China cuts medium term lending rates, while US Fed leaves rate unchanged

China's central bank has cut the borrowing cost of its medium-term policy loans for the first time in 10 months on Thursday. This is in line with expectations, as Beijing ramps up stimulus measures to shore up a shaky economic recovery.

The People's Bank of China (PBOC) said it lowered the rate on 237 billion yuan (US$33.1 billion) of one-year medium-term lending facility (MLF) loans to some financial institutions by 10 basis points to 2.65% from 2.75% previously.

In a Reuters poll of 33 market watchers this week, all respondents had predicted a cut to the MLF rate, with 94% of them expecting a 10-bps cut.

It may be recalled that the US Federal Reserve had left interest rates unchanged on Wednesday but signaled in new projections that borrowing costs may still need to rise by as much as half of a percentage point by the end of this year, as the US central bank reacted to a stronger than expected economy and a slower decline in inflation.

In a press conference at the end of the central bank's latest policy meeting, Fed Chair Jerome Powell described US growth and the job market as holding up better than expected under the weight of the aggressive monetary policy tightening of the past year - likely lengthening the Fed's fight to lower inflation but also letting it proceed with less economic damage.

US dollar tumbles to four week low

The US dollar dropped to four-week lows on Wednesday after data showing weaker than expected US producer and consumer prices cemented the view that the Federal Reserve will not raise interest rates later in the day.

China's yuan sagged to its weakest in over six months after the central bank cut rates, and as speculation mounts that more stimulus is on the way to support the sputtering post-COVID-19 economic recovery.

The Fed is widely expected to hold interest rates unchanged at a range of between 5.0% and 5.25% later on Wednesday. For the July meeting, the rate futures market has priced in a more than 60% chance of a 25-basis-point hike.

In late morning trading, the dollar index, which measures the performance of the US currency against six others, fell 0.5% to 102.79, after touching its lowest since May 21 at 102.78.

"I look at the January 2024 fed funds futures contracts and that is implying a 5.10% rate," said Marc Chandler, chief market strategist at Bannockburn Forex in New York.

"That tells me the market says -- and it all depends on what (Fed Chair Jerome) Powell and the Fed couches their move that they're not necessarily done -- the Fed is done. I think it will be hard for the Fed to convince the market otherwise," he added.

Supporting market expectations of a pause was a report which showed that US producer prices fell more than expected in May, with the annual increase in producer inflation being the smallest in nearly 2-1/2 years.

That followed soft consumer price data on Tuesday which showed that the US consumer price index edged up 0.1% last month after increasing 0.4% in April. In the 12 months to May, the CPI climbed 4.0%, the smallest year-on-year increase since March 2021, after rising 4.9% in April.

The dollar index was headed for its largest two-week drop since late March, having lost about 1.2% in value in that time, as the view has taken hold among investors that, while the Fed may be close to the end of its current course of rate hikes, other central banks have further to go.

"The dollar has been broadly consolidating for the most part. But I think overall the dollar has peaked," Bannockburn's Chandler said.

The Reserve Bank of Australia and the Bank of Canada last week delivered surprise rate rises, while the chances for the Bank of England to deliver a half-point rise when it meets next week have reached 20% after shock wage-growth data on Tuesday.

The euro has been steadily clawing back from 2-1/2-month lows in late May and was last up 0.5% at US$1.0845. The European Central Bank (ECB) delivers its decision on rates on Thursday, with a quarter-point hike to 3.50% widely expected.

Sterling rose 0.6% to US$1.2686, after earlier hitting its highest since April 2022 of US$1.2691.

The dollar slid 0.6% against the yen to 139.43 yen, retreating from a one-week high the day before. The Bank of Japan is expected to retain its ultra-easy policy settings on Friday.

Meanwhile, the Chinese yuan hit 7.1785 earlier, its weakest against the dollar since late November. It was last at 7.152 per US dollar, up 0.3%.

The People's Bank of China's cut a key short-term lending rate for the first time in 10 months on Tuesday and is widely expected to cut the borrowing cost on medium-term policy loans on Thursday, a Reuters poll showed.

 

China willing to help foster Palestinian peacemaking with Israel

China is willing to play a positive role to help the Palestinians achieve internal reconciliation and promote peace talks with Israel, Chinese President Xi Jinping told his Palestinian counterpart in Beijing on Wednesday.

"The fundamental solution to the Palestinian issue lies in the establishment of an independent Palestinian state based on the 1967 borders with East Jerusalem as its capital," Xi said, according to Chinese state media, reiterating a 1967 UN Security Council resolution that Israel has long rejected.

The international community should increase development assistance and humanitarian help to the Palestinians, Xi added.

Palestinians seek statehood in the West Bank, Gaza and East Jerusalem, territories occupied by Israel in the 1967 Middle East war. Israel quit Gaza in 2005 but continues to expand settlements in the West Bank and calls Jerusalem its eternal, indivisible capital.

Peace talks that were brokered by the United States have been frozen since 2014.

Palestinians' internal divisions also complicate peacemaking, with the Islamist Hamas movement that rules Gaza publicly sworn to Israel's destruction. Abbas heads the Palestinian Authority that exercises limited self-rule in the West Bank.

Abbas is in Beijing on a three-day visit in which he hopes to demonstrate Chinese support for a Palestinian state, after failing to meet with US officials while in New York for the United Nations General Assembly last year.

China has historically good relations with the Palestinians and since Abbas' last visit in 2017 has consistently talked up its capabilities in mediation, although with little to show in this regard until it brokered a surprise deal between Iran and Saudi Arabia to restore diplomatic ties in March.

"We have always firmly supported the just cause of the Palestinian people to restore their legitimate national rights," Xi told Abbas at a welcome ceremony at Beijing's Great Hall of the People.

Xi and Abbas also announced the two sides had agreed to establish a strategic partnership and signed a number of bilateral documents, including an economic and technological cooperation pact.

On Tuesday, Chinese Foreign Minister Qin Gang offered to contribute Chinese wisdom to the Palestinian issue in a separate meeting with Palestinian counterpart Riyad al-Maliki.

 

Lebanon: Failure to elect new president deepens crisis

Lebanon plunged deeper into crisis on Wednesday when Hezbollah and its allies thwarted a bid by their rivals to elect a top IMF official as president, sharpening sectarian tensions and underlining the dim hopes for reviving the crumbling state.

Four years since Lebanon slid into a financial meltdown that marks its worst crisis since the 1975-90 civil war, parliament failed for the 12th time to elect someone to fill the post reserved for a Maronite Christian under the country's sectarian system.

Lawmakers from the Iran-backed armed Shi'ite group Hezbollah and allies including the Shi'ite Amal Movement withdrew from the session to obstruct a bid by the main Christian parties to elect IMF official Jihad Azour.

The standoff has opened up a sectarian faultline, with one of Hezbollah's main Christian allies - Gebran Bassil - lining up behind the bid to elect Azour, alongside anti-Hezbollah Christian factions.

Azour, the IMF's Middle East Director and an ex-finance minister, won the support of 59 of parliament's 128 lawmakers in an initial vote, short of the two-thirds needed to win in the first round. Suleiman Frangieh, backed by Hezbollah and its allies, got 51 votes.

Hezbollah and its allies then withdrew, denying the two-thirds quorum required for a second round of voting in which a candidate can win with the support of 65 lawmakers.

It leaves Lebanon with no immediate prospect of filling the presidency, which has been vacant since the term of the Hezbollah-allied President Michel Aoun ended in October last year.

Hezbollah, which says it is exercising its constitutional rights, is backing its close Christian ally Frangieh, a friend of Syrian President Bashar al-Assad who strongly supports Hezbollah's right to possess weapons.

Hezbollah, which is designated as a terrorist group by the United States, has unleashed fierce rhetoric in their campaign against Azour, describing him as a candidate of confrontation.

Lebanon's Shi'ite Mufti Sheikh Ahmad Qabalan dialled up the attacks on Sunday against Azour without naming him, accusing him of being backed by Israel and saying "a president with an American stamp will not be allowed".

Azour, 57, has said he wants to build national unity and implement reforms in a country mired in its deepest crisis since its 1975-90 civil war.

Azour served as finance minister from 2005 to 2008, a period of political conflict pitting a government backed by the West and Saudi Arabia against opponents aligned with Damascus and led by Hezbollah.

He also enjoyed the support of Lebanon's main Druze faction, the Progressive Socialist Party led by the Jumblatt family, and some Sunni lawmakers.

Iranian president meets Venezuela president

Iranian President Ebrahim Raisi and his accompanying delegation held several meetings with Venezuelan officials in a bid to deepen partnership between Tehran and Caracas. 

On Monday morning Iran’s local time, President Raisi left Tehran for a tour of three Latin American nations -Venezuela, Nicaragua, and Cuba- as the head of large politico-economic delegation. 

Upon his arrival in the Venezuelan capital, the Iranian president was accorded an official reception in which the national anthems of Iran and Venezuela were played. During the playing of the national anthem of the Islamic Republic of Iran, a group of Venezuelan children and teenagers sang the national anthem of Iran in Persian.

After the reception ceremony, President Raisi and his Venezuelan counterpart Nicolas Maduro held a meeting in which they discussed ways to boost bilateral cooperation. 

In the meeting, Raisi described the relations between the two countries as strategic. 

“Despite the expansion of relations between Iran and Venezuela in recent years, diverse mutual capacities require the agreements of the two countries to be implemented as quickly as possible and the relations between them to be upgraded to higher levels,” he said, according to the official website of the Iranian presidency. 

Raisi underlined the achievements that Iran made while being under US. sanctions. He said Iran can share these achievements with Venezuela.

“The Iranian nation has gained valuable experiences and achievements in the field of science and technology by standing up to the domination system and overcoming the sanctions, which can be shared with Venezuela,” Raisi noted.

The Iranian president also touched on the emerging new world order, saying that such a development can benefit Iran and Venezuela. Stating that a new system is being formed in the world, Raisi said that the future of these developments will benefit the freedom-seeking and independent countries of the world.

President Maduro, praised the history of strategic relations between Tehran and Caracas and announced his determination and the members of the cabinet of this country to start a new round of efforts and measures to expand relations with the Islamic Republic of Iran.

Maduro also hailed the emerging new world order. “In the new world that is being formed, imperialism is falling and the countries that have resisted the arrogance of the arrogant are on the verge of victory,” he said. 

Stressing the need for establishing a direct air link between the two countries and strengthening shipping lines to increase trade between Iran and Venezuela Maduro said, “The two countries have good capacities for cooperation in the fields of tourism, agriculture and animal husbandry.”

In the meeting of the high-ranking delegations of Iran and Venezuela, the presidents of the two countries called Martyr Haj Qassem Soleimani and the late Venezuelan politician Simón Bolivar as heroes of the fight against domination and imperialism.

Maduro praised General Soleimani. “I always remember General Soleimani and I pay tribute to him. In 2018, a brutal cyber attack from United States was launched on our energy infrastructure. He directed a team to investigate the cyberattack and helped us a lot. Many do not know about that,” Maduro said, according to Fars News. 

He added, “I also pay my respects and we will install his bust in the tomb of Simon Bolivar.”

In Caracas, President Maduro also awarded Raisi the national honor of Venezuela.

Raisi and Maduro also participated in Iran-Venezuela high-level joint commission meeting. After the meeting, the presidents of the two countries held a joint press conference.  

“Iran and Venezuela have common interests and views in the fields of independence, freedom and justice, which has brought the people of these two countries closer together,” Raisi said at the presser. 

He also stated that the people of Iran and Venezuela have common enemies who do not want them to live independently. 

“The Iranian nation has proven its friendship with the Venezuelan people over the past years and has always shown that it is their friend during their difficult times,” Raisi added.

Pointing out that the relations between Iran and Venezuela are not ordinary, but strategic, President Raisi said, “Having common interests, views and enemies have made cooperation deep and strategic.”

He added, “Today, the two countries are determined to develop relations in different fields.”

Raisi stated, “The Islamic Republic of Iran, thanks to the blessings of the Islamic Revolution, the pure blood of the martyrs, and the resistance of the Iranian people, has been able to turn the pressures and sanctions into opportunities, and in this way has provided various capacities that are ready to be shared with the resilient nation of Venezuela.”

At the end, Raisi once again paid tribute to the national heroes of Venezuela and honored the memory and name of the resistance martyr Haj Qassem Soleimani and saluted his noble soul.

 

Iraq releases Iranian US$2.7 billion

Trade Bank of Iraq (TBI), an Iraqi bank, has released Iranian funds. According to a TBI statement the Funds have been released in accordance with a trilateral mechanism between Iran, Iraq and the United States. 

The Iranian assets that were recently released pertain from February to June 2023. This was according to the mechanism agreed upon between the three countries (Iraq, Iran and the United States of America) in force since 2018, said Aqeel al-Showeili, the communications specialist of TBI. 

The chairman of the Iran-Iraq joint chamber of commerce has recently announced that Iraq has released US$2.7 billion worth of Iranian assets.

Yahya Al-e Es’haq said a part of Iran’s frozen assets in Iraq has been allocated for the provision of funds needed by Iranian Hajj pilgrims.

Another part of the assets has been used to pay for the provision of basic commodities, he added.

In addition to the Iranian funds in Iraqi banks, there have been reports about the possible release of Iranian funds by South Korea. Officials from the United States and South Korea are holding talks over unfreezing Iranian funds held in South Korean banks, according to a South Korean daily.

The talks are focused on releasing the US$7 billion Iranian funds that have long been blocked in South Korean banks due to US sanctions on Iran. The funds are oil revenues dating back to the period prior to the re-imposition of US sanctions on Iran in May 2018.

Citing diplomatic and government sources, The Korea Economic Daily said in late May, “Korean and the US government officials are involved in working-level discussions under Washington’s leadership to unfreeze the Iranian funds.”

The newspaper said the funds, if released, would only be used for public and humanitarian purposes such as UN dues and COVID-19 vaccines.

“If all goes to plan, we expect our strained relationship with Iran to improve significantly,” said a Seoul government official.

If talks turn out to be successful, the frozen money will be allowed to be transferred to Iranian bank branches in neighboring Middle Eastern countries, not directly to Iran, to monitor the flow and use of the funds, sources said.

The Korean newspaper also pointed to media speculation over the concessions that Iran is expected to make in exchange for getting its money unfrozen.

It said that media reports alleged that Iran would release US prisoners and limit uranium enrichment levels to 60% in return. These speculations have so far not been confirmed by officials.

 

Syrian foreign minister inspects embassy premises in Riyadh

Syrian Minister of Foreign Affairs and Expatriates Dr. Faisal Mekdad made an inspection tour of the headquarters of his country’s embassy in Riyadh. The foreign minister’s visit to the embassy premises, the first of its kind in over 11 years, was to personally review the ongoing preparations for the reopening of the embassy.

Mekdad and his accompanying delegation arrived in Riyadh on Monday in response to an invitation from his Saudi counterpart Prince Faisal bin Farhan to attend the second joint ministerial meeting of the Arab countries and the Pacific Islands Group.

The Syrian Ministry of Foreign Affairs stated that Mekdad visited the headquarters of the Syrian embassy to see the readiness of the building and the ongoing preparations for the reopening of the embassy, especially in terms of resuming the provision of consular services to the Syrian community in Saudi Arabia in the near future.

The inspection was part of the ongoing preparations by the two countries to reopen their diplomatic missions in both countries at the earliest possible. The Saudi technical delegation made an inspection tour of the Saudi embassy premises in the Syrian capital at the end of last month.

Speaking to Okaz/Saudi Gazette, well-informed sources revealed that the Syrian Foreign Ministry will give final shape to its embassy staff in Riyadh, and that the Syrian ambassador likely to arrive in Riyadh after the Eid al-Adha holidays.

According to the sources, Damascus is yet to appoint it’s ambassador-designate to Riyadh, though it was taken the decision to send new ambassador to Saudi Arabia.

The Saudi technical delegation has completed the procedures for the return of the Saudi ambassador to Syria.

The Syrian Ambassador Mahdi Dakhlallah left Riyadh in February 2012 following Saudi Arabia’s severing of diplomatic relations with Syria.

It is noteworthy that Dr. Mekdad paid an official visit to Riyadh in April this year after a hiatus of 12 years. The minister’s visit was in response to an invitation extended by Minister of Foreign Affairs Prince Faisal Bin Farhan.

During the visit, the foreign ministers held wide range of talks focusing mainly on the efforts to reach a political solution to the Syrian crisis in a way preserving Syria’s unity, security and stability.

Issues such as the return of Syrian refugees to their homeland and ensuring the access of humanitarian aid to the affected areas in Syria also figured high in their talks.