• The Central Bank of Costa Rica (BCCR) announced a 50bps rate cut in its meeting on June 14^th, placing the policy rate at 7%. The latest cut followed the 100bps reduction back in April and was the third consecutive rate cut for a cumulative 200bps in easing since March.
• There were anticipations for another 100bps cut given the sharp decline in both general annual and average inflation, which came in at 0.9% and 2.5% in May respectively. This is a notable decline in annual inflation from the 12% peak in August 2022 and places it below the BCCR’s 3% ±1%. target band.
• The BCCR models inflation to remain below the lower band for the remainder of 2023 and does not rule out negative inter-annual variations. Despite this, the BCCR sees the balance of risks to inflation as being inclined to rise over the medium term and noted that the Board decided to move forward “gradually and prudently” towards a less restrictive monetary stance.
• The 50bps cut will be disappointing to the private sector, with 12 business chambers suggesting a 200bps reduction for this past meeting.
• José Jenkins, president of the Costa Rican Union of Chambers and Associations of the Private Business Sector (Uccaep), urged the rate cuts last week so that the BCCR could “effectively guarantee the internal and external stability of the national currency, in order not to compromise the national productive base, provide confidence to the different economic agents of the country and promote the generation of formal employment".

(Source: Oppenheimer)

• Argentina and the International Monetary Fund (IMF) have a $44 billion dilemma, with the two sides set to meet for crunch talks to revamp the country's huge, wobbling debt deal, the key to avoiding default on billions in looming debt payments. The South American country, a serial defaulter that has struggled for years with inflation and currency crises, struck a $57 billion loan deal with the IMF in 2018, which failed and was replaced last year with a new $44 billion programme.
• With net foreign currency reserves estimated to be in negative territory, hit by a major drought that sunk the key soy and corn harvests, Argentina is at risk again of missing debt repayments, with $2.7 billion due to the fund this month alone.
• Economy Minister Sergio Massa is expected in Washington as early as this week to try to unlock talks to accelerate IMF disbursements and ease economic targets attached to the deal, with investors and traders watching closely.
• In a sign of potential holds-ups, an economy ministry source said on Friday that Massa's trip, previously briefed to happen in the next few days, could be delayed depending on how virtual talks progressed. "Until everything is sealed, no one travels. When everything is ready, they'll travel to put things on paper. And when everything is written, Massa will travel," the source said.
• On the streets of Buenos Aires pressure is rising. Inflation has hit 114%, hurting salaries and spending power, reserves have tumbled and one in four people is in poverty, with many blaming - not for the first time - austerity linked to the IMF.

(Source: Reuters)

• The International Monetary Fund (IMF) is working on a platform for central bank digital currencies (CDBCs) to enable transactions between countries, IMF Managing Director Kristalina Georgieva said on Monday.
• The IMF wants central banks to agree on a common regulatory framework for digital currencies that will allow global interoperability. Failure to agree on a common platform would create a vacuum that would likely be filled by cryptocurrencies, she said.
• Already 114 central banks are at some stage of CBDC exploration, "with about 10 already crossing the finish line", she said. "If countries develop CDBCs only for domestic deployment we are underutilizing their capacity," she added. CBDCs could also help promote financial inclusion and make remittances cheaper, she said, noting that the average cost of money transfers stands at around $44 billion annually.
• Georgieva stressed that CBDCs should be backed by assets and added that cryptocurrencies are an investment opportunity when backed by assets, but when they are not they are a “speculative investment”.

(Source: Reuters)

• For May 2023, the All-Jamaica Consumer Price Index (CPI) increased by 0.6% when compared to the previous month. Similarly, the point-to-point inflation rate for May 2022 – May 2023 inched up to 6.1%, indicating that inflation has accelerated over the last month.
• The upward movement in May was influenced mainly by increases in the index for the divisions ‘Housing, Water, Electricity, Gas and Other Fuels’ (1.8%) and ‘Food and Non-Alcoholic Beverages’ (0.7%). The inflation rate was however tempered by a decline of 0.3% in the index for the ‘Transport’ division, due to lower petrol prices.
• The increase in the ‘Housing, Water, Electricity Gas and Other Fuels’ division’s index was due largely to higher rates for electricity but was tempered by a decline in the index of the group ‘Water Supply and Miscellaneous Services' due to lower water and sewage rates.
• For the ‘Food and Non-Alcoholic Beverages’ division, the index for the group ‘Food’ rose by 0.7% and the group ‘Non-Alcoholic Beverages’ increased by 0.8%. Increases were registered in the index for all classes within the group ‘Food’, with the largest contributor ‘Vegetables, tubers, plantains, cooking bananas and pulses’, moving upwards by 1.3% due to higher prices for products such as yam, lettuce, pumpkin and carrot.
• The point-to-point inflation rate (May 2022 – May 2023) was 6.1%. This was influenced mainly by the point-to-point inflation rate for the divisions: ‘Food and Non-Alcoholic Beverages’ (10.7%) and ‘Restaurants and Accommodation Services’ (8.6%). Tempering these increases, however, was the decline of 0.7% in the index for the ‘Transport’ division, as well as a fall of 2.3% in the index for the ‘Information and Communication’ division.
• Within the division ‘Food and Non-Alcoholic Beverages’, the index for the group ‘Food’ rose by 10.6%. The main class contributing to this movement was ‘Vegetables, tubers, plantains, cooking bananas and pulses’, which increased by 19.7%. The upward movement in the index for the ‘Restaurant and Accommodation Services’ division was primarily due to an 8.6% increase in the index for the group ‘Food and Beverage Serving Services’. This increase was due to higher prices for meals consumed away from home.
• Moderating these increases was the fall in the index for the ‘Transport’ division which resulted from lower cost for fuels, with the index for the class ‘Fuel & lubricants for personal transport equipment’ decreasing by 8.9%.
• On May 19, 2023, the BOJ had its monetary policy meeting, where it deemed it appropriate to maintain the policy rate at 7.00% and watch the pass-through effects on deposit and loan rates. With the point-to-point inflation projected to return within the BOJ’s target range of 4.0% to 6.0% by the December quarter, we anticipate that the BOJ will maintain its policy at its next monetary policy meeting on June 29, 2023. This is in a bid to continue to watch the pass-through effects of the previous rate hikes.

(Source: STATIN)

• World Bank President, Ajay Banga, has high praises for Jamaica’s current economic health, noting that the country has managed its macro situation very well. He noted that this is contrary to many developing countries, which took on a great deal of debt when interest rates were low.
• He highlighted that the World Bank and the International Monetary Fund (IMF), as part of the G-20 Common Framework, are trying to work through how to restructure some of those debts in a way that makes it more palatable and easier for these countries to work their way through.
• Banga, who arrived on the island on Tuesday (June 13), was speaking to journalists during a tour of the Content Greenhouse Cluster in Williamsfield, Manchester this morning (June 14). The project involves the revitalization of former bauxite lands for agricultural production. Farmers are engaged in cultivating crops such as cucumber, sweet potato, cabbage, lettuce, and hot pepper in greenhouses, supplying hotels, supermarkets and other markets.
• It is being implemented by the Jamaica Social Investment (JSIF) through its Rural Economic Development Initiative (REDI) and financed by the World Bank. It involves collaboration with the Windalco Kirkvine/Jamaica Bauxite Institute (JBI) Joint Communities Council, which he hails.

(Source: JIS News)

• The Central Bank of the Dominican Republic (BCRD) has reported that remittances received in the first five months of 2023 reached $4,173.5Mn, representing a 2.9% increase compared to the same period last year.
• In May, remittances amounted to $881.1Mn, marking a 3.5% increase compared to May 2022. This is the fifth consecutive month of growth observed this year, continuing the positive trend since the last quarter of 2022, according to the BCRD’s press release.
• The BCRD explained that the economic performance of the United States has been a major influencing factor in remittance behaviour. In May, 85.4% of the formal remittance flows came from the United States, totalling $679.3Mn.
• Despite an overall increase in unemployment in the United States from 3.4% in April to 3.7% in May, Hispanic unemployment decreased from 4.4% to 4.0% during the same period.
• This bodes well for the sovereign as its economy remains heavily reliant on the US for investment flows, remittances, and export demand. On the flip side, however, this exposes the DR to downturns in the US economy; a shock to the US labour market, would limit inbound remittances to the Dominican Republic, constraining growth.

(Source: Dominican Today & Fitch Solutions)

• From January to April 2023, the movement of TEU (twenty-foot equivalent unit) containers in the national port system fell 1.3%, compared to the same period in 2022, according to preliminary indicators from the Panama Maritime Authority (AMP).
• During the first quarter of 2023, the total volume of activity reached 2,647,686 TEU containers, compared to 2,681,578 in 2022, which is equivalent to 33,892 fewer movements so far this year.
• External factors, such as the loss of appetite for trade, are affecting activity. Cargo movement in metric tons decreased by 2.2%
• Additionally, the Russia-Ukraine war, inflation, and the loss of value of currencies against the US dollar are external factors that are affecting the movement of containers in the national port system.
• “At a global level, there is a marked slowdown in the movement of cargo. Many of us are buying less than last year, which is a representation of the global consumer. If you buy less, the stores that sell buy less; And if they buy less, they order less, and we see fewer containers. That is the variable”, commented the Vice President of Marketing and Corporate Affairs of Manzanillo International Terminal, Juan Carlos Croston.
• Panama is highly vulnerable to downtrends in global trade activity, as evidenced by the reliance on shipping-related and logistics service sectors. This makes the economy vulnerable to shocks to global shipping and trade, which could eat into economic growth.

(Source: Newsroom Panama & Fitch Solutions)

• U.S. retail sales unexpectedly rose in May as consumers stepped up purchases of motor vehicles and building materials, which could help to stave off a dreaded recession in the near term.
• The Fed on Wednesday left its policy rate unchanged but signalled in new projections that borrowing costs may still need to rise by as much as half of a percentage point by year-end. "The U.S. economy is holding up relatively well through the second quarter despite some softness," said Robert Kavcic, a senior economist at BMO Capital Markets in Toronto.
• Sales at auto dealers increased by 1.4%. Receipts at building material and garden equipment supplies dealers jumped 2.2%, likely driven by home renovations. There were also gains in sales at furniture stores as well as electronics and appliance outlets. Consumers spent more on hobbies. Online retail sales gained 0.3%. Sales at food services and drinking places rose 0.4%. Economists view dining out as a key indicator of household finances. But cheaper gasoline depressed receipts at service stations.
• Persistently strong demand could push the Fed to raise interest rates next month, though much would depend on June's employment and inflation reports.

(Source: Reuters)

• Canada's housing market showed further signs of recovery in May following a yearlong slump, data on Thursday showed, a factor that could support additional Bank of Canada interest rate hikes.
• Canadian home sales rose 5.1% in May from April and were up 1.4% year-over-year, the first increase on an annual basis since June 2021, the Canadian Real Estate Association said. The industry group's Home Price Index edged up 2.1% on the month and was down 8.6% annually, while the national average selling price was up 3.2% on the year.
• Monthly sales gains from February through May have been helped by "a healthy job market, robust population growth, and a jolt to buyer psychology from a Bank of Canada that was previously on pause," Rishi Sondhi, an economist at TD Economics, said in a note. The data doesn't reflect the Bank of Canada's move last week to raise its benchmark interest rate to a 22-year high of 4.75%, the first hike since January.
• The central bank said that a pickup in housing activity was among the factors that showed excess demand was more persistent than anticipated. Money markets see a roughly 60% chance that it will tighten further next month.
• A lack of forced selling has contributed to a recovery in the housing market after lenders temporarily extended the period over which the debt of variable-rate borrowers is amortized, helping to shelter those borrowers from higher interest rates. On the other hand, the increase in borrowing costs has contributed to a slowdown in residential construction activity in recent months. That could thwart government plans to reduce a housing shortfall and add to the recovery in home prices.

(Source: Reuters)

• Net remittance inflows of US$3,227.6Mn declined by 0.4% in FY 2022/23 relative to the corresponding period in FY 2021/22. This decline resulted from a reduction of 1.1% or US$38.6Mn in total remittance inflows partly offset by a decline of 10.6% or US$26.2Mn in total remittance outflows. The decline, according to the BOJ, reflects a normalization of inflows to pre-pandemic levels, and more cash-in-hand remittances via tourism.
• Following the 5.1% and 0.8% increases in January and February 2023, respectively, net remittance inflows increased by 2.1% in March 2023 relative to March 2022.
• This was primarily due to the US$6.6Mn or 2.2% improvement in total remittance inflows partly offset by an increase in remittance outflows of US$0.7 million or 4.0%. The increase in gross remittance inflows reflected 16.9% growth in inflows via ‘Other Remittances’ while inflows via Remittance Companies remained flat.
• The largest source market of remittance flows to Jamaica for March 2023 continued to be the USA. Remittances from the USA accounted for 71.7% of total flows, the same ratio recorded for March 2022.
• Jamaica’s balance of payments current account benefits from the stable flow of remittances. As a result, a falloff in remittances could result in the deterioration of the current account balance in the near future. With further declines in remittance inflows via remittance companies likely as more people travel with cash in hand, and elevated consumer prices weigh on remittance flows from major source markets the current account balance will be adversely impacted. This along with the large value of imports will sustain the balance in deficit, but a strong recovery in tourism receipts will help to partially offset it. The Current Account/GDP ratio was estimated at -3.3% in 2022 and is forecasted to be -3.0% in 2023.

(Source: BOJ & NCBCM Research)