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Latin America's Central Banks Continue Easing: Brazil, Chile, Colombia Cut Rates Amid Inflation Slowdown

The central banks of Brazil, Chile , and Colombia in Latin America have all chosen to proceed with easing their monetary policies.

In Brazil, the central bank, under the leadership of Roberto Campos Neto, reduced its rates by 50bp to 11.25%. This decision followed a report indicating a significant and unexpected decrease in annual inflation for the third consecutive month. Policymakers observed that core inflation, which omits volatile items, is approaching the target.

The central bank of Chile reduced its borrowing costs by 100bp to 7.25% bringing the total reduction to four percentage points since the start of the cutting cycle. The board members expect inflation to slow down to the 3% target sooner than anticipated. They also indicated that rates would reach a neutral point of around 4% — which neither stimulates nor restricts the economy — by the latter half of the year.

In Colombia, central bank Governor Leonardo Villar approached the decision-making process with caution, concerned about the need to pause or reverse rate cuts if inflation persists. Despite this, all board members concurred on reducing the key rate by 25bp to 12.75%. It is noteworthy that two members had previously voted against any change.

Our Take: Overall, these rate cuts were anticipated due to the decline in inflation. However, Colombia's cut was smaller than expected because its inflation remains relatively high compared to other economies, resulting in the region's highest policy rate. Nonetheless, we anticipate that the Bank of the Republic of Colombia (Banrep) will likely engage in more aggressive rate cuts in the upcoming months.


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