Macro
Brazil
Fri, Aug 09
Brazil inflation speeds up again, prices rose 0.38% on month in July and 4.5% on the year. Policymakers are considering hiking rates to contain inflation.
Annual inflation accelerated to 4.5% in July 2024 compared to 2023, just above the 4.47% median estimate from a Bloomberg survey, adding pressure to Latin America’s largest economy.
On July 31, the Central Bank of Brazil maintained its Selic rate at 10.5%, unchanged from May 08 to July 31. The next Copom meeting will be Sep 18. A bleak outlook with inflation seen remaining above the 3% target through at least 2027. The central bank vowed to tame the rising living costs, indicating there could be a long slog of high borrowing costs ahead.
Mexico
Thu, Aug 08
Mexico’s central bank Banxico cut its benchmark interest rate by a 0.25% to 10.75% for the 1st time since March and said it would consider additional reductions to focus on economic growth.
The rate cut comes as a surprise. Economists survey showed the move was forecast by 15 of 29 and 14 analysts expected the bank to keep it at 11%.
The central bank led by Victoria Rodriguez had kept rates unchanged at their last two meetings amid elevated consumer prices and a jump in food costs.
It’s noteworthy that Banxico cuts despite the fact that policymakers are raising inflation expectations for the last quarter of 2024 to 4.4% from 4%, and 1st quarter of 2025 to 3.7% from 3.5%. This means there are important risks besides taming inflation.
For FX, the cut did little to dent sharp rally in the MXN, which was trading 1.6% stronger Thursday.
As the 2nd largest economy in the Latin America, the central bank needs to consider risks associated with slowing growth in Mexico, recent markets volatility, and recession jitters in the US.