Brazil’s decision to continue cutting interest rates despite the fact that inflation is running at a five-year high remains as controversial as ever. Nonetheless, on balance we think that the central bank’s judgement that the greatest near-term threat to the economy is slowing growth not rising inflation will ultimately prove to be correct. Indeed, we expect other central banks in the region to follow Brazil’s lead and cut interest rates over the coming months and quarters. Mexico looks like the most obvious candidate to move next, although we expect cuts in every country in the region over the first half of 2012.
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