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Latin America Economics Update

Latin America Economics Update

Banxico to take its foot off the brakes

Mexico’s central bank (Banxico) hiked interest rates by 75bp, to 8.50%, for a second consecutive meeting yesterday but, amid mounting evidence that the economy is struggling and with inflation close to a peak, we think that the pace of tightening will slow from here. Our forecast is for the policy rate to reach 10.00% by year-end, which is a touch more hawkish than investors anticipate.

12 August 2022

Latin America Economics Update

New “superminister” no saviour for Argentina’s woes

The appointment of Sergio Massa as head of Argentina’s newly-created economic “superministry” provides some hope that the government will try to stick to its latest IMF deal. But it will be a major challenge to meet the Fund’s targets. And even if Argentina manages to muddle through, the likelihood of another sovereign debt crisis before the end of this decade is high.

5 August 2022

Latin America Economics Update

Copom’s tightening cycle drawing to a close

The statement to yesterday’s Brazilian central bank meeting, at which the Selic rate was hiked by 50bp to 13.75%, made clear that Copom is more confident that inflation will fall back and also more concerned about the slowing economy. We remain of the view that there will be one more 25bp hike (to 14.00%) in September, but it’s clear that Brazil will be one of the first EMs to end its tightening cycle.

4 August 2022
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Latin America Economics Update

We think the Mexican peso will fall further

We expect the Mexican peso to fall further against the US dollar amid mounting external headwinds. In view of the wider interest, we are also sending this FX Markets Update to clients of our Latin America Service. ECB Preview (19th July, 10:00 ET/15:00 BST): Our Europe team will be briefing on what to expect from the ECB ahead of its crunch July meeting. They’ll be talking about lift-off for rate hikes, what a weak euro means for policy`, the Transmission Protection Mechanism and much more. Register now.

Latin America Economics Update

Inflation near a peak, but little comfort for central banks

Inflation rose to multi-decade highs in much of Latin America last month and, while it should peak in Q3, headline rates will remain uncomfortably high for some time. Central banks in the region started tightening policy earlier than elsewhere and, similarly, cycles will come to an end sooner. But even so, interest rates are likely to remain above their neutral level well into next year, weighing on recoveries.

Latin America Economics Update

Chile’s economy heading into choppy waters

Having defied gravity in 2021, this year is shaping up to be much tougher for Chile’s economy and we think that the economy will contract in both Q3 and Q4. Despite the weakening growth outlook, high inflation and a worryingly large current account deficit will result in further monetary tightening. Indeed, we think that interest rates will remain high for longer than most expect. EM Drop-In (Thurs, 7th July): Join our economists for their regular monthly briefing on the hot stories in EMs – and those that aren’t getting the attention they deserve. In this 20-minute session, topics will include the outlook for EM FX markets after the recent sell-offs. Register now.

Latin America Economics Update

Goodbye Guzmán, hello crisis

The news that Argentine economy minister, Martín Guzmán, resigned over the weekend points to growing influence of the Kirchner faction of the government. From an economic perspective, this is likely to lead to a looser fiscal stance that is accompanied by higher inflation and tighter capital controls. The country’s IMF deal already seems to be fraying at the seams. EM Drop-In (Thurs, 7th July): Join our economists for their regular monthly briefing on the hot stories in EMs – and those that aren’t getting the attention they deserve. In this 20-minute session, topics will include the outlook for EM FX markets after the recent sell-offs. Register now.

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.

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