Aurelia Butler

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WASHINGTON (Reuters) -Shareholders of the International Monetary Fund agreed this week on the importance of addressing challenges faced by low-income countries, many of which are facing unsustainable debt burdens, IMF Managing Director Kristalina Georgieva said on Friday.Multiple reports from the IMF and the World Bank this week sounded the alarm about economic developments and prospects in low-income developing countries, which are still grappling with the aftermath of the COVID-19 pandemic and other shocks.The IMF lowered its 2024 growth forecast for low-income countries as a group to 4.7% from an estimate of 4.9% in January. In a separate report, the World Bank said half of the world’s 75 poorest countries were experiencing a widening income gap with the wealthiest economies for the first time this century in a historical reversal of development.Georgieva said the IMF was working to reinforce its ability to support low-income countries hit hardest by recent shocks, including through a 50% quota share increase and by adding resources to its Poverty Reduction and Growth Trust.Georgieva and Saudi Arabia’s Finance Minister Mohammed Al-Jadaan, who chairs the IMF’s steering committee, both said internal reforms adopted by the IMF this week should help make the debt restructuring process speedier and smoother.Georgieva said a meeting of the Global Sovereign Debt Roundtable hosted by the IMF and the World Bank this week had made progress on setting timelines for debt restructurings and ensuring comparability of treatment for various creditors.She said high debt levels posed a huge burden for low-income countries, including many in Sub-Saharan Africa, where countries are now facing debt service payments of 12% on average, compared to 5% a decade ago. High interest rates in advanced economies have lured away investments, and raised the cost of borrowing.”What is heartbreaking is that in some countries debt payments are up to 20% of revenues,” Georgieva said, adding that this meant those countries had far fewer resources to invest in education, health, infrastructure and jobs.Affected countries needed to increase their domestic revenues by raising taxes, continuing to fight inflation, paring back spending and developing local capital markets, she said.The Bulgarian economist said it was vital for these countries to make themselves more attractive to investors, and said the IMF was engaging with countries to help them do that.Iolanda Fresnillo (LON:FRES), with the non-profit European Network on Debt and Development, said the United Nations should implement a new multilateral legal framework to deal with sovereign debt, in a similar way that is currently being done for a new framework to govern tax cooperation.The current approach is too piecemeal and a broader framework should take into account climate change, environmental degradation and human rights, she said.U.S. Treasury Undersecretary Jay Shambaugh raised concerns about the situation facing low-income countries last week, warning China and other emerging official creditors against free-riding by curtailing loans to low-income countries just as the IMF or multilateral development banks were pouring funds in.Almost 40 countries saw external public debt outflows in 2022, and the flows likely worsened in 2023, he said. More

What appeared to be a dead cert a few weeks ago – the Federal Reserve embarking on a series of markets-friendly rate cuts in the first half of the year – is now looking unlikely, just as earnings season ramps up.Here’s what’s coming in markets next week from Kevin Buckland in Tokyo, Rae Wee in Singapore, Ira Iosebashvili in New York and Dhara Ranasinghe and Naomi Rovnick in London. 1/DRAWING A LINE        Japan’s finance minister wants to stem the yen’s slide to a 34-year low, potentially without spending anything on intervention.    Shunichi Suzuki held an unprecedented trilateral dialogue with Treasury Secretary Janet Yellen and his Korean counterpart, yielding a U.S. acknowledgement of the Asian nations’ “serious concerns” about the steep drop in their currencies.    Those “concerns” will also inform a G7 statement, reaffirming the undesirability of excessive currency swings, something the G7 hasn’t done since October 2022.    Japanese officials might welcome such an outcome, as intervention would very much be swimming against the monetary policy tide.    Fed Chair Jay Powell has signalled U.S. rate cuts will likely take longer than expected, while Bank of Japan officials have indicated hikes at home will be extremely slow, which could be confirmed at their policy meeting starting April 25.2/STILL STRUGGLINGAsian currencies have been battered by a relentless dollar for most of the past two years and it’s getting worse.In one day, Indonesia’s rupiah returned from the Eid al-Fitr holidays to a four-year trough, the Korean won slid to its weakest in over a year, while the Indian rupee and Vietnam dong tumbled to record lows.The dollar is charging ahead and the U.S. economy is unfazed by high interest rates, so emerging Asia central banks are in for a rough time.Benign inflation in the region and softer growth suggest policymakers may be justified in cutting rates, but going before the Fed would only hurt their currencies further. Bank Indonesia meets April 23-24, and analysts see a growing risk of a rate hike from the central bank that was once expected to be among the first in the region to cut.3/INFLATION WATCH Sticky U.S. inflation and oil up 14% this year means price pressures are back in focus. So, when the flash PMIs of April business activity from across global economies are released, attention will fall on any signs that inflation, especially in the services sector, is returning. The March U.S. PMI showed a measure of prices paid by businesses for inputs hit a four-year low, euro area inflation meanwhile slowed to 2.4% in March.Yet the latest U.S. inflation numbers and Middle East tensions keeping oil high means investors are nervous. A key gauge of market euro area inflation expectations has touched its highest since December. The PMIs could also show the euro zone isn’t doing too badly. The March PMI showed activity expanded for the first time since May.4/BIG TECH REPORTS Earnings from the market’s tech and growth heavyweights and another dose of inflation data are on the docket, as investors face a wobbling rally in U.S. stocks and fading expectations that U.S. rates will drop much this year.Electric vehicle maker Tesla (NASDAQ:TSLA) reports earnings on Apr. 23, Facebook-parent Meta (NASDAQ:META) on the 24th and Microsoft (NASDAQ:MSFT) and Google-parent Alphabet (NASDAQ:GOOGL) on the 25th. Investors also get another look at price data on April 26 with the personal consumption expenditures (PCE) price index, which economists polled by Reuters expect to have risen 0.3% in March.5/FROM NAUGHTY TO NICE?European banks are finally moving off the naughty list, with the STOXX banks index up 12% so far in 2024. Interest rate rises gave banks a windfall in 2023 by widening the gap between what they charged for loans and paid to savers. Investors will scrutinise upcoming quarterly earnings reports to gauge how much European Central Bank rate cuts, predicted to start in June, will cost the lenders. Barclays forecasts zero earnings growth for European banks in 2024, then a modest 5% gain in 2025. But JPMorgan recommends a less pessimistic overall stance on European bank stocks, while its credit analysts view these lenders as less exposed to the troubled commercial property sector than U.S. peers.BNP Paribas (OTC:BNPQY), Deutsche Bank and Barclays are among the big guns reporting in the coming week. More

WASHINGTON (Reuters) -Bank of Japan Governor Kazuo Ueda said on Friday the central bank “very likely” will raise interest rates if underlying inflation continues to go up, and begin reducing its huge bond buying at some point in the future.The central bank must maintain loose monetary policy for the time being as underlying inflation remains “somewhat below” its 2% target, and long-term inflation expectations are still near 1.5%, Ueda said.Having ended its various unconventional monetary easing measures in March, however, the BOJ has brought more flexibility to its policy and may change its short-term interest rate target depending on how upcoming data unfold, he added.”We will proceed cautiously, initially assessing the impact of our recent policy changes on the economy and inflation, then considering further adjustment as deemed appropriate, perhaps extracting insights on the neutral rate along the way,” Ueda told a seminar hosted by the Peterson Institute for International Economics.The BOJ will also begin to cut its purchases of Japanese government bonds (JGBs), though the timing and extent of the reduction are yet to be determined, Ueda said.”Irrespective of what the data will say in the near future, we will like to find a way and timing to reduce the amount of JGB purchases,” he said, adding that the central bank will take time in reaching a decision.The remarks reinforce market expectations that the BOJ will raise its short-term interest rate target from the current 0-0.1% range sometime this year.In March, the BOJ ended eight years of negative interest rates and other remnants of its unorthodox policy, making a historic shift away from its focus on reviving growth and quashing deflation with decades of massive monetary stimulus.Markets will be on the look-out for clues on the next rate hike timing when the BOJ releases fresh quarterly growth and inflation forecasts at its policy meeting next week.While the BOJ will be watching developments in inflation expectations in deciding when to hike rates, it will first scrutinize data on wages and how rising wages could affect service prices, Ueda said.”If underlying inflation continues to go up, we will very likely be raising interest rates,” he said. More

WASHINGTON (Reuters) -Persistent inflation and higher-for-longer interest rates were cited as key risks to financial stability in the Federal Reserve’s latest survey of U.S. central bank contacts, with geopolitical troubles and the 2024 U.S. presidential election also mentioned as “a potentially significant source of shocks.””Contacts noted several areas of uncertainty including trade policy and other foreign policy issues related to escalating geopolitical tensions,” the Fed said on Friday in its semi-annual survey of 25 market participants, academics and other contacts. “They also noted policy uncertainty associated with the U.S. elections in November,” when the Democratic incumbent Joe Biden faces Republican former President Donald Trump.The survey results were included as part of the Fed’s latest Financial Stability Report, which looks at issues like leverage and risk-taking throughout the economy to try to identify potential trouble spots.The report was released more than two years after the Fed launched the most aggressive interest rate hiking cycle since the 1980s in a bid to slow a surge in inflation, a move that was broadly predicted to tip the economy into recession and aggravate stresses in the financial sector.The latest report, much like those preceding it through the Fed’s battle with inflation, shows little evidence of widespread risks to the financial system despite borrowing costs remaining at their highest levels in a quarter of a century.But that overall impression of resilience may suggest potential problems for Fed officials who feel the economy needs to slow for inflation to sustainably return to the central bank’s 2% target. The strength of household and business balance sheets, the stability of the banks, and the lack of imminent bubbles or other threats suggest that a slowdown won’t come through the financial or credit channels that have typically been an important part of monetary policy transmission.Contacts were interviewed through March, when Fed officials began to have doubts about an ongoing drop in inflation and noted that rate cuts might not come as fast as expected.While that added to uncertainty about monetary policy, which along with inflation was the most cited risk, the level of “policy uncertainty” flowing from the escalation of violence in Israel and throughout the Middle East, the ongoing war in Ukraine, and the state of U.S. politics, was the second-most cited potential threat to the financial system.Across what has become the Fed’s standard framework for assessing financial vulnerabilities, however, the system was characterized as in largely steady shape despite high policy interest rates and the ongoing inflation fight.There were some areas of concern, including declining values for commercial real estate and rising leverage among some of the bigger hedge funds. Stock and real estate values were high, and the report cited – as have many analysts of late – a rise in consumer debt delinquencies and other signs of stress among some households.But there was little sense that was broad-based.Private debt as a share of national economic output declined, businesses maintained a “robust” capacity to service debt, and overall household debt was “modest,” all markers of stability.”The banking system remained sound and resilient,” with strong capital and liquidity levels, the Fed said in the report.Though credit “appeared to tighten for small firms,” the report noted that the number of firms that reported they were short on financing “remained unchanged at a low level.” More

(Reuters) -The International Monetary Fund’s steering committee failed to issue a joint communique on Friday amid disagreements over wars in the Middle East and Ukraine, opting instead for a statement from the body’s chair that acknowledged the economic risks posed by the conflicts.International Monetary and Financial Committee “members discussed the global macroeconomic and financial impact of current wars and conflicts including the war in Ukraine, the humanitarian crisis in Gaza, as well as the shipping disruptions in the Red Sea,” Saudi Arabia’s Finance Minister Mohammed al-Jadaan, the body’s chair, said in a statement.”While recognizing the IMFC is not the forum to resolve geopolitical and security issues and these issues will be discussed in other fora, IMFC members acknowledged that these situations have significant impacts on the global economy. Today’s era must not be of war and conflict.”Al-Jadaan said in a news briefing that geopolitical fragmentation of the global economy was generally leading to negative impacts, but some countries were benefiting from the diversification of supply chains that were part of this trend.IMF Managing Director Kristalina Georgieva said the IMF and World Bank spring meetings this week in Washington have been focused on building more resilience in the world economy.”What we want is a world where growth is stronger, living standards are higher and low-income countries are not falling down. A world that is more resilient to the shocks that will continue to come.”Georgieva urged countries to “finish the job” on taming inflation, while continuing to rebuild fiscal buffers that were depleted by the COVID-19 pandemic and a subsequent cost-of-living crisis.Global finance officials have struggled to reach agreement on a consensus communique repeatedly in the two years since Russia invaded Ukraine.Finnish Finance Minister Riikka Purra told reporters after the chair’s statement was released that Nordic countries unanimously opposed the adoption of a formal communique because it did not explicitly mention Russia.”It was not possible for us to approve a joint communique which did not explicitly and directly mention Russia, which wages a war in Ukraine that has all kinds of economic consequences across the world,” Purra told reporters. More

WASHINGTON (Reuters) – Bank of Mexico Deputy Governor Jonathan Heath said on Friday the benchmark interest rate is likely to remain unchanged for longer than expected by markets, noting it would likely stay put at 11% at the May policy meeting and that the June decision would be data dependent.Speaking to Reuters on the sidelines of the International Monetary Fund and World Bank spring meetings, Heath underscored the importance of waiting until service sector inflation demonstrates a clear downward trajectory, suggesting the possibility of two to four rate cuts this year depending on evolving economic conditions.”Either we meet our inflation target and maybe we could cut, or we don’t meet our inflation target and we don’t cut,” Heath said.Mexico’s headline inflation rate has sped up after bottoming out at 4.26% in October and remains above the Bank of Mexico’s target of 3%, plus or minus a percentage point.”Inflation is stuck there, so we need to definitely be more persistent in our policy terms and try and break this kind of inertia that we’re looking at right now,” Heath said.The monetary authority’s decision to lower the rate in March by 25 basis points from 11.25% was more “a fine-tuning” and not necessarily the start of a rate-cutting cycle, he said.Heath said the board was “scared” it could be cutting rates prematurely, and would rather be cautious by waiting for inflation to come down first. “The most important factors right now in terms of explaining the inflation persistence is the tight labor market with relatively strong wage increases,” Heath said, adding that government spending had made the job of bringing inflation down more difficult. Mexico’s Deputy Finance Minister Gabriel Yorio on Thursday denied that public spending was pressuring inflation. President Andres Manuel Lopez Obrador’s administration has pushed to wrap up several projects before his term ends later this year.The second half of this year should be “more favorable” in bringing down inflation after the government infrastructure projects are completed and elections are held in June, Heath said.Ruling party candidate Claudia Sheinbaum is expected to win the presidential vote by a wide margin.Elections in the United States could also affect Mexico, Heath said, particularly if former President Donald Trump, a Republican, beats current President Joe Biden.Heath added that a Trump victory could put private investment in Mexico at risk as the renegotiation of the U.S.-Mexico-Candada (USMCA) free trade agreement is set to come up.Trump’s 2016 victory caused the peso to drop sharply against the U.S. dollar, though a Trump victory in 2024 could cause a less-significant weakening, Heath said. “We know that he has a very large bark, and he bites, but not that much.”The peso, one of the most-traded global currencies, had appreciated to its strongest level in nearly nine years last week to around 16.26 per dollar. It had weakened to 17.13 pesos per dollar by midday Friday.”It’s good that (the peso has) gone back up a little bit,” Heath said, adding the currency would likely go back to a “more sustainable rate” of around 17 pesos per dollar. More