Aurelia Butler

MEXICO CITY (Reuters) -The Bank of Mexico, as expected, cut its benchmark interest rate by 25 basis points to 11.00% on Thursday, in a four-to-one decision by its governing board, marking the first rate reduction since the bank embarked on a tightening cycle in 2021.Banxico, as the Mexican central bank is known, said it will thoroughly monitor inflationary pressures and that at its next monetary policy meetings, “it will make its decisions depending on available information.”Voting in favor of the rate cut were Banxico governor Victoria Rodriguez and deputy governors Galia Borja, Jonathan Heath, and Omar Mejia. Deputy governor Irene Espinosa voted to hold the rate at 11.25%.Analysts polled by Reuters had overwhelmingly predicted the board would cut the rate by 25 basis points after holding it steady for seven straight policy meetings.”In our opinion, the 4-1 vote significantly reduces the probability of a rate pause in May,” said analyst Luis Adrian Muniz at Vector Analisis. “In this sense, continuous cuts seem most likely, at least during the next two quarters.”Banxico said that headline inflation is still forecast to converge to its target of 3%, plus or minus a percentage point, in the second quarter of 2025. Its forecast for year-end headline inflation was revised upwards to 3.6%, from 3.5% previously.Goldman Sachs analyst Alberto Ramos in a note to clients that Banxico’s “inflation forecasts for end-2024 are still too optimistic.”Mexico’s rate cut contrasts with the stance of the U.S. Federal Reserve, which on Wednesday left interest rates unchanged, though Fed Chair Jerome Powell underscored that recent high inflation readings had not changed the underlying “story” of slowly easing price pressures in the U.S. as the central bank stayed on track for three interest rate cuts this year.In Latin American regional powerhouse Brazil, the central bank on Wednesday cut its benchmark interest rate by 50 basis points at a sixth straight policy meeting, while flagging it may change the course of the current easing cycle after its next decision in May. More

NEW YORK (Reuters) – Longer-term U.S. Treasuries could be vulnerable if the Federal Reserve’s outlook on interest rate cuts is challenged by stubborn inflation, a portfolio manager at asset management giant BlackRock (NYSE:BLK) said on Thursday.A majority of Fed officials this week confirmed earlier forecasts for the central bank to deliver three interest rate cuts this year despite stronger-than-expected growth, though only by a thread. Should inflation remain persistently strong, however, prices for intermediate and longer term bonds could suffer because they do not fully reflect a scenario in which the Fed is forced to keep rates higher for longer, David Rogal, portfolio manager of BlackRock’s Fundamental Fixed Income Group, said in an interview.”With all the heavy supply and a pretty robust economy, we don’t have any term premium in the curve,” Rogal said, referring to the premium investors ask for the risk of holding long-term paper. “For extending duration out that far on the curve, there should be more compensation.” Rogal also noted that while Fed officials still expect three rate cuts this year, they projected a slightly slowed rate cut path for the next two years.Benchmark 10-year yields, which move inversely to prices, declined by nearly three basis points to 4.27% after the Fed’s rate-setting meeting ended on Wednesday. Two-year yields, which more closely reflect monetary policy expectations, dropped by nine basis points to 4.6%.After hiking rates aggressively to fight inflation, the Fed took a dovish turn in December when it signaled coming rate cuts, but strong economic and inflation data this year have clouded the prospects of a quick return to lower interest rates.The Fed said on Wednesday policymakers anticipate inflation by the Fed’s targeted measure, the personal consumption expenditures price index, will end this year at 2.4%, but with core PCE inflation, a gauge of underlying inflation pressures, at 2.6%. The forecast for both measures was 2.4% in December.”It was interesting to me that their inflation forecast rose for 2024 but the policy rate expectation didn’t change,” Rogal said. “I think that just reflects the fact that the Fed has a bit of inertia on its dovish pivot, and I think if we get more bad data on inflation, they will have to adjust.” More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Mexico has become the latest major Latin American country to cut interest rates, easing its restrictive policy with inflation well below its peak and putting the region at the forefront of the global easing cycle.The decision by the Bank of Mexico on Thursday to cut rates by 25 basis points to 11 per cent comes as most central banks in developed countries have yet to loosen monetary policy. Latin American central bankers’ swift response to soaring inflation after the coronavirus pandemic has transformed their credibility as they emerge from the most serious wave of price pressures in decades.Their counterparts in advanced economies, meanwhile, were criticised for holding on for too long to the notion that the burst of inflation that followed the initial stages of the pandemic would prove shortlived. Brazil and Mexico raised rates in the first half of 2021, while Chile, Colombia and Peru followed later that year. The US Federal Reserve and the European Central Bank did not raise rates until 2022. Latin American central banks had been playing catch-up with advanced economies, trying to follow their lead in becoming less politicised, inflation-targeting institutions with flexible exchange rates. With central bankers’ independence now enshrined, the region’s brushes with hyperinflation made them more attuned to the risks of delay, analysts said. It also meant rates reached far higher levels than in advanced economies, giving them a cushion to begin cutting earlier after sharp drops in inflation and a slowdown in growth.Although the region’s main inflation-targeting central banks are now easing monetary policy, persistent inflation risks could make their easing path rocky, analysts said. You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.“Further rate cuts are going to be a bit more gradual,” said Jason Tuvey, an emerging markets economist at Capital Economics. “The last mile of monetary policy easing . . . [is] going to be a lot more difficult.”Brazil’s central bank cautioned on Wednesday that various measures of underlying inflation remained above target, as it cut rates for the sixth time in a row to 10.75 per cent from 13.75 per cent in August. Colombia has cut rates twice but has seen slow growth and inflation well above target. Inflation in Chile has been slashed, but traders say the central bank’s erratic rate cutting schedule — with the size of cuts varying at each meeting — has worsened the volatility of the peso.Mexico’s economy, the second largest in Latin America, has been relatively resilient, with growth of 3.3 per cent last year and unemployment at historic lows. But service inflation has remained higher than expected, and Jonathan Heath, a member of the central bank’s board, cautioned the market should not necessarily expect another cut in May.“We see this is a kind of fine tuning . . . simply so monetary policy doesn’t become too restrictive,” Heath told the Financial Times after the decision on Thursday. “If we make some cuts before the end of the year, they wont necessarily be continuous cuts, we will remain very prudent.”You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Latin America’s central banks began cutting earlier than the rest of the world in part because their rates were already at a much higher level, but their experience balancing the ongoing risks of inflation with easing monetary policy will be closely watched.Big central banks are planning rate cuts this year, with goods inflation well down from its peak in many economies, though stickier services inflation has given some economists cause for concern.Some analysts have argued that advanced economies are experiencing an “immaculate disinflation” as the economy and labour market remained strong despite higher rates that have helped inflation come down. But Federal chair Jay Powell said on Wednesday that the road to 2 per cent inflation was “bumpy”.The Swiss National Bank unexpectedly cut rates on Thursday, making it the first central bank of a major western industrialised country to do so in the current cycle, but the Fed and the ECB are not expected to take action until later this year.Most analysts expect interest rates in Latin America to remain restrictive, but given uncertainty about when the Fed will cut rates — affecting investors’ appetite for riskier emerging market assets — and domestic inflation, central bankers will need to try to be flexible without looking volatile, they said.Despite their autonomy from governments and floating exchange rates, the region’s central banks have still had to deal with attempted political interference.Central bank governors in Brazil and Colombia have come under pressure from President Luiz Inácio Lula da Silva and President Gustavo Petro, respectively, to cut rates further to help boost the economy. They have resisted.In Mexico, President Andrés Manuel López Obrador has been criticised for nominating central bank board members seen as close to him, including its first female governor, Victoria Rodríguez. But the president has shown limited interest in monetary policy, and high rates have strengthened the peso significantly — something López Obrador touts on the campaign trail as a sign of economic success.Alejandro Werner, director at the Georgetown Americas Institute, said he hoped that central banks in the region would in future be able to behave more like those in advanced economies and avoid interest rates reaching such high absolute levels.“I think gradually . . . central banks in Latin America should internalise the credibility and reputation gained in the global financial crisis [and] in the Covid cycle,” Werner said. “Some of them will be able to act a little bit less aggressively in future inflationary bouts.”Additional reporting by Claire Jones in Washington, Joe Daniels in Bogotá and Ciara Nugent in Buenos Aires More

Stay informed with free updatesSimply sign up to the More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Nearly all local authorities in England are raising council taxes by the maximum amount permitted, according to new data that shows poorer parts of the country are being disproportionately affected.  For the second year in a row, the council tax on benchmark mean value properties will rise on average by 5.1 per cent, reaching £2,171 in 2024-25, figures released by the Department of Levelling up, Housing and Communities showed on Thursday. The current cap on council tax rises is set by central government at 4.99 per cent but can be higher in some areas depending on the powers of the local authority, with almost every town hall using their maximum allowance. While the increases were not unexpected, think-tanks and local government groups said the data highlighted stark regional disparities, with poorer areas in the north in particular forced to raise the levy more than richer areas. People across the board were paying more and more for increasingly threadbare services, they added.  “We are sleepwalking into a disaster as far as local authority finances are concerned,” said Zoe Billingham, director of the Institute of Public Policy Research North.Calling for fundamental reform of the way local government raises funding, she noted that councils needed an emergency cash injection of up to £4bn to stabilise their finances and safeguard services over the next two years.“Council tax is regressive with respect to property values to the benefit of wealthier residents in places like London and at the cost of less well-off residents in places like the North East of England,” she said.The Chartered Institute of Public Finance and Accountancy (CIPFA), which represents accountants working in the public sector, estimates that households in the North East will pay £420 more in council tax for an average property in 2024-25 than those in Greater London.Its analysis found that the average benchmark mean value (or “band D”) property in Greater London will rise by £105.57 to £1,894, while in the North East it will go up by £112.14 to £2,315.Some analysts said the government’s decision to pursue tax cuts ahead of the general election this year had heaped pressure on local authorities to raise their tax revenues.“With central government prioritising cuts in taxes and consequent spending cuts, this places more burden on councils to increase the level of council tax by the maximum allowed,” said Rob Whiteman, CIPFA chief executive. “Many residents will see a reduction in the level of service provided,” he added.According to analysis released this week by the County Councils Network, councils are spending over £200 per person more on children’s services and adult social care compared to a decade ago, with these two responsibilities now consuming two-thirds of the average local authority’s budget.“This has loaded the cuts into the most visible parts of where people judge the state,” said Tony Travers, professor in the department of government at the London School of Economics.The Department for Levelling Up, Housing and Communities said it recognised the challenges facing councils, which was why it had announced an additional £600mn support package in January. But it had no plans for a nationwide revaluation of the way council tax is calculated. “Councils are ultimately responsible for their own finances and for setting their own council tax,” it said.   More