• Private sector credit growth in Latin America is expected to slow in the quarters ahead according to  the Fitch Rating Agency as central banks across the region tighten monetary policy to clamp down on rising inflation.
• Moreover, financing needs will subside relative to 2020, when pandemic-induced losses boosted credit demand among households and businesses. Data through Q420 show strong private sector credit growth throughout 2020. In particular, H120 saw a surge in credit growth as households and businesses, supported by government stimulus measures, sought to cover losses amid the onset of the pandemic.
• Most Latin American central banks cut their policy rates to all-time lows and launched extraordinary monetary stimulus measures to support credit flows to households and businesses and prevent financial instability amid the crisis.
• That being said, recovering economic activity will likely place a floor underneath the slowdown in credit growth as businesses borrow to expand production amid rebounding demand and falling unemployment boosts household incomes.

(Source: Fitch Solutions)

• Brazil's Supreme Court on Thursday ruled that a law granting the central bank autonomy was constitutional, guaranteeing monetary policymakers a freer rein to tackle rising inflation after leftist opposition parties sought to strike down the measure.
• The 8-2 ruling is a boost for the credibility of monetary policy under President Jair Bolsonaro. Brazil's central bank has hiked interest rates aggressively to tame surging inflation amid an uneven economic recovery from the world's second-deadliest coronavirus outbreak.
• The law does not change how the bank sets interest rates but distances it from politics by setting fixed four-year terms for its governor and directors that will no longer coincide with the presidential election cycle.
• Bolsonaro has reportedly regretted enacting the law as sharp rate hikes threaten to hurt the economy next year when he runs for re-election. The bank's policymakers have also made indirect criticism of his efforts to raise public spending to win votes.
• Central bank sources told Reuters they were aware the president was unhappy with the law but said the bank had not faced any pressure from the president on policy autonomy.

(Source: Reuters)

• Southeast Asia’s bond and currency traders can afford to be less worried about a potential stimulus tapering by the Federal Reserve, with their markets better positioned to withstand external shocks this time around.
• Massive foreign reserves and undervalued currencies could shield the region’s markets from a potential selloff if Fed Chair Jerome Powell hints at tapering bond purchases at the Jackson Hole symposium this week.
• While there’s caution, analysts aren’t expecting a repeat of the so-called 2013 taper tantrum where the Fed’s surprise announcement to unwind stimulus roiled global markets.  
• “Partly due to the taper tantrum in 2013, Southeast Asia’s central banks now have better foreign-exchange-reserve cushions,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. in Singapore. “The degree of Treasury curve steepening appears far more subdued this time around, which may be conflated with reduced pressure for the capital flight out of Emerging-Asia.”

(Source: Bloomberg)

• U.S. corporate profits surged to a fresh record high in the second quarter, boosted by robust demand and higher prices, suggesting that an anticipated slowdown in economic growth this quarter because of soaring COVID-19 cases could be temporary.
• The jump in profits reported by the Commerce Department on Thursday was despite businesses facing increased costs owing to shortages of raw materials and labour. The resurgence in infections driven by the Delta variant of the coronavirus is chipping away demand for services like air travel and cruises, leading economists to cut their third-quarter growth estimates.
• “Based on the profits data, any slowdown in growth as a result of slower consumer spending is likely to prove temporary,” said Conrad DeQuadros, senior economic advisor at Brean Capital in New York.

(Source: Reuters)

• The balance sheets of deposit-taking institutions (DTIs) indicate that they continue to grow, are properly capitalized, and comply with prudential liquidity standards according to the Bank of Jamaica (BOJ).
• Governor Richard Byles noted that notwithstanding the moderating impact of the COVID-19 pandemic, loan growth for DTIs has remained fairly resilient, despite a slowdown in the pace of growth. The stock of private-sector loans and advances grew 8.8% year on year in March, relative to the 15.8% for March 2020. He added that although loan quality for the system is naturally showing some weakening, it remains well below the bank’s threshold for concern and is fully provided for by the system.
• Financial institutions have facilitated clients with approximately $210.0Bn in payment accommodations since the onset of the pandemic. Mr. Byles pointed out, however, that the outstanding stock of moratoria, as of February 2021, totaled $65.0Bn, reflecting a significant decline since the start of the pandemic.
• The BOJ Governor has said that the BOJ reached an agreement with finance holding companies (FHCs) and DTIs in April to resume the distribution of dividends to large shareholders, within the context of the fall in the stock of loans under moratorium, the improving economic environment as well as the financial system’s strong capacity to absorb unexpected losses.
• However, he emphasized that given that significant uncertainty associated with the pandemic remains, the Bank continues to urge financial institutions to remain prudent in their decision to declare and distribute dividends.

Source: (JIS News)

• The final seat allocations for the next term of Mexico’s Chamber of Deputies did not differ significantly from preliminary estimates, supporting Fitch’s view that President Andrés Manuel López Obrador’s agenda will be constrained moving forward.
• While AMLO’s Morena party remains the largest in the Chamber, its losses in June’s mid-term vote will force it to rely on allies to pass legislation. This will give these smaller parties significant leverage.
• AMLO’s government has signaled that it will submit a fiscal reform in September, which will be relatively modest in scope. The government will also submit its 2022 budget proposal in the coming weeks.
• Fitch Solutions reiterate that Morena’s losses are generally positive for economic confidence. Tax reform and the 2022 budget are likely to provide clarity around the new legislative dynamic in the coming months.

(Source: Fitch Solutions)

• The recovery in global energy prices, paired with a domestic economic rebound, will drive a substantial increase in government revenues in Trinidad and Tobago over the coming quarters, narrowing the budget deficit.
• Moreover, expenditures will continue to decline in the short term as the government reins in pandemic-era stimulus and in the medium term as the ruling People’s National Movement, which will not face an election until 2025, remains committed to fiscal consolidation.
• Fitch has revised its 2021 and 2022 budget deficit forecasts to 4.6% of GDP and 2.1% respectively, from 5.7% and 3.8% previously, as revenues surprised significantly to the upside in H121 due to higher energy prices.
• T&T ran its largest budget deficit on record in 2020 as the collapse in global energy prices undermined government receipts from the country’s energy sector, which historically accounts for 35.0% of total revenue. However, higher energy prices and a domestic economic rebound will drive a 13.0% increase in revenues in 2021.

(Source: Fitch Solutions)

• A shortage of semiconductor chips may persist for the rest of this year if the coronavirus pandemic keeps Southeast Asian factories shut, a Bank of Japan policymaker said, highlighting supply constraints as among key risks to the global economy.
• BOJ board member Toyoaki Nakamura said Japan's economy is expected to recover as the pandemic's impact fades, pointing to the boost to growth from robust global demand and a recovery in capital expenditure.
• "If the pandemic suspends chip production in Southeast Asian factories, that will emerge as a source of uncertainty for the global economy," Nakamura told an online news conference on Wednesday. "The chip crunch may not be fixed for the rest of this year."
• Carmakers worldwide have been cutting production due to the months-long chip shortage. A resurgence in COVID-19 cases in Japan, the Philippines, Thailand, Vietnam, and Malaysia - home to auto factories and chip plants - have led to stricter curbs and compounded the crisis.

(Source: Reuters)

• The Meishan terminal at China’s second-busiest port reopened Wednesday following a two-week shutdown that further snarled already stressed shipping routes in Asia.
• The terminal resumed normal operations Wednesday, a port official said at a press conference in the city of Ningbo. The terminal was about a quarter of the Ningbo-Zhoushan port’s capacity and was shut from Aug. 11 after a worker was found to be infected with COVID-19.
• The congestion and delays on global shipping routes due to COVID-19 have only worsened this year as Chinese exports hit new records due to rising global demand. This was the second closure of part of a port in China this year due to a COVID-19 outbreak, after the month-long shutdown of Yantian port from late May.
• With demand for vessels and containers rising this year and companies ramping up exports to Europe and the U.S. for the year-end holiday shopping season, even a limited closure of part of a port is costly for both shoppers and shippers

(Source: Bloomberg)

• Bank of Jamaica (BOJ) has reported that the pilot for the local Central Bank Digital Currency (CBDC), which commenced in June, remains on schedule. This includes the minting of Jamaica’s first batch of CBDC on August 9, totaling $230Mn, which will be issued to deposit-taking institutions and authorized payment service providers.
• Deputy Governor, Natalie Haynes, has indicated that one financial institution, National Commercial Bank (NCB), has been engaged as the initial wallet (account) provider under the pilot, which ends in December. She told journalists that CBDC will be issued to NCB in September at which time the bank is expected to initiate its rollout to customers.
• NCB is first targeting “friends and family”, which would be staff and their families, after which, it would be rolled out to other NCB account holders, before moving to other non-NCB account holders.
• Both Governor, Richard Byles, and Ms. Haynes have noted that there has been positive feedback so far to the CBDC’s introduction. Mr. Byles said there was some degree of skepticism up to a year ago, but stakeholders were now more positively oriented to the CBDC implementation. Ms. Haynes said that further details of the CBDC customer take-up would be forthcoming in October.

Source: (JIS News)