Aurelia Butler

MEXICO CITY (Reuters) – Central banks from Brazil to Chile may be forced to dole out more monetary “medicine” than expected as inflation in the region continue to surge, defying sharp interest rate hikes and spurring discontent over rising food and fuel prices.Brazil’s monthly inflation has surged beyond forecasts to the highest in 28 years. Chile went one better with the biggest jump since 1993, Mexico has posted a 21-year-high annual figure and Peru the highest in a quarter of a century. That, analysts say, will push central banks towards hiking rates faster than planned, a reflection of how tough it has become to bring down inflation, with soaring commodities costs and the war in Ukraine heating up prices globally.”The inflation reality is asking for more monetary medication,” said Alfredo Coutino, director Latin America at Moody’s (NYSE:MCO) Analytics.Policymakers had signaled slower rises ahead after steep hikes earlier in the year. Chile has raised its benchmark rate 650 basis points since the middle of last year. Brazil has hiked the rate to 11.75% from a record-low 2% last March.That’s failed so far to rein in prices, with annual inflation also surging, pushed up by grocery prices and fuel costs, a volatile mix which is stirring angry protests in Peru and forcing political leaders to take evasive action. (Graphic: Latin America inflation – https://graphics.reuters.com/LATAM-INFLATION/zjvqkdlmnvx/chart.png) TIGHTENING CYCLEWilliam Jackson, chief emerging markets economist at Capital Economics, said that higher-than-expected inflation rates backed the view that regional central banks will need to raise interest rates by more than expected.”It reinforces our view that the tightening cycle will go further than the path implied by the central bank’s latest guidance and the analyst consensus,” he wrote in a note.After the latest inflation data, Brazilian interest rate futures rose across the board and economists flagged that next month’s widely expected interest rate increase may not be the last of the cycle, as the bank had previously suggested.In Argentina, where annual inflation is running above 50% and is expected to keep rising, the central bank is now likely to lift the interest rate again in April, a source at the entity told Reuters, after three straight hikes this year.”There should be a new upward adjustment this month,” the person with direct knowledge of discussions said, adding though that the hike would likely be capped at 150 basis points to avoid stymieing economic growth. (Graphic: Argentina: rates vs inflation – https://graphics.reuters.com/ARGENTINA-ECONOMY/zgpomndbrpd/chart.png) ‘INFLATION IS BACK’The headache for policymakers in Latin America, a major global producer of commodities from copper to corn, comes as global supply crunches heat up prices worldwide.Almost 60% of developed economies now have year-on-year inflation above 5%, the largest share since the late 1980s, while it is over 7% in more than half of the developing world.That’s rattling governments from Sri Lanka to Peru, which has been gripped by angry protests in recent weeks against soaring fuel and food prices. The central bank has responded by hiking the interest rate to the highest since 2009. (Graphic: Peru interest rate – https://graphics.reuters.com/PERU-ECONOMY/klvykjoabvg/chart.png) And in region’s second largest economy, Mexican consumer prices rose in March at a pace not seen since 2001, with economists now expecting more interest rate hikes ahead.Still, the fight to bring down prices may be a long one.The head of the Bank for International Settlements Agustin Carstens warned earlier this week the world is facing a new era of higher inflation and interest rates as deteriorating ties between the West, Russia and China and COVID after-effects drive globalisation into reverse.”Inflation is back,” said the BIS central bank umbrella group. (Graphic: Chile inflation: 30-year high – https://graphics.reuters.com/CHILE-INFLATION/byvrjbabove/chart.png) More

“Due to the logistical difficulties, vehicle exports and parts supply to Russia have been suspended since March,” Mitsubishi said in a statement.Japan has joined the United States and other allies in slapping additional sanctions on Russia, including freezing assets of the country’s leaders and three financial institutions, to punish Russia for what Moscow calls “a special military operation” in Ukraine that started on Feb. 24.Stellantis, the world’s fourth largest automaker, said in late March it would have to close the Kaluga plant shortly as it was running out of parts.It was not immediately clear whether Stellantis had halted its operations too in Kaluga.The company, which had earlier suspended all exports of cars to Russia as well as all imports from Russia, was not immediately available for comment on Friday.Stellantis has also said it was moving its current production to western Europe and freezing plans for more investments in Russia, while keeping van production in Kaluga just for the local market.New car sales in Russia fell 62.9% year-on-year in March, contracting for a ninth straight month, as the industry encountered an acute shortage and soaring prices caused by a sharp rouble drop and disrupted logistics. More

Ukraine’s corn exports will drop by another 4.5 million tons to 23 million tons and wheat exports by 1 million tons, according to the U.S. Department of Agriculture’s closely watched World Agricultural Supply and Demand Estimates, or WASDE. World wheat stockpiles were revised down to 278.4 million tons, less than expected by a Bloomberg survey.Russia’s war in Ukraine is upending trade flows out of the critical Black Sea breadbasket region, prompting warnings of food shortages as crucial supplies of wheat, corn and cooking oils are at risk. Food prices are surging at the fastest clip ever and worsening world hunger. “There’s an increased possibility of the conflict getting out of hand again. Peace is not coming any time soon,” said Jack Scoville, analyst at Price Futures Group Inc. in Chicago.Grain and oilseed futures have jumped to near record highs and also caused a spike in prices of farm necessities like fertilizer and fuel. Big growing regions like the U.S. and Brazil are under pressure to produce ample crops, though weather woes and inflation in both countries are clouding the season’s outlook. Most-active corn futures in Chicago rose 1.5% to $7.6175 a bushel as of 11:44 a.m. local time. Benchmark wheat was up 2.7% to $10.5325, and soybeans also rose.Sidelined SuppliesTo see how significantly the war is upending crop flows from Ukraine, its corn stockpiles tell the story. The war has left the country saddled with huge amounts of grain that it’s largely unable to move. With its ports shut, Ukraine is working to ramp up exports via rail, but the flows remain well below normal seaborne trade.The chaos in the Black Sea so far hasn’t led to a jump in U.S. grain exports, though there were signs of fresh corn demand this week when China scooped up 1.1 million tons, the Asian nation’s biggest such buy in almost a year.Besides the worsening war that’s affecting Black Sea exports, the report was bearish, according to Naomi Blohm, senior market adviser at Total Farm Marketing in Wisconsin, with no changes to U.S. corn reserves, bigger wheat supplies and a smaller-than-expected cut in U.S. soybeans stockpiles.Soy Switch (NYSE:SWCH)Shifts in the soybean markets are also underway. The report raised U.S. exports while lowering shipments out of Brazil, as well as Ukraine and Russia. South American soybean crops are down a combined 33 million tons below initial estimates from November, which marks a record loss for the region after a strong drought caused by La Nina weather patterns. With that cut in production, the smaller South American exports will drive more demand to the U.S. for summer and early fall.Bigger U.S. exports will likely to shrink end-season U.S. soybean stockpiles by 8.8%, the largest decline in the month of April since 2012. It’s an unusual move because supplies in America are typically well known at this time of year.(Adds details about shifts in soybean markets in final three paragraphs.)©2022 Bloomberg L.P. More

The closely watched gap between two-year and 10-year yields, whose inversion has preceded past recessions, turned negative last week, fueling a debate on whether the signal presages a downturn this time around. “We do not see a recession occurring in the near-term,” said Gargi Chaudhuri, head of iShares Investment Strategy, Americas, at BlackRock.“While we are hesitant to say that this time is different, we note that many factors now differ from previous yield curve inversions,” she wrote.Longer-dated yields had been pushed artificially low by investors such as pension funds with improved funding status, contributing to the curve inversion, she said.Inversions of key parts of the Treasury yield curve – which occur when yields on shorter-term Treasuries exceed those for longer-dated government bonds and signal economic worries – have concerned investors in recent weeks, as the Federal Reserve grows more aggressive in its fight to slow the economy and tackle inflation.Analysts have said the central bank’s unprecedented bond purchases, as well as excess savings after the coronavirus crisis, are holding longer-dated yields lower than they would otherwise be. The 2s/10s yield curve has been steepening this week, with the 10-year yield standing 18.8 basis points higher than the yield of two-year notes on Friday.BlackRock’s Chaudhuri said more hawkish signals by the central bank – increasingly determined to tighten financial conditions through rate hikes and balance-sheet reduction to fight inflation – have contributed to the curve steepening. “We still see room for longer end interest rates to move modestly higher from here”, she said. More

The FT this week ran a brace of big reads on the sanctions slapped on Russia, how they happened and what the longer-term impact will be. It’s an important subject, and both pieces are worth reading at leisure. (Editor: that means after you’ve finished with this one.)However, FT Alphaville had some follow-up thoughts on the subject, after having spoken to many experts in the field (two current and one former FT Alphavillain were involved). Our biggest takeaway? People seem very relaxed about threats to the dollar.This might, in time, prove to have been overly sanguine, but we broadly share that assessment. China is the main contender, but until Beijing opens its capital account fully it cannot be a realistic challenger. And even when it does, who will the world realistically trust the most, the US or China? Even countries that regularly clash with Washington will not feel much safer with the renminbi, given that China has shown even more willingness to economically sanction countries that don’t toe the line on issues like Taiwan. For example, India might not like the dollar’s hegemony, but that it would plough meaningful amounts of its foreign reserves into the renminbi seems preposterous, even if China allowed it to.The reality is there are many facets that make, support (and break) reserve currency status, and established reserve currencies only fall over a long period of time. As fellow FT Alphavillain Claire Jones wrote Thursday, sterling’s top dog status lasted well into the 1950s, decades after the UK had become a middling power.Like a social network, the advantages of the incumbents are huge. Countries can try to mitigate their vulnerabilities to financial sanctions from Washington, but they cannot eliminate them (especially if Europe and other allies like Japan join in, as they have in the case of Russia). It’s telling that even Barry Eichengreen, the daddy of dollar historians, is more chilled about the greenback dominance than he’s been in the past. Despite Eichengreen publishing a wildly timely paper on the “stealth erosion” of the dollar’s dominance in March, he admitted that he had been surprised by the resiliency of the greenback’s role in the global financial system, with most of its market share losses going to smaller western currencies like the Canadian and Australian dollars, rather than the renminbi. Here’s Eichengreen:I think the Trump years may have changed that conversation a little bit. An erratic US foreign policy, to put it politely, didn’t significantly erode the singular role of the dollar or of US banks. That slightly reassuring experience in combination with the extraordinarily aggressive Russian action produced an outcome which I, for one, did not entirely see coming.We’ve seen the difficulty that China and Russia are having in creating alternatives to the Western monetary and financial system. The fact is that the renminbi has not gained much importance as an international reserve currency, that it doesn’t provide much of a backdoor for countries in Russia’s position. But the euro hasn’t gained ground as an international currency in its first two decades, and the renminbi has barely gained ground. The movement has been into these smaller, high-quality currencies.That is making for a somewhat more diversified international monetary and financial system that we’ve had in the past, but not the one that many of us saw coming. We thought we’d see a tri-polar system dominated by the dollar, the euro and the renminbi. Instead we have seen smaller players gaining the ground that the dollar has lost.In terms of other more far-reaching changes. I still don’t really see it. I think it’s revealing that the payments system for the renminbi that China has developed — the cross-border interbank payments system (Cips) — sends its messages through Swift.However, this raises the most intriguing implication of all: If the backlash is likely to be de minimis, and the impact potentially severe (most countries will be even more vulnerable to sanctions like this than Russia) the temptation to use these tools again is going to be overwhelming. As one veteran investor told us: “It’s a crossing of the Rubicon. The precedence is really important. This puts a lot of countries on notice that the US is willing and able to go after them in an aggressive way . . . Any precedent becomes a tool if it doesn’t blow up in your face.”Just like how cruise missiles and later drones became an easier and cheaper method than sending in the US marines — let alone long-term state-building — financial sanctions might become a tempting weapon to deploy more often, even in cases less clear-cut than Russia’s invasion of Ukraine. Precedents are forged by extreme cases, not humdrum ones.This is what Juan Zarate thinks will happen and he’s no stranger to militarising the world of money. As president George W Bush’s deputy national security adviser, Zarate became one of the key architects of the US government’s far-ranging and often controversial efforts to disrupt terrorist financing networks after 2001. Zarate pointed out to FT Alphaville that the Russian sanctions weren’t some deus ex machina. They were a natural next step in a decades-long period of development, deployment and gradual escalation (some of which he oversaw). Everything aimed against Russia was part of a pre-existing armoury, whether Swift exclusions or central bank reserves being frozen. Only the size of the opponent and the aggressiveness was novel: All these elements are part of a playbook that was already being implemented — but in degrees and with calibration . . . This is as maximalist an approach against a major economy that one can imagine.The gloves are off, in financial and economic terms . . . This is where we’ve been heading for 20 years, in part because of a lack of desire to commit kinetic forces and the search for alternative ways of coercion in statecraft . . . But until now I don’t think that the use of economic and financial predominance as a core tool of statecraft has been embedded in the transatlantic view of the world. (Russia) has galvanised that idea . . . This battlespace is now coming to the fore. Perhaps a new era of financial warfare is about to dawn? Smarter people than us, please share your thoughts below. More

Global food prices have struck a new high, soaring at the fastest monthly rate in 14 years after the war in Ukraine hit the supply of grains and vegetable oils, in a shift likely to do the greatest harm in poorer countries around the world.March’s food price index from the UN Food and Agricultural Organization rose to its third record high in a row, jumping by 34 per cent from the same time last year, after the war shut down supply lines from Ukraine and Russia. The index was 12.6 per cent higher than in February, a rise that the organisation described as a “giant leap” .Many poorer countries are already struggling from the impact of Covid-19, and several in the Middle East and north Africa rely on both Ukraine and Russia for their grain and vegetable oils. Food inflation has helped to spur protests in a number of countries, including Sri Lanka, where the issue has helped to create a severe economic and political crisis.“The ongoing conflict in Ukraine is heightening concerns about the impact on food security worldwide,” said Beth Bechdol, deputy director-general of the FAO. “We are witnessing food price increases across the board.”The World Bank has already warned that higher food prices could cause lasting damage to low and middle-income countries and could contribute to pushing millions of people into poverty.Russia and Ukraine are important exporters of grains and sunflower oil, accounting for about 30 per cent of global wheat trade. Russia has continued shipping wheat since it invaded its neighbour in February, but sanctions have complicated payments, leading to supply uncertainties.

Food price inflation had already taken root before the war started, after poor harvests last year on the back of bad weather and a sharp rebound in post-pandemic lockdown demand. But according to the FAO, nearly 50 countries depend on Russia and Ukraine for at least 30 per cent of their wheat imports.In 2021, 36 out of 55 countries with food crises depended on Ukrainian and Russian exports for more than 10 per cent of their total wheat imports, including 21 countries with a major food crisis.The fastest increases in March’s index were in vegetable oil prices, which went up by 23.2 per cent month on month, to a record high.“International sunflower seed oil quotations increased substantially in March, fuelled by reduced export supplies amid the ongoing conflict in the Black Sea region,” the FAO said.Cereal prices rose 17.1 per cent month on month, also to a record high. More

The central bank cut its key interest rate to 17% from 20% in a surprise move ahead of a regular board meeting scheduled for April 29, and said it was open to possible further cuts at upcoming meetings.The rouble quickly returned to gains after easing slightly following the move, which partially reversed the emergency rate hike that the central bank delivered in late February after Russia had started what it calls “a special military operation” in Ukraine on Feb. 24.By 1116 GMT, the rouble gained 1.8% to 74.42 against the dollar, inching closer to its strongest level since Feb. 11 of 74.2625 hit on Thursday.Against the euro, the rouble rallied by nearly 3% to 79.10 after briefly touching the 79 mark for first time since late June 2020.Yields on 10-year OFZ treasury bonds, which move inversely to their prices, fell to 10.93% from 11.62% seen before the rate move.The surprise rate decision followed comments by Finance Minister Anton Siluanov who said this week his ministry was working with the central bank on measures to make the rouble exchange rate more predictable and less volatile.”If the experience of the 2014/15 rouble crisis is any guide, a large interest rate cut (like that seen today) is likely to be followed by much more gradual easing as the CBR targets a large positive real interest rate to bring inflation back down to its target,” Capital Economics said in a note.LockoInvest firm said it has revised its year-end rate forecast to 11-12% from not more than 15%.VOLATILE ROUBLEMoves in the rouble remain jittery and trading volumes on the Moscow Exchange are below average, but the rouble has fully recovered to levels seen before Russian troops entered Ukraine.The rouble is supported by Russia’s strong current account surplus amid high commodity prices as well as Russia’s capital controls, said Olga Belenkaya, head of macro research at Finam brokerage.The rouble has recently been steered by mandatory conversion of dollar and euro revenues by export-focused companies, while demand for forex is limited by a ban on buying cash dollars and euros as well as by a 12% commission on buying forex online or through a bank.Given the latest rouble firming, some recovery in demand for FX is possible even despite the commission, Otkritie bank said in a note.The rouble will lean towards firming without action from the central bank and could enter the 70-75 range to the dollar during the day, Promsvyazbank analysts said in a note.On the stock market, the dollar-denominated RTS index rose 0.7% to 1,099.5 points. The rouble-based MOEX Russian index fell 1.4% to 2,598.0 points.Shares in oil firm Bashneft underperformed the market, losing 4% on the day, while shares in its rival Lukoil were down 1.4%. Oil stocks took a hit after the U.S. Congress voted to impose further economic pain on Russia over its actions in Ukraine, passing one measure to remove its “most favoured nation” trade status and another to ban oil imports. More

MUMBAI (Reuters) -The Reserve Bank of India said on Friday it is starting to move away from its ultra-loose monetary policy even as it kept its key lending rate at a record low, as its priorities shifted to fighting surging inflation in the wake of the Russia-Ukraine war.In a surprise move, the central bank said it would restore its liquidity adjustment facility corridor to pre-crisis levels, which was seen as a first step to moving away from emergency measures embraced during the COVID-19 pandemic.Analysts and traders are now broadly expecting the RBI to change its ‘accomodative’ stance to neutral at its next policy meeting in June, with interest rate increases starting sooner rather than later.But with global growth risks also rising, RBI Governor Shaktikanta Das sought to reassure financial markets that the process of returning policy settings to more normal levels would be gradual. “The conflict in Europe has the potential to derail the global economy caught in the crosscurrent of multiple headwinds. Our approach needs to be cautious, but proactive in mitigating the adverse impact on India’s growth and inflation,” Das said after the policy decision. The RBI’s monetary policy committee held the lending rate, or the repo rate, at 4%. The reverse repo rate, or the key borrowing rate, was also kept unchanged at 3.35%.However, the central bank said it would restore the width of the liquidity adjustment facility corridor to 50 basis points.RBI said the floor of the corridor would be the standing deposit facility rate, which was set at 3.75%, and the marginal standing facility rate at 4.25% will be the upper bound with the repo rate in between the two.”This raises the probability of rate hike cycle commencing in August, while not fully precluding the case for a June hike itself along with a stance change if macro realities worsen for the inflation outlook,” said Madhavi Arora, lead economist at Emkay Global.All but six of 50 respondents polled by Reuters between March 29-April 5 had forecast no change in the repo rate on Friday. Thirty-two had expected rates to still be unchanged by end-June.”INFLATION BEFORE GROWTH”Reflecting growing uncertainties, the RBI raised its inflation forecast for the current fiscal year to 5.7%, 120 basis points above its forecast in February, while cutting its economic growth forecast to 7.2% for 2022/23 from 7.8%.”We have now put inflation before growth. So that is the sequence of our priorities – first is inflation followed by growth,” Das said, adding that this was the first time in three years that the RBI was putting inflation in the forefront.Das said RBI will gradually withdraw system liquidity over a multi-year timeframe beginning this year but will do it in a non-disruptive manner. He said economic activity is barely above pre-pandemic levels but continues to steadily recover.Das said the MPC voted unanimously to keep the repo rate unchanged and to retain an ‘accommodative’ monetary policy stance.But he added that the focus is on the withdrawal of accommodation.Inflation has held above the RBI’s 6% upper threshold so far this year, casting doubt on its strategy of keeping rates low to bolster growth even as some other central banks are already raising borrowing costs to tamp down price pressures.India’s 10-year benchmark bond yield jumped 20 basis points on the day to trade at 7.11% by 1040 GMT, while the rupee strengthened to end at 75.8950 against the dollar. The NSE Nifty 50 index closed 0.82% higher while the S&P BSE Sensex rose 0.70%.Das also said the RBI will work to help smooth the implementation of the government’ record $14.31 trillion borrowing programme as and when warranted. The RBI also increased banks’ held-to-maturity limit in debt to 23% from the current 22% until end-March 2023.”Amid inability to explicitly support the government borrowing program, the RBI enhanced the held-to-maturity limit by 100 bps, which could calm the bond markets despite a sharp increase in inflation forecast,” said Garima Kapoor, economist institutional equities at Elara Capital. More