El Niño May Test Latin America Markets, With Colombia Most Exposed

• The Union Bank of Switzerland (UBS) warned on Monday that a potentially powerful El Niño weather ​pattern could become the next big test for ‌Latin American markets. It raisied the risk of faster inflation, prolonged high interest rates and fresh pressure on some of ​the region's most fragile economies.
• The bank said ​the weather phenomenon, which disrupts rainfall and temperature patterns ⁠across the Pacific, could bring floods to some ​countries and drought to others, with knock-on effects ​for crops, fisheries, hydropower and infrastructure.
• Among the countries UBS reviewed, Colombia stood out as the most vulnerable, reflecting a combination of high exposure to food and electricity-price shocks, sticky inflation and a weak fiscal position.
• Brazil and Peru were also ‌flagged ⁠as at risk: Brazil because of macroeconomic fragility, and Peru because of heavier direct climate exposure, including possible damage to agriculture, fishing and transport infrastructure.
• UBS said Venezuela could face renewed strain ⁠on hydroelectric output during droughts, while Panama may see lower water levels disrupt canal traffic. Argentina, by contrast, could benefit if stronger rainfall ⁠boosts grain and oilseed production.
• UBS said any El Niño-driven inflation shock would likely reinforce expectations for higher policy ⁠rates, as Latin American central banks remain inclined to stay hawkish to defend credibility and limit currency weakness.

(Source: Reuters)