LatAm Weekly – October 7-11

We are ending our LatAm Weekly publication. From now on, we will focus on ad-hoc thematic pieces with no pre-determined publication date. Please look for these pieces in addition to our LatAm views in both Global Forex Monitor Monthly and in our quarterly Emerging Monitor publication. Peru – C’mon BCRP give us the rates cuts! Yesterday, October 10th, the central bank of Peru (BCRP) kept its policy rate unchanged at 2.50%. The Bloomberg consensus projected 2.38%. We were forecasting a cut previously and continue to expect as much in the coming months. In fact, we now believe that the growth impact of the political crisis will push the BCRP to lower the policy rate below 2.0%. Indeed, we assign a large probability of the BCRP lowering its policy rate in the future given the dovishness of the communique. For instance, the BCRP specifically highlights the possibility of decelerating domestic demand and while noting that inflation could decrease below its target. As it stands currently, inflation is right at the 2.0% target with well anchored expectations. Chile –What inflation? CPI for September came out, below market-expectations (2.4%), at 2.1% YoY beginning to encroach on the lower bound of the target band (2 - 4% YoY). But this is just the beginning of the story. The component of non-tradable goods, which has been around 3.00% for the past months, dropped to 2.6% YoY printing the lowest rate of change since 2010. This news is of particular importance as it speaks to the lack of demand-driven inflation, especially if October inflation confirms the trend. Tradable goods inflation continues to expand at around 1.70% YoY. Fresh fruits and vegetables posted deflationary figures (-1.47% YoY) while core inflation remains at around 2.3% YoY for the second straight month.