Latam | The responsibility of the monetary policy response

Summary

The sharp inflationary cycle seen in recent years was a global phenomenon. In most countries, inflation peaks of at least two decades or even four were exceeded by a wide margin, as in the case of the United States. In this context, Latam gave us a lesson in responsibility in terms of monetary policy.

Key points

• Key points:
• It was the region that first initiated the monetary tightening cycle, and it was also the one that saw the largest move take place, a proof of its commitment to keep inflation under control, despite the risk of a very likely and sharp economic slowdown.
• Among the largest economies in the region, inflation in Chile, Colombia and Brazil peaked at around 12.1% and 14.1%. But, with Brazil in the lead, and with a sensitive reaction, interest rates rose to levels between 11.25% and 13.75% among these three economies. In general, increases ranged between 725 bp in Mexico and 1,175 bp in Brazil — the lowest and highest rate increases in this cycle, respectively.
• The remarkable policy effort is not without great sacrifice. The region, having raised interest rates significantly, also contributed to a marked easing in activity, which in some countries, such as Chile, even caused an economic contraction.
• This impact will be felt in Latam's expected growth of 1.9% in 2023 and 1.5% in 2024, below the 2.9% and 3.0% expected for the global economy, respectively.
• However, it also benefits from a vote of confidence from investors in the form of significant external flows that in the past might not have been forthcoming, as well as the ability to more quickly achieve a convergence in inflation than in the past.

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