LatAm: The Week that Passed

Mexico –Inflation is now within the targeted interval Biweekly inflation f or February was 3.89% YoY—which is below the Bloomberg survey of expectations of 4.04%. Finally, annual inflation is within the 2-4% target band—which is remarkably the first time since December 2016. Given the slowing inflation, we now expect 75bps in cuts by year-end (this is revised from our earlier 50bps of cuts projection). Further, we have moved our cutting expectations forward from Q4 to late Q3. Mexico – Minutes are between neutral and marginally hawkish Despite the expectation of lower growth, the board does not believe inflation pressures will concurrently decrease. In fact, the board is worried about the stickiness of inflation. In our view, Banxico will turn dovish when inflation decreases. Peru – Strong growth with contained inflation Q4 2018 GDP growth came to 4.8% YoY. While this was in line with the market consensus it is a remarkable growth rate compared to the average of the past three quarters (3.6%). The 2018 annual GDP growth came to 3.9% YoY. Peru is among the fastest growing economies in the region. Despite the acceleration of GDP growth, inflation pressures have been contained. CPI has been around the 2% YoY target since September 2018. Brazil – Q&A on long awaited Pension Reform Proposal The proposal is expected to generate BRL1.16trn in 10 years. If congress does not dilute the bill too much, it will be enough to stabilize debt to GDP in the coming years. In the most optimistic scenario, approval in the House could come in late May but most likely in June or August. The Senate will take an additional three months, to complete their approval. Therefore, the approval process will not be completed until mid Q4 2019. The USDBR will appreci ate to approximately 3.5. Assuming a 70% probability of reform (latest XP survey), the USDBRL increasing to 4.2—in a scenario of no-approval and also that the current USDBRL level is the expected value of the approval and non-approval game, equating to a USDBRL of 3.5.