LatAm Weekly – April 18

Argentina – High March Inflation Prompts New Measures March inflation came out higher than expected. It was the second consecutive month with inflation above 50%. Further, inflation appears to have accelerated. Finance Minister Nicolas Dujovne and the Central Bank of Argentina’s (BCRA) Guido Sandleris announced, in response to the inflation numbers, a series of measures (more on this later). In our view, authorities are responding to polls which indicate that voters are both worried and disappointed about the state of the economy, thus reducing the chances of reelection for President Mauricio Macri in October. The measures taken by the BCRA include the FX band remaining constant, and the BCRA will not buy dollars if the ARS were to appreciate to the bottom of the range. Also, the BCRA will attempt to reduce the spread between CDs rate and the Leliq to improve the channel of higher rates to savers. Meanwhile, the federal government introduced a series of different measures, without abandoning its primary fiscal balance target of 0% of GDP. These measures include halting any hikes of regulated prices, extending credit, and reaching an agreement with food producers on freezing the prices of certain foods. Peru – With a Strong economy, BCRP to hike 25bps in the Remainder of the Year Inflation has edged higher as of late but remains close to 2.0% YoY, while core inflation is creeping up to 2.5% YoY. However, inflation expectations for December 2019 and December 2020 are firmly anchored at 2.20% and 2.30% respectively. The central bank of Peru (BCRP) has kept its policy rate unchanged at 2.75% since March of 2018. Currently, the monetary policy stance is expansionary with the real rate running at 0.4%, which is below the neutral rate of 1.75%. We expect the BCRP to hold at 2.75% during H1 2019, but in fact to increase it by 25bps in the second half to 3.00% and to then hike another 25bps in 2020 to 3.25%. Brazil – Pension Reform Discussion and Approval are Delayed Opposition to the pension reform is gaining traction in congress. This was mostly expected. Yet, the market is becoming increasingly nervous about the delays. The vote in the Constitutional and Justice committee of the Lower House was supposed to take place during the week of April 15 – 19, but congress pushed it back to the following week. Additionally, there are signs that congress will dilute the reform when discussed in the Special committee in June or July.