While Chile’s central bank this week flagged that it will resume its easing cycle soon, Brazil’s hiked interest rates and didn’t close the door to additional tightening. But despite Brazilian policymakers’ hawkish tone, we think they will turn to rate cuts around the end of the year and, ultimately, lower rates further than is currently priced in. A risk to this view is if events in the Middle East cause oil prices to spike sharply and push up inflation. Higher oil prices would, however, help to improve the strained public finances of energy producers such as Colombia and Ecuador.
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