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Unpacking Banxico’s minutes, Sinovac success?

The fairly hawkish minutes to Banxico's last meeting, where it delivered a surprise 25bp hike, reaffirm our initial view that more tightening is in the pipeline. We now expect a further 125bp of hikes, to 5.50%, by Q1 2022 (previously 5.25%). Otherwise, new virus cases are now falling sharply in Chile and Uruguay which may be encouraging evidence that their rapid vaccine rollouts, which primarily use the Sinovac jab, are helping to quash infections.
Nikhil Sanghani Emerging Markets Economist
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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 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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