Economy

The financial institution anticipates a divided decision, with at least one member likely to push for a more aggressive 50 basis point reduction. Furthermore, Bank of America foresees new forward guidance from Banxico, suggesting the possibility of an accelerated pace of rate cuts.Banxico has previously indicated in its November forward guidance that it plans to lower rates in subsequent meetings. The rationale behind the expected rate cuts includes core inflation remaining under 4%, a sluggish economy despite an unexpected growth in third-quarter GDP, and the U.S. Federal Reserve’s own rate-cutting measures. Despite these factors, challenges such as headline inflation hovering around 5%, close to 5% services inflation, a tight labor market, a weakening Mexican peso, and uncertainties surrounding domestic reforms and U.S. policies under President-elect Donald Trump, create a complex backdrop for monetary policy decisions.Moreover, inflation expectations are still above the 3.0% target, which adds to the caution exercised by Banxico. With these considerations in mind, Bank of America predicts a gradual but consistent reduction in the policy rate for the remainder of this year and into the early part of the next, aiming for a rate of 8.75%. However, there remains a risk that Banxico may opt for a more rapid pace, potentially enacting 50 basis point cuts as soon as December and possibly cutting rates more deeply than Bank of America currently expects.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

The measure would likely keep the roughly $6.2 trillion federal budget running at its current level, funding everything from the military to air traffic controllers to federal securities regulators at their current level. It is expected to include an extension of the farm bill, an omnibus package passed every five years, a Republican Senate aide said.The stopgap measure is needed because Congress failed to pass its 12 annual appropriations bills in time for the current fiscal year, which began on Oct. 1. The government’s “mandatory” programs – which include Social Security and Medicare retirement and healthcare benefits and represent about two-thirds of the budget – renew automatically.Congress’ failure to address the gap between federal revenue and spending has contributed to the rising national debt — currently north of $36 trillion. Congress will have to address that again early next year, when a 2023 deal to extend the nation’s “debt ceiling” expires. Failure could shock bond markets with potentially severe economic consequences.Democrats had pushed for a longer bill, funding the government through the end of its current fiscal year, which ends Sept. 30. But Republicans balked, wanting to wait for final agreement until after President-elect Donald Trump is sworn in on Jan. 20 and their party takes its majorities in both the Senate and House of Representatives. Trump and congressional Republicans campaigned this year on a promise of significantly cutting the number of federal workers and proposing deep cuts to many of the government’s programs.(This story has been refiled to say ‘negotiators aim,’ not ‘negotiating deal,’ in the headline) More

Finance Minister Joerg Kukies and his budget department have communicated with all ministries and government bodies, detailing that the interim government will manage the country’s finances based on the 2025 draft budget until a new administration formulates its own fiscal strategy.The temporary budget will restrict spending to obligations that are legally mandated and essential for the nation’s operations. This includes disbursing funds for unemployment and child benefits, student grants, and ongoing or planned construction projects. In case of emergencies, parliament retains the authority to sanction additional expenditures.The requirement for a provisional budget arose after the coalition parties failed to reach a consensus on the 2025 budget in November. Subsequently, Chancellor Scholz relieved Christian Lindner, a member of the Free Democrats, from his role as finance minister. On Monday, lawmakers are expected to endorse a motion to dissolve parliament, which will facilitate the early elections.The interim budget is set to stay in effect throughout the coalition discussions and until the incoming government establishes its budget for the year 2025. Finance ministry officials anticipate that the new government will likely finalize its budget in the latter half of the next year.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

BERLIN (Reuters) – Chancellor Olaf Scholz asked Germany’s parliament on Monday to declare it has no confidence in him, taking the first formal step towards securing an early national election following his government’s collapse.The neoliberal Free Democrats’ departure from Scholz’s three-way coalition over their refusal to take on more debt has left Scholz’s Social Democrats and the Greens governing without a parliamentary majority just when Germany faces its deepest economic crisis in a generation.Addressing parliament, Scholz framed the snap election as an opportunity for voters to set a new course for Germany, casting it as a choice between a future of higher investment and one of cuts that he said the conservatives were promising.Scholz, who served as finance minister for four years in a previous coalition with the conservatives before becoming head of a new government in 2021, accused other parties of wanting to block the investments Germany needed.”Shortsightedness might save money in the short term, but the mortage on our future is unaffordable,” he told lawmakers.Scholz remains as caretaker leader until a new government can be formed after the planned Feb. 23 election, and already the campaign is turning to arguments over which urgent measures he should pass with opposition backing before then.Rules drawn up to prevent the series of short-lived and unstable governments that played an important role in helping the Nazis rise to power in the 1930s means that the path to new elections is long and largely controlled by the chancellor.After Scholz loses the vote, he can request a dissolution of parliament from President Frank-Walter Steinmeier, who has already endorsed his timetable.Scholz has outlined a list of urgent measures that could pass with opposition support before the election, including 11 billion euros ($11.55 billion) of tax cuts and an increase in child benefits already agreed on by former coalition partners.Measures to tackle fiscal drag – the tendency of inflation to shift taxpayers into higher tax brackets – and high energy prices look less certain.ARGUMENTS”We’re only going to discuss proposals that must urgently be dealt with,” said senior conservative legislator Thorsten Frei. The conservatives, far ahead in the polls under their leader Friedrich Merz, have hinted they could back measures to better protect the Constitutional Court from the machinations of a future populist or anti-democratic government and to extend a popular subsidised transport ticket.”Important decisions need to be made that are being blocked by the opposition,” SPD co-chair Saskia Esken told the Augsburger Allgemeine newspaper. “We’re still waiting on energy price cuts. Friedrich Merz should move on this.” The outcome of Monday’s vote is not entirely certain. Scholz’s SPD is likely to signal it still has confidence in the chancellor, while opposition conservatives and the Free Democrats are expected not to.The far-right Alternative for Germany, with whom all other parties refuse to work, could surprise legislators by voting that they do have confidence in Scholz.If both the SPD and the Greens also back Scholz, that would leave him in the awkward position of remaining in office with the support of a party that he rejects as anti-democratic. In that case, most observers expect he would resign, which itself would trigger an election.To prevent that scenario, many legislators expect the Greens to abstain.($1 = 0.9522 euros) More

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KARACHI (Reuters) – Pakistan’s central bank cut its key policy rate by 200 basis points to 13% on Monday, it said in a statement, its fifth straight reduction since June as the country keeps up efforts to revive a sluggish economy with inflation easing.Pakistan’s latest move makes this year’s cuts the most aggressive among emerging market central banks in the current easing cycle, barring outliers such as Argentina.”Overall, the Committee assessed that its approach of measured policy rate cuts is keeping inflationary and external account pressures in check, while supporting economic growth on a sustainable basis,” the bank’s monetary policy committee said in a statement announcing its decision.The bank noted that it expected inflation to average “substantially below” its earlier forecast range of 11.5% to 13.5% in 2025. It added that the inflation outlook was susceptible to risks, including measures to meet government revenue shortfalls as well as food inflation and increased global commodity prices. “Inflation may remain volatile in the near term before stabilizing in the target range,” the bank said. The South Asian country is navigating a challenging economic recovery path and has been buttressed by a $7 billion facility from the International Monetary Fund (IMF) in September.The bank noted that “considerable efforts and additional measures” would be required for Pakistan to meet its annual revenue target, a key focus of the IMF agreement.All 12 analysts surveyed by Reuters had expected a 200 bps cut, after inflation fell sharply, slowing to 4.9% in November, largely due to a high base a year earlier, coming in below the government’s forecast and significantly lower than a multi-decade high of around 40% in May last year.Monday’s move follows cuts of 150 bps in June, 100 in July, 200 in September, and a record cut of 250 bps in November, that have taken the rate down from an all-time high of 22%, set in June 2023 and left unchanged for a year. It takes the total cuts to 900 bps since June. More

Over the weekend, Iran’s currency, the rial, hit a record low of 756,000 to the dollar.
Since September, the embattled currency has suffered the ripple effects of devastating hits to Iran’s proxies.
With the fall of Syrian President Bashar al-Assad amid a shock offensive by rebel groups, Tehran lost its most important ally in the Middle East.

A briefcase filled with Iranian rial banknotes sits on display at a currency exchange market on Ferdowsi street in Tehran, Iran, on Saturday, Jan. 6, 2018.
Ali Mohammadi | Bloomberg | Getty Images

Iran is confronting its worst set of crises in years, facing a spiraling economy along with a series of unprecedented geopolitical and military blows to its power in the Middle East.
Over the weekend, Iran’s currency, the rial, hit a record low of 756,000 to the dollar, according to Reuters. Since September, the embattled currency has suffered the ripple effects of devastating hits to Iran’s proxies, including Lebanon’s Hezbollah and Palestinian militant group Hamas, as well as the November election of Donald Trump to the U.S. presidency.

With the fall of Syrian President Bashar al-Assad amid a shock offensive by rebel groups, Tehran lost its most important ally in the Middle East. Assad, who is accused of war crimes against his own people, fled to Russia and left a highly fractured country behind him.
“The fall of Assad has existential implications for the Islamic Republic,” Behnam ben Taleblu, a senior fellow at the Foundation for Defense of Democracies in Washington, told CNBC. “Lest we forget, the regime ahs spent well over a decade in treasure, blood, and reputation to save a regime which ultimately folded in less than two weeks.”
The currency’s fall exposes the extent of the hardship faced by ordinary Iranians, who struggle to afford everyday goods and suffer high inflation and unemployment after years of heavy Western sanctions compounded by domestic corruption and economic mismanagement.
Trump has pledged to take a hard line on Iran and will be re-entering the White House roughly six years after unilaterally pulling the U.S. out of the Iranian nuclear deal and re-imposing sweeping sanctions on the country.
Iranian President Masoud Pezeshkian has expressed his government’s willingness to negotiate and revive the deal, officially known as the Joint Comprehensive Plan of Action, which lifted some sanctions on Iran in exchange for curbs to its nuclear program. But the attempted outreach comes at a time when the International Atomic Energy Agency says Tehran is enriching uranium at record levels, reaching 60% purity — a short technical step from the weapons-grade purity level of 90%. More

This unexpected downgrade follows the credit rating agency’s decision to change France’s outlook to negative during the last official review on October 25.The revision is not anticipated to significantly affect the markets. In fact, it might have a modestly positive impact on France’s shorter and medium-term bonds. The stable outlook attached to the new Aa3 rating suggests that Moody’s does not foresee a further downgrade in the upcoming 12 months, which could reassure investors who have been concerned about France’s creditworthiness.Despite this downgrade, French government bond risk premiums have stayed high in recent weeks, contrasting with the tightening premiums of most other Eurozone countries. Yield comparisons indicate that French short-term bond yields are roughly equivalent to those of Spain, which holds a Baa1/A rating. For bonds with maturities between 5 to 10 years, French yields are comparable to those of Greek bonds, rated at Ba1/BBB-.The outlook for France as an issuer remains deteriorating, with expectations set for further downgrades. It is projected that either Standard & Poor’s, currently rating France at AA- with a stable outlook, or Fitch, rating it at AA- with a negative outlook, will be the first to lower France’s rating to A+ within the next year. Bond valuations appear to reflect this anticipated trajectory, with 1 to 4-year French bonds offering value when compared to peers with similar ratings. However, long-dated French bonds are advised against, as they are expected to be more affected by negative political and economic developments.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More