Latam Talking Points


The central bank kept the benchmark interest rate (7-day repo rate) unchanged at 27.25% at its second monetary policy meeting in April. The decision was broadly expected by the market consensus and us (according to the Bloomberg survey). The central bank indicated that its base scenario assumes the recent inflationary spike is temporary and inflation will likely fall in May, adding that if this scenario does not materialize, the central bank will raise the reference rate. This is in line with previous communication. Also, the central bank specified that it could increase interest rates based on the high-frequency CPI tracking it receives during the coming weeks (that is, the board does not need to wait for the May CPI reading – to be published by INDEC in June).

Specifically, in the press release accompanying the decision, the central bank argued, once again, that inflation will fall from May onwards due to a tighter monetary policy than in 2017, wage increases in line with the 15% inflation target for the year, deceleration of regulated price adjustments and central bank interventions in the exchange market. The central bank noted that although the March CPI reading exceeded expectations, the April figure – while remaining high according to high frequency indicators – will be lower than in the previous month. In central bank’s view, the recent high inflation readings are temporary and due to hikes in regulated prices and the weakening of the ARS from December to February.

The central bank did not provide any guidance to assess what figure of May CPI would trigger an interest rate hike. We note that it is likely that the May figure will be lower than April’s because the latter will be again affected by adjustments in regulated prices. According to private estimates, inflation will hover around 2.4% mom in April. In our view, another key variable to monitor are central bank interventions (sales of dollars) as net international reserves are low (around USD 35 billion) and the central bank is selling dollars at a pace that is not sustainable (USD 3.0 billion since March) in a bid to contain inflationary pressures. In this context, the odds of a hike in the next meeting are significant.** Full Story here.


Inflation continued trending down in the first half of April, with unambiguous evidence – at least in our view – that inflation dynamics are turning more benign. The CPI posted a bi-weekly deflation rate of 0.35% (we and the market expected prices to fall by 0.27%, as per Bloomberg), driven by the seasonal decrease of regulated electricity prices (-13.9%) which subtracted 33 bps from the CPI print. Overall, we see more benign bi-weekly CPI prints considering that the difference between the observed results and the 10-year median variation has actually turned negative in 2018 (to -18bps in the first half of April). Headline inflation fell to 4.69% year-over-year in the first half of April (from 4.90% in the second half of March), and core inflation decreased to 3.70% (from 3.90%) during the same period. Core goods (tradables) inflation came in slightly lower (4.44%, from 4.50%), while core services (non-tradables) inflation decreased more meaningfully (to 3.06%, from 3.38%). However, we take this lower core services print with a grain of salt because a cleaner indicator for prices driven by domestic demand (core services excluding telecom, tourism related services, and airfares) only showed a modest decrease (3.63%, from 3.67%). Turning to the non-core index (7.67%, from 7.84%), an increase for energy (9.37%, from 8.67%) was more than offset by decreases for food (6.41%, from 7.46 %) and regulated items (6.61%, from 6.84%).

Given the Central Bank’s guidance emphasis on “inflation forecast targeting” and the high probability, in our view, of inflation undershooting the Central Bank’s forecasts for average annual inflation in 2Q18 (CPI 4.8% and core 4%) we believe additional rate hikes are unlikely. In fact, we expect inflation to decrease to 3.7% by the end of 2018; below median market expectations of 4%, according to the latest survey available (published by Citi-Banamex on April 20). The backlog of exchange rate appreciation will be the key driver. Moreover, we see further room for the normalization of non-core inflation. ** Full Story here.

Day Ahead: The statistics institute (INEGI) will announce February’s retail sales at 10:00 AM (SP Time). We estimate that retail sales grew 0.5 year-over-year (consensus: 0.5%).


According to a poll conducted by Ibope in the State of São Paulo, the elections remain without a clear favorite for the presidential race. In a scenario in which Lula runs for president, he would amass 20% of votes in the first round, followed Geraldo Alckmin and Jair Bolsonaro (both with 14% of voting intentions). Joaquim Barbosa and Marina Silva would be technically tied with 9%, and Ciro Gomes would have 4%. In an alternative scenario in which Fernando Haddad replaces Lula, Bolsonaro would lead with 16%, followed by Geraldo Alckmin (15%), Marina Silva (11%), Joaquim Barbosa (9%) and Ciro Gomes (4%).

Tax collection came at BRL 105.7 billion in March, a little below our call (BRL 107.6 billion) and market expectations (BRL 108.9 billion). Recurring revenues increased 3.9% yoy in real terms in the month. The recovery in tax collection reflects the improving economic activity, but is also influenced by higher fuel taxes.

Excluding revenues from the REFIS/PRT, tax collection keeps a good pace. Real revenues increased 3.4% yoy in real terms in the month, with the 3-mma going to 5.9% from 5.1% in February. In 2018, tax collection should keep growing above GDP (1.25 elasticity), especially due to outperforming revenues that depend on consumption (PIS/COFINS, IPI) compared to more modest gains in  revenues related to the wage bill (IRPF , social security) given the slower recovery in formal job market.

According to FGV’s monthly consumer survey, consumer confidence fell 2.8% mom/sa in April to 92.0, partially offsetting the 5.3% increase in the previous month. The decline came from both current conditions (-2.9%) and expectations (-2.5%). The percentage of people reporting that jobs are hard to get fell 1.7pp to 89.9%.

Day Ahead: The central government primary result for March will be released at 3:00 PM (SP Time). We expect a BRL 21.5 billion deficit. Also, March’s external account will be released at 10:30 (SP Time). We expect the current account to post a USD 500 million deficit (consensus: -USD 150 million). Foreign direct investment will likely amount to USD 5 billion in March (consensus: USD 4.5 billion). The Central Bank announced another FX swap rollover auction of up to 3,400 contracts, which will take place today.


Day Ahead: Think-tank Fedesarrollo will release Industrial and Retail confidence indices for March throughout the day.

Fuente: Itaú

Leer más Informes de:

Comercio Exterior