Hold Or Hike? Latin American Central Banks' Wield Rates To Battle Rising Prices

  • A stubborn surge of inflation has caused central banks worldwide to adapt monetary policy to protect people and businesses from price increases, with many raising interest rates in step with the U.S. Federal Reserve.
  • As countries begin to diverge in strategies, Latin America's top economies are now grappling with decisions on whether to hold or continue hiking their existing rates.
  • Brazil's central bank decided at a February meeting to keep its Selic benchmark interest rate at 13.75%. It paused its aggressive tightening cycle in September following 12 straight rate hikes.
  • Mexico's benchmark interest rate stands at 11.00% after the central bank increased it by 50 basis points (bps) the second week of February, bringing its rate 700 bps higher than when it began hiking in June 2021. The central bank aims to bring inflation down to 3%, plus or minus one per cent.
  • Chile's central bank at its latest meeting, decided to keep its benchmark rate at 11.25%, maintaining the same level since October, when it paused a series of hikes that added up to 1,075 bps since July 2021.
  • Peru's central bank maintained its benchmark interest rate at 7.75% in February, unchanged from a 25-bps hike a month earlier. Battling the highest inflation in a quarter of a century, policymakers in the copper-producing nation had raised rates periodically from mid-2021, when the rate stood at just 0.5%. Annualized inflation stood at 8.65% in February, inching slightly below the January figure but still well ahead of the institution's 1% to 3% target range.
  • Finally, Colombia's central bank raised its benchmark interest rate by 75 basis points to 12.75% at its latest meeting, bringing its tightening cycle up 1,100 bps since September 2021. In February, the country, which is facing the highest inflation recorded since 1999, posted annualized inflation of 13.28%, far above the bank's 3% target.
  • Inflationary pressures are receding and are expected to continue on this trend in many countries due to the early and determined efforts of these central banks as well as lower global prices of food and energy. However, the IMF suggests that Central banks must not weaken their resolve to bring down inflation, as 2023 is still forecasted to be a year of continued economic challenges for the region.

(Source: Reuters)