LatAm Weekly – June 17-21 (1/2)

LatAm’s Economic Lethargy In this note, we examine the growth dynamics in Brazil and Mexico—the two biggest economies in the region. Brazil – BCB will open the door for imminent rate cuts, but they are linked to the passage of the pension-reform Today at 5pm EST, the central bank of Brazil (BCB) will hold its monetary policy rate meeting. It will be the third meeting of newly appointed Roberto Campos Neto . Our expectation is that the BCB will leave its Selic rate unchanged at 6.50%. However, we assign a 70% probability to the BCB sending a markedly dovish signal opening the door for rate cuts. In this case, the BCB will likely tether this action to the lower house passing the pension reform. Colombia – Medium-Term Fiscal Outlook remains unchanged In the recently released Medium-Term Fiscal Outlook, the government decided to maintain the fiscal deficit target for 2019 and 2020 at 2.4% of GDP and 2.2% unchanged. The government argued that it is important to send a strong message of fiscal discipline to financial markets. Peru – The policy rate remains unchanged Last week, the central bank of Peru (BCRP) left its policy rate unchanged at 2.75%, in line with the market’s and our expectation. The BCRP did not signal any possible cutting in the short-term. However, the press release does reflect that the BCRP may be concerned with the economic deceleration. We now forecast the policy rate to remain constant at 2.75% through 2020.