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Copom: symmetric risks, no rush to act

March 21, 2019

The committee now sees the balance of risks to inflation as symmetric

Talk of the Day
 

Brazil

The Copom has decided to keep the Selic rate unchanged at 6.5% pa, as widely expected, in an unanimous vote. Importantly, despite the lingering uncertainties regarding the continuity of reforms, the committee now sees the balance of risks to inflation as symmetric, conceding that recent indicators point to a slower-than-expected pace of economic recovery, but that an assessment of that behavior will require time. In particular, the committee signaled that such an assessment will not be completed in the short term, as it requires more observations on the economy’s evolution under lower uncertainty and free of the effects of the various shocks to which it was submitted last year. We will learn more about the authorities’ thinking with the release of the Copom minutes on Tuesday, March 26, at 08:00 AM Brasília time.
** Full story
here.

The government presented its proposal for the military pension reform yesterday, with an estimated BRL 10.45 bn in savings over the next ten years, if approved. This proposal falls short of the initially-expected BRL 92 bn savings (when the constitutional amendment proposal was sent to Congress last month), but is better than the BRL 10 bn net expenditure that was ventilated during last week. If approved, the proposed rules changes to their pension regime will generate an expected BRL 97.3 bn in savings over the next ten years. However, these changes would be accompanied by a restructuring of the military careers, which would cost BRL 86.85 bn over the same ten-year period. 

Colombia

The large trade deficit at the start of 2019 came in line with expectations. The USD 1.0 billion deficit was the thirteenth consecutive monthly trade deficit and was wider than the USD 386 million deficit one year ago, even though imports slowed down. Meanwhile, low oil prices continued to hamper exports. Overall, the 12-month rolling trade deficit came in at USD 7.8 billion, from USD 7.1 billion in 2018 and USD 6.1 billion in 2017. At the margin, the annualized trade deficit (using our seasonal adjustment) is even wider and increased slightly from USD 10.0 billion in 4Q18 (USD 5.2 billion in 3Q18) to USD 10.4 billion in rolling-quarter, as coal and oil exports decelerate sharply. We see the 2019 current account deficit near 4.0% of GDP, up from the 3.8% registered last year. A wide-current account deficit as well as a still large fiscal deficit mean risks are tilted towards some weakening of the Colombian peso if financing conditions turn more challenging.
** Full story
here.

Uruguay

Macro Scenario: The consolidated fiscal deficit accumulated in the last twelve months to January remained at 2.9% of GDP, compared with YE18 (revised upward by 0.2%). The adjustment leads us to revise our YE19 fiscal-deficit forecast for this year to 3.1% of GDP, from 2.9% in our previous scenario. Inflation remains above the target range (3%-7%), driven by food prices and seasonal price increases. Our YE19 inflation forecast stands at 7.5%. GDP growth would likely slow in 2019, to 1%, from an estimated 1.9% in 2018, due to lower consumption in Uruguay and sluggish growth in Argentina.
** Full story
here.

Paraguay

Macro Scenario: According to the BCP’s official monthly GDP proxy, economic activity grew by 3.7% in 2018, below our 4% expectation. Lower expected growth in Argentina and the drought in Paraguay led us to reduce our YE19 growth forecast to 3.5%, down from 4% previously. The central bank cut the monetary-policy rate by 25 bps due to the activity slowdown and low inflation. We believe the monetary easing cycle will likely continue, with another rate cut of the same magnitude in the short term. We see the monetary policy rate at 4.75% by the end of 2019.
** Full story
here.

Argentina

Day Ahead: The GDP figures for 4Q18 will see the light at 4:00 PM. We expect a 6.4% yoy drop, in line with the official monthly GDP proxy (EMAE). If this figure is correct, the GDP fell 2.6% yoy in 2018. At the same time, the INDEC will publish the labor market indicators for 4Q18. We foresee the 2018 average unemployment rate at 9%.

Mexico

Day Ahead: At 11:00 AM, the statistics institute (INEGI) will publish 4Q18’s aggregate supply whose growth we estimate at 1.9% yoy (from 3.6% in the 3Q18).



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