Economy

Latin American countries are about to have negative real interest rates

To face coronavirus impacts these economies are implementing an aggressive monetary policy

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  • Chile and Peru have already taken their rates, respectively, to 0.5% and 0.25% per year;
  • The same is about to happen in Colombia and Mexico.

As reported by the newspaper Valor Econômico, to face the advance of the coronavirus and its impacts on the level of activity Latin American countries are implementing an aggressive monetary policy, and taking the path of negative real interest rates for the first time.

Chile and Peru have already taken their rates, respectively, to 0.5% and 0.25% per year, in an attempt to curb the recession, but with this movement both countries will have interest rates below the projected inflation for 2020.

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The same is about to happen in Colombia. In a report that addresses the economic responses given by Latin America to the COVID-19 pandemic, Bradesco makes forecasts for several countries and estimates a 2.75% rate in Colombia at the end of 2020. As consumer inflation is projected at 2,8% this year, interest would pass into negative territory.

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According to the report, Mexico is about to flirt with real interest rates close to zero as well, as Banxico is expected to reduce the base rate there to 3.5% and this year’s inflation would be around 2.9%.

Bradesco’s chief economist, Fernando Honorato points out in the report that these are countries that did their “homework” in the 2000s and that will now test unprecedented levels of interest rates.