LatAm Weekly – June 24-28 (2/2)

Mexico – Banxico is preparing to cut in August or September The central bank of Mexico ( Banxico ) left its policy rate unchanged at 8.25% as was widely expected by the market and us. However, the communique was surprisingly dovish. The report was so dovish in fact that we now expect Banxico to start easing in August or September instead of in September/November as we expected before. Colombia – Why BanRep will cut its policy rate, resume buying reserves We recently changed our outlook for Colombian monetary policy. We are now forecasting that the policy rate will be cut by 25bps in 2019 to 4.00% in late Q3 and will remain at 4.00% throughout 2020. There are three reasons substantiating this view. Further, expect BanRep to resume its put-program to buy reserves soon. Board member Jose A. Ocampo, who is one of the board’s most influential voices this week said that he believes the put-program did not harm the COP. This is key because BanRep suspended the program on 31st May following a marked depreciation of the COP. Ocampo is still certain that the program did not factor into the COP’s weakness. Since October 2018, BanRep has accumulated US$4bn in reserves. Coupled with Colombia’s needs to accumulate an additional US$7bn to replace the IMF’s US$ 11bn Flexible Credit Line, this means that BanRep will likely resume its put-program shortly, in our view.