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The statement from yesterday’s Brazilian central bank meeting poured cold water on expectations in the market that the Selic rate would be cut further from its current level of 2.25% to as low as 1.00-1.50%. It seems that policymakers will consider only …
18th June 2020
The decision by Chile’s central bank to leave its policy interest rate unchanged at 0.50% was accompanied by a statement which appeared to unveil a QE programme. The finer details will be fleshed out in the coming days but, along with a recently announced …
17th June 2020
Most policymakers in Latin America are easing lockdowns even though the region is now the epicentre of the coronavirus pandemic. This may be less economically damaging than keeping stringent restrictions in place for longer, but the economic outlook in …
16th June 2020
Brazil’s Covid data now part of the problem Brazil’s handling of the crisis has come under even greater scrutiny after the government decided to halt publication of coronavirus statistics last weekend, before making a U-turn on the request of a supreme …
12th June 2020
Our Taylor Rules suggest that monetary easing cycles have further to run in Brazil, Mexico and Colombia, and we have pencilled in additional interest rate cuts in all three countries. Moreover, monetary policy across the region is likely to be looser than …
11th June 2020
Industrial collapse may prompt additional stimulus The 25.1% m/m collapse in Mexico’s industrial production in April suggests that Mexico’s economy suffered a hefty blow in Q2. Although this may mark the bottom for industry, it will add pressure for …
Inflation at lowest rate in over 20 years The decline in Brazilian inflation to a multi-decade low of 1.9% y/y in May will give Copom plenty of room to cut interest rates when it meets next week. We’ve pencilled in a 50bp cut at that meeting, to 2.50%, …
10th June 2020
Governments in Chile and Peru should be able to live comfortably with a jump in their public debt-to-GDP ratios this year. Those in Colombia, Mexico and, to a greater extent, Brazil will struggle. The first port of call will probably be renewed austerity, …
9th June 2020
Rising inflation unlikely to throw Banxico off course The pick-up in Mexican inflation to 2.8% y/y in May, from 2.2% y/y in April, is unlikely to deter the central bank from continuing its easing cycle. We expect a 50bp rate cut at its meeting later this …
Relief for the region’s currencies The improvement in global risk appetite has lifted financial markets in Latin America by more than most other regions. Indeed, the region’s currencies have been some of the best performers in the emerging world over the …
5th June 2020
The recent progress in talks between Argentina’s government and bondholders suggests that a debt restructuring deal is increasingly likely. However, we are sceptical of the IMF’s view that the government’s latest offer would restore public debt …
4th June 2020
The latest activity data suggest that stringent lockdowns are causing especially deep falls in GDP in Peru and Argentina. But with the region as a whole struggling to contain outbreaks, and limited scope for looser policy, the economic recovery is …
3rd June 2020
Worst industrial figure on record The 18.8% m/m fall in Brazilian industrial production in April was not as calamitous as we and most others had feared, but it still highlights that GDP will fall dramatically in Q2 – perhaps by 10-12% q/q. It will also …
Banxico gives clues of significant easing This week Banxico released its first Quarterly Report of the year, and the minutes of its May 14 th meeting. Three points stand out from these pieces. First, Banxico’s GDP views look (plausibly) downbeat. It …
29th May 2020
Stumbling even in Q1 The 1.5% q/q fall in Brazilian GDP in Q1 highlights that the economy had slipped into a deep downturn by March, even though the country was slow to impose lockdown measures. And more timely figures point to a double-digit fall in GDP …
The coronavirus has continued to spread rapidly across much of the region, with Brazil now registering the most new cases per day of any country in the world. And on a per capita basis, the surge in Peru and Chile look particularly alarming. High …
Lowest inflation since 1999 The fall in Brazilian inflation to just 2.0% y/y in the first half of this month provides plenty of space for Copom to follow up this month’s 75bp interest rate cut with more easing. For now, we have pencilled in one final 50bp …
26th May 2020
Virus spread worsens growth outlook Brazil has hit the headlines this week amid a rapidly developing political crisis and the rampant spread of coronavirus in the country. The number of new cases per day is nearing that in the US. But Brazil is not the …
22nd May 2020
Jump in inflation will spook Banxico The larger-than-expected rise in Mexican inflation in the first half of May, to 2.8% (from 2.1% in April), may prompt the central bank to slow the pace of easing (or even pause its cycle) at next month’s meeting. …
Q1 GDP data from Peru suggest that its lockdown is having a bigger impact on activity than measures elsewhere in Latin America. And with new infections in Peru surging in recent weeks, we are revising down our estimate for the fall in GDP this year from …
Barring an eleventh hour deal out of the blue, Argentina’s ninth sovereign default will be confirmed on Friday and, while this event is unlikely to surprise many in the markets, it will up the ante on debt restructuring talks. For our part, we think there …
21st May 2020
The continued rapid spread of the coronavirus through Brazil means that the economy will pull out of its slump more slowly than in many other emerging markets. And with the crisis challenging the government’s stability, the risks are skewed towards …
20th May 2020
The weaker-than-expected Q1 GDP figure, coupled with signs that Q2 is shaping up to be worse than we had initially thought, has prompted us to revise down our estimate for the fall in Colombian GDP this year. We now expect a contraction of 7.0% …
19th May 2020
Chile’s recovery to be short-lived While Chile’s economy grew strongly in Q1, this was largely due to favourable base effects resulting from strikes in Q4, and hides a sharp deterioration in activity in March. We expect a steep contraction in Q2, and a …
18th May 2020
Real tumbles as political turmoil worsens Brazilian financial markets suffered further sharp falls this week as concerns about the political crisis mounted. We looked at justice minister Sérgio Moro’s resignation in detail a few weeks ago. (See here .) …
15th May 2020
Colombia’s public debt ratio will rise sharply this year and we disagree with the consensus view that it will fall back from 2021. This is likely to limit any recovery in the Colombian bond market over the coming years. The hit to Colombia’s fiscal …
14th May 2020
Things are about to get a whole lot worse The 5% y/y drop in Mexican industrial production in March is largely old news, but the breakdown of the headline figure was more noteworthy and suggests that the manufacturing sector has been hit harder than …
12th May 2020
One major difference between Argentina’s current crisis and the historic 2001/02 episode is that the hit to private sector balance sheets should be smaller. So even though the coronavirus will cause a steep contraction in GDP this year, we don’t expect a …
11th May 2020
Window closing for Argentina & bondholders This week brought further evidence that the Argentina’s government and bondholders remain far apart on a restructuring deal and, unless both sides thrash out something quickly, talks could get bogged down and …
7th May 2020
Inflation collapses, 100bp cut on the cards this month The large fall in Mexican inflation to just 2.2% y/y in April (from 3.2% y/y in March) should embolden the central bank to step up the easing cycle when it meets later this month. We’ve pencilled in a …
The Brazilian central bank’s 75bp cut in the Selic rate last night and the dovish tone of the accompanying statement has prompted us to pencil in a further 50bp of cuts (to 2.50%) in the coming months. Elsewhere, the Chilean central bank gave little away …
The collapse in the confidence surveys in Brazil and Mexico last month point to a contraction in activity that exceeds that experienced in each economy during the Global Financial Crisis. And with coronavirus cases still increasing sharply, this month …
5th May 2020
Political troubles add to Brazil’s problems Despite the growing public health crisis and collapse in the global economy, Brazilian politics ended up dominating the news in the region. Local markets collapsed late last week after the resignation of Justice …
1st May 2020
The statement accompanying the Colombian central bank’s decision to cut the policy rate by 50bp to 3.25% left the door open for more easing. Given the scale of the economic hit that we expect, the policy rate will likely be lowered by at least an …
The Latin American economies that moved early to contain the coronavirus – Chile, Colombia and Peru – are all now starting to look at ways to ease lockdown measures, which should support a gradual recovery in activity later this quarter. But lockdowns …
Bad Q1 to be followed by Q2 slump The 1.6% q/q drop in Mexico’s GDP in Q1 was slightly better than many had expected, but the outturn in Q2 is likely to be much worse. We expect an 8% fall in GDP over this year as a whole – one of the worst in the …
30th April 2020
Latin American banks are generally in good shape, but the sheer scale of the fall in output and limited policy responses to protect incomes in parts of the region mean that the rise in bad loans could be much bigger than it was during the Global Financial …
29th April 2020
Low inflation opens door for a 50bp cut The decline in Brazilian inflation to 2.9% y/y in the first half of April suggests that Copom will be able to lower the Selic rate by an additional 50bp (to 3.25%) next week. The political crisis and in the recent …
28th April 2020
Brazil’s economy is better placed to withstand a twin political and economic crisis than it was during the Dilma impeachment of 2015-16. But the brewing political mess could leave long-lasting damage if it prevents policymakers from acting quickly enough …
27th April 2020
Oil price collapse another major headwind The dramatic drop in oil prices earlier this week will deal yet another blow to the region’s oil producers – none more so than Venezuela – where the humanitarian crisis will get even worse. President Maduro’s …
24th April 2020
Overview – The downturn in Latin America this year will the deepest since reliable records began. The slow and limited economic policy responses in Brazil and Mexico, as well as struggles to bring their coronavirus outbreaks under control, suggest that …
Lowest inflation on record, larger rate cuts in store The collapse in Mexican inflation to just 2.1% y/y in the first half of April will give Banxico more space to support the economy. It looks increasingly likely that the central bank will follow up this …
23rd April 2020
The plunge in oil prices is yet another drag on Mexico’s freefalling economy, and may hasten a move by Pemex to restructure its external debts. The government’s lacklustre response to the economic crisis is forcing Banxico to do the heavy lifting to …
22nd April 2020
Containment dispute in Brazil… The coronavirus has thrust Brazilian politics into the spotlight this week after President Bolsonaro fired health minister Luiz Mandetta amid an ugly dispute about containment measures. President Bolsonaro has since called …
17th April 2020
The Argentine government’s aggressive proposal to restructure its international bonds entails over $40bn in debt relief, which would go some way to restoring public debt sustainability. However, there is a significant risk that negotiations between …
Our oil price forecasts are consistent with a 30% drop in Pemex’s revenues this year, which suggests the firm will need additional state support to service its large debts. However, with the coronavirus crisis intensifying, we’re not convinced that …
16th April 2020
Infections rising sharply in Brazil & Mexico The number of cases of the coronavirus has continued to rise across Latin America. On the plus side, there are some early signs that the infections curve may be flattening in Argentina, Peru and Chile (see …
9th April 2020
Large fall in inflation means Copom to ease further The larger-than-expected fall in Brazilian inflation, to 3.3% y/y last month, adds to reasons to think that Copom will cut the policy rate by another 50bp (to 3.25%) when it meets in early May. The …
With the Central Bank of Chile’s policy rate at its effective lower bound, we think that its next easing measure would be a quantitative easing programme aimed at flattening the long end of the yield curve. Chile’s central bank has eased policy …
8th April 2020
Inflation easing, more rate cuts on the way The larger than expected fall in Mexican inflation in March, to 3.3% y/y, should ease near-term concerns at the central bank about the impact of the weakness of the peso on prices. More importantly, with the …
7th April 2020
