Mexico, Chile, Peru are in no rush to get monetary stimulus

(Bloomberg) – Both Mexico, Chile and Peru kept their interest rates at or near historic lows, looking beyond short-term inflationary pressure to support economies that have not yet recovered from the decline in the last year’s production.

Mexico’s central bank left its key interest rate at 4% on Thursday, saying temporary factors were responsible for inflation more than doubled its target. For their part, those in charge of monetary policy in Chile and Peru also considered that their economies are still too weak to be able to withdraw the stimulus, so they kept their key rates close to zero.

All three decisions are in stark contrast to the situation in Brazil, where policy makers began raising the policy rate from its record low this year, implementing two 0.75 percentage point hikes since March and announcing a third of the same size for June.

Here’s what policymakers had to say Thursday to explain their decisions:


Mexico’s central bank alluded to “broad slack conditions” in its decision to leave its policy rate at a level that is two percentage points lower than the annual inflation rate of 6.1%. The bank said it expects inflation to converge to its target starting in the second quarter of 2022, although it warned that “external inflationary pressures” and the depreciation of the peso are some of the factors that could prevent it from slowing down.

“The balance of risks that could affect the expected path of inflation in the forecast horizon is upward,” the bank said. “In a highly uncertain environment, risks to inflation, economic activity and financial markets pose significant challenges for monetary policy.”

The economy will expand 5% this year, according to the International Monetary Fund, after contracting 8% in 2020.

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Chile maintained its reference interest rate at 0.5%, saying that “the convergence of inflation to the target in the policy horizon continues to require that the monetary stimulus be highly expansionary.”

Recent data show that the prospects for Chile’s economic recovery have improved, the bank’s Board said, and promised to maintain the rate at its current level “for the time necessary for the recovery of the economy to finish taking hold.”

Inflation accelerated to 3.3% last month, but is expected to rise in line with the 3% target in the next two years, the bank said.

Chile is entering a period of political uncertainty, with elections on May 15-16 to form an assembly that will rewrite the Constitution and a presidential election in November.

Chile’s economy will expand 6.2% this year, after contracting 5.8% in 2020, according to the IMF.


Peru maintained its benchmark rate at a historic low of 0.25% for the thirteenth consecutive month, fulfilling its promise to continue providing support to the economy devastated by the pandemic. The 11% drop in the country’s gross domestic product last year was the worst among the major economies in the region.

“The Board considers it appropriate to maintain a strongly expansionary monetary stance for a prolonged period and while the negative effects of the pandemic on inflation and its determinants persist,” the bank said in its statement on the decision.

The bank did not mention the policy in its monetary policy statement, but the decision came amid market volatility ahead of the presidential runoff next month.

Peru’s currency and bonds plummeted last month when Pedro Castillo, a little-known school teacher, a member of a Marxist party, unexpectedly won the first round of the presidential election. In recent days, they have recouped some of their losses as Castillo’s lead over former congresswoman Keiko Fujimori has narrowed to the margin of error.

Original Note: Central Banks in Mexico, Chile, Peru in No Hurry to End Stimulus

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