marrakech, despite a recent nearby earthquake that killed more than 2,900 people.

The meeting will take place from Oct. 9-15 in Marrakech, just 45 miles (72 km) from the site of the 6.8-magnitude earthquake on Sept. 8, with some changes to adapt content "to the circumstances," World Bank President Ajay Banga, IMF Managing Director Kristalina Georgieva and Morocco's Economy Minister Nadia Fettah Alaoui said in a joint statement.

Senior IMF and World Bank officials made the decision, first reported by Reuters, at the direct request of the Moroccan authorities who had pressed the global institutions to proceed with the gathering which is expected to bring some 10,000-15,000 to the Moroccan tourist hub.

"As we look ahead to the meetings, it is of utmost importance that we conduct them in a way that does not hamper the relief efforts under way and that is respectful to the victims and the Moroccan people," the three officials said.

"At this very difficult time, we believe that the Annual Meetings also provide an opportunity for the international community to stand by Morocco and its people, who have once again shown resilience in the face of tragedy. We also remain committed to ensuring the safety of all participants.”

Georgieva told Reuters on Friday that Morocco's prime minister told her it would be "quite devastating" for Morocco's hospitality sector if the meetings were moved to a different location.

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) - Foreign holdings of U.S. Treasuries rose in July, data from the Treasury Department showed on Monday, rising for a second straight month despite an uncertain interest rate outlook muddied by a mixed set of economic figures.

Total holdings of U.S. Treasuries climbed to $7.655 trillion in July, up from $7.562 trillion in the previous month. Compared from a year earlier, overseas holdings were up 2.2%.

China's stash of Treasuries dropped to $821.8 billion, the lowest since May 2009, when it had $776.4 billion, data showed.

Analysts said China has been under pressure to defend its weakening currency, the yuan, and the selling of U.S. debt may have been used for intervention purposes to prop it up.

The benchmark 10-year Treasury yield started July at 3.858%, rising 9.9 basis points (bps) to 3.957% by the end of the month.

"There is a huge inflow into U.S. Treasury debt despite a lot of volatility in rates in July," said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities in New York.

"A lot of the increase in foreign holdings was from the Caymans, Luxembourg, Bermuda, which are associated with custodians. So it's difficult to know exactly who the buyers were," he added.

Japan is still the largest non-U.S. holder of Treasuries with $1.112 trillion in July, up from $1.105 trillion in June.

"We saw some buying by Japanese investors despite the fact that on a hedged basis U.S. Treasuries are not particularly attractive," Goldberg said. "That suggests there may be some unhedged buying of Treasuries."

Major U.S. asset classes showed mixed results during the month, data showed.

Net foreign inflows into Treasuries slid to $200 million in July from $57.3 billion in June.

Net foreign flows into U.S. equities also fell, dropping to $28.9 billion in July from $120.4 billion the previous month.

Foreign buying of U.S. corporates and agencies in July notched inflows of $8.4 billion and $8.1 billion, respectively.

Data also showed U.S. residents increased their holdings of long-term foreign securities, with net purchases of $36.8 billion in July.

BEIJING (Reuters) -China's yuan will stabilise after improvements in recent economic data and the bottoming out of domestic prices, state-owned media said on Monday.

China's falling interest rates have effectively stimulated market demand and supported the economic recovery, the Financial News, a publication backed by the People's Bank of China (PBOC) said.

"The exchange rate is a reflection of the overall economy, and internal and external factors," the newspaper said in a commentary published on its official WeChat account.

"With continued improvements in internal and external fundamentals, the yuan exchange rate is stabilising on a firmer footing."

A string of economic data including August credit lending growth, factory output and retail sales showed the world's second-largest economy was picking up steam.

China's consumer prices have returned to positive territory in August while factory-gate price declines slowed.

"With domestic prices showing upward momentum and the dollar nearing the end of its tightening cycle, yield differentials between the United States and China are expected to narrow, and the yuan will show a positive upturn after bottoming out," the state media said.

In the meantime, China's yuan has bounced 0.9% to the dollar since it touched a 16-year low earlier this month, partly due to the central bank's intensified efforts to stem rapid declines. [CNY/]

The PBOC has persistently set firmer-than-expected daily fixing to cap the downside room in the yuan, and it lowered the amount of foreign exchange banks must set aside last week to slow the pace of yuan depreciation.

The U.S. Treasury market, teetering on the brink of a third consecutive year of losses, is keenly awaiting the Federal Reserve's updated forecasts for their benchmark interest rate this Wednesday. The projections, known as the "dot plot," have gained considerable significance in light of the Federal Reserve officials' reticence to provide specific verbal guidance about policy outlook.

The policy meeting scheduled for September 19-20 is particularly crucial, with widespread expectations that the Fed will maintain its current rates. Discussions are likely to center around the duration of these rates.

The dot plot is expected to shed light on two key questions: whether policymakers will stick to their expectation of a further 25 basis-point rate hike by the end of this year, and what degree of easing they foresee for 2024. As of June, they had projected cuts amounting to 1 percentage point.

The recent release of the consumer price index (CPI) has complicated officials' decision-making process. Despite softer CPI gains in recent months, the core monthly gain — excluding volatile energy and food items — accelerated in August. This report may have bolstered a majority of Fed policymakers' inclination to keep one more 2023 hike on their agenda and potentially lean towards three cuts in 2024, rather than four.

Concerns that the Fed might sustain higher rates for longer periods have prompted a decrease in the bond market's own predictions of rate reductions for 2024. Swaps contracts tied to Fed decisions now reflect about 100 basis points of cuts, down from over 150 basis points earlier this year. Traders predict that the effective federal funds rate, currently at 5.33%, will fall to around 4.49% by the end of 2024.

If policymakers maintain a median forecast for one more hike in 2023 and decrease rate cuts for 2024 this week, two-year Treasuries could potentially be sold off. This could disrupt some investors' expectations for a steeper yield curve, i.e., a reduced premium for two-year yields over 10-year ones.

As of last Friday, two-year yields were over 5%, nearing the 16-year high seen in July. Ten-year yields were above 4.3%. The curve has been inverted since mid-2022, signaling the Fed's most aggressive tightening campaign in decades and expectations for an economic downturn.

Some market observers expect the dot plot to reflect only 75 basis points of rate cuts next year, which could prompt the market to adjust its expectations for the Fed's future actions.

Another key Fed projection to monitor on Wednesday is policymakers' median estimate for their policy rate over the long run, which has stood at 2.5% or lower since 2019. These forecasts are expected to provide initial insights into 2026, offering investors additional long-term perspectives.

The five-year overnight index swap rate, traded five years forward and viewed as a market proxy for the Fed's long-run rate, currently stands around 3.72%, up from below 3% in May. This indicates that investors envision the Fed reducing its rates only down to 3.5% over time.

This outlook could pose problems for the overall market, which has just reported its fourth consecutive month of losses. This stagnation represents a significant setback for investors who suffered a record-breaking loss of 12.5% last year — an unprecedented drop in annual data dating back to the early 1970s.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

By Stella Qiu

SYDNEY (Reuters) - Asian shares fell and the dollar was firm on Monday as investors looked ahead to a week packed with central bank meetings including the Federal Reserve and the Bank of Japan, which will be closely scrutinised for the global monetary policy outlook.

S&P 500 futures advanced 0.2% while Nasdaq futures edged 0.1% higher.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.5%, with Australia's resources-heavy share market dropping 0.7% and Hong Kong's Hang Seng index off 0.7%.

Japan's Nikkei is closed for a holiday.

The spotlight in the Asian morning fell on Chinese property developers listed in Hong Kong, which tumbled 2% in part due to a 20% plunge in China Evergrande (HK:3333) Group after police in southern China detained some staff at its wealth management unit, the latest trouble to hit the embattled property firm.

Also, Chinese trust firm Zhongrong International Trust Co, with exposure to Chinese property developers, said over the weekend it was unable to make payments on some trust products on time.

Sentiment in Asia had improved last week after news of more policy support from Beijing and better-than-expected Chinese data added to signs the world's second-largest economy could be starting to stabilise from a months-long slowdown.

"Despite the encouraging sign of stabilization, the property market continues to be the missing puzzle piece in the economic picture," said Tommy Xie, head of Greater China Research at OCBC Bank.

"The on-the-ground feedback indicates a rise in property viewing activities; however, most prospective buyers are not in a hurry to finalize deals due to the increasing supply of apartments post relaxation."

This week, global central banks will take centre stage, with five of those overseeing the 10 most heavily traded currencies - including the U.S. Federal Reserve - holding rate-setting meetings, plus a swathe of emerging market ones as well.

Markets are fully priced for a pause from the Fed on Wednesday, so the focus will be on the updated economic and rates projections, as well as what Chair Jerome Powell says about the future. They see about 80 basis points of cuts next year.

"In theory, the FOMC meeting should be a low-volatility affair, but it is a risk that needs to be managed," said Chris Weston, head of research at Pepperstone.

"We should see the median projection for the 2023 fed funds rate remaining at 5.6%, offering the bank the flexibility to hike again in November, should the data warrant it."

Weston added that if the Fed revises up the rate projections for 2024, that would see rate cuts being priced out, resulting in renewed interests in the U.S. dollar and downward pressure on global shares.

On Thursday, Bank of England is tipped to hike for the 15th time and take benchmark borrowing costs to 5.5%, while Sweden's Riksbank is seen hiking by 25 basis points to 4%.

Bank of Japan is the key risk event on Friday. Markets are looking for any signs that the BOJ could be moving away from its ultra-loose policy faster than previously thought, after recent comments by Governor Kazuo Ueda sent yields much higher.

Last Friday, Wall Street ended sharply lower as U.S. industrial labour action weighed on auto shares. Rising Treasury yields also pressured Amazon (NASDAQ:AMZN) and other megacap growth companies.

Cash Treasuries were not traded in Asia with Tokyo shut. Treasury yields edged higher on Friday, with the two-year above the 5% threshold, as futures price in higher rates for longer ahead of a the Fed's policy meeting this week.

In the currency markets, the U.S. dollar was still standing strong near its six-month top at 105.29 against a basket of major currencies.

The euro recovered 0.1% to $1.0673 in early Asia trade, after slumping to a 3-1/2 month low of $1.0629 last week as the European Central Bank signalled its rate hikes could be over.

Oil prices were higher, after hitting 10 month tops last Friday, stoking inflationary pressures. Brent crude futures rose 0.3% at $94.20 per barrel and U.S. West Texas Intermediate crude futures were up 0.4% at $91.14.

The gold price was 0.2% higher at $1,925.62 per ounce.