The Bank of Russia unexpectedly maintained its key interest rate at a record-high 21% , defying analysts’ expectations of another significant hike as inflation remains stubbornly elevated. The decision marks a shift toward a more measured approach in balancing economic growth and price stability. Key Details Inflation Concerns: Annual inflation climbed to 8.9% in November, well above the central bank’s 4% target , with inflation expectations reaching 13.9% in December. Policy Rationale: The central bank cited the significant tightening of monetary conditions after October’s 200-basis point hike as sufficient to resume disinflationary processes. Governor Elvira Nabiullina emphasized avoiding both economic overheating and severe slowdowns. Economic Overheating: Elevated government spending on the war in Ukraine and social programs, coupled with labor shortages and rising wages, have fueled strong domestic demand, exacerbating price pressures...
Japan’s ruling coalition failed to gain the support of a key opposition party, threatening Prime Minister Shigeru Ishiba’s ability to pass the 2025 state budget and tax reform bills through parliament.
Key Highlights
1. Income Tax Threshold Dispute
- Proposed Threshold: The ruling Liberal Democratic Party (LDP) and coalition partner Komeito suggested raising the tax-free income threshold from ¥1.03 million to ¥1.23 million, the first adjustment since 1995.
- Opposition’s Demand: The Democratic Party for the People (DPP) is pushing for a much higher threshold of ¥1.78 million to better address rising living costs.
- DPP’s Stance: "With the planned ¥1.23 million threshold, there is no way for us to support the state budget," said DPP lawmaker Yuichiro Tamaki.
2. Revenue Implications
- Proposed Hike Impact:
- LDP's plan: Reduce tax revenue by ¥700 billion.
- DPP’s demand: Estimated revenue reduction of ¥8 trillion, exacerbating Japan’s significant public debt.
3. Broader Tax Reform Measures
- The coalition’s tax reforms also include:
- Corporate and Tobacco Tax Increases: Set to begin in April 2026 to fund defence spending.
- Defence Spending Target: Doubling to 2% of GDP by 2027, a continuation of former Prime Minister Fumio Kishida’s commitment.
4. Legislative Challenges
- The ruling coalition lost its majority in the October snap election, leaving it reliant on opposition parties like the DPP to pass key legislation.
- Next Steps: The cabinet is expected to approve the tax reform framework next week, forming the basis for the 2025 state budget.
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