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Inflation fall eases pressure on Copom The sharp fall in Brazilian inflation to 10.1% y/y in July from 11.9% y/y in June was mainly a result of tax cuts on energy; inflation in most other price categories remains extremely strong. Even so, at the margin, …
9th August 2022
Further rise in inflation to prompt another 75bp on Thursday The rise in Mexico’s headline inflation rate to 8.2% y/y in July, coming alongside the stronger-than-expected Q2 GDP figures released in late-July, mean that Banxico is almost certain to hike …
Costing Chile’s new constitution A recent report from Chile’s Centro de Estudios Públicos (CEP) that looks at the fiscal costs implied by the draft new constitution has made a splash this week. It estimates that the total annual cost for the government of …
5th August 2022
The appointment of Sergio Massa as head of Argentina’s newly-created economic “superministry” provides some hope that the government will try to stick to its latest IMF deal. But it will be a major challenge to meet the Fund’s targets. And even if …
The statement to yesterday’s Brazilian central bank meeting, at which the Selic rate was hiked by 50bp to 13.75%, made clear that Copom is more confident that inflation will fall back and also more concerned about the slowing economy. We remain of the …
4th August 2022
Broad based weakness in industry The 0.4% m/m fall in Brazilian industrial production in June, taken together with softer surveys last month, provides further evidence that the economy is losing momentum. GDP growth in the second half of the year is set …
2nd August 2022
Big challenges for Argentina’s new “superminister” President Alberto Fernández announced a major cabinet reshuffle yesterday in an effort to tackle the latest economic crisis. One of the casualties of the reshuffle is Silvina Batakis, who had taken over …
29th July 2022
Another solid quarter, but recovery to struggle from here Provisional GDP figures show that Mexico’s economy grew by a stronger-than-expected 1.0% q/q in Q2 and we have nudged up our forecast for GDP growth this year to 2.3% (from 1.8% previously). Even …
Latin American economies held up well in early part of this year, helped by the surge in commodity prices brought about by the war in Ukraine. But there are signs that activity is now weakening. Timely monthly activity indices fell in m/m terms in five of …
27th July 2022
Inflation has peaked, but will remain high The drop in inflation in Brazil to 11.4% y/y in the first half of July provides the first clear sign that inflation has passed its peak and is now on a downwards path. But even so, with the headline rate far …
26th July 2022
Colombia’s gaping trade deficit Recently released trade data showed that, somewhat surprisingly, Colombia’s trade deficit widened in May. This was driven by two factors. First, having jumped in April due to the surge in global energy prices, exports …
22nd July 2022
Further rise in inflation to prompt another 75bp hike The further rise in Mexico’s headline inflation rate to 8.2% y/y in the first two weeks of July means that Banxico is all but certain to deliver another 75bp hike in interest rates, to 8.50%, at its …
Overview – High energy and agricultural prices helped to cushion Latin American economies over the first half of the year, but the second half will be much more challenging. As growth slows, fiscal concerns are likely to come back to the fore. And in the …
21st July 2022
Brazil’s ‘kamikaze’ social transfers Brazil’s fiscal rules took another blow this week after congress approved a constitutional amendment (the so-called ‘kamikaze’ amendment) that will expand social transfers. Spending will increase by 41bn reais, or 0.4% …
15th July 2022
We expect the Mexican peso to fall further against the US dollar amid mounting external headwinds. As the dollar has appreciated to multi-decade highs against major developed market currencies, such as the euro and the yen, it has also extended its gains …
Inflation rose to multi-decade highs in much of Latin America last month and, while it should peak in Q3, headline rates will remain uncomfortably high for some time. Central banks in the region started tightening policy earlier than elsewhere and, …
14th July 2022
Industry likely to remain weak Industrial production in Mexico rose by a disappointing 0.1% m/m and timely indicators suggest that the sector was even weaker still in June. With growth in the US weakening, we expect industrial activity to remain soft over …
12th July 2022
Argentina: not budging on the peso The UK isn’t the only country suffering tumult sparked by a finance minister’s resignation. Earlier in the week, Argentina was thrown into crisis after Martin Gúzman, the architect of the country’s latest IMF deal, …
8th July 2022
50bp hikes on the cards The increases in inflation in Brazil (to 11.9% y/y) and Chile (to 12.5% y/y) last month set the ground for 50bp hikes in policy rates at their respective central banks’ next meetings (in Chile’s case, next Wednesday). In both …
Multi-decade high inflation to keep Banxico hiking in 75bp steps The rise in Mexican inflation to 8.0% y/y, its highest rate since 2001, will sustain the hawkish shift seen on the Banxico Board at its latest meeting in June. A 75bp hike in the policy rate …
7th July 2022
Having defied gravity in 2021, this year is shaping up to be much tougher for Chile’s economy and we think that the economy will contract in both Q3 and Q4. Despite the weakening growth outlook, high inflation and a worryingly large current account …
5th July 2022
The news that Argentine economy minister, Martín Guzmán, resigned over the weekend points to growing influence of the Kirchner faction of the government. From an economic perspective, this is likely to lead to a looser fiscal stance that is accompanied by …
4th July 2022
Petro picks a moderate The news that Colombia’s President-elect Gustavo Petro has chosen José Antonio Ocampo as his finance minister provides an early sign that Petro will govern as an economic moderate. Mr Ocampo is a well-respected economist, a former …
1st July 2022
High inflation seems to be causing growing unrest in the region, which threatens to be economically disruptive and raise fiscal concerns. Recent protests in Ecuador have hit its oil sector hard, while truck drivers in Peru are about to embark on a strike. …
28th June 2022
Petro gets a frosty reception Gustavo Petro’s win in Colombia’s presidential election has caused tremors in the country’s financial markets. The stock market has fallen by around 7% since the vote while the currency is down by 5% against the dollar. The …
24th June 2022
The Mexican central bank’s shift to a 75bp interest rate hike yesterday (to 7.75%) and the hawkish language in the accompanying statement make another 75bp move at the next meeting in August a done deal. And the risks to our end-2022 interest rate …
The latest Brazilian central bank communications give a strong signal that, when Copom stops hiking interest rates, it will act in a similar way to the end of the last tightening cycle in 2015. The lesson from that period is that rates will be kept high …
23rd June 2022
Inflation surprise seals the deal on a 75bp hike The stronger-than-expected rise in inflation to 7.9% in the first two weeks of June adds to the pressure on Banxico to fight stubbornly strong price pressures. We think Banxico will step up the pace of …
A threatened strike at Chile’s copper giant, Codelco, could knock as much as 0.3%-pts off quarterly GDP growth for every week that workers are on strike and worsen the country’s balance of payments strains. What’s more, it may not even be enough to give a …
21st June 2022
Left-wing Gustavo Petro’s win in the second round of Colombia’s presidential election is likely to spook investors and trigger a sell-off in the country’s financial markets. We suspect that Petro will still pursue moderate fiscal austerity, but not enough …
20th June 2022
Banxico set to follow the Fed Given the Fed’s hawkish shift and the recent sell-off in the Mexican peso, we now think that Banxico will step up the pace of tightening with a 75bp rate hike next week, to 7.75%. We argued a few weeks ago that the upcoming …
17th June 2022
While the Brazilian central bank’s tightening cycle is drawing to a close, the statement accompanying yesterday’s 50bp increase in the Selic rate (to 13.25%) left the door open to additional hikes. With Copom sounding a little more worried about inflation …
16th June 2022
Chile is likely to run a current account deficit of 7% of GDP this year, the widest since 1985. Worryingly, this deficit is being increasingly funded by volatile portfolio inflows, making the economy (and currency) particularly vulnerable to swings in …
13th June 2022
Argentina-IMF: inflationary elephant in the room The staff-level agreement between the IMF and Argentina, for the first review of its $44bn deal, gave little assurance that the Fund will knuckle down on the country’s growing inflation and currency issues. …
10th June 2022
Inflation falling but Copom’s tightening cycle has further to run The fall in Brazilian inflation to 11.7% y/y in May suggests that Copom will continue to slow the pace of tightening with a 50bp Selic rate hike, to 13.25%, next week. But with inflation …
9th June 2022
Inflation stabilising points to another 50bp hike Mexico’s inflation rate stabilised at 7.7% y/y in May and we expect that it will trend lower in the coming months. This may temper some of the hawkish sentiment at Banxico. We think that it will stick to …
The guidance in the Monetary Policy Report released by Chile’s central bank today, following on from its 75bp rate hike to 9.00% yesterday, suggests that the tightening cycle has a little further to run. We think that double digit inflation alongside …
8th June 2022
The solid 1.0% q/q rise in Brazil’s GDP in Q1, alongside the strength of the recent survey data, reinforce our view that the economy will fare better than most expect this year. However, we still think that Brazil’s growth prospects remain weaker than …
6th June 2022
Colombia election: may be too early to cheer Populist Rodolfo Hernández is now the favourite to become Colombia’s next president and this has buoyed local financial markets this week. But we think that the scope for a further rally is limited. To recap, …
1st June 2022
The first round of Colombia’s presidential election has set up a close race between left-wing Gustavo Petro and populist Rodolfo Hernández in the second round vote on 19 th June. The vote was a major repudiation of the pro-business governments that have …
30th May 2022
Another Petrobras CEO gone The news this week that Brazil’s President Bolsonaro sacked the CEO of oil giant Petrobras, José Mauro Coelho, provides a worrying sign about the direction of policymaking in the run-up to October’s elections. Mr. Coelho became …
27th May 2022
Colombia’s upcoming presidential election could result in the country’s first left-wing government in recent decades, headed by Gustavo Petro. While he is unlikely to be as radical as many expect, Petro’s policies would lead to higher public debt, higher …
26th May 2022
Copom’s tightening cycle has a little further to run The further rise in Brazilian inflation, to 12.2% y/y in the middle of May, supports our view that there will be another 75pb of hikes in the current tightening cycle (to 13.50%). Investors seem to have …
24th May 2022
Inflation stabilising While Mexico’s headline inflation edged down to 7.6% y/y in the first two weeks of May, this will provide little comfort to the central bank as price pressures remain stubbornly strong. The risks are still skewed towards Banxico …
Chile: moving towards a bigger state Some of the doubts over Chile’s political system have eased after the Constitutional Convention completed a draft of the new charter. But political risks remain high for now, which may keep the Chilean peso on the …
20th May 2022
Q1 contraction and headwinds building The 0.8% q/q contraction in Chile’s GDP in Q1 suggests the economy is coming back down to earth after a stellar 2021, and there is a growing chance of a recession this year. Meanwhile, the current account deficit …
18th May 2022
The solid 1.0% q/q rise in Colombia’s GDP in Q1 suggests the economy came through the Omicron virus wave in good shape and, given the recent surge in oil prices, we expect above-consensus growth of 6.0% this year. That said, a possible victory for …
17th May 2022
Banxico gearing up for more aggressive moves? The hawkish tilt by Mexico’s central bank at its meeting yesterday, when it raised its policy rate by 50bp (to 7.00%), suggests Banxico may soon shift its tightening cycle into a higher gear. The decision to …
13th May 2022
Brazil’s central bank has undertaken the most aggressive tightening cycle of any major economy over the past year, but there has been surprisingly little impact on bank lending. And while we do expect credit growth to weaken, we doubt that it will …
12th May 2022
Inflation hits highest rate since 2003 The jump in Brazilian inflation to 12.1% y/y in April was driven by a broad based increase in price pressures and supports our view that the central bank’s tightening cycle has further to run. We still expect an …
11th May 2022
