LatAm Weekly – March 22

Mexico – “It’s” not “the economy, stupid” It’s inflation! On March 28th, the central bank of Mexico ( Banxico ) will leave the policy rate unchanged at 8.25%, will present a neutral-to-dovish rhetorical approach marginally opening the window for rate cuts. Inflation is the main driver of monetary policy, not growth. Brazil – Expect 6.50% Throughout 2020, minutes to shed more light The COPOM minutes for the March 20 meeting will be published on March 26 and will shed more light about the direction of the BCB. The market is currently pricing in the start of a hiking cycle in Q1 2020 and for the BCB to increase the selic rate by 175bps to 8. 25 % by the end of 2020. The expectation of financial market agents is off-the-mark. In fact, as a result of a confluence of factors, the BCB will likely ensure that the policy rate remains unchanged at 6.50% throughout 2020, in our view. Argentina – IMF: Reading Between the Lines and all eyes on January growth indicators In the week of March 25-29 the market will focus squarely at the release of retail sales indicators (Shop Center and Supermarket sales) and the economic activity index for January. These will be among the first metrics signaling domestic demand and growth for 2019. It is now known that the visit from Finance Minister Dujovne opened the door for authorities to use US$9.6bn for foreign exchange market intervention. But what was it that the IMF asked for in return? Chile – Strong Economy, Low Inflation, No Hikes in 2019 On March 29th, the central bank of Chile ( BCCh ) will likely leave the monetary policy rate unchanged at 3.0%. Look for the communique to highlight concerns of global growth deceleration . Colombia – BanRep : One or None in 2019 The central bank of Colombia ( BanRep ) left its policy rate unchanged at 4.25% citing lower inflation pressures, risks to global growth and still a negative output gap. W e cannot rule out hikes with certainty because of the current account deficit running at -3.8% of GDP, which is oversized given the negative output gap. For this reason, we continue to forecast one hike of 25bps in 2019 to 4.50% by yearend, and one additional hike in 2020, to 4.75%.