GBPUSD： is looking likely to go to 1.19000 this NFP

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Summary:

After over 4 years of back and forth over at GBPUSD, we have come yet again on another crucial deciding point. Will the market head to 1.14000 or would maintain its sails to keep ranging between 1.21000 to 1.41000? That is up to later’s NFP

GBPUSD： is looking likely to go to 1.19000 this NFP_1

As seen in the monthly chart, price is currently at a crucial monthly support level. The are has been tested by 8 monthly candles and all of which has received a bullish upswing. And historically, for the past 7 years, everytime price reaches this crucial level, the bulls tend to hold price from piercing through--but the main question this time is; will price make a run down south?

GBPUSD： is looking likely to go to 1.19000 this NFP_2

Zooming into the weekly chart, we see that the area of confluence around 1.22000 was able to successfully hold price from moving upwards. However, with the current weekly candle’s formation--a bullish doji, it is possible that price will just wick through the the key level and try to tackle the 0.5% retracement level.

GBPUSD： is looking likely to go to 1.19000 this NFP_3

Inside the daily time frame, price is giving out a clear picture. As highlighted in red, the 2 red bearish candles pushed through 1.19000 to 1.18000 with little-to-none resistance. Often times, when things like these happen, these could be called imbalances. More often than not, the market would fill those imbalances and gaps to maintain efficient pricing. Other than that, the previous support now turned resistance seen in line with the 50% retracement level can be a great target for bulls this NFP session--this is also evident with the accumulation seen in the 1.18000 level as price is currently consolidating to fuel it’s potential move upward.

With all that said, we are expecting for price to have a short-term rebound to 1.19000 this NFP session.

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Thomas

The British are good at satire, probably because historically they have had plenty to be scathingly funny about. The 18th century was a golden age for this most bitter style of wit. The poetry of Alexander Pope or Gulliver's Travels and other works by Jonathan Swift are in a humorous tradition that goes back at least to Roman times. Pope's humour was gentle; Swift's brutal. Swift once suggested (satirically) that the cure for Irish poverty was to eat babies. Nasty humour goes with very tough times.

In our more recent tough times, Britain in the 1960s and '70s, satire again bloomed. The UK was a once great nation, which famously had "lost an empire and failed to find a role", and was seen as "the Sick Man of Europe". BBC TV invented the political satire That Was The Week That Was. The fortnightly satirical magazine Private Eye was founded in 1961 and mixed factual news with cartoons and amusing stories to deflate the pomposity of those in power. Nowadays Private Eye is experiencing a new boom. While daily newspapers have lost readers as people work from home, Private Eye's circulation figures (June 2022) have bucked the trend, recently reaching almost 250,000 copies.

It's easy to see why. British politics is filled with personalities who are easy to satirise. Some politicians almost satirise themselves. Making fun of those in power is a British tonic in increasingly hard times. With inflation skyrocketing, a cost-of-living crisis, war in Ukraine and the endless Brexit botch-up, we all need cheering up.

The former editor of Private Eye in the 1970s, Richard Ingrams, reputedly said that the prospect of Britain electing an incompetent prime minister appalled him as a British citizen, but as editor of a satirical magazine, he was quite encouraged.

Ingram's successor, today, Ian Hislop, may also be horrified as a British citizen by the cast of oddball characters in British public life, but our political eccentrics are certainly good for his magazine business. There is the current (at least for the next few days) Prime Minister Boris Johnson, of course – a character possibly now beyond satire.

Then there are Mr. Johnson's putative successors, Rishi Sunak and Liz Truss, who are much loved by cartoonists and comedians. The next level of satirical targets, includes Culture Secretary Nadine Dorries, Home Secretary Priti Patel, Transport Secretary Grant Shapps, Jacob Rees-Mogg and many others. Their antics are so peculiar that if British people did not laugh, they would weep.

For example, Mr. Rees-Mogg is both an MP and something called the "Brexit Opportunities Minister". He is so bizarrely old-fashioned he is sometimes called the "Honourable Member for the 18th century". Lacking any real ideas about Brexit "opportunities", Mr. Rees-Mogg appealed to readers of a tabloid newspaper, The Sun, asking if they have discovered "any petty old EU regulation that should be abolished". Transport Secretary Mr. Shapps suggested that bicycles should be forced to have number plates like cars, a suggestion so ludicrous it was immediately repudiated by the grown-ups in his own government department. He also said he would crack down on pointless announcements on trains – hardly the top priority of the British people. Culture Secretary Ms Dorries runs a department which covers sport, television, and theatre, a department sometimes called the "Ministry of Fun". Her gaffes are too numerous to mention, but they include the idea that tennis is played on "tennis pitches", and that people "downstream" movies.

Other recent government ministers have been mocked for offering a ferry contract to a company without ferries, and, in the case of an agriculture minister, masterminding a campaign against badgers spreading disease in cattle but conceding it had failed because the badgers "moved the goalposts". A government "outwitted by badgers" is truly beyond satire.

Whether these real-life English political eccentrics make life easier for comedy writers or more difficult is, however, open to debate. Some satirists, including the film director Armando Iannucci, accept that it's problematic competing with the activities of real politicians. And that brings us to our (almost certainly) new prime minister, the eminently satirise-able Liz Truss.

If she is confirmed as prime minister next month then, like the satire boom of the 1970s, Ms Truss will lead the UK at a time of extraordinary difficulty, when many voters are disillusioned with politics entirely. According to a February 2021 Commons Library Research Paper Political Disengagement in the UK: "The proportion of people who trusted the government to put the needs of the nation first decreased from 38 per cent in 1986 to 17 per cent in 2013. Trust in politicians has been fluctuating around 9 per cent."

I am among the 91 per cent of distrustful British citizens. I don't find the incompetence of the political elite amusing. Being prime minister should not be a comedy act. But I am also a faithful reader of satirical magazines. And British satire is nowadays of Olympic gold medal standard. Unfortunately, good governance, for the foreseeable future, is not.

Source: The National News

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Owen Li

Nature dictates hydroelectric power supply

Heatwaves and little rainfall in some parts of China have caused drought in the southwestern Chinese province of Sichuan, which greatly relies on hydroelectric power. Sichuan also generates excess electricity and usually sends this to the east side of China, including Shanghai and Hangzhou.

Some factories in western China have been affected with limited to no power supply, shopping malls have little air-con and lighting, and some apartments have been left without a working lift. But the situation this year is much better than it was back in September 2021, when some local governments pushed for the limited use of coal fire power. We have yet to see factory suspension in key cities, which is a relief to the government as the economy is already weak. The damage caused by the drought's power supply shortage is around 1% of GDP so far. We are yet to see how the drought will affect agriculture.

Coal power is an immediate remedy, though not a perfect solution

The temporary solution is to use more coal power to supplement existing power generation capacity. This is also the reason why not many cities are rationing power. This, of course, is not a good solution as coal generates more CO2. But right now, with temperatures so high, residents need to use their air conditioners.

Another step China has taken over the past few years is embracing the use of cloud seeding, which involves adding small particles of silver iodide to clouds to spur rainfall. The success rate depends on certain weather conditions, for example, clouds need to be thick to generate enough rain after cloud seeding is performed. According to China's weather forecast, there is a chance in the coming days that the government can perform cloud seeding.

Will China rely more on coal?

The question then is whether China will rely more on coal power in the long-term if hydroelectricity is not as stable.

Instability tends to be a major characteristic of renewable energy, and China's commitment to becoming carbon neutral by 2060 is not going to change. In fact, it could now be accelerated with the drought encouraging China to push forward the technology of generating and using renewable energy.

The process of transiting from traditional energy to renewable energy is a challenge, if it were not we wouldn't have to wait until 2050-60 for the world to achieve carbon neutrality. But this challenge could provide us with opportunities.

We need to go further than the installation of more solar panels

To find the opportunities we must identify the problems. Critically, achieving carbon neutrality requires more than installing more renewable energy generators, it also relies on being able to store renewable energy long enough without much loss over time. In May 2022, the Chinese government noticed this was a big opportunity to move toward using more renewable energy, as it discovered that around 12% of the power generated by wind in Inner Mongolia and 10% of solar power in Qinghai was wasted because of an issue with the electricity grid.

Foreign companies and Chinese companies will invest in this technology, but there is a risk that the technology race between China and the US may make climate change cooperation, in particular in research and development, more difficult.

For the Chinese economy, construction activities are key to growth

The most worrisome aspect of the Chinese economy is the deleveraging reform on residential property developers. Interest rate cuts only lift home buying sentiment a bit. Potential home buyers are watching to see whether uncompleted homes can be finished quickly and to a good quality. This takes time – at least a couple of quarters. Between now and then, even though there are supportive policies in place – a lower down payment ratio, lower mortgage rates, and lifting the second-home buying restrictions – it will only become attractive when there are projects that are 100% complete and managed by high-quality management companies, which are usually subsidiaries of property developers. Only after home buying activities pick up will more residential properties kick off construction.

The government can speed up infrastructure, and indeed it has. But the gap left by residential construction activities is getting bigger as more sites are holding off construction.

On 24 August, the central government offered another stimulus package, worth around 1% of GDP – similar to the economic damage caused by the drought so far. From the tone of the statement, it seems that the key point is not just the additional stimulus but the urgent tone directed toward local governments to act swiftly and efficiently. This is an important message to all local government officials as we approach the 20th National Congress of the Chinese Communist Party in October. Local government officials will have to be hands-on to create growth and jobs.

Source: ING

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Jason

At 10:00 ET, Federal Reserve (Fed) Chairman Jerome Powell will speak at the annual meeting of the central bank in Jackson Hole. European Central Bank President Christine Lagarde will be absent and will be replaced by executive member Schnabel. The importance of the Jackson Hole central bank annual meeting is self-evident. Usually, the chairman of the Fed will clarify the "medium-term policy path" at the meeting. Even if no actual policy is introduced, it will clarify future concerns.

The attitude of the Fed officials in their recent speeches, especially the speeches of the four Fed officials before the annual meeting of the central bank in Jackson Hole yesterday, basically established the hawkish tone of the Fed at this meeting. The question now is how hawkish it needs to be for the market to think it's hawkish. Because parts of the speech may have been priced in by the market, and the market has fallen, it is unclear to what extent this expectation has been priced in. If this expectation is fully digested, even if Powell's speech is hawkish, it will be regarded as "not hawkish enough."

Looking back at the past three years, the Fed seems to have made the wrong judgment at a delicate point. In 2019, the repo market was turbulent, and the Fed's interest rate management range was out of control for a time, which eventually forced the Fed to restart the repo facility to provide liquidity. In that year's speech, Powell didn't even mention the money market. The Fed's policy communication was criticized by many people. From the market survey of the New York Fed, only one of the primary dealers believed that the Fed's communication is "More effective", eight think it's "normal", eleven think it's "very ineffective", and four think "ineffective (low) communication". Of the 28 market participants surveyed, eight of them thought the Fed's communication was "relatively effective," five thought it was "moderate," seven thought it was "very ineffective," and seven thought it was "ineffective (low) in communication." ”, and only one market participant considered the Fed’s communication “very effective.”

The 2020 speech is related to the Fed's framework adjustment that year. Set the tone for the monetary policy framework for the next 10 years. In his speech, Powell talked a lot about the impact of the three-low environment of low productivity, low inflation, and low unemployment on monetary policy since the 2008 financial crisis. Average inflation targeting seems logical. But Powell apparently ignored the outbreak of the pandemic and radical changes in fiscal policy that same year. In fact, there are many structural factors that plague the job market in the post-pandemic era, and inflation has become a wild horse. The new framework simply cannot adapt to the current economic environment and job market conditions. Now, no one is talking about an average inflation target. As for the highly politically correct "broad employment goals" in the new framework, it has long been forgotten, and Biden needs even less job growth right now.

In 2021, inflation in the United States had already begun to rise by the time of the meeting, and the fiscal stimulus had continued in 2020. In his speech, Powell emphasized that "inflation is temporary", using five reasons and a very long length to try to prove that inflation is not a big problem. It is within the controllable range of the Fed and will fall back before the end of the year. Needless to say, inflation has not fallen but has risen further.

Will Powell make similar mistakes at this meeting? It can only be said that this possibility cannot be ruled out, but the probability should be very small. After all, the current economic environment can no longer withstand the toss, and Powell should be very cautious. The Fed is likely to clarify the current market concerns, and it will draw a clear benchmark for medium-term monetary policy based on these considerations.

There is no doubt that the market is still most concerned about the rate and end point of subsequent interest rate hikes. At the July meeting, Powell mentioned that the current level of interest rates has reached "neutral", and according to the dot plot provided by the Fed's June meeting, the end of the rate hike looks close at hand. After that, the possibility of economic recession was superimposed, the market's expectations for the Fed to slow down interest rate hikes continued to rise, and the frequent speeches by the Fed officials recently just dispelled the market's expectations in this regard. Therefore, Powell is unlikely to "hold back" and is likely to continue the hawkish style.

In addition, in the dual mandate, the Fed is currently clearly biased towards inflation, causing the Fed's current estimate of the natural rate of unemployment to be controversial. In other words, the Fed wants to suppress inflation by sacrificing the job market. Powell may explain this, and there is a high probability that he may provide his own benchmark judgment and guidance on the future of the job market, as Yellen did in 2014.

Soft landing and economic recession are also the focus of the market. With GDP in negative territory for two consecutive quarters, even if the U.S. recession is likely to be "moderate" (GDP growth in the 0%-1% range), fears of a U.S. recession have not dissipated. In the event of a global recession, the Fed, the global central bank, is bound to be subject to external factors (as it was in 2016).

Powell is likely to offer some new rhetoric at the meeting as the Fed's general approach to monetary policy in the event of a recession. For example, "substantial further progress" in 2021 is used as a trigger for Taper, and "insurance rate cuts" in 2019.

In addition, Powell may also "cast off the burden" in his speech, because it seems that many structural problems in the current economy cannot be solved by the Fed. There are very limited channels through which Fed tightening can work. For the supply shock of this round of high inflation (geopolitical conflicts and supply chain problems), the Fed is powerless. Demand-side fiscal stimulus is also outside the Fed's jurisdiction. In the job market, the pandemic, retirement, and immigration issues are all structural factors that are not within the control of the Federal Reserve, and monetary policy cannot respond effectively. As for complex external factors (European risks and China's growth rate decline), the Fed can only be a spectator.

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Devin

UK markets now expect Bank Rate to exceed 4% next year

Even by the standards of 2022, it's been a crazy week in sterling interest rate markets. Swap rates now suggest that the Bank of England will need to hike rates as high as 4.2% (from 1.75% currently). Not only that, it implies the Bank will need to take rates even higher than the US Federal Reserve; it's the first-time investors have taken that view since early this year.

This trend has undoubtedly been exaggerated by very poor liquidity which means it's hard to gauge exactly how realistic investors think a 4%+ Bank Rate really is. Nevertheless, we think some of this recent reappraisal can be traced back to the eyewatering surge in gas prices and increased focus on how the government may be forced to react.

The chain of logic goes something like this: higher energy costs increase the chances of a big support package from the government. And given it will hit households hard right across the income spectrum, blanket support measures (in addition to targeted payments to those on low incomes) may well be required. That, coupled with possible tax cuts depending on which candidate becomes Prime Minister in September, would materially reduce the risk of a deep economic downturn.

But the Bank of England would also view it as inflationary, and may well be forced to increase interest rates even further in the autumn.

UK Markets Are Only Half Right About the Bank of England as Energy Crisis Builds_1

We tend to agree with this assessment – even if the scale of the rate hikes required will probably fall well short of what markets expect. We think a 50bp hike in September, coupled with another 25-50bp in November looks more likely at this stage. Let's break it down in more detail:

So far, the government has announced £37bn worth of support, through a combination of direct payments to low-income households, coupled with a £400 discount for all households on their energy bills from October. When that support was announced in late May, energy bills were expected to peak at a little under £3000 in the autumn.

Using that figure, a quick back-of-the-envelope calculation suggests that households would have paid roughly £65bn in aggregate on their energy bills in the period between October 2022-October 2023. For context that compares to roughly £30bn in the fiscal year 2020-21, which came before energy prices began increasing. In other words, the support measures announced to date looked, at the time anyway, like they would go some way to offsetting the energy bill increases coming down the track.

Consumers may need up to £65bn extra in government support

Fast forward a couple of months, and the picture looks much more extreme. The energy regulator Ofgem has announced the average household bill will surpass £3,500 from October, and further sharp rises look inevitable.

Indeed, our own estimates based on gas and electricity futures contracts this week point to an average annual household energy bill of around £5,300 across that same 12-month period from October (peaking at roughly £6,500 on an annualised basis in the three-month period between April-June 2023). That takes our aggregate household cost estimate up to around £130bn – a £65bn increase on May's projection - and this estimate is rising on an almost daily basis.

Admittedly that figure is a bit of a simplification – it relies on a number of assumptions, not least that those wholesale futures contracts provide an accurate gauge of where prices will land this winter. Many of those contracts are trading fairly illiquid right now. But it gives a sense of what the new Prime Minister will be faced with when they take office in early September. Roughly speaking, the average household would see need almost £2,700 extra, were the government to match the level of support offered in June.

One option would be to increase the value of payments being given to those on income support/benefits, and that seems quite likely. But in practice, a much broader response will also be needed. We've run a rough calculation in the chart below, and what's striking is that across large parts of the income distribution, households may have to devote more than 10% of their disposable incomes to energy bills on average (between Oct 2022 and 2023), even accounting for existing support available.

Some of these households will be able to tap savings accrued during the pandemic. That 'excess savings' level still stands at roughly 8% of GDP.

But it's hard for the government to target support on this basis, and it may find that the most practical option would be to dramatically increase the £400 energy bill discount being offered to all households.

Extra government stimulus would likely prompt additional rate hikes

Whatever happens, the Bank of England will be looking at all of this through the lens of inflation. Broad-based government support would considerably reduce the chances of a recession - or at least of a deep downturn - especially given it may also be coupled with a cut to national insurance (a form of income tax) if Foreign Secretary Liz Truss becomes Prime Minister in September. The assessment also depends on what support is offered to businesses, something we've not discussed here.

But broadly speaking, we agree with markets that the Bank of England would view reduced recession odds as raising medium-term inflation forecasts, and thus would likely feel obliged to hike rates further.

To be clear, all of this is guesswork at this stage. Neither candidate, Rishi Sunak nor Liz Truss, have said in detail yet what level of support they'd implement this autumn. It's not clear whether we'll get an emergency budget before the Bank of England's meeting on 15 September, but assuming we don't, we expect the Bank to opt for another 50bp then.

We've recently argued that the Bank is reaching the latter stages of its tightening cycle. The BoE's own August forecasts suggest inflation will be below target in a couple of years' time, regardless of whether it increases interest rates further. Inflationary pressures associated with 'core' goods are easing, given lower commodity costs, higher inventory levels and reduced consumer demand - even if wage growth will keep pressure on services inflation.

But the arrival of fresh government support would provide the BoE with further impetus to hike rates aggressively in the near term, and probably into late autumn. We expect the Bank Rate to peak at roughly 2.5-2.75% in November, albeit far less than current market pricing is suggesting.

Gilts are skidding off-road

The jump in energy futures, as well as the surprise UK inflation report, are still being digested by the gilt market. These have brought about a rise in BoE hike expectations, an aggressive flattening of the gilt curve, and a sharp underperformance of gilts relative to US and European peers. In light of greater hike expectations, curve inversion is no surprise, and indeed the US curve has been there recently too. Worse inflation dynamics, as well as more immediate recession fears, should lead to a further flattening of the gilt curve compared to its US counterpart.

With US inflation expectations looking more under control than in Europe, the spread between US and UK rates seems more directional to short-term European energy developments. The spread to EUR rates on the other hand is harder to explain. The UK is by no means the only country contemplating shielding its consumers from higher energy bills. Indeed, the measures floated so far in the UK pale in comparison to some continental alternatives. Similarly, energy inflation is a problem faced by all European countries. In short, the spread that has opened between GBP and EUR short rates has to narrow, and we think it will most likely be with lower GBP rates.

UK Markets Are Only Half Right About the Bank of England as Energy Crisis Builds_4

The magnitude of these moves raises financial stability questions. We'll refrain from drawing broader conclusions about the effect on the valuation of other assets beyond bonds but will simply stress that manageable rates volatility tends to be a pre-condition in many investment decisions. Closer to home, the latest moves will dash hopes of a return to more functional gilt markets.

UK Markets Are Only Half Right About the Bank of England as Energy Crisis Builds_5

Bid-ask spreads have been propelled to new wides, and implied volatility continues to climb. These developments cast a long shadow on the Bank of England's plan to sell gilts out of its Asset Purchase Facility portfolio, even in small sizes. We don't argue that the plan should be shelved but a clearer circuit-breaker, which helps avoid adding to market stress, would make sense in our view. One could of course argue that the current episode is a one-off and that the BoE plans the sale of only £10bn per quarter in the first year.

Source: ING

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Owen Li

Global economic unease is growing and the closely watched monthly jobs report in the United States and inflation gauges in Europe will arrive in the coming week at a key juncture for markets and central banks.

A look at manufacturing activity in China is also due, while the euro is threatening to push decisively below the key US$1 mark.

Here's a look at the week ahead in markets from Dhara Ranasinghe, Tommy Wilkes and Vincent Flasseur in London, Lewis Krauskopf in New York, Kevin Buckland in Tokyo and Sumanta Sen in Mumbai.

Jobs check-in

Monthly US jobs data on Sept 2 will test the argument that the world's biggest economy is in solid health, and indicate whether the Federal Reserve can engineer a "soft landing" even as it hikes interest rates to fight inflation that has been running at four-decade highs.

Those arguing against the prospect of a recession, despite two straight quarters of shrinking US gross domestic product, have been able to point to the strong labour market, at least so far.

In July, nonfarm payrolls increased by 528,000 jobs, the largest gain since February. Early estimates for August are projecting an increase of 290,000, according to Reuters data.

Inflation shock

Inflation in the euro area remains uncomfortably high, the flash August consumer price index on Wednesday is likely to show. That will only pile pressure on the European Central Bank to hike rates again in September even as recession risks mount.

Instead of peaking soon, as hoped just a few weeks ago, inflation could soon hit double digits. It was at an annual rate of 8.9% in July, well above the ECB's 2% target.

The source of fresh inflation angst is clear: soaring gas prices, which lurched higher again as Russia signalled another squeeze on European gas supplies.

Gas prices are up 45% in August, and 300% this year. Where they go from here remains the key to when eurozone inflation will finally peak. As one economist put it, we're all becoming gas watchers now.

Factory funk

China's moribund economy may continue the lead from the U.S. and Europe in reporting manufacturing gloom in the coming week.

Official PMI data for this month is due on Wednesday, after a surprise contraction in July as Covid-19 flare-ups fuelled by the Omicron variant of the virus forced further clampdowns under China's draconian zero-Covid policies. The Caixin private survey follows the next day, and is also at risk of dipping into contraction territory.

Consumer and business confidence continue to be hit by the ongoing property crisis. And now a searing heat wave is also hampering production.

China's authorities are trying to salvage growth this year, with the central bank cutting additional lending rates on Monday after slashing others the week before. On Thursday, the government announced it would take steps to strengthen the labour market, providing the stock market with a bit of cheer.

Back below parity

Once again in recent days, one euro became worth less than a US dollar. The currency's tumble to new 20-year lows near US$0.99 is emblematic of the scale of the challenges facing the bloc, not least an energy crisis hitting the eurozone harder than elsewhere.

Another dramatic jump in natural gas prices ahead of peak winter demand in a region still dependent on Russian supplies is fanning inflation fears, as well as expectations the ECB will hike rates faster even as the economy slides towards recession.

Euro/dollar is increasingly correlated with gas prices, and investors and analysts predict further weakness as Russia continues curtailing its exports.

On a trade-weighted basis, the euro is falling fast too, and recently reached its lowest level since February 2020, when the start of the Covid-19 pandemic rattled world markets.

Stocks' cruelest month

The US stock market's rebound has lost some steam, just as it is entering what has been on average its most treacherous month.

Since 1950, the benchmark S&P 500 has fallen an average of 0.5% in September, the worst monthly performance for the index and one of only two months to register an average decline, according to the Stock Trader's Almanac, which notes that fund managers tend to sell underperforming positions as the end of the third quarter nears.

This September, a number of factors could set investors on edge. Following the Jackson Hole central banking symposium in Wyoming, the Fed will hold its next policy meeting on Sept 20-21. Ahead of that comes the latest reading on consumer prices that will indicate if inflation has peaked and is likely to cause volatility no matter where it lands.

Source: Reuters

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Kevin Du

India's stricter digital lending rules have disrupted card services of foreign-backed fin-tech firms and jeopardised loan offerings of Amazon, prompting companies to chart a lobbying pushback, according to industry sources and a document seen by Reuters.

Citing concerns over high rates and unfair practices, the Reserve Bank of India (RBI) this month said a loan borrower must deal directly with a bank, dealing a blow to prepaid card providers and shopping websites which act as intermediaries and instantly process deferred loan payments.

India's digital lending market has grown quickly and facilitated $2.2 billion in digital loans in 2021-22, with startups attracting foreign backers and giving traditional banks a run for their money in the credit business.

The new rules have already hit prepaid card offerings of Tiger Global-backed Slice and Accel-backed startup Uni, which have partnered with banks and allowed users to split purchases into interest-free easy repayments, a feature not available with typical credit cards.

Solving "time-sensitive money crunches" made Uni popular: its cards were swiped for $67 million on average monthly, much more than credit card usage of some smaller private and public banks in India.

The RBI has said the new rules were to be implemented immediately, but added that "detailed instructions will be issued separately."

Still, Uni suspended its card services this week due to the RBI rules, hitting hundreds of thousands of users, while Slice has put new card issuance on hold.

Worries are also rising that the rules will throttle plans of bigger players Amazon.com Inc and Walmart's Flipkart to expand their popular buy-now-pay-later schemes that have tapped millions of users, three industry sources said.

That's because currently Amazon and Flipkart facilitate loans for their shoppers. The bank pays the online merchant, while the borrower later makes loan payments to the lender. The new RBI rules, sources say, could impact this route if online merchants can't receive payments directly.

"It is likely that seamlessness of availing credit by the customer will be severely impacted," the Internet and Mobile Association of India, a top industry group representing Amazon and Flipkart, said in a draft internal lobbying document crafted in collaboration with consulting group PwC.

The group plans to push the RBI to carve out direct merchant payments as an exception under the new rules.

Flipkart has been bullish on the buy-now-pay-later business, saying in May it doubled its user base for the service to more than 6 million in seven months.

Sources said that two other groups representing payment firms and digital lenders also plan to lobby RBI to reconsider some provisions.

Slice said in a statement it was committed to comply with Indian regulations, which it said were a recognition of the rapidly growing industry. It did not comment on the business challenges.

The RBI, IAMAI and PwC, and none of the other companies responded to Reuters queries.

Protecting Consumers

Among other new rules, the RBI has said fin-tech firms should recover charges of facilitating a digital loan from their banking partners, not the borrowers. And the firms must also appoint nodal officers and have better checks on user data.

Rahul Sasi, a cybersecurity expert who was on an RBI panel that helped draft the new regulations, told Reuters that while some disruption due to the new rules is inevitable, the ultimate aim is to protect consumers.

"The idea has been to always let the businesses run, it was not about killing the fin-techs," he said.

Nevertheless, fin-tech firms are worried, and fear more regulations are on the way. Swapnil Bhaskar, head of strategy at Indian digital banking solutions provider "Niyo", said the rules could lead to industry consolidation and slow down an industry that has grown at a rapid pace.

The disruptions have disappointed some users.

Athul Bhadran, a 28-year-old engineer, said he happily used his Uni prepaid card to manage his budget by splitting his bigger purchases, like the 19,000 rupees ($238) he spent on a washing machine. Now, he can't.

"I always had the peace of mind if I wanted to spend a big amount," he said.