Aurelia Butler

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

About 95% of the borrowers, which included banks, credit unions, savings associations, and branches and agencies of foreign banks, had less than $10 billion in assets, the U.S. central bank said in its semi-annual Financial Stability Report. The Bank Term Funding Program, as it was called, was aimed at addressing a liquidity crunch after a run on deposits led to the failures of SVB and Signature Bank (OTC:SBNY) and forced financial authorities to stage a rescue of the sector. The facility lent on collateral without applying the usual haircuts and the loans were made on cheap terms.The program stopped making new loans on March 11, a year after its creation. At its peak it extended a total of $165 billion in loans, with terms of up to a year. It is expected to close down completely by next March. More

After a spell of soaring prices and steep interest rates, Christine Lagarde this week allowed herself a moment of optimism.“We are clearly seeing signs of recovery,” the European Central Bank president said on Wednesday. A “phenomenal” job market would be matched by a rebound that, although “timid” at first, would pick up speed over the course of 2024, she added.Her relieved tone — reflected elsewhere in a sunny Washington during the IMF and World Bank’s spring meetings — was understandable. A buoyant US economy, soaring domestic demand in India and waning price pressures elsewhere have reduced the chances of a much-feared global recession to near zero. The IMF now foresees the world economy growing by 3.2 per cent this year, up from the 2.9 per cent projected six months ago. “The mood this time was a bit more positive,” says Masood Ahmed, president of the Center for Global Development think-tank and a former IMF and World Bank official. “The near-term economic outlook is a little better.” Yet any celebrations over the apparent soft landing among the central bankers and ministers in Washington were heavily mitigated by two factors. You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.The first was the mounting possibility that sticky price pressures in the US will keep Federal Reserve interest rates, and thus global borrowing costs, higher for longer. That will hammer emerging markets with large amounts of dollar debt, and complicate plans for the ECB and other central banks to cut their own rates, even if they insist they will not be swayed by deliberations in Washington. The larger cloud on the horizon was an increasingly gloomy prognosis for the outlook for global growth over the rest of this decade. The world economy was at risk of falling into “the tepid Twenties”, warned IMF managing director Kristalina Georgieva ahead of the meetings, if policymaking did not dramatically change. The medium-term projection in the fund’s World Economic Outlook, which shows where officials think growth will be five years from now, are the lowest in decades. By the end of the 2020s global growth would slide by more than a percentage point compared with the pre-pandemic average, the fund found. Christine Lagarde arrives for the IMF and World Bank spring meetings in Washington. The European Central Bank president says she believes the economic recovery will pick up speed More

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This article is an onsite version of our Disrupted Times newsletter. Subscribers can sign up here to get the newsletter delivered three times a week. Explore all of our newsletters hereToday’s top storiesFor up-to-the-minute news updates, visit our live blogGood evening.Swings in oil prices from heightened tensions in the Middle East may serve as a useful reminder of the need for more secure (and greener) forms of energy, but as a flurry of news stories today highlights, that transition is proving more problematic than expected.Some analysts suggests the muted market reaction to Israel’s strike on Iran shows increasing confidence that both sides want to avoid a full-blown conflict that chokes off the supply of oil, while others suggest markets may be underestimating the potential for escalation.Either way, JPMorgan warns today that the world needs a “reality check” on the move away from fossil fuels. The US bank said efforts to cut back the use of coal, oil and gas had been hit by higher interest rates and inflation, as well as the wars in Ukraine and the Middle East. “While the target to net zero is still some time away, we have to face up to the reality that the variables have changed,” its head of global energy strategy told the FT. The bank also pointed out that investment in renewable energy “currently offers subpar returns” and that if energy prices rose strongly, there was a risk of social unrest.The level of investment required in clean energy is likely to put a brake on government ambitions, JPMorgan argues. That was aptly illustrated yesterday by the Scottish government ditching its plans to cut greenhouse gas emissions by 75 per cent by 2030 from 1990 levels after the UK’s Climate Change Committee said the goal could not be met. It’s all a far cry from when Glasgow hosted the UNCOP26 summit in 2021 and then First Minister Nicola Sturgeon said Scotland could lead the world into a green revolution and “speed up our efforts to save the planet”. The committee also said it had “low confidence” that the UK would meet its target of reducing emissions by 68 per cent over the same period after Prime Minister Rishi Sunak U-turned on key green measures.The rest of Europe meanwhile is still finding it difficult to balance the needs of energy security with its desire to punish Russia for its invasion of Ukraine. Acer, the EU’s energy regulator, warned that the bloc still needed to import Russian liquefied natural gas to avoid an energy shock, even as Nordic and Baltic nations argued for an outright ban of purchases from Moscow. Doubts have also been raised about the efficacy of Europe’s carbon trading schemes, with new data highlighting the limitations of one of the key tools to fight pollution from aviation. Less than a quarter of airline emissions were caught last year by the schemes, which require companies to buy allowances to cover the carbon dioxide they give off.Oil companies meanwhile have trimmed back their climate targets, even after the hottest year ever recorded, while other big businesses have failed to set goals ambitious enough to be approved by the Science Based Targets initiative, a validation body set up after COP26.Our story today on the struggles at Woodside, Australia’s largest oil and gas developer, to get its climate plans accepted by shareholders, is the latest example of an energy company facing criticism for not going far enough in setting binding targets.Back in the Middle East, the power of oil remains as potent as ever. The FT has revealed that Iran is exporting more crude than at any time for the past six years, exposing the limits of US and EU attempts to raise the pressure on Tehran.Need to know: UK and Europe economyFormer UK Prime Minister Boris Johnson breached UK government rules by failing to disclose his relationship with a hedge fund that organised his trip to meet Venezuelan president Nicolás Maduro, according to the business appointments watchdog. The UK government has told port authorities that it will not “turn on” critical health and safety checks for EU imports when post-Brexit border controls begin later this month because they could cause delays. A new study says drug shortages in the UK more than doubled between 2020 and 2013 as Brexit “exacerbated” problems with supplies.UK retail sales unexpectedly stagnated in March as shoppers cut back on groceries.The US House of Representatives votes on Saturday evening on whether to send $60bn of additional aid to Ukraine. Ukrainians meanwhile are turning pessimistic. Former Nobel peace prize winner Oleksandra Matviichuk writes in the FT that the trapped US funds are the difference between life and death.Need to know: global economyVoting in India’s general election — the biggest in the world with nearly 1bn people registered to vote — began today and lasts more than six weeks. Prime Minister Narendra Modi is hoping to win another five-year term that will tighten his control over the country. If you want to know more, South Asia bureau chief editor John Reed picks out five books to understand India today. Cocoa prices hit a record high after a report highlighted crop failures in west Africa, exacerbating the global shortage of beans for chocolate.Our Borderlands series continues with a data-rich Big Read on which countries are the best and worst in Europe at integrating skilled migrants to their workforce and the economic cost of “brain waste”.Panama, once Latin America’s star economy, is close to losing its investment-grade ratings status and with elections looming the next president is set to inherit the biggest economic challenge in decades. The IMF forecasts a dramatic slowdown in growth this year to 2.5 per cent from 7.5 per cent in 2023. Need to know: businessMeta launched Llama 3, a less “sanctimonious” version of its artificial intelligence model which it said was a fresh step towards human-level intelligence including the ability to reason. Google is also speeding up its AI efforts.Netflix profits surged thanks to its crackdown on password sharing but its shares fell after it said it would stop regularly publishing its subscriber numbers, a crucial benchmark for investors in the streaming era.Taiwan Semiconductor Manufacturing Company said it planned to charge customers more for making their chips outside of Taiwan to keep up its profitability. The price increases come as governments and companies around the world try to mitigate geopolitical risks by securing additional chip supplies outside Taiwan, where more than 90 per cent of the world’s most advanced semiconductors are produced.It: “What are you trying to do today?” Me: “Speak to a human being who cares.” It: “I’m sorry, I don’t understand.” Consumer editor Claer Barrett investigates how customer service got so bad. Taylor Swift’s new album dropped with the usual thumbs-up from critics, but not without causing a few problems at streaming service Spotify.Science round upRecord ocean warming has added to dangers facing marine life, including already dwindling native fish species, an EU environment chief has warned. It is estimated that about a third of the Mediterranean’s native marine species may shift to deeper, cooler waters, while more invasive species such as blue crab and lionfish thrive in the warmer environment.A new study highlighted the potential of generative artificial intelligence to revolutionise medicine. Cambridge researchers found that OpenAI’s latest model was better than junior doctors at diagnosing eye problems.Eli Lilly’s weight-loss drug tirzepatide, marketed under brands including Zepbound for weight loss and Mounjaro for diabetes, significantly reduced sleep apnoea in a late-stage clinical trial, adding to evidence that could encourage more insurers to cover the drug. Claims that researchers at Google Deep Mind and elsewhere had created new chemical compounds using artificial intelligence appear to be overblown, writes Anjana Ahuja.Forget the solar eclipse, the latest big show for American nature-watchers is cicada-geddon: a natural phenomenon that last happened when Thomas Jefferson was US president in 1803. It occurs when overlapping cycles of insects wake from their slumbers to climb into the trees and have sex. “It will be like having a National Geographic special in your backyard: people will see birth, death and wild sex in the treetops,” said one entomologist.Some good newsThe Criterion Theatre in London’s West End is celebrating its 150th birthday by distributing 150 tickets every week for eight weeks from next Monday to those aged 12 to 21 years old.Recommended newslettersWorking it — Discover the big ideas shaping today’s workplaces with a weekly newsletter from work & careers editor Isabel Berwick. Sign up hereThe Climate Graphic: Explained — Understanding the most important climate data of the week. Sign up hereThanks for reading Disrupted Times. If this newsletter has been forwarded to you, please sign up here to receive future issues. And please share your feedback with us at [email protected]. Thank you More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is president of Queens’ College, Cambridge, and an adviser to Allianz and GramercyNational security experts and financial market traders seem to disagree on what will follow the recent escalation of tensions between Iran and Israel. The question of who turns out to be correct will have significant consequences not only for an already unstable Middle East but also for the wellbeing of the global economy and the stability of its financial system.The notion of a “new Middle East” has often come up in the national security camp’s characterisation of what has transpired following Israel’s attack on the Iranian consulate in Syria at the start of this month.Specifically, multiple lines have been crossed by both parties. For the first time in history, the two countries have attacked each other directly rather than through the use of proxies and targets in third countries. Iran has directed a once-unthinkably large number of missiles and drones at Israel, responding to the Israeli attack in Damascus that killed a number of Iranian senior officials. Friday’s Israeli retaliation came on the heels of an explicit warning from Iran’s foreign minister that it would immediately respond should it be attacked directly. Despite all this, the markets’ reaction has been relatively tame and contained. Rather than price the market implications of a durable escalation in geopolitical threats and a fatter tail risk of substantially higher oil prices for long, traders have been quick to fade the initial moves in many asset prices. This includes oil, by far the most sensitive international price, which is today well below where it closed before Iran first retaliated for Israel’s consulate attack. These prices have also failed to maintain their initial move up on the latest news of Israel’s response. This contrast in market vs expert views could have consequences well beyond regional stability. It relates directly to four themes that the IMF identified this week as important for global economic wellbeing and financial stability: insufficient growth, sticky inflation, the lack of policy flexibility and the pressures associated with greater international divergence in economic outcomes and policy setting. While the global economy is able to handle a transitory bump, it is already too fragile to handle a large new economic shock. Specifically, a further round of military escalation between Iran and Israel would undermine already low and fragile global growth, push up goods inflation at a time when services inflation is still too high, and impose demands on fiscal and monetary authorities that have already used up much of their policy flexibility and have limited operating space.Meanwhile, the distribution of this stagflationary shock would amplify the economic and financial divergences that are already imposing some stress on the global order.First, two of the potential engines of global growth — the already-stressed Chinese and European economies — would be hit relatively hard given their high dependence on imported energy. Second, US inflation would prove even more stubborn at a time when progress in reducing price pressures has already disappointed this year, thereby acting as a bigger counter to early rate cuts by the Federal Reserve. Third, the strong dollar would get a further appreciation boost, undermining trade and financial intermediation.And finally, with worsening economic and geopolitical situations, risk premia would increase. This would lead to higher borrowing costs than might have prevailed otherwise. Such considerations assume greater urgency when factoring in what did not happen in the most recent tit-for-tat between Iran and Israel. Whether by design or otherwise, neither party has inflicted considerable human and physical damage on the other. Also, Iran did not materially deploy its regional proxies in what could easily have been a more comprehensive attack on Israel. Meanwhile, Israel did not go after Iranian nuclear sites in its response. It also did not succumb to pressure from its closest allies, most notably the US and UK, for a greater degree of restraint and de-escalation.All this points to a significant shift in the dynamic between these two countries, Most importantly, this has changed from a relatively stable disequilibrium, in which each party refrained from direct attacks, to a more unpredictable and unstable disequilibrium in which dangerous precedents have been set and each side has more reasons to escalate tensions further.When comparing the reaction of markets to the views of most national security experts, I am reminded of the story of the frog in boiling water. There is no doubt that the latest round of Iran-Israel hostilities has crossed many lines and durably raised the geopolitical temperature in the region. Yet markets seem keen to brush this aside, comforted by the fact that we are yet to reach the boiling point of significant human casualties and physical damage in these retaliation rounds — a point that would cause significant economic and financial dislocations. Given that this is a region that is vulnerable to errors of judgment, insufficient understanding of adversaries, and implementation accidents, that could well prove too complacent a reaction. More