Latin America: Monetary policies to the rescue?

5 min
Georges Dib
Georges Dib Economist for Latin America, Spain and Portugal

The pause in rate hikes by the Federal Reserve (Fed) was not enough to boost prospects in Latin American countries in H1 amid trade tensions and weak domestic developments. Now that Fed rate cuts are expected and global inflationary pressures have abated, Latin American central banks are set to follow suit and cut interest rates to boost activity. In Brazil, a rate cut is likely at the end of the month. Progress on the pension reform and inflation being back below the 4.25% target (+3.4% y/y in June) should allow it. Activity contracted in Q1, and still struggles to bounce back (-0.3% m/m in April, +0.5% in May). In Mexico, while high policy risks remain, monetary policy has been restrictive so far (unlike Brazil) due to stubbornly high inflation: a gradual easing cycle could support an economy close to recession. In Chile and Peru, central banks envisage extending the monetary stimulus. In Colombia, the stance should remain accommodative, yet the data do not point to further cuts.