El Niño may test Latin America markets, with Colombia most exposed, UBS says

By Kylie Madry MEXICO CITY, July 13 (Reuters) - UBS warned on Monday that a potentially powerful El Niño weather pattern could become the next big test for Latin American markets, raising the risk of

By Kylie Madry MEXICO CITY, July 13 (Reuters) - UBS warned on Monday that a potentially powerful El Niño weather pattern could become the next big test for Latin American markets, raising 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. •

(Reporting by Kylie Madry, Editing by Daina Beth Solomon )