Policymakers in ‘wait and see’ mode

With the economic recovery in Latin America now underway, the majority of Central Banks in the region are in ‘wait and see’ mode as the effects of huge rate cuts earlier this year pass through the economy. While most economies should continue to register decent quarter-on-quarter growth rates over the next six months or so, significant headwinds are likely to build in 2010. Most notably, we expect commodity prices to fall. This should ensure that growth remains below potential, with little threat of an immediate pick-up in inflation. Accordingly, policymakers are likely to maintain interest rates at historic lows until late 2010.