LatAm: BRL COPOM to stay put; MXN Inflation to remain stubbornly low

Next week COPOM will likely leave the Selic rate unchanged at 14.25% as the Central Bank finds itself between a rock and a hard place as inflation drifts up while economic activity collapses. COPOM is not expected to react as the deterioration in inflation expectations is coming from the fiscal side rather than credibility issues regarding the Central Bank's commitment to the inflation target. 

"We would take last week's rally to engage in long USDBRL", says Barclays.

In Mexico, we will only get bi-weekly inflation for the first half of November. The release is expected to confirm inflation at 2.5% y/y with very moderate FX pass-through effects. Actually, the FX commission looks comfortable with the latest MXN price action, as they confirmed yesterday by relaxing its intervention in the FX markets. 

"We do not expect the announcement to have an impact in the days to come, but we read the recent decision as one that signals further tolerance to MXN weakness. Therefore, we think that there is a good risk/reward in establishing 3-month TIIE receivers as we think that risks are tilted to no hike and the curve fully prices a 25bp increase. If confirmed, it should support our view that MXN will finish 2015 close to 17.00", added Barclays.