What Latin American Central Banks Should Do Next
In a region that knows too well the cost of policy mistakes, timing their next moves correctly will be key to maintaining their credibility and dodging any destabilizing events.
As goes Lulanomics, so go Latin America’s central bankers?
Photographer: Ton Molina/BloombergAfter curving the post-pandemic inflation spike with a bold hiking strategy that boosted their reputation, Latin America’s central banks face a tricky 2024, with bumpy inflation data, challenging local politics and global risks likely to obstruct the ongoing interest rate easing cycle. Timing their next moves correctly will be key to maintaining their credibility and once again dodging any destabilizing events in a region that knows too well the cost of policy mistakes.
Four of the five top inflation-targeting Latin American central banks have already started trimming rates in the second part of 2023, with more reductions coming early this year. (Peru cut last week while Brazil, Chile and Colombia are expected to do so again on Jan. 31.) That will put borrowing costs closer to the levels of the US Federal Reserve after the region rightly preempted its developed markets peer — on the upward part of the cycle, started almost three years ago, and on the current downtrend.