By Swati Bhat and Sudipto Ganguly

MUMBAI (Reuters) - The Reserve Bank of India (RBI) kept its key interest rate unchanged on Thursday, as widely expected, retaining its focus on bringing inflation down even as global market volatility left other major central banks poised to ease policy.

The Monetary Policy Committee (MPC), which consists of three RBI and three external members, kept the repo rate unchanged at 6.50% for a ninth straight policy meeting.

Four out of six MPC members voted in favour of the rate decision.

The MPC last changed rates in February 2023, when the policy rate was raised to 6.50%.

The monetary policy stance was retained at 'withdrawal of accommodation' to aid the MPC's focus on bringing inflation towards the target, with four of the six members voting in its favour.

All 59 economists in the Reuters poll conducted in late July predicted the central bank would stand pat on rates.

It is important for monetary policy to stay the course in bringing inflation down towards its 4% medium term target, RBI Governor Shaktikanta Das said, adding that India's food inflation remains "stubbornly" high.

"Growth remains resilient, inflation has been trending downward and we have made progress in achieving price stability, but we have more distance to cover," Das said.

Ensuring price stability is important for sustainable growth, Das said.

"With growth remaining robust, the MPC still has room to hold on to policy stance to get confirmation on the disinflationary trend," said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank.

By Nell Mackenzie

LONDON (Reuters) -A wager that stock markets would stay calm has cost retail traders, hedge funds and pension funds billions after a selloff in global stocks, highlighting the risks of piling into a popular bet.

The CBOE VIX index, which tracks the stock market's expectation of volatility based on S&P 500 index options, posted its largest-ever intraday jump and closed at its highest since October 2020 on Monday as U.S. recession fears and a sharp position unwind have wiped off $6 trillion from global stocks in three weeks.

Investors in 10 of the biggest short-volatility exchange traded funds saw $4.1 billion of returns erased from highs reached earlier in the year, according to calculations by Reuters and data from LSEG and Morningstar.

These were bets against volatility that made money as long as the VIX, the most-watched gauge of investor anxiety, remained low.

Wagers on volatility options became so popular that banks, in an effort to hedge the new business they were receiving, might have contributed to market calm before the trades suddenly turned negative on Aug. 5, investors and analysts said.

Billions flew in from retail investors but the trades also garnered the attention of hedge funds and pension funds.

While the total number of bets is difficult to pin down, JPMorgan estimated in March that assets managed in publicly traded short volatility ETFs roughly totaled $100 billion.

"All you have to do is just look at the intra-day rate of change in the VIX on Aug. 5 to see the billions in losses from those with short vol strategies," said Larry McDonald, author of How to Listen When Markets Speak.

But McDonald, who has written about how bets against volatility went wrong in 2018, said publicly available data on ETF performance did not fully reflect losses incurred by pension funds and hedge funds, which trade privately through banks.

On Wednesday, the VIX had recovered to around 23 points, well off Monday's high above 65, but holding above levels seen just a week ago.

VOLATILITY'S RISE

One driver behind the trading strategy's popularity in recent years has been the rise of zero-day expiry options - short-dated equity options that allow traders to take a 24-hour bet and collect any premiums generated.

Starting in 2022, investors including hedge funds and retail traders, have been able to trade these contracts daily instead of weekly, allowing more opportunities to short volatility while the VIX was low. These contracts were first included in ETFs in 2023.

Many of these short-term options bets are based around covered calls, a trade that sells call options while investing in securities such as U.S. large-cap stocks. As stocks rose, these trades earned a premium as long as market volatility remained low and the bet looked likely to succeed. The S&P 500 rose over 15% from January to July 1 while the VIX fell 7%.

Some hedge funds were also taking short volatility bets through more complicated trades, two investor sources told Reuters.

A popular hedge-fund trade played on the difference between the low volatility on the S&P 500 index compared to individual stocks that approached all-time highs in May, according to Barclays research from that time.

Hedge-fund research firm PivotalPath follows 25 funds that trade volatility, representing about $21.5 billion in assets under management of the roughly $4-trillion industry.

Hedge funds tended to bet on a VIX rise, but some were short, its data showed. These lost 10% on Aug. 5 while the total group, including hedge funds that were short and long volatility, had a return of between 5.5% and 6.5% on that day, PivotalPath said.

'DAMPENED VOLATILITY'

Banks are another key player standing in the middle of these trades for their larger clients.

The Bank of International Settlements in its March quarterly review suggested that banks' hedging practices kept Wall Street's fear gauge low.

Post-2008 regulations limit banks' ability to warehouse risk, including volatility trades. When clients want to trade price swings, banks hedge these positions, the BIS said. This means they buy the S&P when it falls and sell when it rises. This way, big dealers have "dampened" volatility, said the BIS.

In addition to hedging, three sources pointed to occasions where banks hedged volatility positions by selling products that allowed the bank to even out its trades, or remain neutral.

Marketing documents seen by Reuters show that Barclays, Goldman Sachs and Bank of America this year were offering complex trade structures, which included both short- and long-volatility positions.

Some, according to the documents, do not have a constant hedge built into the trade to buttress against losses and are protected "periodically," the papers say. This might have exposed investors to higher potential losses as the VIX spiked on Aug. 5.

LONDON (Reuters) - Britain's housing market looks set for a sales bounce in the coming months after the Bank of England cut interest rates and the new government turned its focus to the sector, a survey showed on Thursday.

The Royal Institution of Chartered Surveyors said its measure of expected sales over the next three months was the strongest since January 2020, immediately before the coronavirus pandemic struck Britain.

"The new government's focus on boosting housing development alongside the recent quarter-point base rate cut does appear to have shifted the mood music in the sales market," RICS Chief Economist Simon Rubinsohn said.

"Inevitably, significant challenges lie ahead in delivering on the ambitions around planning reform and it is far from clear that the Bank of England will follow the August move with further easing over the coming months, but, even so, the policy mix is becoming more supportive for the sector," he added.

The overall picture for the housing market brightened slightly last month as mortgage rates fell ahead of the Aug. 1 BoE cut to borrowing costs from their 16-year high.

A measure of new buyer enquiries turned positive for the first time in four months and agreed sales also improved.

But RICS' measure of house price prices in July slipped back to -19 from June's -17. Economists polled by Reuters had expected an improvement to -10.

Other house price data previously released by mortgage lenders Nationwide and Halifax pointed to a pickup in price growth last month.

The picture was bleaker in the rental sector where demand from tenants increased while a measure of supply shrank, suggesting further rental price rises ahead.

Rubinsohn said the findings reflected what he called "an increasingly hostile environment for investment in the sector".

The previous government's delayed plans to tighten no-fault eviction rules have been picked up by the new administration, worrying some landlords, while changes to tax and energy efficiency rules have added to their costs in recent years.

By Martin Coulter

LONDON (Reuters) - Elon Musk has been accused of exacerbating tensions after a week of far-right rioting in Britain, sparking calls for the government to speed up the rollout of laws policing harmful online content.

Misinformation and calls to violence have spread on social media over the past week after far-right and anti-Muslim groups seized on the fatal stabbing of three young girls in the English town of Southport.

As rioters clashed with police in some towns and cities, Musk joined the debate on his X platform, posting that civil war was "inevitable" in Britain. Prime Minister Keir Starmer's spokesperson said there was "no justification" for such comments.

Separately, Starmer warned social media companies that violent disorder whipped up online was a crime "on your premises", while adding there was a "balance to be struck" in handling the firms.

The official responses reflect the difficult situation the government is in.

An Online Safety Bill was passed into law in October but has yet to be implemented. It gives media regulator Ofcom the power to fine social media companies up to 10% of global turnover if they are found in breach of the law, for example by failing to police content inciting violence or terrorism.

But Ofcom is still drawing up guidelines outlining how it will implement the law, with enforcement not expected until early next year. In the wake of recent violence, some are calling for the rules to be rolled out sooner.

Adam Leon Smith, a fellow at industry body BCS, the Chartered Institute for IT, wants Ofcom to start enforcing the Online Safety Act as soon as possible, he told Reuters.

"There must be a tipping point where a foreign billionaire platform owner has to take some responsibility for running a toxic bot network that has become one of the main sources of fake news and misinformation in the UK," he said.

Laws properly governing online safety are long overdue, said Kirsty Blackman, an MP for the Scottish National Party.

"I would back moves for the timetable to be accelerated,” she said. "Requirements should be brought in as soon as possible, particularly for the biggest and highest-risk platforms."

An Ofcom spokesperson said: "We're moving quickly to implement the Online Safety Act so we can enforce it as soon as possible. To do this, we are required to consult on codes of practice and guidance, after which the new safety duties on platforms will become enforceable."

Musk did not immediately respond to requests for comment.

ENFORCEMENT

While those inciting violence online can be prosecuted individually, the government has no way to force social media companies to police their platforms until the Online Safety Bill comes into effect.

On Tuesday, Britain's technology minister Peter Kyle said he had met with TikTok, Meta (NASDAQ:META), Google (NASDAQ:GOOGL) and X to emphasize their responsibility to prevent the spread of harmful content online. The companies did not immediately respond to requests for comment.

Despite this, a number of posts on X actively encouraging violence and racism – seen by Reuters – remain live and have been viewed tens of thousands of times.

At the time of writing, Musk's X posts on the issue have been read by tens of millions of users, according to the site's own metrics.

One post containing misleading information about a Kurdish teenager convicted of rape in Britain has been seen 53 million times. Another, in which he suggested Muslim communities were receiving undue police protection, had been viewed 54 million times.

While such comments themselves might not break the rules around illegal content, allowing direct calls for violence may.

"We would encourage Ofcom to speed up its work on the guidelines, so that X and other social media platforms face financial penalties if they do not remove harmful content," said Iman Atta, director of advocacy group Tell MAMA, which monitors anti-Muslim activity in Britain.

"There is a need to force platforms to take more drastic action against extremism and hate speech," she said.

By Karen Brettell

(Reuters) -U.S. Treasury yields rose on Wednesday after the Treasury Department saw soft demand for a $42 billion sale of 10-year notes and as companies rushed to sell debt as risk appetite improved.

Supply is the main focus this week as traders wait on fresh economic data for further clues on the strength of the U.S. economy.

Yields tumbled to more than one-year lows after Friday’s employment report for July showed an unexpected increase in the unemployment rate, while jobs gains also came in below economists’ forecasts, raising fears of an imminent recession.

Tumbling stock markets partly blamed by traders unwinding popular dollar/yen carry trades, in which they sold the Japanese currency and bought U.S. assets, added to demand for safe haven U.S. debt.

This demand has since ebbed as stocks move higher, but Treasury yields remain well below where they have recently traded, which was seen as denting interest in Wednesday's debt auction.

The 10-year notes sold at a high yield of 3.96%, 3 basis points above where they traded before the sale. Demand was 2.32 times the amount of debt on offer, the weakest since December 2022.

"Investors just weren't willing to pay up for sub-4% 10s," said Vail Hartman, U.S. rates strategist at BMO Capital Markets in New York. "This suggests this move may still have a little bit further to run before dip buyers reemerge in a more meaningful way."

Heavy corporate debt issuance also pushed yields higher.

“You have a lot of issuers who paused on Monday and even maybe held back yesterday just to make sure the coast was clear in terms of how risk assets are going to be received and now are coming to market today,” said Michael Lorizio, senior fixed income trader at Manulife Investment Management in Boston.

By Liz Lee and Ellen Zhang

BEIJING (Reuters) - China's exports climbed 7.0% in July from year earlier, a slower pace of growth than in June and missing expectations, but imports rose 7.2%, customs data showed on Wednesday.

That compares with forecasts for 9.7% growth in exports and a 3.5% increase in imports from a Reuters poll of economists.

It also compares with June figures that showed an 8.6% expansion in exports and a 2.3% contraction in imports.

The world's second-largest economy has struggled to gain momentum despite government efforts to stimulate domestic demand following the pandemic. A protracted property slump and fears about job security have dragged heavily on consumer confidence.

By Liz Lee and Ellen Zhang

BEIJING (Reuters) - China's exports climbed 7.0% in July from year earlier, a slower pace of growth than in June and missing expectations, but imports rose 7.2%, customs data showed on Wednesday.

That compares with forecasts for 9.7% growth in exports and a 3.5% increase in imports from a Reuters poll of economists.

It also compares with June figures that showed an 8.6% expansion in exports and a 2.3% contraction in imports.

The world's second-largest economy has struggled to gain momentum despite government efforts to stimulate domestic demand following the pandemic. A protracted property slump and fears about job security have dragged heavily on consumer confidence.

PANAMA CITY (Reuters) - Panama's government passed two decrees on Tuesday allowing the economy ministry to seek a cumulative $9 billion in financing, Panama's council of ministers said in a statement.

The first decree permits the issuance of treasury notes on the local market for up to $6 billion, with maturities between two and 10 years.

The second allows the economy ministry to subscribe to financing schemes with local and international institutions for up to $3 billion.

By Leika Kihara

HAKODATE, Japan (Reuters) -The Bank of Japan's influential deputy governor said on Wednesday the central bank won't hike interest rates when markets are unstable, playing down the chance of a near-term hike in borrowing costs.

The remarks by Shinichi Uchida, which contrasted with Governor Kazuo Ueda's hawkish comments made last week when the BOJ unexpectedly raised interest rates, boosted Japan's Nikkei share average and sent the yen

Uchida said the intense market volatility in the past week could "obviously" change the BOJ's rate hike path if it affects the central bank's economic and price projections and the likelihood of Japan durably achieving its 2% inflation target.

"As we're seeing sharp volatility in domestic and overseas financial markets, it's necessary to maintain current levels of monetary easing for the time being," Uchida said in a speech to business leaders in the northern Japanese city of Hakodate.

The recent strengthening of the yen would affect the BOJ's policy decision-making because it reduces upward pressure on import prices, and therefore overall inflation, Uchida said.

Stock market volatility would also influence its decisions by affecting corporate activity and consumption, he added.

"Unlike U.S. and European central banks, we're not in a situation where we would end up being behind the curve unless we hike interest rates at a set pace," Uchida said.

"We won't raise interest rates when financial markets are unstable," Uchida said.

The dollar surged to a session high of 147.50 yen and was last up 1.6% at 146.59 after Uchida's remarks. The Nikkei average climbed 3%, while the benchmark 10-year Japanese government bond (JGB) yield fell 1 basis point to 0.875%.

"The BOJ hiked interest rates because it didn't like the weak yen. Now, it appears to be suggesting a pause in rate hikes because it doesn't like stocks falling," said Takuya Kanda, an analyst at Gaitame.com Research Institute.

"If the BOJ is watching markets so much in setting policy, there's a chance it won't be able to raise rates that much."

U.S. OUTLOOK KEY

Last week, the BOJ raised interest rates to levels unseen in 15 years and unveiled a detailed plan to slow its massive bond buying, taking another step towards phasing out a decade of huge stimulus.

Governor Ueda said the BOJ will keep raising rates if the economy and prices move in line with its projection, signalling the chance of steady hikes in coming years.

The hawkish remarks, as well as weak U.S. labour data that stoked fears of recession in the world's largest economy, helped contribute to a global market rout that sent the yen soaring and Japan's Nikkei average plunging on Monday.

Markets have whipsawed since then, partly as traders reassessed the timing and pace of future BOJ rate hikes.

While stressing the need to keep monetary policy loose for the time being, Uchida said Japan's economy was likely to keep recovering with the United States seen achieving a soft landing.

"Uchida's comments are clearly dovish. Unless market sentiment recovers rapidly, the chance of the BOJ hiking rates either in September or October is low," said Toru Suehiro, an economist at Daiwa Securities.

"But if U.S. recession fears subside around year-end, the BOJ will likely raise rates in December," he said.

PANAMA CITY (Reuters) - Panama's government passed two decrees on Tuesday allowing the economy ministry to seek a cumulative $9 billion in financing, Panama's council of ministers said in a statement.

The first decree permits the issuance of treasury notes on the local market for up to $6 billion, with maturities between two and 10 years.

The second allows the economy ministry to subscribe to financing schemes with local and international institutions for up to $3 billion.

By Makiko Yamazaki

TOKYO (Reuters) - Japan said on Wednesday that it conducted a record single-day yen-buying intervention in April, selling 5.92 trillion yen ($40.83 billion) worth of dollars in a fight against a falling yen at that time.

Quarterly data from the Ministry of Finance (MOF) showed that Japan spent a record 5.92 trillion yen on a single-day yen-buying intervention on April 29 and a further 3.87 trillion yen on May 1.

The previous single-day record for such intervention was 5.62 trillion yen spent on Oct. 21, 2022, according to MOF data available since 1991.

The latest data represent a detailed daily breakdown of the previously revealed 9.79 trillion yen intervention made during the period from April 26 through May 29.

The two rounds of massive dollar-selling intervention helped push up the yen by 5% from a 34-year low of 160.245 per dollar, but failed to reverse the yen's longer-term weakness.

The yen resumed its downturn and slid to a 38-year low of 161.76 per dollar in July, prompting Tokyo to intervene again and spend another 5.53 trillion yen to support its currency.

Later in July, the yen staged a sharp rally as traders aggressively unwound carry trades after a slew of economic data raised the prospect of a U.S. economic downturn and bigger rate cuts from the Federal Reserve.

Separate data from the finance ministry on Wednesday showed that Japan's foreign reserves fell to $1.22 trillion at the end of July, down $12.4 billion from a month earlier, largely due to a drop in foreign securities holdings.

The decline in reserves reflect the sale of its U.S. Treasury holdings to finance the dollar-selling, yen-buying intervention, analysts said.

Japanese authorities would not reveal the make-up of the country's foreign reserves, but most of the foreign securities holdings are believed by economists to be in U.S. Treasuries.

($1 = 144.9800 yen)

(Reuters) -The International Monetary Fund (IMF) on Tuesday said progress had been made in negotiations with El Salvador toward a fund-supported program with the Central American nation, though issues remained such as its use of Bitcoin cryptocurrency.

Discussions focused on policies that could be supported by an IMF program, it said in a statement, such as those which could strengthen public finances, boost bank reserve buffers, improve governance and transparency and mitigate risks from the country's investment in Bitcoin.

The IMF and El Salvador have reached "preliminary understandings" on improving the nation's primary balance, the IMF said, to around 3.5% of gross domestic product (GDP) over a three-year period.

The country also plans to gradually strengthen its reserve buffers by reducing reliance on domestic financing and instead receiving support from the IMF and other development banks, the fund said.

On Bitcoin, the IMF said that many potential risks "have not yet materialized," but that there was a joint recognition that El Salvador needed to enhance transparency and mitigate risks from the project.

Salvadoran President Nayib Bukele made bitcoin a legal tender and has touted plans for "Bitcoin City," a tax-free crypto haven powered by geothermal energy from a volcano.