Amlo’s last hurrah, oil price drop, Fed easing and Lat Am

Outgoing Mexican President Amlo’s controversial judicial reform has been one of the key drivers of the weakness in the peso and we think there’s still some downside risk to the currency, especially if his other proposals - which could entrench looser fiscal policy and higher inflation - are passed. The recent fall in oil prices is likely to exacerbate public finance risks in Colombia and Ecuador, but should lower (energy) inflation across the region. That and the start of the Fed's easing cycle, in principle, gives central banks in the region more scope to ease monetary policy. But the impact of the Fed on monetary policy in the region is often overstated. Indeed, Brazil's central bank is likely to hike interest rates on the same day that the Fed cuts.