Peru & Mexico hikes, Chile’s public spending spree

Peru’s central bank, under the renewed stewardship of Governor Julio Velarde, started its tightening cycle yesterday with a 25bp rate hike, to 0.50%, and we think that rates will rise to 2.75% by the middle of next year. Elsewhere, there was another split vote as Mexico's central bank also hiked its policy rate by 25bp (to 4.50%) and we think its tightening cycle will end sooner than most investors currently expect. Finally, the fresh fiscal stimulus announced by Chile's government will give a boost to the economic recovery, but it is another worrying sign of a shift away from pragmatic policymaking.