Economy

Ramirez was speaking at a news conference alongside President Andres Manuel Lopez Obrador, who said the plan aimed to ensure fair prices for a basket of staple foods. Mexico was not planning to apply price controls, Lopez Obrador said.The plan would be in place for six months and could be renewed if necessary and agreed with business leaders, said Ramirez, adding he expected a near-term impact on inflation expectations for basic goods.Mexican annual inflation reached 7.72% in the first half of April, an over-20-year high that could prompt more interest rate increases by the central bank.Goldman Sachs (NYSE:GS) economist Alberto Ramos called increasing the supply of food and grains, reducing import tariffs and staying away from coercive measures and outright price controls “positive developments.”But Ramos underscored that it was unclear how food supply would increase significantly in the short-term, and said any additional local food and grains supply was likely to still be more expensive due to rising fertilizer and production costs.”The international and LatAm experience with price controls and ‘voluntary price agreements’ is not positive since they tend to be very ineffective beyond the very short-term to keep inflation under control, create distortions in relative prices, and repressed prices usually lead to larger increases later on,” said Ramos.Still, some of Mexico’s most important businesses backed Lopez Obrador’s anti-inflation plan.Billionaire Carlos Slim, Mexico’s richest man, had told the government his Mexican telephone businesses Telmex and Telcel, units of America Movil (NYSE:AMX) would not raise prices for the rest of 2022, according to Ramirez.Lopez Obrador said Mexican supermarket chains such as Chedraui and Soriana supported the anti-inflation plan.Breadmaker Grupo Bimbo also backed the initiative, and is set to maintain its white bread prices for six months, company executive Liliana Mejia told the news conference.Lopez Obrador’s anti-inflation plan will likely not influence interest rate decisions by the central bank, which is set to vote on a potential interest rate hike next Thursday, J.P. Morgan analysts said in a note to clients.The analysts expect Mexico’s central bank, known as Banxico, to raise rates by 50 basis points at next Thursday’s meeting, reaching a 200-basis point hike through year-end.”The limited and likely transitory effect on prices implies that inflation expectations should be only modestly affected, at best,” the JP Morgan analysts said. More

The European Commission on Wednesday proposed one of the most sweeping changes to global energy flows in history. But the oil price barely responded. Brent, the international benchmark, rose 3.8 per cent to around $109 after the commission proposed a phased-in ban on all imports of Russian crude and refined products into the EU. Traders and analysts said the muted price response reflected the long-build up to the announcement, the phased-in approach, suppressed oil demand in China because of a resurgence of coronavirus and the price-calming impact of petroleum releases by the US and its allies. Brent has hovered at $100-$115 a barrel since the start of April. “It’s a very small move on a momentous decision,” said Bjarne Schieldrop, chief commodities analyst at Swedish bank SEB. “If it hadn’t been for the Chinese lockdowns and the [strategic petroleum reserve] releases then the oil market reaction would have been much stronger.”More on the EU’s proposal: Hungary has threatened to block the EU’s plan to ban almost all imports of Russian oil. Go deeper with our Disrupted Times newsletter. Do you support the EU’s plan to place an embargo on Russian oil? Tell me what you think at [email protected]. Thanks for reading FirstFT Asia — EmilyCoronavirus digest China’s lockdowns are eating into the revenues of big global retailers.Moderna has prioritised the development of a new jab targeting the fast-spreading Omicron variant, which it plans to release in the autumn. As the UK pushes ahead with its “living with Covid” strategy, immunocompromised people fear they have been forgotten.Five more stories in the news1. Policymakers boost interest rates around the world The Federal Reserve raised its benchmark policy rate by half a percentage point for the first time since 2000 and sent a strong signal that it intends to increase it by the same amount at the next two meetings. The move followed the Reserve Bank of India announcing a surprise 40 basis point interest rate increase, the first hike in nearly four years.2. Russian missiles strike Ukrainian rail network for second day Russia’s invading armed forces have conducted a second wave of cruise missile strikes on railway infrastructure across Ukraine in as many days, Kyiv claimed on Wednesday evening. Missile strikes on Tuesday night caused havoc across the rail network, in one of the biggest long-distance bombardments of Moscow’s invasion.

Missile strikes hit the western city of Lviv, where they damaged electricity substations powering the rail network © REUTERS

3. SEC launches probe of Didi’s $4.4bn US IPO The US Securities and Exchange Commission is investigating Chinese ride-hailing giant Didi Chuxing’s botched New York initial public offering, adding to the company’s regulatory woes after Beijing launched a national security probe into the group last year. 4. US moves towards imposing sanctions on Hikvision The Biden administration is laying the groundwork to place sanctions on the Chinese surveillance camera company it accuses of enabling human rights abuses. Although a decision has not yet been made, it would have ramifications for the more than 180 countries that use the company’s cameras.5. India boosts coal output to beat the heat India is increasing coal production to record levels in an effort to overcome a fuel shortage that has led to blackouts during a searing heatwave. India is the world’s second-largest coal producer and consumer and depends on the fossil fuel for about 70 per cent of power generation. Sign up to our Energy Source newsletter for more industry analysis. The day aheadJohnson hosts Kishida Japan’s prime minister Fumio Kishida is set to meet UK prime minister Boris Johnson on Thursday, when the pair are expected to discuss sanctions on Russia and military co-operation efforts. (NHK World Japan) Bank of England meets A 25 basis point increase is expected when the Monetary Policy Committee meets.UK local elections Voters will go to the polls to select local authority representatives in England, Scotland and Wales, Northern Ireland.What else we’re reading Khan plots comeback in Pakistan The downfall of former prime minister Imran Khan was accelerated by widespread anger over Pakistan’s economy. Now, Khan has gone on the offensive, holding events across the country to demand new elections. His narrative of a foreign conspiracy has struck a chord among many voters despite a lack of evidence.Opinion: Pakistan’s economy is on the brink. It is time for the rich to start paying their proper share of taxes, writes the former head of Citigroup’s emerging markets investments.Alibaba targets bargain-hunting shoppers The ecommerce giant has become the go-to online emporium for consumer goods in China, mostly by focusing on shoppers in wealthy cities. But as growth slows from rising competition and regulatory pressures, the group has turned to the estimated 930mn consumers in less affluent cities to boost lagging sales.Will Nato’s military build-up make Europe safer? Europe is arguably less safe today than at any point since 1945. The military build-up of Nato forces in response to Russia’s invasion of Ukraine has raised the question as to whether the continent is better protected, or simply intensified an already fraught situation.

Why Ping An is trying to turn the tables on HSBC Two decades ago, HSBC made a bold gamble to recapitalise an ailing Chinese insurance firm, paying $600mn for 10 per cent of Ping An. Their fortunes have now reversed: Ping An, HSBC’s largest shareholder, is calling for the biggest shake-up in the bank’s 157-year history, a split of its Asian and western operations.Twitter isn’t the town square, it’s the theatre Anxieties about Elon Musk’s acquisition of the site are based on a too lofty view of it, writes Jemima Kelly. While the site might be the obsession of adult journalists, puerile billionaires and toddlerish presidents, it is not much cared about by the majority.Food and drinkThis method for cooked eastern coffee might change your coffee life forever. More

(Reuters) – The Federal Reserve on Wednesday said it will start culling assets from its $9 trillion balance sheet in June and will do so at nearly twice the pace it did in its previous “quantitative tightening” exercise as it confronts inflation running at a four-decade high.The central bank’s stash of assets has roughly doubled in size during the coronavirus pandemic as it used purchases of Treasuries and mortgage-backed securities to smooth market functioning and augment the effects of its interest rates cuts. Now it wants to reverse much of that, and in relatively short order, alongside rate hikes meant to cool inflation.Here’s a rundown of what is in the cards now and how it differs from the 2017-2019 “QT” period.EARLIER STARTThe Fed’s announcement of the start of this QT round came just one meeting after lifting its benchmark short-term interest rate for the first time since 2018.In the previous episode, the launch of QT in the fall of 2017 occurred nearly two years after that cycle’s first rate hike, which had taken place in December 2015.This time’s onset of QT is also a bit earlier relative to where the Fed is in its overall tightening process. Along with announcing that QT will start on June 1, the Fed on Wednesday lifted its target rate to 0.75-1.00%. Last time, QT did not begin until rates had reached 1.00-1.25%.LARGER CAPSCome September, the Fed will be cutting $95 billion a month from its holdings, split between $60 billion of Treasuries and $35 billion of MBS.That is roughly double the maximum pace of $50 billion a month targeted in the 2017-2019 cycle. Back then, the split was $30 billion of Treasuries and $20 billion of MBS.FASTER RAMP-UPIn the last cycle, it took a full year for the Fed to reach that maximum reduction rate of $50 billion a month. It started with $10 billion a month ($6 billion Treasuries/$4 billion MBS) and increased that by $10 billion a quarter until it reached its maximum rate in the fall of 2018.This time, it will go from zero to $95 billion in the space of three months https://www.federalreserve.gov/newsevents/pressreleases/monetary20220504b.htm, with only one initial step before moving to the maximum reduction pace. On June 1, it will start the process at $47.5 billion a month for the first three months, divided as $30 billion of Treasuries and $17.5 billion of MBS. It will increase to the full $95 billion three months later.BIGGER BALANCE SHEET, BIGGER SHRINKAGEWhen the Fed kicked off its first-ever QT undertaking, its total balance sheet was around $4.5 trillion in size. In nearly two years of QT, it managed to bring that down by about $650 billion to a bit over $3.8 trillion before it brought the program to a stop.This time, the annualized monthly rate of reduction works out to more than $1.1 trillion a year in balance sheet roll-offs once it attains its maximum pace. That means it will likely surpass the total of the entire 2017-2019 QT cycle by early 2023. Many economists see officials targeting about $3 trillion in total balance sheet shrinkage over a three-year span. DIFFERENT TREASURIES MIXThe Fed’s Treasuries portfolio is shorter in maturity this time than in the previous QT round by about two years, according to New York Fed data. That is in part owing to the substantial purchases of T-bills, particularly early on in the crisis, to help restore market stability.The plan issued Wednesday indicated officials will rely on redemptions of T-bills, which mature in a year or less, when the redemption of coupon securities, which are notes and bonds with maturities greater than one year, are below the monthly cap. Officials generally don’t view T-bills as a needed part of their holdings required to ensure an ample supply of reserves for the banking system under their current operating framework.END GAMEThe Fed said it would slow and then stop the QT process when banking system reserve balances are “somewhat above the level it judges to be consistent with ample reserves.” The Fed relies on a system of “ample reserves” to conduct its policy, and QT will reduce that pool of funds, which are deposited by banks with the Fed. In the previous QT cycle, it ended up reducing reserve levels too much, resulting in upheaval in other short-term funding markets, an outcome it does not want to see repeated.SELL THOSE PESKY MORTGAGE BONDS?The minutes from the Fed’s March meeting showed officials expect redemptions of MBS to run below the $35 billion a month cap. That is because U.S. mortgage interest rates have already risen substantially, which has slowed the rate of “prepayments” that typically occur when rates are low and homeowners are enticed to refinance their existing loans. That triggers a loan payoff and shortens the maturity of a mortgage bond. Conversely, when rates rise, fewer bonds will mature each month. Those minutes further showed officials “generally agreed” that it would be appropriate to consider outright sales of MBS “after balance sheet run off was well underway to enable suitable progress toward a longer-run … portfolio composed primarily of Treasury securities.”The plan announced Wednesday, however, made no reference to that possibility, and Fed Chair Jerome Powell was not asked about it during his press conference. More

WASHINGTON (Reuters) – The Federal Reserve on Wednesday raised its benchmark overnight interest rate by half a percentage point, the biggest jump in 22 years, and the U.S. central bank’s chief made an appeal to Americans struggling with high inflation to be patient while officials take the hard measures to bring it under control.In a widely expected move, the Fed set its target federal funds rate to a range between 0.75% and 1% in a unanimous decision, and Fed Chair Jerome Powell said policymakers were ready to approve half-percentage-point rate hikes at upcoming policy meetings in June and July.The level of specificity – effectively announcing Fed rate hikes in advance – was unusual, but reflected Powell steering a course between high inflation that requires a strong Fed response, and trying to avoid the sort of overkill that might tip the economy into recession.In a news conference after the release of the Fed’s policy statement, Powell explicitly ruled out raising rates by three-quarters of a percentage point in a coming meeting, a comment that triggered a stock market rally. But he also made clear the rate increases the Fed already has in mind were “not going to be pleasant” as they force Americans to pay more for home mortgages and auto loans, and possibly dent asset values. The Fed also said it would start next month to reduce the roughly $9 trillion stash of assets accumulated during its efforts to fight the economic impact of the coronavirus pandemic as another lever to bring inflation under control.”It’s very unpleasant,” Powell said of the impact on households of inflation, which is running about three times the Fed’s 2% target. “If you’re a normal economic person, then you probably don’t have … that much extra … to spend and it’s immediately hitting your spending on groceries … on gasoline on energy and things like that. So we understand the pain involved.”STABLE PRICESPowell told reporters that he and his Fed colleagues were determined to restore price stability even if that meant steps that would lead to lower business investment and household spending, and slower economic growth. The implications of inflation getting out of hand, he said, were worse.”In the end, everyone is better off … with stable prices,” Powell said.Still, Powell said he felt the U.S. economy is performing well, and strong enough to withstand the coming rate increases without being driven into recession or even seeing a significant rise in unemployment. Despite a drop in gross domestic product over the first three months of this year, “household spending and business fixed investment remain strong. Job gains have been robust,” the central bank’s Federal Open Market Committee said in its policy statement.Officials sharpened their description of the risks for elevated inflation to persist, especially with factors that have arisen since the start of the year, including the war in Ukraine and new coronavirus lockdowns in China.”The Committee is highly attentive to inflation risks,” the Fed said in language analysts interpreted as a sign of the Fed’s commitment to push interest rates as high as needed to get inflation, and the expectations surrounding its future path, back to the 2% target.BALANCE SHEET REDUCTIONThe statement said the Fed’s balance sheet, which soared to about $9 trillion as the central bank tried to shelter the economy from the pandemic, would be allowed to decline by $47.5 billion per month in June, July and August and by up to $95 billion per month starting in September.Policymakers did not issue fresh economic projections after this week’s meeting, but data since their last gathering in March have given no definitive sense that inflation, wage growth, or a torrid pace of hiring had begun to slow.U.S. stock markets jumped following the announcement, extending gains after Powell poured cold water on the idea of hiking rates by three-quarters of a percentage point. The S&P 500 index closed about 3% higher, notching its biggest one-day percentage gain in nearly a year. Yields on government bonds fell sharply in volatile trading while the dollar weakened against a basket of major trading partners’ currencies.”This one has been well communicated and well delivered,” said Simona Mocuta, chief economist with State Street (NYSE:STT) Global Advisors. “There is an awareness that they are tightening into a slowing economy and there are risks associated. For the magnitude of the move it has been very uneventful, and that is a good thing.” More

The head of chemical company INEOS announced last Friday a last minute offer of 4.25 billion pounds ($5.35 billion) but a consortium led by LA Dodgers part-owner Todd Boehly is considered the preferred bidder.Russian owner Roman Abramovich, now subject to sanctions by the British government, put the West London club up for sale after Russia’s invasion of Ukraine.”We presented them (New York bank Raine) with an offer at the end of last week, we haven’t heard a great deal back from them which is a bit disappointing,” Ratcliffe told the BBC on Wednesday.”I’d say don’t discount our offer, we are very British and we’ve got great intentions for Chelsea,” he added when asked what his message to those overseeing the sale would be.The Daily Telegraph earlier quoted Ineos communications director Tom Crotty saying Raine had ruled out the company’s bid.”We’ve had an email to say, ‘forget it, you’re not in the process’,” he said. “That was from Raine, but we’re not giving up because we believe what we’ve got is a bid that makes good sense for the club.” Ratcliffe recognised his move had been late but said it had taken time to reach a fully committed decision.”We got there at the end of the day and we now are quite committed to that proposal that we’ve made,” he said. “We’re not giving up.”Boehly’s consortium includes Swiss billionaire Hansjorg Wyss and British property investor Jonathan Goldstein.($1 = 0.7942 pounds) More

Rising mortgage interest rates are squeezing homebuyer budgets as the cost of living crisis threatens to put the brakes on two years of frenzied activity and soaring prices in the UK property market. Figures from the Bank of England released on Wednesday showed the effective interest rate on newly drawn mortgages — the actual interest rate paid — increased by 14 basis points in March to 1.73 per cent. The increase comes as the BoE’s Monetary Policy Committee considers again whether to raise its main interest rate to curb inflation. Rising rates are among several factors that could reverse two years of rapid increases in UK house prices, alongside soaring inflation, falling real incomes and diminished consumer confidence.“While housing demand potentially will be supported by the savings that households have accumulated during the pandemic, the combination of falling real disposable incomes, low consumer confidence and rising mortgage rates is too toxic for the housing market to come away unscathed,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics. Interest on mortgages has edged up since hitting historic lows during the pandemic lockdown, when the central bank slashed the base rate of interest to 0.1 per cent to cushion the economy. It has since increased the rate gradually to 0.75 per cent but, in a closely watched decision on Thursday, policymakers could announce a further increase, most likely to 1 per cent. Mortgage interest rates have edged up further in recent days. Yorkshire Bank, Clydesdale Bank and Metro Bank raised rates on selected mortgage products this week ahead of the expected BoE rate rise. BoE analysis of new mortgages showed new quotes for two-year fixed rate products at loan-to-value ratios of 75 per cent carried an average interest rate of 2.11 per cent last month, up from 1.23 per cent in August 2021.Some economists predicted a fall in prices as buyers are able to borrow less. “If we are right that interest rates will be raised to 1 per cent tomorrow and to 3 per cent next year . . . then it won’t be long before the housing market slows,” Paul Dales, chief UK economist at Capital Economics, said. “We think house prices will fall in 2023 and 2024, by around 5 per cent in total.”

BoE figures on Wednesday also suggested the housing market could be calming down — but analysts were divided over the extent to which this would affect demand and prices. Net borrowing of mortgage debt increased to £7bn in March from £4.6bn in February. The sharp rise reflected frenzied activity at the beginning of this year, as buyers scrambled to take advantage of low rates and demand outstripped supply, pushing up prices. However, March figures for the number of mortgage approvals, which indicate later purchases and future borrowing, were little changed at 70,700 compared with 71,000 in February.Mark Harris, chief executive of mortgage broker SPF Private Clients, said the figures indicated a more stable housing market. “This suggests that the froth has come out of the market, leaving a calmer, more measured, and ultimately more sustainable version.”Observers said mortgage rates were just one among several factors likely to limit housing demand. Economists have warned the UK could face a period of stagflation, with consumer prices increasing by 7 per cent in March, while GDP grew by just 1 per cent in February and real wages contracted by 1 per cent. Anthony Codling, chief executive of property platform Twindig, said rising rates were one of a combination of factors set to affect house prices, including a perception of greater risk and declining real incomes as the cost of living crisis bites. However he added that some aspects of the cost of living crunch could push up property values, with households still drawing on lockdown savings and assets like property proving a more attractive investment as inflation degrades the value of cash. “In the context of longer history, mortgage rates are still very low indeed,” he added. “I wouldn’t panic.” More

The writer is former head of Citigroup’s emerging markets investments and author of ‘The Gathering Storm’Pakistan is in political and economic chaos. Its most populous province, Punjab, was without a government for almost a month because the governor, who was appointed by former prime minister Imran Khan, had refused to administer an oath to the newly elected chief minister of the province. The president, Arif Alvi, a member of Khan’s party, is backing the Punjab governor’s actions.Meanwhile, Pakistan’s foreign exchange reserves have fallen sharply in the past two months. The new government hopes to stop the bleeding with an enhanced IMF package and more short-term loans from China and Saudi Arabia. Supplies of electricity to households and industry have been cut as the cash-strapped country can no longer afford to buy coal or natural gas from overseas to fuel its power plants.Newly elected prime minister Shehbaz Sharif was in Saudi Arabia last week to seek more financial assistance from the oil-rich kingdom, in addition to the existing bilateral credit of $4.2bn. Pakistan owes China $4.3bn in short-term loans in addition to the expensive loans to finance the power plants built under the China-Pakistan Economic Corridor programme.Pakistan’s finance minister Miftah Ismail met the IMF in Washington last month and requested an increase in the size and duration of its current $6bn fund programme, initiated in 2019.International commercial debt markets are practically shut for Pakistan. Its five-year sovereign bonds are trading near 13 per cent, which is among the highest in the emerging markets.Pakistan’s official liquid foreign exchange reserves (excluding gold reserves of about $4bn) have dropped to just $6.6bn, or by $6bn, since the end of February. The level of reserves provides cover for just one month of imports.According to Ismail, the fiscal deficit could hit Rs5.6tn ($30bn), or about 8.8 per cent of gross domestic product, versus a target of about Rs4tn, by the end of June. Pakistan’s volatile political situation makes it difficult for the new government to take any tough steps.The federal budget deficit in the first nine months of the current fiscal year jumped to a staggering Rs3.2tn, 53 per cent higher than compared with the same period of the previous year. A significant reason for this was Khan’s populist measures, including his decision to not pass the impact of rising oil prices to the consumer. It is costing about $1.1bn a quarter to subsidise petroleum products. However, this is not the only reason for the parlous state of the public finances.Pakistan’s rent-seeking political economy, dominated by the military establishment and special interests, provides Rs1.3tn in tax subsidies to the big businesses and the industries, according to Pakistan’s Federal Bureau of Revenue, its tax collection authority.However, Pakistan collects very little in taxes from the urban property market, which has been booming for some time, for example. Large houses or plots of land can cost anywhere between $500,000 and $2mn, but the owners pay little tax. According to Shahrukh Wani, an economist at Oxford university, all of Punjab, home to a population of more than 100mn, collects less in urban property taxes than the city of Chennai in India, with a population of about 10mn people.It is time for Pakistan’s rich to start paying their proper share of taxes. The IMF should not allow itself to be seen as bailing out the wealthy, which it seems to be doing by ignoring Pakistan’s repeated slippages in meeting the programme targets.The rich should also pay higher taxes on property and pay more for electricity and luxury cars than the low income or middle-class citizens who are already reeling from double-digit inflation (currently 13.4 per cent), which is the third-highest among major global economies. Steve Hanke, a professor of applied economics at Johns Hopkins University, has calculated Pakistan’s realised inflation rate to be a whopping 30 per cent per year, more than double the official rate. Further delay in carrying out meaningful economic reforms could lead to more economic hardship and social unrest. More