• Mexico's annual inflation hit its lowest in more than two years ahead of a monetary policy decision on Thursday, June 22. As anticipated, the central bank maintained the interest rates at a cycle-high of 11.25%, as the consumer price index remains above target.
• In Latin America's second-largest economy, 12-month headline inflation reached 5.18% in the first half of June, data from the National Institute of Statistics and Geography (INEGI) showed, slowing further but far from the central bank's official target of 3%.
• The lowest since March 2021, the level overshot expectations of 5.30% in a Reuters poll of economists. This reinforced the central bank's decision to keep its benchmark interest rate steady at 11.25% when it announced its decision on Thursday.
• A rate cut remains unlikely after the Bank of Mexico, known as Banxico, paused a nearly two-year tightening cycle in May suggesting it might need to maintain rates at current levels for an extended period to bring inflation down to target.
• Capital Economics' deputy chief emerging markets economist, Jason Tuvey, said Banxico would "almost certainly leave its policy rate on hold" after the latest consumer price figures, adding he did not forecast a rate cut this year.
• "The strong labour market and rapid wage growth mean that inflation won't return to Banxico's 2-4% tolerance band until late-2024," Tuvey said. "And with the Fed also continuing to strike a hawkish tone, we think that rate cuts in Mexico will not be delivered until early 2024." INEGI data also showed that annual core inflation, which strips out some volatile food and energy prices and has been a cause of concern for the central bank, slid to 6.91% in the first two weeks of June. Analysts polled by Reuters had expected it to hit 7.02%.

(Source: Reuters)

• U.S. banks are pushing to soften a major regulatory proposal to hike bank capital requirements, worried it could prove too onerous, especially for lenders still reeling from the March banking crisis, according to six people briefed on the matter.
• Bankers are particularly concerned by an aspect of the draft proposal that would apply higher capital charges on non-interest revenue, such as the fees lenders charge on credit cards or investment banking services.
• That capital charge is part of the package agreed upon by the Basel Committee in 2017, but the industry says it overstates the risk for banks that have a high proportion of non-interest income and had hoped U.S. regulators would mitigate its impact.
• Non-interest services income has been a key focus of many lenders' growth strategies in recent years, one industry official noted. American Express, Morgan Stanley and the U.S. units of UBS, Deutsche Bank and Barclays are among banks with a high proportion of non-interest income, according to a 2022 blog by Washington group the Bank Policy Institute.
• While the Basel rules were agreed upon years ago, the U.S. regulations to comply with them are being drafted in the wake of this year's banking crisis in which deposit runs caused Silicon Valley Bank and two other lenders to fail. The proposal is the first major rule led by Fed Vice Chair for Supervision Michael Barr, who has launched a sweeping review of capital rules and is expected to be tough on Wall Street.
• The proposal is also expected to apply stiffer capital rules to smaller lenders with over $100 billion in assets, which would include some that experienced liquidity problems this year, three sources said. Given investor jitters over the health of the industry and the broader economy, bankers say, hiking capital now could backfire, putting pressure on banks and hurting lending.

(Source: Reuters)

• The Bank of England raised interest rates by a bigger-than-expected half a percentage point on Thursday after it said there had been "significant" news suggesting British inflation would take longer to fall.
• The BoE's Monetary Policy Committee (MPC) voted 7-2 to raise its main interest rate to 5% from 4.5%, its highest since 2008 and its largest rate increase since February, following stickier inflation and wage growth since its policymakers met last in May.
• "There has been significant upside news in recent data that indicates more persistence in the inflation process," the MPC said. "Second-round effects in domestic price and wage developments generated by external cost shocks are likely to take longer to unwind than they did to emerge," it added.
• Expectations for BoE rate tightening have surged in recent days - sharply raising the cost of new mortgages - and before Thursday's decision financial markets expected the BoE's Bank Rate to peak at 6% by the end of the year. By contrast, economists polled by Reuters last week saw a 5% peak.
• The BoE retained its previous guidance on future policy, which stated that if there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.
• The central bank also noted that short-dated British government bond yields had risen sharply - pricing in an average level of Bank Rate of 5.5% for the next three years. The BoE said it would keep a close eye on the impact on mortgage costs, as well as rising costs in Britain's rental market.

(Source: Reuters)

• A Tourism Economic Impact Study will be conducted to identify the economic, fiscal, social and environmental impact of developing an additional 15,000 to 20,000 hotel rooms to augment Jamaica’s existing stock. This exercise will be spearheaded by the Ministry of Tourism, Portfolio Minister, Hon. Edmund Bartlett, announced as he closed the 2023/24 Sectoral Debate in the House of Representatives on Tuesday (June 20).
• He said the study’s objectives are to identify and evaluate the potential impact of the proposed developments on the gross domestic product (GDP); foreign exchange earnings; investment; government revenue and expenditure; income and employment (direct and indirect); and key related sectors such as agriculture, construction, manufacturing and entertainment
• The study is also intended to identify and evaluate the potential impact of the proposed developments on infrastructure needs; the environment; and individuals (particularly concerning housing, transport, and recreation); as well as provide recommendations to mitigate potential negative impacts while capitalizing on positive effects, as well as a credible, rigorous evidence base to inform public awareness of the value of the tourism industry to Jamaica.
• Tourism has been one of the main drivers of growth over the years in the Jamaican economy, contributing about 29.1% in 2019 (pre-pandemic) to GDP. It has also been one of the key drivers of economic recovery in the post-pandemic environment. However, there is still room to improve on the current tourism product and diversify offerings to unlock more benefits for the economy.

(Source: JIS News)

• The Agri-Linkages Exchange (ALEX) portal has generated earnings of $325 million for farmers during the first five months of 2023. Minister of Tourism, Hon. Edmund Bartlett, made the disclosure as he closed the 2023/24 Sectoral Debate in the House of Representatives on Tuesday (June 20).
• ALEX, which is a joint initiative of the Ministry, through the Tourism Enhancement Fund (TEF) and the Rural Agricultural Development Authority (RADA), is the first online platform of its kind in the country. It brings hoteliers into direct contact with the farmers and, in turn, reduces leakages and helps Jamaica retain more of the economic benefits of tourism.
• Bartlett noted that this significant accomplishment showcases the platform’s effectiveness in connecting farmers with potential buyers and creating prosperous opportunities.
• He noted that in the preceding year of 2022, the ALEX portal facilitated the sale of agricultural produce valued at $330 million, which not only highlights the platform’s success but also underscores the positive impact it has had on the livelihoods of 1,733 farmers and 671 registered buyers.

(Source: JIS News)

• Fitch Solutions projects Barbados’ fiscal balance will come in at a surplus of 1.1% of GDP in FY2023/24 (April 2023 through March 2024). Their forecast marks a significant improvement in the country’s public finances given its FY2022/23 balance estimate of -1.4%. 
• Despite no new tax measures, the surplus will be mostly driven by strong revenue growth underpinned by a continued recovery in economic activity. 
• The rebound in economic activity which is believed will continue throughout 2023 as tourist arrivals increase further will drive an increase in revenue intake. Revenues will grow by 11.0% in the current FY (up from 28.2% of GDP in FY2022/23 to 28.3% in FY2023/24).
• The government will also continue to take steps to improve the efficiency and administration of tax collection in the months ahead by, for instance, increasing audits and encouraging electronic tax filings.
• Nonetheless, government spending will grow at a slower rate as efforts – such as reducing capital expenditure – are made to keep the primary balance in surplus.
• In the medium term, Fitch believes that the government debt-to-GDP ratio will fall from 137.9% in 2021 to 77.9% by 2027 given contingency plans to eliminate risks of non-compliance with government targets as the government maintains a fiscally conservative posture.

(Source: Fitch Solutions)

• Caribbean telecommunications operators will participate in a critical meeting in Miami on Friday in their ongoing quest to have Big Tech companies contribute financially to regional telecoms network infrastructure.
• Bmobile said this is the second meeting where these operators will address the impact that companies like Meta, Google, and Netflix continue to have on the Caribbean telecommunications industry.
• The mobile network said that regional operators face a significant financial burden associated with over-the-top-driven (OTT) costs. Meta (Facebook, Instagram, and WhatsApp), Alphabet (Google), TikTok, Netflix, Amazon, and Microsoft are responsible for 67% of the total internet traffic in the Caribbean. Despite this, the operators have complained that the Big Tech/OTT providers make no contribution or investment to local delivery networks.
• ‘That market failure is taking place against a backdrop of stalled revenues for telecommunications, with limited prospects for future growth. By contrast, OTT providers' revenues grew by over 150% between 2017 and 2021. The rationale behind OTTs/ Big Tech paying their fair share is to address this market failure, ensure a level playing field, and promote the sustainability of telecommunications infrastructure which benefit the region's citizens," Bmobile further stated.
• Notably, in 2022, European Commissioners and policymakers announced the intention to have OTTs make 'fair contributions to telecom networks." South Korea has already proposed legislation to ensure global content providers such as Netflix and Alphabet's Google, pay South Korean network fees.
• However, not all companies believe this to be a good idea with Peters, co-chief executive officer of Netflix, speaking at Mobile World Congress, held in Las Vegas, noted that ‘Broadband customers already pay for the networks through their subscription fees,".
• The way forward does appear gloomy for regional telecom operators, however, hope still lingers that an agreement can be reached.

(Source: CariCris)

• Further Federal Reserve rate increases are "a pretty good guess" of where the central bank is heading if the economy continues in its current direction, Fed Chair Jerome Powell said in remarks on Wednesday to lawmakers on Capitol Hill.
• In response to a question late in a three-hour hearing before the House Financial Services Committee, Powell said he would not characterize the Fed's decision last week not to increase rates as a "pause," and noted the fact that a majority of policymakers see two more quarter-point rate increases as likely by the end of the year.
• Though Fed officials held off on raising interest rates at their meeting last week, Powell called that an exercise in prudence, allowing time to gather more information before deciding on further rate increases that Fed policymakers feel will be necessary by the end of the year.
• Despite the consensus on lowering inflation, the Fed is at a point where opinions about the need for and timing of additional interest rate increases may start to diverge. As it was for past presidential incumbents, how that debate gets resolved could make the difference between a benign election-year economy and a corrosive one.
• For Biden, the success or failure of Fed policy could mean a "soft landing" of continued economic growth, lower inflation and only modestly higher unemployment, or it could force him to campaign against a backdrop of increasing joblessness, stubbornly higher prices, and punishing interest rates for anyone trying to buy a home or car or finance a business.
• The Fed at its meeting last week held its benchmark interest rate steady at between 5% and 5.25%, but officials projected rates will have to increase another half percentage point by year's end because inflation has been falling so slowly and remains more than double the Fed's 2% target.

(Source: Reuters)

• U.K. borrowers are facing a cliff edge that could damage the economy as rising mortgage costs hit deal renewals and the number of products available shrinks, experts warned Monday.
• New figures from financial information company, Moneyfacts, showed the average two-year fixed rate mortgage on a residential property in Britain rose from 5.98% Friday to 6.01%, its highest level since Dec 1.
• Martin Stewart, director of the mortgage advisory London Money, said the last nine months had been “seismic” for the mortgage and housing sector, “on a par with the financial crisis,” although with different causes.
• Asked about support for struggling households, Prime Minister Rishi Sunak on Monday told ITV’s Good Morning Britain programme that the government’s priority was halving inflation and it needed to “stick to the plan.”’
• Markets are pricing in peak interest rates of almost 6%, up from the current 4.5%. A strong labour market report on June 13 sent rate expectations higher, with the Bank of England set to announce its latest interest rate decision on Thursday after enacting its 12th consecutive hike in May.

(Source: CNBC)

• The IMF team and the Jamaican authorities reached a staff-level agreement on the completion of the first reviews of Jamaica’s Precautionary and Liquidity Line (PLL) and the Resilience and Sustainability Facility (RSF). The IMF’s Executive Board is expected to consider these reviews in August.
• Over the past few years, Jamaica has been buffeted by a difficult global environment. However, entrenched macroeconomic stability and sound policy frameworks are helping the country to navigate this complex global environment. The economy has been recovering strongly—GDP growth for FY2022/23 is estimated at 4.3 per cent. It was supported by a strong rebound in tourism—which has returned to pre-pandemic levels—and the reopening of one of the largest alumina plants, which offset the impact of the terms-of-trade shock from the war in Ukraine. Furthermore, inflation is inching closer to the central bank’s target band.
• Tourism is buoyant and still strong—although moderating—remittances more than offset the large import bill from high fuel, food, and freight prices resulting in a low current account deficit, and international reserves are growing and are at healthy levels. The public debt has continued to fall, and the financial system remains well-capitalized and liquid.
• The outlook points towards continued growth, and inflation is expected to return to the mid-point of the central bank’s target range by year-end. Nonetheless, global risks remain high and include tighter-than-expected global financial conditions, higher-than-expected global energy and food prices, and the ever-present risks from climate events.
• The fiscal balance recorded an overall surplus in FY2022/23. International reserves continued to increase over the last fiscal year, strengthening external buffers, in line with objectives in the authorities’ programme. The government continues to treat the PLL as precautionary. The country remains committed to maintaining primary surpluses and achieving a 60 per cent debt-to-GDP ratio by FY2027/28, as prescribed by the Fiscal Responsibility Law.
• Significant progress is being made by the government with its ambitious agenda to green the economy and make it more resilient to climate change. In the context of the policy agenda under the Resilience and Sustainability Facility, they are completing reform measures that will introduce important climate-related elements in the fiscal framework and foster energy efficiency. The completion of these reforms will make available (Special Drawing Right)SDR191.45 million (about US$255 million) under the arrangement.

(Source: IMF)