Market Insights en-gb Wed, 19 Dec 2018 16:48:31 GMT 2020 Credit Bank of Moscow VP on Corporate Lending, Sanctions and De-Dollarisation Eric de Beauchamp, Senior Vice President at Credit Bank of Moscow, admits fear of additional sanctions – more so than existing measures – is weighing on the minds of investors when it comes to Russia. But shrewd management and strong communications allowed CBOM to avoid the fate of numerous large lenders that fell victim of the Central Bank’s cleanup of the sector in 2017, becoming one of the most successful private banks in the country. What does 2019 hold in store for Russia's banks? 19 Dec 2018 Russia & CIS Market Insights 57 Wed, 19 Dec 2018 12:08:23 GMT Bonds & Loans: Some 18 months ago CBOM was among a number of major Russian banks facing tough times, as the Central Bank's "cleanse" of the market peaked. With nearly every large independent bank brushing against the threat of de-licencing, CBOM is now showing some of the most solid results across the sector. What were the key strategic moves that helped the bank navigate the difficult period?

Eric de Beauchamp: During the second half of 2017 there was definitely some turbulence in the banking sector, particularly among private-sector banks, provoked mainly by rumors about the financial sustainability of some of the biggest banks. We put together a strong communications effort at the time to explain and demonstrate to the market that CBOM was in a very healthy liquidity position and that there were absolutely no doubts about the financial sustainability of our bank. Our history, strategy and performance were totally different from those of competitors, many of whom, ultimately, were taken over by the fund for consolidation of the banking sector. In parallel, our main shareholder proceeded with some purchases of CBOM Eurobonds at that time, to give a strong signal to the market that he was committed to supporting the bank.

Bonds & Loans: Many of Russia's independent lenders have been raising rates on dollar deposits, some nearing 4%. How does this tie in with the federal drive towards de-dollarisation? What is CBOM’s hard currency rate outlook for the next few months?

Eric de Beauchamp: The “de-dollarisation” of the economy is a process the Russian financial authorities began to engage in and are supporting, but as commodities still make up the bulk of trades in USD, and the Russian economy is still very dependent on commodity exports, this process will take time. That’s the reason why CBOM continues to attract USD funding, mainly to serve its corporate customers, which export commodities.

In 2019, the rouble exchange rate will be mostly affected by two factors: firstly, the geopolitical situation and the investors’ attitude to Russian assets, and, secondly, the strategy of the Russian Ministry of Finance on FX purchases.

Possible new sanctions against Russia and, consequently, resumption of foreign capital outflows, are likely to remain the central factor that will affect the rouble exchange rate. On top of this, purchases of hard currency by the Ministry of Finance and the Bank of Russia, which were postponed for several months, may restart from early 2019.

Recent months have seen no clear correlation between oil prices and the value of the Russian currency. While oil prices have dropped by nearly 20% since this summer, from about USD80 to USD60 per barrel, the ruble has only shed 1.5% of its value against the dollar, from 65.5 to 66.5 per USD. In this regard, an oil price in the range of UDS60 to 80 per barrel should not significantly impact the USD-RUB exchange rate.

Given the geopolitical situation and the need to resume dollar purchases on part of the Ministry of Finance starting early in 2019, we see the rouble likely coming under increasing pressure in the months to follow.

Bonds & Loans: CBOM helped arrange three major placements in October to the value of RUB33bn, including issuances by RZD (RUB10bn), FSK EES (RUB10bn) and RSXB (RUB13bn). Can you share some of the details and highlights of your participation in these deals?

Eric de Beauchamp: As a rule, each placement took place with participation of a wide range of investors, including banks; investment, management and insurance companies, as well as individuals; that provided us with a substantial oversubscription and allowed us to reduce the marketing range. We closed 19 transactions with a total nominal value of about RUB150bn.

Bonds & Loans: Traditionally, the typical dynamic during the tougher stretches in the economy is that corporates shift from bond market borrowing to loans and syndications. Is that trend manifesting itself in the current market? What opportunities is it providing for CBOM and its peers?

Eric de Beauchamp: This year we are indeed witnessing some jitters in the capital markets, associated primarily with sanctions-related negativity, but no more than that. Of course, against this backdrop, the current market situation looks worse than last year and placements of new bond issues decreased. We have already been living under sanctions for several years, and the majority of market participants (both borrowers and representatives of the investment community) have already developed a certain immunity. That said, this year the most negative impact on the market has been driven not so much by the imposed sanctions, but by the uncertainty concerning potential future ones. Nevertheless, we can see occasional windows opening up that enable issuers to make high-quality market placements. In this case, banks that are able to respond quickly to changing market conditions and make swift investment decisions gain an advantage.

CBOM today is one of the largest banks in Russia, sixth in terms of capital and assets, so in terms of funding, we are able to compete successfully with state banks. At the same time, CBOM is a private bank, which gives us undeniable advantages in terms of efficiency, mobility and flexibility in our work with clients. It takes us no more than a week to make all internal corporate decisions essential for simultaneous work with client on several products, set a limit and make a deal, processes that large state banks would usually spend over a month tackling. Thus, the current situation rather expands our capabilities and enhances competitive advantages.

Bonds & Loans: Looking into 2019, what are some of the key strategic initiatives your department will be focussing on? Where do you see the main risks, and the biggest potential opportunities?

Eric de Beauchamp: CBOM will keep developing the corporate lending segment, with predominance of oil, gas and export commodities sectors, as well as focusing on very high-quality blue-chip borrowers to continue to operate at a low NPL level. In parallel, the bank plans to become more active in the retail lending sector, and to pursue the trend, which was initiated during the second half of 2018. Being more active in retail lending was mainly driven by a significant improvement of quality in the new retail loan deals. Finally, the bank will also continue to diversify its sources of funding and increase the part of “fee and commission” income within its total revenues, with the ultimate goal of maintaining a very good level of return on equity, as recorded in 2018.

Russia & CIS Deals Currencies Policy
2018 CASE STUDY: RusHydro Prints Debut CHY1.5bn Dim Sum Tranche in a Tough Market RusHydro issued the first Russian corporate Renminbi denominated Eurobond via a dual-currency dual tranche deal against the backdrop of a fairly subdued Russian debt capital market, following up on a three-year RUB20mn 7.4% issuance last February. A benchmark CHY deal for Russia corporates 19 Dec 2018 Russia & CIS Market Insights 57 Wed, 19 Dec 2018 09:57:27 GMT Background

Following the success of its previous placements in September 2017 and February 2018, which generated strong demand European, British and US investors, RusHydro, the world’s second-largest hydroelectric power producer, looked to benefit from the latest batch of economic cooperation agreements between Moscow and Beijing by becoming the first Russian corporate to issue Eurobond denominated in renminbi.

The company had issued a three-year RUB20mn domestic bond earlier this year, which also generated some Asian investor appetite, and completed the financing shortly after the dual-tranche rouble/yuan issue with total worth over USD500mn equivalent.

Transaction Breakdown

Following a successful one-day roadshow in London, Hong Kong and Singapore, the company came to market on 15 November with a trailblazing CHY transaction. Total demand for the notes reached RMB2.5bn, with the share of Asia-based investors representing more than 82% of the final bid book. The bond is placed in accordance with RegS regulations, with initial price thoughts set at 6.25%, which tightened initially to 6.125%-6.15%. The final coupon rate was set at 6.125%.

The second tranche of RUB15bn came a few days later: the delay was due in part to the logistics of tapping different geographies, and in part driven by the urgency of prioritizing the yuan tranche, as the window in the Chinese market was likely to become less favourable upon further delay, said a person who participated with the deal.

Following the roadshow initial price thoughts were announced at 9.125-9.250% area, but tightened three times eventually settling at the 8.975% coupon. With over RUB43bn in offers, it also saw strong oversubscription (3x) and continued demand from Asian investors, with 36% of the notes allocated to accounts in the Asia-Pacific, reaffirming the company’s growing presence in this market.

Another notable aspect was that RusHydro’s liabilities were fixed in roubles on conditions comparable to those prevailing in the rouble-denominated debt market, enabling the company to mitigate forex risk. 

Asian investors snapped up 82% of the CHY tranche, followed by Russian investors (17%) and others (1%). Funds were allocated 69% of the issue, with banks and private banks picking up the rest of the notes (31%).

The landmark transaction arrived on the back of increased bilateral economic cooperation between the countries’ respective governments and will allow the company to expand and develop its operations in Russia’s Far East region by strengthening the relationship with Chinese investors and broadening its investor base.

It was the largest yuan issue out of Russia, following a prolonged break – the last Dim Sum bond out of Russian came in 2014. One reason for the pause was the complexity of China’s debt capital markets regulatory landscape as well as the market being largely shut in 2017. The fact that Russian corporates in the past year have reassessed their financing requirements and capabilities, becoming more comfortable with smaller transactions, was also beneficial.

Many participants have expressed hope that the deal will set a clear benchmark for other Russian corporates looking to tap the Chinese offshore market, a nascent but growing theme given the Russian government’s bid to pivot East in a bid to hedge against its frictious Western relations.

Currencies Deal Case Studies Russia & CIS
2017 Ecuador: Past Borrowing Limits Future Financing Options Following its bold return to the debt markets in 2014, Ecuador has leaned heavily on external credit to meet its monetary and financing needs. Yet its options appear to be increasingly limited, with the prospect of a more aggressive deficit reduction programme or an IMF bailout becoming more likely by the day. Out with the old, Lenin with the new? 18 Dec 2018 Latin America Market Insights 73 Tue, 18 Dec 2018 11:45:41 GMT Under the administration of Rafael Correa, the leftist politician who served as President for a decade, from 2007 to 2017, Ecuador’s economy shifted towards a state-led growth model. On the back of high oil prices, Correa oversaw an expansionary fiscal policy, with public expenditure making up around two-thirds of annual growth. Ecuador long enjoyed continued successes under this model – the country saw the second highest growth rates in Latin America between 2001-2014.

But the 2014 oil crash quickly exposed the country’s precarious fiscal position: for an economy which leaned heavily on a single volatile commodity, the Correa administration had failed to build both a sufficient fiscal buffer and an adaptable private sector.

Ecuador’s dollarized economy has further narrowed its future financing options. Lacking any meaningful monetary control, the country has limited means of maintaining fresh dollar inflows into its economy. Access to dollars thus relies on its external accounts, either from a trade balance surplus, its capital accounts or from foreign direct investment (FDI). As a result, the drop in oil prices not only hit government revenues, but the country’s falling export revenues, further limiting Ecuador’s access to dollars. In its effort to combat this, the Correa administration turned to the markets in order to maintain Ecuador’s fresh dollar supply.

As such, the oil price crash also coincided with Ecuador’s return to the global capital markets. Despite the belief of many analysts that there would be little appetite for a bond issued by a serial defaulter – Ecuador has been in default for the past 114 of 190 years, according to Lazard Asset Management – the country’s re-entry into the debt capital markets was well-received. In 2014, the country issued a total of USD2bn 10-year sovereign bonds – USD300mn larger than originally planned and below initial price guidance.

Yet Ecuador’s past borrowing decisions are beginning to bite. Having tapped the markets repeatedly at a premium, the government now faces a ballooning debt burden accrued through high interest payments. According to Renzo Merino, Senior Sovereign Risk Analyst at Moody’s Rating Agency, from 2013 to 2017, Ecuador’s interest burden doubled, climbing from 1.3% to 2.5% of GDP, and from 5% of government expenditure in 2015 to around 12% in Q4 2018.

“Because of the commodity price shock, Ecuador was willing to tap the markets at relatively high rates. Of all of their issuances between 2014 and January 2018, the average coupon was around 9%, and in some instances higher than 10%,” states Merino.

Interest repayments have also begun to encroach on the country’s future ability to borrow. A cluster of amortisations beginning around 2019 will only buoy government expenditure in the near term. In August 2018, Fitch downgraded Ecuador’s sovereign rating to B-, citing the country’s high fiscal deficit and creeping interest burden.

Out with the Old, (Len)ín with the New

With Correa’s decade-long rule ending in mid-2017, many investors have hoped that his successor, the centrist Lenín Moreno would reign in expenditure and loosen private sector restrictions.

Moreno’s first year in office saw some efforts from the government to reach out to the private sector in order to promote foreign direct investment, but with little success. Instead, the beginning of Moreno’s presidency marked a rather timid attempt to slash the deficit, with only half-hearted attempts to cut spending.

However, Q1 2018 saw the announcement of the 2018-2021 ‘Plan for Prosperity’, which signalled the beginning of a bolder deficit reduction strategy. The consolidation of SOEs, which will likely lead to the reduction of the civil workforce, alongside broader public sector cuts, are intended to tackle Ecuador’s debt head-on.

Merino argues that continued cuts to CAPEX will be difficult.

“In 2014, CAPEX, which tends to be the more flexible type of government spending, represented around 45% of government expenditure. By the end of 2018, CAPEX will represent less than 20% of total spending.”

Wracked by a sizeable interest burden, and subject to premium rates in the debt capital markets, Ecuador’s financing options are limited. According to Merino, Ecuador remains an opportunistic borrower – as seen by its decision to tap the market in January this year, when spreads narrowed to around 450bp.

If Ecuador were to return to the debt markets, then it would face not just the financial challenge but a political one, too.

“In Ecuador, government borrowing is a matter of social concern, and it receives a lot of coverage in the media. If the government were to issue another bond – which at the moment would likely have a rate of over 10% - then this may not be well-received by the Ecuadorian public,” argues Munir Jalil, Chief Economist for the North Andean Region at Citibank.

Richard Martinez, the country’s new Finance Minister, has sought to move away from the Correa administration’s reliance on bilateral Chinese oil-for-debt agreements. Instead, Martinez is seeking to mend relations with multilaterals, which the Correa previously dismissed as American pawns. In June 2018, USD400mn of financing was approved by the World Bank to fund the Metro One Line project in the country’s capital, Quito. 

Martinez hopes that the government’s new economic plan will reduce investor risk perception in Ecuador. Unfortunately, this has yet to happen – spreads remain around 700bp, according to data from Moody’s.

Mounting pressure

Ecuador now faces a difficult situation, with its financing needs for 2018 amounting to roughly USD9bn, there remains only a narrow choice of funding options available. Beyond engagement with multilaterals and further premium bond auctions, the option of an IMF programme remains on the cards. With Ecuador’s first dollar bond maturing in March 2020 questions have been raised by many about the government’s ability to repay its debt.

Engaging in an IMF programme would not only cover Ecuador’s financing needs for the coming few years – significant, given the country’s rising debt levels – it would also pave the way for the government to re-enter markets on more favourable terms.

In many respects, the demands of an IMF deal may well converge with the Moreno administration’s plans for fiscal reduction outlined earlier this year. Given Ecuador’s constitutional requirement to limit debt-to-GDP ratios below 40%, Moreno will soon have to pursue more aggressive fiscal consolidation. As it stands, CAPEX has already been cut from around 45% of government expenditure in 2014 to below 20% in 2018, but any further attempts to tackle the deficit will require cuts to OPEX – far more politically painful.

According to Jalil, the government’s current plan and a potential IMF programme will likely be similar in terms of total expenditure cuts.

“The devil is in the details. The IMF will likely require a schedule of cuts to be delivered before a particular date. With the government’s current proposal, they have more flexibility to cut expenditure when they want.”

“When Martinez was recently asked about how Ecuador will address its financing needs in the short-term, he was very clear that every single option is on the table. That said, if Ecuador does turn to the IMF then it will not issue again, and vice versa,” argues Jalil.

The main obstacle to this strategy may well be political. With regional elections scheduled for March 2019, the Moreno administration will likely hold off more substantial engagement with the IMF until afterwards.

In the meantime, where the government will turn to secure Ecuador’s future financing remains unclear. Following Correa’s brash attitude towards international financiers, key to Moreno’s success will be rebuilding trust in Ecuador’s ability and willingness to repay its debt. But according to Jalil, the country is on the right path.

“Fiscal consolidation will be tough, but this is a government that looks committed. They need to keep doing what they’re doing, but they also need a bit of luck. The clock is ticking -  fresh dollars need to be pumped into the economy, and the Moreno administration needs to decide soon where this is going to come from.”

Policy Americas Latin America
2015 Top Dealmaker: Natixis’ Helena Radzyminski on Latin America’s Loan Markets With a slowdown in the bond markets following a jittery 1H2018 for EM and Latin America in particular, loans – especially in local currencies – are coming back into fashion. We speak to Helena Radzyminski, Managing Director, Loan Syndications at Natixis about the bank’s biggest deals over the past year, and strategic initiatives in the region planned for the coming year. Insights from the Managing Director for Loan Syndications 17 Dec 2018 Latin America Market Insights 73 Mon, 17 Dec 2018 13:40:39 GMT Bonds & Loans: Can you give us insight into Natixis’ key strategic initiatives in Latin America over the past 6 months? What were the top loan deals and syndications you’ve taken part in?

Helena Radzyminski: Natixis implemented a new global strategic plan this year, consisting of four pillars: energy and natural resources, infrastructure, aviation and real estate. This strategy, which builds on our existing strengths, has been carried out in Latin America as well. The region is especially relevant in the energy and infrastructure spaces, and we are well positioned to add value to the region’s development in this space. Our flat organizational structure allows us to be very dynamic and agile, and we have local boots on the ground in all of the most relevant countries. At the same time, we are coordinated across the region, with all countries reporting to the same head, allowing us to deliver our product expertise more widely.  By focusing on our strengths in these core industries we have deepened our relationship with clients in these sectors.

In Latin America, we have had a record year. We are proud of our role in the financing of the USD758mn financing for Cerro Dominador, the first concentrated solar plant in Latin America, in the Atacama Desert. We acted as global coordinators and fixed-rate placement agent for the transaction, which will enable the company to finalize construction and provide 210 MW to the Chilean national grid.  We were able to help bring about the participation of institutional investors, including global insurance companies that we partner with, that contributed important liquidity to the transaction. We also are quite pleased with the support of the other banks that joined.

Another landmark transaction was the innovative USD175mn, 29-year hybrid private placement and fixed rate loan structure we arranged for the Cajamarca Transmission Line in Peru. We provided a customized hybrid financing combining both a bond and loan structure. This allowed us to tap liquidity from both pension funds and insurance companies via the private placement, as well as our partners in Europe and Asia via the fixed rate loan. This dual approach provided best execution for the client and supported their goals in Peru.

Bonds & Loans: These deals stand out in the region for having attracted US long money, including pension and insurance funds. For many years that has been challenging, particularly on longer-tenor deals. What were the main factors behind this success?

Helena Radzyminski: One key difference between US and European/Asian investors is that the former have a stronger preference for rated deals and tend to require a make-whole provision. This restricts their investment to a smaller universe with clearly defined criteria. We find, especially in Asia, that smaller insurance companies that have not had access to the larger deals, have much more flexibility, especially in relation to the make whole clause or external ratings. By partnering with those investors, we have given them access to quality investment opportunities that fall outside the more restricted universe considered by US investors. Even when US investors are involved, the presence of additional liquidity can create better execution for the client.

Bonds & Loans: What are some of the key factors at play in the syndicated loan market in Latin America at the moment?

If you look at the loan volumes up until now, you can see that they have increased – according to Thompson-Reuters YTD volumes are US32bn and versus USD25bn last year. But if you look closer at those figures, a large contribution came from a small number of jumbo deals – Suzano and Petrobras among others – and if you take them out, we see that the volume increase is actually not so significant, so there is still plenty of room for the volume of syndicated loans to increase.

Another trend is political risk, where we see the focus has shifted from Mexico to Brazil. Earlier in the year there were concerns about Mexico ahead of the elections, but now we see more optimism; they don’t expect any revolutionary changes.

Across the region, the largest volume of deals is in the OECD investment-grade credit space: Mexico, Peru, Colombia and Chile; but despite election woes, we are also still seeing appetite for Brazil too. It is hard to say how that will change following the vote, but I think the key point is that it will remain a large market, and the top industries – exporters, pulp & paper, oil & gas, and soft commodities – will remain interesting. The large, well-known names are still competing, and they are coming to market despite rising costs.

Bonds & Loans: How has the slowdown in bond market activity factored into this dynamic? What about the central bank rates and monetary outlook? What are the reasons behind the divergence in monetary policies?

When the bond market slows down, the loan market tends to go up. But it also depends on the country. Those where you have more volatility, loan markets go up, but with few syndications and more club deals or bilateral. We’ve seen this in Brazil a couple of years ago, and now in Argentina. The volume doesn’t go up, just the composition.

Bonds & Loans: What have been the biggest challenges for you in Latin America over the past year?

The flight to quality has been the main driver of activity, which has led to a tightening in pricing, especially in those credits with strong name recognition in the industry, and means we have to be very aggressive in order to win deals for these top tier names. There is increased competition – but still sufficient liquidity - for top tier investment-grade borrowers.

US monetary policy has an outsized impact on the Latin American loan market, and we are currently in a rising rate environment. This is countering the previous downward trend driven by the flight to quality, so the regional trend is towards stabilization of pricing, with specific shifts in certain sectors and countries on a more case-by-case basis. For second tier names, we are starting to see prices rising, and with more enhancements demanded from banks – in terms of structure, securities, pre-export financing and export credit agency coverage. And when the market heats up, we will see looser structures and fewer covenants. For now, for most top tier names, I don’t anticipate pricing to go down, it will simply stabilise.

Bonds & Loans: How has the FX volatility impacted appetite for corporate local currency debt?

These corporates will have support from local and regional banks, and there will be less appetite from international banks with no presence in the country. Locals and regionals tend to match the revenues with the type of financing, they have a foothold in a country, are closer to these corporate clients and have more scope to lend in local currency. Thus, their appetite for local currency deals tends to be more stable

We see more and more financing going to local currency, which is a sensible approach for borrowers with the majority of their revenues in local currency. US dollar-denominated loans have historically provided lower interest rates, and tended to attract even those borrowers with less natural exposure to the US dollar, but with the increased FX volatility observed in the region that is changing. The big winners from this trend are going to be banks that can feed this local currency credit demand.

Bonds & Loans: What opportunities do you see in the region for the next year and how is Natixis positioning itself to benefit from them?

A key part of our strategy is to increase our presence in Mexico, expanding the range of products we can offer. We aim to enable increased investment in Latin America.

Deals Americas Latin America
2016 Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead Global growth concerns are likely to keep EM on its back foot. China and the eurozone reported weak economic data Friday, and even a much stronger than expected US retail sales report was not enough to turn market sentiment. Head of EM Strategy Win Thin on key data drivers this week 17 Dec 2018 Global Market Insights 55 Mon, 17 Dec 2018 09:47:40 GMT Singapore reports November trade Monday, with NODX expected to rise 1.8% y/y vs. 8.3% in October. Regional trade has slowed in recent months due to a variety of factors. These are expected to persist into 2019 and so the regional central banks are likely to take a cautious stance towards potential tightening. We expect the MAS to leave policy unchanged at its next policy meeting in April.

Indonesia reports November trade Monday, with exports expected to rise 4.7% y/y and imports by 11% y/y. Bank Indonesia meets Thursday and is expected to keep rates unchanged at 6.0%. CPI rose 3.2% y/y in November, the highest since May but still below the 3.5% target.

Turkey report October IP Monday, which is expected to contract -3.6% y/y vs. -2.7% in September. The central bank just kept rates steady as the economy remains at risk of deeper recession. While it said policy would be kept tight for a while yet, markets remain concerned that the economic downturn will lead Erdogan to pressure the bank to cut rates sooner rather than later.

National Bank of Hungary meets Tuesday and is expected to keep policy broadly unchanged. CPI rose 3.1% y/y in November, just above the target but the lowest since June. With the eurozone slowing, we think the central bank will retain its dovish stance.

Malaysia reports November CPI Wednesday, which is expected to rise 0.4% y/y vs. 0.6% in October. While Bank Negara does not have an explicit inflation target, low price pressures should allow it to remain on hold through much of next year.

Bank of Thailand meets Wednesday and is expected to hike rates 25 bp to 1.75%. However, the market is split. Of the 11 analysts polled by Bloomberg, 3 see no change and 8 see at 25 bp hike. CPI rose 0.9% y/y in November, below the 1-4% target range and the lowest since March. As such, we see risks of a dovish surprise.

Poland reports November industrial and construction output and PPI Wednesday. All are expected to slow modestly from October. Central bank minutes will be released Thursday. November real retail sales will be reported Friday and are expected to rise 6.5% y/y vs. 7.8% in October.

Taiwan central bank meets Thursday and is expected to keep rates unchanged at 1.375%. CPI rose 0.3% y/y in November, the lowest since October 2017. While the central bank does not have an explicit inflation target, low price pressures should allow it to remain on hold through much of next year. November export orders will also be reported Thursday.

Czech National Bank meets Thursday and is expected to keep rates unchanged at 1.75%. CPI rose 2.0% y/y in November, right at the target but the lowest since April. With the eurozone slowing, we think CNB will be more cautious about tightening too much.

Banco de Mexico meets Thursday and is expected to hike rates 25 bp to 8.25%. Mid-December CPI will be reported Friday. CPI rose 4.72% y/y in November, the lowest since June but still well above the 2-4% target range.

Brazil central bank releases its quarterly inflation report Thursday. Brazil then reports mid-December IPCA inflation and November current account data Friday. IPCA rose 4.1% y/y in November, the lowest since May and in the bottom half of the 3-6% target range. COPOM tilted even more dovish this month and so expectations for the first hike have been pushed out to H2 2019.

Colombia central bank meets Friday and is expected to keep rates unchanged at 4.25%. CPI rose 3.3% y/y in November, slightly above target but still within the 2-4% target range. With oil prices still vulnerable, we believe the central bank will be cautious in starting the tightening cycle.

Macro Currencies Policy Global