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The unanimous decision by Banxico’s Board to keep its policy rate at 4.00% is a clear signal that its easing cycle is done and dusted. While this indicates a cautious shift at the central bank, we think that investors have gone too far in expecting that a …
26th March 2021
Inflation starts to surge The surge in Brazilian inflation to 5.5% y/y in the middle of March – its highest rate in over four years – has further to run and the headline rate looks set to reach 7.5% y/y in Q2. That will result in further interest rate …
25th March 2021
Above-target inflation spells end of Banxico’s easing cycle The continued rise in Mexican inflation to 4.1% y/y over the first half of March, above the central bank’s 2-4% target range, will almost certainly put an end to Banxico’s easing cycle. We think …
24th March 2021
Colombia: investment grade rating in the balance A tax reform bill in Colombia, that will be sent to Congress next week, has slipped under the radar but this legislation could have a major bearing on the country’s sovereign investment grade rating. This …
19th March 2021
Latin America’s shining light The 6.8% q/q rise in Chile’s GDP in Q4 shows the economy headed into 2021 with significant momentum. And the outlook is bright given the country’s swift vaccine progress. As a result, we are revising up our 2021 GDP growth …
18th March 2021
The Brazilian central bank’s 75bp hike in the Selic rate (to 2.75%) and hawkish statement point to a front-loaded tightening cycle in the coming months. We now expect a further 200bp of hikes (to 4.75%) over the next three meetings. But we think the cycle …
Brazil’s fiscal discipline wavering Events over the past week have raised fresh concerns that Brazil’s public debt will be put on an unsustainable path, suggesting that sovereign bond yields could rise further. Yesterday, Brazil’s congress approved a …
12th March 2021
Industry to be a drag on GDP in Q1 The small 0.2% m/m rise in Mexican industrial production in January masks a concerning 0.5% m/m fall in manufacturing output. The sector will have also fared poorly in February following the disruption caused by power …
The Colombian government’s shift away from its austere fiscal stance will lead to higher public debt and, more likely than not, a loss of its sovereign investment grade rating. But, from an economic perspective, this is probably a price worth paying to …
11th March 2021
Inflation jump seals the deal on a rate hike next week The jump in Brazilian inflation to a stronger-than-expected 5.2% last month makes it almost certain that Copom will begin a tightening cycle next week. While we’ve pencilled in a 50bp rate hike (to …
Rising inflation signalling end to Banxico’s easing cycle The further rise in Mexico’s headline inflation, to 3.8% y/y in February, was largely driven by higher fuel prices. This trend has further to run in the coming months which, alongside the recent …
9th March 2021
The annulment of left-wing former President Lula’s criminal convictions has significantly increased the likelihood of a looser fiscal stance, which could put Brazil’s public debt back onto an unsustainable path. The central bank is more likely to hike …
Amlo’s electricity roll-back a warning sign The Mexican government’s bill to partly reverse reforms encouraging private participation in the electricity sector threatens to open up a Pandora’s box of legal wrangling and will further damage the prospects …
5th March 2021
Signs of a slowdown The 0.4% m/m rise in Brazilian industrial production in January, down from 0.8% m/m in December, confirms that momentum in the sector is easing. Moreover, with services sector being harder hit by the second wave of COVID-19 this year, …
Strong H2 2020 recovery, but slowing in 2021 The larger-than-expected 3.2% q/q rise in Brazilian GDP in Q4 confirms that the economy had one of the better performances in Latin America last year. But there is strong evidence to suggest that the recovery …
3rd March 2021
The growing strains in Brazil’s health system caused by the latest COVID-19 outbreak are likely to result in a further tightening of containment measures in the coming days, hitting the economic recovery. Pressure for more fiscal support is likely to …
2nd March 2021
Banxico: slim chance of additional easing Mexico has been one of the hardest hit EMs during the recent rout in global bond markets. The 10-year local currency government bond yield has jumped by almost 60bp to 6.30% this week. Meanwhile, the peso has …
26th February 2021
The tide is turning towards populist policymaking in Latin America once again. Most notably, Brazilian President Bolsonaro’s move to fire Petrobras’ CEO , Roberto Castello Branco, may be a prelude to greater state intervention in the economy ahead of the …
25th February 2021
Rising inflation probably won’t push Copom to hike … yet The rise in Brazilian inflation, to 4.6% y/y, in the middle of this month shifts the balance a bit further an interest rate hike at the next Copom meeting in March, but there are reasons to think …
24th February 2021
The strong Q4 GDP data for Peru suggests that the economy was heading into 2021 with significant momentum. And while there are growing downside risks from rising COVID-19 cases and a politically contentious vaccine programme, we’re still more upbeat than …
23rd February 2021
The Brazilian president’s decision to sack the Petrobras CEO last Friday points to greater government intervention in the economy and could be a prelude to a looser fiscal stance too. This suggests that the country’s financial markets are likely to remain …
22nd February 2021
Tex-Mex blackouts hits industry The energy crisis in Texas has had a major knock-on effect on Mexico, although the economy should be able to make up some lost ground. Natural gas is used to generate about 60% of Mexico’s electricity supply and the country …
19th February 2021
It’s unlikely that Colombia’s government will achieve its lofty fiscal targets over the coming years, which may prompt a loss of its investment grade rating – an outcome that is not fully priced into financial markets. But a bigger concern from an …
18th February 2021
The discussion in Brazil around extending emergency fiscal support reinforces our view that the government will ultimately cast aside the spending cap. That could put the public debt trajectory onto an unsustainable upwards path and, were that to happen, …
17th February 2021
Strong Q4 to be followed by Q1 stumble The robust 6.0% q/q rise in Colombia’s GDP in Q4 marks a solid end to 2020, but the recovery will slow sharply in Q1 due to the tightening of restrictions. The outturn was in line with our forecast, but below the …
15th February 2021
Brazil’s central bank gains independence The Brazilian Chamber of Deputies’ approval of a bill to grant the central bank (BCB) formal independence this week could, over the longer term, help to reduce inflation and lower longer-term bond yields. (For more …
12th February 2021
The unanimous decision by Banxico’s Board to cut its policy rate by 25bp, to 4.00%, suggests that policymakers are more dovish than we had thought. But the initial market reaction – significantly more monetary easing has been priced in – looks overdone. …
Chile is motoring ahead in Latin America’s vaccine race and it may be on course to start lifting stringent lockdown measures by mid-Q2. Other countries may follow suit in Q3, which feeds into our above-consensus GDP growth forecasts for most economies in …
11th February 2021
Renewed weakness supports case for additional rate cut The small 0.1% m/m rise in Mexico’s industrial production in December confirms that the economy lost significant momentum at the end of last year. The renewed economic weakness may help to convince …
Rising inflation makes rate cut in Mexico less likely The rise in Mexican inflation in January makes Thursday’s interest rate decision a close call, although we still think a 25bp rate cut is more likely than not. Meanwhile, the further increase in …
9th February 2021
Ecuador’s new president must talk a good game Sovereign debt risks in Ecuador will remain high regardless of Sunday’s election result and we think that another debt restructuring is likely in the medium term. But for those with strong stomachs, there …
5th February 2021
The latest high-frequency and survey data suggest that the region’s economic recovery slowed in January, with Colombia seemingly faring worst. That said, the early signs are that the economic fallout from second waves of the virus hasn’t been as bad as …
4th February 2021
There seems to be little appetite for harsh IMF-mandated fiscal austerity among the leading candidates in Ecuador’s presidential election this week. The public finances will therefore remain in dire straits, and sovereign default risks will stay high, …
2nd February 2021
Industrial recovery strong in late 2020 but headwinds building The robust 0.9% m/m rise in Brazil’s industrial production caps off a strong recovery in the sector over the second half of 2020. But the unwinding of fiscal stimulus and the rampant second …
Brazil’s hawks looking at the labour market One takeaway from the minutes to this month’s Brazilian central bank meeting is that the hawkish contingent on Copom is larger and more vocal than had been anticipated. But there are reasons to think their views …
29th January 2021
A robust Q4 but recovery to halt in Q1 The solid 3.1% q/q rise in Mexico’s GDP in Q4 meant that the economy had recouped over 70% of its losses from the first half of 2020. However, the recent surge in new COVID-19 cases will cause the recovery to grind …
The surge in COVID-19 cases and tightening of containment measures across most of the region are likely to bring the economic recovery in Latin America to a standstill in Q1. High-frequency mobility indicators have stayed well below their pre-Christmas …
28th January 2021
Overview – While vaccines offer Latin America a route out of the crisis, lingering public debt issues will hold back the regional recovery and raise the risk of long-lasting economic scarring. As a result, after a sharp 6.9% drop in 2020, we expect a …
26th January 2021
Inflation set to jump in Q2 The above-target Brazilian mid-month inflation reading for January, of 4.3% y/y, is likely to be followed by a jump in the headline rate in the coming months, keeping Copom in hawkish mood. But while Brazil’s central bank will …
Ecuador: another default on the cards? Comments from left-wing Ecuadorian presidential candidate, Andrés Arauz, caused ructions in the bond market this week and reinforce our view that another debt restructuring may be on the cards. It’s still unclear who …
22nd January 2021
Soft inflation to allow one final rate cut The small rise in Mexican inflation, to 3.3% y/y over the first half of January, was largely driven by higher fuel prices and is unlikely to be a major concern for the central bank. We continue to expect one …
The Brazilian central bank’s decision to remove its forward guidance at last night’s meeting indicates that Copom is preparing the ground to raise interest rates. But we doubt that policymakers will deliver the aggressive tightening cycle that most …
21st January 2021
Brazil was Latin America’s economic outperformer last year, but the outlook for this year is increasingly challenging and we expect that the economy will fall behind its regional peers in the coming quarters. We now think that GDP will expand by 3.0% over …
20th January 2021
Brazil’s near-term prospects take a hit The Brazilian government’s announcement that it will (finally) begin vaccinations on 20 th January couldn’t come any sooner. The country’s COVID-19 outbreak has continued to worsen and the discovery of a new variant …
15th January 2021
We think that the Mexican central bank’s (Banxico’s) reaction function will gradually tilt towards tolerating higher inflation. As a result, we think that interest rates in Mexico will stay low for several years, perhaps until 2024, while most analysts …
14th January 2021
Food inflation peaking, but inflation to stay above target for most of 2021 The larger-than-expected rise in Brazilian inflation, to 4.5% y/y last month, coupled with the prospect of above-target inflation for much of 2021, will prompt an increasingly …
12th January 2021
Solid industrial sector likely to be resilient The solid 1.1% m/m rise in Mexican industrial output in November, coupled with more timely auto production data, suggests that the sector added around 1.5%-pts to q/q GDP growth in Q4. Moreover, we suspect …
11th January 2021
Positive news on vaccines… There is a glimmer of hope for economies across Latin America as vaccines are being rolled and procurement is stepping up. Currently Mexico, Chile, Costa Rica and Argentina are leading the region’s vaccine race. All four started …
8th January 2021
Industrial recovery strong in late 2020 but headwinds building The solid 1.2% m/m rise in Brazilian industrial production in November, coupled with strong surveys for December, suggests that the sector may have added some 0.5-0.6%-pts to q/q GDP growth in …
The pandemic has created fertile ground for populists to win presidential elections in Ecuador, Chile and Peru this year. That would have the biggest adverse market reaction in the former, and could lead to medium-term concerns about policymaking in the …
7th January 2021
