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Protests in Chile will probably result in a shift towards permanently looser fiscal policy. But it would take a long time for the debt ratio to become a concern, so any corresponding rise in bond yields over the next five years is likely to be fairly …
16th December 2019
The statement accompanying the Brazilian central bank’s meeting last night did leave the door open for one more interest rate cut, but on balance we think the easing cycle is at an end. By the same token, the interest rate hikes that are now being priced …
12th December 2019
Alberto Fernández’s government, which takes office today, will soon begin to implement its economic agenda and outline its proposals to resolve the debt crisis. This Update outlines four key things to watch. The first is an extension of capital controls . …
10th December 2019
The statement accompanying the Chilean central bank’s decision to hold interest rates at 1.75% yesterday signalled that policy rates will be left unchanged over Q1, but we still think it’s most likely that rates will be lowered over the next 12 months. We …
5th December 2019
While there is likely to be more turbulence ahead for the Chilean peso, the big falls are probably behind us. Indeed, with the central bank intervening and copper prices likely to rise, we think it’s more likely than not that the peso will strengthen by …
4th December 2019
Comments by Venezuelan President Nicolás Maduro suggest that the government considers dollarisation as an option to tackle hyperinflation. If implemented, this would probably bring inflation down sharply. But we doubt that this would be sustained so long …
28th November 2019
Revised GDP figures have, again, shown Mexico as one of the worst-performing large EMs. But a closer look at the data underlines the huge variation within the country, which includes both pockets of outperformance as well as sectors locked in structural …
27th November 2019
President-elect Alberto Fernández’s plan to resolve Argentina’s debt crisis by growing the economy is not a realistic option. We think that a large debt write-down within a few years is inevitable, suggesting that there is little scope for a large or …
22nd November 2019
While GDP growth picked up in Q3, activity data for September indicates that the economy had already slowed significantly prior to the protests beginning. GDP is likely to contract in Q4. That said, events of recent days have raised hopes of the protests …
18th November 2019
After loosening policy again yesterday, Mexican policymakers will probably cut rates by another 75bp over the coming six months. Given that the US loosening cycle now seems to be at an end, market expectations – which point to 150bp of cuts – seem to have …
15th November 2019
The sharp fall in the Chilean peso today amid widespread strikes will push up inflation although, with the central bank focused more on the hit to the economy, further interest rate cuts are still likely. There is a growing risk that the unrest lasts for …
12th November 2019
The statement accompanying yesterday’s decision by Peru’s central bank to cut interest rates made it clear that this did not mark the beginning of a prolonged easing cycle. With inflation and economic activity likely to gradually rise, we expect the …
8th November 2019
There is a good chance that protests caused GDP to contract in Q4. While we expect growth to strengthen by next year, the weak starting point from Q4 has prompted us to revise down our 2020 growth forecast from 3.5% to 2.5%. We are currently forecasting …
7th November 2019
The fiscal package presented to Brazil’s congress yesterday shows that the government is not resting on its laurels after its successful pension reform. However, the good news on fiscal reform already seems to be priced in, suggesting that there’s little …
6th November 2019
Colombia’s economic recovery since 2017 has been in large part due to strength in private consumption, but we think it will likely slow in the coming quarters. This is one reason why our 2020 growth forecast sits at the bottom of the consensus range . …
4th November 2019
The statement accompanying last night’s Copom meeting gave a clear signal that there will be just one more 50bp interest rate cut in the current cycle (to 4.50%), which should temper expectations in the market for more aggressive rate cuts in the next few …
31st October 2019
Ecuador’s government has successfully stabilised the debt-to-GDP ratio, and it remains committed to IMF plans to cut the public debt ratio to just 30% of GDP. But the president’s climbdown in the face of protests has highlighted the fragility of the …
29th October 2019
There is still a lot of uncertainty following Alberto Fernández’s widely-expected victory in Argentina’s presidential election, but one point we would stress is that a large debt write-down will ultimately be required during Mr. Fernández’s presidency. …
28th October 2019
Chilean policymakers’ decision to cut their key interest rate by 25bp yesterday and the dovish tone of the accompanying statement supports our view that the easing cycle has further to run. We continue to expect 25bp of cuts by year-end, and a further …
24th October 2019
Left-wing Peronist Alberto Fernández is widely expected to win Sunday’s presidential election, and we think that his tenure would be marked by more accommodative policy, persistently high inflation, further large currency falls and a large debt …
23rd October 2019
As things stand, there are reasons to think that the protests that erupted in Chile in recent days will have a relatively small impact on the economy and financial markets. The central bank is likely to look through the political turmoil and cut the …
21st October 2019
The shift in market expectations in Brazil towards much larger interest rate cuts by early 2020 now looks overdone. However, expectations for the Selic rate over a longer time horizon (2-5 years) look too high . There is a growing debate about how far …
17th October 2019
The monetary transmission mechanism in Brazil seems to have weakened recently, which is likely to prevent the sharp fall in market interest rates seen since 2017 from feeding through to a significant pick-up in credit growth. The recovery in bank lending …
10th October 2019
Worsening relations between the Brazilian presidency and legislature threaten to delay the much-vaunted pension bill and will keep markets on tenterhooks in the coming weeks. It still looks like the reform will be approved, but the latest events suggest …
3rd October 2019
Chile’s economic slowdown this year was mostly due to weaker private consumption, caused by a fall in consumer confidence. But with the labour market strengthening and copper prices likely to rise next year, we expect that consumer spending growth will …
The dissolution of congress by President Martín Vizcarra and his heated stand-off with the opposition will likely cause a sell-off in markets and further political gridlock. But as things stand, we doubt that this will prevent Peruvian GDP growth from …
1st October 2019
Mexican policymakers cut their policy rate from 8.00% to 7.75% yesterday, and we think that they will continue to loosen policy over the coming quarters. We now expect a 25bp cut in both of the remaining meetings this year, taking the rate to 7.25% rather …
27th September 2019
President Nicolas Maduro’s attempts to control inflation have had some effect, but without more severe measures we think that price pressures will probably remain extremely high over the coming months. After peaking at 350,000% y/y in January, Venezuelan …
23rd September 2019
The Brazilian central bank’s decision to cut the Selic rate by 50bp last night was accompanied by a statement clearly signalling that policymakers intend to ease monetary policy further. As a result, we now expect another 25bp cut in October. The 50bp cut …
19th September 2019
The Brazilian government’s tax and budget reform plans would, if implemented, significantly improve the country’s longer-term fiscal health and productivity growth. But the proposals will face more opposition than the government’s recent efforts to …
18th September 2019
Latin American currencies are likely to weaken further in the coming months alongside most EM currencies. But while we expect the Chilean peso and Peruvian sol to end next year stronger than their current level, the Brazilian real and Colombian peso will …
11th September 2019
The 2020 budget presented by Mexico’s finance ministry at the weekend suggests that there will be a tilt towards providing modest stimulus to the struggling economy. But the big picture is that the government is continuing to pursue fiscal discipline, …
9th September 2019
Yesterday’s MPC statement suggested that Chilean policymakers will follow yesterday’s 50bp cut with more easing. The latest growth and inflation data have been weak, and there is a window for further rate reductions. We have now pencilled in an additional …
4th September 2019
We think that low oil prices and a continued slump in the property sector will cause investment growth in Colombia to slow in the coming quarters. This is one reason why our growth forecasts sit at the bottom of the consensus range for this year and next …
3rd September 2019
The capital controls introduced by Argentine President Mauricio Macri over the weekend may, in the short term, help to stem capital flight and slow the pace of FX reserve depletion. But their imposition might make it easier for a future left-wing …
2nd September 2019
The Argentine finance ministry’s decision to extend the maturities of some of its short-term local-law debt, and enter talks with external bondholders, is tantamount to default. The government and bondholders stand a good chance of agreeing to some …
29th August 2019
The Argentine central bank’s large intervention in the FX market in recent days hasn’t been enough to stop the peso from weakening further against the dollar, and we think that the gross FX reserve figure overstates the BCRA’s ability to prop up the peso. …
28th August 2019
Investors appear to be coming round to our view that an Argentine sovereign debt default is now more likely than not. This Update provides clients with a primer on the composition of federal government debt, and explains what this might mean for any debt …
23rd August 2019
The recent political turmoil in Peru has stoked fears about governability issues, and congressional gridlock is likely to continue in the near term. But in contrast to many other analysts, we doubt that this will prevent GDP growth from accelerating in …
21st August 2019
The rout in Argentine markets is likely to push the economy back into recession. We now expect GDP to contract by 3% over this year as a whole (our previous forecast was -2.0%) and inflation to breach 60% y/y (from 55% y/y now). We also anticipate a …
15th August 2019
With Argentine markets continuing to come under pressure, a sovereign debt default is increasingly likely. We think this is most likely to come in response to a request from the IMF, probably before year-end. This would result in smoother debt …
14th August 2019
The rout in Argentine markets yesterday, and increasing likelihood of a lurch to the left in October’s presidential election, has rekindled sovereign default fears. One crunch point could be 15 th September, when the next IMF loan tranche is due to be …
13th August 2019
The rout in Argentine markets today will push up the public debt ratio to over 100% of GDP, and makes a sovereign default even more likely. It’s possible that the IMF requests a debt restructuring before October’s election. The collapse in markets, a …
12th August 2019
The comprehensive victory for Alberto Fernandez in Argentina’s primary election paves the way for the return to left-wing populism that many investors fear. With a renewed focus on sovereign default risks, bonds, equities and the peso will come under …
The statement accompanying the decision by Peru’s central bank to cut interest rates left the door open for further easing. And with the incoming growth and inflation data still weak, there is a window for further rate reductions. We’ve pencilled in 50bp …
9th August 2019
The Brazilian central bank’s larger-than-expected 50bp reduction in the Selic rate last night to 6.00%, and hints of more stimulus, have prompted us to pencil in an additional two 25bp rate cuts this year. We now expect the Selic rate to end this year and …
1st August 2019
A number of major central banks in Latin America are on the cusp of joining the global easing cycle but, in contrast to the prevailing view, we don’t think that Colombia will be one of them. We expect a weaker Colombian peso to push inflation up in the …
25th July 2019
One key point contained in the IMF’s latest quarterly review of Argentina’s bailout programme is that the Fund is now expecting the government to run a primary deficit this year (having expected a balanced budget previously). While this will have little …
16th July 2019
With budget deficits still large in Brazil and Argentina, fiscal policy there will continue to be tightened over the coming years. But small budget deficits in Mexico, Chile and Peru mean that governments there now have scope to loosen the purse strings. …
15th July 2019
The large margin of victory for Brazil’s pension bill in its first vote in the lower house last night is likely to result in a rally in local markets later today, and makes an interest rate cut at the Copom meeting this month a done deal. We have also …
11th July 2019