Weekly Highlights

The latest meeting of the Monetary Policy Committee of the Central Bank of Brazil leaves once again the Selic unchanged. Trade balance data in Colombia and Argentina maintain a sizeable surplus, thanks to the performance of imports. Also in Argentina, the
president of the Central Bank finally resigned, but the government positions was once again rebuffed at the courts. In Peru, new legislation deliver higher reserve requirements, as well as a new tax over capital gains. In Chile, stricter regulations concerning coverage of pension funds investments abroad caused a depreciation of the peso.

1. Argentina
  • The President of the Central Bank finally resigned this week, after two adverse court rulings for the government. One of them stated that there are not extraordinary reasons to justify creating the Bicentennial Fund by decree without consulting Congress. The other ruling reaffirmed that the continuance or not of Martin Redrado as governor of the Central Bank should be resolved jointly by Congress and the Executive Power.
  • The Balance of Trade in 2009 reached a record of USD 16,98 billion (about USD 0.4 billion above our estimates) because of strong exports of USD 55,75 billion (20.4% y/y fall) and imports of USD 38,77 billion (a fall of 32.5% y/y).
2. Brazil
  • In a unanimous decision, widely expected by analysts, the COPOM maintained the SELIC unchanged at 8.75%, without a bias. This latest pause comes however with a significant change in the statement, suggesting future tightening. This time the statement included the same cautionary note about the future course of monetary policy that was used on January 2008, 3 months before it raised interest. The wording, in sum, signals markets that a hike in the Selic is probable for early 2Q10 (in line with our forecasts).


3. Chile

  • The unemployment rate reached 8.6%, with a fall of 0.5%bp in the Oct- Dec moving average quarter, closing 2001 with an average rate of 9.7%. It is relevant to note the increase of salaried and self-employment components by 0.9% and 1.9% q/q, respectively. On the other hand, industrial production index fell 1.1% m/m in December, with a -0.3% variation y/y. Demand, however, continues its expansion, with an increase of 8.6% in the supermarkets sales index, its peak since 2001, and retail sales grew 10.1% y/y.
  • The exchange rate depreciated 6.6% this week, due mostly to a change in regulations of currency risk coverage of investments abroad by the pension funds.


4. Colombia

  • The Government announced structural changes to the nation’s health system to reorganize it and make it financially viable.
  • The trade balance accumulates a 1370 million dollar surplus between January and November of 2009.
  • During November imports fell 14.2% yoy accumulating a decrease of 18.5% over the year. This was caused by a decrease in the imports of durable goods, capital goods for industry and transport equipment.


5. Mexico

  • November’s IGAE rose 1.5% mom (-1.5% yoy), due to growth in all of its components. Industrial production grew 1% mom (-1% yoy) led by manufacturing production tied to external demand. On the other hand, services grew 1.7% mom (-2% yoy), but its recovery lags somewhat when compared to industry. Activity recovery will continue relying on external demand, with a more direct impact on industry. Banxico published its inflation report for 4Q09, keeping the inflation outlook unchanged and raised its economic growth range from 2.5 to 3.5 to 3.2 to 4.2 for 2010. Next week the first expectations indicators for 2010 will be published, IMEF manufacturing index and the Consumer Confidence Index.


6. Peru

  • Since 2010, capital gains arising from the sale of shares and securitie (except for those ones issued by the Government or the Central Bank), interests on bank deposits, and non-residents’ foreign exchange derivatives operations (with maturities of less than 60 days) will be taxed. In the latter case, it should be mentioned that residents’ capital gains on foreign exchange derivatives operations were already being taxed (30%).
  • In the last week, the Central Bank implemented two measures. In first place, it raised the reserve requirement ratio (to 35%) to foreign-currency short-term loans (maturity lower than two years) that financial institutions take abroad. Then, it increased the limit on private pension funds (AFP) investments abroad, from 22% to 24% (in October it increased it from 20% to 22%). As of January 15th, Pension Funds had about 20% of their portfolio invested in foreign assets. Thus, the scope for increased investment abroad amounts to approximately USD 500 million.


7. Venezuela

  • Preliminary figures of banking gross credit indicate an increase of 20.7% (y/y), which implies a contraction of 4.9% y/y in real terms. The performance of mandatory credits, specially mortgage ones (43.4%), boosted banking loans. Total deposits grew 26.3% y/y, while in real values decreased 0.5%. Although the non performing loan rate continues decreasing since August (2.6%), the coefficient showed an increment with respect to December of 2008 (1.9%).
  • By fifth time this month, the Central Bank (BCV) intervened in the non official exchange market. The total dollar bond sale is USD 218.3 MM, implying an exchange rate close to 4.9 BsF/USD. However, the exchange rate in the informal market is back to the levels previous to the devaluation (6.2 BsF/USD)