Peru’s central bank has decided to keep its benchmark interest rate at 4.25% for the fifth straight session, in line with the markets’ expectations. “The decision takes into account the slower growth seen in some areas of spending and production, as well as the increasing international financing risks,” it says.
Category: Economy & Policy
Posted inDaily Brief
Peru Expected to Hold Rates
Peru is expected to keep its benchmark interest rate at 4.25% for the fifth straight session when the central bank meets today. Most analysts see a pause as the global economic slowdown is tempered by higher inflation, though some, such as Barclays, call for a 25bp cut. The bank left the door open to a cut in a September statement, if the global outlook continued to deteriorate. However, Central Bank head Julio Velarde said publicly September 21 that he saw no need to change monetary policy.
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Colombia Holds Rates
Colombia’s central bank decided to hold the country’s benchmark rate at 4.50%, in line with market expectations. “The scenario of risks has not changed substantially in the last month. For this reason, the board chose to continue with the pause,” the bank says in a release. It highlights continued deterioration n the US and Europe, as well as moderation in Asian growth. The bank now sees Colombia growing at 4.5%-6.5% this year, and inflation remaining within the target range.
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Colombia Set for Rate Decision
Analysts are expecting Colombia’s Central Bank to keep the country’s benchmark rate at 4.5% just like it did at the last meeting in August. Monetary authorities lifted rates higher between February and July this year, hiking them from 3% to 4.5% before pausing. “Part of the explanation as to why we [raised rates] was related to what we were seeing in credit growth and also real-estate prices,” Colombian Central Bank President Jose Dario Uribe told LatinFinance at the IMF meetings in Washington last weekend. Asked about interest rate policy going forward, Uribe said: “You take the decision based on all the information you have available at that moment. We will see what happens. The main uncertainty is what is going to happen in Europe.” With inflation at around 3.2%, price appreciation is within the 2-4% target, he noted.
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Nomura Foresees Bold 100bp Selic Cut
Nomura is predicting a bold 100bp rate cut in Brazil at the next Copom policy meeting in October, and it is revising its year-end forecast for the Selic to 10.50% from 11%. Given that the central bank’s exchange rate target has been met thanks to a weaker BRL and that inflation is likely to fall in coming months, growth has become a priority for monetary authorities in Brazil, the shop says. Policymakers have been expressing concerns about a prompt resolution to problems in Europe and are looking to pre-empt any possible contagion. “Recent developments confirm our view that growth is now the top concern of the authorities,” Nomura analysts add. The shop is forecasting cuts of 100bp and 50bp in October and December to bring the Selic down to 10.5% by year-end, and further incremental 50bp rate reductions next year to arrive at 9.5% in March 2012. Analysts will be looking for further clues about interest rate policy on Thursday, when the central bank releases a QIR report on its revised forecasts for GDP growth and inflation this year and next. This will be helpful in determining “what factors would encourage Copom to accelerate or not the current pace of rate hikes of 50bp per meeting,” says Goldman Sachs analysts.
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China to Play Bigger Role in Domestic Growth
China is not only Brazil’s largest trading partner, but it now represents the third-largest source of FDI flows into the country, says Persio Arida, a managing partner at BTG Pactual’s asset management group. A former Brazilian central bank governor and ex-president of the country’s national development bank BNDES, Arida emphasized the strength of LatAm’s domestic demand as a driver of the region’s economy, a fact that Chinese investors are increasingly heeding. “People see [LatAm] as an export oriented economy, but that is not true,” Arida adds. “With the exception of Mexico, domestic demand is growing faster than GDP. It is a process China will go through, but it is already happening [in LatAm]. This does not mean commodities are not important, but LatAm is less affected by trade than most people imagine.” This comes as Chinese companies start to look beyond commodities and increasingly focus on manufacturing investments as well. For instance, car company Chery Motors, air conditioning manufacturer Gree, and motorbike manufacturer Zongshen have all set up shop in Brazil. “Our strategy was to purchase a local Brazilian brand called Kasinski, and we have tried to make Brazil our base for South America,” says Ying Zuo, senior vice president, overseas business, at Zongshen Industrial Group. The region’s low savings rate will mean that it will continue to depend on foreign capital from high-savings countries such as China. “LatAm will need foreign savings and must be open and friendly to foreign capital,” adds Arida. Arida and Ying spoke last week at LatinFinance’s 3rd Latin America China Investor Forum in Beijing.
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Chile Holds Rates
As expected, Chile’s central bank has held the benchmark interest rate at 5.25%. In its note announcing the decision, it cites slower growth in the US and Europe with increasing risks in the external financial environment. Bulltick expects the rate to remain at 5.25% through the end of the year.
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Chile to Make Rate Call
Chile’s central bank is to decide its monetary policy today. Analysts expect the bank to again keep the benchmark rate steady at 5.25%, citing the bank’s own poll of traders.
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Peru Holds Rates
Peru’s Central Bank has elected to keep the benchmark rate at 4.25%, in-line with market expectations. “This decision takes into account the decelerations seen in economic activity and the accentuation in financial risk,” the bank says. It notes that annualized inflation stood at 3.35% as of August. Analysts are calling for a continued pause, but say cuts could be on the horizon if the global environment deteriorates. The country’s central bank governor said earlier this week it had several tools at its disposal should conditions worsen, including the reduction of rates and reserve requirements.
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Peru to Make Rate Call
Peru is set to make a decision on interest rates today, with officials indicating the door is open to cuts. However, the market does not necessarily see an easing in monetary policy soon as this month. Analysts including Goldman Sachs reckon the central bank will holds rates at 4.25% today.