When inflation surged, many Latin American central banks were among the first to raise interest rates, with policymakers acting swiftly as consumer prices began to soar.
So far, their approach has yielded success, with most countries seeing the end of double-digit inflation rates last year, leading many to start charting a change in course marked by the beginning of interest rate cuts.
Monetary authorities in Uruguay, Brazil, Paraguay, Costa Rica, and Chile have already begun this new path this year. Peru was the latest to join the rate-cutting fray, delivering a modest 0.25-point reduction — the first since the pandemic — to bring rates down to 7.5 percent.
The shift has contrasted with the actions of bankers in developed countries, which have kept a tight stance to combat lingering inflation pressures against a backdrop of global market pessimism over the past few months.
The European Central Bank raised interest rates this month to an all-time high of 4 percent, while the Federal Reserve in the U.S. left its benchmark rate unchanged at a two-decade high, suggesting new hikes could occur this year.
Inflationary crises are more common in recent Latin American history, including hyperinflation in the late 1980s and the contemporary examples of Venezuela and Argentina, both of them currently struggling with three-digit yearly inflation.
One could argue that most countries in the region learned their lesson, with more prudent monetary and fiscal policies since the 1990s. However, the Covid crisis led most governments into higher discretionary spending and money-printing, taking consumer prices well above 10 percent in many...
Search
