Aurelia Butler

The government recently announced a $3.7 billion economic recovery plan to support sectors still affected by the impact of the COVID-19 pandemic and while the report states the plan is “reasonable and targeted so far … there will be pressure to spend more.”The report says that higher food prices and a weakening economy clash with the population’s high expectations of reform from the new government and the drafting of a new constitution, putting pressure on more spending.On Tuesday, the government presented a limited pension withdrawal plan in an attempt to block a larger withdrawal promoted by legislators.The bank said that while the government’s limited proposal would have less impact on inflation as it represents a fifth of the money from the larger withdrawal, it still presents risks for the economy and prices.”This is naturally less damaging than a full pension withdrawal, but it increases disposable income and may have some impact on demand and inflation,” the bank said.The report also said that Chile’s central bank has taken a “dovish rhetoric” on raising interest rates given fears of a recession, but this will be “tested by recent inflation surprises.”In March, Chile reported a monthly inflation rate of 1.9%, the highest level since 1993.A separate report from Capital Economics predicts Chile’s central bank will deliver at least 200 basis points of additional rate hikes in the current cycle, to 9%. “That’s more tightening than the path implied by the central bank’s rate corridor as well as the latest analyst consensus,” the Capital Economics report stated. More

Russian Finance Minister Anton Siluanov wrote to Economy Minister Paulo Guedes asking for Brazil’s “support to prevent political accusations and discrimination attempts in international financial institutions and multilateral fora.””Behind the scenes work is underway in the IMF and World Bank to limit or even expel Russia from the decision-making process,” Siluanov wrote. He did not elaborate on obstacles to Russian participation in those institutions, and his allegations could not be independently verified.The letter, which made no mention of the war in Ukraine, was dated March 30 and relayed to the Brazilian minister by Russia’s ambassador in Brasilia on Wednesday.”As you know, Russia is going through a challenging period of economic and financial turbulence caused by sanctions imposed by the United States and its allies,” the Russian minister said.Asked about the letter, Erivaldo Gomes, the Brazilian Economy Ministry’s secretary of international economic affairs, indicated that Brasilia would like Russia to remain part of discussions at multilateral organizations.”From Brazil’s point of view … keeping open dialogue is essential,” he said. “Our bridges are the international bodies and our assessment is that these bridges have to be preserved.”U.S. Treasury Secretary Janet Yellen said last week that the United States would not participate in any G20 meetings if Russia was present, citing the invasion.Almost half of Russia’s international reserves have been frozen and foreign trade transactions are being blocked, including those with its emerging market economy partners, Siluanov said.”The United States and its satellites are pursuing a policy of isolating Russia from the international community,” he added.Siluanov said the sanctions violate the principles of the Bretton Woods agreements that set up the IMF and the World Bank.”We consider that the current crisis caused by unprecedented economic sanctions driven by the G7 countries might have long-lasting consequences unless we take joint action to resolve it,” he wrote to Guedes.Brazil’s far-right President Jair Bolsonaro, who visited Moscow just days before the invasion, has kept Brazil neutral in the Ukraine crisis and has not condemned the invasion, drawing criticism from the Biden administration.Bolsonaro expressed “solidarity” when he visited Russian President Vladimir Putin in the Kremlin on Feb. 16 about a week before the invasion began.Brazilian Foreign Minister Carlos Franca has said Brazil opposes the expulsion of Russia from the G20 as sought by the United States. “The most important thing at this time is to have all international forums, the G20, WTO, FAO, functioning fully, and for that all countries need to be present, including Russia,” Franca told a Senate hearing on March 25. More

The euro fell sharply on Thursday after the European Central Bank’s latest policy stance did not match market expectations on the pace of stimulus withdrawal.The ECB opted to leave interest rates unchanged as expected after its latest policy meeting but president Christine Lagarde noted that “downside risks to the growth outlook have increased substantially as a result of the war in Ukraine”. Inflation will remain high over the coming months, mainly because of rising energy costs, she added.The euro dropped as much as 1.2 per cent against the dollar after Lagarde’s comments, to a two-year low of slightly less than $1.08. It later retraced some of the losses to trade 0.5 per cent lower for the day. Carsten Brzeski, head of macro for ING Research, attributed the drop in the currency to investors getting “ahead of themselves” in recent weeks, expecting eight interest rate rises by the end of 2023. “Lagarde’s comments today, however, confirmed the rather gradual process of normalisation,” he said. The central bank said economic data released since its last meeting “reinforce its expectation” that its asset purchase programme (APP) should end in the third quarter of the year. Despite that, Frederik Ducrozet, strategist at Pictet Wealth Management, said the currency’s decline was down to the lack of a “strong hint or firm commitment” from Lagarde that the APP would end in June. “It’s a reaction to the positioning of markets ahead of the conference,” he said.Inflation in the euro area has sailed higher over the past year, with price growth hitting 7.5 per cent last month. Both the US Federal Reserve and the Bank of England have already begun raising interest rates in an attempt to damp intense price rises, but the ECB has indicated that it must first cease its bond-buying before increasing borrowing costs. ECB policymakers also need to balance the impact of the war in Ukraine, which is expected to take an outsized toll on Europe’s economy. “The supply shock implied by the war implies a difficult trade-off for the governing council, given weaker growth and higher inflation,” Goldman Sachs analysts noted. The investment bank expects the ECB to raise rates in September but said a July increase would not be out of the question if inflation pressures picked up. Eurozone government bonds weakened following the ECB decision. The yield on the 10-year German Bund rose 0.08 percentage points to 0.84 per cent, while the Italian equivalent also added 0.11 percentage points to 2.48 per cent. Yields rise when prices fall.The regional Stoxx Europe 600 index rose 0.7 per cent, with Germany’s Dax up 0.6 per cent and France’s Cac up 0.7 per cent. The FTSE 100 in London added 0.5 per cent. In the US, a recent rally in Treasuries went into reverse, with the yield on the government’s benchmark 10-year debt jumping 0.13 percentage points to 2.83 per cent. Unexpectedly weak core inflation figures earlier this week had led investors to temper their expectations about how aggressively the Federal Reserve would raise interest rates, prompting a rally in bond prices. However, in an interview on Thursday John Williams, president of the New York branch of the Federal Reserve, stressed the need to move interest rates “back to more neutral levels”.Wall Street’s benchmark S&P 500 stock index fell 1.2 per cent, after adding 1.1 per cent in the previous session. The tech-heavy Nasdaq Composite lost 2.1 per cent.Oil prices rose on Thursday, with international benchmark Brent crude up 2.7 per cent to $111.70 a barrel. In Asia, Hong Kong’s Hang Seng index added 0.7 per cent and China’s CSI 300 was up 1.3 per cent. Japan’s Topix rose 1 per cent and South Korea’s Kospi traded flat. More