Central banks turning hawkish, virus waves easing

Latin American central banks are becoming increasingly hawkish, not just in Mexico (after yesterday's surprise rate hike), but also in Brazil and Chile. Colombia may soon join this club. While the region appears to be on the brink of a broader tightening cycle, in general we think that the upward revision to investors’ rate expectations has gone too far. Otherwise, virus outbreaks appear to be easing across the region suggesting restrictions may be eased soon, which would boost recoveries in Q3. Brazil is a key exception – virus cases are hitting record highs – although its economy seems to be adapting to this state.
Nikhil Sanghani Emerging Markets Economist
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Latin America Economics Weekly

New face at Banxico, Chile election wrap-up

The unexpected change in the nomination for Banxico’s next governor, to Victoria Rodríguez from Arturo Herrera, hit investor confidence but we don't think this switch alters the outlook for Banxico’s gradual tightening cycle. Meanwhile, investors initially cheered the result of Chile’s first-round presidential election but with political risks unlikely to fade soon, and copper prices set to fall further, we see little upside in Chilean local markets from here. Drop-In: Why is Asia sitting out the global inflation surge? 09:00 GMT/17:00 HKT, Thursday 2nd December https://event.on24.com/wcc/r/3546145/A9D34EF592141BEFCAC819ADB40359D5?partnerref=report

26 November 2021

Latin America Economics Update

Unpacking the oddities in Mexican GDP

The final estimate of Mexican Q3 GDP data was revised down to a 0.4% q/q fall (original -0.2% q/q), but the breakdown showed the contraction was almost entirely due to an outsourcing law that hit services output. Regardless of this statistical quirk, Mexico’s recovery will remain one of the weakest in the region.

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Latin America Data Response

Brazil IPCA-15 (Nov. 2021)

The Brazilian inflation reading of 10.7% y/y in mid-November (the same as the October full month figure) provides the first sign that inflation is now stabilising. But with the headline rate still far above target and fiscal risks persisting, it looks more likely than not that Copom will raise the Selic rate in a larger 175bp step (to 9.50%) when it meets next month.

25 November 2021

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Latin America Data Response

Mexico Consumer Prices (Jun.)

The rise in Mexico’s core inflation to 4.6% y/y in June was largely driven by temporary factors which will gradually unwind. Nonetheless, given Banxico’s recent hawkish shift, and with headline and core inflation set to stay above the 2-4% target range this year, we expect more rate hikes over the coming months.

8 July 2021

Latin America Economics Weekly

Fallen angel and a rising star

Colombia’s second sovereign ratings downgrade to junk status was already largely priced in to local financial markets, but they could come under renewed pressure as public debt risks intensify over the coming months. That could lead to a hawkish shift by the central bank. There is also a risk that Chile’s central bank will begin an earlier tightening cycle than we currently expect given the strength of the incoming activity data, which confirm the economy’s place as the region’s outperformer. Finally, while Brazil’s public debt-to-GDP ratio has been on a downward trajectory of late, we doubt that this trend will last.

2 July 2021

Latin America Economics Update

Peru: Lessons from Humala’s presidency

Peru’s president-in-waiting Pedro Castillo seems more moderate than many initially feared, which bears a striking resemblance to former leader Ollanta Humala. The latter’s tenure suggests that, provided there are market-friendly appointments to the new cabinet, local financial markets could soon rebound from their post-election slump. However, compared to Mr. Humala’s time in office, there is now a higher risk of looser fiscal policies, which may keep markets on the backfoot over the medium term.

1 July 2021
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