LatAm Weekly – May 10

Chile - Trip Notes From May 7th - 9th, we met with government officials, local market players including pension-funds, banks, brokers and funds. These are our takeaways from the trip. 1 - On Growth On the trip, there was widespread acceptance of lower growth expectations for 2019. Even the most optimistic believe that the 2019 GDP growth rate will likely be between 3.0% - 3.5% rather than the expectation of 3.5% - 4.0% from late last year. There are even some locals that believe a slowdown to 2.5% YoY is possible. 2 - On the Monetary Policy Rate Beyond the policy rate decision—which was announced during our time in Santiago—local players expect that the BCCh will lower its estimation of the neutral rate in the June Monetary Policy Report (IPOM). One local contact put it this way: “the question is not if the BCCh will lower its estimation of neutrality, the question is by how much.” 3 - On the Reform Agenda The views of local players regarding the passage of reforms, ranged from marginally disappointed—(“we knew it was going to be hard for President Piñera to convince congress, where the government lacks majority, to approve any reform but the government will work to ‘put the house in order’ and that would be positive enough for the economy”)—to completely disappointed—(“the government over promised and it will under deliver”). Brazil - COPOM Signals Economic Weakness As expected by both Natixis and the wider market, the Central Bank of Brazil (BCB) left the policy rate unchanged at 6.50%. In fact, the recent communication by the BCB reinforces our view of rate stability at 6.50% through 2020. The main takeaway of the press release comes from the BCB’s recognition that economic activity is weakening. In fact, we recently lowered our 2019 GDP growth forecast to 1.6% YoY from 2.2%. This was our second downward revision in the year. Our initial forecast was 2.5% YoY.