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Fiscal profligacy and a lack of prudence in managing commodity revenues have left Ecuador highly exposed to a downturn in global oil prices. Limited financing options are likely to turn up the heat on the dollarised economy over the medium-term. … …
30th July 2011
The fact that Latin America is spending its windfall from higher commodity prices is good news for the global economy, but carries significant risks for the region itself. In the near term the big risk is that the current boom in consumer spending proves …
29th July 2011
Policymakers in most of Latin America’s inflation-targeting countries have begun to signal an end to the current cycle of monetary tightening. In the very near term, we still expect the combination of rapid credit growth and rising inflation to trigger …
28th July 2011
The Brazilian Central Bank (BCB) hiked interest rates by 25bps to 12.50% last night. The tone of the accompanying statement suggests that rates may now have peaked, although we wouldn’t rule out another 25bps increase at the next meeting. Either way, the …
22nd July 2011
On the face of it, there is early hope that the Colombian economy has begun to rebalance away from domestic demand-led and towards export-led manufacturing growth. But with the exchange rate still appreciating and consumer credit growth booming, we think …
21st July 2011
There has been a growing debate in recent weeks over the extent to which Peru’s economy has slowed, with some commentators foretelling a collapse in growth. A closer inspection of the latest data, however, suggests that as things stand the cause for …
20th July 2011
The recent spike in food inflation has a little further to run and, in most economies, core inflation pressures are building. But even so we still expect headline inflation to start to fall in pretty much every country in the region from around Q4 of this …
19th July 2011
The Central Bank of Chile (CBC) as expected held interest rates at 5.25% last night. Strong domestic conditions and above-target inflation make further increases likely, but we are nearing the end of the current tightening cycle. We maintain our forecast …
16th July 2011
The debate about whether or not Brazil is in the midst of a consumer credit bubble has reached fever pitch over the past few days. Our view is that the current pace of credit growth is unsustainable and that, as such, there is a growing risk of a sharp …
13th July 2011
The Central Bank of Peru (BCRP) held interest rates at 4.25% for the second consecutive month last night. With investment spending and inflation set to accelerate later this year, we continue to expect rates to rise further although the risks to our …
9th July 2011
Growth in Argentina has shown few signs of slowing in 2011 and we remain concerned about overheating and a hard landing further ahead. Excessively loose policy continues to fuel booming domestic demand and October’s Presidential elections make any …
8th July 2011
News that Brazil is planning a range of new measures to stem the rise in the real hit the currency yesterday but any such action is unlikely to have a lasting impact. … Fresh controls unlikely to signal end of Brazil’s ‘currency …
7th July 2011
June’s IMEF surveys suggest that the Mexican economy picked up a little pace in the second quarter of this year. Nonetheless, growth remains sluggish compared to the rest of the region and with the US economy set to slow over the next 12-18 months, there …
6th July 2011
The sharp rise in Brazilian industrial production in May largely reflects a rebound from the drop in output seen in April. The sector has broadly stagnated over the past couple of months and the fall in June’s manufacturing PMI to below 50 suggests …
2nd July 2011
Fears of a widespread bubble in emerging markets look overdone, but there are growing signs that rapid capital inflows are stoking problems in several countries. We think the biggest risks lie in Turkey and Brazil, where the threat of a sharp downturn in …
The relative valuations of emerging market equities and bonds are no longer as attractive as they have been in the past. But the fears of overheating and hard landings that have held many back so far this year are generally exaggerated or at least …
1st July 2011
Financial markets across Latin America have had a fairly torrid time over the past month or so. Fears of a renewed global slowdown and a subsequent drop in commodity prices, along with worries about rising domestic inflation, have caused most equity …
30th June 2011
Data showing that the Colombian GDP grew at close to 8% annualised in the first quarter of this year, despite the impact of the heaviest rains in three decades, adds to recent evidence that the economy is in rude health. Yesterday’s decision to by Fitch …
24th June 2011
The fact Brazil is spending its windfall from higher commodity prices – plus more – is good news for the global economy, but carries significant risks for the country itself. In particular, it means that a substantial drop in commodity prices would bring …
23rd June 2011
The Central Bank of Colombia (BANREP) hiked interest rates by 25bps to 4.25% on Friday night. Although policymakers softened their tone from previous meetings, we still expect rising inflation to ensure that rates reach 5.0% by year-end before remaining …
21st June 2011
Central bankers – and some in the markets – appear increasingly hopeful that the recent spike in food price inflation, which has driven headline inflation above its target in pretty much every country in the region, will now start to ease. We think this …
17th June 2011
The Central Bank of Chile (CBC) raised interest rates by 25bps to 5.25% last night but signalled that, while more hikes are likely over the coming months, we are now approaching the end of the current tightening cycle. We are sticking to our forecast for …
16th June 2011
The Central Reserve Bank of Peru (BCRP) unexpectedly held interest rates at 4.25% last night. Nonetheless, if it emerges over the coming weeks that President-elect, Ollanta Humala, will broadly maintain the current economic framework, as we expect, then …
11th June 2011
The Brazilian Central Bank (BCB) hiked interest rates by 25bps to 12.25% last night. With inflation, which exceeded the Bank’s target range last month, set to rise further, additional increases are likely over the coming months. We expect the Selic rate …
9th June 2011
Brazilian inflation rose above the upper band of the Central Bank’s (BCB’s) 4.5±2% target range in May. Inflation is likely to remain above target until the second half of next year. Accordingly, another 25bp interest rate hike to 12.25% at tomorrow’s …
7th June 2011
Ollanta Humala, the left-wing candidate, appears to have triumphed in yesterday’s Peruvian presidential election. With investors concerned that he will now set about unpicking market-friendly economic reforms, the markets will probably sell-off over the …
6th June 2011
Although Brazilian GDP growth was around its potential rate of 4-5% y/y in Q1, underlying concerns about imbalances remain. With domestic demand driving growth and inflation likely to have exceeded the central bank’s target range last month, interest …
3rd June 2011
While Brazil’s industrial sector appears to have made a decent contribution to growth in Q1, it seems that it will be a drag in Q2 and perhaps beyond. Manufacturers are being squeezed by the ongoing appreciation of the real exchange rate and, with no let …
1st June 2011
The Central Bank of Colombia (BANREP) hiked interest rates by 25bps to 4.0% last night. With domestic demand still driving strong economic growth and inflation likely to peak higher than policymakers currently expect, we think that rates will be hiked by …
31st May 2011
First quarter GDP data released over the past month confirm what we already knew – most countries in Latin America experienced a strong start to 2011. The problem, however, is that growth is still being driven by a boom in domestic demand, while net …
As expected, the Central Bank of Mexico (BANXICO) held interest rates at 4.5% this afternoon. Rising food and energy inflation will test the nerve of policymakers over the coming months, but with core price pressures still subdued we continue to expect …
27th May 2011
The growth outlook for Latin America remains good. GDP growth is likely to slow a little over the coming quarters as external demand weakens and commodity prices come off of the boil, but the domestic drivers of growth should remain strong. … Domestic …
26th May 2011
Concerns over rising inflation have displaced fears about speculative capital inflows and excessive currency appreciation at the top of the list of policy priorities. Interest rates look set to rise further over the coming months in most countries (with …
23rd May 2011
The pick-up in annual GDP growth in Mexico in Q1 masks the fact that in q/q terms the economy slowed fairly sharply. With the current pace of manufacturing growth set to ease later in the year as demand from the US slows, we are sticking to our below …
19th May 2011
The spike in commodity prices in Q1 supported strong growth in both Chile and Venezuela. But while Chilean policymakers are well placed to deal with any fall in commodity prices next year, Venezuelan growth will slow sharply if oil prices fall towards $75 …
18th May 2011
March’s activity data indicate that the Peruvian economy continued to grow at a red-hot pace in Q1 and that it is on course to expand by around 7% this year. … Peruvian economy still growing at a red-hot …
16th May 2011
Last night’s decision to raise Chilean interest rates by 50bps to 5% surprised the markets but was in line with our forecast. By contrast, the decision to raise Peruvian interest rates by 25bps was widely anticipated. Interest rates in both countries are …
13th May 2011
Peru’s medium-term growth prospects are amongst the best in the region. But in the near term there is a mounting risk of overheating and tighter fiscal policy is needed to cool demand. In this respect, the major risk posed by the emergence of Ollanta …
10th May 2011
The pick-up in Mexican inflation last month was due almost entirely to a rise in food prices. By contrast, core inflation remains more subdued. The lagged effects of higher global commodity prices are likely to lead to a further rise in headline inflation …
9th May 2011
Brazilian industrial production expanded at its fastest pace in a year in Q1 but the outlook for Q2 and beyond is less promising. The bigger picture remains that Brazilian growth is still being driven by consumer spending and that manufacturers are being …
4th May 2011
Peruvian markets have been hammered since Ollanta Humala, the left-wing candidate, won the first round of the Presidential election last month. There are several parallels to Brazil’s experience during the emergence of President Lula in 2002 and the to …
3rd May 2011
The past month has brought further evidence of rising inflation in Latin America. For the most part, this is still being driven by higher food and energy prices, which in turn are a reflection of the spike in global commodities. But in some countries – …
27th April 2011
Last night’s decision by the Brazilian Central Bank (BCB) to raise interest rates by a smaller-thanexpected 25bps illustrates the bind that policymakers currently find themselves in: how do you tackle rising inflation without stoking speculative capital …
21st April 2011
20th April 2011
One of the questions that we are most frequently asked is why are Brazilian interest rates so high? We think that the answer lies in the fact that fiscal policy is too loose and, more generally, that Brazil’s savings rate is very low by international …
18th April 2011
The Central Bank of Chile (CBC) hiked interest rates by 50bps to 4.5% last night. With the near-term outlook for growth still very good and inflation likely to top 5% in Q4, further policy tightening is on the way. We are revising up our forecast and now …
13th April 2011
It appears that the Presidential election in Peru is heading for a second round of voting between Ollanta Humala and Keiko Fujimori on 5th June. While a victory for Ms. Fujimori would perhaps be the most market-friendly outcome, comparisons between Mr. …
11th April 2011
President Rousseff's trip to Beijing this week is likely to produce a welter of statistics illustrating how both countries have benefitted from each other's respective development in recent years. But while it's true that Brazil has been one of the …
The fact that the Central Reserve Bank of Peru (BCRP) raised interest rates by 25bps last night, rather than the 50bps that had seemed possible, suggests that policymakers will continue to tighten policy in small steps for now. Nevertheless, with growth …
8th April 2011
If recent evidence is anything to go by, Brazil’s latest effort to stem the rise in the real is unlikely to have a lasting impact on the markets. While rising inflation should mean that the authorities become more tolerant of a stronger currency in the …
7th April 2011
