Daily Archives: June 1, 2010

By Adam Thomson in Mexico City

Are remittance flows to Mexico finally recovering? To judge by figures released by the country’s central bank on Tuesday, the answer may be a tentative “yes”.

The amount of money sent back home in April by Mexicans living abroad was $1.78bn, the first year-on-year increase in the last 17 months, and above private-sector forecasts.

That can only be good news for the millions of families that have come to rely on these financial flows to fund everything from putting food on the table each day to paying for school supplies, medical bills and even the construction of homes.

But whether the monthly increase truly represents a turn-around is still unclear. It is true that improving macroeconomic data from the US, particularly in employment and manufacturing, suggests that there is a solid foundation for optimism.

As a research note published on Tuesday morning by Economía Ixe, part of Ixe bank, states: “The recovery in the north American labour market is starting to turn into a greater disposable income for Mexican migrants.”

But don’t get too excited just yet. 

Simone Baribeau

Is the growth in global manufacturing running out of steam?

Probably not. But in many countries, it did slow down in May. 

By Andrew Ward in Stockholm

It is not every day that the International Monetary Fund is forced to distance itself from a forged document.

So Tuesday’s denial by the IMF that it favours devaluation of the Latvian currency, the lat, marked one of the fund’s more unusual statements.

The fuss was triggered by a report from the Latvian national news agency, LETA, claiming that IMF director-general Dominique Strauss-Kahn had written to a Latvian politician in support of a “mini-devaluation”.

This prompted the following stern rebuttal from the IMF representative in Riga:

Regarding this morning’s LETA story, which referred to a purported letter from the IMF Managing Director: the letter mentioned is false and we advised LETA that it was forged. It does not represent the views of the IMF.

Speculation over a possible devaluation has swirled around the lat since the IMF and the European Union rode to Latvia’s rescue with a €7.5bn bailout in 2008. 

By Bernard Simon in Toronto

Markets were watching the Bank of Canada’s interest rate announcement this morning for signs whether Mark Carney, the bank’s governor, would assert his independence from other central banks by raising rates, or stick to the message that this is no time for monetary tightening.

Mr Carney has done a little of each.

On one hand, the bank has raised its key overnight lending rate by a quarter percentage point to 0.5 per cent, the first rate increase by a G8 central bank since the onset of the global recovery, and the first in Canada since mid-2007.

However, the bank cautioned that further increases could not be taken for granted. 

Ralph Atkins

Rage against rating agencies is rising. The latest to accuse the likes of Moody’s and Standard & Poor’s of simply making the crisis worse is Christian Noyer, France’s central bank governor, who usually avoids creating headlines.

Untimely downgrades – for instance of Spain by Fitch last week- were an “enormous problem,” Mr Noyer told a conference in Seoul, according to Bloomberg. Rating agencies were not just striking at the wrong moment. They were also failing to provide added value, Mr Noyer argued. “The fact that these decisions were taken at a certain point of time under the stress of markets seems to show that credit rating agencies are simply not giving information to markets but taking information from markets.” 

By Jude Webber

As the song goes dime cuándo, cuándo, cuándo… (tell me when, when, when…).

The minutes of Chile’s May central bank meeting, when the key lending rate was kept on hold at 0.5 per cent, revealed that discussions intensified behind closed doors about when to start increases. No surprises there – there has been intensifying discussion about that for a while.

So the real question is perhaps not, ‘will rates rise at the next meeting, on June 15′, but ‘how much will they rise?’

Alberto Ramos at Goldman Sachs reckons on a 25 basis point rise. As he says:

The message in the minutes should be somewhat discounted as it reflects the data available up to that meeting … Since then the leading indicators of activity were significantly stronger than expected and today’s labor market report was also much better than expected. Assuming the global market sentiment does not deteriorate from here with the European fiscal situation the rate normalisation cycle should begin in June.

Chilean inflation data, he says, could provide the pointer – a worse than expected result could lead the bank to hike by a half point. Consumer prices rose 0.5 per cent in April, pushing annual inflation to the fastest pace since June 2009.

The minutes revealed it was unlikely to keep the rate unchanged for many more months and

…in that sense, the flows of information will allow us better to calibrate the size of the rate rise required to keep to the goal, but that does not imply that waiting will afford relatively more information about the optimum time to begin normalisation.

Roubini’s Bertrand Delgado reckons the central bank will start tightening in June or July with a 25 point hike and: