• The Bank of Jamaica (BOJ) continues its series of policy rate hikes by increasing its policy rate to 6.50% from 6.00% as at September 29, 2022, which represents the 10^th consecutive rate hike since a similar period last year.
• At its meetings on September 27^th and 28^th, the Monetary Policy Committee (MPC) noted that, while the key drivers of inflation and other economic indicators are trending in the right direction, conditions have not sufficiently solidified to ensure that inflation is sustainably on a downward path.
• This higher rate will filter through to make credit more expensive, which should temper investments and consumer demand. Further, the MPC noted that the pace of monetary tightening among Jamaica’s main trading partners such as the US has accelerated. This more aggressive stance by the US in particular could result in US dollar assets becoming more attractive relative to those denominated in Jamaican dollars.
• This could cause capital outflows, prompting a faster pace of exchange rate depreciation and, consequently, a derailment of the Bank’s efforts to manage inflation. Therefore, to mitigate these risks and to facilitate a return of inflation to the target range in the shortest possible time, the MPC unanimously agreed to further increase the policy rate to 6.50%.

(Source: BOJ)

• The International Monetary Fund (IMF) predicts that with the rapid pace of oil production in the Stabroek Block, Guyana is expected to grow by 57.8% in 2022. In light of the extent to which oil accounts for this, the financial institution urged that there be greater efforts towards addressing institutional weaknesses and the diversification of the economy.
• The IMF Directors noted that the country’s oil production has increased significantly and Gross Domestic Product (GDP) for oil is expected to grow over 100% in 2022 (with just two ships in operation), and about 30% on average per year during 2023-26.
• It was also noted that Guyana’s commercially recoverable petroleum reserves are expected to reach over 11Bn barrels, one of the highest levels per capita in the world. That said, the magnitude of the oil wealth could help Guyana build up substantial fiscal and external buffers to absorb shocks while addressing infrastructure gaps and human development needs.
• Nevertheless, considering the potential challenges related to volatility in global oil prices and effective management of natural resources, the Agency highlighted the need for continued prudent policies and structural reforms to avoid the build-up of macroeconomic vulnerabilities.

(Source: Kaieteur News)

• On September 28, the International Monetary Fund agreed on providing approximately $293Mn in new financing for Barbados, including $183Mn via a new trust fund created to help vulnerable middle-income and island countries.
• The staff-level agreement is the first under the Resilience and Sustainability Trust (RST) approved by the IMF board in April. The Fund also said it reached an agreement with Barbados on a new, 36-month Extended Fund Facility (EFF) loan of about $110Mn.
• Van Selm, who announced the agreements in Barbados with Prime Minister Mia Mottley, said the Caribbean nation was ideally suited to be the first country to use the new trust given its successful execution of an earlier IMF program, its location in a region exposed to climate change, and Mottley's leadership.
• In 2018, the IMF institution approved a US$290Mn Extended Arrangement under the EFF for Barbados, noting then that the program was aimed at helping the island restore debt sustainability, strengthen the external position, and improve growth prospects.
• Despite the sovereign not being able to complete all the reforms intended during its previous four-year EFF program due to the COVID-19 pandemic, it sought a follow-on program to complete those efforts. This included the reduction of its debt levels and the commencement of a series of financial stress tests incorporating climate risks in the coming years.
• The new trust expands access to low-interest loans to about 140 countries, double the number that could tap such resources under the IMF's Poverty Reduction and Growth Trust. This will in turn assist middle-income countries, such as those Caribbean countries that experienced a virtual halt in tourism during the pandemic and are highly vulnerable to climate change.
• The combined RST (approx. US$110Mn) and EFF (approx.US$183Mn) program aim to strike a balance between enhancing resilience to climate change while also focusing on Barbados’ continued efforts to reduce public debt and facilitate capital expenditure to boost growth.

(Source: Reuters)

• The new economic measures laid out by the U.K. government “will likely increase inequality,” the International Monetary Fund said in a rare statement.
• While the fiscal package — which included hefty tax cuts for Britain’s highest earners — aims to help families and businesses handle the energy shock, the IMF does not recommend large and untargeted fiscal packages at this juncture.
• The so-called “mini-budget” on September 23, 2022, was not accompanied by a forecast from Britain’s independent Office for Budget Responsibility, which typically analyses the impact big financial moves such as this, would likely have on the economy.
• Markets were strongly affected by the new measures, with U.K. bonds sinking and the British pound plummeting to a record low on Monday. The IMF also looked ahead to the next full budget announcement, set to be laid out by Finance Minister Kwasi Kwarteng on Nov. 23, saying it gives the U.K. government “an early opportunity to consider ways to provide the support that is more targeted and re-evaluate the tax measures, especially those that benefit high-income earners.”

(Source: CNBC

• The Bank of England launched a historic intervention to stabilize the U.K. economy, announcing a two-week purchase program for long-dated bonds and delaying its planned gilt sales until the end of October.
• The move came after a massive sell-off in U.K. government bonds — known as “gilts” — following the new government’s fiscal policy announcements on September 23. The policies included large swathes of unfunded tax cuts that have drawn global criticism, and also saw the pound fall to an all-time low against the dollar ($1.035) on Monday, September 26.
• The decision was taken by the bank’s Financial Policy Committee (FPC), which is chiefly responsible for ensuring financial stability, rather than its Monetary Policy Committee.
• To prevent an “unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy,” the FPC said it would purchase gilts on “whatever scale is necessary” for a limited time.
• Central to the bank’s extraordinary announcement was panic among pension funds, with some of the bonds held within them losing around half their value in a matter of days. The plunge in some cases was so sharp that pension funds began receiving margin calls — a demand from brokers to increase equity in an account when its value falls below the broker’s required amount.
• Long-dated bonds represent around two-thirds of Britain’s roughly £1.5Trn ($1.6Trn) so-called liability-driven investment funds, which are largely leveraged and often use gilts as collateral to raise cash. In its emergency purchase of long-dated gilts, the Bank of England is setting out to support gilt prices and allow LDIs to manage the sale of these assets and the repricing of gilts in a more orderly fashion, to avoid a market capitulation.

(Source: CNBC)

• Cabinet has approved the development of a National Employment Policy by the Office of the Prime Minister (OPM) to facilitate several modalities of worker engagement.
• Speaking during a recent Post-Cabinet Press Briefing, Minister without Portfolio in the OPM with Responsibility for Information, Hon. Robert Morgan, said the policy “will also target youth who are not academically qualified but still trainable”.
• The Cabinet decision comes against the background of the cost associated with working individuals travelling long distances daily to get to urban centres such as the Kingston Metropolitan Area (KMA), where their jobs are located, which is often deemed unfeasible. It is also made in light of increased informal settlements in the KMA and other areas, due to migration.
• Consequent on these factors, it is anticipated that the policy will improve the employment rate in communities and curb increased engagement in informal industries.

(Sources: JIS)

• While inflation in some DMs may continue to accelerate into next year, Fitch believes that inflation in most major EMs will ease over the remainder of this year. The pace of the decline will be gradual-- among major Ems, inflation will slip from 7.6% y-o-y in September to 6.9% y-o-y in December.
• While electricity and natural gas prices remain elevated in some DMs, this challenge is – for the most part –limited to Europe. For most EMs, the energy price that has had the biggest effect on inflation has been oil, which shot up in early 2022 as a result of Russia’s invasion of Ukraine.
• Oil prices have, however, eased recently. Given the base effects caused by high oil prices in late 2021 and early 2022, it is expected that the year-on-year growth of oil prices (which is what matters for inflation) will weaken over the coming months, and will turn negative in early 2022
• Despite this disinflationary trend, Fitch expects that inflation will remain elevated in 2023. However, if Mainland China is excluded from the calculation, then EM inflation will slip from 14.9% in 2022 to 11.4%, but this is still much higher than the 6.4% recorded between 2015 and 2019.

(Source: Fitch Solutions)

• Brazil's consumer prices extended their downward trend during in the month to mid-September, government statistics agency IBGE said on Tuesday, as fuel costs continued to drop on the back of lower taxes and price cuts by state-run oil firm Petrobras.
• Inflation in the 12 months to mid-September hit 7.96%, well below the 8.14% forecasted by economists, likely backing the central bank's recent decision to pause its aggressive rate hiking cycle.
• In August, Latin America's largest economy posted the lowest mid-month inflation rate in about three decades; however, this month's drop was driven by the transportation sector, in which costs fell 2.35%.
• Notably, the inflation drop in September was not widespread as prices fell in only three of the nine groups of products and services surveyed - communication, food and beverages, and transportation.
• The latest inflation data comes as Brazil's central bank last week chose to keep interest rates unchanged at 13.75%, pausing an aggressive tightening after 12 consecutive increases aimed at curbing high inflation.
• William Jackson, the chief emerging markets economist at Capital Economics, said the inflation figures confirmed that the monetary tightening cycle was over. “However, the fact that inflation remains very strong supports our view that the central bank will wait until the middle of next year before turning to interest rate cuts," he added.

(Source: Reuters)

• “Inflation is too high in Canada, so the Bank of Canada needs to increase interest rates to slow spending and give the economy time to catch up,” Governor Tiff Macklem said on Monday in a video posted by the central bank on Twitter.
• "Inflation is too high," Macklem said, echoing remarks made earlier this month after the central bank hiked its policy rate by 75 basis points to 3.25%. "It is important that we get inflation back down so Canadians can plan their spending and their savings, and they don't get surprised by big changes in their cost of living."
• The Bank of Canada, like many of its global peers, is rapidly increasing interest rates in response to inflation running at levels not seen in decades. But the bank has faced public criticism for increasing borrowing costs at a time when many Canadians are already struggling to afford groceries and other essentials. "It is by raising interest rates that we're going to slow spending in the economy, give the economy time to catch up and take the steam out of inflation," Macklem said in the video. "That's gonna get inflation back down."
• The central bank has lifted rates by 300 basis points in just six months as it looks to wrangle inflation back to the 2% target. Canada's inflation rate edged down to 7.0% in August from 8.1% in June and 7.6% in July.

(Source: Reuters)

• An ally of President Vladimir Putin issued a stark new nuclear warning to Ukraine and the West on Tuesday as Russia began releasing results of referendums it bills as a prelude to it annexing four Ukrainian regions.
• Moscow's latest broadside came as European countries rushed to investigate unexplained, major leaks in two Russian natural gas pipelines under the Baltic Sea, which posed risks of explosions and the sinking of any ships that enter the area.
• The Kremlin, which has blamed technical problems for earlier cuts in Russian gas supplies to Europe, said it could not rule out sabotage, without saying who was to blame.
• Russia's confrontation with the West has driven up global inflation and sharpened energy and food crises in many countries since its Feb. 24 invasion of Ukraine, which was met by tough Western sanctions and Russian retaliatory measures.
• Analysts say they are designed to deter Ukraine and the West by hinting at a readiness to use tactical nuclear weapons to defend newly annexed territory, where Russian forces have faced strong Ukrainian counteroffensives in recent weeks.

(Source: Reuters)