LatAm Weekly – September 9-13

Argentina – CPI inflation rebounds following FX depreciation While, inflation had been trading lower since March, all expectations pointed to a bump in inflation following the 25% ARS depreciation. The ARS depreciation was the natural byproduct of the surprise August 11th primary election results . We estimate the FX pass-through effect at approximately 0.6. Inflation for the month of August recorded a 4.00% MoM growth relative to a 4.4 0 % market expectation according to Bloomberg. Despite missing on the downside, this was nonetheless above July's 2.2%. Annual inflation now stands at 54.5% YoY . As a result of the fluid economic and political situation, we are now forecasting December 2019 inflation to fall between 50% and 55% YoY (versus our previous forecast of 35% YoY) and between 40% and 45% YoY for December 2020 (versus our previous forecast of 15% YoY). Colombia – Budget proposal provides several unanswered questions The 2020 Colombian budget was approved in the commissions on Wednesday, September 11th. Amongst many, one confusing aspect was the announcement that the government would tap the market for COP$47.6 trillion (4.4% of GDP). However, the government clarified in a separate communication that the net debt issuance would amount to COP$19.2 trillion and that COP$28.4 trillion would be part of a “roll-over” or liability-management operation. Mexico – Pemex’s debt liability management Pemex’s lower short-term financing needs moderately reduce its financial vulnerability. However, its core weaknesses and misguided policy-mandate remain very much intact. As a result Pemex, and thus the sovereign, are still susceptible to large shocks (e.g., a collapse in global growth , a failure to increase oil production, etc.). Mexico – Banxico will cut 25bp (but 50bp is a possibility too) On September 26, Banxico will again lower its policy rate (currently at 8.0%) following the start of its August 15th cutting cycle. The key question currently is if Banxico will accelerate the pace of its cuts (to 50bps per meeting), or if it will continue with its current 25bp pace. Mexico – 2020 b udget could have been better The 2020 budget signals overall prudence on the part of the government. However, there are some worrisome aspects. The government is projecting a pick-up in oil production that might be infeasible. The government forecasts an increase in oil production to 1.95 million barrels per day from the 1.72 mbpd in 2019. Yet, the 2020 GDP growth forecast of 1.5 - 2.5% YoY seems realistic. A bit higher than the consensus of Banxico’s survey at 1.4% YoY, it is still in line with our 2020 GDP forecast at 1.9% YoY. Overall, this budget gets a “B” grade.