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.