By Natalia Gurushina, Economist, Emerging Markets Fixed-Income for VanEck Global
Mexico opted for a cautious 25bps policy rate cut. Chile bounced after administration and the opposition reached a deal on constitutional reform.
Policy gradualism prevailed in Mexico, where the central bank opted for a 25bps policy rate cut yesterday. The decision was not unanimous, with some board members arguing for a deeper cut. However, residual concerns about the pace of disinflation (especially core prices) kept “super-doves” at bay. Looking forward, Mexico’s macro backdrop leaves room for more agressive easing. The fact that guidance no longer mentions the U.S. Federal Reserve, while there are several references to weaker growth and uncertain external environment, looks like a prep work to us. All eyes are now on the new set of the central bank’s macro forecasts, which will be released at the end of the month.
Chile bounced big time this morning after the administration reached an agreement with the opposition on constitutional reform, under which the draft is likely to be produced by a constitutional convention. The central bank’s quick decision to enhance its liquidity program (after it flopped on Thursday) contributed to better sentiment. Chile is at the beginning of a long and difficult process—a referendum on the constitutional assembly will only be held in April 2020—but at least there is a light at the end of the proverbial tunnel.
We continue to get encouraging signals from Argentina—both regarding the composition of the new cabinet and the incoming administration’s approach to debt restructuring. According to local reports, Guillermo Nielsen—who might become new Minister of Economy—is pushing for a “rapid renegotiation”, which is a key consideration for debt holders (and the price action). One area where we feel the need to curb our enthusiasm is inflation. October’s downside surprise was most likely the “last hurrah”, as the government just lifted restrictions on crude and fuel prices.