Bonds News

LATAM WEEKAHEAD-Interest-rate cuts seen in Peru and Chile

NEW YORK, April 5 (Reuters) - Central banks in Peru and Chile are expected to cut benchmark interest rates in the coming week in an effort to spur growth, mindful that inflation data also due is likely to show further slowdown.

“Next week, we expect inflation to continue to drop year-on-year in Brazil, Mexico and Chile, even though in all cases we forecast slightly above consensus month-on-month prints,” Barclays Capital wrote to clients on Friday.

Barclays said it expected Peru, on Wednesday, to cut interest rates by 50 basis points to 5.5 percent.

“Lower GDP growth and tame inflation in March suggest faster easing,” the firm said, warning that there is a risk of a larger cut in Peru’s rate.

Chile’s central bank is expected to continue with interest rate cuts on Thursday. The benchmark rate stands at 2.25 percent.

“Although March’s inflation is still unknown, and the unemployment rate was in line with our expectations, we note that activity data for February was weaker than expected. We therefore now believe the central bank will cut 50 basis points on April 9 (55 percent probability),” Citigroup said in a research note to clients on Friday.

“However, a strong inflation surprise could turn the balance to 25 basis points again, in our view,” the company said.

But ahead of that expected interest rate cut, Chile reports its Imacec economic activity index on Monday. It is expected to show a drop of 3.5 percent, year-on-year, in February, the latest Reuters poll shows. For details, see [ID:nN02260103]

“Preliminary data point to weak February,” Morgan Stanley said in a research note on Friday. The firm is predicting a 3.0 percent contraction.

Holidays on Thursday and Friday across the region will likely front-load the impact of the data early in the week and postpone the reaction to the central bank decisions in Chile and Peru.

The following are some of the key data points investors will be watching this week. All forecasts are compiled by Thomson Reuters unless noted differently:

Tuesday, April 7:

- Chile trade balance for March. Barclays forecasts $450 million; Citigroup forecasts $520 million; Morgan Stanley forecasts $475 million.

- Chile March CPI - Barclays forecasts a rise of 0.6 percent month-on-month; Citigroup forecasts a rise of 0.3 percent, driven by higher clothing and education service prices; Morgan Stanley forecasts a rise of 0.5 percent.

- Mexico CPI for March. Barclays forecasts a rise of 0.55 percent, bringing the year-on-year reading of 6.0 percent from 6.2 percent; Citigroup forecasts a rise of 0.57 percent, bringing its year-on-year reading to 6.04 percent; Morgan Stanley forecasts a March reading of 0.48 percent bringing the annual headline inflation “below 6 percent for the first time since October.

Wednesday, April 8:

- Brazil IPCA inflation report for March. Barclays forecasts a rise of 0.30 percent; Citigroup forecasts a rise of 0.25 percent; and Morgan Stanley forecasts a rise of 0.15 percent.