The cycle of monetary policy loosening that has gained pace in
Latin America is likely to go on until the end of the
Although policy-makers are keeping their cards close to their
chests, there is a consensus among analysts that the loosening
That may help stem the impact of the global economic crisis in
a region where fiscal constraints limit the margin for
governments to engage in US- or European-style anti-cyclical
Guillermo Mondino, head of Latin America research at Barclays
Capital in New York, said he had greater belief in central
banks than in fiscal policy. Monetary policy allows for a
more aggressive easing than the potential for countercyclical
Julio Velarde, president of the Peruvian central bank, said
central banks are more aggressive and stronger than
they used to be.
Latin central banks have lagged behind their counterparts
around the world in easing monetary policy, due to concern over
the pass-through of rising commodity prices last year to
Even countries like Brazil that pursued a distinct restrictive
monetary policy in recent years have recently promoted a series
of aggressive cuts in the benchmark Selic rate.
Maria Celina Arraes, deputy governor of the Brazilian central
bank, declined to comment on policy details, but said: We
cut down, because our inflation models and market expectations
pointed to a decrease.
Earlier, Henrique Meirelles, the governor of the bank, told
reporters [in Brazil] that it was the first time in more than a
decade that the central bank is in a position to promote an
interest rate cut in the midst of an international financial
In 1997, interest rates were raised to 43%, he told
the American chamber of commerce in Sao Paulo recently.
In 2003, real interest rates were at 17%, now they are at
Brazil cut its base rate twice this year, by a total of 250
basis points (bps), to 11.25%.
Mondino pointed out: Central banks have started promoting
cuts. We have very aggressive cuts now in most countries, very
aggressive in Chile, Brazil and Colombia. Banxico in Mexico is
starting to catch up after a slow start.
Mexico has cut its base rate by 150 bps since the beginning of
the year. Chile was most aggressive, and slashed its base rates
by 600 bps.
The Institute of International Finance said in a report:
The trend is expected to be extended during the coming
months. We believe that by the fourth quarter of 2009, interest
rates in a number of countries are likely to be well below a
neutral level, and to remain so well into 2010.