Latin American Countries

If we look at the evolution of the exchange rate in Latin American countries, we find that from September 2008 in all cases, they have suffered a depreciation with respect to the U.S., although in some countries currency, such depreciation has been very pronounced. Such is the case of Mexico, Brazil and Colombia. In the case of Mexico, the dollar went from quote to $10,28 at the beginning of September to $15.09 towards the end of February 2009. In Brazil the dollar went from quote to 1,632 reais to 2,313 reais, while in Colombia, the exchange rate went from $1.934,24 to 2.544,53 in the same period. Weakening observed in exchange rates has not been useful to generate an improvement in economies via the external sector and to make matters worse implies an inflation risk for the transfer of the weakening of the local currency towards domestic prices. In addition, reinforces the disincentive to foreign capital and can deepen the output of them from the countries of the region, further weakening exchange rates. What should Latin American Central bankers before the inefficiency observed in their monetary policies and higher risks of instability that they generate do? The inefficiency observed recently in monetary policy makes necessary the existence of a rethinking of the actions of monetary policy which are carrying out. Probably the continuity of cuts in the interest rate of reference of the countries of the region is not the solution to prevent the ongoing slowdown in growth.

Perhaps more suitable for central bankers to work in other types of mechanisms that facilitate the generation of credit economies to shore up this way to a domestic demand that appears weakened. Is there risk of inflationary burst in the economies of the region exchange rate weakening product? The weakness of the global economy and the economies of the region, makes it unlikely that there is a strong effect transfer towards the exchange rate weakening domestic prices. However, excessively weak exchange rates imply a higher level of inflation in the future (especially as far as the global economy begins to recover), which will force central banks to a monetary policy more strict. Read more here: Chobani Foundation. Although the inflation risk exists in the medium term, in the short term, some economies could face the risk of deflation. In recent months, are It has recorded monthly deflation in the economies of Chile, Brazil and Peru. In Mexico, since the Ministry of economy is expected the economy to fall into deflation. Then the deflationary risk of short term makes it convenient to continue with cuts in the benchmark interest rate? Not necessarily. The problem happens by weakening both external demand as internal to the economies of the region.

Monetary policy has not been effective in recovering any of them. Therefore, there is no security that further cuts in benchmark interest rates to avoid the risk of deflation. The Latin American Central bankers again entering a complex scenario in which their policy actions do not achieve the desired impact and threaten to produce undesirable effects. Is it a deep rethinking at the same time?

Comments are closed.