LatAm: The Week that Passed

Brazil - Taylor rule projects 6.50% for the next eight quarters The minutes detail an important discussion about the impact that the reforms (such as the pension and fiscal reform and proposals to open the economy) may have on th e neutral rate. If the pension and other reforms are passed, we forecast the selic rate to be 6.50% in the next 8 quarters. Brazil - Globo reports that President Bolsonaro will present a Pension Reform proposal on February 20 th According to Globo News, the Pension Reform Proposal will be presented to congress on Wednesday, February 20 th . Any savings around BRL 1trn would be a big adjustment in the fiscal accounts—enough to keep the spending Cap in place in the next years. Mexico – Government support of Pemex is insufficient President Andres Manuel Lopez Obrador (AMLO), and Finance Minister Carlos Urzua announced that the federal government will transfer to Pemex, the state-owned oil company, US$5.2bn. Our view is that these measures will be insufficient in increasing the production of Pemex, since the company needs approximately US$30bn annually. However, the government’s support will likely allow for Pemex to avoid issuing new net debt during 2019. The contamination to the fiscal account will be small and in the medium-term. Mexico - How bad was December IP? Well, we recently lowered our 2019 GDP forecast to 1.5%YoY Industrial Pr oduction (IP) for December contracted by 2.5%YoY (0.4%MoM SA). Three out of the four components fell in annual ized terms . Argentina - Inflation is higher than expected due to a regulated price hike…but the trend still points to a gradual decrease Inflation in January increased by 2.90%MoM . I n annual terms , inflation came out at 49.30% YoY , above December’s 47.10%. Still, with USDARS stable, a massive negative output gap, and the fiscal consolidation, annual inflation will likely decrease to around 25%YoY by December 2019. Chile - The Red Report – Minutes are somewhere between Neutral and Dovish on the margin…but most of all, they highlight BCCh’s flexibility We maintain our view that the BCCH will increase its policy rat e to 3.50% by December 2019 but will only reach 3.75% for Dec ember 2020 (as opposed to 4.25% which was our previous forecast) given that we expect a slowdown in the global economy.