Latam | Different rhythms in economic policy

The last two years in Latin America have been marked by differences in macroeconomic policy strategies. Chile and Peru have made significant interest rate reductions as their inflation has allowed. Meanwhile, Colombia and Mexico are more reluctant to implement significant reductions in their rates.

Key points

• Key points:
• These differences are also reflected in the fact that Brazil, Chile, Peru and Uruguay currently have interest rate spreads with the Fed that are lower than the average of the last decade, while Colombia and Mexico continue to have higher spreads.
• Meanwhile, Chile and Peru will have little room to maneuver monetarily, and more than likely will follow the United States with its monetary cycle.
• In the end, this will have consequences on economic activity. In the case of Chile and Peru, the earlier reduction in rates will facilitate, among other factors, a sharper rebound in activity in 2024 to levels slightly below 3.0%, but weakening in 2025.
• In Colombia it will be more gradual, reaching figures close to 3.0% only until 2025. Mexico, like Brazil, will face this year and next growth rates somewhat lower than those observed in 2023, around 2.5% and 2.0% respectively, although above their averages of the decade prior to COVID.
• The exception will be Argentina, which is pushing ahead with a unique macroeconomic adjustment that has led to an accelerated fiscal adjustment, a reduction from very high levels in inflation and will result in a significant economic contraction in 2024.

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