LatAm Weekly – March 15

Brazil—COPOM: new BCB President, same tone The central bank of Brazil (BCB) will most likely leave the selic rate unchanged at 6.50% in the COPOM of March 20th. In addition to our view, all analysts surveyed by Bloomberg forecast the selic at 6.50%. Instead of the rate decision, the market will focus squarely on the tone of the communique. The tone of the communique will be important given that it will be the first meeting with the participation of Roberto Campos Neto , as BCB’s president, Bruno Fernandes and Joao M Pinho de Mello both as new board members . Given that the BCB does not currently have to make a hard decision, the tone of the communicate will resemble the prior tone which signaled that risks to inflation were asymmetric and tilted towards higher inflation. Brazil – Inflation higher than expected but remains below 4.0% YoY IPCA for February came out at 0.43% MoM versus Bloomberg consensus of 0.38% MoM. The annual figure remains low at 3.89% YoY Argentina – The New Measures Announced could Lower Inflation Authorities are doing the right thing in response to the high inflation of recent months. The announced measures are hard-core orthodox: implementing even tighter monetary policy, legally preventing the central bank from financing the treasury (which IMF had previously asked for) and intervention into foreign exchange market. Indeed, the policies are consistent with what other countries have done to reduce inflation. However, it remains unclear whether inflation moderate both enough and in-time to assist in President Macri’s October reelection. Further, there are salary negotiations in Q2, potentially complicating the downward path of inflation. Argentina—February Inflation Surprises on the high side for Second Consecutive Month CPI for February came out at 3.8% MoM, (51.3% YoY) which was above the Bloomberg consensus of 3.6% MoM. This is the second month in row that inflation was higher than market expectations. Mexico – The Contradicting Signals of the Dos Bocas Refinery Last week, the FT published a note where Deputy Finance Minister Arturo Herrera, a senior administration official, said that the Dos Bocas refinery had been delayed. In addition, Herrera said that the USD2.5bn intended for the refinery will instead be used as additional financial support for Pemex . Merely hours after the FT report was published, AMLO delivered a complete contradiction of Mr. Herrera.