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Mexico’s Delta despairs, Bolsonaro’s giveaways

The third virus wave currently underway in Mexico, driven by the contagious Delta variant, will probably weigh on activity this quarter. But, for now, we don’t think that it will derail the economic recovery. Elsewhere, the falling popularity of Brazil’s President Bolsonaro and the spectre of impeachment seems to have bolstered the president’s demands for higher public spending. This could be a running theme in the run-up to next year's election, suggesting that fiscal risks will intensify once again.
Nikhil Sanghani Emerging Markets Economist
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More from Latin America

Latin America Economics Weekly

Petro reaction, Lula’s plans, hawkish central banks

Gustavo Petro’s win in Colombia’s presidential election has caused tremors in the country’s financial markets. While the appointment of a centrist finance minister could help to settle investors’ nerves, the global backdrop is turning increasingly unfavourable. In Brazil, Lula, the front-runner in the race for the presidency, unveiled policy plans that will, likewise, probably unnerve investors around the election there in October. Finally, the week was marked by further hawkish noises from central banks in the region. We’ve revised up our interest rate profile in Brazil and the upside risks to our interest rate forecast in Mexico are growing.

24 June 2022

Latin America Economics Update

Banxico’s tightening cycle shifts up a gear

The Mexican central bank’s shift to a 75bp interest rate hike yesterday (to 7.75%) and the hawkish language in the accompanying statement make another 75bp move at the next meeting in August a done deal. And the risks to our end-2022 interest rate forecast of 9.50%, which is already higher than most expect, are now skewed to the upside.

24 June 2022

Latin America Economics Update

Copom: revisiting the 2015-16 playbook

The latest Brazilian central bank communications give a strong signal that, when Copom stops hiking interest rates, it will act in a similar way to the end of the last tightening cycle in 2015. The lesson from that period is that rates will be kept high for a long time and, when an easing cycle begins, it will start very slowly. As a result, we have pushed some of the interest rate cuts in our profile from 2023 to 2024. We now expect the Selic rate to end next year at 11.00% (our previous forecast was 8.50%) and are sticking to our end-24 forecast of 7.50% (versus a current Selic rate of 13.25%).

23 June 2022

More from Nikhil Sanghani

Latin America Data Response

Mexico Bi-Weekly CPI (Jul.)

The small fall in Mexico’s headline inflation to 5.8% y/y in the first half of July was mainly due to fuel inflation dropping back, while the core rate remained stubbornly high at 4.6% y/y. The central bank has now shown that it will act to clamp down on above-target inflation suggesting that another 25bp rate hike, to 4.50%, is likely at its next meeting in August.

22 July 2021

Latin America Economics Update

Chile: start of a long but gradual tightening cycle

Chile’s central bank fired the starting gun on a gradual tightening cycle yesterday as it hiked its policy rate by 25bp, to 0.75%. While it signalled that monetary policy will remain accommodative over the next two years, we think that Chile’s strong economic recovery will prompt the central bank to raise the policy rate to its neutral level, at 3.25%, by the end of next year.

15 July 2021

Latin America Data Response

Mexico Industrial Production (May)

The small 0.1% m/m gain in Mexico’s industrial production in May came despite a concerning 0.7% m/m drop in manufacturing production as shortages continued to hamper the auto sector. While there are signs that supply disruptions may be easing, the manufacturing sector will probably continue to struggle as external demand from the US weakens over the coming quarters.

12 July 2021
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