Argentina’s central bank left its benchmark interest rate unchanged, at 27.25%.
Talk of the Day
Argentina’s central bank left its benchmark interest rate (7-day repo rate) unchanged, at 27.25%, for the second consecutive time at its second monetary policy meeting in February. The decision was in line with our call and the rest of the market (32 analysts surveyed by Bloomberg did not expect changes in the policy rate). In the press release accompanying the monetary policy decision, the central bank noted that, according to its high-frequency indicators, core inflation in February will be higher than those registered in January and in 4Q17 (1.5% and 1.4% mom, respectively). Private estimates for headline inflation stand around 2.5% mom, reflecting the impact of recent adjustments in regulated prices. Indec (the official statistical bureau) will publish the figure on March 14. Last-12-month inflation stands at 25%, while the core reading is at 21.1%. **Full Story here.
We note that the tone of the press release was more conservative than the previous one. The monetary authority has indicated that there is no room to ease the monetary policy currently. In particular, the central bank stated that it will act with extreme caution and will wait for disinflation signals before easing further the monetary policy rate. Given the expectation of high readings for the upcoming CPI data, and also because a new round of regulated price increases is scheduled for April, we expect the central bank to stay with the status quo in its next policy decisions. ** Full Story here.
Day Ahead: INDEC will publish several indicators at 4:00 PM (SP Time). The most relevant is the EMAE (official monthly GDP proxy) for December 2017. We expect activity to grow 2.2% year-over-year (consensus: 2.6%) after gaining 3.9% in November. Also, manufacturing and construction data for January will see the light. According to the IPI (a private index released by OJF consulting firm), manufacturing rose 2.8% year over year in January, while construction activity continued performing well according to private indicators.
New non-earmarked loans decline in January. The daily average of new non-earmarked loans fell 6.2% mom/sa in real terms, after soaring 6.8% in December. Meanwhile, new earmarked loans declined 2.5% mom/sa. The performance of the daily average of new non-earmarked loans was driven by declines of 11.2% in loans for non-financial corporations and 2.0% for households, adjusted for inflation and seasonality. In the earmarked segment, new loans dropped 13.1% for non-financial corporations, but expanded 6.4% for households. Overall seasonally-adjusted delinquency went up 0.1 p.p. in January to 3.4%. Seasonally-adjusted delinquency in non-earmarked loans increased 0.2 p.p. to 4.9% among non-financial corporations and was virtually unchanged among households, at 5.2%. As for earmarked credit, delinquency was stable at 1.3% among non-financial corporations a nd rose to 2.2% from 1.8% among households. ** Full Story here.
The central government posted a BRL 31.1 billion primary surplus in January, much better than market expectations (BRL 24.3 billion) and slightly better than our call (BRL 30.0 billion). The surprise came from lower mandatory expenditure, specifically in the FIES program. Besides the surprise in the extraordinary revenues front, the result also showed much lower subsidies expenditure compared to last year (BRL 6 billion vs BRL 9 billion in January 2017) and the maintenance of discretionary expenditures in very low levels.
Complying with the 2018 primary deficit target of BRL 159 billion (-2.2% of GDP) will not be a challenging task. Considering our scenario of 3% GDP growth for the year, the fiscal need to comply with the target disregarding any extraordinary revenues or budget cuts beyond the spending ceiling is around BRL 10 billion. However, in January alone, the government had BRL 7.9 billion in extraordinary revenues coming from the modality of the REFIS/PRT program (approved by Congress last year) that allows the payment off all the remainder tax debts with the Federal Revenue Service in a single payment in January. This surprise together with other coming events in the extraordinary revenues agenda (such as oil auctions in late March and June and the state-owned power company privatization), our positive bias in recurrent revenues (we anticipate a 1.2 elastic ity to G DP this year) and possible surprises in expenditures (such as in the subsidies line) suggest this year’s primary result is leaning towards a better print than the current target.
According to FGV’s monthly commerce survey, confidence in the retail sector rose 0.4% to 95.5 in February, extending the upward trend shown since 1Q16. The breakdown shows a mixed picture: the current situation index rose 5.5% mom/sa while expectations fell 2.7%. Despite the decline, we note that the expectations are still well above the current condition index, signaling the retail sector expects further improvement ahead.
Day Ahead: The national unemployment rate for January will come in at 9:00 AM (SP Time). We expect it to increase 0.3 p.p. to 12.1% (remaining stable in seasonally adjusted terms). The market consensus (as per Bloomberg) projects the unemployment rate at 12.0%. The consolidated public sector primary budget balance will likely show a BRL 48.6 billion surplus (mkt: BRL 32 billion).
The trade balance surprised to the downside in January. The trade deficit came in at USD 4.4 billion in January – above median market expectations of a USD 3.4 billion deficit (as per Bloomberg) – with the 12-month rolling deficit increasing to 11.8 billion (from USD 10.9 billion in December, 0.9% of GDP, which was 0.3pp smaller than the trade deficit observed in 2016). The widening of the 12-month rolling deficit observed in January was explained by a smaller non-energy surplus of USD 6.6 billion (from USD 7.5 billion December, the first annual surplus since 1995) due to a pick-up of imports. Meanwhile, the 12-month rolling energy deficit stood unchanged at USD 18.4 billion. Still, the deficit continued to narrow at the margin and – in our view – showed evidence of two key trends that will probably help to narrow the deficit further in com ing quar ters: stronger manufacturing exports and a moderation of the energy deficit (from an historical-high in 2017).
We expect a narrowing of the trade deficit in 2018, to USD 7 billion, as the acceleration of the U.S. economy boosts Mexico’s manufacturing exports and oil output stabilizes. Moreover, we expect investment to deteriorate in 2018 (dragged by the uncertainties related to NAFTA and the presidential elections), particularly in the first half of the year, curbing the growth of imports. ** Full Story here.
Day Ahead: The Central Bank will publish the 1Q Inflation Report at 3:30 PM (SP Time).
Day Ahead: The national statistics agency (INE) will publish the industrial activity indicators for the first month of 2018. We expect manufacturing production to recover to 3.5% year over year, above the median of analysts’ forecasts (2.8%). INE also will release the national unemployment rate for the quarter ending in January. We see the unemployment rate reaching 6.4% in the quarter (mkt: 6.3%), up 0.2 pp from one year ago, with unfavorable dynamics likely to still persist.
Day Ahead: The institute of statistics (DANE) will release the unemployment rate for January at 12:00 PM (SP Time). We expect the urban unemployment rate to inch up to 13.5% in January (consensus: 13.3%), resulting in the national unemployment rate coming in at 11.5% (11.7% one year prior).