Rate cuts coming, but easing will be gradual

The region’s strong start to the year is unlikely to be sustained and we expect growth across Latin America to come in weaker than most expect this year and next. Inflation will continue to fall, but core price pressures are likely to remain uncomfortably high for a while yet, not least due to tight labour markets and strong wage growth. Against this backdrop, even as central banks kick off their easing cycles over the next couple of quarters, interest rates will be lowered more gradually than most anticipate. While public finance risks in Brazil have eased, the fragile political macroeconomic backdrop in Argentina and Ecuador means that sovereign debt risks there are set to intensify before long.