Our baseline is the BCRA will stay put for the remainder of the year, but additional hikes cannot be ruled out.
Talk of the Day
Argentina’s central bank kept its benchmark interest rate (7-day repo rate) on hold, at 28.75%, in its second November monetary policy meeting. The decision came as no surprise to the market – contrary to the previous two meetings, when the monetary authority hiked the reference rate by 100bps and 150bps, respectively.
The central bank expressed confidence in the consolidation of the disinflation process with the current monetary policy stance.According to the high-frequency indicators tracked by the central bank, inflation has been decelerating since October.The central bank believes that the tightening of monetary policy led to the resumption of disinflation in the core index.The current stance is appropriate for accelerating the reduction in inflation and minimizing the impact of the upcoming hikes in regulated prices (electricity and gas), according to the central bank.Our base-case scenario is that the central bank will stay put for the remainder of the year, but additional hikes cannot be ruled out. ** Full Story here.
Inflation expectations remained flat at 3.09% for 2017. According to Focus survey, IPCA inflation expectations stood afloat for 2017 and 2019 (at 3.09% and 4.25%, respectively) and slightly declined to 4.03% (-1bp) for 2018. Year-end Selic expectations remained flat for the three-year horizon, at 7.00% for 2017 and 2018, and 8.00% for 2019. GDP growth expectations did not change for 2017 (at 0.73%), and increased to 2.51% (+1bp) for 2018 and 2.63% (+8bps) for 2019. Finally, the BRL depreciated to 3.25/USD for 2017 (from: 3.20/USD), while it has remained at 3.30/USD for 2018, and slightly depreciated to BRL 3.35/USD for 2019 (from: 3.33/USD).
The National Commission of Minimum Wages (CONASAMI) approved yesterday a 10.4% hike of the minimum wage (to 88.36 pesos per day), which will be in force on December 1, 2017. It is important to highlight that the adjustment is smaller than expected, and only slightly higher than the minimum wage hike implemented in January 2017 (9.6%). In fact, business associations (such as COPARMEX) had announced they had been discussing a 19% increase with labor unions. In contrast, the Ministry of Labor was expecting a hike around 12%. Moreover, in the last monetary policy statement (November), the Central Bank’s board had cautioned against the inflationary risk posed by a possible minimum wage hike that exceeds the growth of labor productivity. With annual inflation standing at 6.4% (as of October 2017) and labor productivity growing at a poor 0.4% year-over-year (in real terms) in the four quarters ended in 3Q17, we believe the real growth rate of the minimum wage still exceeds that of labor productivity, at least by a bit. However, this is not enough to pose a substantial risk for inflation. If anything, we believe board members must be relieved that the minimum was not 19% or something closer to that number.
Yesterday, the teams of Mexico, Canada, and the US concluded the fifth round of NAFTA renegotiation – held in Mexico City between November 17 and 21 – providing evidence that progress towards a compromise is being made. The trilateral statement specifies that the sixth renegotiation round will take place on January 23-28, 2018, in Montreal, Canada. The teams will meet in mid-December in the US to hold a “mini-round”. After the conclusion of the fifth round, the US Head Negotiator, Robert Lighthizer, said that he is “concerned about the lack of headway [with] no evidence that Canada or Mexico are willing to seriously engage on provisions that will lead to a rebalanced agreement”. His Mexican counterpart, however, Ildefonso Guajardo, was more optimistic, and stressed the progress on issues such as digital trade, technical barriers to trade, anti-corruption, telecom, regulatory practices, sanitary and phytosanitary measures, trade facilitation, and some sector annexes (energy). Importantly, Guajardo clarified that Mexico is considering presenting a counter-proposal on automobile rules of origin, whose non-existence is arguably the main reason for Lighthizer’s abovementioned concern. On the Canadian side, Chrystia Freeland acknowledged that there was “some very good concrete progress on some of the more technical chapters”, but also warned about “some areas where more extreme proposals have been put forward”.
The Mexican Central Bank brought forward the 3Q17 Inflation Report to today from November 29 previously.