Itaú BBA - Evening Edition – BCB acknowledges a weaker economy, but signals no imminent reaction

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Evening Edition – BCB acknowledges a weaker economy, but signals no imminent reaction

May 8, 2019

We’ll learn more about their thinking with the release of the minutes on Tuesday, May 14 at 08:00 AM

Talk of the Day
 

Brazil

The Copom left the Selic rate unchanged, at 6.5% pa, in a widely anticipated decision. Changes in the policy statement suggest that the authorities are (rightly in our view) less sanguine on the state of the recovery. While still stressing the need to wait for more clarity on the reform front, the authorities seem to be inclined to reassess the adequacy of the stimulus its current stance injects in the economy, in case activity fails to strengthen in the coming months. We’ll learn more about their thinking with the release of the minutes on Tuesday, May 14 at 08:00 AM.
 

Tomorrow’s Agenda: March’s retail sales (PMC) will be released at 9:00 AM. We forecast a 1.1% mom/sa increase in core retail sales and a 1.2% gain in the broad segment, leading the year-over-year rate to -2.8% and -3.5%, respectively.

Chile

April’s inflation came in line with expectations (0.3% MoM, the same rate as April 2018), resulting in a stable annual variation at 2% and affirming that inflationary pressures remain contained. Food and the transportation divisions led inflationary pressures in the month. Meanwhile, the core measure (excluding food and energy prices) posted a 0.1% MoM increase (below the 0.2% recorded last year), resulting in the annual variation ticking down 0.1pp to 1.9%. With headline and core inflation broadly stable and far below the central bank’s 3% target, sluggish activity at the start of the year (leading to a widening of the output gap) and external risks elevated, we expect the policy rate to be kept at 3% at tomorrow’s monetary policy meeting. Stable rates ahead is also likely to remain the key message. As domestic demand consolidates and tradable inflation normalizes, we expect inflation to gradually move towards the 3% target. The expectation of higher-than-anticipated tariff adjustments to electricity prices (between May and June) and elevated global oil prices that could result in gasoline inflationary pressures extending for longer, have made us revise our yearend forecast to 2.8% (from 2.6% previously).

Tomorrow’s Agenda: The central bank will announce its monetary policy rate decision at 7:00 PM. Inflation hovered near 2% in April, far below the central bank’s 3% target, while activity has been sluggish in the first quarter of the year and risks from abroad persist. Hence, we see no reason for the board to alter its stance of stable rates, and once more not consider any other option this month.

Mexico

Tomorrow’s Agenda: At 10:00 AM, INEGI will publish CPI inflation corresponding to the full-month of April, which we expect to come in at 0.06% mom (from -0.34% a year ago). Assuming our forecast is correct, headline CPI would accelerate to 4.42% yoy (from 4.00% in March).

Peru

Tomorrow’s Agenda: At 8:00 PM, the Central Bank of Peru (BCRP) will publish its April decision on the reference rate, which we expect to remain unchanged at 2.75%. We think the central bank can afford to wait before removing its stimulus (given well-behaved inflation and recent softness in economic activity) and have more clarity on the economic outlook.



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