09/07/2012 World Business Report


09/07/2012

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Borgnine. Warped time now for the money news with Sally and World

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Business Report. Welcome to World Business Report.

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The headlines: The deputy governor of the Bank of England must explain

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his role in the interest-rate fixing scandal.

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Welcome news for China's government and consumers as falling food

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prices lead inflation to cool. It could be a career defining

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moment for Paul Tucker, the deputy governor of the Bank of England who

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has ambitions of becoming its next governor. He has before politicians

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today to explain his role in the Barclays rate fixing scandal. What

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MPs would like to know it is if he encouraged the bank to lower the

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rate at which it lends to other banks, the so-called libel rate.

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Questions will centre around a phone call between Bob Diamond and

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Mr Tucker in which Mr Tucker discussed the high interbank

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lending rates. After the discussion, Barclays' rates fell. In his

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testimony to Parliament, Bob Diamond said he did not consider

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that Mr Tucker was asking him to lower the rate, but that a

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misunderstanding arose further down the line. I didn't take it as a

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directive, I took it as either an indication that we were high for an

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audience that we were high. What I said, I am not quoting exactly, I

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said that the reality was that we at Barclays were coasting at the

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levels at which we had to borrow, and other institutions who had to

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take government money were posting below those levels.

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What do you think Paul Tucker will say later today?

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I think he will say that he was not trying to tell Barclays or any

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other bank to the libel rates or a fixed interest rates. -- lower. He

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will say he was just asking why Barclays was higher than other

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banks during a time of huge stress in the banking system - in 2008. He

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will ask if it is not a reasonable question to ask - the bank needed

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to know what was going on at the time. He will say it was perfectly

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innocuous. And that the Financial Times, what

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do you suspect? Last week in the middle of this process when Bob

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Diamond was giving his testimony, you had a graph to show a dramatic

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drop in the interest rate. The conversations that went on between

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Mr Tusk and Bob Diamond. There is no doubt that Barclays

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Fixed its rate after the phone call -- and Mr Tucker. It is pretty

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clear that other banks were doing something similar at the same time.

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The question is, how much did the Bank of England No and was it given

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tacit approval? I'm sure they didn't give instruction to the bank,

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but was there a nod and a wink and was it appropriate? That is what we

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will be trying to find out today. How effective you think this

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committee is? Some who are on it have told the press that they think

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they are powerless to get to the bottom of this.

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The day-to-day stuff of finding out what is going on in the UK, they

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are OK. When it comes to specific wrongdoing, they are not lawyers

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and they do not have legal support. They don't have reams of evidence

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so they are finding it difficult. They didn't really lay a finger or

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a Bob Diamond except for the beginning when the chairman, who

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had been clearly briefed by somebody, had the latest

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authorities have you that Barclays' culture was very bad, which was a

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shock to Bob Diamond. But after that it petered out.

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Where will this finish? Is there a larger parliamentary inquiry into

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what went on coming? Other banks will come to the forefront and be

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named and shamed - what do you think the ultimate outcome will be?

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I think it will be that the authorities will not be seen to

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have done something wrong, although the taint of it might mean that

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Paul Tucker might damage his chances of becoming the Governor of

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the Bank of England. Briefly, the libel system will

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probably be changed? Yes, it will be changed, as will

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other markets that depend on the Lords and winks and things going on

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behind the scenes. -- on nods and winks.

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Now we move on to other stories. Finance ministers in the eurozone

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at our meeting in Brussels today amid concerns about the high rates

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of interest that Italy and Spain are having to pay to borrow money

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on the bond markets. Splits are emerging between southern and

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northern members of the eurozone about how decisions are taken.

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The new Greek government won a confidence vote late on Sunday,

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which was widely expected. It followed a three-day debate during

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which the Prime Minister promised to win back the trust of foreign

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lenders. He also said he would ask Europe and the IMF with more -- for

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output from Tuesday... Much-needed breathing space for

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Chinese policy makers as inflation hits a 29-month low. Selling price

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rises make it easier for the government and Central Bank to

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continue their campaign to cut interest rates and boost growth.

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The Consumer Price Index rose 2.2% in June, that is five months below

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target. This comes after Wen Jiabao said that the economy is still

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facing a huge pressure. Joining was met from Beijing is the deputy

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director of the China forecasting service -- joining one...

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Inflation is definitely in the control of the government now. We

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see this figure at 2.2% - that is the third month in a row we are

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reading a negative amount of growth. What we will see in the next few

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months is that inflation will keep on being very low, although it will

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become higher towards the end of the year. It is easy to say that we

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will have no difficulty achieving the 4% CPI target for the

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government. Yesterday Wen Jiabao said he was fairly pessimistic in

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terms of what he said. What is he saying to us? How worried do we

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need to be about where China is heading? If you combine today's CPI

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with his report yesterday and last Thursday's surprise interest-rate

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cut, I think that is telling us that the government already saw

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that the CPI number will be below the market consensus and that the

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second quarter GDP figure will not be looking very good. We are

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looking at a 7.7% GDP for the second quarter, which will be the

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bottom of the Year. The government is watching this very carefully.

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They are very risk-averse. They do not want to see the economy

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collapse. Especially because this is the year of a political change

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of guard. They need to make sure there is good and steady economic

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growth to lead for a good tradition for the government. What could be

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the element that could cause real problems for the Chinese economy,

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then? You say they are risk-averse. They have been very proactive at

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the moment, we saw that rate cut last week which was a surprise.

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What could cause real headaches here? Is that the property market?

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The amount of credit that is swirling around the market at the

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moment and what happens when that runs out? Good question.

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Fundamentally, there are two main challenges for the Chinese economy

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now. One is the export sector and the other one is investment. Export

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is not as important to the Chinese economy compared to before, but it

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still comprises about 30% of its total GDP. Especially what's going

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on in the western world - especially what's happening in the

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eurozone. The EU is China's largest export destination and their

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biggest trading partner. Whatever is going on there will have a large

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impact in China. When it comes to the investment story, that's still

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very important because it comprises about 50% of Chinese total GDP. The

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property market is very important. Wen Jiabao said clearly that they

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were not letting the price shoot up to the sky as we saw in the last

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seven years. Fundamentally, the demand is there, so the investment

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into the property market will eventually pick up. Thank you for

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your analysis of what is going on in China.

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Let's look at the markets now, they are not having a good session today.

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