Chile: front-loaded tightening cycle has further to run

The surprisingly large 125bp rate hike delivered by Chile’s central bank yesterday, to 2.75%, suggests that it will continue to front-load its tightening cycle to clamp down on high inflation. We now expect a further 225bp of hikes in this cycle, to 5.00%, by the end of Q1 2022 (previously 4.00%).
Nikhil Sanghani Emerging Markets Economist
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Latin America Economics Weekly

Chile’s constitution, Brazil fiscal worries mounting

This week marked the two-year anniversary of the mass protests in Chile which caused a political risk premium to emerge in local financial markets and the currency, and we think that lingering political risks will keep them under pressure for some time. Similarly, we think that hard-hit Brazilian assets will continue to fair poorly from here, with suggestions this week that the government will break the spending cap adding to the evidence that the country's public finances will deteriorate in the coming years.

22 October 2021

Latin America Data Response

Mexico Bi-Weekly CPI (Oct.)

The further rise in Mexico’s core inflation rate to a 12-year high of 5.1% y/y in the first two weeks of October, which contributed to the rise in the headline rate to 6.1% y/y, will add to the growing hawkish sentiment at the central bank. However, given the weakness of the economy, we think the tightening cycle will remain gradual with another 25bp rate hike, to 5.00%, at the next meeting in mid-November.

22 October 2021

Latin America Economics Focus

A fresh look at Brazil’s public debt problem

Suggestions that Brazil’s government will raise welfare spending – and circumvent the spending cap in doing so – add to the evidence that there’s little appetite for the long-term fiscal squeeze needed to stabilise the public finances. Taken together with slower growth and higher interest rates, we think that the public debt-to-GDP ratio is likely to be on an upwards trajectory from next year. This feeds into our view that government bond yields will climb higher and that the real will weaken further from here.

20 October 2021

More from Nikhil Sanghani

Latin America Data Response

Mexico Industrial Production (Aug.)

The stronger-than-expected 0.4% m/m rise in Mexico’s industrial production in August suggests that the economy may have held up better than we had previously anticipated in Q3. But, under the surface, there are still clear signs of weakness in the key auto sector which are likely to persist in the coming months, keeping a lid on the overall economic recovery.

12 October 2021

Latin America Economics Weekly

Castillo moderates, Amlo’s intervention & ailing autos

President Castillo’s cabinet reshuffle in Peru this week points towards more pragmatic policymaking which, while a possible headwind to near-term growth, should boost Peru’s medium- to long-term economic prospects. On the flipside, Mexico's President López Obrador (Amlo) is once again trying to increase his grip on the energy sector which may deter private investment and weigh on the economy there. Finally, the latest data suggest that global shortages are continuing to hit auto production while also adding to price pressures across the region, and this trend may have further to run.

8 October 2021

Latin America Data Response

Chile Consumer Prices (Sep.)

The jump in Chile’s inflation to 5.3% y/y in September suggests that the central bank may once again ramp up the pace of its tightening cycle. We now think it is more likely than not that it will deliver a 100bp rate hike, to 2.50%, at its meeting next week to quell strengthening price pressures.

8 October 2021
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