EM FI/FX Strategy: Latam: Five things to watch in the coming week

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EM FI/FX Strategy: Latam: Five things to watch in the coming week

Sunday, with right-wing outsider De la Espriella

leading left-wing candidate Cepeda by 5–7pp according to most polls. While election-

related uncertainty appears to have been largely unwound following De la Espriella’s

stronger-than-expected performance in the first round, markets will now watch

whether the runoff results validate current polling. Markets will likely focus on the

margin of victory as an early gauge of the incoming administration’s mandate, with a

result of ~5pp or more—relative to the ~3pp margin seen in Petro’s win four years ago

—potentially acting as a catalyst for local assets. On the fiscal front, the government

unveiled its Medium-Term Fiscal Framework late last week, keeping the 2026 primary

deficit target at -2.1% of GDP (vs -3.5% UBSe), with the adjustment relative to 2025

results relying on a 1.6% of GDP reduction in primary spending—an ambitious target

given current dynamics. For 2027, the government targets a -0.5% of GDP deficit,

largely driven by new revenues (~1.5% of GDP) from a potential tax reform.

Chile: Macro backdrop sets a high bar for a hawkish CB pivot

The CB meets this week and is expected to stay on hold. With election-related optimism

fading—a risk we flagged last year—the bar for a hawkish CB pivot looks high. Inflation

has realized better than expected, with both survey- and market-based expectations

recently moving closer to target. This, combined with a weak growth backdrop—with

softness materializing even before the global conflict started—should keep carry low

and reinforce the CLP as the region’s funding currency, with the CLP broadly flat year-to-

date. While copper prices could provide some offset, the nature of the current mining