Most major Latin American economies will see a terms-of-trade boost from the surge in energy prices due to the war in Iran. Most of the windfall will be saved, providing relief to fragile public finances, especially in Colombia and Ecuador, but the impact on growth will be relatively muted. Otherwise, higher oil prices - if sustained - could push up inflation by 0.2-0.4%-pts in the region. At the margin, this poses a risk to our forecast for Mexico and Chile’s central bank to lower their policy rates by 25bp at their meetings later this month while Brazil's might opt to start its easing cycle with a smaller 25bp cut (rather than a 50bp) cut.
We're hosting a Drop-in next Wednesday, 11th March, at 3pm GMT/11am ET to discuss Brazil's monetary easing cycle and how events in the Middle East and the approach of October’s general election could influence it. Register here.
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