Major LatAm Currencies Seen Stronger in 2009

JPMorgan forecasts that the BRL, MXP and CLP will all strengthen by the end of 2009 compared to their present values. The BRL is expected to move to 2.00 from a current 2.28; the MXP is expected to go from 13.00 to 11.50 in Q4 2009; and the CLP should go from 677 to 550 by the end of 2009. As for interest rate policy, JPMorgan forecasts that Brazil could hike the Selic rate by 25bp this month to 14%, but it recognizes that the odds of an early pause are high, especially due to inflation risks. Mexico is expected to ease its rate by mid-2009 from a current 8.25% to 7.28% as inflation slows down, peaking at 5.73% this month and dropping to 5.55% by the end of 2008. The bank believes Chile’s rate will stay unchanged at 8.25% in an attempt to control inflation. Cuts should begin in mid-2009, when Chile is expected to start easing, hitting 7.50% by the end of 2009.